<PAGE> 1
R.H. PHILLIPS, INC.
26836 County Road 12A
Esparto, California 95627
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO THE SHAREHOLDERS:
The 1999 Annual Meeting of Shareholders of R.H. Phillips,
Inc. will be held on Tuesday, May 25, 1999 at 10:00 a.m. at
the R.H. Phillips Winery, located at 26836 County Road
12A, Esparto, California, for the following purposes:
1. To elect directors, with the following persons to
be presented at the meeting by the current Board
of Directors for election to the Board of Directors:
John E. Giguiere, Karl E. Giguiere, Lane C.
Giguiere, R. Ken Coit and Victor L. Motto.
2. To approve the 1999 Employee Stock Purchase Plan.
3. To consider and act upon the appointment of
Ernst and Young LLP as the independent auditors
of R.H. Phillips, Inc.
4. To take action upon any other matters that may
properly come before the meeting or any
adjournments thereof.
The foregoing proposals are more fully described in the
accompanying Proxy Statement to which your attention is
invited.
In accordance with the Bylaws and the action of the Board
of Directors, only shareholders of record at the close of
business on April 14, 1999, are entitled to notice of and to
vote at the meeting.
BY ORDER OF THE BOARD OF DIRECTORS
//S//Lane C. Giguiere
Lane C. Giguiere,
Secretary
April 21, 1999
<PAGE> 2
R.H. PHILLIPS, INC.
26836 County Road 12A
Esparto, California 95627
PROXY STATEMENT
For the Annual Meeting of Shareholders
to be held on Tuesday, May 25, 1999
This Proxy Statement and the accompanying proxy are
furnished to the shareholders of R.H. Phillips, Inc. (the
"Company") in connection with the solicitation of proxies by
the Board of Directors for use at the 1999 Annual Meeting
of Shareholders (the "Annual Meeting"). The Annual
Meeting will be held on Tuesday, May 25, 1999, beginning
at 10:00 a.m. at the Company's headquarters, located at
26836 County Road 12A, Esparto, California, and at any
postponements or adjournments of the Annual Meeting.
The Annual Report of the Company for the year ended
December 31, 1998, the Notice of Annual Meeting, this
Proxy Statement and the enclosed proxy were initially
mailed to the shareholders on or about April 21, 1999. The
enclosed proxy is being solicited by the Board of Directors
of the Company.
The Company is paying all costs of preparing, assembling
and mailing this Proxy Statement. The Company has made
arrangement to forward copies of proxy materials to
brokerage houses, custodians, nominees and fiduciaries for
forwarding of proxy soliciting material to the beneficial
owners of the Common Stock of the Company at the
Company's expense. In addition to the solicitation of
proxies by mail, some of the officers, directors and regular
employees of the Company may without additional
compensation solicit proxies by telephone or personal
interview. The Company will bear the costs of the
solicitations.
Voting and Revocability of Proxies
Shareholders are encouraged to complete the enclosed
proxy and return it to the Company as soon as possible.
Any person who completes the enclosed proxy may revoke
it at any time prior to its exercise by delivering to the
Secretary of the Company either a signed statement
revoking the proxy or a properly executed proxy bearing a
later date. A shareholder may also revoke a proxy by
attending the Annual Meeting and voting his or her shares
personally. Proxies that have been properly dated, signed
and returned will be voted in accordance with the
instructions given by the shareholder. If a proxy is signed
and returned but no voting instructions are given, each
valid proxy will be voted in the election of directors FOR
those nominees presented by the Board of Directors, FOR
approval of the R.H. Phillips Employee Stock Purchase
Plan, and FOR approval of Ernst and Young, LLP as the
independent auditors of the Company. Should any other
business properly come before the Annual Meeting, the
person or persons named as the proxy shall be allowed to
vote on such matters as that person or those persons
determine in his, her or their sole discretion.
Abstentions and broker non-votes will be counted as
shares present or represented and entitled to vote for the
purposes of determining whether a quorum exists at the
Annual Meeting.
Shareholders of record as of the close of business on April
14, 1999, are entitled to notice of the Annual Meeting and
to vote in person or by proxy. The Common Stock of the
Company (the"Common Stock") is the only class of
outstanding securities entitled to vote at the Annual
Meeting. As of the close of business on April 14, 1999,
there were 6,582,559 shares of Common Stock outstanding
and entitled to vote. The presence of a majority of the
outstanding shares of Common Stock, either in person or
by proxy, will constitute a quorum at the Annual Meeting.
<PAGE> 3
PROPOSAL NUMBER 1
ELECTION OF DIRECTORS
The Company's Bylaws provide that the Board of Directors
shall consist of between four and seven members, with the
exact number of directors between four and seven to be
determined by the Board of Directors. The Board of
Directors has set the number of directors at five, and there
are currently five members of the Board of Directors.
Persons may be nominated for election to the Board of
Directors by the shareholders upon the making of a proper
motion at the Annual Meeting.
Five directors are to be elected at the Annual Meeting to
serve until the following annual meeting of shareholders.
The Board of Directors will present at the Annual
Meeting for election and recommends a vote FOR the
following nominees: John E. Giguiere, Karl E. Giguiere,
Lane C. Giguiere, R. Ken Coit and Victor L. Motto. Each
nominee was recommended unanimously by the Board of
Directors for presentation to the shareholders for election at
the Annual Meeting. Each nominee is currently a member
of the Board of Directors.
Persons receiving a plurality of the votes cast at the Annual
Meeting will be elected to the Board of Directors. A
"plurality" means that the individuals who receive the
largest number of votes cast are elected as directors up to
the maximum number of directors to be chosen. Votes
against any candidate and any shares not voted (such as
by abstention or broker non-votes) will have no impact on
the election of directors. All proxies will be voted FOR the
election of each of these nominees unless authority to vote
for the election of any nominee or nominees is withheld by
the shareholder giving the proxy. If any nominee should
unexpectedly decline or be unable to act as a director, the
proxies may be voted for a substitute nominee to be
designated by the Board of Directors. The Board of
Directors does not believe that any nominee will decline to
serve.
Shareholders are entitled to one vote for each share held;
however, in the election of directors, each shareholder has
cumulative voting rights if those rights are properly
exercised at the Annual Meeting. If a shareholder wishes to
vote shares cumulatively, that shareholder is entitled to as
many votes as the number of shares held multiplied by the
number of directors to be elected. Under cumulative voting,
each shareholder may cast all of his or her votes for a
single candidate or distribute those votes among any or all
candidates he or she chooses. No shareholder will be
entitled to cumulate votes for any candidate unless that
candidate's name has been placed in nomination prior to
the voting and the shareholder has given notice at the
Annual Meeting of an intention to cumulate votes. If any
shareholder has given such a notice, all shareholders may
cumulate their votes for candidates who have been
nominated. Shareholders will be given an opportunity to
announce their intention to cumulate their votes prior to
voting. Proxy holders are given discretionary authority to
cumulate votes on shares for which they hold a proxy.
Shareholders who do not wish to cumulate their votes in
elections of directors will be entitled to cast one vote per
share held for any candidate.
Background information with respect to the five nominees
for election to the Board of Directors is set forth below.
NOMINEES FOR ELECTION TO BOARD OF DIRECTORS
John E. Giguiere. John Giguiere is the Co-President, Co-
Chief Executive Officer and Chairman of the Board of
Directors of the Company, in which capacities he has
served since the Company was incorporated in 1994. Prior
to that time, Mr. Giguiere was Co-President of R.H. Phillips
Partners, a limited partnership that operated the R.H.
Phillips vineyard and winery business prior to its merger
into the Company, from 1989 until 1994. Raised on the
Giguiere family farm where the R.H. Phillips winery is
located, John Giguiere has spent his entire professional life
in agribusiness. Together with his brother, Karl, John
Giguiere founded the R.H. Phillips vineyard and winery
business in 1981. John Giguiere is the President of the
R.H. Phillips Vineyard, Inc., the second largest shareholder
of the Company, and has managed the sales and marketing
aspects of R.H. Phillips since 1983. Mr. Giguiere attended
Willamette University in Salem, Oregon and California
State University at San Jose. He is 47 years old.
Karl E. Giguiere. Karl Giguiere is the Co-President, Co-
Chief Executive Officer and Vice-Chairman of the Board of
Directors of the Company, in which capacities he has
served since 1994. Karl Giguiere was the Co-President of
R.H. Phillips Partners from 1989 through 1994. Mr.
Giguiere was also raised on the Giguiere family farm and has
<PAGE> 4
spent his entire career in agribusiness. He has
managed the farming and vineyard operations of R.H.
Phillips since it was founded in 1981. Karl Giguiere is the
President of RHP Vineyards, Inc., the largest shareholder
of the Company. Mr. Giguiere graduated from California
State Polytechnic University with a B.A. in Agribusiness. He
is 53 years old.
Lane C. Giguiere. Ms. Giguiere has served on the Board
of Directors and has been Vice-President, Sales
Administration of the Company since its incorporation in
1994. She was Sales Administration Manager of R.H.
Phillips Partners beginning in 1989 and has managed sales
of the R.H. Phillips vineyard and winery business since
1983. Ms. Giguiere attended California State University at
San Jose and California State University at Chico. Ms.
Giguiere is 45 years old.
R. Ken Coit. Mr. Coit was elected a director of the
Company soon after its incorporation in 1994 and served
on the limited partners' Advisory Committee of R.H. Phillips
Partners from 1989 through 1994. Mr. Coit is the owner of
Coit Financial Group, a firm which specializes in real estate
investments. Mr. Coit is also a licensed broker-dealer
affiliated with Sequoia Equity Securities Corporation of
Walnut Creek, California and is a registered representative
of American Investors Company of Hayward, California. Mr.
Coit received an M.B.A. from Pepperdine University and a
B.S. in Pharmacy from the University of Arizona. Mr. Coit is
55 years old.
Victor L. Motto. Mr. Motto was elected to the Board of
Directors in June 1996. Mr. Motto is a founding partner of
Motto, Kryla & Fischer LLP, an accounting and business
consulting firm devoted exclusively to the wine industry. Mr.
Motto is also partner of MKF Systems, a wine industry
computer systems business. He serves as a director of
Grgich Hills Cellars, Hanzell Vineyards and S. Anderson
Vineyard. He is also a director of the St. Helena Office
Association and the Napa County Land Trust. Mr. Motto
teaches university courses and is a frequent lecturer on
wine industry issues. Mr. Motto is a Certified Public
Accountant and received a B.A. in Business from the
University of South Florida. Mr. Motto is 59 years old.
Directors are elected at annual meetings of the
shareholders to terms which extend until the following
annual meeting. Officers are appointed by, and serve at the
discretion of, the Board of Directors.
The Board of Directors met four times in 1998. Each
director has attended at least 75% of all meetings of the
Board of Directors during such period as that director has
been a member of the Board of Directors.
Victor Motto receives compensation of $1,000 per meeting
plus travel expenses for attending meetings of the Board of
Directors, and an annual retainer of $5,000. He also
received options in 1997 to purchase 20,000 shares of
Common Stock at a price equal to the fair market value of
the Company's Common Stock on the date the option was
granted. The total compensation paid Victor Motto in 1998
for attending meetings of the Board of Directors was
$4,000. R. Ken Coit received options in 1997 to purchase
20,000 shares of Common Stock at a price equal to the fair
market value of the Company's Common Stock on the date
the option was granted. No other members of the Board of
Directors are currently compensated for attending meetings
of the Board of Directors or Board committees. The Board
of Directors may institute a policy of compensating directors
for attending such meetings in the future.
Under the terms of the Company's loan agreements with its
major creditors, all principal and interest owing to that loan
creditor shall be due and payable, at the creditor's option, if
John or Karl Giguiere, or both, cease to be members of the
Board of Directors and officers of the Company or cease to
be in control of the day-to-day management of Company
operations.
Board Committees, Meetings
The Board of Directors has an Audit Committee, a
Compensation Committee and a Stock Option Committee.
The members of the committees are selected by the full
Board of Directors and serve until they are replaced by the
Board of Directors or until their earlier resignation or
removal from such committee or the Board of Directors.
Audit Committee. The Board of Directors created the
Audit Committee in May 1996. The Audit Committee is to
review the financial results of the Company with the
Company's outside auditors and to discuss with the outside
auditors the scope of the annual audit and other services
the Company's outside auditors are to perform. The
members of the Audit Committee are John Giguiere, Victor
Motto and R. Ken Coit. The Audit Committee met
<PAGE> 5
twice in 1998.
Compensation Committee. The Compensation Committee
was created in May 1996, at the same time as the Audit
Committee. The Compensation Committee is to make
recommendations concerning salaries and incentive
compensation for the Company's officers and employees.
The members of the Compensation Committee are John
Giguiere, Victor Motto and R. Ken Coit. The Compensation
Committee did not meet during the year.
Stock Option Committee. The Stock Option Committee
was formed in July 1995, to administer the Company's 1995
Stock Option Plan. The Stock Option Committee consists of
R. Ken Coit and Victor Motto. The Stock Option Committee
did not meet during the year.
Transactions Concerning Board of Directors
The Company is the holder of a promissory note payable by
RHP Vineyards, Inc. The note evidences a loan to that
corporation by R.H. Phillips Partners and the assumption in
1993 of payment obligations of certain persons to R.H.
Phillips Partners. The amount payable under the note as of
December 31, 1998 was $221,352. Unpaid amounts under
the note bear interest at a rate of 7% per annum. The note
and other obligations are payable in full on July 30, 2000.
The Company is the holder of a promissory note payable by
Karl Giguiere. The amount payable under the note as of
December 31, 1998, was $6,839. The note bears interest at
7% per annum and is due July 20, 2000.
The Board of Directors has adopted a policy pursuant to
which all future material transactions and loans with
affiliated parties will be made or entered into on terms no
less favorable than those that can be obtained from
unaffiliated third parties. All future material affiliated
transactions and loans, and any forgiveness thereof, must
be approved by a majority of independent outside members
of the Board of Directors who do not have an interest in the
transaction.
Relationships Between Directors and Executive
Officers
John and Karl Giguiere are brothers. John and Lane
Giguiere are husband and wife. There are no other familial
relationships between the directors and executive officers
of the Company.
Reports under Section 16(a) of the Exchange Act
The Company's officers, directors and principal
shareholders are required to file with the Security and
Exchange Commission reports of their acquisitions and
dispositions of equity securities of the Company. For the
fiscal year ended December 31, 1998, the Company's
officer's, directors and principal shareholders filed all
required reports on a timely basis.
EXECUTIVE COMPENSATION
Compensation of Executive Officers
The following table provides certain summary financial
information concerning compensation earned during the
<PAGE> 6
last three years by the two Co-Chief Executive Officers and
three other highly compensated executive officers of the
Company.
<TABLE>
Summary Compensation Table
Long Term
Compensation
Annual Compensation (1) Awards
------------------------------- --------------
Other
Annual Securities
Name and Principal Compen- Underlying
Position Year Salaries($) Bonus($) sation($) Options(#)
- ------------------ ---- ----------- -------- --------- ----------
<S> <C> <C> <C> <C> <C>
John Giguiere, Co- 1998 153,300 686 16,034(2) 75,000
President Co-Chief 1997 150,000 48,768 20,000(2) 0
Executive Officer 1996 80,625 26,662 20,000(2) 0
Karl Giguiere, Co- 1998 153,300 686 1,908 75,000
President Co-Chief 1997 150,000 48,768 0 0
Executive Officer 1996 80,625 26,662 0 0
Mike Motroni 1998 128,718 24,686 5,752 0
Chief Financial 1997 74,840 662 0 50,000
Officer 1996 -- -- -- --
Barry Bergman 1998 82,500 45,686 4,121 5,000
Winemaker 1997 80,833 18,162 0 5,000
1996 74,515 11,062 0 0
Steve Crosta 1998 71,875 51,686 637 0
Sales Manager 1997 67,708 27,412 0 24,344
1996 65,000 25,662 0 0
</TABLE>
[FN]
(1) Includes amounts earned in the fiscal year even if
deferred pursuant to the Company's 401(k) savings plan.
(2) Includes the fair rental value of the farm house located
at the R.H. Phillips winery where John and Lane Giguiere
reside on a rent-free basis. The Company estimates that
the fair rental value of the housing is approximately
$14,000 per year.
Employment Agreements
In March 1998, the Company entered into employment
agreements with John Giguiere and Karl Giguiere. The
agreements provide that John and Karl Giguiere (the
"Executives" or individually, the "Executive") each receive
annual compensation of $150,000, subject to annual
adjustment based on the Consumer Price Index. The
agreements expire on December 31, 1999.
In addition, Nonstatutory Stock Options for 75,000 shares
of Common Stock were granted to each Executive. The
options were granted at a premium to market, with 50,000
shares immediately exercisable and an additional 25,000
shares exercisable in January 1999. The options expire in
March 2008.
The employment agreements provide that the Company
may terminate the Executive's employment at any time
upon granting notice to the Executive, and that the
Executive may resign for good reason prior to the
agreements' expiration date. If employment is terminated by
the Company other than for cause, or if the Executive
terminates his employment for good reason, the Company
shall continue to pay the Executive's salary and health
insurance benefits for a period of two years following the
effective date of termination, and the Executive will
continue to be allowed to exercise the stock options until
the scheduled expiration date.
<PAGE> 7
Aggregated Option Exercises in Last Fiscal Year
and Fiscal Year End Option Values
The following table provides information with respect to the
Named Executive Officers concerning unexercised options
held as of December 31, 1998.
<TABLE>
Number of Value of Unexercised
Securities In-the-Money Options
Underlying at
Unexercised Fiscal Year End (1)
Options at Fiscal
Year End
------------------ ---------------------
Name Shares Acquired on Value Realized Exercisable / Exercisable /
Exercise (#) Unexercisable Unexercisable (2)
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
John Giguiere ---- ---- 90,860 $0.00
38,620 $0.00
Karl Giguiere ---- ---- 111,290 $0.00
45,430 $0.00
Mike Motroni ---- ---- 12,500 $0.00
37,500 $0.00
Barry Bergman ---- ---- 31,895 $0.00
18,965 $0.00
Steve Crosta ---- ---- 18,344 $0.00
22,344 $0.00
</TABLE>
[FN]
(1) Based upon the closing price of the Common Stock on
December 31, 1998, as reported by the Nasdaq National
Market ($2.813 per share).
(2) The closing price of the Common Stock on December
31, 1998, was below the exercise price per share.
SECURITIES OWNERSHIP OF MANAGEMENT AND
CERTAIN BENEFICIAL OWNERS
The following table sets forth the beneficial ownership of
Common Stock of the Company as of March 15, 1999, by
each director, by each executive officer shown in the
Summary Compensation Table (see "Executive
Compensation"), by all directors and officers as a group
and by each person known by the Company to be a
beneficial owner of more than 5% of the outstanding voting
securities of the Company.
<TABLE>
Shares Approximate
Name and Address of Position Beneficially Percent
Beneficial Owner (1) Owned Owned
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
John E. Giguiere (2)(3) Co-President, Co-Chief 1,751,209 26.0
26836 County Road 12A Executive Officer,
Esparto, CA 95627 Chairman of the Board,
Director
<PAGE> 8
Karl E. Giguiere (2)(4) Co-President, Co-Chief 1,716,166 25.5
26836 County Road 12A Executive Officer, Vice-
Esparto, CA 95627 Chairman of the Board,
Director
Lane C. Giguiere (2)(5) Vice-President, Director 1,751,209 26.0
26836 County Road 12A
Esparto, CA 95627
R. Ken Coit (6) Director 315,080 4.8
1655 North Main Street
Suite 270
Walnut Creek, CA 94596
Victor L Motto (7) Director 15,334 *
899 Adams Street
St. Helena, CA 94574
Mike Motroni (7) Chief Financial Officer 12,500 *
26836 County Road 12A
Esparto, CA 95627
Barry Bergman (7) Winemaker 34,145 *
26836 County Road 12A
Esparto, CA 95627
Steve Crosta (7) Sales Manager 20,344 *
26836 County Road 12A
Esparto, CA 95627
All Executive Officers(7) 2,315,547 33.1
John Hancock Mutual Life 1,616,134 20.4
Insurance Company (8)
200 Clarendon Street
Boston, MA 02117
RHP Vineyards, Inc. 865,773 13.2
26836 County Road 12A
Esparto, CA 95627 (9)
R.H. Phillips Vineyard, Inc. 714,103 10.9
26836 County Road 12A
Esparto, CA 95627 (9)
</TABLE>
[FN]
*less than 1%
(1) This table is based upon information supplied by
officers, directors and principal shareholders and
Schedules 13D and 13G filed with the Securities and
Exchange Commission (the "Commission"). Unless
otherwise indicated in the footnotes to this table and
subject to community property laws where applicable, the
Company believes that each of the shareholders named in
this table has sole voting and investment power with
respect to the shares indicated as beneficially owned.
Percentages are based on 6,582,559 shares of Common Stock
<PAGE> 9
outstanding on March 15, 1999, adjusted as required
by the rules of the Commission.
(2) Includes 865,773 shares of Common Stock owned by
RHP Vineyards and 714,103 shares of Common Stock
owned by R.H. Phillips Vineyard, Inc. John and Karl
Giguiere own a majority of the outstanding stock of RHP
Vineyards, Inc., constitute two of the three members of the
Board of Directors, and are the Secretary and President,
respectively, of that corporation. John and Karl Giguiere
also own a majority of the outstanding shares of R.H.
Phillips Vineyard, Inc., constitute two of the three members
of the Board of Directors and serve as the President and
Secretary, respectively, of that corporation. Because they
share majority ownership of the stock of those corporations
and constitute a majority of those corporations' directors,
John and Karl Giguiere may be deemed beneficial owners
of the shares held by those two corporations.
(3) Also includes 16,552 shares held as joint tenants with
Lane Giguiere, a warrant to purchase 8,276 shares which
Mr. Giguiere holds as joint tenants with Lane Giguiere,
30,645 shares subject to that portion of a stock option held
by Lane Giguiere which is exercisable within 60 days of
March 15, 1999, and 115,860 shares subject to that portion
of a stock option held by Mr. Giguiere which is exercisable
within 60 days of March 15, 1999.
(4) Also includes 136,290 shares subject to that portion of a
stock option which is exercisable within 60 days of March
15, 1999.
(5) Also includes 16,552 shares held as joint tenants with
John Giguiere, a warrant to purchase 8,276 shares which
Lane Giguiere holds as joint tenants with John Giguiere,
115,860 shares subject to that portion of a stock option
held by John Giguiere exercisable within 60 days of March
3, 1998, and 30,645 shares subject to that portion of a
stock option held by Ms. Giguiere exercisable within 60
days of the date of March 15, 1999.
(6) Mr. Coit holds 254,058 shares as a joint tenant with
Donna Coit, his wife, and 47,688 shares are held
individually by Mr. Coit. Also includes 13,334 shares
subject to that portion of a stock option exercisable within
60 days of March 15, 1999.
(7) Includes shares purchasable upon exercise of stock
options within 60 days of March 15, 1999.
(8) Includes 1,346,788 shares of Common Stock
purchasable at $4.00 per share under the terms of stock
purchase warrants. The warrants are presently exercisable
and expire on March 27, 2006.
(9) John and Karl Giguiere own a majority of the
outstanding shares of RHP Vineyards, Inc. and R.H.
Phillips Vineyard, Inc. and constitute a majority of those
corporations' boards of directors. See footnote 2 above.
Employee Stock Purchase Plan
On January 29, 1999, the Board of Directors adopted the
1999 Employee Stock Purchase Plan, which is being
submitted for shareholder approval at the Annual Meeting.
For additional information, see "Proposal No. 2: Approval of
Employee Stock Purchase Plan".
PROPOSAL NUMBER 2
APPROVAL OF EMPLOYEE STOCK PURCHASE PLAN
The Board of Directors has adopted, subject to shareholder
approval, the R.H. Phillips 1999 Employee Stock Purchase
Plan (the "Purchase Plan") under which employees of the
Company are given the opportunity to
<PAGE> 10
purchase Common Stock of the Company through payroll deductions.
A total of 150,000 shares of Common Stock are reserved for
issuance under the Purchase Plan, none of which have yet
been issued. Readers are encouraged to review the
Purchase Plan, which is attached as Exhibit A.
Purpose
The purpose of the Purchase Plan is to provide employees
(including officers) of the Company with an opportunity to
purchase Common Stock of the Company through payroll
deductions. The Board of Directors believes that such
equity participation provides employees at all levels with a
greater incentive to contribute to the success of the
Company.
Administration
The Purchase Plan is administered by the Board of
Directors or a committee appointed by the Board. The
Purchase Plan is currently being administered by the
Compensation Committee, none of whose members is
eligible to purchase shares under the Purchase Plan.
Reference hereinafter to the Board of Directors will include
the Compensation Committee.
Eligibility and Participation
Any person employed 20 hours or more per week by the
Company prior to the enrollment date of each offering
period is eligible to participate in the Purchase Plan. As of
December 31, 1998, approximately 175 employees were
eligible to participate in the Purchase Plan.
No employee is permitted to participate in the Purchase
Plan if, at the commencement of an offering period, the
employee would own or have the right to purchase 5% or
more of the voting stock or value of all classes of stock of
the Company (including stock which may be purchased
under the Purchase Plan or pursuant to any stock options
granted by the Company). Employees whose annual
compensation is the greater of: (a) $100,000 in salary and
commissions; or (b) the amount specified in Section 414(q)
of the Internal Revenue Code are also not eligible to
participate in the Purchase Plan.
Eligible employees become participants in the Purchase
Plan by delivering to the Company's payroll office a
subscription agreement authorizing payroll deductions
within a specified period prior to the commencement of the
applicable offering period. An employee who becomes
eligible to participate in the Purchase Plan after the
commencement of an offering period may not participate in
the Purchase Plan until the commencement of the next
offering period. A participant may at any time discontinue
participation in the Purchase Plan, or may decrease the
rate of payroll deductions.
Stock Purchases
Under the Purchase Plan, the Company withholds a
specified percentage of each salary payment to
participating employees over a certain offering period. The
length and commencement date of each offering period is
determined by the Board of Directors or its committee. At
the end of the period (the "purchase date"), the Company
issues to each participating employee a number of full
shares of Common Stock determined by dividing the
employee's cumulative amount withheld during the period
by the purchase price per share. The price at which shares
are sold under the Purchase Plan is 85% of the market
value of the Common Stock at the end of the offering
period.
Payroll Deductions
Payroll deductions commence on the first payday within the
offering period and continue until the last payday of the
offering period. The employee specifies the percentage of
compensation to be deducted. The deduction may not
exceed 10% (or such other rate as may be determined in
the future by the Board of Directors) of a
<PAGE> 11
participant's compensation, nor may the deduction be less than 2%.
In addition, deductions cannot be specified that would permit
a participant to buy pursuant to the Purchase Plan shares
worth more than $15,000 (determined at the market value
of the shares on the first day of the offering period) in any
calendar year; nor may a participant purchase more than
2,500 shares of Common Stock during any offering period.
Furthermore, if the number of shares which would
otherwise be purchased by all participants on a given
purchase date exceeds the number of shares then
available under the Purchase Plan, a pro rata allocation of
the shares remaining will be made. All payroll deductions
are credited to the participant's account under the
Purchase Plan and are deposited with the general funds of
the Company without accrual of interest.
Withdrawal
An employee's participation may be terminated in whole,
but not in part, by delivering to the Company a notice of
withdrawal from the Purchase Plan. Such withdrawal may
be effected at any time prior to the end of the offering
period. A participant's withdrawal from an offering does not
have any effect upon such employee's eligibility to enroll for
subsequent offerings under the Purchase Plan.
Termination of Employment
Termination of a participant's employment for any reason,
other than death or disability, cancels his or her
participation in the Purchase Plan immediately. In such
event, the payroll deductions credited to the participant's
account will be returned to such participant without interest.
Changes in Capitalization
In the event of any changes in the capitalization of the
Company, such as stock splits or stock dividends, resulting
in an increase or decrease in the number of outstanding
shares of Common Stock, effected without receipt of
consideration by the Company, appropriate adjustments will
be made in the shares subject to purchase, the purchase
price per share and the shares remaining in the Purchase
Plan.
Nonassignability
No rights or accumulated payroll deductions of an
employee under the Purchase Plan may be pledged,
assigned or transferred for any reason, and any such
attempt may be treated by the Company as an election to
withdraw from the Purchase Plan.
Federal Income Tax Information
The Purchase Plan, including the right of participants to
make purchases thereunder, is intended to qualify under
the provisions of Sections 421 and 423 of the Internal
Revenue Code of 1986 (the "Code"). Under these
provisions, no income will be taxable to a participant at the
time of purchase of shares. A participant may become
liable for tax upon disposition of the shares acquired, as
summarized below.
If the shares are sold or disposed of (including by way of
gift) more than two years after the first day of the offering
period and more than one year after the last day of the
offering period, the participant will recognize taxable
ordinary income at that time in an amount equal to the
lesser of (a) the excess of the market value of the shares at
the time of sale or disposition over their purchase price, or
(b) 15% of the fair market value of the shares on the first
day of the offering period, and any further profit is taxable
as long-term capital gain. If the shares are sold and the
sales price is less than the price the participant paid for the
shares, the difference is treated as long-term capital loss.
Under current law, capital losses are allowed to be applied
in full against capital gains plus $3,000 of other income.
If the shares are sold or disposed of (including by way of
gift or by exchange in connection with the exercise of an
incentive stock option) before the expiration of the holding
periods described above, the excess of the market value of
the shares on the purchase date over the purchase price
will constitute compensation income in the year of sale or
other disposition even if no gain is realized on the sale or a
gratuitous transfer of the shares is made. The balance of
any gain will be treated as capital gain and will be treated
as long-term capital gain if the shares have been held more
than one year.
<PAGE> 12
The Company is entitled to a deduction to the extent that
ordinary income must be reported by the participant upon
disposition of shares before the expiration of the holding
periods described above.
Amendment and Termination of the Purchase Plan
The Board of Directors may at any time amend or terminate
the Purchase Plan. To the extent necessary to comply with
rules promulgated under Section 16 of the Securities
Exchange Act or to comply with Sections 421 and 423 of
the Code and any regulations thereunder, any amendment
made to the Purchase Plan will require the approval of the
shareholders of the Company.
Recommendation of the Board
The Board of Director recommends a vote "FOR" approval
of the Employee Stock Purchase Plan. Confirmation will
require the affirmative vote by holders of a majority of
shares present or represented by proxy and entitled to vote
on the matter.
PROPOSAL NUMBER 3
APPROVAL OF INDEPENDENT AUDITORS
The Board of Directors has selected Ernst and Young LLP
("Ernst and Young") as the Company's independent
auditors for the fiscal year ending December 31, 1999.
Ernst and Young has audited the Company's annual
financial statements for the fiscal year ended December 31,
1998.
It is not anticipated that representatives of Ernst and Young
will be present at the Annual Meeting. If representatives are
present, they will be provided an opportunity to make a
statement should they wish to do so and to respond to
appropriate questions.
The Board of Directors recommends a vote "FOR" approval
of Ernst and Young as the Company's independent auditors
for the fiscal year ending December 31, 1999. Confirmation
will require the affirmative vote by holders of a majority of
shares present or represented by proxy and entitled to vote
on the matter. In the event that confirmation fails to receive
the required majority vote, the Board of Directors will
reconsider its selection.
SUBMISSION OF SHAREHOLDER PROPOSALS FOR
1998 ANNUAL MEETING OF SHAREHOLDERS
The 2000 Annual Meeting of Shareholders has been
scheduled to take place on May 23, 2000. Shareholder
proposals for presentation at that meeting must be received
by the Company by no later than January 21, 2000.
OTHER BUSINESS
It is not intended that any business other than that set forth
in the Notice of Annual Meeting and more specifically
described in this Proxy Statement will be brought before the
Annual Meeting. If any other business should properly
come before the Annual Meeting, it is the intention of the
persons named in the enclosed form of proxy to vote in
accordance with their best judgment on that business or
any matters dealing with the conduct of the Annual Meeting
pursuant to the discretionary authority granted in the proxy.
<PAGE> 13
By Order of the Board of Directors
//s//Lane C. Giguiere
Lane C. Giguiere,
Secretary
April 21, 1999
Upon written request of any person whose proxy is being
solicited hereby, the Company will provide without charge a
copy of the Company's Annual Report on Form 10-KSB for
the year ended December 31, 1998, which was filed with
the Securities and Exchange Commission under the
Securities Exchange Act of 1934, including the financial
statements and schedule thereto, but without exhibits. All
such requests may be directed to: Michael J. Motroni, Chief
Financial Officer, R.H. Phillips, Inc., 26836 County Road
12A, Esparto, California 95627.
EXHIBIT A
R.H. PHILLIPS 1999
EMPLOYEE STOCK PURCHASE PLAN
The purpose of the R.H. Phillips 1999 Employee Stock
Purchase Plan is to provide the employees of R.H. Phillips,
Inc. (the "Company") with a convenient way to become
shareholders and to invest in the Company by purchasing
<PAGE> 14
shares of the Company's Common Stock (the "Common
Stock") through payroll deductions. The Board of Directors
believes that participation as shareholders of the Company
provides greater incentives to the employees to contribute to
the success of the Company.
1. Qualified Plan. The Plan is intended to qualify as an
"Employee Stock Purchase Plan" within the meaning of
Section 423 of the Internal Revenue Code of 1986, as
amended (the "Code").
2. Eligible Employees. Except for those employees who are
excluded from participation under the express terms of this
Plan, all persons who are employed by the Company five
days prior to the commencement of an Offering Date (as
defined in Section 5 below) are eligible to participate in the
purchase of shares of the Company's Common Stock under
this Plan. The following employees of the Company will not
be eligible to participate in the Plan:
(a) Employees whose customary employment is 20
hours per week or less;
(b) Employees whose customary employment is for not
more than five months in any calendar year; and
(c) Employees who are "highly compensated
employees" within the meaning of 414(q) of the Code;
provided that their annual compensation for the year
prior to any Offering Period exceeds the greater of: (i)
$100,000 in salaries, commissions and overtime
payments, but excluding bonuses, long term incentives
and other compensation; or (ii) the annual
compensation amount specified in Section 414(q) of
the Code and the rules of the Department of Treasury
enacted pursuant to that Section of the Code, as
amended from time to time.
3. Equal Rights of Employees. All employees who are
eligible to purchase shares of Common Stock under this Plan
shall have the same rights and privileges, except as set forth
herein.
4. Number of Shares Issuable Under Plan. The Company
may sell a maximum of 150,000 shares of Common Stock
under this Plan. The number of shares issuable under this
Plan shall be adjusted to take into account increases or
decreases in the number of shares of Common Stock due to
stock dividends payable to the holders of Common Stock,
stock splits in the Common Stock, or reverse stock splits and
other combinations in the Common Stock of the Company.
5. Offering Periods/Procedures. Shares of Common Stock
will be sold by the Company under this Plan pursuant to the
following procedures:
(a) When the Board of Directors determines that it
wishes to offer shares of Common Stock for sale under
this Plan, the Board of Directors will fix a date
(hereafter the "Offering Period") during which the
Company will offer shares of Common Stock for sale
(an "Offering"). The Offering Period shall begin on a
date as the Board of Directors determines, which date
shall be no less than 20 days after the Board of
Directors sets such date. The Offering Period shall
continue for such period as the Board of Directors
shall determine, provided that no Offering Period shall
extend for greater than six months. The Secretary of
the Company shall deliver a written notice to all
employees then eligible to purchase shares of
Common Stock under this Plan as to the date the
Offering Period will begin and the duration of the
period.
(b) If an employee wishes to purchase shares of
Common Stock in any Offering, that employee shall
complete and deliver to the Secretary of the Company
a Subscription Option Agreement (a "Subscription
Agreement") and any other documents prescribed by
the Company within five days prior to the
commencement of the Offering Period. Each such
employee shall authorize the Company to deduct a
percentage of his or her wages, which amount shall be
applied toward the purchase of Common Stock.
Subject to the limits in Section 8 of this Plan, the
employee will specify the percentage of his or her
salary to be deducted for this purpose in a
Subscription Agreement. Each Subscription
Agreement shall allow the participating employee the
right to purchase shares only with respect to that
specific Offering, and if that participating employee
wishes to purchase shares in any subsequent Offering,
that employee must execute a new Subscription
Agreement.
(c) The Subscription Agreement will provide the
employee with the option of terminating his or her
participation in that Offering at any time prior to the
business day following the end of the Offering Period
for which that Subscription Agreement pertains. If the
employee wishes to terminate his or her participation in
<PAGE> 15
in that Offering, that employee will deliver a written
notice to that effect to the Secretary of the Company.
The Company shall promptly thereafter forward to the
employee payment in cash equal to the amount
deducted from the wages of the employee during the
Offering Period.
6. Price. The price per share at which employees may
purchase shares of Common Stock in any Offering shall be
85% of the fair market value of the Common Stock as of the
last day of the Offering Period in which those shares are
being purchased. For the purposes of this Plan, the fair
market value of the Common Stock shall be the daily closing
price of the Common Stock as quoted on the Nasdaq National
Market or on any other securities exchange where the
Common Stock is traded during the Offering Period.
7. Issuance of Shares. At the end of the Offering Period, the
Company shall issue to each employee that number of shares
of Common Stock as is determined by dividing the cumulative
amount of the payroll deducted from that employee during the
Offering Period by the price determined under Section 6
hereof. No fractional shares will be issuable under this Plan
and each option granted under this Plan will be adjusted
downward to the nearest full share. Each employee who
would otherwise be entitled to receive a fractional share will
be entitled to receive payment of the fair market value of the
remaining fractional share in cash.
8. Limitations on Participation of Employees.
(a) Five Percent Ownership. No employee may
purchase shares of Common Stock under this Plan if
that employee, immediately after the Offering Period
begins, owns stock possessing 5% or more of the total
combined voting power or value of the Company's
Common Stock, computed in accordance with Section
423(b)(3) of the Code.
(b) Maximum Limit on Purchases. No employee may
purchase shares under this Plan to the extent that his
rights to acquire shares under all employee stock
purchase plans accrue at a rate which exceeds
$15,000 per annum (or such other maximum as may
be set forth in the Code) of fair market value of the
Common Stock (determined at the time the Offering
Period begins) for each calendar year in which his or
her subscription to purchase shares is outstanding at
any time in accordance with the provisions of Section
423(b)(8) of the Code. In addition, no employee will
be entitled to purchase more than 2,500 shares during
any Offering Period under this Plan.
9. Maximum/Minimum Deductions. The amount deducted
from an employee's salary shall not exceed 10% or be less
than 2% of that employee's after-tax Annual Compensation.
For the purposes of this Plan, "Annual Compensation" shall
mean the employee's base salary, overtime payments and
sales commissions for the calendar year immediately prior to
the beginning of the Offering Period, but shall not include
bonuses, profit-sharing payments or other forms of
compensation.
10. Over-Subscription. If the Company receives
subscriptions for more than the maximum number of shares
of Common Stock available for issuance under this Plan, the
Company will allocate the maximum number of shares
available on a pro-rata basis among the employees and the
Company will pay to the employees in cash the funds
deducted from their salaries which are not applied toward the
purchase of Common Stock.
11. Termination of Employment. If a participating employee's
employment is terminated for any reason other than death or
disability, or if the employee resigns as an employee, that
employee's rights to purchase shares under this Plan shall
immediately terminate, and that employee shall receive
payment in cash of any amounts deducted during the Offering
Period for the purchase of Common Stock. Upon the death
or disability of the employee, the participating employee (or
his or her estate or personal representative, as the case may
be) shall be issued shares of Common Stock at the end of the
Offering Period during which he or she died or became
disabled. For the purposes of this Plan, an employee will be
deemed "disabled" if that person has suffered a mental or
physical impairment within the meaning of Section 22 of the
Code.
12. Deducted Accounts -- No Interest on Cash Payments. No
interest shall accrue on amounts deducted from payroll and
employees shall not be entitled to payment of interest for
these amounts in the event that employee's participation in
any Offering is terminated for any reason. Any interest which
may be earned on deducted payroll in the account where
such funds are placed shall belong to the Company.
<PAGE> 16
13. No Assignment of Rights. An Employee may not sell,
assign or otherwise transfer his rights to purchase Common
Stock under this Plan to any person otherwise than by Will or
under the laws of descent and distribution, and the right to
purchase Common Stock under this Plan may be exercise
only by the employee during his lifetime.
14. Amendments and Discontinuance of Plan. The Board of
Directors of the Company shall have the right to amend,
modify or terminate this Plan at any time without notice;
provided, however, that the then existing rights of all
participating employees shall not be adversely affected
thereby. The foregoing notwithstanding, the following
amendments shall not be effective unless approved by the
shareholders of the Company at a duly called and validly held
meeting or by the written consent of a majority of the
outstanding:
(a) Any amendment which increases the total number
of shares of Common Stock which may be offered
under this Plan;
(b) Any amendment which changes the method at
which the price at which those shares shall be sold is
determined; or
Any amendment which increases the maximum number of
shares which an employee may purchase.
15. Effective Date and Approvals. This Plan shall become
effective at a time when all of the following events have
occurred:
(a) This Plan has been adopted by the Board of
Directors of the Company and has been approved by
the shareholders of the Company within 12 months
after this Plan is adopted by the Board of Directors;
and
(b) A registration statement under the Securities Act of
1933, as amended, has become effective with respect
to the Common Stock to be issued under this Plan.
(c)The Company's obligation to offer, sell and deliver
the Common Stock under this Plan is subject to the
approval of any governmental authority required in
connection with the authorized issuance or sale of
those shares.
16. Miscellaneous Provisions. The Board of Directors'
Compensation Committee shall administer, interpret and
apply all provisions of the Plan, subject to the authority
expressly given to the Board of Directors under this Plan.
The Compensation Committee and the Board of Directors
may waive such provisions of this Plan as either deem
necessary to meet special circumstances not anticipated or
covered expressly by this Plan; however, nothing contained
in this Section shall be deemed to authorize the Board of
Directors or Compensation Committee to amend this Plan in
violation of Section 13 above or to alter or administer the
provisions of this Plan in a manner inconsistent with Section
423 of the Code.
