<PAGE> 1
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] 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 sec. 240.14a-11(c) or sec. 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)(l) 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:
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<PAGE> 2
ROCKY MOUNTAIN CHOCOLATE FACTORY, INC.
265 TURNER DRIVE
DURANGO, COLORADO 81301
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON FEBRUARY 29, 2000
To our Shareholders:
The 1999 Annual Meeting of Shareholders of Rocky Mountain Chocolate
Factory, Inc., will be held on Tuesday, February 29, 2000 at 10:00 a.m. (local
time), at The Harvey Hotel -- DFW Airport, 4545 West John Carpenter Freeway, in
Irving, Texas, for the following purposes:
1. To elect six directors to serve until the fiscal 2000 Annual
Meeting of Shareholders and until their respective successors are elected
and qualified.
2. To consider and act upon a proposal to approve the Company's 2000
Stock Option Plan for Non-employee Directors.
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 January
24, 2000 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
/s/ VIRGINIA M. PEREZ
Virginia M. Perez
Secretary
Durango, Colorado
January 28, 2000
<PAGE> 3
ROCKY MOUNTAIN CHOCOLATE FACTORY, INC.
265 TURNER DRIVE
DURANGO, COLORADO 81301
PROXY STATEMENT
ANNUAL MEETING OF SHAREHOLDERS -- FEBRUARY 29, 2000
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 1999 Annual Report to Shareholders, will first be mailed to the
Company's shareholders on or about January 28, 2000. 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 January 24, 2000, 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,
2,534,979 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 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
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<PAGE> 4
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
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.
BENEFICIAL OWNERSHIP OF THE COMPANY'S EQUITY SECURITIES
The following table sets forth information, as of January 24, 2000, 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
each 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.
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.
<TABLE>
<CAPTION>
NAME OF AMOUNT AND NATURE OF
BENEFICIAL OWNER BENEFICIAL OWNERSHIP PERCENT OF CLASS
- ---------------- -------------------- ----------------
<S> <C> <C>
Clyde Wm. Engle et al.(1)........................... 354,587(2) 14.0%
Franklin E. Crail(1)................................ 298,107 11.8%
Warren Lichtenstein................................. 135,700(3) 5.4%
Fred M. Trainor..................................... 70,000(4) 2.8%
Gerald A. Kien...................................... 10,000(4) .4%
Lee N. Mortenson.................................... 28,000(4) 1.1%
Edward L. Dudley.................................... 24,000(5) .9%
Clifton W. Folsom................................... 54,716(5) 2.2%
Jay B. Haws......................................... 43,688(5) 1.7%
Bryan J. Merryman................................... 30,100(5) 1.2%
All executive officers and directors as a group (9
persons).......................................... 913,198(6) 36.0%
</TABLE>
- ---------------
(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) The following information was provided to the Company by Mr. Engle. Of the
354,587 shares indicated as being beneficially owned by Mr. Engle, 128,730
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
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<PAGE> 5
members of Mr. Engle's immediate family. Mr. Engle disclaims beneficial
ownership of the shares owned by his family members.
(3) Of the 135,700 shares indicated as being beneficially owned by Mr.
Lichtestein, all are owned by Steel Partners II, L.P. Steel Partners, L.L.C.
is the general partner of Steel Partners II, L.P. Mr. Lichtenstein is the
sole executive officer and managing member of Steel Partners, L.L.C.
(4) Includes 10,000 shares that Messrs. Trainor, Kien and Mortenson each has the
right to acquire within 60 days through the exercise of options granted
pursuant to the Company's 1990 Nonqualified Stock Option Plan for
Nonemployee Directors (the "Directors' Plan"). Mr. Mortenson has pledged
8,000 shares owned by him to the Company to secure payment of certain
indebtedness to the Company incurred by Mr. Mortenson in connection with his
purchase of such shares.
(5) Includes shares that these officers have the right to acquire within 60 days
through the exercise of options granted pursuant to the Company's 1985
Incentive Stock Option Plan and 1995 Stock Option Plan as follows: Mr.
Dudley, 12,000 shares; Mr. Folsom, 29,000 shares; Mr. Merryman, 12,000
shares and Mr. Haws, 27,000 shares. Mr. Dudley, Mr. Merryman and Mr. Folsom
each has pledged 8,000 shares owned by him, and Mr. Haws has pledged 15,000
shares owned by him, to the Company to secure payment of certain
indebtedness to the Company incurred by each of them in connection with his
purchase of such shares.
(6) Includes 110,000 shares that officers and directors as a group have the
right to acquire within 60 days through the exercise of options granted
pursuant to the Company's 1985 Incentive Stock Option Plan, 1995 Stock
Option Plan, and the Director's Plan. The officers and directors have
pledged an aggregate of 47,000 shares owned by them to the Company to secure
payment of certain indebtedness to the Company incurred by them in
connection with the purchase of such shares.
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, Trainor, Engle
and Merryman to serve until the 2000 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:
<TABLE>
<CAPTION>
NAME POSITIONS WITH COMPANY AGE DIRECTOR SINCE
- ---- ---------------------- --- --------------
<S> <C> <C> <C>
Franklin E. Crail.............. Chairman of the Board, Chief 58 1982
Executive Officer and President
Bryan J. Merryman.............. Chief Operating Officer, Chief 39 1999
Financial Officer, Treasurer
and
Director
Gerald A. Kien................. Director 68 1995
Lee N. Mortenson............... Director 63 1987
Fred M. Trainor................ Director 60 1992
Clyde Wm. Engle................ Director 57 2000
</TABLE>
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, from September 1981 to
January 2000 as its Treasurer. He was elected Chairman of the Board in March
1986.
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<PAGE> 6
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.
Bryan J. Merryman. Mr. Merryman joined the Company in December 1997 as Vice
President -- Finance and Chief Financial Officer. Since April 1999 Mr. Merryman
has also served the Company as the Chief Operating Officer and as a Director and
since January 2000 as the Company's Treasurer. Prior to joining the Company, Mr.
Merryman was a principal in Knightsbridge Holdings, Inc. (a leveraged buyout
firm) from January 1997 to December 1997. Mr. Merryman also served as Chief
Financial Officer of Super Shops, Inc., a retailer and manufacturer of
aftermarket auto parts from July 1996 to November 1997 and was employed for more
than eleven years by Deloitte and Touche LLP, most recently as a Senior Manager.
Gerald A. Kien. Dr. Kien was first elected as a director of the Company in
August 1995. From 1993 to 1995, Dr. 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, Dr. 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 Dr. Kien remained as President
of the Sun Electric division of Snap-On Tools until his retirement in 1994. Dr.
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. Dr. 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 Sunstates Corporation since December 1990. Sunstates
Corporation is a publicly traded company primarily engaged in real estate
development and manufacturing. Mr. Mortenson was a director of Alba-Waldensian,
Inc., which is principally engaged in the manufacturing of apparel and medical
products, from 1984 to July 1999 and served as its President and Chief Executive
Officer from February 1997 to July 1999. 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 the principal subsidiary of Sunstates
Corporation, Coronet Insurance Company ("Coronet"), and Coronet's subsidiaries,
National Assurance Indemnity Company ("National Assurance") and Crown Casualty
Company ("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 Insurance Company of Florida ("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 was a Vice President and a
director of Hickory White Company.
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.
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<PAGE> 7
Clyde Wm. Engle. Mr. Engle is Chairman of the Board of Directors and
President of RDIS Corporation, Chairman of the Board of Directors and Chief
Executive Officer of Telco Capital Corporation, Chairman of the Board of
Directors of Hickory Furniture Company, Chairman of the Board of Directors and
Chief Executive Officer of Sunstates Corporation, which is primarily engaged in
automated textile equipment manufacturing, and Chairman of the Board of
Directors, President and Chief Executive Officer of GSC Enterprises, Inc., a
one-bank holding company, and Chairman of the Board of Directors and President
of its subsidiary, Bank of Lincolnwood.
The following information is provided voluntarily by Mr. Engle although it
is not deemed material information (as that term is used in Item 401 of
Regulation S-K). Mr. Engle is the subject of a Cease and Desist Order dated
October 7, 1993, issued by the Securities and Exchange Commission requiring Mr.
Engle and certain of his affiliated companies to permanently cease and desist
from committing any further violations of Section 16(a) of the Securities and
Exchange Act of 1934, as amended, and the rules promulgated thereunder, which
require monthly and other periodic reports of transactions in certain
securities. According to information provided to the Company by Mr. Engle, the
information required to be reported pursuant to Section 16(a) was otherwise
reported in a timely manner in other publicly available reports.
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.
COMMITTEE AND MEETINGS
The Board of Directors has a standing Compensation Committee and Audit
Committee. Each committee is composed of Messrs. Mortenson, Trainor and Kien.
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. If
Item 2 is approved and the 2000 Stock Option Plan for Non- Employee Directors is
approved, the Compensation Committee will also approve and administer grants of
stock options under such plan. 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 eight
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, except that Mr. Trainor attended 62.5% of such
meetings.
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, 1999. The Committee administers the compensation program
for executive officers of the Company and makes all related decisions.
The principal elements of the compensation program for executive officers
are base salary, performance-based annual bonuses and options granted under the
Company's 1995 Stock Option Plan. The goals of the
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<PAGE> 8
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. 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 business plan profit objective in the
immediately preceding fiscal year, 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.
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 for fiscal 1999, executive officers
received 20% of their base pay (30% for the CEO) as a bonus if Company business
plan profit objectives for fiscal 1999 were achieved, and up to 10% of base pay
(up to 15% for the CEO) if individual executive officer job performance goals
were achieved in fiscal 1999. 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.
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.
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.
There were no stock options awarded to executive officers or others in
fiscal 1999. Options currently held by current executive officers under the
Company's option plans cover a total of 174,000 shares.
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
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<PAGE> 9
goals are met or exceeded, resulting in increased value to shareholders,
executives are rewarded commensurately. The Committee believes that compensation
levels during 1999 adequately reflect the Company's compensation goals and
policies.
January 28, 2000
COMPENSATION COMMITTEE FOR FISCAL 1999:
The 1999 Compensation Committee will consist of: Lee Mortenson, Gerald A.
Kien and Fred M. Trainor.
SUMMARY COMPENSATION TABLE
The following table sets forth certain information with respect to annual
compensation for the years indicated for each executive officer of the Company
who met the minimum compensation threshold of $100,000 for inclusion in the
table (the "Named Officers").
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
------------
SECURITIES
ANNUAL COMPENSATION UNDERLYING
----------------------------- OPTIONS/SARS ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY(1) BONUS(2) (#)(3) COMPENSATION(4)
- --------------------------- ---- --------- -------- ------------ ---------------
<S> <C> <C> <C> <C> <C>
Franklin E. Crail......................... 1999 $161,250 $ -0- -0- $2,500
Chairman of the Board and President 1998 $150,000 $67,500 -0- $2,250
1997 $150,000 $ -0- -0- $2,250
Bryan J. Merryman......................... 1999 $107,500 $ -0- -0- -0-
Chief Operating Officer, Chief 1998(5) $ 25,000 $20,000 30,000 -0-
Financial Officer and Director 1997 -- -- -- --
Edward L. Dudley.......................... 1999 $ 96,250 -0- -0- $1,310
Vice President -- Sales and Marketing 1998 $ 85,000 $21,250 10,000 -0-
and Marketing 1997(6) $ 11,442 -0- 20,000 -0-
Clifton W. Folsom......................... 1999 $ 97,500 -0- -0- -0-
Vice President -- Franchise Support 1998 $ 90,000 $22,500 -0- $ 104
1997 $ 85,000 -0- 10,000 $1,350
Jay B. Haws............................... 1999 $ 98,500 -0- -0- $1,830
Vice President -- Creative Services 1998 $ 94,000 $23,500 -0- $1,410
1997 $ 91,750 -0- 10,000 $1,410
</TABLE>
- ---------------
(1) Includes amounts deferred at the Named Officers' election pursuant to the
Company's 401(k) Plan.
(2) Represents amounts paid as bonuses based on performance for the indicated
fiscal year, paid in the following fiscal year.
(3) Options to acquire shares of Common Stock under the 1995 Stock Option Plan.
All options have ten-year terms and vest with respect to one-fifth of the
shares covered thereby annually beginning on the date of grant.
(4) Represents Company contributions on behalf of the Named Officers under the
Company's 401(k) Plan.
(5) Mr. Merryman joined the Company as an officer in December 1997.
(6) Mr. Dudley joined the Company as an officer in January 1997.
OPTION GRANTS DURING FISCAL 1999
No stock options were granted to Officers during fiscal 1999 pursuant to
the 1995 Stock Option Plan.
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<PAGE> 10
AGGREGATED OPTION EXERCISES DURING FISCAL 1999 AND FISCAL YEAR END OPTION VALUES
The following table provides information regarding the number and value of
options held by the Named Officers at fiscal year end. Options for 15,000 shares
of stock were exercised by the Named Officers during fiscal 1999. The Company
does not have any outstanding stock appreciation rights.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
OPTION AT FISCAL OPTIONS AT FISCAL
SHARES YEAR END(#) YEAR END($)(1)
ACQUIRED ON VALUE --------------------------- ---------------------------
NAME EXERCISE(#) REALIZED(#) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Franklin E. Crail............ -- -- -- -- -- --
Bryan J. Merryman............ -- -- 6,000 24,000 -- --
Edward L. Dudley............. -- -- 10,000 20,000 -- --
Clifton W. Folsom............ -- -- 27,000 6,000 $4,000 --
Jay B. Haws.................. 15,000 48,750 25,000 6,000 $4,000 --
</TABLE>
- ---------------
(1) The closing bid price of the Common Stock on The Nasdaq Stock Market on
February 26, 1999, was $4.50 per share. None of the options held by the
Named Officers were in the money on that date, except as indicated for Mr.
Folsom and Mr. Haws.
COMPENSATION OF DIRECTORS
Directors of the Company do not receive any compensation for serving on the
Board or on committees. Directors who are not also officers or employees of the
Company are entitled to receive stock option awards under 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.
8
<PAGE> 11
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 28, 1994.
[TOTAL SHAREHOLDER RETURNS]
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
BASE
PERIOD RETURN RETURN RETURN RETURN RETURN
COMPANY/INDEX NAME 1994 2/1995 2/1996 2/1997 2/1998 2/1999
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Rocky Mountain Chocolate Factory, Inc. 100.00 116.67 75.00 41.67 39.58 37.50
- -----------------------------------------------------------------------------------------------
Nasdaq Index -- US 100.00 101.36 141.26 168.54 230.38 299.93
- -----------------------------------------------------------------------------------------------
Peer Group(1) 100.00 101.36 137.17 155.97 218.71 241.75
- -----------------------------------------------------------------------------------------------
</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.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee of the Company's Board of Directors consists of
Lee N. Mortenson, Fred M. Trainor and Gerald A. Kien. None of the foregoing
persons is or has been an officer of the Company.
CERTAIN TRANSACTIONS
On December 22, 1999 and January 5, 2000, the Company purchased 15,000 and
50,370 shares of the Company's issued and outstanding common stock at $5.25 and
$5.44 per share, respectively.
9
<PAGE> 12
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 1999 failed to file a Form
4 on a timely basis or was required to file a Form 5 for fiscal 1999 and failed
to do so, and the Company has received a written representation that a Form 5
was not required from each such person. 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.
ITEM 2. PROPOSAL TO APPROVE THE COMPANY'S 2000 STOCK OPTION PLAN FOR
NON-EMPLOYEE DIRECTORS
GENERAL
The Board of Directors of the Company has determined that it is desirable
to adopt the 2000 Stock Option Plan for Non-employee Directors to promote the
interests of the Company and its shareholders by increasing the proprietary and
personal interest of Non-employee members of the Company's Board of Directors in
the growth and continued success of the Company by granting them options to
purchase shares of the Company's Common Stock.
The Board of Directors of the Company has approved the 2000 Stock Option
Plan for Non-employee Directors, subject to shareholder approval. A copy of the
full text of the 2000 Stock Option Plan for Non-employee Directors is set forth
in Exhibit A to this Proxy Statement, and the following description is qualified
in its entirety by reference to Exhibit A. The 2000 Stock Option Plan for
Non-employee Directors will be administered by the Compensation Committee
established by the Board of Directors.
OPTIONS GRANTED TO NON-EMPLOYEE DIRECTORS
On January 25, 2000, each non-employee director, consisting of Gerald A.
Kien, Lee N. Mortenson, Fred M. Trainor and Clyde Wm. Engle, received a grant of
options to purchase 10,000 shares of Common Stock, subject to shareholder
approval of the 2000 Stock Option Plan for Non-employee Directors. Each year
following the adoption of the Plan, on a date established by the Committee,
during the term of the Plan, options to purchase 1,000 shares of Common Stock
shall be granted automatically to each nonemployee director, if any, who is
serving the Company as a director on such date.
The exercise price for options will be 100% of the fair market value of a
share of Common Stock on the date the option is granted. Subject to the
discretion of the Board of Directors, the term of each option will be five years
from the date of grant; provided that all outstanding options will terminate
immediately if the holder ceases to be a member of the Board of Directors.
Options will become exercisable at the discretion of the Board of Directors as
set forth in the applicable option agreement. However, any options that are not
exercisable prior to a change in control will become exercisable on the date of
any change in control and will remain exercisable for the remainder of their
term. The unvested portion of any Option will expire and become null and void
upon the termination of such Director's service as a director of the Company for
any reason (including without limitation a failure by the Board of Directors to
nominate, or by the stockholders to re-elect, the optionee as a director).
No option granted under the 2000 Stock Option Plan for Non-employee
Directors will be transferable by the participant to whom options are granted
other than by will or the laws of descent and distribution or by gift or a
domestic relations order to a "family member" of the optionee as such term is
defined in the instructions to Form S-8 under the Securities Act of 1933.
The table below sets forth the determinable benefits that would be granted
under the 2000 Stock Option Plan for Non-employee Directors if the shareholders
approve that plan:
10
<PAGE> 13
NEW PLAN BENEFITS
2000 STOCK OPTION PLAN FOR NON-EMPLOYEE DIRECTORS
OPTIONS TO ACQUIRE COMMON STOCK
<TABLE>
<CAPTION>
NAME AND POSITION FAIR MARKET VALUE($) NUMBER OF SHARES
- ----------------- -------------------- ----------------
<S> <C> <C>
Gerald A. Kien, Director........................... $5.25/share 10,000(1)
Lee N. Mortenson, Director......................... $5.25/share 10,000(1)
Fred M. Trainor, Director.......................... $5.25/share 10,000(1)
Clyde Wm. Engle, Director.......................... $5.25/share 10,000(1)
Non-employee Directors, as a group................. $5.25/share 40,000(1)
</TABLE>
- ---------------
(1) Options to purchase the number of shares of Common Stock indicated were
granted to each Non-employee director pursuant to the 2000 Stock Option Plan
for Non-employee Directors, subject to shareholder approval.
ADMINISTRATION; CORPORATE CHANGE
The 2000 Stock Option Plan for Non-employee Directors will be administered
by the Compensation Committee appointed by the Board of Directors. The
Compensation Committee will have authority subject to the express provisions of
the 2000 Stock Option Plan for Non-employee Directors to interpret and construe
the 2000 Stock Option Plan for Non-employee Directors and the related option
agreements, to establish, amend and rescind any rules and regulations relating
to the 2000 Stock Option Plan for Non-employee Directors and to make all other
determinations necessary or advisable for the administration of the 2000 Stock
Option Plan for Non-employee Directors and to carry out its purpose.
In the event of a Corporate Change, unless otherwise provided in the
related option agreement, all Options then outstanding shall become exercisable
in full and all restrictions imposed on any Common Stock that may be delivered
pursuant to the exercise of such Options shall be deemed satisfied. A Corporate
Change is defined generally to include the following:
- the dissolution or liquidation of the Company;
- a reorganization, merger or consolidation of the Company with one or more
corporations (other than a merger or consolidation effecting a
reincorporation of the Company in another state or any other merger or
consolidation in which the shareholders of the surviving corporation and
their proportionate interests therein immediately after the merger or
consolidation are substantially identical to the shareholders of the
Company and their proportionate interests therein immediately prior to
the merger or consolidation);
- the sale of all or substantially all of the assets of the Company; or
- the occurrence of a Change in Control (as such term is defined in the
2000 Stock Option Plan for Non-Employee Directors).
The Compensation Committee may delegate to the officers or employees of the
Company the authority to execute and deliver such instruments and documents and
to take such actions as are necessary, advisable or convenient for the effective
administration of the 2000 Stock Option Plan for Non- employee Directors.
AMENDMENT AND TERMINATION
The Board of Directors will have the authority to amend or otherwise
modify, suspend or terminate the 2000 Stock Option Plan for Non-employee
Directors at any time, provided that no such action will affect the rights of a
recipient of any award previously granted. No options may be granted during any
period of suspension, and in no event may any awards be granted after January
25, 2010, on which date the 2000 Stock
11
<PAGE> 14
Option Plan for Non-employee Directors will terminate, unless earlier terminated
by action of the Board of Directors.
Amendments made without shareholder approval could increase the costs to
the Company under the 2000 Stock Option Plan for Non-employee Directors,
although the amount is not determinable.
AUTHORIZED SHARES; OTHER PROVISIONS; NON-EXCLUSIVITY
The number of shares of Common Stock that may be issued pursuant to Options
issued under the 2000 Stock Option Plan for Non-employee Directors will not
exceed 60,000. The 60,000 figure for the number of shares of Common Stock to be
available under the 2000 Stock Option Plan for Non-employee Directors is based
on an estimate of the number of shares of Common Stock that will be subject to
awards granted during the first six years of the term of the 2000 Stock Option
Plan for Non-employee Directors.
Any unexercised or undistributed portion of any expired, canceled,
terminated or forfeited award, or any alternative form of consideration under an
award that is not paid in connection with the settlement of any portion of any
award, will again be available for award under the 2000 Stock Option Plan for
Non-employee Directors, whether or not the participant has received benefits of
ownership during the period in which the participant's ownership was restricted
or otherwise not vested. Although Common Stock subject to canceled options will
be counted against the individual stock-based award limits to the extent
required by Section 162(m), only Common Stock actually issued will be charged
against the aggregate Common Stock limit under the 2000 Stock Option Plan for
Non-employee Directors. Upon approval of the 2000 Stock Option Plan for
Non-employee Directors by the shareholders, the Company intends to register
under the Securities Act the number of shares of Common Stock reserved for
issuance under the 2000 Stock Option Plan for Non-employee Directors.
The 2000 Stock Option Plan for Non-employee Directors generally does not
impose any minimum vesting periods on options or other awards. The maximum term
of an option or any other award is five years.
The 2000 Stock Option Plan for Non-employee Directors is not exclusive and
does not limit the authority of the Board of Directors or its committees to
grant awards or authorize any other compensation, with or without reference to
the Common Stock, under any other plan or authority. Approval of the 2000 Stock
Option Plan for Non-employee Directors by the shareholders of the Company will
not be deemed to constitute approval of any other compensation plan or
authority.
FEDERAL INCOME TAX CONSEQUENCES
The following summary is based upon an analysis of the Code as currently in
effect, 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 an employee's particular circumstances.
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 amount paid for such 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
12
<PAGE> 15
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 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 Option Plan has not
been designed to meet these requirements, and, accordingly, options granted
under the Option Plan do not qualify as performance-based compensation for
purposes of Section 162(m) of the Code.
If, as a result of a change in control, a participant's options become
immediately exercisable, or Common Stock or other benefits are immediately
vested or not subject to restrictions, the additional value, if any,
attributable to the acceleration may be deemed a parachute payment under Section
280G of the Internal Revenue Code. In such case, a portion of such amount will
be subject to a non-deductible excise tax, in addition to any income tax
payable. The Company generally will not be entitled to a deduction for that
portion of any parachute payment that is subject to the excise tax.
VOTE REQUIRED
The 2000 Stock Option Plan for Non-employee Directors must be approved in a
separate vote by the affirmative vote of the majority of the Company's
outstanding common stock entitled to vote at the Annual Meeting. If the
shareholders do not approve the 2000 Stock Option Plan for Non-employee
Directors, no awards will be made under the 2000 Stock Option Plan for
Non-employee Directors, and the 2000 Stock Option Plan for Non-employee
Directors will be null and void.
The Board recommends a vote FOR approval of the 2000 Stock Option Plan for
Non-employee Directors. All current Non-employee directors will receive and are
eligible to receive benefits under the 2000 Stock Option Plan for non-employee
Directors and will have an interest in the 2000 Stock Option Plan for
Non-employee Directors.
13
<PAGE> 16
RELATIONSHIP WITH INDEPENDENT
PUBLIC ACCOUNTANTS
Grant Thornton was the independent public accountant for the Company for
the year ended February 28, 2000. 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 29, 2000. 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 2000 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 1, 2000. 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
2000 Proxy solicitation materials.
ANNUAL REPORT TO SHAREHOLDERS
The 1999 Annual Report on Form 10-K 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.
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
/s/ VIRGINIA M. PEREZ
------------------------------------
Virginia M. Perez
Secretary
January 28, 2000
14
<PAGE> 17
EXHIBIT A
2000 NONQUALIFIED STOCK OPTION PLAN
FOR NONEMPLOYEE DIRECTORS
OF
ROCKY MOUNTAIN CHOCOLATE FACTORY, INC.
Section 1. Purpose. It is the purpose of the Plan to promote the interests
of Rocky Mountain Chocolate Factory, Inc., a Colorado corporation (the
"Company"), and its stockholders by attracting and retaining qualified
Nonemployee Directors by giving them the opportunity to acquire a proprietary
interest in the Company and an increased personal interest in its continued
success and progress. The Options granted under the Plan shall not be qualified
as "incentive stock options" within the meaning of Section 422 of the Internal
Revenue Code of 1986, as amended (the "Code").
Section 2. Definitions. As used herein the following terms have the
following meanings:
(a) "Affiliate" means any parent or subsidiary corporation of the
Company within the meaning of Rule 12b-2 under the Securities Exchange Act
of 1934, as amended; provided, however, that an entity shall not be deemed
a parent of the Company unless such entity owns at least 50% of the
outstanding voting securities of the Company.
(b) "Board" means the Board of Directors of the Company.
(c) "Committee" means the Committee described in Section 4 hereof.
(d) "Common Stock" means the Common Stock, par value $0.03 per share,
of the Company.
(e) A "Corporate Change" shall be deemed to have occurred for purposes
of the Plan, upon (a) the dissolution or liquidation of the Company; (b) a
reorganization, merger or consolidation of the Company with one or more
corporations (other than a merger or consolidation effecting a
reincorporation of the Company in another state or any other merger or
consolidation in which the shareholders of the surviving corporation and
their proportionate interests therein immediately after the merger or
consolidation are substantially identical to the shareholders of the
Company and their proportionate interests therein immediately prior to the
merger or consolidation) (collectively, a "Corporate Change Merger"); (c)
the sale of all or substantially all of the assets of the Company; or (d)
the occurrence of a Change in Control. A "Change in Control" shall be
deemed to have occurred for purposes of the Plan if (a) individuals who
were directors of the Company immediately prior to a Control Transaction
shall cease, within two years of such Control Transaction, to constitute a
majority of the Board (or of the Board of Directors of any successor to the
Company or to a company which has acquired all or substantially all its
assets) other than by reason of an increase in the size of the membership
of the applicable Board that is approved by at least a majority of the
individuals who were directors of the Company immediately prior to such
Control Transaction or (b) any entity, person or Group acquires shares of
the Company in a transaction or series of transactions that result in such
entity, person or Group directly or indirectly owning beneficially 50% or
more of the outstanding shares of Common Stock. As used herein, "Control
Transaction" means (a) any tender offer for or acquisition of capital stock
of the Company pursuant to which any person, entity or Group directly or
indirectly acquires beneficial ownership of 20% or more of the outstanding
shares of Common Stock, (b) any Corporate Change Merger of the Company, (c)
any contested election of directors of the Company or (d) any combination
of the foregoing, any one of which results in a change in voting power
sufficient to elect a majority of the Board. As used herein, "Group" means
persons who act "in concert" as described in Sections 13(d)(3) and/or
14(d)(2) of the Exchange Act.
(f) "Fair Market Value" means, unless the Committee determines
otherwise in good faith, the closing sale price of the Common Stock on the
last market trading day preceding the date in question (or, if there was no
reported sale on such date, on the last preceding day on which any sale
occurred) as reported on the Nasdaq National Market or any national stock
exchange or other stock market on which the Common Stock is then traded, or
if the Common Stock is not listed or admitted to trading on the Nasdaq
National Market or any national stock exchange but is quoted as an
over-the-counter security on
A-1
<PAGE> 18
Nasdaq or any similar system then in use, "Fair Market Value" shall mean
the average of the closing high bid and low asked quotations on such system
for the Common Stock on the last market trading day preceding the date in
question.
(g) "Nonemployee Director" means an individual who (i) is now, or
hereafter becomes, a member of the Board of Directors of the Company, and
(ii) is neither an employee nor an officer of the Company or of an
Affiliate of the Company. For purposes of this Plan, "employee" shall mean
an individual whose wages are subject to the withholding of federal income
tax under Section 3401 of the Code, and "officer" shall mean an individual
elected or appointed by the Board of Directors or chosen in such other
manner as may be prescribed in the Bylaws of the Company or an Affiliate to
serve as such except that for purposes of this Plan, the Chairman of the
Board shall not be deemed to be an officer of the Company solely by virtue
of his or her election to and service in that position.
(h) "Option" means any option to purchase shares of Common Stock
granted pursuant to the provisions of the Plan.
(i) "Optionee" means a Nonemployee Director who has been granted an
Option under the Plan.
(j) "Plan" means this 2000 Nonqualified Stock Option Plan for
Nonemployee Directors of Rocky Mountain Chocolate Factory, Inc.
Section 3. Number of Shares. Options may be granted by the Company from
time to time under the Plan to purchase an aggregate of 60,000 shares of Common
Stock. If an Option expires or terminates for any reason without having been
exercised in full, the unpurchased shares subject to such expired or terminated
Option shall again be available for purposes of the Plan. The shares may be
authorized but unissued or reacquired shares of Common Stock.
Section 4. Administration of the Plan. The Plan shall be administered by
the Compensation Committee appointed by the Board (the "Committee"). Each member
of the Committee shall be appointed by and shall serve at the pleasure of the
Board. The Board shall have the sole continuing authority to appoint members of
the Committee both in substitution for members previously appointed and to fill
vacancies however caused. The following provisions shall apply to the
administration of the Plan:
(a) A majority of the members of the Committee shall constitute a
quorum and any action taken by a majority of the members of the Committee
present at any duly called meeting at which a quorum is present (as well as
any action unanimously approved in writing) shall constitute action by the
Committee.
(b) The Committee may appoint a Secretary (who need not be a member of
the Committee) who shall keep minutes of its meetings. The Committee may
make such rules and regulations for the conduct of its business as it may
determine.
(c) The Committee shall have full authority subject to the express
provisions of the Plan to interpret the Plan and any Option granted
hereunder, to provide, modify and rescind rules and regulations relating to
the Plan, to determine the terms and provisions of each Option and the form
of each option agreement evidencing an Option granted under the Plan and to
make all other determinations and perform such actions as the Committee
deems necessary or advisable to administer the Plan. In addition, the
Committee shall have full authority, subject to the express provisions of
the Plan, to determine the Nonemployee Directors to whom Options shall be
granted, the time or date of grant of each such Option, the number of
shares subject thereto, and the price at which such shares may be
purchased, and the nature and extent of restrictions, if any, on such
shares. In making such determinations, the Committee may take into account
such facts as the Committee in its discretion shall deem appropriate to
carry out the purposes of the Plan.
(d) No member of the Committee or the Board shall be liable for any
action taken or determination made in good faith with respect to the Plan
or any Option granted hereunder.
A-2
<PAGE> 19
Section 5. Grant of Options. Options to purchase 10,000 shares of Common
Stock shall be granted initially, as of the effective date of the Plan, to each
nonemployee director who was serving the Company as a director on January 25,
2000, the date on which the Board of Directors approved and recommended the
adoption of the Plan and the grant of Options to the nonemployee directors then
in office (the "Establishment Date"), and who is continuing to serve the Company
as a director on the Effective Date. Thereafter, during the term of the Plan, an
Option to purchase 10,000 shares of Common Stock shall be granted automatically
to each new nonemployee director as of the date on which such director is first
elected or appointed to serve as a director of the Company. Each year following
the adoption of the Plan, on a date established by the Committee, during the
term of the Plan, Options to purchase 1,000 shares of Common Stock shall be
granted automatically to each nonemployee director, if any, who is serving the
Company as a director on such date.
Section 6. Option Price and Payment. The purchase price per share of Common
Stock under each Option shall be determined by the Committee in its discretion,
but in no event shall such price be less than 100% of the Fair Market Value per
share of Common Stock on the date the Option is granted. Upon exercise of an
Option, the purchase price shall be paid in full in cash or by such of the
following methods as the Committee may specify at the time of grant and as shall
be included in the option agreement: (i) by personal check of the Optionee; (ii)
by the delivery of shares of Common Stock having an aggregate Fair Market Value
on the date of exercise equal to the aggregate exercise price of the shares as
to which the Option is being exercised; (iii) by means of a broker-assisted
exercise whereby the Optionee delivers to the Company, together with a properly
executed exercise notice, such other documentation as the Committee and the
broker assisting in the transaction shall require to effect an exercise of the
Option, a sale of the shares of Common Stock acquired upon exercise and the
delivery to the Company of the proceeds of such sale in full payment of the
exercise price; or (iv) any combination of the foregoing methods of payment. The
proceeds of a sale of Common Stock upon exercise of an Option shall constitute
general funds of the Company. Upon exercise of an Option, the Optionee will be
required to pay to the Company the amount of federal, state or local taxes, if
any, required by law to be withheld in connection with such exercise.
Section 7. Option Period and Terms of Exercise of Options. Each Option
granted under the Plan shall vest and become exercisable on such date or dates
(each, a "Vesting Date") as the Committee shall determine. Except as otherwise
provided herein, each Option granted under the Plan shall be exercisable during
such period commencing on the Vesting Date(s) of such Option as the Committee
shall determine; provided, however, that the otherwise unexpired portion of any
Option shall expire and become null and void upon the expiration of five years
from the date such Option was granted. Anything herein to the contrary
notwithstanding, the otherwise unexpired portion of any Option granted hereunder
shall expire and become null and void immediately upon an Optionee's termination
of service as a director of the Company by reason of such Optionee's fraud,
dishonesty or performance of other acts detrimental to the Company or an
Affiliate (as determined by the Committee in its sole discretion). The unvested
portion of any Option shall expire and become null and void upon the termination
of the Optionee's service as a director of the Company for any reason (including
without limitation a failure by the Board of Directors to nominate, or by the
stockholders to re-elect, the Optionee as a director). Under the provisions of
any option agreement evidencing an Option, the Committee may limit the number of
shares purchasable thereunder in any period or periods of time during which the
Option is exercisable and may impose such other terms and conditions upon the
exercise of an Option as are not inconsistent with the terms of the Plan;
provided, however, that the Committee, in its discretion, may accelerate the
exercise date of any such Option consistent with the terms of the Plan.
Section 8. Limited Transferability of Options. An Option granted under the
Plan shall be exercisable only by the Optionee or by a person or entity to which
the Optionee is permitted to transfer the Option in accordance with this Section
8. An Option granted under the Plan shall be transferrable by the Optionee only
as follows:
(a) By will or the laws of descent and distribution upon the death of
the Optionee;
(b) By gift or a domestic relations order to a "family member" of the
Optionee, as such term is defined in the instructions to Form S-8 under the
Securities Act of 1933, as amended, including without limitation trusts in
which family members of the Optionee have more than 50% of the beneficial
interest,
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<PAGE> 20
foundations in which such family members control the management of assets,
and any other entity in which such family members or the Optionee own more
than 50% of the voting interests; or
(c) To an entity in which more than 50% of the voting interests are
owned by the Optionee or the Optionee's family members in exchange for an
interest or interests in that entity.
As a condition to any such transfer, each permitted transferee shall execute an
agreement satisfactory to the Company agreeing to be bound by the terms and
provisions of this Plan and the Optionee's original option agreement relating to
the Option.
Section 9. Adjustments Upon Changes in Common Stock. In the event the
Company shall effect a split of the Common Stock or dividend payable in Common
Stock, or in the event the outstanding Common Stock shall be combined into a
smaller number of shares, the maximum number of shares as to which Options may
be granted under the Plan shall be decreased or increased proportionately. In
the event that before delivery by the Company of all of the shares of Common
Stock for which any Option has been granted under the Plan, the Company shall
have effected such a split, dividend or combination, the shares still subject to
such Option shall be increased or decreased proportionately and the purchase
price per share shall be decreased or increased proportionately so that the
aggregate purchase price for all of the shares then subject to such Option shall
remain the same as immediately prior to such split, dividend or combination.
In the event of a reclassification of Common Stock not covered by the
foregoing, or in the event of a liquidation or reorganization (including a
merger, consolidation, spinoff or sale of assets) of the Company, including a
transaction in which the Company is not the survivor, the Board shall make such
adjustments, if any, as it may deem appropriate in the number, purchase price
and kind of shares covered by the unexercised portions of Options theretofore
granted under the Plan. The provisions of this Section shall only be applicable
if, and only to the extent that, the application thereof does not conflict with
any valid governmental statute, regulation or rule.
Section 10. Corporate Change. Notwithstanding anything contained in the
Plan to the contrary, in the event of a Corporate Change, unless otherwise
provided in the related Option Agreement, all Options then outstanding shall
become exercisable in full and all restrictions imposed on any Common Stock that
may be delivered pursuant to the exercise of such Options shall be deemed
satisfied.
Section 11. Amendment and Termination of the Plan. Subject to the right of
the Board to terminate the Plan prior thereto, the Plan shall terminate at the
expiration of ten years from January 25, 2000, the date of adoption of the Plan
by the Board. No Options may be granted after termination of the Plan. The Board
may alter or amend the Plan in any respect, except that no termination or
amendment of the Plan shall adversely affect the rights of an Optionee under a
previously granted Option, except with the consent of such Optionee.
Section 12. Modification of Options. Subject to the terms and conditions of
and within the limitations of the Plan, the Committee may modify, extend or
renew outstanding Options granted under the Plan, or accept the surrender of
Options outstanding hereunder (to the extent not theretofore exercised) and
authorize the granting of new Options in substitution therefor. Notwithstanding
the foregoing, no modification of an Option shall, without the consent of the
Optionee, alter or impair any rights or obligations under any Option theretofore
granted to such Optionee.
Section 13. Requirements of Law. The granting of Options and the issuance
of Common Stock upon the exercise of an Option shall be subject to all
applicable laws, rules and regulations and to such approval by governmental
agencies as may be required.
Section 14. Investment Letter. If the Company so elects, the Company's
obligation to deliver Common Stock with respect to an Option shall be
conditioned upon its receipt from the Optionee to whom such Common Stock is to
be delivered of an executed investment letter containing such representations
and agreements as the Committee may determine to be necessary or advisable in
order to enable the Company to issue and deliver such Common Stock to such
Optionee in compliance with the Securities Act of 1933 and other applicable
federal, state or local securities laws or regulations.
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<PAGE> 21
Section 15. Effective Date of the Plan. The Plan shall be effective as of
the date of its adoption by the Board; provided, however, that the Plan and each
Option granted or to be granted hereunder is conditional on and shall be of no
force and effect, and no Option shall be exercised, unless and until shareholder
approval of the Plan by the affirmative vote of the holders of a majority of the
shares of Common Stock present, or represented, and entitled to vote at a
meeting of shareholders of the Company duly held not later than the date of the
next annual meeting of shareholders.
IN WITNESS WHEREOF, this Plan has been executed on, and is effective as of,
this 25th day of January, 2000.
ROCKY MOUNTAIN CHOCOLATE
FACTORY, INC.
By: /s/ FRANKLIN E. CRAIL
----------------------------------
Franklin E. Crail, President
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<PAGE> 22
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 or her 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
January 24, 2000, at the annual meeting of shareholders to be held on February
29, 2000 or any adjournment thereof.
Please mark boxes 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.)
<TABLE>
<S> <C> <C> <C> <C> <C>
Franklin E. Crail Bryan J. Merryman Gerald A. Kien
------ ------ ------
Lee N. Mortenson Fred M. Trainor Clyde Wm. Engle
------ ------ ------
</TABLE>
2. To consider and vote upon a proposal to approve the Company's 2000 Stock
Option Plan for Non-employee Directors.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. Each of the above-named attorneys and proxies (or his or her substitute) is
authorized to vote in his or her discretion upon such other business as may
properly come before the meeting or any adjournment thereof.
(Continued and to be signed on reverse side.)
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED
HEREIN BY THE UNDERSIGNED. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED FOR
MANAGEMENT'S NOMINEES FOR ELECTION AS DIRECTORS AND FOR THE APPROVAL OF PROPOSAL
2.
Date: , 2000
--------------------
-------------------------------
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.
