Rocky Mountain Chocolate Factory, Inc. and Edible Arrangements, LLC have entered into a long-term strategic alliance whereby Rocky Mountain will become the exclusive provider of certain branded chocolate products to Edible, its affiliates and its franchisees. The strategic alliance represents the culmination of Rocky Mountain’s exploration of its strategic alternatives, as announced on May 29.
Rocky Mountain Chocolate Factory branded products will be available for purchase both on Edible’s website as well as through over 1,000 franchised Edible Arrangement locations nationwide. In addition, due to Edible’s significant e-commerce expertise and scale, Edible and Rocky Mountain have also executed a letter of intent for Edible to be responsible for all e-commerce sales from the Rocky Mountain corporate website and the broader Rocky Mountain e-commerce eco-system
As part of the strategic alliance, Rocky Mountain will issue Edible warrants to purchase up to 960,677 shares of Rocky Mountain common stock at an exercise price of $8.76 per share. The warrants will vest annually over the five-year contractual period if Edible achieves various revenue thresholds on an annual or cumulative five-year basis. Such annual revenue thresholds for vesting reach a maximum of $46 million in the fifth year of the contract. The maximum shares of Rocky Mountain common stock underlying such warrants, if fully vested, represent a total of 16 percent of the current Rocky Mountain shares of common stock currently outstanding.
In conjunction with the strategic alliance, Edible CEO and founder Tariq Farid, through his affiliate, will purchase $1 million of Rocky Mountain common stock and, effective January 2020, will join the Company’s Board of Directors, bringing his significant expertise with franchising, gifting and e-commerce.
“I believe this is truly a historic partnership for the company,” says Bryan Merryman, CEO and Chairman of the Board of Rocky Mountain. “As we have explored various strategic alternatives throughout this year, one of our main objectives was to drive incremental demand for our factory in Durango, Colorado. Currently, the factory operates below 50% capacity. With the strategic alliance with Edible, we have the opportunity to not only significantly increase factory sales of our existing Rocky Mountain products, but also realize meaningful operating efficiencies in our factory.
“In addition, given Edible’s world-class e-commerce expertise, we will be able to offer Rocky Mountain products to customers seamlessly nationwide,” Merryman continues. “Finally, our franchisees will also be able to participate in the significant e-commerce opportunity by opting into shipping, delivery or pickup options for online customers.”
“Rocky Mountain is a perfect partner for Edible,” Farid adds. “The Rocky Mountain Chocolate Factory brand is extremely complimentary to the Edible brand and products and by offering customers both Edible and Rocky Mountain products, together I am convinced we will be one of the most attractive sources of gifts and treats available to customers today.”
“This is potentially the most significant development for Rocky Mountain shareholders, employees and franchisees in the past decade,” says Merryman, who added that Rocky Mountain expects to make Rocky Mountain Chocolate Factory branded product available to Edible in time for the 2020 Valentine’s Day season.
With the entry into this strategic alliance, the Board of Directors of Rocky Mountain has formally concluded its review of strategic alternatives for the company. North Point Advisors served as financial advisor for Rocky Mountain and Perkins Coie LLP served as legal advisor. Farids & Co. LLC served as the commercial advisor for Edible Brands and DLA Piper LLP (US) served as legal advisor to Edible Arrangements.