Document:

ex_144987.htm

 

Exhibit 4.1

 

DESCRIPTION OF CAPITAL STOCK

 

 Rocky Mountain Chocolate Factory, Inc. (the “Company”) is incorporated in the State of Delaware. The rights of stockholders of the Company are generally be governed by Delaware law and the Company’s amended and restated certificate of incorporation (the “certificate of incorporation”), certificate of designations of Series A Junior Participating Preferred Stock (the “certificate of designations”) and amended and restated bylaws (the “bylaws”). The following is a summary of the material provisions of the certificate of incorporation, certificate of designations and bylaws. This summary is not complete and is qualified by reference to Delaware statutory and common law and the full texts of the certificate of incorporation, certificate of designations and bylaws, copies of which are filed with the Securities and Exchange Commission (“SEC”).

 

 General

 

 The authorized capital stock of the Company consists of 46,000,000 shares of common stock, $0.001 par value per share, and 250,000 shares of preferred stock, $0.001 par value per share.

 

Common Stock

 

 The holders of common stock are entitled to one vote per share on all matters to be voted on by the common stockholders. The holders of the Company’s common stock are not entitled to cumulative voting in the election of directors. Therefore, holders of a majority of the shares voting for the election of directors can elect all directors. Subject to preferences of any outstanding shares of preferred stock, the holders of common stock are entitled to receive ratably any dividends the Board of Directors may declare out of funds legally available for the payment of dividends. If the Company is liquidated, dissolved or wound up, the holders of common stock are entitled to share pro rata in all assets remaining after payment of, or provision for, the Company’s liabilities and liquidation preferences of any outstanding shares of preferred stock. Holders of common stock have no pre-emptive rights or rights to convert their common stock into any other securities. There are no redemption or sinking fund provisions applicable to the common stock.

 

Preferred Stock

 

 The Board of Directors has the authority, without further action by the stockholders, to issue up to 250,000 shares of preferred stock from time to time in one or more series, of which 50,000 shares of preferred stock have been designated as “Series A Junior Participating Preferred Stock” as described below. The Board of Directors also has the authority to fix the designations, voting powers, preferences, privileges, rights and limitations of any series of preferred stock, including dividend rights, conversion rights, voting rights, terms of redemption and liquidation preferences, any or all of which may be greater than the rights of the common stock. The Board of Directors, without stockholder approval, can issue preferred stock with voting, conversion or other rights that could adversely affect the voting power and other rights of the holders of common stock. The issuance of preferred stock may decrease the market price of the Company’s common stock.

 

Series A Junior Participating Preferred Stock

 

The rights, preferences and privileges of the Series A Junior Participating Preferred Stock of the Company (the “Series A Preferred Stock”) are set forth in the certificate of designations.

 

Pursuant to the rights of the Series A Preferred Stock, subject to the rights of holders of any shares of any series of preferred stock or other class of capital stock ranking prior and superior, the holders of Series A Preferred Stock are entitled to receive, when, as and if declared by the Board of Directors out of the assets of the Company legally available therefor, (i) quarterly dividends payable in cash on the last day of each fiscal quarter in each year, commencing on the first dividend payment date after the first issuance of a share or fraction of a share of Series A Preferred Stock, in an amount of $0.01 per share less amount of all cash dividends declared on the Series A Preferred Stock pursuant to the following clause (ii) since the immediately preceding dividend payment date or, with respect to the first dividend payment date, since the first issuance of any share or fraction of a share of Series A Preferred Stock, and (ii) dividends payable in cash on the payment date for each cash dividend declared on the common stock in an amount per share equal to 1,000 (as adjusted, the “Formula Number”) multiplied times the cash dividends then to be paid on each share of common stock. In addition, if the Company shall pay any dividend or make any distribution on the common stock payable in assets, securities or other forms of non-cash consideration (other than dividends or distributions solely in shares of common stock), then, in each such case, the Company shall simultaneously pay or make on each outstanding share of Series A Preferred Stock a dividend or distribution in like kind equal to the Formula Number then in effect multiplied times such dividend or distribution on each share of the common stock.

 

 

 

 

Holders of Series A Preferred Stock have the right to vote on all matters submitted to a vote of shareholders with each share of Series A Preferred Stock entitled to the number of votes equal to the Formula Number multiplied by the maximum number of votes per share which any holder of common stock has with respect to any matter. Except as otherwise provided by law, holders of Series A Preferred Stock and holders of common stock generally vote together as one class on all matters submitted to a vote of shareholders. Holders of Series A Preferred Stock are entitled to certain voting rights with respect to directors of the Company if the payment of six quarterly dividends are in default.

 

Unless otherwise provided in the rights attaching to a designated series of preferred stock, the Series A Preferred Stock rank junior to any other series of preferred stock as to the payment of dividends and distribution of assets on liquidation, dissolution or winding up, and rank senior to the common stock.

 

Upon any liquidation, dissolution or winding up of the Company, no distributions shall be made to holders of shares ranking junior to the Series A Preferred Stock unless, prior thereto, the holders of Series A Preferred Stock shall have received an amount equal to accrued and unpaid dividends and distributions, whether or not declared, to the date of such payment, plus an amount equal to the greater of (1) $1.00 per share or (2) an aggregate amount per share equal to the Formula Amount multiplied by the aggregate amount to be distributed per share to holders of common stock or to the holders of shares ranking on parity with the Series A Preferred Stock, except distributions made ratably on the Series A Preferred Stock and all other such parity shares in proportion to the total amount to which the holders of all such shares are entitled upon such liquidation, dissolution or winding up.

 

If the Company enters into any consolidation, merger, combination or other transaction in which shares of common stock are exchanged for or changed into cash, other securities and/or any other property, then any Series A Preferred Stock issued and outstanding shall at the same time be similarly exchanged or changed in an amount per share equal to Formula Amount multiplied by the aggregate amount of cash, securities and/or other property, as the case may be, into which or for which each share of common stock is changed or exchanged.

 

The Series A Preferred Stock is not redeemable, provided that the Company may purchase or otherwise acquire outstanding shares of Series A Preferred Stock in the open market or by offer to any holder or holders of shares of Series A Preferred Stock. The Series A Preferred Stock shall not be subject to or entitled to the operation of a retirement or sinking fund.

 

Rights Plan

 

On March 1, 2015, the Company and Computershare Trust Company, N.A. (the “Rights Agent”), entered into a Rights Agreement (the “Rights Agreement”). The following summary of the principal terms of the Rights Agreement is a general description only. It does not purport to be complete and is qualified in its entirety by reference to the Rights Agreement, a copy of which has been filed with the SEC.

 

On March 1, 2015, the Board of Directors authorized and declared a dividend of one Right (a “Right”) for each outstanding share of common stock. The dividend was paid on March 1, 2015 (the “Record Date”) to the holders of record of common stock at the close of business on that date. In addition, the Company has authorized the issuance of one Right with respect to each share of common stock that shall become outstanding between the Record Date and the earliest of the Distribution Date, the Redemption Date and the Final Expiration Date (as such terms are hereinafter defined). When exercisable, each Right entitles the registered holder to purchase from the Company one one-thousandth of a share of Series A Junior Participating Preferred Stock, par value $0.001 per share, of the Company (the “Series A Junior Participating Preferred Stock”), at a price of $30 per one one-thousandth of a share of Series A Junior Participating Preferred Stock (the “Purchase Price”), subject to adjustment.

 

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Until the earlier to occur of (i) 10 days following a public announcement that a person or group of affiliated or associated persons (an “Acquiring Person”) has acquired beneficial ownership of 15 percent or more of the outstanding common stock and (ii) 10 business days (or such later date as may be determined by action of the Board of Directors prior to such time as any person or group of affiliated or associated persons becomes an Acquiring Person) following the commencement of, or first public announcement of an intention to commence, a tender offer or exchange offer the consummation of which would result in the beneficial ownership by a person or group of affiliated or associated persons of 15 percent or more of the outstanding common stock (the earlier of such dates being herein referred to as the “Distribution Date”), the Rights will be evidenced, with respect to any of the common stock certificates outstanding as of the Record Date, by such common stock certificate with a copy of the Summary of Rights attached thereto. No person who is the beneficial owner of 15 percent or more of the common stock on the date of the Rights Agreement shall be deemed to be an Acquiring Person unless and until such person becomes the beneficial owner of any additional common stock and, immediately after the acquisition of such additional shares, is the beneficial owner of 15 percent or more of the common stock.

 

The Rights Agreement provides that, until the Distribution Date (or earlier redemption or expiration of the Rights), the Rights will be transferred with and only with the common stock. Until the Distribution Date (or earlier redemption or expiration of the Rights), new common stock certificates issued after the Record Date, upon transfer or new issuance of common stock, will contain a notation incorporating the Rights Agreement by reference. Until the Distribution Date (or earlier redemption or expiration of the Rights), the surrender for transfer of any certificates for common stock outstanding on or after the Record Date, even without such notation or a copy of the Summary of Rights being attached thereto, will also constitute the transfer of the Rights associated with the common stock represented by such certificate. As soon as practicable following the Distribution Date, separate certificates evidencing the Rights (the “Right Certificates”) will be mailed to holders of record of the common stock as of the close of business on the Distribution Date and such separate Right Certificates alone will evidence the Rights.

 

The Rights are not exercisable until the Distribution Date. The Rights will expire on March 1, 2025 (the “Final Expiration Date”), unless the Final Expiration Date is extended or unless the Rights are earlier redeemed or exchanged by the Company, in each case, as described below.

 

The Purchase Price payable, and the number of Series A Junior Participating Preferred Stock or other securities or property issuable, upon exercise of the Rights are subject to adjustment from time to time to prevent dilution (i) in the event of a stock dividend on, or a subdivision, combination or reclassification of, the Series A Junior Participating Preferred Stock, (ii) upon the grant to holders of the Series A Junior Participating Preferred Stock of certain rights or warrants to subscribe for or purchase Series A Junior Participating Preferred Stock at a price, or securities convertible into Series A Junior Participating Preferred Stock with a conversion price, less than the then current market price of the Series A Junior Participating Preferred Stock or (iii) upon the distribution to holders of the Series A Junior Participating Preferred Stock of evidences of indebtedness or assets (excluding regular periodic cash dividends paid out of earnings or retained earnings or dividends payable in Series A Junior Participating Preferred Stock) or of subscription rights or warrants (other than those referred to above).

 

The number of outstanding Rights and the number of one one-thousandth of a share of Series A Junior Participating Preferred Stock issuable upon exercise of each Right are also subject to adjustment in the event of a stock split of the common stock or a stock dividend on the common stock payable in shares of common stock or subdivisions, consolidations or combinations of the common stock occurring, in any such case, prior to the Distribution Date.

 

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Series A Junior Participating Preferred Stock purchasable upon exercise of the Rights will not be subject to redemption by the Company. Each share of Series A Junior Participating Preferred Stock will be entitled to a minimum preferential quarterly dividend payment of $0.01 per share but will be entitled to an aggregate dividend of 1,000 multiplied times the dividend declared per share of common stock. In the event of liquidation, the holder of the Series A Junior Participating Preferred Stock will be entitled to a minimum preferential liquidation payment of $1.00 per share but will be entitled to an aggregate payment of 1,000 multiplied times the payment made per share of common stock. Each share of Series A Junior Participating Preferred Stock will have 1,000 votes, voting together with the common stock. Finally, in the event of any merger, consolidation or other transaction in which shares of common stock are exchanged, each share of Series A Junior Participating Preferred Stock will be entitled to receive 1,000 multiplied times the amount received per share of common stock. These rights are protected by customary antidilution provisions.

 

Because of the nature of the Series A Junior Participating Preferred Stock dividend, liquidation and voting rights, the value of the one one-hundredth interest in a share of Series A Junior Participating Preferred Stock purchasable upon exercise of each Right should approximate the value of one share of common stock.

 

In the event that any person or group of affiliated or associated persons becomes an Acquiring Person, proper provision shall be made so that each holder of a Right, other than Rights beneficially owned by the Acquiring Person (which will thereafter be null and void and nontransferable), will thereafter have the right to receive upon exercise that number of shares of common stock having a market value of two times the exercise price of the Right. In the event that the Company is acquired in a merger or other business combination transaction or 50 percent or more of its consolidated assets or earning power are sold after a person or group of affiliated or associated persons has become an Acquiring Person, proper provision will be made so that each holder of a Right will thereafter have the right to receive, upon the exercise thereof at the then current exercise price of the Right, that number of shares of common stock of the acquiring company which at the time of such transaction will have a market value of two times the exercise price of the Right.

 

At any time after any person or group of affiliated or associated persons becomes an Acquiring Person and prior to the acquisition by such person or group of 50 percent or more of the outstanding shares of common stock, the Board of Directors may exchange the Rights (other than Rights owned by such person or group which will have become null and void and nontransferable), in whole or in part, at an exchange ratio of one share of common stock, or one one-hundredth of a share of Series A Junior Participating Preferred Stock (or of a share of a class or series of the Company’s preferred stock having equivalent rights, preferences and privileges), per Right (subject to adjustment).

 

With certain exceptions, no adjustment in the Purchase Price will be required until cumulative adjustments require an adjustment of at least one percent in such Purchase Price. The Company may, but shall not be required to, issue fractions of a share of Series A Junior Participating Preferred Stock (other than one one-hundredth of a share of Series A Junior Participating Preferred Stock or any integral multiple thereof, which may, at the election of the Company, be evidenced by depositary receipts) and in lieu thereof, an adjustment in cash will be made based on the market price of the Series A Junior Participating Preferred Stock on the last trading day prior to the date of exercise.

 

At any time prior to the close of business on the tenth day following a public announcement that an Acquiring Person has become such an Acquiring Person, the Board of Directors may redeem the Rights in whole, but not in part, at a price of $0.01 per Right (the “Redemption Price”). The redemption of the Rights may be made effective at such time, on such basis and with such conditions as the Board of Directors in its sole discretion may establish. The time at which the Rights are redeemed by the Company is herein referred to as the “Redemption Date.” Immediately upon any redemption of the Rights, the right to exercise the Rights will terminate and the only right thereafter of the holders of Rights will be to receive the Redemption Price.

 

At any time prior to the Distribution Date and subject to the last sentence of this paragraph, the terms of the Rights may be amended by the Board of Directors without the consent of the holders of the Rights, including without limitation an amendment to lower certain thresholds described above to not less than the greater of (i) the sum of 0.001 percent and the largest percentage of the outstanding shares of common stock then known by the Company to be beneficially owned by any person or group of affiliated or associated persons and (ii) 10 percent. From and after the Distribution Date and subject to applicable law, the terms of the Rights may be amended by the Board of Directors of the Company without the consent of the holders of the Rights to, among other things, make any other provisions in regard to matters under the Rights Agreement that the Company may deem necessary or desirable and that shall not adversely affect the interests of the holders of the Rights (other than an Acquiring Person or an affiliate or associate of an Acquiring Person). The terms of the Rights may not be amended to (i) reduce the Redemption Price (except as required by antidilution provisions) or (ii) provide for an earlier Final Expiration Date.

 

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Until a Right is exercised, the holder thereof, as such, will have no rights as a stockholder of the Company, including, without limitation, the right to vote or to receive dividends.

 

The Series A Junior Participating Preferred Stock ranks, with respect to the payment of dividends and as to distributions of assets upon liquidation, dissolution or winding up of the Company, junior to all other series of preferred stock of the Company, unless the Board of Directors of the Company shall specifically determine otherwise in fixing the powers, preferences and relative, participating, optional and other special rights of the shares of any such other series and the qualifications, limitations and restrictions thereof.

 

As of March 1, 2015, there were 6,022,031 shares of common stock issued and outstanding, and an aggregate of an additional 315,653 shares of common stock reserved for issuance under the Company’s equity plans. One Right was distributed to holders of common stock for each share of common stock owned of record by them on March 1, 2015. One Right will be issued with respect to each share of common stock that shall become outstanding between the Record Date and the earliest of the Distribution Date, the Redemption Date and the Final Expiration Date. In certain circumstances, the Company may issue Rights with respect to shares of common stock issued following the Distribution Date and prior to the earlier of the Redemption Date and the Final Expiration Date. The Board of Directors initially reserved for issuance upon exercise of the Rights 50,000 Series A Junior Participating Preferred Stock, which number is subject to adjustment from time to time in accordance with the Rights Agreement.

 

The Rights approved by the Board of Directors are designed to protect and maximize the value of the outstanding equity interests in the Company in the event of an unsolicited attempt by an acquirer to take over the Company in a manner or on terms not approved by the Board of Directors. Takeover attempts frequently include coercive tactics to deprive the Board of Directors and the Company’s stockholders of any real opportunity to determine the destiny of the Company. The Rights have been declared by the Board of Directors in order to deter such tactics, including a gradual accumulation of shares in the open market of 15% or greater position to be followed by a merger or a partial or two-tier tender offer that does not treat all stockholders equally. These tactics unfairly pressure stockholders, squeeze them out of their investment without giving them any real choice and deprive them of the full value of their shares.

 

The Rights are not intended to prevent a takeover of the Company and will not do so. Subject to the restrictions described above, the Rights may be redeemed by the Company at $0.01 per Right at any time prior to the Distribution Date. Accordingly, the Rights should not interfere with any merger or business combination approved by the Board of Directors.

 

However, the Rights may have the effect of rendering more difficult or discouraging an acquisition of the Company deemed undesirable by the Board of Directors. The Rights may cause substantial dilution to a person or group that attempts to acquire the Company on terms or in a manner not approved by the Board of Directors, except pursuant to an offer conditioned upon the negation, purchase or redemption of the Rights.

 

Issuance of the Rights does not in any way weaken the financial strength of the Company or interfere with its business plans. The issuance of the Rights themselves has no dilutive effect, will not affect reported earnings per share, should not be taxable to the Company or to its stockholders, and will not change the way in which the Company’s shares are presently traded. The Board of Directors believes that the Rights represent a sound and reasonable means of addressing the complex issues of corporate policy created by the current takeover environment.

 

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Board of Directors

 

The Board of Directors is not classified.

 

Preemptive Rights

 

Under Delaware law, a stockholder is not entitled to pre-emptive rights to subscribe for additional issuances of common stock or any other class of series of common stock or any security convertible into such stock in proportion to the shares that are owned unless there is a provision to the contrary in the certificate of incorporation. The certificate of incorporation does not provide that stockholders are entitled to pre-emptive rights.

 

Anti-Takeover Effects of Certain Provisions of the Certificate of Incorporation, the Bylaws and Delaware Law

 

 Provisions of the certificate of incorporation, the bylaws and Delaware law could have the effect of delaying or preventing a third party from acquiring the Company, even if the acquisition would benefit stockholders. These provisions may delay, defer or prevent a tender offer or takeover attempt of the Company that a stockholder might consider in the stockholder’s best interest, including those attempts that might result in a premium over the market price for the shares held by its stockholders. These provisions are intended to enhance the likelihood of continuity and stability in the composition of the Board of Directors and in the policies formulated by the Board of Directors and to reduce the Company’s vulnerability to an unsolicited proposal for a takeover that does not contemplate the acquisition of all of the Company’s outstanding shares, or an unsolicited proposal for the Company’s restructuring or sale of all or part of its business. See also “—Rights Plan.”

 

Authorized but Unissued Shares of Common Stock and Preferred Stock

 

 The Company’s authorized but unissued shares of common stock and preferred stock are available for the Board of Directors to issue without stockholder approval. As noted above, the Board of Directors, without stockholder approval, has the authority under the certificate of incorporation to issue preferred stock with rights superior to the rights of the holders of common stock. As a result, preferred stock could be issued quickly, could adversely affect the rights of holders of common stock and could be issued with terms calculated to delay or prevent a change of control or make removal of management more difficult. The Company may use the additional authorized shares of common or preferred stock for a variety of corporate purposes, including future public offerings to raise additional capital, corporate acquisitions and employee benefit plans. The existence of authorized but unissued shares of common stock and preferred stock could render more difficult or discourage an attempt to obtain control of the Company by means of a proxy contest, tender offer, merger or other transaction.

 

 Stockholder Action; Special Meetings of Stockholders

 

 The certificate of incorporation provides that any action required or permitted to be taken by stockholders at an annual meeting or special meeting of the stockholders may only be taken at an annual or special meeting before which it is properly brought, and not by written consent without a meeting. The certificate of incorporation also provides that special meetings of stockholders may be called only by Board of Directors or by the chairman of the Board of Directors.

 

Advance Notice Requirements for Stockholders Proposals and Director Nominations

 

 The bylaws provide that stockholders seeking to bring business before a meeting of stockholders, or to nominate candidates for election as directors at a meeting of stockholders, must provide the Company with timely written notice of their proposal. The bylaws also specify requirements as to the form and content of a stockholder’s notice. These provisions may preclude stockholders from bringing matters before an annual meeting of stockholders or from making nominations for directors at an annual meeting of stockholders.

 

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Amendment to the Certificate of Incorporation and the Bylaws

 

 The certificate of incorporation may generally be amended by a majority of its stockholders, except with respect to provisions regarding the Board of Directors and stockholder meetings, which may only be amended upon approval of holders of at least 66-2/3% of the Company’s outstanding voting stock. The bylaws may generally be amended by the Board of Directors or by stockholders upon approval of holders of at least 66-2/3% of the Company’s outstanding voting stock.

 

Forum Selection

 

 The certificate of incorporation provides that, unless the Company consents in writing to the selection of an alternative forum, the Court of Chancery of the State of Delaware shall be the sole and exclusive forum for (i) any derivative action or proceeding brought on the Company’s behalf, (ii) any action asserting a claim of breach of a fiduciary duty, (iii) any action asserting a claim against the Company arising pursuant to the Delaware General Corporation Law (“DGCL”), the certificate of incorporation or the bylaws or (iv) any action asserting a claim against the Company that is governed by the internal affairs doctrine. Any person or entity purchasing or otherwise acquiring any interest in shares of capital stock of the Company shall be deemed to have notice of and consented to this forum selection provision. Although the Company has included a choice of forum clause in the certificate of incorporation, it is possible that a court could rule that such clause is inapplicable or unenforceable.

 

Litigation Costs

 

The bylaws provide that, to the fullest extent permitted by law, in the event that (i) any current or prior stockholder of the Company or anyone on their behalf (“Claiming Party”) initiates or asserts any claim or counterclaim (“Claim”) or joins, offers substantial assistance to, or has a direct financial interest in any Claim against the Company and/or any director, officer, employee or affiliate, and (ii) the Claiming Party (or the third party that received substantial assistance from the Claiming Party or in whose Claim the Claiming Party had a direct financial interest) does not obtain a judgment on the merits that substantially achieves, in substance and amount, the full remedy sought, then each Claiming Party shall be obligated jointly and severally to reimburse the Company and any such director, officer, employee or affiliate, the greatest amount permitted by law of all fees, costs and expenses of every kind and description (including but not limited to, all reasonable attorneys’ fees and other litigation expenses) that the parties may incur in connection with such Claim.

 

This fee-shifting bylaw is not limited to specific types of actions, but is rather potentially applicable to the fullest extent permitted by law. There are several types of remedies that a Claiming Party may seek in connection with an action or proceeding against the Company , including declaratory or injunctive relief, or monetary damages. If a Claiming Party is not successful in obtaining a judgment that achieves in substance, such as in the case of a Claim for declaratory or injunctive relief, or amount, such as in the case of a Claim for monetary damages, the Company’s and its directors’, officers’, employees’ and affiliates’ litigation expenses may be shifted to the Claiming Party.

 

Fee-shifting bylaws are relatively new and untested. The case law and potential legislative action on fee-shifting bylaws are evolving and there exists considerable uncertainty regarding the validity of, and potential judicial and legislative responses to, such bylaws. For example, it is unclear whether the Company’s ability to invoke this fee-shifting bylaw in connection with Claims under the federal securities laws would be pre-empted by federal law. Similarly, it is unclear how courts might apply the standard that a Claiming Party must obtain a judgment that substantially achieves, in substance and amount, the full remedy sought. The application of this fee-shifting bylaw in connection with such Claims, if any, will depend in part on future developments of the law. There can be no assurance that the Company will or will not invoke this fee-shifting bylaw in any particular dispute, including any Claims under federal securities laws.

 

If a current or prior stockholder that brings any Claim is unable to obtain the required judgment, the attorneys’ fees and other litigation expenses that might be shifted to a Claiming Party are potentially significant. This fee-shifting bylaw, therefore, may dissuade or discourage current or prior stockholders (and their attorneys) from initiating lawsuits or claims against the Company or its directors, officers, employees or affiliates, including Claims that that may otherwise be in the best interests of stockholders of the Company as a whole.  In addition, it may impact the fees, contingency or otherwise, required by potential plaintiffs’ attorneys to represent the Company’s stockholders or otherwise discourage plaintiffs’ attorneys from representing the Company’s stockholders at all. As a result, this fee-shifting bylaw may limit the ability of stockholders to affect the management and direction of the Company, particularly through litigation or the threat of litigation.

 

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Delaware Anti-Takeover Statute

 

The Company is subject to the provisions of Section 203 of the DGCL, an anti-takeover law. Subject to exceptions, the statute prohibits a publicly-held Delaware corporation from engaging in a “business combination” with an “interested stockholder” for a period of three years after the date of the transaction in which the person became an interested stockholder, unless:

 

	 	
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			prior to such date, the Board of Directors of the corporation approved either the business combination or the transaction which resulted in the stockholder becoming an interested stockholder;

			

 

	 	
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			upon consummation of the transaction which resulted in the stockholder becoming an interested stockholder, the interested stockholder owned at least 85% of the voting stock of the corporation outstanding at the time the transaction commenced (excluding for purposes of determining the number of shares outstanding, those shares owned by (1) persons who are directors and also officers and (2) employee stock plans in which employee participants do not have the right to determine confidentially whether shares held subject to the plan will be tendered in a tender or exchange offer); or

			

 

	 	
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			on or after such date, the business combination is approved by the Board of Directors and authorized at an annual or special meeting of stockholders and not by written consent, by the affirmative vote of at least 66-2/3% of the outstanding voting stock which is not owned by the interested stockholder.

			

 

 For purposes of Section 203, a “business combination” includes a merger, asset sale or other transaction resulting in a financial benefit to the interested stockholder, with an “interested stockholder” being defined as a person who, together with affiliates and associates, owns, or within three years prior to the date of determination whether the person is an “interested stockholder,” did own, 15% or more of the corporation’s voting stock.

 

Transfer Agent

 

 The transfer agent for the common stock is Computershare Trust Company, N.A., 350 Indiana Street, Suite 750, Golden, Colorado 80401.

 

Nasdaq Global Market Listing

 

 The common stock is listed on the Nasdaq Global Market under the trading symbol “RMCF.”

 

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Exhibit 10.14

SECOND RESTATED EMPLOYMENT AGREEMENT 

 

This Second Restated Employment Agreement (“Agreement”), dated as of February 26, 2019 is between Rocky Mountain Chocolate Factory, Inc., a Delaware corporation (“Employer”), and Bryan J. Merryman (“Employee”).

 

R E C I T A L S: 

 

A.     Employee is employed by Employer, and Employer and Employee have entered into a written agreement dated as of May 21, 1999 (the “Prior Agreement”), to specify the terms and conditions of Employee’s employment with Employer.

 

B.     Employee has been promoted to the position of President and Chief Executive Officer of the Company, and Employer and Employee desire to replace the Prior Agreement with this Agreement.

 

C.     Employer considers the maintenance of a sound management team essential to protecting and enhancing its best interests and those of its stockholders, and Employee is a key executive of Employer and an integral member of its management team.

 

NOW, THEREFORE, in consideration of Employee’s past and future employment with Employer and other good and valuable consideration, the parties agree as follows:

 

SECTION 1.     Employment. Employer hereby employs Employee, and Employee hereby accepts employment, upon the terms and subject to the conditions hereinafter set forth.

 

SECTION 2.   Duties. Employee shall be employed as President and Chief Executive Officer of the Company, or such other position to which he may be appointed by the Board of Directors. Employee agrees to devote his full time and best efforts to the performance of the duties attendant to his executive position with Employer.

 

SECTION 3.     Term. The initial term of employment of Employee hereunder shall commence on the date of this Agreement (the “Commencement Date”) and continue until the first anniversary of the Commencement Date, unless earlier terminated pursuant to Section 6 or Section 10. The term of employment of Employee hereunder will be automatically extended on a month-to-month basis after the end of the initial term unless either Employer or Employee shall give the other written notice of its election not to renew this Agreement at least 30 days prior to the end of the initial one-year term or at least 20 days prior to the end of any calendar month thereafter.

 

SECTION 4.      Compensation and Benefits. In consideration for the services of Employee hereunder, Employer shall compensate Employee as follows:

 

(a)      Base Salary. Until the termination of Employee’s employment hereunder, Employer shall pay Employee, semi-monthly in arrears, a base salary at an annual rate of not less than $355,000 (as it may be increased from time to time, the “Base Salary”). The Base Salary as then in effect may not be decreased at any time during the term of Employee’s employment hereunder and shall be reviewed annually by Employer. Any increase in the Base Salary shall be in the sole discretion of the Compensation Committee of the Board of Directors of the Company.

 

1

 

 

(b)      Management Incentive Bonus. Employee shall be eligible to receive from Employer such annual incentive bonuses as may be determined by the Compensation Committee of the Board of Directors or as may be provided in incentive bonus plans adopted from time to time by Employer.

 

(c)       Vacation. Employee shall be entitled to 15 days of paid vacation per year at the reasonable and mutual convenience of Employer and Employee. Unless otherwise approved by the Compensation Committee of the Board of Directors of the Company, accrued vacation not taken in any calendar year shall not be carried forward or used in any subsequent calendar year.

 

(d)       Insurance Benefits. Employer shall provide accident, health, dental, disability and life insurance for Employee under the group accident, health, dental, disability and life insurance plans maintained by Employer for its full-time, salaried employees.

 

SECTION 5.    Expenses. The parties anticipate that in connection with the services to be performed by Employee pursuant to the terms of this Agreement, Employee will be required to make payments for travel, entertainment of business associates and similar expenses. Employer shall reimburse Employee for all reasonable expenses of types authorized by Employer and incurred by Employee in the performance of his duties hereunder. Employee shall comply with such budget limitations and approval and reporting requirements with respect to expenses as Employer may establish from time to time.

 

SECTION 6.      Termination.

 

(a)        General. Employee’s employment hereunder shall commence on the Commencement Date and continue until the end of the term specified in Section 3, except that the employment of Employee hereunder shall terminate prior to such time in accordance with the following:

 

(i)     Death or Disability. Upon the death of Employee during the term of his employment hereunder or, at the option of Employer, in the event of Employee’s Disability, upon 30 days’ notice to Employee.

 

(ii)     For Cause. For “Cause” immediately upon written notice by Employer to Employee. A termination shall be for Cause if

 

(1)     Employee commits a criminal act involving moral turpitude;

 

(2)     Employee commits a material breach of any of the covenants, terms and provisions hereof or an act of gross negligence or willful misconduct resulting in a material loss or detriment to Employer; or

 

(3)     Employee fails on a continuing basis, in the judgment of the Board of Directors of the Company, adequately to perform his duties as an officer of Employer, and such failure is not cured within 20 days after he receives notice of such failure from Employer.

 

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(iii)     Without Cause. Without Cause upon notice by Employer to Employee. Without limiting the foregoing, for purposes of Section 6(b)(ii) Employee’s employment hereunder shall be deemed to have been terminated by Employer without Cause pursuant to this Section 6(a)(iii) (a) upon the expiration of the term of Employee’s employment specified in Section 3, if Employer has given the notice of nonrenewal contemplated by the last sentence of Section 3, or (b) if Employee’s employment is Constructively Terminated by Employer.

 

(b)        Severance Pay and Bonuses.

 

(i)     Termination Upon Death or Disability. Employee shall not be entitled to any severance pay or other compensation upon termination of his employment hereunder pursuant to Section 6(a)(i) except for the following (which shall be paid promptly after termination, except as specified in subsection (4) below):

 

(1)     his Base Salary accrued but unpaid as of the date of termination;

 

(2)     unpaid expense reimbursements under Section 5 for expenses incurred in accordance with the terms hereof prior to termination;

 

(3)     compensation for accrued, unused vacation as of the date of termination, determined in accordance with Employer’s policies and procedures then in effect; and

 

(4)     any bonus to which Employee would have been entitled for the Bonus Period if he were still employed hereunder on the last day of the Bonus Period. Any such bonus shall be paid to Employee (or to his estate, as the case may be) at the same time bonuses are paid in respect of the Bonus Period to other employees of Employer entitled to receive bonuses for the Bonus Period. In the event the determination of Employee’s bonus in respect of the Bonus Period involves any subjective assessment, such assessment shall be made in a manner most favorable to Employee. The term “Bonus Period” means the full fiscal year or other applicable bonus period during which Employee’s employment hereunder was terminated (or during which Employee became Disabled, in the event of a termination for Disability).

 

(ii)    Termination Without Cause, Separation Payments. In the event Employee’s employment hereunder is terminated pursuant to Section 6(a)(iii), Employer shall pay Employee Separation Payments as Employee’s sole remedy in connection with such termination. “Separation Payments” are payments made at the monthly rate of Employee’s Base Salary in effect immediately preceding the date of termination. Separation Payments shall be made for 12 months after the date of termination (the “Separation Payment Period”) and shall be paid by Employer in equal monthly payments in arrears. Subject to Section 11(p), Separation Payments shall be reduced by the amount of any personal services income earned by Employee from other sources during the Separation Payment Period. Separation Payments shall be made for the number of months specified above without regard to the number of months remaining in the term of this Agreement. Notwithstanding the foregoing, Employer’s obligation to make, and Employee’s right to receive, Separation Payments shall terminate immediately upon any violation by Employee of any covenant contained in Section 8 or 9 hereof. Employer shall also promptly pay Employee the following:

 

(1)     his Base Salary accrued but unpaid as of the date of termination;

 

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(2)     unpaid expense reimbursements under Section 5 for expenses incurred in accordance with the terms hereof prior to termination; and

 

(3)     compensation for accrued, unused vacation as of the date of termination, determined in accordance with Employer’s policies and procedures then in effect.

 

This Section 6(b)(ii) is subject to the provisions of Section 10(j) dealing with the coordination of payments in the event of a Change In Control.

 

(iii)    Termination For Cause, Voluntary Termination. Employee shall not be entitled to Separation Payments or any other severance pay or other compensation upon termination of his employment hereunder pursuant to Section 6(a)(ii), or upon Employee’s voluntary termination of his employment hereunder, except for the following (which shall be paid promptly after termination):

 

(1)     his Base Salary accrued but unpaid as of the date of termination;

 

(2)     unpaid expense reimbursements under Section 5 for expenses incurred in accordance with the terms hereof prior to termination; and

 

(3)     compensation for accrued, unused vacation as of the date of termination, determined in accordance with Employer’s policies and procedures then in effect.

 

(c)        Acceleration of Restricted Stock Units. In the event Employee’s employment hereunder is terminated pursuant to Section 6(a)(iii), subject to Section 11(p), all Restricted Stock Units granted to Employee under the Equity Incentive Plan and outstanding at the time of such termination shall be fully vested and shall thereafter be settled in accordance with the terms thereof and the applicable provisions of the Equity Incentive Plan. The Board of Directors or the Compensation Committee of the Board of Directors of the Company shall take such action as shall be necessary to authorize and provide for the foregoing.

 

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SECTION 7.     Inventions; Assignment.

 

(a)        Inventions Defined. All rights to discoveries, inventions, improvements, designs, work product and innovations (including without limitation all data and records pertaining thereto) that relate to the business of Employer, whether or not specifically within Employee’s duties or responsibilities and whether or not patentable, copyrightable or reduced to writing, that Employee may discover, invent, create or originate during the term of his employment hereunder or otherwise, and for a period of six months thereafter, either alone or with others and whether or not during working hours or by the use of the facilities of Employer (“Inventions”), shall be the exclusive property of Employer. Employee shall promptly disclose all Inventions to Employer, shall execute at the request of Employer any assignments or other documents Employer may deem necessary to protect or perfect its rights therein, and shall assist Employer, at Employer’s expense, in obtaining, defending and enforcing Employer’s rights therein. Employee hereby appoints Employer as his attorney-in-fact to execute on his behalf any assignments or other documents deemed necessary by Employer to protect or perfect its rights to any Inventions.

 

(b)        Covenant to Assign and Cooperate. Without limiting the generality of the foregoing, Employee shall assign and transfer, and does hereby assign and transfer, to Employer the world-wide right, title and interest of Employee in the Inventions. Employee agrees that Employer may file copyright registrations and apply for and receive patents (including without limitation Letters Patent in the United States) for the Inventions in Employer’s name in such countries as may be determined solely by Employer. Employee shall communicate to Employer all facts known to Employee relating to the Inventions and shall cooperate with Employer’s reasonable requests in connection with vesting title to the Inventions and related copyrights and patents exclusively in Employer and in connection with obtaining, maintaining, protecting and enforcing Employer’s exclusive copyrights and patent rights in the Inventions.

 

(c)        Successors and Assigns. Employee’s obligations under this Section 7 shall inure to the benefit of Employer and its successors and assigns and shall survive the expiration of the term of this Agreement for such time as may be necessary to protect the proprietary rights of Employer in the Inventions.

 

(d)        Consideration and Expenses. Employee shall perform his obligations under this Section 7 at Employer’s expense, but without any additional or special compensation therefor.

 

SECTION 8.     Confidential Information.

 

(a)      Acknowledgment of Proprietary Interest. Employee acknowledges that all Confidential Information is a valuable, special and unique asset of Employer’s business, access to and knowledge of which are essential to the performance of Employee’s duties hereunder. Employee acknowledges the proprietary interest of Employer in all Confidential Information. Employee agrees that all Confidential Information learned by Employee during his employment with Employer or otherwise, whether developed by Employee alone or in conjunction with others or otherwise, is and shall remain the exclusive property of Employer. Employee further acknowledges and agrees that his disclosure of any Confidential Information will result in irreparable injury and damage to Employer.

 

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(b)      Confidential Information Defined. “Confidential Information” means all confidential and proprietary information of Employer, written, oral or computerized, as it may exist from time to time, including without limitation(i) information derived from reports, investigations, experiments, research and work in progress, (ii) methods of operation, (iii) market data,(iv) proprietary computer programs and codes, (v) drawings, designs, plans and proposals, (vi) marketing and sales programs, (vii) franchisee and supplier lists and any other information about Employer’s relationships with others, (viii) historical financial information and financial projections, (ix) pricing, product rotation and similar formulae and policies, (x) all other concepts, ideas, materials and information prepared or performed for or by Employer and (xi) all information related to the business, products, purchases or sales of Employer or any of its franchisees, suppliers and customers, other than information that is made publicly available by Employer.

 

(c)        Covenant Not To Divulge Confidential Information. Employer is entitled to prevent the disclosure of Confidential Information. As a portion of the consideration for the employment of Employee and for the compensation being paid to Employee by Employer, Employee agrees at all times during the term of his employment hereunder and thereafter to hold in strict confidence and not to disclose or allow to be disclosed to any person, firm or corporation, other than to persons engaged by Employer to further the business of Employer, and not to use except in the pursuit of the business of Employer, the Confidential Information, without the prior written consent of Employer. This Section 8 shall survive and continue in full force and effect in accordance with its terms after, and will not be deemed to be terminated by, any termination of this Agreement or of Employee’s employment with Employer for any reason.

 

(d)       Return of Materials at Termination. In the event of any termination or cessation of his employment with Employer for any reason, Employee shall promptly deliver to Employer all property of Employer, including without limitation all documents, data and other information containing, derived from or otherwise pertaining to Confidential Information. Employee shall not take or retain any property of Employer, including without limitation any documents, data or other information, or any reproduction or excerpt thereof, containing, derived from or pertaining to any Confidential Information. The obligation of confidentiality set forth in this Section 8 shall continue notwithstanding Employee’s delivery of such documents, data and information to Employer.

 

SECTION 9.     Noncompetition.

 

(a)       Covenant Not To Compete. Employee acknowledges that during the term of his employment Employer has agreed to provide to him, and he shall receive from Employer, special training and knowledge, including without limitation the Confidential Information. Employee acknowledges that the Confidential Information is valuable to Employer and, therefore, its protection and maintenance constitutes a legitimate interest to be protected by Employer by the enforcement of the covenant not to compete contained in this Section 9. Employee also acknowledges that such covenant not to compete is ancillary to other enforceable agreements of the parties, including without limitation the agreements regarding Confidential Information in Section 8 and the agreements regarding the payment of Separation Payments and other severance pay and of the Termination Payment in Section 10, respectively. Therefore, during the term of this Agreement and for a period of two years (unless extended pursuant to the terms of this Section 9) after termination of Employee’s employment hereunder (including, without limitation, a Triggering Termination as defined in Section 10), Employee shall not directly or indirectly

 

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(i)    engage, alone or as a shareholder, partner, member, manager, director, officer, employee of or consultant to any other business organization that engages or is planning to engage, anywhere in the United States or Canada or in any other geographic area in or with respect to which Employee has any duties or responsibilities during the term of his employment with Employer, in any business activities that relate to the manufacture or retail sale of chocolate candy, including but not limited to the sale through franchisees (the “Designated Industry”); or

 

(ii)   solicit or encourage any director, officer, employee of or consultant to Employer to end his relationship with Employer or commence any such relationship with any competitor of Employer.

 

Notwithstanding the foregoing, (1) Employee’s noncompetition obligations hereunder shall not preclude Employee from owning less than five percent of the voting power or economic interest in any publicly traded corporation conducting business activities in the Designated Industry and (2) an entity shall not be deemed to be engaged in the Designated Industry unless its revenue from the manufacture and/or retail sale of chocolate candy (including sales through franchisees) represents 25% or more of its total revenue for its full fiscal quarter immediately preceding the date of termination of Employee’s employment hereunder (or the date of his association with such entity, if earlier) or any of the eight immediately subsequent fiscal quarters of such entity.

 

(b)       Extension of Duration; Survival. If Employee violates any covenant contained in this Section 9, Employer shall not, as a result of such violation or the time involved in obtaining legal or equitable relief therefor, be deprived of the benefit of the full period of any such covenant. Accordingly, the covenants of Employee contained in this Section 9 shall be deemed to have the duration specified in Section 9(a), which period shall be extended by a number of days equal to the sum of (i) the total number of days Employee is in violation of any of the covenants contained in this Section 9 prior to the commencement of any litigation relating thereto and (ii) the total number of days the parties are involved in such litigation, through the date of entry by a court of competent jurisdiction of a final judgment enforcing the covenants of Employee in this Section 9. This Section 9 shall survive and continue in full force and effect in accordance with its terms after, and will not be deemed to be terminated by, any termination of this Agreement or of Employee’s employment with Employer for any reason.

 

(c)       Severability. If at any time the provisions of this Section 9 are determined to be invalid or unenforceable by reason of being vague or unreasonable as to area, duration or scope of activity, this Section 9 shall be considered divisible and shall be immediately amended to only such area, duration and scope of activity as shall be determined to be reasonable and enforceable by the court or other body having jurisdiction over the matter, and Employee agrees that this Section 9 as so amended shall be valid and binding as though any invalid or unenforceable provision had not been included herein.

 

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SECTION 10.   Termination of Employment in Connection With a Change In Control.

 

(a)       Applicability. Employer recognizes that the possibility of a Change In Control of Employer may result in the departure or distraction of management to the detriment of Employer and its stockholders, and Employer has determined that appropriate steps should be taken to reinforce and encourage the continued attention and dedication of key members of Employer’s management team, including Employee, to their assigned duties. Accordingly, the provisions of this Section 10 shall apply in lieu of all conflicting provisions in this Agreement in the event Employee’s employment with Employer is terminated in a Triggering Termination. Each of the following events constitutes a “Triggering Termination” when Employee’s employment with Employer is:

 

(i)    terminated by Employer or Employee for any reason other than death, or for no reason, or terminated upon the expiration of Employee’s initial or any renewal term of employment specified in Section 3, within the 12-month period following a Change In Control;

 

(ii)    terminated by Employer for any reason other than the commission of a felony by Employee, or terminated upon the expiration of Employee’s initial or any renewal term of employment specified in Section 3, during an Applicable Period;

 

(iii)    Constructively Terminated by Employer during an Applicable Period; or

 

(iv)    terminated in an Agreement Termination pursuant to this Section 10(a)(iv).

 

(1)     An “Agreement Termination” shall occur when Employee’s employment hereunder is terminated by Employee in anticipation of a Change In Control to the extent that his continued employment with Employer is not pursuant to the terms of this Agreement (other than as provided herein with respect to an Agreement Termination) and thereafter is only on an at-will basis. Employee’s determination to effect an Agreement Termination must be based on a good faith judgment of Employee and any two or more Concurring Persons, in light of the circumstances as then known or understood by them, that a Change In Control is going to occur within five business days, but it is not required as a condition to such good faith judgment that:

 

(I)     Employee or any Concurring Person conduct any investigation or consult with any other person or group (except only for Employee’s requirement to obtain the concurrence or approval of Concurring Persons);

 

(II)    no condition remains to be satisfied before the Change In Control can occur; or

 

(III)   the Board of Directors of Employer has taken any action to approve or facilitate the Change In Control.

 

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(2)     The concurrence or approval of the Concurring Persons is limited to the occurrence and timing of the Change In Control and is not made regarding the propriety of Employee’s effecting an Agreement Termination.

 

(3)     In consideration of the right to effect an Agreement Termination and receive the Termination Payment, Employee agrees that, upon (and notwithstanding) his exercise of such right, he shall continue, without interruption until such Change In Control occurs (unless his at-will employment with Employer is sooner terminated or Constructively Terminated by Employer, as described in Sections 10(a)(ii) and (iii), or Employee dies or his employment with Employer is terminated due to Disability), to devote his full time and best efforts as an at-will employee of Employer to the performance of the same duties that he performed for Employer, holding the same office or position with Employer as he held before the Agreement Termination. Employee’s obligation set forth in the preceding sentence is referred to herein as the “Continued Performance Obligation.”

 

(4)     Employee shall have no obligation to comply with Section 8(d) until he has no further Continued Performance Obligation. If the anticipated Change In Control does not occur within ten business days following the exercise of his right to effect an Agreement Termination, then such Agreement Termination shall be void and ineffective, and Employee’s employment under all the terms of this Agreement (including without limitation his compensation and benefits, duties, position and rights regarding any other actual or expected Change In Control) shall be deemed to have continued without interruption.

 

(5)    If Employee fails to satisfy his Continued Performance Obligation, and such failure continues for more than one business day after receipt by Employee of written notice from Employer of such failure, then

 

(I)    such Agreement Termination shall be void and ineffective, and Employee shall be deemed to have voluntarily terminated his employment hereunder before a Change In Control; and

 

(II)    Employee shall not be eligible to receive the Termination Payment or a Gross Up Payment.

 

(b)        Termination Payment.

 

(i)     Amount.

 

(1)     Upon the occurrence of a Triggering Termination, Employee shall become entitled to receive a termination payment (the “Termination Payment) in an amount equal to 2.99 times the sum of the following items:

 

(I)     Employee’s annualized base compensation determined by using the highest annual base compensation rate in effect at any time during Employee’s employment with Employer; and

 

(II)    two times the Target Bonus that would be payable to Employee by Employer for the bonus period in which the Change In Control occurred; provided that the amount determined under this Section 10(b)(i)(l)(II) shall not be less than 25% of the amount determined under Section 10(b)(i)(l)(I);

 

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(2)     In addition to the Termination Payment, Employer shall promptly pay the following amounts described in this Section 10(b)(i)(2) following the date of the Triggering Termination:

 

(I)     Employee’s Base Salary accrued but unpaid as of the date of the Triggering Termination;

 

(II)    reimbursement under Section 5 for unpaid expenses incurred in the performance of his duties hereunder prior to the date of the Triggering Termination;

 

(III)   any other benefit accrued but unpaid as of the date of the Triggering Termination; and

 

(IV)  a lump sum cash payment in the amount of $18,000, which represents the estimated cost to Employee of obtaining accident, health, dental, disability and life insurance coverage for the 18-month period following the expiration of his continuation (COBRA) rights; provided that this Section 10(b)(i)(2)(IV) shall be applied without regard to, and the amount payable under this Section 10(b)(i)(2)(IV) is in addition to, any continuation (COBRA) rights or conversion rights under any plan provided by Employer, which rights are not affected by any provision hereof.

 

(ii)    Time for Payment; Interest. Except as otherwise provided in Section 10(j) and subject to Section 11(p), Employer shall pay the Termination Payment to Employee for 12 months after the date of termination in equal monthly payments in arrears. Employer’s obligation to pay to Employee any amounts under this Section 10, including without limitation the Termination Payment and any Gross Up Payment due under Section 10(d), shall bear interest at the rate of 18% per annum or, if different, the maximum rate allowed by law until paid by Employer, and all accrued and unpaid interest shall bear interest at the same rate, all of which interest shall be compounded daily.

 

(iii)    Payment Authority. Any officer of Employer (other than Employee) is authorized to issue and execute a check, initiate a wire transfer or otherwise effect payment on behalf of Employer to satisfy Employer’s obligations to pay all amounts due to Employee under this Section 10.

 

(iv)    Termination. Employer’s obligation to pay the Termination Payment shall not be affected by the manner in which Employee’s employment hereunder is terminated. Without limiting the generality of the foregoing, Employer shall be obligated to pay the Termination Payment and any Gross Up Payment regardless of whether Employee’s termination of employment is voluntary, involuntary, for cause, without cause, in violation of any employment agreement or other agreement in effect at the time of the Change In Control (except as provided in Section 10(a)(iv)(5)(I) with respect to Employee’s failure to satisfy his Continued Performance Obligation in the event of an Agreement Termination) or due to Employee’s retirement or Disability. Employee’s notice of his termination of employment hereunder in connection with a Change In Control may be made by any means and to any officer of Employer (other than Employee).

 

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(c)       Change In Control. A “Change In Control” means a change in control of Employer after the date of this Agreement in any one of the following circumstances: (i) there shall have occurred an event that would be required to be reported in response to Item 6(e) of Schedule 14A of Regulation 14A (or in response to any similar item on any similar schedule or form) promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), whether or not Employer is then subject to such reporting requirement; (ii) any “person” (as such term is used in Sections 13(d) and 14(d) of the Exchange Act) (an “Acquiring Person”) shall have become the “beneficial owner” (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of Employer representing 20% or more of the combined voting power of Employer’s then outstanding voting securities (a “Share Acquisition”); (iii) Employer is a party to a merger, consolidation, sale of assets or other reorganization, or a proxy contest, as a consequence of which members of the Board of Directors in office immediately prior to such transaction or event constitute less than a majority of the Board of Directors thereafter; or (iv) during any period of two consecutive years, individuals who at the beginning of such period constituted the Board of Directors (including for this purpose any new director whose election or nomination for election by Employer’s stockholders was approved by a vote of at least two-thirds of the directors then still in office who were directors at the beginning of such period) cease for any reason to constitute at least a majority of the Board of Directors; provided, however, that an event described in clause (i) or (ii) shall not be deemed a Change In Control if such event is approved, prior to its occurrence or within 60 days thereafter by at least two-thirds of the members of the Board of Directors in office immediately prior to such occurrence. In addition to the foregoing, a Change In Control shall be deemed to have occurred if, after the occurrence of a Share Acquisition that has been approved by a two-thirds vote of the Board as contemplated in the proviso to the preceding sentence, the Acquiring Person shall have become the beneficial owner, directly or indirectly, of securities of Employer representing an additional 5% or more of the combined voting power of Employer’s then outstanding voting securities (a “Subsequent Share Acquisition”) without the approval prior thereto or within 60 days thereafter of at least two-thirds of the members of the Board of Directors who were in office immediately prior to such Subsequent Share Acquisition and were not appointed, nominated or recommended by, and do not otherwise represent the interests of, the Acquiring Person on the Board. Each subsequent acquisition by an Acquiring Person of securities of Employer representing an additional 5% or more of the combined voting power of Employer’s then outstanding voting securities shall also constitute a Subsequent Share Acquisition (and a Change In Control unless approved as contemplated by the preceding sentence) if the approvals contemplated by this paragraph were given with respect to the initial Share Acquisition and all prior Subsequent Share Acquisitions by such Acquiring Person. The Board approvals contemplated by the two preceding sentences and by the proviso to the first sentence of this paragraph may contain such conditions as the members of the Board granting such approval may deem advisable and appropriate, the subsequent failure or violation of which shall result in the rescission of such approval and cause a Change In Control to be deemed to have occurred as of the date of the Share Acquisition or Subsequent Share Acquisition, as the case may be. Notwithstanding the foregoing, a Change In Control shall not be deemed to have occurred for purposes of clause (ii) of the first sentence of this paragraph with respect to any Acquiring Person meeting the requirements of clauses (i) and (ii) of Rule 13d-l(b)(1) promulgated under the Exchange Act.

 

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(d)        Gross Up Payment.

 

(i)    Excess Parachute Payment. If Employee incurs the tax (the “Excise Tax”) imposed by Section 4999 of the Code on “excess parachute payments” within the meaning of Section 280G(b)(1) of the Code as the result of any payments or distributions by Employer to or for the benefit of Employee (whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise) or as a result of the acceleration of vesting of Options, Restricted Stock Units or other rights (collectively, the “Payments”), Employer shall pay to Employee an amount (the “Gross Up Payment”) such that the net amount retained by Employee, after deduction of (1) any Excise Tax owed upon any Payments (other than payments provided by this Section 10(d)(i)) and (2) any federal, state and local income and employment taxes owed (together with penalties and interest) and Excise Tax owed, upon the payments provided by this Section 10(d)(i), shall be equal to the amount of the Payments (other than payments provided by this Section 10(d)(i)).

 

(ii)     Applicable Rates. For purposes of determining the Gross Up Payment amount, Employee shall be deemed:

 

(1)    to pay federal income taxes at the highest marginal rate of federal income taxation applicable to individual taxpayers in the calendar year in which the Change In Control occurs (which rate shall be adjusted as necessary to take into account the effect of any reduction in deductions, exemptions or credits otherwise available to Employee had the Gross Up Payment not been received);

 

(2)     to pay additional employment taxes as a result of the receipt of the Gross Up Payment in an amount equal to the highest marginal rate of employment taxes applicable to wages; provided that if any employment tax is applied only up to a specified maximum amount of wages, such limit shall be taken into account for purposes of such calculation; and

 

(3)     to pay state and local income taxes at the highest marginal rates of taxation in the state and locality of Employee’s residence on the date of the Change In Control, net of the maximum reduction in federal income taxes that could be obtained from deduction of such state and local taxes.

 

(iii)    Determination of Gross Up Payment Amount. The determination of the Gross Up Payment amount shall be made, at Employer’s expense, by Grant Thornton LLP or another nationally recognized public accounting firm selected by Employer and reasonably acceptable to Employee (in either case, the “Accountants”). If the Excise Tax amount payable by Employee, based upon a “Determination,” is different from the Excise Tax amount computed by the Accountants for purposes of determining the Gross Up Payment amount, then appropriate adjustments to the Gross Up Payment amount shall be made in the manner provided in Section 10(d)(iv). For purposes of the calculations and determinations under this Section 10(d)(iii), the Accountants may rely on reasonable, good faith interpretations concerning the application of Sections 280G and 4999 of the Code. For purposes of determining the Gross Up Payment amount prior to any Determination of the Excise Tax amount, the following assumptions shall be utilized:

 

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(1)    that portion of the Termination Payment that is attributable to the items described in Sections 10(b)(i)(1)(I) and (II) and Section 10(b)(i)(2)(IV), and the Gross Up Payment, shall be treated as Parachute Payments;

 

(2)     no portion of any payment made pursuant to Sections 10(b)(i)(2)(I), (II) or (III) or Section 11(c) shall be treated as a Parachute Payment;

 

(3)     the amount payable to Employee pursuant to Section 10(k) shall be

 

(I)     deemed to be equal to 15% of the amount determined under Section 10(b)(i)(1)(I);

 

(II)    deemed to have been paid immediately following the Change In Control;

 

(III)   deemed to include the additional amount payable under Section 10(k), if any, for additional taxes payable by Employee as a result of the receipt of the payment described in Section 10(k); and

 

(IV)   treated 100% as a Parachute Payment;

 

(4)     it shall be assumed that all of the payments that could potentially be made to Employee pursuant to the Consulting Agreement shall be made, and all of such payments shall be treated as Parachute Payments; provided that nothing in this Section 10(d)(iii)(4) shall limit or reduce the payment of any amount similar to the Gross Up Payment under the Consulting Agreement; and

 

(5)   acceleration of vesting, if any, of any Options, Restricted Stock Units, or other equity-based awards shall be determined in a manner consistent with Treasury Regulation Section 1.280G-1, Q/A-24, as applicable.

 

(iv)    Time For Payment. Subject to Section 11(p), Employer shall pay the estimated Gross Up Payment amount in cash to Employee on or within 10 business days of the date that the related Excise Tax is required to be remitted to the relevant taxing authorities. Employee and Employer agree to reasonably cooperate in the determination of the actual Gross Up Payment amount. Further, Employee and Employer agree to make such adjustments to the estimated Gross Up Payment amount as may be necessary to equal the actual Gross Up Payment amount based upon a Determination, which in the case of Employee shall refer to refunds of prior overpayments and in the case of Employer shall refer to makeup of prior underpayments.

 

(e)        Term. Notwithstanding the provisions of Section 3, if a Change In Control occurs prior to the date on which Employee’s employment hereunder is terminated pursuant to Section 3, Sections 10, 11 and 12 shall continue in effect until the date of termination pursuant to Section 3 or the date that is 12 months after the date of the Change In Control, whichever is later.

 

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(f)        Consulting Agreement. To preserve a sound and vital management team for the Company during the period immediately following a Change In Control, Employee agrees that, in the event of a Triggering Termination, Employee shall enter into a Consulting Agreement (the “Consulting Agreement”) in the form attached hereto as Exhibit A if requested by the Board of Directors of the Company within 30 days after the Change In Control. If Employee breaches his obligation under the preceding sentence by declining to enter into a Consulting Agreement, as liquidated damages for such breach and not as a penalty, Employee shall pay to Employer the amount that Employee otherwise would have received as compensation from Employer under the Consulting Agreement assuming Employee fully performed his obligations thereunder.

 

(g)       No Duty to Mitigate Damages. Employee’s rights and privileges under this Section 10 shall be considered severance pay in consideration of his past service and his continued service to Employer from the Commencement Date, and his entitlement thereto shall neither be governed by any duty to mitigate his damages by seeking further employment nor offset by any compensation that he may receive from future employment.

 

(h)       No Right To Continued Employment. This Section 10 shall not give Employee any right of continued employment or any right to compensation or benefits from Employer except the rights specifically stated herein.

 

(i)      Exercise of Stock Options. Employee may hold options (“Options”) issued under the Equity Incentive Plan. Employer shall take no action to facilitate a transaction involving a Change In Control unless it has taken such action as may be necessary to ensure that Employee has the opportunity to exercise all Options he may then hold, at a time and in a manner that shall give Employee the opportunity to sell or exchange the securities of Employer acquired upon exercise of his Options, if any (the “Acquired Securities”), at the earliest time and in the most advantageous manner any holder of the same class of securities as the Acquired Securities is able to sell or exchange such securities in connection with such Change In Control. Employer acknowledges that its covenants in the preceding sentence (the “Covenants”) are reasonable and necessary in order to protect the legitimate interests of Employer in maintaining Employee as one of its employees and that any violation of the Covenants by Employer would result in irreparable injuries to Employee, and Employer therefore acknowledges that in the event of any violation of the Covenants by Employer or its directors, officers or employees, or any of their respective agents, Employee shall be entitled to obtain from any court of competent jurisdiction temporary, preliminary and permanent injunctive relief in order to (i) obtain specific performance of the Covenants, (ii) obtain specific performance of the exercise of his Options and the sale or exchange of the Acquired Securities in the advantageous manner contemplated above or (iii) prevent violation of the Covenants; provided that nothing in this Agreement shall be deemed to prejudice Employee’s rights to damages for violation of the Covenants.

 

(j)         Coordination With Separation Payments.

 

(i)      After the termination of Employee’s employment hereunder:

 

(1)     if Employee is entitled to receive Separation Payments; and

 

14

 

 

(2)     Employee subsequently becomes entitled to receive a Termination Payment, then

 

(ii)     The payment dates of all unpaid Separation Payments shall remain unchanged and the Termination Payment (reduced by the amount of the remaining Separation Payments) shall be made in equal monthly installments over the remaining portion of the Separation Payment Period.

 

(k)     Outplacement Services. If Employee becomes entitled to receive a Termination Payment under this Section 10, Employer agrees to reimburse Employee for any outplacement consulting fees and expenses incurred by Employee during any Applicable Period and during the two-year period following the Change In Control; provided that the aggregate amount reimbursed by Employer shall not exceed 15% of Employee’s Base Salary in effect immediately prior to the Triggering Termination. In addition and as to each reimbursement payment, to the extent that any reimbursement under this Section 10(k) is subject to federal, state or local income taxes, Employer shall pay Employee an additional amount such that the net amount retained by Employee, after deduction of any federal, state and local income tax on the reimbursement and such additional amount, shall be equal to the reimbursement payment. All amounts under this Section 10(k) shall be paid by Employer within 15 days after Employee’s presentation to Employer of any statements of such amounts and thereafter shall bear interest at the rate of 18% per annum or, if different, the maximum rate allowed by law until paid by Employer, and all accrued and unpaid interest shall bear interest at the same rate, all of which interest shall be compounded daily.

 

SECTION 11.   General.

 

(a)       Notices. Except as provided in Section 10(b)(iv), all notices and other communications hereunder shall be in writing or by written telecommunication, and shall be deemed to have been duly given if delivered personally or if mailed by certified mail, return receipt requested or by written telecommunication, to the relevant address set forth below, or to such other address as the recipient of such notice or communication shall have specified to the other party in accordance with this Section 11(a):

 

 

	If to Employer, to:	 	with a copy to:
	 	 	 
	Rocky Mountain Chocolate Factory, Inc.	 	Perkins Coie LLP
	265 Turner Drive	 	1900 Sixteenth Street, Suite 1400
	Durango, Colorado 81301	 	Denver, CO 80202-5255
	Attention: President	 	Attention: Sonny Allison
	Facsimile Number: (970) 382-7366	 	Facsimile Number: (303) 291-2414
	 	 	Email: SAllison@perkinscoie.com

 

 

 

If to Employee, to:

[Address]

 

15

 

 

(b)       Withholding; No Offset. All payments required to be made to Employee by Employer shall be subject to the withholding of such amounts, if any, relating to federal, state and local taxes as may be required by law. No payments under Section 10 shall be subject to offset or reduction attributable to any amount Employee may owe to Employer or any other person.

 

(c)        Legal and Accounting Costs. Employer shall pay all attorney’ and accountant’ fees and costs incurred by Employee as a result of any breach by Employer of its obligations under this Agreement, including without limitation all such costs incurred in contesting or disputing any determination made by Employer under Section 10 or in connection with any tax audit or proceeding to the extent attributable to the application of Section 4999 of the Code to any payment under Section 10. Subject to Section 11(p), reimbursements of such costs shall be made by Employer within 15 days after Employee’s presentation to Employer of any statements of such costs and thereafter shall bear interest at the rate of 18% per annum or, if different, the maximum rate allowed by law until paid by Employer, and all accrued and unpaid interest shall bear interest at the same rate, all of which interest shall be compounded daily.

 

(d)        Equitable Remedies. Each of the parties hereto acknowledges and agrees that upon any breach by Employee of his obligations under any of Sections 7, 8 and 9, Employer shall have no adequate remedy at law and accordingly shall be entitled to specific performance and other appropriate injunctive and equitable relief.

 

(e)       Severability. If any provision of this Agreement is held to be illegal, invalid or unenforceable, such provision shall be fully severable, and this Agreement shall be construed and enforced as if such illegal, invalid or unenforceable provision never comprised a part hereof, and the remaining provisions hereof shall remain in full force and effect and shall not be affected by the illegal, invalid or unenforceable provision or by its severance herefrom. Furthermore, in lieu of such illegal, invalid or unenforceable provision, there shall be added automatically as part of this Agreement a provision as similar in its terms to such illegal, invalid or unenforceable provision as may be possible and be legal, valid and enforceable.

 

(f)        Waivers. No delay or omission by either party in exercising any right, power or privilege hereunder shall impair such right, power or privilege, nor shall any single or partial exercise of any such right, power or privilege preclude any further exercise thereof or the exercise of any other right, power or privilege.

 

(g)      Counterparts. This Agreement may be executed in multiple counterparts, each of which shall be deemed an original, and all of which together shall constitute one and the same instrument.

 

(h)        Captions. The captions in this Agreement are for convenience of reference only and shall not limit or otherwise affect any of the terms or provisions hereof.

 

(i)         Reference to Agreement. Use of the words “herein,” “hereof,” “hereto,” “hereunder” and the like in this Agreement refer to this Agreement only as a whole and not to any particular section or subsection of this Agreement, unless otherwise noted.

 

16

 

 

(j)         Binding Agreement. This Agreement shall be binding upon and inure to the benefit of the parties and shall be enforceable by the personal representatives and heirs of Employee and the successors and assigns of Employer. This Agreement may be assigned by Employer to a legal successor-in-interest of Employer or to a wholly owned subsidiary to which substantially all the business and operations of Employer are transferred. If Employee dies while any amounts would still be payable to him hereunder, such amounts shall be paid to Employee’s estate. This Agreement is not otherwise assignable by Employee or Employer.

 

(k)        Entire Agreement. This Agreement contains the entire understanding of the parties, and supersedes all prior agreements and understandings, relating to the subject matter hereof and may not be amended except by a written instrument hereafter signed by each of the parties hereto.

 

(l)        Governing Law. This Agreement and the performance hereof shall be construed and governed in accordance with the laws of the State of Colorado, without regard to its choice of law principles.

 

(m)      Gender and Number. The masculine gender shall be deemed to denote the feminine or neuter genders, the singular to denote the plural, and the plural to denote the singular, where the context so permits.

 

(n)      Assistance in Litigation. During the term of this Agreement and for a period of two years thereafter, Employee shall, upon reasonable notice, furnish such information and proper assistance to Employer as may reasonably be required by Employer in connection with any litigation in which Employer is, or may become, a party and with respect to which Employee’s particular knowledge or experience would be useful. Employer shall reimburse Employee for all reasonable out-of-pocket expenses incurred by Employee in rendering such assistance. The provisions of this Section 11(n) shall continue in effect notwithstanding termination of Employee’s employment hereunder for any reason.

 

(o)       Legal Fees. Employer shall pay and be responsible for all legal fees, costs of litigation and other expenses that Employee may incur as a result of Employer’s failure to perform under this Agreement or as a result of Employer, any Acquiring Person or any affiliate of Employer seeking to terminate this Agreement other than in accordance with the terms hereof or contesting the validity or enforceability of this Agreement.

 

(p)       Section 409A. The parties intend that this Agreement and the payments and other benefits provided hereunder be exempt from the requirements of Section 409A to the maximum extent possible, whether pursuant to the short-term deferral exception described in Treasury Regulation Section 1.409A-1(b)(4) or otherwise. To the extent Section 409A is applicable to this Agreement (and such payments and benefits), the parties intend that this Agreement (and such payments and benefits) comply with the deferral, payout and other limitations and restrictions imposed under Section 409A. Notwithstanding any other provision of this Agreement to the contrary, this Agreement shall be interpreted, operated and administered in a manner consistent with such intentions. Without limiting the generality of the foregoing, and notwithstanding any other provision of this Agreement to the contrary:

 

17

 

 

(i)       with respect to any payments and benefits under this Agreement to which Section 409A applies, all references in this Agreement to the termination of Employee’s employment are intended to mean Employee’s “separation from service,” within the meaning of Code Section 409A(a)(2)(A)(i);

 

(ii)        if Employee is a “specified employee,” within the meaning of Code Section 409A(a)(2)(B)(i), then to the extent necessary to avoid subjecting Executive to the imposition of any additional tax under Code Section 409A, amounts that would otherwise be payable under this Agreement during the six-month period immediately following Executive's “separation from service,” within the meaning of Code Section 409A(a)(2)(A)(i), shall not be paid to Executive during such period, but shall instead be accumulated and paid to Executive (or, in the event of Executive’s death, Executive's estate) in a lump sum on the first business day following the earlier of (A) the later of the date that is six months after Executive’s separation from service or the 18-month anniversary of the Commencement Date or (B) Executive’s death;

 

(iii)      to the extent required by Section 409A, each reimbursement or in-kind benefit provided under this Agreement will be provided in accordance with the following: (A) the amount of expenses eligible for reimbursement, or in-kind benefits provided, during each calendar year cannot affect the expenses eligible for reimbursement, or in-kind benefits to be provided, in any other calendar year; (B) any reimbursement of an eligible expense will be paid to Employee on or before the last day of the calendar year following the calendar year in which the expense was incurred; and (C) any right to reimbursements or in-kind benefits under this Agreement will not be subject to liquidation or exchange for another benefit;

 

(iv)      in the event Employee becomes entitled to a tax gross-up payment under this Agreement (including, without limitation, an adjustment to the estimated Gross Up Payment amount is necessary pursuant to Section 10(d)(iv) based upon a Determination), the tax gross-up payment shall be made by Employer no later than the end of Employee’s taxable year in which Employer remits the related taxes; and

 

(v)         each payment provided under this Agreement shall be treated as a separate payment. 

 

The Company makes no representations or warranties to Employee with respect to any tax, economic or legal consequences of this Agreement or any payments or other benefits provided hereunder, including without limitation under Section 409A, and no provision of this Agreement shall be interpreted or construed to transfer any liability for failure to comply with Section 409A from Employee or any other individual to the Company or any of its affiliates. Employee, by executing this Agreement, shall be deemed to have waived any claim against the Company and its affiliates with respect to any such tax, economic or legal consequences.

 

18

 

 

SECTION 12.   Definitions. As used in this Agreement, the following terms will have the following meanings:

 

(a)        Accountants has the meaning ascribed to it in Section 10(d)(iii).

 

(b)        Acquired Securities has the meaning ascribed to it in Section 10(i).

 

(c)        Acquiring Person has the meaning ascribed to it in Section 10(c).

 

(d)        Agreement has the meaning ascribed to it in the introductory paragraph of this document.

 

(e)        Agreement Termination has the meaning ascribed to it in Section 10(a)(iv)(1). References in this Agreement to termination of Employee’s employment with Employer, in any form, shall be deemed to include (whether or not so expressed) an Agreement Termination.

 

(f)         Applicable Period means, with respect to any Change In Control, the period of 90 days immediately preceding the Change In Control.

 

(g)        Base Salary has the meaning ascribed to it in Section 4(a).

 

(h)        Cause has the meaning ascribed to it in Section 6(a)(ii).

 

(i)         Change In Control has the meaning ascribed to it in Section 10(c).

 

(j)         Code means the Internal Revenue Code of 1986, as amended.

 

(k)        Commencement Date has the meaning ascribed to it in Section 3.

 

(l)         A Concurring Person is an individual who is the Chairman of the Board of Directors of the Company or a member of the Compensation Committee of the Board of Directors of the Company (or, if no Compensation Committee exists, or there are fewer than two members of the Compensation Committee, a nonemployee member of the Board of Directors of the Company) at the time in question.

 

(m)       Confidential Information has the meaning ascribed to it in Section 8(b).

 

(n)        Constructively Terminated with respect to an Employee’s employment with Employer will be deemed to have occurred if Employer, without the consent of Employee,

 

(i)     demotes Employee to a lesser position, either in title or responsibility (whether or not there is a change in title), than the highest position held by Employee with Employer at any time during Employee’s employment with Employer;

 

(ii)   decreases Employee’s compensation below the highest level in effect at any time during Employee’s employment with Employer or reduces Employee’s benefits and perquisites below the highest levels in effect at any time during Employee’s employment with Employer (other than as a result of any amendment or termination of any employee or group or other executive benefit plan, which amendment or termination is applicable to all executives of Employer);

 

19

 

 

(iii)    requires Employee to relocate to a principal place of business more than 25 miles from the principal place of business occupied by Employer on the first day of an Applicable Period; or

 

(iv)    requests or proposes to amend this Agreement, if the proposed amendment would have any of the effects contemplated by clauses (i), (ii) or (iii) above or otherwise impose any additional burdens or obligations on, or diminish any rights of, Employee.

 

Notwithstanding any provision in this Agreement to the contrary, Employee’s employment shall not be treated as Constructively Terminated by Employer unless (i) Employee notifies Employer in writing of the existence of the condition which Employee believes constitutes a Constructive Termination within 90 days of the initial existence of such condition (which notice specifically identifies such condition), (ii) Employer fails to remedy such condition within 30 days after the date on which it receives such notice (the “Remedial Period”), and (iii) Employee actually terminates employment within 30 days after the expiration of the Remedial Period.

 

(o)        Consulting Agreement has the meaning ascribed to it in Section 10(f).

 

(p)        Continued Performance Obligation has the meaning ascribed to it in Section 10(a)(iv)(3).

 

(q)        Covenants has the meaning ascribed to it in Section 10(i).

 

(r)        Designated Industry has the meaning ascribed to it in Section 9(a)(i)(1).

 

(s)        Determination has the meaning ascribed to such term in Section 1313(a) of the Code.

 

(t)        Disability with respect to Employee shall be deemed to have occurred whenever Employee is rendered unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment that can be expected to result in death or that has lasted or can be expected to last for a continuing period of not less than 12 months. In the case of any dispute, the determination of Disability will be made by a licensed physician selected by Employer, which physician’s decision will be final and binding.

 

(u)        Employee has the meaning ascribed to it in the introductory paragraph of this Agreement.

 

(v)        Employer has the meaning ascribed to it in the introductory paragraph of this Agreement.

 

(w)       Equity Incentive Plan means the Rocky Mountain Chocolate Factory, Inc. 2007 Equity Incentive Plan, as amended from time to time, and any successor plan.

 

(x)        Exchange Act has the meaning ascribed to it in Section 10(c).

 

20

 

 

(y)        Excise Tax has the meaning ascribed to it in Section 10(d)(i).

 

(z)        Gross Up Payment has the meaning ascribed to it in Section 10(d)(i).

 

(aa)      Inventions has the meaning ascribed to it in Section 7(a).

 

(bb)      Options has the meaning ascribed to it in Section 10(i).

 

(cc)      Parachute Payments has the meaning ascribed to it in Section 280G(b)(2) of the Code.

 

(dd)      Payments has the meaning ascribed to it in Section 10(d)(i).

 

(ee)      Section 409A means Section 409A of the Code and any official guidance and regulations issued thereunder.

 

(ff)       Separation Payment Period has the meaning ascribed to it in Section 6(b)(ii).

 

(gg)      Separation Payments has the meaning ascribed to it in Section 6(b)(ii).

 

(hh)      Share Acquisition has the meaning ascribed to it in Section 10(c).

 

(ii)        Subsequent Share Acquisition has the meaning ascribed to it in Section 10(c).

 

(jj)       Target Bonus means, with respect to each Employee, the dollar amount that is equal to the established percentage of such Employee’s Base Salary that would be paid to Employee under any incentive bonus plan of Employer assuming the measurement criteria contained in such plan with respect to Employee were achieved for the bonus period in which the Change In Control occurred.

 

(kk)      Termination Payment has the meaning ascribed to it in Section 10(b)(i)(1).

 

(ll)        Triggering Termination has the meaning ascribed to it in Section 10(a).

 

21

 

 

EXECUTED as of the date and year first above written.

 

	
			 

				
			ROCKY MOUNTAIN CHOCOLATE FACTORY, INC. 

				
			 

			
	
			 

				
			 

				
			 

				
			 

			
	
			 

				
			 

				
			 

				
			 

			
	 	 	 	 
	
			 

				
			By: 

				
			/s/ Scott G. Capdevielle

				
			 

			
	
			 

				
			 

				
			 

				
			 

			
	
			 

				
			Name: 

				
			Scott G. Capdevielle 

				
			 

			
	 	 	 	 
	 	Title:	Director and Chairman of the Compensation Committee 	 
	 	of the Rocky Mountain Chocolate Factory, Inc. 	 
	 	Board of Directors	 
	 	 	 	 
	 	 	 	 
	 	 	 	 
	 	EMPLOYEE	 
	 	 	 	 
	 	 	 	 
	 	 	 	 
	 	By:	/s/ Bryan J. Merryman	 
	 	 	Bryan J. Merryman	 

 

22

 

 

Exhibit A 

 

CONSULTING AGREEMENT

 

This Consulting Agreement (“Agreement”), dated as of ___________, ___ (“Effective Date”), is between Rocky Mountain Chocolate Factory, Inc., a Delaware corporation (the “Company”), and Bryan J. Merryman (“Consultant”).

 

R E C I T A L S: 

 

A.     Consultant was formerly employed by the Company as an executive officer.

 

B.     Consultant and the Company previously entered into an Employment Agreement, dated as of ____________ (“Employment Agreement”), under which Consultant is obligated to enter into this Agreement at the request of the Board of Directors of the Company under certain circumstances.

 

C.     The Board of Directors of the Company has requested that Consultant enter into this Agreement and Consultant is willing to do so.

 

NOW, THEREFORE, for and in consideration of the mutual promises contained in this Agreement, and on the terms and subject to the conditions set forth in this Agreement, the parties agree as follows:

 

SECTION 1.     Duties. The Company retains Consultant to provide, and Consultant agrees to render, such consulting and advisory services as may be requested from time to time by the Company’s Board of Directors. Consultant agrees to devote his attention, skills and best efforts to the performance of his duties under this Agreement. Consultant shall not be obligated, however, to devote more than 30 hours per month to the discharge of his responsibilities under this Agreement. Consultant shall be an independent contractor, not an employee of the Company, during the term of this Agreement.

 

SECTION 2.    Term. The term for providing consulting services under this Agreement commences on the Effective Date and continues, unless earlier terminated pursuant to Section 5, until 180 days after the date of the Change In Control, as defined in the Employment Agreement.

 

SECTION 3.    Compensation. In consideration for the services provided by Consultant, the Company shall pay to Consultant an amount equal to one-half of his annual base compensation considered for purposes of Section 10(b)(i)(l)(I) of the Employment Agreement, which amount shall be paid in six equal monthly installments, with the first installment due and payable on the Effective Date.

 

SECTION 4.    Expenses. The parties anticipate that Consultant, in connection with the services to be performed by him under this Agreement, will incur expenses for travel, lodging and similar items. The Company shall advance the estimated amount of such expenses to Consultant and shall, within 15 days after Consultant’s presentation to the Company of reasonable documentation the actual expenses, reimburse Consultant for all expenses incurred by Consultant in the performance of his duties under this Agreement that have not been so advanced.

 

A-1

 

 

SECTION 5.     Early Termination.

 

(a)        Events of Early Termination. This Agreement may terminate prior to the expiration of the term specified in Section 2 as follows:

 

(i)     Death. Upon the death of Consultant during the term hereof.

 

(ii)     For Cause. For “Cause” immediately upon written notice by the Company to Consultant. For purposes of this Agreement, a termination shall be for Cause if:

 

(I)     Consultant commits an unlawful or criminal act involving moral turpitude; or

 

(II)   Consultant (A) fails to obey lawful and proper written directions delivered to Consultant by the Company’s Board of Directors; or (B) commits a material breach of any of the covenants, terms and provisions of this Agreement and such failure or breach continues uncured for more than 30 days after receipt by Consultant of written notice from the Company of such failure or breach.

 

(b)       Payments Upon Early Termination. Consultant shall not be entitled to any compensation upon termination of this Agreement pursuant to this Section 5 except for his compensation accrued but unpaid as of the date of such termination and unpaid expense reimbursements under Section 4 for expenses incurred in accordance with the terms hereof prior to such termination.

 

SECTION 6.     General.

 

(a)        Notices. All notices and other communications hereunder shall be in writing or by written telecommunication and shall be deemed to have been duly given if delivered personally or if mailed by certified mail, return receipt requested or by written telecommunication, to the relevant address set forth below, or to such other address as the recipient of such notice or communication shall have specified to the other party hereto in accordance with this Section 6(a):

 

	
			 

				
			 

				
			 

			
	
			If to the Company, to:

				
			 

				
			with a copy to:

			
	
			 

				
			 

				
			 

			
	
			Rocky Mountain Chocolate Factory, Inc.

				
			 

				
			Perkins Coie LLP

			
	
			265 Turner Drive

				
			 

				
			1900 Sixteenth Street, Suite 1400

			
	
			Durango, Colorado 81301

				
			 

				
			Denver, CO 80202-5255

			
	
			Attention: President

			Facsimile Number: (970) 382-7366

				
			 

				
			Attention: Sonny Allison

			Facsimile Number: (303) 291-2414

			
	 	
			 

				
			 

			

 

If to Consultant, to:

 

[Insert Address as of Effective Date]

 

A-2

 

 

(b)       Severability. If any provision of this Agreement is held to be illegal, invalid or unenforceable, such provision shall be fully severable, and this Agreement shall be construed and enforced as if such illegal, invalid or unenforceable provision never comprised a part hereof, and the remaining provisions hereof shall remain in full force and effect and shall not be affected by the illegal, invalid or unenforceable provision or by its severance herefrom. Furthermore, in lieu of such illegal, invalid or unenforceable provision, there shall be added automatically as part of this Agreement a provision as similar in its terms to such illegal, invalid or unenforceable provision as may be possible and be legal, valid and enforceable.

 

(c)        Waivers. No delay or omission by either party hereto in exercising any right, power or privilege hereunder shall impair such right, power or privilege, nor shall any single or partial exercise of any such right, power or privilege preclude any further exercise thereof or the exercise of any other right, power or privilege.

 

(d)      Counterparts. This Agreement may be executed in multiple counterparts, each of which shall be deemed an original, and all of which together shall constitute one and the same instrument.

 

(e)        Captions. The captions in this Agreement are for convenience of reference only and shall not limit or otherwise affect any of the terms or provisions hereof.

 

(f)       Reference to Agreement. Use of the words “hereof,” “hereto,” “hereunder” and the like in this Agreement refer to this Agreement as a whole and not to any particular section or subsection of this Agreement, unless otherwise noted.

 

(g)        Binding Agreement. This Agreement shall be binding upon and inure to the benefit of the parties and shall be enforceable by the personal representatives and heirs of Consultant and the successors of the Company. If Consultant dies while any amounts would still be payable to him hereunder, such amounts shall be paid to Consultant’s estate. This Agreement is not otherwise assignable by Consultant or by the Company.

 

(h)        Entire Agreement. This Agreement contains the entire understanding of the parties, supersedes all prior agreements and understandings relating to the subject matter hereof and may not be amended except by a written instrument hereafter signed by each of the parties hereto.

 

(i)        Governing Law. This Agreement and the performance hereof shall be construed and governed in accordance with the laws of the State of Colorado, without regard to its choice of law principles.

 

(j)         Gender and Number. The masculine gender shall be deemed to denote the feminine or neuter genders, the singular to denote the plural, and the

plural to denote the singular, where the context so permits.

 

(k)      Section 409A. The parties intend that this Agreement and the payments and other benefits provided hereunder be exempt from the requirements of Section 409A of the Internal Revenue Code of 1986, as amended, and any official guidance and regulations issued thereunder (collectively, “Section 409A”) to the maximum extent possible. To the extent Section 409A is applicable to this Agreement (and such payments and benefits), the parties intend that this Agreement (and such payments and benefits) comply with the deferral, payout and other limitations and restrictions imposed under Section 409A. Notwithstanding any other provision of this Agreement to the contrary, this Agreement shall be interpreted, operated and administered in a manner consistent with such intentions. Without limiting the generality of the foregoing, and notwithstanding any other provision of this Agreement to the contrary, to the extent required by Section 409A, each reimbursement or in-kind benefit provided under this Agreement will be provided in accordance with the following: (i) the amount of expenses eligible for reimbursement, or in-kind benefits provided, during each calendar year cannot affect the expenses eligible for reimbursement, or in-kind benefits to be provided, in any other calendar year; (ii) any reimbursement of an eligible expense will be paid to Employee on or before the last day of the calendar year following the calendar year in which the expense was incurred; and (iii) any right to reimbursements or in-kind benefits under this Agreement will not be subject to liquidation or exchange for another benefit.

 

 

 

[Signature Page Follows]

 

A-3

 

 

EXECUTED as of the date and year first above written.

 

	
			 

				
			ROCKY MOUNTAIN CHOCOLATE FACTORY, INC. 

				
			 

			
	
			 

				
			 

				
			 

				
			 

			
	 	 	 	 
	
			 

				
			 

				
			 

				
			 

			
	
			 

				
			By: 

				
			 

				
			 

			
	 	 	 	 
	
			 

				
			Name: 

				
			 

				
			 

			
	
			 

				
			 

				
			 

				
			 

			
	 	Title:	 	 
	 	 	 	 
	 	 	 	 
	 	 	 	 
	 	CONSULTANT	 
	 	 	 	 
	 	 	 	 
	 	 	 	 
	 	By:	 	 
	 	 	Bryan J. Merryman	 

 

A-4

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