After filing a lawsuit earlier this year, Rocky Mountain Chocolate Factory has entered a settlement agreement with AB Value/Radoff Group and Mary Bradley.
The Durango-based chocolate company filed a lawsuit against dissident shareholders Sept. 28 for alleged fraudulent activity misleading shareholders. The complaint alleges that Bradley Radoff, who owns 9.9% of the company’s outstanding shares, and AB Value’s Andrew Berger and Mary Bradley conspired to fraudulently induce the company into entering into a cooperation agreement on Aug. 13.
The agreement intended to settle the third contested proxy vote in four years between AB Value-Radoff Group and Rocky Mountain Chocolate Factory and specified the company would expand its board of directors to seven members by appointing the AB Value-Radoff Group's nominee, Mary Bradley, following the annual stockholder meeting Aug. 18.
The lawsuit alleged Mary Bradley had previously informed AB Value/Radoff Group that she did not want to serve on the board, making her ineligible for election. AB/Radoff failed to disclose this information to the stockholders and Rocky Mountain Chocolate Factory before reaching the cooperation agreement, according to the lawsuit.
Rocky Mountain Chocolate Factory repeatedly asked the group to confirm Mary Bradley’s nominee status. The company sought more than $1 million in reimbursement for expenses incurred during the period of alleged fraudulent activity.
Rocky Mountain Chocolate Factory dismissed all pending lawsuits against AB Value/Radoff Group Dec. 14 and accepted a standstill agreement until 2025, in order to implement the company’s new strategic plan.
The standstill agreement means both parties will not take legal action against each other during the course of the agreement.
“We are pleased to reach a resolution with the Radoff and AB Value investors as the Company and its executive management team move forward with the development and execution of our strategic plan,” said Rocky Mountain Chocolate Factory Board Chairman Jeff Geygan in a news release. “Among the executive management team, Board, and our shareholders, we are aligned with a clear vision for RMCF. The Company is free to continue its transformation without diverting time and resources to additional litigation and other disruptions related to this dispute.”
The company is trying to strengthen existing franchisee relationships and expanding efforts to attract new ones. Part of the plan is to reinvest in the Durango flagship store and renew its commitment to community outreach.
“We will also further deepen our bench with leading executives, execute on our strategic plan and implement multiple cost saving initiatives that will contribute to material improvements in operating margins and adjusted EBITDA (earnings before interest, taxes, depreciation and amortization),” said CEO Rob Sarlls in a news release.
During the standstill period, Radoff and AB Value investors agree to comply with certain customary provisions. Both parties also agree that the company’s Board of Directors will appoint a female director candidate with at least five years of consumer goods franchise operational experience and a minimum of three years of prior public company board experience.
Under Rule 5605 of the Nasdaq Listing Rules, the candidate must qualify as an independent director and will be nominated by Radoff and AB Value investors, subject to the board’s approval.
According to a settlement 8-K form filed with the U.S. Securities and Exchange Commission, both parties agreed to mutual nondisparagement provisions during the standstill period. Rocky Mountain Chocolate Factory agreed to reimburse AB Value/Radoff Group for their fees and expenses in the preparation and execution of the agreement and the related matters in the amount of approximately $1,075,000.
However, AB Value cannot beneficially own 10% or more of the company’s common stock, and at no time will Radoff own 12.5% or more of the common stock as part of the agreement.
tbrown@durangoherald.com
(An earlier version of this article published on Dec. 19, 2022, was titled “Rocky Mountain Chocolate Factory dismisses lawsuit against dissident shareholders.” This was partially incorrect as the lawsuit was dismissed as a result of both parties entering a standstill agreement.
