SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
(Amendment No. )
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Filed by a Party other than the Registrant [ ]
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[ ] 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.
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(Name of Registrant as Specified In Its Charter)
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ROCKY MOUNTAIN CHOCOLATE FACTORY, INC.
265 Turner Drive
Durango, Colorado 81303
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON JULY 19, 2002
To our Shareholders:
The 2002 Annual Meeting of Shareholders of Rocky Mountain Chocolate
Factory, Inc. will be held on Friday, July 19, 2002 at 10:00 a.m. (local time),
at The Doubletree Hotel, 501 Camino Del Rio, in Durango, Colorado, for the
following purposes:
1. To elect six directors to serve until the fiscal 2003 Annual Meeting
of Shareholders and until their respective successors are elected and qualified.
2. 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 June
14, 2002 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
June 14, 2002
ROCKY MOUNTAIN CHOCOLATE FACTORY, INC.
265 Turner Drive
Durango, Colorado 81303
PROXY STATEMENT
Annual Meeting of Shareholders - July 19, 2002
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 2002 Annual Report to Shareholders, will first be mailed to
the Company's shareholders on or about June 19, 2002. 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 $0.225 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 June 14, 2002 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,
2,495,973 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 any 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 Item No. 1,
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, 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 May 31, 2002, 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.
Amount and Nature
Name of Beneficial Owner of Beneficial Ownership Percent of Class
------------------------ ----------------------- ----------------
Clyde Wm. Engle et al. (1) 464,781(2) 18.5%
Franklin E. Crail (1) 431,794(4) 17.2%
Fred M. Trainor 102,732(3) 4.1%
Jay B. Haws 54,954(4) 2.2%
Lee N. Mortenson 26,332(3) 1.0%
Bryan J. Merryman 82,612(4) 3.2%
Edward L. Dudley 59,533(4) 2.3%
Gerald A. Kien 29,332(3) 1.2%
Gregory L. Pope 14,134(4) 0.6%
All executive officers and
directors as a group (10 persons) 1,278,205(5) 45.9%
(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.
Includes 15,999 shares that Mr. Engle has the right to acquire within 60
days through the exercise of options granted pursuant to the Company's 2000
Nonqualified Stock Option Plan for Nonemployee Directors (the "2000
Director's Plan"). Of the 448,782 shares indicated as being beneficially
owned by Mr. Engle, 171,460 shares are owned through Lincolnwood Bancorp,
Inc. (formerly GSC Enterprises, Inc.), a corporation in which Mr. Engle
owns a majority interest, and 13,333 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.
2
(3) Includes 15,999 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 2000 Director's Plan. Includes 13,333 shares that Messrs.
Trainor and Kien 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 "1990 Director's Plan").
(4) 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, 53,333 shares; Mr. Merryman, 53,333 shares; Mr. Haws, 43,999
shares; Mr. Pope, 14,134 shares; and Mr. Jobson, 12,001 shares; and Mr.
Crail 16,000 shares.
(5) Includes 283,462 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, the 1990 Director's Plan and 2000 Director's Plan.
ITEM 1. ELECTION OF DIRECTORS
NOMINEES
The Company's By-Laws provides 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 2003 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:
NAME POSITIONS WITH COMPANY AGE DIRECTOR SINCE
---- ---------------------- --- --------------
Franklin E. Crail Chairman of the Board, Chief 60 1982
Executive Officer,and President
Bryan J. Merryman Chief Operating Officer, Chief 41 1999
Financial Officer, Treasurer and
Director
Gerald A. Kien Director 70 1995
Lee N. Mortenson Director 66 1987
Fred M. Trainor Director 63 1992
Clyde Wm. Engle Director 59 2000
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. 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.
3
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 been engaged in consulting,
investments, troubled companies and due diligence activities since July 2000,
and is a Managing Director of Kensington Partners, LLC, (a private investment
firm) since June 2001. Mr. Mortenson served as President, Chief Operating
Officer and a director of Telco Capital Corporation of Chicago, Illinois from
January 1984 to February 2000. Telco Capital Corporation is principally engaged
in the manufacturing and real estate businesses. He was President, Chief
Operating Officer and a director of Sunstates Corporation from December 1990 to
February 2000. Sunstates Corporation is primarily engaged in automated textile
equipment manufacturing. Mr. Mortenson was a director of Alba-Waldensian, Inc.
from 1984 to July 1999, and served as President and Chief Executive Officer from
February 1997 to July 1999. Alba is principally engaged in the manufacturing of
apparel and medical products. Mr. Mortenson also served as a director of NRG
Inc., a leasing company, from 1987 to February 2000.
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.
Clyde Wm. Engle. Mr. Engle has served as a director of the Company
since January 2000. 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
real estate development and 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.
INFORMATION REGARDING THE BOARD OF DIRECTORS
No family relationships exist 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. The
Compensation Committee also approves and administers grants of stock options
under the 2000 Director's 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.
4
During the last fiscal year, the Company's Board of Directors held five
meetings. Each director attended 100% 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 60% 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, 2002. 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 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, are generally reviewed in March of each
year based on a number of factors, both objective and subjective, with any
change to be generally effective on March 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 2002, executive officers
received a percentage of their base pay based on the overall performance of the
Company. 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.
5
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 generally require that options granted to employees vest pro rata
20% per year over five years.
There were 104,665 stock options awarded to executive officers or
others in fiscal 2002. Options presently held by current executive officers and
directors under the Company's option plans cover a total of 392,327 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 goals are met or
exceeded, resulting in increased value to shareholders, executives are rewarded
commensurately. The Committee believes that compensation levels during 2002
adequately reflect the Company's compensation goals and policies.
June 14, 2002
6
COMPENSATION COMMITTEE FOR FISCAL 2003:
The 2003 Compensation Committee will consist of: Lee N. 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 the Company's Chief Executive
Officer and each of the four other most highly compensated executive officers of
the Company who met the minimum compensation threshold of $100,000 for inclusion
in the table (the "Named Officers") serving in that capacity as of February 28,
2002.
Long-Term
Compensation
Awards
-------------
Securities
Annual Compensation Underlying
----------------------- Options/SARs All Other
Name and Principal Position Year Salary (1) Bonus(2) (#)(3) Compensation(4)
--------------------------- ---- ---------- -------- ------------- ---------------
Franklin E. Crail, 2002 $185,507 $96,250 13,333 $5,100
Chairman of the Board and 2001 $181,269 $87,500 -0- $5,507
President 2000 $165,000 $50,000 13,333 $2,475
Bryan J. Merryman, 2002 $158,928 $66,000 13,333 $5,100
Chief Operating Officer, Chief Financial 2001 $147,692 $60,000 13,333 $4,126
Officer and Director 2000 $123,673 $50,000 13,333 $1,304
Edward L. Dudley, 2002 $121,904 $44,275 13,333 $4,193
Vice President - Sales and Marketing 2001 $119,192 $40,300 -0- $3,641
2000 $109,115 $25,000 13,333 $1,060
Jay B. Haws, 2002 $111,304 $28,875 -0- -0-
Vice President - Creative Services 2001 $108,808 $26,250 -0- -0-
2000 $100,000 $20,000 13,333 -0-
Gregory L. Pope 2002 $84,153 $35,500 24,000 $2,553
Vice President - Franchise Development 2001 $85,865 $20,000 -0- $2,294
2000 $68,952 -0- 6,667 -0-
(1) Includes amounts deferred at the Named Officers' election pursuant to the
Company's 401(k) Plan.
(2) Represents amounts paid as bonuses based on performance for the indicated
fiscal year, paid in the following fiscal year.
(3) Options to acquire shares of Common Stock under the 1995 Stock Option Plan.
Options granted in 2001 and 2002 have ten-year terms and vest with respect
to one-fifth of the shares covered thereby annually beginning on the date
of grant. Options granted in 2000 have vested 100%.
(4) Represents Company contributions made or accrued on behalf of the Named
Officers under the Company's 401(k) Plan.
7
OPTION GRANTS DURING FISCAL YEAR ENDED FEBRUARY 28, 2002
The Company granted options to purchase 70,666 shares of stock to
officers during the fiscal year ended February 28, 2002 pursuant to the 1995
Stock Option Plan. This grant represents 71% of the options granted to employees
during the fiscal year ended February 28, 2002.
AGGREGATED OPTION EXERCISES DURING FISCAL 2002 AND FISCAL YEAR END OPTION VALUES
The following table provides information regarding the number and value
of options held by the Named Officers at fiscal year end. No options
for shares of stock were exercised by the Named Officers during fiscal
2002. The Company does not have any outstanding stock appreciation
rights.
Number of Securities Value of Unexercised In-
Shares Underlying Unexercised the-Money Options
Acquired on Value Option at Fiscal at Fiscal
Name Exercise(#) Realized($) Year End(#) Year End($)(1)
------------------ ----------- ----------- --------------------------- ----------------------------
Exercisable Unexercisable Exercisable Unexercisable
----------- ------------- ----------- -------------
Franklin E. Crail -- -- 13,333 13,333 76,078 78,080
Bryan J. Merryman -- -- 48,000 31,999 309,438 209,376
Edward L. Dudley -- -- 50,666 16,000 298,418 100,497
Jay B. Haws -- -- 54,666 -- 210,019 27,721
(1) The closing bid price of the Common Stock on The Nasdaq Stock Market on
February 28, 2002, was $9.93 per share.
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 1990
Director's Plan and the 2000 Director's Plan.
The 1990 Director's Plan, as amended, provides for automatic grants of
nonqualified stock options covering a maximum of 120,000 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 1990 Director's Plan provides that,
during the term of the 1990 Director's 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.
The 2000 Director's Plan provides for automatic grants of nonqualified
stock options covering a maximum of 80,000 shares of Common Stock of the Company
to directors of the Company who are not also employees or officers of the
Company. The 2000 Director's Plan provides that, during the term of the 2000
Director's 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 year
following adoption of the 2000 Director's Plan, on a date established by the
Compensation Committee, during the term of the 2000 Director's 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. Each nonemployee director's option may be exercised in full beginning on
the Vesting Date as determined by the Compensation Committee and ending five
years after such vesting date, unless the option expires sooner due to
termination of service or death.
8
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, in the Russell 2000 Index and in a Peer Group Index of
companies in the confectionery industry, on February 28, 1997.
TOTAL SHAREHOLDER RETURN
[GRAPH]
BASE
PERIOD RETURN RETURN RETURN RETURN RETURN
COMPANY/INDEX NAME 1997 2/1998 2/1999 2/2000 2/2001 2/2002
------------------ ------ ------ ------ ------ ------ ------
Rocky Mountain Chocolate
Factory, Inc. 100.00 95.00 90.00 90.00 98.75 264.81
Nasdaq Index - US 100.00 136.64 177.98 363.57 165.61 134.60
Russell 2000 Index 100.00 129.95 111.58 166.56 138.51 138.98
Peer Group(l) 100.00 140.00 154.84 114.74 161.38 187.28
(1) Comprised of the following companies: Hershey Foods Corporation, Imperial
Holly Corporation, Monterey Pasta Company, Paradise, Inc., Sherwood Brands,
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.
AUDIT COMMITTEE REPORT
The audit committee of the Company's board of directors (the "Audit
Committee") consists of three non-employee directors, Lee N. Mortenson, Gerald
A. Kien and Fred M. Trainor, each of whom has been determined to be independent
as defined by the Nasdaq Marketplace Rules. The Audit Committee operates under a
written charter adopted by the board of directors.
Management is responsible for the Company's internal controls and the financial
reporting process. The independent accountants are responsible for performing an
independent audit of the Company's financial statements in accordance with
auditing standards generally accepted in the United States of America and to
issue a report thereon. The Audit committee's responsibility is to monitor and
oversee these processes. It is not our duty or our responsibility to conduct
auditing or
9
accounting reviews or procedures. We are not employees of the Company and we may
not be, and we may not represent ourselves to be or to serve as, accountants or
auditors by profession or experts in the fields of accounting or auditing.
Therefore, we have relied, without independent verification, on management's
representation that the financial statements have been prepared with integrity
and objectivity and in conformity with accounting principles generally accepted
in the United States of America and on the representations of the independent
auditors included in the report on the Company's financial statements. Our
oversight does not provide us with an independent basis to determine that
management has maintained appropriate accounting and financial reporting
principles or policies, or appropriate internal controls and procedures designed
to assure compliance with accounting standards and applicable laws and
regulations. Furthermore, our considerations and discussions with management and
the independent auditors do not assure that the Company's financial statements
are presented in accordance with generally accepted accounting principles, that
the audit of our Company's financial statements has been carried out in
accordance with generally accepted auditing standards or that our Company's
independent accountants are in fact "independent."
In this context the Audit Committee has met and held discussions
separately with management and the independent accountants. Management
represented to the Audit Committee that the Company's financial statements were
prepared in accordance with accounting principles generally accepted in the
United States of America and the Audit Committee has reviewed and discussed the
financial statements with management and the independent accountants. The Audit
Committee discussed with the independent accountants matters required to be
discussed by Statement on Auditing Standards No. 61.
The Company's independent accountants also provided to the Audit
Committee the written disclosure required by Independence Standards Board
Standard No. 1 "Independence Discussions with Audit Committees." The Committee
discussed with the independent accountants that firm's independence and
considered whether the non-audit services provided by the independent
accountants are compatible with maintaining its independence.
Based on the Audit Committee's discussion with management and the
independent accountants, and the Audit Committee's review of the representation
of management and the report of the independent accounts to the Audit Committee,
the Audit Committee recommended that the board of directors include the audited
financial statements in the Company's Annual Report on Form 10-K for the year
ended February 28, 2002 filed with the Securities and Exchange Commission.
Submitted by the Audit Committee of the Company's
Board of Directors,
Lee N. Mortenson
Gerald A. Kien
Fred M. Trainor
FEES BILLED FOR SERVICES RENDERED BY PRINCIPAL ACCOUNTANT
For the fiscal year ended February 28, 2002, Grant Thornton LLP, our
independent auditor and principal accountant, billed the approximate fees as
follows:
Audit Fees........................................................... $72,000
Financial Information Systems Design and Implementation Fees......... $ -0-
All Other Fees....................................................... $36,900
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 2002 failed to
file a Form 4 on a timely basis or was required to file a Form 5 for fiscal 2002
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.
10
RELATIONSHIP WITH INDEPENDENT
PUBLIC ACCOUNTANTS
Grant Thornton LLP was the independent public accountant for the
Company for the year ended February 28, 2002. It is expected that
representatives of Grant Thornton LLP will be present at the Annual Meeting to
make any statement they desire and to respond to appropriate questions.
Grant Thornton LLP has been appointed as independent public accountant
for the Company for the fiscal year ending February 28, 2003. 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 2003 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 February 20, 2003. 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 2003 Proxy solicitation materials.
ANNUAL REPORT TO SHAREHOLDERS
The 2002 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.
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/ Bryan J. Merryman
-----------------------------------
Bryan J. Merryman
Chief Operating Officer/Chief
Financial Officer
June 14, 2002
11
ROCKY MOUNTAIN CHOCOLATE FACTORY, INC.
265 TURNER DRIVE
DURANGO, COLORADO 81303
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints FRANKLIN E. 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
June 14, 2002, at the annual meeting of shareholders to be held on July 19, 2002
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.)
Franklin E. Crail ------------ Bryan J. Merryman ------------ Gerald A. Kien ------------
Lee N. Mortenson ------------ Fred M. Trainor ------------ Clyde Wm. Engle ------------
2. 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.
Date: , 2002
---------------------------
--------------------------------------------
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.