<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant / /
Filed by a party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section 240.14a-11(c) or Section
240.14a-12
Rocky Mountain Chocolate Factory, Inc.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ No fee required
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11
(1) Title of each class of securities to which transaction applies:
------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
------------------------------------------------------------------------
(5) Total fee paid:
------------------------------------------------------------------------
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
------------------------------------------------------------------------
(3) Filing Party:
------------------------------------------------------------------------
(4) Date Filed:
------------------------------------------------------------------------
<PAGE>
ROCKY MOUNTAIN CHOCOLATE FACTORY, INC.
265 Turner Drive
Durango, Colorado 81301
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON OCTOBER 10, 1997
To the Shareholders:
The 1997 Annual Meeting of Shareholders of Rocky Mountain Chocolate
Factory, Inc., will be held on Friday, October 10, 1997 at 10:00 a.m. (local
time), at the Double Tree Hotel, 501 Camino Del Rio, in Durango, Colorado, for
the following purposes:
1. To elect six directors to serve until the 1998 Annual Meeting of
Shareholders and until their respective successors are elected and qualified.
2. To consider and vote upon a proposal to amend the Company's 1995 Stock
Option Plan to increase from 100,000 to 150,000 the aggregate number of shares
of Common Stock authorized for issuance under such plan.
3. To transact such other business as may properly come before the
meeting or any adjournment thereof.
Only holders of Common Stock of record at the close of business on August
22, 1997, will be entitled to notice of and to vote at the meeting or any
adjournments thereof.
Each shareholder, even though he or she now plans to attend the meeting, is
requested to promptly mark, sign, date and return the enclosed Proxy in the
envelope provided. Any shareholder present at the meeting may withdraw his or
her Proxy and vote personally on each matter brought before the meeting.
By order of the Board of Directors
Virginia M. Perez
Secretary
Durango, Colorado
September 11, 1997
<PAGE>
ROCKY MOUNTAIN CHOCOLATE FACTORY, INC.
265 Turner Drive
Durango, Colorado 81301
PROXY STATEMENT
Annual Meeting of Shareholders - October 10, 1997
SOLICITATION AND REVOCABILITY OF PROXIES
This Proxy Statement is furnished in connection with the solicitation of
Proxies by the Board of Directors of Rocky Mountain Chocolate Factory, Inc. (the
"Company") for use only at the Annual Meeting of the Company's shareholders to
be held at the time and place, and for the purposes, set forth in the
accompanying Notice of Annual Meeting of Shareholders.
It is anticipated that the Proxy Statement, together with the Proxies and
the Company's 1997 Annual Report to Shareholders, will first be mailed to the
Company's shareholders on or about September 11, 1997. A person giving the
enclosed Proxy has the power to revoke it at any time before it is exercised by
(1) delivering written notice of revocation to the Secretary of the Company, (2)
duly executing and delivering a Proxy for the Annual Meeting bearing a later
date or (3) voting in person at the Annual Meeting.
The Company will bear the cost of this solicitation of Proxies, including
the charges and expenses of brokerage firms and others for forwarding
solicitation materials to beneficial owners of the Company's Common Stock, par
value $.03 per share (the "Common Stock"). In addition, the Company's officers,
directors and other regular employees, without additional compensation, may
solicit Proxies by mail, personal interview, telephone or telegraph.
VOTING SECURITIES
The close of business on August 22, 1997, has been fixed as the record date
for the determination of holders of record of the Company's Common Stock
entitled to notice of and to vote at the Annual Meeting. On the record date,
3,041,302 shares of the Company's Common Stock were outstanding and eligible to
be voted at the Annual Meeting.
For each share of Common Stock held on the record date, a shareholder is
entitled to one vote on all matters to be voted on at the Annual Meeting, except
the election of directors.
Shareholders have cumulative voting rights in the election of directors,
and there is no condition precedent to the exercise of those rights. Under
cumulative voting, each shareholder is entitled to as many votes as shall
equal the number of his or her shares multiplied by six, the number of directors
to be elected, and he or she may cast all of those votes for a single nominee or
divide them among any two or more nominees as he or she sees fit. It is the
intention of the Proxy
<PAGE>
holders to exercise voting rights in order to elect the maximum number of
nominees named below. An instruction on the Proxy to withhold authority to
vote for any nominee will be deemed an authorization to vote cumulatively for
the remaining nominees, unless otherwise indicated.
VOTING PROCEDURES
The vote required for the election of directors is a plurality of the
shares of Common Stock present or represented by proxy at the meeting and
entitled to vote thereon, provided a quorum is present. The vote required for
the approval of the other item to be acted upon at the Annual Meeting is the
affirmative vote of a majority of the shares entitled to vote on the matter and
present or represented by proxy at the meeting, provided a quorum is present. A
quorum is established by the presence or representation at the Annual Meeting of
the holders of a majority of the Company's voting shares. Under the rules of
the New York Stock Exchange, brokers who hold shares in street name have
discretionary authority to vote on certain "routine" items even if they have not
received instructions from the persons entitled to vote such shares. However,
brokers do not have authority to vote on "nonroutine" items without such
instructions. Such "broker non-votes" (shares held by brokers or nominees as to
which they have no discretionary power to vote on a particular matter and have
received no instructions from the persons entitled to vote such shares) are
counted as present and entitled to vote for purposes of determining whether a
quorum is present but are not considered entitled to vote on any nonroutine
matter to be acted upon. For matters requiring the affirmative vote of a
plurality of the shares of Common Stock present or represented at the Meeting,
such as Proposal No. 1, broker non-votes would have no effect on the outcome of
the vote. For matters requiring the affirmative vote of a majority of the
shares of Common Stock present or represented at the Meeting and entitled to
vote, such as Item No. 2, broker non-votes would not be counted as among the
shares entitled to vote with respect to such matters. Thus, the effect of any
broker non-votes with respect to such matters would be to reduce the number of
affirmative votes required to approve the proposals and the number of negative
votes required to block such approval. However, because brokers will have
discretionary authority to vote on each of the Proposals, there will be no
broker non-votes.
BENEFICIAL OWNERSHIP OF THE COMPANY'S EQUITY SECURITIES
The following table sets forth information, as of August 22, 1997, with
respect to the shares of Common Stock beneficially owned (i) by each person
known to the Company to be the beneficial owner of more than 5% of the Company's
Common Stock, (ii) by each director or nominee for election as a director and
the executive officer named in the Summary Compensation Table, and (iii) by all
current directors and executive officers of the Company as a group.
The number of shares beneficially owned includes shares of Common Stock
with respect to which the persons named below have either investment or voting
power. A person is also deemed to be the beneficial owner of a security if that
person has the right to acquire beneficial ownership of that security within 60
days through the exercise of an option or through the conversion of another
security. Except as noted, each beneficial owner has sole investment and voting
power with respect to the Common Stock.
2
<PAGE>
Common Stock not outstanding that is subject to options or conversion
privileges is deemed to be outstanding for the purpose of computing the
percentage of Common Stock beneficially owned by the person holding such options
or conversion privileges, but is not deemed to be outstanding for the purpose of
computing the percentage of Common Stock beneficially owned by any other person.
Rocky Mountain Holdings Company ("Holdings") has pledged to LaSalle
National Bank of Chicago, Illinois, 799,357 of the shares of Common Stock
indicated in the table below as being beneficially owned by Clyde Wm. Engle,
representing 26.3% of the total outstanding shares as of August 22, 1997, to
secure certain indebtedness to such bank. Holdings is the direct owner of the
pledged shares. See footnote (2) to the table below. Holdings retained voting
rights with respect to the pledged shares. Holdings has advised the Company
that it is currently in default on such indebtedness to LaSalle National Bank.
Any foreclosure on the indebtedness could result in a change in control of the
Company, and any significant sales of Common Stock in the open market in
connection therewith could adversely affect the market price of the Common
Stock.
The Director of Insurance of the State of Illinois, as Conservator, took
possession and control of the assets and properties of Coronet Insurance Company
("Coronet") and Crown Casualty Corporation ("Crown") on December 10, 1996 and,
on December 24, 1996, an Agreed Order of Liquidation was entered ordering the
complete liquidation of such companies for the benefit of their creditors,
policyholders and shareholders. On February 27, 1997, the Florida Department of
Insurance was appointed Receiver for purposes of liquidating Casualty Insurance
Company of Florida ("Casualty") for the benefit of its creditors, policyholders
and shareholders. See Item 1, "Election of Directors," below. Casualty and
Crown are the record owners of 58,670 shares and 10,730 shares, respectively, of
the Company's Common Stock. Prior to November 6, 1996, Coronet owned 100% of
the stock of Holdings. On November 6, 1996, Wellco Holdings Company ("Wellco")
and Wellco's 90% owner, Sew Simple Systems, Inc. ("Sew Simple"), acquired
approximately 90% of Holding's outstanding stock. Coronet (which owns 10% of
Wellco), now owns, directly and indirectly, approximately 13% of Holding's
outstanding stock. The ultimate parent company of all the corporations referred
to in this paragraph is RDIS Corporation, a majority of the stock of which is
owned by Clyde Wm. Engle. See footnote (2) to the table below.
It is the Company's understanding that the details of the liquidations of
Coronet, Crown and Casualty, and of any dispositions of the shares of the
Company's Common Stock that may be made in connection therewith, have not been
finalized.
3
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Common Stock
- ------------
Name of Amount and Nature of
Beneficial Owner (1) Beneficial Ownership Percent of Class
- -------------------- -------------------- ----------------
Clyde Wm. Engle et al. 824,357 (2) 27.1%
Franklin E. Crail 293,099 9.6%
Gary S. Hauer 11,991 (3) *
Everett A. Sisson 10,000 (4) *
Gerald A. Kien 10,000 (4) *
Lee N. Mortenson 12,500 (4) *
Fred M. Trainor 20,000 (4) *
All executive officers
and Directors as a
group (10 persons) 468,522 (5) 14.8%
- ----------------------
* Less than 1%
(1) Mr. Engle's address is 4433 West Touhy Avenue, Lincolnwood, Illinois 60646.
Mr. Crail's address is the same as the Company's address.
(2) Of the shares indicated as being beneficially owned by Mr. Engle, 799,357
are held of record by Holdings and pledged to LaSalle National Bank. The shares
held of record by Holdings may also be deemed to be beneficially owned by the
following affiliates of Mr. Engle: Wellco, Sew Simple, Normandy Insurance
Agency, Inc., Sunstates Corporation, Indiana Financial Investors, Inc., Hickory
Furniture Company, Telco Capital Corporation and RDIS Corporation. Mr. Engle is
the beneficial owner of a majority equity interest in RDIS Corporation, the
ultimate parent of all the foregoing corporations. This information is based on
a Schedule 13D filed on July 7, 1997 (the "Schedule 13D") by Mr. Engle and such
affiliates with the Securities and Exchange Commission and on information
provided to the Company by Mr. Engle and Holdings. The Schedule 13D and a Form
4 filed by Mr. Engle on March 10, 1997 indicate that Mr. Engle beneficially owns
an additional 25,000 shares, of which 15,000 shares are owned by GSC
Enterprises, Inc., a corporation in which Mr. Engle owns a majority interest,
and 10,000 shares are owned beneficially by members of Mr. Engle's immediate
family. Mr. Engle disclaims beneficial ownership of the shares owned by his
family members.
The number of shares indicated as being beneficially owned by Mr. Engle does
not include 58,670 shares held of record by Casualty and 10,730 shares held
of record by Crown, as described above. The Schedule 13D and information
received by the Company from Mr. Engle and Holdings indicate that, due to the
pending liquidations of Coronet, Casualty and Crown, Mr. Engle and his
affiliated companies consider their beneficial interest in such shares to be
remote and have therefore ceased reporting beneficial ownership thereof.
4
<PAGE>
(3) Includes 6,000 shares that Mr. Hauer has the right to acquire within 60
days through the exercise of employee stock options previously granted to him
and 5,991 shares beneficially owned by his wife. Mr. Hauer disclaims beneficial
ownership of the shares owned by his wife.
(4) Includes 10,000 shares that Messrs. Mortenson, Trainor, Sisson and Kien
each has the right to acquire within 60 days through the exercise of options
granted pursuant to the 1990 Nonqualified Stock Option Plan for Nonemployee
Directors.
(5) Includes 132,000 shares that officers and directors as a group have the
right to acquire through the exercise of options granted pursuant to the
Company's 1985 Incentive Stock Option Plan, 1995 Stock Option Plan and 1990
Nonqualified Stock Option Plan for Nonemployee Directors.
ITEM 1. ELECTION OF DIRECTORS
NOMINEES
The Company's By-Laws provide for no fewer than three nor more than nine
directors. The Board has previously fixed the current number of directors at
six. Directors are elected for one year. Six directors will be elected at the
Annual Meeting. All of the nominees are currently directors of the Company.
Proxies will be voted, unless authority to vote is withheld by the
shareholder, FOR the election of Messrs. Crail, Kien, Mortenson, Sisson, Trainor
and Hauer to serve until the 1997 Annual Meeting of Shareholders and until the
election and qualification of their respective successors. If any such nominee
shall be unable or shall fail to accept nomination or election by virtue of an
unexpected occurrence, Proxies may be voted for such other person or persons as
shall be determined by the Proxy holders in their discretion. Shareholders may
not vote for more than six persons for election as directors at the Annual
Meeting.
Set forth below is certain information concerning each nominee for election
as a director:
Positions with Director
Name Company Age Since
- ---- --------------- --- -----
Franklin E. Crail Chairman of the Board, 55 1982
President, Treasurer
and Director
Gary S. Hauer Vice President- 53 1996
Manufacturing
and Director
5
<PAGE>
Gerald A. Kien Director 66 1995
Lee N. Mortenson Director 61 1987
Everett A. Sisson Director 76 1995
Fred M. Trainor Director 58 1992
FRANKLIN E. CRAIL. Mr. Crail co-founded the first Rocky Mountain Chocolate
Factory store in May 1981. Since the incorporation of the Company in November
1982, he has served as its President and a director, and, since September 1981
as its Treasurer. He was elected Chairman of the Board in March 1986. Prior to
founding the Company, Mr. Crail was co-founder and President of CNI Data
Processing, Inc., a software firm which developed automated billing systems for
the cable television industry.
GARY S. HAUER. Mr. Hauer joined the Company in May 1996 as Vice
President of Manufacturing and was elected as a director of the Company in
June 1996. Mr. Hauer has served in a number of manufacturing management
capacities over a 28-year career in the chocolate candy and confectionery
industries, including 18 years with See's Candies, the last 10 years of which
he served as plant manager. Mr. Hauer possesses a B.S. in business
administration from San Jose State University.
GERALD A. KIEN. Mr. Kien was first elected as a director of the Company
in August 1995. From 1993 to 1995 Mr. Kien served as President and Chief
Executive Officer of Remote Sensing Technologies, Inc., a subsidiary of
Envirotest Systems, Inc., a company engaged in the development of
instrumentation for vehicle emissions testing. From 1989 to 1993 Mr. Kien
served as Chairman, President and Chief Executive Officer of Sun Electric
Corporation, a manufacturer of automotive test equipment, and served as a
director and as Chairman of the Executive Committee of that company from 1980
to 1993. Sun Electric merged with Snap-On Tools in 1993, and Mr. Kien
remained as President of the Sun Electric division of Snap-On Tools until his
retirement in 1994. Mr. Kien was a co-founder of the First National Bank of
Hoffman Estates and remained as a director from 1979 to 1990, and was a
director of the Charter Bank and Trust of Illinois from 1984 to 1990. He
served as a director of Systems Control, Inc. and Vehicle Test Technologies,
Inc., from 1989 to 1993, both of which are engaged in emissions testing of
motor vehicles. Mr. Kien received his Ph.D. from the University of Illinois
Graduate College of Medicine, in 1959.
LEE N. MORTENSON. Mr. Mortenson has served on the Board of Directors of
the Company since 1987. Mr. Mortenson has served as President, Chief
Operating Officer and a Director of Telco Capital Corporation of Chicago,
Illinois since January 1984. Telco Capital Corporation is principally
engaged in the manufacturing and real estate businesses. He was President,
Chief Executive Officer and a Director of Sunstates Corporation (formerly
Acton Corporation) from May 1988 to December 1990 and he has been President,
Chief Operating Officer and a Director of
6
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Sunstates Corporation since December 1990. Sunstates Corporation is a
publicly traded company primarily engaged in real estate development and
manufacturing. Mr. Mortenson has been a Director of Alba-Waldensian, Inc.,
which is principally engaged in the manufacturing of apparel and medical
products, since 1984 and has served as its President and Chief Executive
Officer since February 1997. Mr. Mortenson has also served as a Director of
NRG Inc., a leasing company, since 1987. On December 24, 1996, an Agreed
Order of Liquidation with a finding of insolvency was entered under the
Illinois Insurance Code against Coronet, which is the principal subsidiary of
Sunstates Corporation, and Coronet's subsidiaries, National Assurance
Indemnity Company ("National Assurance") and Crown, pursuant to which, among
other things, all of the assets of Coronet, National Assurance and Crown were
transferred to the Office of the Special Deputy for the purposes of winding
up the affairs of such companies. On February 27, 1997, a consent order
appointing the Florida Department of Insurance as Receiver for purposes of
liquidation was entered under the Florida Insurance Code against Casualty, a
subsidiary of Coronet. Mr. Mortenson, prior to March 14, 1997, was a director
and President of each of Coronet, National Assurance, Crown and Casualty. On
January 24, 1997, Hickory White Company, a furniture manufacturing subsidiary
of Sunstates Corporation, filed a voluntary petition under Chapter 11 of the
Federal Bankruptcy Code. All of the assets of Hickory White Company were
sold to an unrelated party on March 11, 1997. Mr. Mortenson is Vice
President and a Director of Hickory White Company.
EVERETT A. SISSON. Mr. Sisson was first elected as a director of the
Company in August 1995. Mr. Sisson is President of The American Growth
Group, which is engaged in land development, investment, management services
and management consulting, a position he has held since he formed the firm in
1966. Mr. Sisson served as a director of the Century Companies of America, a
company providing life insurance and related financial products, from 1962
until 1991, and as Chairman of the Board from 1977 until 1983. Mr. Sisson
was a director of Coronet from 1992 through February 1997. During various
periods over the past 20 years, Mr. Sisson served as a director and member of
several Board committees of Libco Corporation, Wisconsin Real Estate
Investment Trust, Hickory Furniture Company, Telco Capital Corporation,
Greater Heritage Corporation, Indiana Financial Investors Inc., Sunstates
Corporation and Acton Corporation.
FRED M. TRAINOR. Mr. Trainor has served as a director of the Company
since August 1992. Mr. Trainor is the founder, and since 1984 has served as
Chief Executive Officer and President of AVCOR Health Care Products, Inc.,
Fort Worth, Texas, a manufacturer and marketer of specialty dressings
products. Prior to founding AVCOR Health Care Products, Inc., in 1984, Mr.
Trainor was a founder, Chief Executive Officer and President of Tecnol, Inc.
of Fort Worth, Texas, also a company involved with the health care industry.
Before founding Tecnol, Inc., Mr. Trainor was with American Hospital Supply
Corporation (AHSC) for 13 years in a number of management capacities.
7
<PAGE>
INFORMATION REGARDING THE BOARD OF DIRECTORS
There is no family relationship between any director or executive officer
and any other director or executive officer of the Company.
COMMITTEES AND MEETINGS
The Board of Directors has a standing Compensation Committee and Audit
Committee. Each committee is composed of Messrs. Mortenson, Trainor, Kien and
Sisson. The Compensation Committee's function is to approve remuneration
arrangements for the Company's executive officers. The Compensation Committee
also approves and administers grants of stock options under the Company's 1995
Stock Option Plan. No further grants are permitted under the Company's 1985
Incentive Stock Option Plan, which expired in 1995, but the Compensation
Committee administers that plan with respect to outstanding options previously
granted thereunder. The Audit Committee receives and reviews the reports of the
Company's independent auditors. The Compensation Committee and Audit Committee
each held one meeting during the last fiscal year. The Company has no standing
nominating committee.
During the last fiscal year, the Company's Board of Directors held five
meetings. Each director attended at least 75% of the aggregate of (i) the total
number of meetings of the Board of Directors held and (ii) the total number of
meetings held by all committees of the Board on which he served, during the
period he was a director.
RECOMMENDATION OF THE BOARD OF DIRECTORS
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE SHAREHOLDERS VOTE
FOR THE ELECTION OF THE SIX NOMINEES NAMED ABOVE.
EXECUTIVE COMPENSATION
REPORT OF COMPENSATION COMMITTEE
The following is a report of the Compensation Committee of the Board of
Directors (the "Committee") on executive compensation policies for the fiscal
year ended February 28, 1997. The Committee administers the compensation
program for executive officers of the Company and makes all related decisions.
Executive compensation awards in fiscal 1997 were based on Company and executive
officer performance in the fiscal year ended February 29, 1996. The Company's
after-tax income decreased 9.6% in fiscal 1996 compared to the prior year.
The principal elements of the compensation program for executive officers
are base salary, performance-based annual bonuses and options granted under the
Company's stock option plan. The goals of the program are to ensure that a
strong relationship exists between executive compensation and the creation of
shareholder value and that executive officers are strongly motivated and
retained.
8
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The Company's compensation philosophy is to create a direct relationship
between the level of total executive officer compensation and the Company's
success in meeting its annual performance goals as represented by its annual
business plan. An additional element of this philosophy is to reward
equitably relative contribution and job performance of individual executive
officers.
BASE SALARY
Annual salaries for the Company's executive officers, including the
Chairman of the Board and President ("CEO"), are reviewed in May of each year
based on a number of factors, both objective and subjective, with any change
to be effective on June 1 of that year. Objective factors considered include
Company financial performance relative to plan, although no specific formulas
based on such factors are used to determine salaries. Salary decisions are
based primarily on the Committee's subjective analysis of the factors
contributing to the Company's success and of the executive's individual
contributions to that success. No executive officer's salary was increased
during the fiscal year ended February 28, 1997. The Committee's decision not
to increase salaries of executive officers was a reflection of diminished
Company financial results in fiscal 1996 relative to fiscal 1995.
PERFORMANCE-BASED ANNUAL BONUSES
Cash bonuses based on the Company's performance are awarded to the
executive officers under an incentive compensation plan. Under the plan that
served as the basis for bonuses paid in fiscal 1997, all executive officers
received 10% of their base pay as a bonus if Company business plan profit
objectives were achieved, and up to 4% of base pay if individual executive
officer job performance goals were achieved in fiscal 1996. Additional
bonuses may be awarded at the discretion of the Committee in recognition of
special accomplishments. Thus, whether the executive officers' total pay is
comparable to the compensation of executives with similar responsibilities at
comparable companies may vary from year to year depending upon the Company's
performance. The CEO's performance goals for fiscal year 1996 included the
development of a business plan that reflected a net profit at least 30%
greater than the prior year's result and achievement of new store location
sourcing objectives and achieving budgeted company-owned store financial
results. No bonuses were paid to executive officers during the fiscal year
ended February 28, 1997, due to diminished Company financial results, as
discussed above.
STOCK OPTIONS
Awards of stock options strengthen the ability of the Company to attract,
motivate and retain executives of superior capability and more closely align
the interests of management with those of shareholders. The Committee
considers on an annual basis the grant of options to executive officers and
key managers under the Company's 1995 Stock Option Plan. The number of
options granted is generally based upon the position held by a participant
and the Committee's subjective evaluation of such participant's contribution
to the Company's future growth and profitability. The grant of options is an
annual determination, but the Committee may consider the size of past awards
and the total amounts outstanding in making such a determination.
9
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Unlike cash, the value of a stock option will not immediately be realized
and does not result in a current expense to the Company. Stock options are
granted with an exercise price equal to the current market price of the
Company's stock and will have value only if the Company's stock price
increases, resulting in a commensurate benefit for the Company's
shareholders. Although the plan does not provide for a required vesting
period, the Committee's current practice is to require that options granted
to employees vest pro rata 20% per year over five years.
Stock options covering a total of 50,000 shares of Common Stock were
awarded to two executive officers in fiscal 1997 under the terms of their
offers of initial employment by the Company. In addition, options covering a
total of 30,000 shares of Common Stock were granted to three executive
officers in consideration of the cancellation of outstanding options covering
an equivalent number of shares previously granted to them. No other options
were granted to officers under the 1995 Stock Option Plan in fiscal year
1997. Options currently held by current executive officers under the
Company's option plans cover a total of 160,000 shares. The CEO has never
been granted options under the Company's stock option plans.
OTHER COMPENSATION
An additional element of the executive officer's compensation, which is
not performance-based, is the matching of contributions by the Company under
the Company's 401(k) plan.
The Compensation Committee believes that linking executive compensation to
corporate performance results in a better alignment of compensation with
corporate goals and shareholder interests. As performance goals are met or
exceeded, resulting in increased value to shareholders, executives are rewarded
commensurately. The Committee believes that compensation levels during 1997
adequately reflect the Company's compensation goals and policies.
August 27, 1997
COMPENSATION COMMITTEE FOR FISCAL 1997:
Lee Mortenson Everett A. Sisson
Gerald A. Kien Fred M. Trainor
10
<PAGE>
Summary Compensation Table
The following table sets forth certain information with respect to annual
compensation paid for the years indicated to the Company's CEO. No other
executive officer of the Company met the minimum compensation threshold of
$100,000 for inclusion in the table.
All Other
Annual Compensation Compensation(2)
--------------------------- ---------------
Name and Principal Position Year Salary(1) Bonus(2)
- --------------------------- ---- --------- --------
Franklin E. Crail, 1997 $150,000 $ -0- $2,250
Chairman of the Board 1996 $146,538 $10,000 $1,833
1995 $129,618 $31,050 $2,162
- ---------------
(1) Includes amounts deferred at the CEO's election pursuant to the Company's
401(k) Plan.
(2) Represents Company contributions on behalf of the CEO under the Company's
401(k) Plan.
Additional columns required by Securities and Exchange Commission rules
to be included in the foregoing table, and certain additional tables required
by such rules, have been omitted because no compensation required to be
disclosed therein was paid or awarded to the named officer.
COMPENSATION OF DIRECTORS
Directors of the Company do not receive any compensation for serving on the
Board or on committees. Directors are entitled to receive stock option awards
under the Company's 1990 Nonqualified Stock Option Plan for Nonemployee
Directors (the "Directors' Plan").
The Directors' Plan, as amended, provides for automatic grants of
nonqualified stock options covering a maximum of 90,000 shares of Common Stock
of the Company to directors of the Company who are not also employees or
officers of the Company and who have not made an irrevocable, one-time election
to decline to participate in the plan. The Directors' Plan provides that during
the term of the Directors' Plan options will be granted automatically to new
nonemployee directors upon their election. Each such option permits the
nonemployee director to purchase 10,000 shares of Common Stock at an exercise
price equal to the fair market value of the Common Stock on the date of grant of
the option. Each nonemployee director's option may be exercised in full during
the period beginning one year after the grant date of such option and ending ten
years after such grant date, unless the option expires sooner due to termination
of service or death.
11
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COMPARISON OF RETURN ON EQUITY
The following graph reflects the total return, which assumes reinvestment
of dividends, of a $100 investment in the Company's Common Stock, in the Nasdaq
U.S. Index and in a Peer Group Index of companies in the confectionery industry,
on February 29, 1992.
[GRAPH]
<TABLE>
Base
Period Return Return Return Return Return
Company/Index Name 1992 2/1993 2/1994 2/1995 2/1996 2/1997
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Rocky Mountain Chocolate Factory, Inc. 100.00 137.50 300.00 350.00 225.00 125.00
NASDAQ INDEX - US 100.00 106.39 125.96 127.68 178.01 211.66
Peer Group(1) 100.00 123.16 141.95 143.87 194.70 221.39
</TABLE>
- ----------------
(1) Comprised of the following companies: Grist Mill Company, Hershey Foods
Corporation, Imperial Holly Corporation, Paradise, Inc., Savannah Foods &
Industries, Tootsie Roll Industries, Valhi, Inc. and Wrigley (Wm.), Jr.
Company.
12
<PAGE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee of the Company's Board of Directors consists of
Lee N. Mortenson, Fred M. Trainor, Gerald A. Kien and Everett A. Sisson. None
of the foregoing persons is or has been an officer of the Company.
In 1987, the Company granted to Coronet the right to require the Company,
at the Company's expense, to register for public sale the shares of Common Stock
of the Company (the "Registrable Shares") acquired by Coronet pursuant to the
conversion of the Company's 7% Convertible Secured Notes, all of which have
previously been converted by Coronet. Such registration rights are exercisable
at any time, but may not be exercised more than once in any consecutive 12-month
period nor more than three times in the aggregate, unless the person exercising
the rights agrees to pay all the Company's costs and expenses in connection
therewith. Such registration rights have been exercised one time, in connection
with the public offering of Common Stock completed in September and October,
1995. The Company also granted to Coronet "piggyback" rights to participate in
registered offerings of Common Stock by the Company in certain circumstances.
724,562 of the Registrable Shares, all of which are held of record by Holdings,
remain outstanding.
Mr. Mortenson, prior to March 14, 1997, was President and a director of
Coronet and is a director and executive officer of certain affiliated
corporations of Coronet. Mr. Sisson was a director of Coronet from 1992 through
February 1997 and, during various periods over the past 20 years, has served as
a director of certain affiliated corporations of Coronet.
CERTAIN TRANSACTIONS
See "Executive Compensation-Compensation Committee Interlocks and Insider
Participation" above for information regarding certain registration rights
granted by the Company to Coronet and the affiliation of Mr. Mortenson and Mr.
Sisson with Coronet.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
The Company has no knowledge that any person who was a director, executive
officer or 10% shareholder at any time during fiscal 1997 was required to file a
Form 5 for fiscal 1997 and failed to do so, and the Company has received a
written representation that a Form 5 was not required from each such person
other than Clyde Wm. Engle who, together with certain affiliated companies, is a
10% stockholder of the Company. In making these disclosures, the Company has
relied solely on written representations of its directors, executive officers
and 10% shareholders and copies of the reports filed by them with the Securities
and Exchange Commission.
13
<PAGE>
ITEM 2. PROPOSAL TO APPROVE AN AMENDMENT OF THE 1995 STOCK OPTION PLAN
At the Annual Meeting, holders of Common Stock will also be asked to
consider and approve the adoption of an amendment to increase from 100,000 to
150,000 the number of shares of Common Stock reserved for issuance under the
Company's 1995 Stock Option Plan (the "Option Plan"). This amendment was
adopted, subject to shareholder approval, by the Board of Directors on July 9,
1997.
REASONS FOR THE AMENDMENTS TO THE PLAN
As of August 22, 1997, there were outstanding stock options covering
108,000 shares of Common Stock and no shares remained available for future
awards under the Option Plan. The purpose of the proposal is to continue the
Option Plan by increasing by 50,000 shares the aggregate number of shares of
Common Stock that may be issued under the Option Plan. The purpose of the
Option Plan is to promote the interests of the Company and its shareholders by
attracting, retaining and stimulating the performance of selected officers and
other key employees by giving such employees the opportunity to acquire a
proprietary interest in the Company and an increased personal interest in its
continued success and progress.
DESCRIPTION OF PLAN AS CURRENTLY IN EFFECT
ADMINISTRATION OF THE PLAN. A Committee of two or more members of the
Board of Directors (the "Committee") must be designated to administer the plan.
The Committee must be composed of disinterested directors, as defined by Rule
16b-3 of the Securities Exchange Act of 1934, as amended (the "1934 Act"), or
any similar rule or regulation promulgated thereunder. The Committee has full
authority subject to the express provisions of the Option Plan to grant options
under the Option Plan, to interpret the Plan and any option granted hereunder,
to determine the terms of each option granted under the Option Plan and to make
all other determinations and perform such actions as the Committee deems
necessary or advisable to administer the Plan. The Board of Directors has
designated the Compensation Committee to perform the functions of the Committee.
SHARES AVAILABLE. The Option Plan provides that the Committee may grant to
employees such number of shares of Common Stock as the Committee in its
discretion shall deem to be in the best interest of the Company. All grants
under the plan are subject to adjustments in certain circumstances as
hereinafter described.
ELIGIBILITY AND PARTICIPATION. Awards made pursuant to the Option Plan may
be granted only to individuals who, at the time of the grant, are key employees
or officers of the Company. There are presently approximately 26 such persons.
Awards may not be made to any director who is not also an employee of the
Company, nor to any member of the Committee. Grants of options are made at the
discretion of the Committee and are based on the employee's present and
potential contributions to the success of the Company and such other factors as
the Committee deems appropriate to carry out the purposes of the Option Plan.
14
<PAGE>
TYPES OF GRANTS UNDER THE OPTION PLAN. The Option Plan provides that the
Committee may designate any option granted either as a nonqualified stock option
or an incentive stock option, except that the aggregate fair market value of the
Common Stock with respect to which incentive stock options are exercisable for
the first time by such employee during any calendar year may not exceed
$100,000, determined as of the date the incentive stock option is granted. If,
however, such option is intended to be an incentive stock option and its fair
market value exceeds $100,000, such option will be deemed to be an incentive
stock option to the extent it does not exceed $100,000 and a nonqualified stock
option to the extent it exceeds that limit.
OPTION PRICE. The purchase price of options is determined by the Committee
in its discretion at the time of the grant. The purchase price of incentive
stock options must not be less than 100% of the fair market value per share of
the Common Stock on the date the option is granted, except that the purchase
price shall be at least 110% of the fair market value per share of the Common
Stock on the date of grant if the optionee, on the date of such grant, possesses
more than 10% of the total combined voting power of all classes of stock of the
Company or any affiliate. The purchase price of a nonqualified stock option
must be greater than the par value of the stock on either the date the option is
granted or the date it is exercised, whichever is greater.
EXERCISE OF OPTIONS. An option may be exercised in whole or in part in
accordance with procedures established by the Committee. Such procedures may
include a limitation on the number of shares purchasable in any period of time,
or any other terms and conditions not inconsistent with the terms of the Option
Plan. The Committee, in its discretion, may accelerate the exercise date of any
option.
PAYMENT OF EXERCISE PRICE. Common Stock purchased upon the exercise of an
option must be paid for in full at the time of purchase. Payment must be made
in cash or, if accepted by the Committee, in its discretion, shares of Common
Stock owned by the optionee (valued at the fair market value on the date of
exercise). Furthermore, the Committee may, in its discretion, approve the
extension of a loan to an optionee to assist in the payment of the exercise
price. If the loan is to an employee who is also a director, the Committee must
first have determined in good faith that the such loan is fair to the Company
and the loan must otherwise comply with applicable law.
NONTRANSFERABILITY OF OPTIONS. Option awards are not transferable except
by will or by the laws of descent and distribution and shall be exercisable
during the lifetime of the optionee only by the optionee.
EXPIRATION OF OPTIONS. Options granted under the Option Plan will
generally be exercisable for a period of ten years after the date of grant.
Options will expire, however, upon an earlier termination of the optionee's
employment, subject to certain grace periods. If, however, the optionee's
employment is terminated by reason of such optionee's fraud, dishonesty or
performance of other acts detrimental to the Company or an affiliate, such
optionee's options will immediately become null and void.
15
<PAGE>
Any incentive stock option granted to an optionee who possesses more than
10% of the total combined voting power of all classes of stock of the Company or
any affiliate shall not be exercisable after the expiration of five years from
the date of its grant.
ADJUSTMENTS TO AWARDS UPON CHANGES IN COMMON STOCK. The number of shares
as to which options may be granted under the Option Plan will be decreased or
increased proportionally to account for any stock split or any dividend payable
in shares of Common Stock. In the event of any other reclassification of Common
Stock, or in the event of a liquidation or reorganization of the Company or an
affiliate, the Board will make any necessary adjustments to any unexercised
options granted under the Option Plan. If the Company is merged into or
consolidated with another corporation and the Company is not the surviving
corporation, or if the Company disposes of all or substantially all of its
assets to another corporation, then all outstanding options may be canceled by
the Board, but all optionees must receive notice of such cancellation and would
have the right to exercise such option in full during the 30-day period
preceding the effective date of such action.
AMENDMENT AND TERMINATION OF THE OPTION PLAN. The Option Plan will
terminate, unless previously terminated by the Board, ten years from August 24,
1995. No options may be granted after that date.
The Board may alter or amend the Option Plan but may not, without
shareholder approval, (i) abolish the Committee, change the qualifications of
its members or withdraw the administration of the Option Plan from its
supervision, (ii) increase the total number of shares of Common Stock which may
be granted under the Option Plan, (iii) extend the term of the Option Plan or
the maximum exercise period provided in the Option Plan, (iv) decrease the
minimum purchase price of Common Stock provided in the Option Plan, (v)
materially increase the benefits accruing to participants under the Option Plan,
or (vi) materially modify the requirements as to eligibility for participation
in the Option Plan.
No termination or amendment of the Option Plan may adversely affect the
rights of an optionee under a previously granted option, except with the consent
of the optionee.
MODIFICATIONS OF OPTIONS. Subject to the terms of the Option Plan, the
Committee may modify or extend outstanding options, or accept the surrender of
options granted under the Option Plan and authorize the granting of new options
in substitution, except that no such modification may, without the consent of
the optionee, impair any rights under any option, except as necessary to comply
with Section 422(b) of the Code.
FEDERAL INCOME TAX CONSEQUENCES
The following summary is based upon an analysis of the Internal Revenue
Code as currently in effect (the "Code"), existing laws, judicial decisions,
administrative rulings, regulations and proposed regulations, all of which are
subject to change. Moreover, the following is only a summary of federal income
tax consequences, and the federal income tax consequences to employees may be
either more or less favorable than those described below depending on their
particular circumstances.
16
<PAGE>
INCENTIVE STOCK OPTIONS. No income will be recognized by an optionee for
federal income tax purposes upon the grant or exercise of an incentive stock
option. The basis of shares transferred to an optionee pursuant to the exercise
of an incentive stock option is the price paid for the shares. If the optionee
holds the shares for at least one year after transfer of the shares to the
optionee and two years after the grant of the option, the optionee will
recognize capital gain or loss upon sale of the shares received upon the
exercise equal to the difference between the amount realized on the sale and the
exercise price. Generally, if the shares are not held for that period, the
optionee will recognize ordinary income upon disposition in an amount equal to
the excess of the fair market value of the shares on the date of exercise over
the option price of such shares, or if less (and if the disposition is a
transaction in which loss, if any, will be recognized), the gain on disposition.
Any additional gain realized by the optionee upon such disposition will be a
capital gain.
The excess of the fair market value of shares received upon the exercise of
an incentive stock option over the option price for the shares is an item of
adjustment for the optionee for purposes of the alternative minimum tax.
The Company is not entitled to a deduction upon the exercise of an
incentive stock option by an optionee. If the optionee disposes of the shares
received pursuant to such exercise prior to the expiration of one year following
transfer of the shares to the optionee or two years after grant of the option,
however, the Company may, subject to the deduction limitation described below,
deduct an amount equal to the ordinary income recognized by the optionee upon
disposition of the shares at the time such income is recognized by the optionee.
If an optionee uses already owned shares of Common Stock to pay the
exercise price for shares under an incentive stock option, the resulting tax
consequences will depend upon whether the already owned shares of Common Stock
are "statutory option stock", and, if so, whether such statutory option stock
has been held by the optionee for the applicable holding period referred to in
Section 424(c)(3)(A) of the Code. In general, "statutory option stock" (as
defined in Section 424(c)(3)(B) of the Code) is any stock acquired through the
exercise of an incentive stock option or an option granted pursuant to an
employee stock purchase plan or restricted stock option, but not stock acquired
through the exercise of a nonstatutory option. If the stock is statutory option
stock with respect to which the applicable holding period has been satisfied, no
income will be recognized by the optionee upon the transfer of such stock in
payment of the exercise price of an incentive stock option. If the stock is not
statutory option stock, no income will be recognized by the optionee upon the
transfer of the stock unless the stock is not substantially vested within the
meaning of the regulations under Section 83 of the Code (in which event it
appears that the optionee will recognize ordinary income upon the transfer equal
to the amount by which the fair market value of the transferred shares exceeds
their basis). If the stock used to pay the exercise price of an incentive stock
option is statutory option stock with respect to which the applicable holding
period has not been satisfied, the transfer of such stock will be a
disqualifying disposition described in Section 421(b) of the Code which will
result in the recognition of ordinary income by the optionee in an amount equal
to the excess of the fair market value of the statutory option stock at the time
the incentive stock option covering such stock was exercised over the amount
paid for such stock. Under the present provisions of the Code, it is not clear
whether all shares received upon the exercise
17
<PAGE>
of an incentive stock option with already-owned shares will be statutory
option stock or how the optionee's basis will be allocated among such shares.
NONQUALIFIED STOCK OPTIONS. No income will be recognized by an optionee
for federal income tax purposes upon the grant of a nonqualified stock option.
Upon exercise of a nonqualified stock option, the optionee will recognize
ordinary income in an amount equal to the excess of the fair market value of the
shares on the date of exercise over the option price of the shares.
Income recognized upon the exercise of nonqualified stock options will be
considered compensation subject to withholding at the time the income is
recognized, and, therefore, the Company must make the necessary arrangements
with the optionee to ensure that the amount of the tax required to be withheld
is available for payment. Nonqualified stock options are designed to provide
the Company with a deduction (subject to the deduction limitation described
below) equal to the amount of ordinary income recognized by the optionee at the
time of such recognition by the optionee.
The basis of shares transferred to an optionee pursuant to exercise of a
nonqualified stock option is the price paid for such shares plus an amount equal
to any income recognized by the optionee as a result of the exercise of the
option. If an optionee thereafter sells shares acquired upon exercise of a
nonqualified stock option, any amount realized over the basis of the shares will
constitute capital gain to the optionee for federal income tax purposes.
If an optionee uses already owned shares of Common Stock to pay the
exercise price for shares under a nonqualified stock option, the number of
shares received pursuant to the nonqualified stock option which is equal to the
number of shares delivered in payment of the exercise price will be considered
received in a nontaxable exchange, and the fair market value of the remaining
shares received by the optionee upon the exercise will be taxable to the
optionee as ordinary income. If the already owned shares of Common Stock are
not "statutory option stock" or are statutory option stock with respect to which
the applicable holding period referred to in Section 424(c)(3)(A) of the Code
has been satisfied, the shares received pursuant to the exercise of the
nonqualified stock option will not be statutory option stock and the optionee's
basis in the number of shares received in exchange for the stock delivered in
payment of the exercise price will be equal to the basis of the shares delivered
in payment. The basis of the remaining shares received upon the exercise will
be equal to the fair market value of the shares. However, if the already owned
shares of Common Stock are statutory option stock with respect to which the
applicable holding period has not been satisfied, it is not presently clear
whether the exercise will be considered a disqualifying disposition of the
statutory option stock, whether the shares received upon such exercise will be
statutory option stock, or how the optionee's basis will be allocated among the
shares received.
LIMITATIONS ON THE COMPANY'S COMPENSATION DEDUCTION. Section 162(m) of the
Code limits the deduction which the Company may take for otherwise deductible
compensation payable to certain executive officers of the Company to the extent
that compensation paid to such officers for such year exceeds $1 million, unless
such compensation is performance-based, is approved by the Company's
stockholders and meets certain other criteria. Compensation attributable to a
stock
18
<PAGE>
option is deemed to satisfy the requirements for performance-based
compensation only if (i) the grant is made by a compensation committee
composed of two or more outside directors; (ii) the plan states the maximum
number of shares with respect to which options may be granted during a
specified period to any employee; and (iii) under the terms of the option,
the amount of compensation the employee could receive is based solely on an
increase in the value of the stock after the date of the option grant. The
Plan has not been designed to meet these requirements, and, accordingly,
options granted under the Plan do not qualify as performance-based
compensation for purposes of Section 162(m) of the Code.
GRANTS UNDER THE PLAN
Since the inception of the Plan, the Compensation Committee has awarded
options covering 108,000 shares of Common Stock (excluding options cancelled or
that expired without exercise) to 27 employees of the Company, including five
executive officers.
AGGREGATE OPTION AWARDS
1995 STOCK OPTION PLAN, AS AMENDED
NUMBER OF SHARES % OF TOTAL OPTIONS AVERAGE
UNDERLYING GRANTED EXERCISE PRICE
NAME AND POSITION OPTIONS GRANTED TO EMPLOYEES ($/SHARE)
- ----------------- --------------- ------------ ---------
Edward L. Dudley 20,000* 18.5% $5.875
Clifton W. Folsom 10,000 9.3% $7.75
Gary S. Hauer 30,000* 27.8% $7.75
Jay B. Haws 10,000 9.3% $7.75
Lawrence C. Rezentes 10,000 9.3% $7.75
Executive Group
(6 persons) 80,000 74.1% $7.28
Non-Executive
Officer Employee
Group 28,000 25.9% $7.88
- ---------------
* Represents new options granted to executive officers during the fiscal year
ended February 28, 1997.
19
<PAGE>
Except as indicated above, no person received more than 5% of the total
options granted under the Plan. If the adoption of the amendment to the Plan
is not approved by the shareholders at the Annual Meeting, options covering
8,000 shares of Common Stock will be null and void.
RECOMMENDATION OF THE BOARD OF DIRECTORS
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE SHAREHOLDERS VOTE
FOR THE APPROVAL OF THE AMENDMENT TO THE PLAN DESCRIBED ABOVE.
RELATIONSHIP WITH INDEPENDENT
PUBLIC ACCOUNTANTS
Grant Thornton was the independent public accountant for the Company for
the year ended February 28, 1997. It is expected that representatives of Grant
Thornton will be present at the Annual Meeting to make any statement they desire
and to respond to appropriate questions.
Grant Thornton has been appointed as independent public accountant for the
Company for the fiscal year ending February 28, 1998. Shareholders are not
being asked to ratify the appointment.
SHAREHOLDER PROPOSALS
Any shareholder of the Company wishing to have a proposal considered for
inclusion in the Company's 1998 proxy solicitation materials must, in addition
to other applicable requirements, set forth the proposal in writing and file it
with the Secretary of the Company on or before May 14, 1998. The Board of
Directors of the Company will review any proposals from shareholders it receives
by that date and will determine whether any proposals will be included in its
1998 Proxy solicitation materials.
ANNUAL REPORT TO SHAREHOLDERS
The 1997 Annual Report to Shareholders is being mailed to shareholders with
this Proxy Statement.
OTHER MATTERS AT THE MEETING
As of the date of this Proxy Statement, management knows of no matters not
described herein to be brought before the shareholders at the Annual Meeting.
Should any other matters properly come before the meeting, it is intended that
the persons named in the accompanying Proxy will vote thereon according to their
best judgment in the interest of the Company.
20
<PAGE>
SHAREHOLDERS ARE URGED TO PROMPTLY MARK, DATE, SIGN AND RETURN
THE ENCLOSED PROXY IN THE POSTAGE-PAID ENVELOPE PROVIDED.
By Order of the Board of Directors
Virginia M. Perez
Secretary
September 11, 1997
A COPY OF THE COMPANY'S FORM 10-K ANNUAL REPORT FOR THE FISCAL YEAR ENDED
FEBRUARY 28, 1997, AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION, IS
AVAILABLE WITHOUT CHARGE TO EACH PERSON WHOSE PROXY IS SOLICITED HEREBY UPON
WRITTEN REQUEST TO VIRGINIA M. PEREZ, SECRETARY, ROCKY MOUNTAIN CHOCOLATE
FACTORY, INC., 265 TURNER DRIVE, DURANGO, COLORADO 81301.
21
<PAGE>
ROCKY MOUNTAIN CHOCOLATE FACTORY, INC.
265 TURNER DRIVE
DURANGO, COLORADO 81301
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints FRANKLIN E. CRAIL and VIRGINIA M. PEREZ,
and each of them, as the undersigned's attorneys and proxies, each with the
power to appoint his substitute, and hereby authorizes them to represent and to
vote, as directed below, all the shares of common stock of ROCKY MOUNTAIN
CHOCOLATE FACTORY, INC. (the "Company") held of record by the undersigned on
August 22, 1997, at the annual meeting of shareholders to be held on October 10,
1997 or any adjournment thereof.
Please mark boxes /X/ in blue or black ink.
1. ELECTION OF DIRECTORS: / / FOR all nominees listed below (except as
marked to the contrary below)
/ / WITHHOLD AUTHORITY to vote for all nominees
listed below
(INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE(S),
STRIKE A LINE THROUGH THE NOMINEE'S NAME OR WRITE A ZERO ("0") IN
THE SPACE FOLLOWING HIS NAME BELOW. TO EXERCISE CUMULATIVE
VOTING BY CASTING TWO OR MORE VOTES PER SHARE FOR ANY INDIVIDUAL
NOMINEE(S), WRITE THE NUMBER OF VOTES CAST FOR THE NOMINEE IN THE
SPACE FOLLOWING HIS NAME. EACH SHARE OF COMMON STOCK IS ENTITLED
TO SIX VOTES, IN THE AGGREGATE.)
Franklin E. Crail ______ Gerald A. Kien ______ Everett A. Sisson ______
Gary S. Hauer ______ Lee N. Mortenson ______ Fred M. Trainor ______
2. To consider and vote upon a proposal to amend the Company's 1995 Stock
Option Plan to increase from 100,000 to 150,000 the aggregate number of
shares of Common Stock authorized for issuance under such plan
3. Each of the above-named attorneys and proxies (or his substitute) is
authorized to vote in his discretion upon such other business as may
properly come before the meeting or any adjournment thereof.
(Continued and to be signed on reverse side.)
<PAGE>
This proxy when properly executed will be voted in the manner directed herein by
the undersigned stockholder. If no direction is made, this proxy will be voted
FOR management's nominees for election as directors.
Date:________________________, 1997
_________________________________
Signature
_________________________________
Signature if held jointly
Please sign exactly as name appears
hereon. When shares are held by
joint tenants, both should sign.
When signing as attorney, executor,
administrator, trustee or guardian,
please give full title as such. If
a corporation, please sign in full
corporate name by President or
other authorized officer. If a
partnership, please sign in
partnership name by authorized
person.
SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY USING THE ENCLOSED ENVELOPE.
