Rocky Mountain Chocolate Factory Audit 2

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Mark H. Bourgoin
Group 3
Strategic Audit
Rocky Mountain Chocolate Factory Inc.
Section II

II. Corporate Governance

Note: I would classify Rocky Mountain Chocolate Factory as a Stage III “Divisional Structure,” per the textbook (Hunger & Wheelen, 2010, p. 196, fig. 5-4).

A. Board of Directors

1. a. Chairman: Franklin Crail (CEO and President)

b. Directors: Bryan Merryman (VP, CFO, COO, and Treasurer), Lee Mortenson, Gerald Kien, Clyde Engle, and Scott Capdevielle.

With the exception of Franklin Crail (co-founder of Rocky Mountain Chocolate Factory Inc.) and Bryan Merryman, the Board of Directors of Rocky Mountain Chocolate Factory Inc. is composed of entirely external/independent board members.

2. Directors do not receive any compensation for serving on the board, but they do receive compensation for serving on board committees, chairing committees, and participating in meetings. Directors who are not officers/employees of the company are entitled to stock option awards.

3. Rocky Mountain Chocolate Factory Inc. is publically traded as RMCF.O on Consolidated Issue listed on NASDAQ Global Market. It closed on April 21, 2011 at $10.40 (USD) a share. The Board of Directors has frequently paid out quarterly cash dividends, usually $0.10 to common share outstanding. This dividend, on average, has been three times that of the industry’s average.

According to the company’s most recent 10-K, there are currently 100,000,000 shares authorized; 6,026,938 and 5,989,858 shares of common stock issued and outstanding respectively. Each common stock is eligible to vote at the annual meeting. Each share of common stock entitles its holder to one vote on all matters voted on at the annual meeting (except the election of directors). Shareholders have cumulative voting rights in the election of directors.

There are also 250,000 authorized Preferred stock (with zero issued or outstanding), 50,000 shares of Series A Participating Preferred Stock, and 200,000 shares of Undesignated series stock.

4. The board members contribute vast experiences in leadership positions, with various companies. None of their experiences outside of Rocky Mountain Chocolate Factory seem to be in the food industry, though.

Franklin Crail co-founded the first Rocky Mountain Chocolate Factory store in May 1981. He has served as its President, Director, Chairman of the Board, and CEO. Prior to co-founding the company, he was co-founder and President of CNI Data Processing Inc. (a software firm which developed automated billing systems for the cable television industry).

Bryan Merryman is experienced in leverage buyout firms; retail and manufacturing of aftermarket auto parts; and audit, consulting, financial advisory, risk management, and tax. He has been with the company since 1997.

Lee Mortenson has been with the company since 1987 and has been engaging in consulting and investment activities since 2000. He was managing director of a private investment firm; has been President and CEO of a company that provided management consulting and investment services; has been involved in real estate development and manufacturing; and has been engaged in manufacturing apparel and medical products.

Gerald Kien joined the company in 1995 after retiring from his position as President and CEO of a company engaged in the development of instrumentation for vehicle emissions testing. He was also on the board of Sun Electric, a company that is tied to the oilfield, wind farm, and transmission construction industries.

Clyde Engle has been with the company since 2000, and previously from 1987 to 1995. He has experience in professional property management, property and casualty insurance services, as well as in bank holding and commercial banking services.

Scott Capdevielle joined the company in 2009. His experiences include developing user generated web video and distribution on the...
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