Eskimo Pie Corp: Form 10-K SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K ------------ (Mark One) [X] ANNUAL REPORT PURSUANT TO SECTION 12 OR 15 (D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1996 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934[NO FEE REQUIRED] Commission file number 0-19867 ------------------------ ESKIMO PIE CORPORATION (Exact name of registrant as specified in its charter) Virginia 54-0571720 (State of other jurisdiction of (IRS Employer Identification No.) incorporation or organization) 901 Moorefield Park Drive Richmond, VA 23236 (Address of principal executive offices, including zip code) ------------ Registrant's phone number, including area code: (804) 560-8400 ------------ Securities registered pursuant to section 12(g) of the Act: ESKIMO PIE CORPORATION COMMON STOCK, $1.00 par value ------------ Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days Yes X No ___ Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] There were 3,457,573 shares of the Registrant's Common Stock outstanding on March 24, 1997. The aggregate market value held by non-affiliates on March 24, 1997 was approximately $42 million. DOCUMENTS INCORPORATED BY REFERENCE Certain information in the Registrant's Proxy Statement for the Annual Meeting to be held on May 7, 1997 is incorporated by reference into Part III herein. - -------------------------------------------------------------------------------- INDEX Part I Page Item 1. Business..........................................................1 Item 2. Properties........................................................5 Item 3. Legal Proceedings.................................................6 Item 4. Submission of Matters to a Vote of Security Holders ..............6 Executive Officers of the Registrant..............................7 Part II Item 5. Market for Registrant's Common Equity and Related Shareholder Matters...............................................8 Item 6. Selected Financial Data...........................................9 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operation.............................. 10 Item 8. Financial Statements and Supplementary Data .....................14 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure...........................26 Part III Item 10 Directors and Executive Officers of the Registrant ..............26 Item 11. Executive Compensation...........................................26 Item 12. Security Ownership of Certain Beneficial Owners and Management...................................................26 Item 13. Certain Relationships and Related Transactions ..................26 Part IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K..............................................27 - ------------------------- Trademarks and service marks of the Company are italicized where they appear herein. NutraSweet(R) is the registered trademark of the NutraSweet Company, Deerfield, Illinois. Welch's(R) is the registered trademark of Welch Foods Inc., a Cooperative ("Welch's"), Concord, Massachusetts. Nabisco(R), OREO(R) and SnackWell's(R) are the registered trademarks of Nabisco Brands Company ("Nabisco"), Chicago, Illinois. Weight Watchers(R) is the registered trademark of Weight Watchers International, Inc. ("Weight Watchers"), Jericho, New York. RealFruit(R) is the registered trademark of Boston Brands, Inc, Woburn, Massachusetts. All Rights Reserved. Market share and product distribution data were obtained from Information Resources, Inc. ("IRI"), a nationally recognized market research firm based in Chicago, Illinois, which provides the Company with scanner-based product movement data from U.S. grocery stores with annual all-commodity-volume of at least $2 million. Forward Looking Statements: Statements contained in this Report on Form 10-K regarding the Company's future plans and performance are forward looking statements within the meaning of the federal securities laws. These statements are based upon management's current expectations and beliefs about future events and their effect upon the Company. There can be no assurance that future developments affecting the Company will mirror those currently anticipated by management. Actual results may vary materially from those included in the forward looking statements. These forward looking statements involve risks and uncertainties, including but not limited to, the level of consumer interest in the Company's products, product costing, the weather, the performance of the new management team, the Company's relationships with its licensees and licensors, the highly competitive nature of the frozen dessert market, as well as government regulation. For a more complete discussion of these risks and uncertainties, see "Other Factors Affecting the Business of the Company" on pages 3-5 hereof. PART I ITEM 1. BUSINESS Introduction Eskimo Pie Corporation created the frozen novelty industry in 1921 with the invention of the Eskimo Pie ice cream bar. Over 75 years later, the Company markets a broad range of frozen novelties, ice cream and sorbet products under the Eskimo Pie, Welch's, Weight Watchers, SnackWell's, OREO and RealFruit brand names using a national territorial licensing strategy. Effective March 1, 1994, the Company also manufactures and markets soft-serve yogurt mix through its wholly owned subsidiary, Sugar Creek Foods, Inc. Over 80% of the Company's revenues are derived from the sale of these nationally branded products. The Company also manufactures ingredients and packaging for sale to the dairy industry. The Company has also recently begun to license the Eskimo Pie brand name in other product categories which include several varieties of cookie products that will be delivered to retail grocers beginning in March 1997. The Company's strengths include national brand recognition, the quality of its products and successful new product introductions. The Company's growth has come primarily as a result of the development and introduction of Eskimo Pie brand frozen dessert products, the sublicensing of frozen dessert products under other well-known national brands and the use of a select group of quality-oriented licensee manufacturers who provide a cost effective means of manufacture and distribution for the Company's products. The Company is a Virginia corporation with executive offices at 901 Moorefield Park Drive, Richmond, Virginia 23236. Licensing Strategy The Company has granted licenses to approximately 20 dairies who purchase packaging and ingredients from the Company for use in the manufacture and distribution of Eskimo Pie and sub-licensed branded products. Licensees are selected based upon their reputation for product quality and manufacturing and distribution capabilities. The licensees produce, store and distribute products in accordance with specific quality control standards which ensure uniform formulations, taste and appearance across all licensee territories. The Company regularly inspects the licensee's production and storage facilities and monitors finished products for adherence to the Company's quality standards. Licensing agreements generally provide for a six month transition period in the event of termination of any such agreement. As a result of its licensing strategy, the top four and ten licensees respectively account for approximately 50% and 70% of the Company's net sales. The licensing strategy allows the Company to select a strong customer base which it actively monitors to minimize the impact of an unforeseen loss of customers. The loss of one or more licensees could cause some disruption in the Company's operations, although, based upon prior experience with replacing licensees, management believes it could find a suitable replacement within a short period of time and, as a result, such customer loss would not have a significant impact on the Company's operations, liquidity or capital resources. 1 The licensing strategy allows the Company to operate with relatively low capital requirements. The Company's working capital requirements are limited to that necessary to support advertising, sales promotion and administrative activities rather than the much larger amounts that would be required to support the self-manufacture of finished consumer goods. The Company provides significant marketing support for the Eskimo Pie branded products as well as the sublicensed brands manufactured and distributed by its licensees. The Company's advertising and sales promotion expense generally includes trade promotion and introductory costs, price-off and feature price promotions, regional consumer promotion, couponing and other trial purchase generating programs and broker commissions. The Company has 23 sales personnel including three national sales managers and engages food brokers in almost every major U.S. market. Distribution of the Company's finished consumer products is handled by the licensees in their respective territories. Products Certain key ingredients (such as chocolate coatings and powders) and wrappers used by the Company's licensees in the manufacture of Eskimo Pie and sub-licensed frozen novelty and ice cream products are produced at Company owned facilities located in Wisconsin, California and New Jersey. Other products sold within the licensing system are purchased from approved vendors and "drop shipped" directly to licensee production facilities. Products sold under "drop shipped" arrangements generally include cartons, ice cream sandwich wafers and proprietary ingredients used in the manufacture of sub-licensed brand products. The Company manufactures over 50 flavors of soft serve yogurt and ice milk mix in a leased facility in Arkansas. Soft serve products are sold under the Eskimo Pie, Sugar Creek and SnackWell's brand names to retail and institutional food service establishments who, in turn, sell finished soft serve products to consumers. The sale of soft serve yogurt and ice milk mix, which accounts for approximately 12% of the Company's sales, is generally managed by a separate sales force working within the Company's wholly owned subsidiary, Sugar Creek Foods, Inc. The Company has contracted, under a co-packing arrangement, for the manufacture of consumer ready sorbet products under the RealFruit brand name. RealFruit products are generally sold by the Company to regional frozen food distributors and directly to retail groceries. The Company manufactures and markets various ingredients to the dairy industry. This process involves blending, cooking and processing basic flavors and fruits to yield products which are used to flavor ice cream, milk and cultured dairy products. This business has steadily grown in recent years and provides positive gross margin contribution although at much lower levels than the Company's licensing business. The Company also manufactures packaging, such as bags and wraps, at its New Jersey plant. These products are sold to the dairy industry, including many of the Company's licensees, and to the food service industry. 2 Sublicensing Efforts The Company leverages its licensee relationships and marketing presence through the acquisition of limited rights for nationally recognized brand names (Welch's, Weight Watchers, SnackWell's, OREO, RealFruit). These rights allow the Company to manage the manufacture, distribution and marketing of branded frozen novelties, frozen yogurt, ice cream and sorbet products in exchange for royalty payments to the owners of the brand names. The Company has, since 1980, managed the manufacture and marketing of Welch's brand frozen fruit juice bars under an exclusive agreement with Welch Foods Inc. The Company currently manages four different varieties of Welch's frozen juice bars under this arrangement. The Company expanded its line of national brands in December 1994 and January 1995 with the signing of long-term agreements with Nabisco, Inc. and Weight Watchers Food Company, respectively. Under the Nabisco agreement, the Company has developed and commenced to market frozen novelties and ice cream under the SnackWell's and OREO brand names. Since signing the licensing agreement, the Company has developed and introduced six different varieties of SnackWell's frozen novelties, four flavors of SnackWell's packaged ice cream and two flavors of OREO packaged ice cream. Under the Weight Watchers agreement, the Company assumed the management of the manufacture, distribution and marketing of an existing line of frozen novelty products. There are five Weight Watchers frozen novelties currently distributed to retail groceries. In March 1995, the Company entered into a long-term agreement with the RealFruit Company to manage the manufacture, distribution and sale of RealFruit frozen sorbet, an existing product line with limited distribution. Three new flavors will be added to the RealFruit line in 1997 as part of the Company's continued efforts to expand the distribution and sale of RealFruit products. Other Factors Affecting the Business of the Company Forward Looking Statements. This section, as well as other sections of this document and other information or statements the Company may release from time to time, includes forward looking statements, within the meaning of federal securities laws, about the Company's future plans and performance. These statements are based upon management's current expectations and beliefs about future events and their effect on Eskimo Pie Corporation. There can be no assurance that future developments will mirror those currently anticipated by management. Numerous factors, including but not limited to those discussed below, produce risks and uncertainties that may cause actual results to vary materially from those included in the forward looking statements. The Company assumes no duty to update any of its forward looking statements. Competition. The principal outlet for the Company's licensed products is retail grocery stores which sell approximately $3.8 billion of frozen novelties and ice cream annually according to the International Dairy Foods Association. The Company's branded frozen novelties compete with over 400 brands available to consumers, including the brands of two of the world's largest food conglomerates. The Company also competes with national, regional and local brands of soft serve frozen yogurt, packaged ice cream and sorbet products. 3 Management believes that the Company has a number of competitive advantages in the frozen dessert market. The Eskimo Pie brand name is one of the most widely recognized names in this market and it is management's belief that consumers identify the Eskimo Pie name with a consistently high quality product. The Company has been a leader in new product introductions, as evidenced by Eskimo Pie Sweetened with NutraSweet and the numerous sub-licensed products developed in recent years. In addition, the Company's licensing strategy enables it to operate with relatively low capital requirements. Product Costing. The Company purchases raw materials such as sugar and coconut oil from a number of suppliers. Other materials used by the Company include foil, paperboard and chocolate liquor. With the exception of aspartame and polydextrose, which have been, until recently, under patents by The NutraSweet Company, and Pfizer, Inc., respectively, and the proprietary items required to be purchased from the owners of the sublicensed brands, the Company believes that its raw materials are readily available from a number of sources. Raw material costs may be influenced by fluctuations in the commodity markets. Seasonality. The frozen dessert market is seasonal with sales concentrated in the summer months. Because the Company supplies packaging and ingredients to manufacturers of its licensed and sublicensed products, the Company has a higher level of shipments preceding and during the summer months and a lower level of shipments in the first and fourth quarters. Annual sales can be adversely affected by unseasonably cool weather during the summer months of the year. Trademarks. The licensing of trademarks owned and licensed by the Company, especially for the Eskimo Pie brand, is central to the business of the Company. The Company has exclusive rights with respect to these trademarks in the U.S. and Canada. The Company has made federal and various international filings with respect to its material trademarks, and intends to keep these filings current. The Company is not aware of any challenge to the validity of any trademark material to its business in areas where the Company and its licensees are currently conducting operations. Environmental. The Company's operations are subject to rules and regulations governing air quality, waste disposal and other environmental related matters, as well as other general employee health and safety laws and regulations. Other than as set forth below with respect to the Bloomfield plant, the Company believes that it is in substantial compliance with all such applicable laws and rules. In the third quarter of 1991, the Company learned that small quantities of cleanup solvents, solvent inks and oil were disposed of at its Bloomfield, New Jersey plant. The Company promptly notified regulatory authorities and undertook testing to determine the extent of any contamination. In connection with consummation of the Company's public offering in March, 1992, the Company's former parent, Reynolds Metals Company ("Reynolds"), entered into an agreement with the Company under which Reynolds will continue to manage testing and cleanup activities at the Bloomfield plant. Under the agreement, Reynolds will reimburse the Company for all cleanup costs (as defined in the agreement) relating to the Bloomfield plant that may be incurred by the Company in excess of $300,000. The Company recorded a $300,000 liability for these costs in 1991 of which approximately $100,000 remains unused at December 31, 1996. Except as provided in the agreement, Reynolds has not otherwise undertaken any responsibility or assumed liability for environmental obligations of the Company. 4 Government Regulation. Like other companies in the food industry, the Company and its licensees are subject to extensive regulation by various local, state and federal governmental agencies. Pursuant to a wide range of statutes, rules and regulations, such agencies prescribe requirements governing product quality, purity, manufacturing, advertising and labeling. Food products are often subject to "standard of identity" requirements which are promulgated at both the federal and state level to control the permissible qualitative and quantitative ingredient content of foods, and information that must be provided on food product labels. The Federal Food and Drug Administration ("FDA"), the Federal Trade Commission ("FTC") and many states review product labels and advertising to assure compliance with applicable statutes and regulations. The Company cannot predict the impact of the changes that it may be required to make in the future as a result of other legislation, rules or governmental review. FDA regulations may, in certain instances, affect the ability of the Company, as well as others in the industry, to develop and market new products and to utilize technological innovations in the manufacturing of existing products. Nevertheless, the Company does not believe these rules and regulations will have a significant impact on its operations. New Management Team. The Company is reliant on the abilities of several recently hired financial and marketing personnel as well as those of David B. Kewer, the Company's new President and Chief Operating Officer. These personnel have significant experience in their respective functional areas and the loss of these individuals or others could have an adverse effect on the Company's ability to implement its future plans. Licensor Relationships. The Company derives approximately 40% of its revenues from sub-licensed products which, in general, are governed by contractual agreements between the licensor and the Company. The loss of any of these sub-licensed brands could have an adverse effect on the Company's business. Licensee Relationships. The risks related to the Company's relationships with its licensees are discussed under "Licensing Strategy" above. Employees. At December 31, 1996, the Company employed approximately 185 persons. No employees are currently covered by collective bargaining agreements. The Company believes that its employee relations are good. ITEM 2. PROPERTIES In 1992, the Company acquired an office building in the Moorefield Office Park in Richmond, Virginia. The building consists of 32,496 square feet on 3.419 acres which serves as the Company's executive and administrative offices and new product development/quality control facility. The Company owns its ingredients manufacturing plant in New Berlin, Wisconsin which consists of 73,820 square feet on 4 acres. The Company expanded its New Berlin plant in 1990 by 18,000 square feet and purchased certain new equipment at that time. The Company also owns its ingredients manufacturing plant in Los Angeles, California which consists of 38,211 square feet on 2.68 acres, having relocated the plant operations to its present site in 1986. 5 The Company also owns its printing and packaging plant in Bloomfield, New Jersey, which consists of 71,583 square feet on 1.95 acres. The Bloomfield plant was expanded and modernized in 1985 with a 35,000 square foot addition. In connection with the March 1, 1994 acquisition of Sugar Creek Foods of Russellville, Inc., the Company's subsidiary, Sugar Creek Foods, Inc., is leasing from the former owner of the business a soft serve yogurt and ice milk mix production facility, consisting of approximately 23,805 square feet, and a packaging facility, consisting of approximately 16,000 square feet, both located in Russellville, Arkansas. Sugar Creek Foods, Inc. also purchased a freezer facility, consisting of 5,013 square feet, adjacent to the production facility in Russellville. The Company owns virtually all of its equipment and replacement parts for all manufacturing equipment are readily available. ITEM 3. LEGAL PROCEEDINGS The Company is party to ordinary routine litigation incidental to its business, the disposition of which is not expected to have a significant effect on the Company's financial condition and operations. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None 6 EXECUTIVE OFFICERS OF THE REGISTRANT Present Position and Length of Name (Age) Service Other Business Experience During Past Five Years - ---------- ------- ------------------------------------------------ Arnold H. Dreyfuss (68) Chairman of the Board and Director since 1992; a 50% owner of Jupiter Ocean and Chief Executive Officer since Racquet Club of Jupiter, Florida; formerly (1982 until September 19, 1996. 1991) Chairman of the Board and Chief Executive Officer of Hamilton Beach/Proctor-Silex, Inc. Kimberly F. Ferryman (40) Vice President, Quality Corporate Director, Quality Assurance and Product Assurance and Product Development from March 1994 to February 1995; Senior Development since February Product Development Technologist from November 1988 to 1995. February 1994. (All were positions with the Company) Neal D. Glaeser (36) Vice President, Sales since General Manager, Sales from April 1994 to October 1995; October 1995. General Manager, Flavors from October 1992 to April 1994; Divisional Sales Manager from April 1989 to October 1992. (All were positions with the Company) Carl D. Hornbeak (57) Vice President, Operations General Manager, Operations of the Company from January since October 1988. to October 1988. V. Stephen Kangisser (45) Vice President, Marketing Vice President, Sales and Marketing for H.P. Hood, since May 1996. Inc., Boston, Massachusetts from 1993 to 1996; Director of Sales and Marketing and various other positions with Kraft, Inc. from 1974 through 1993. David B. Kewer (42) President and Chief Operating President, Willy Wonka Candy Factory, a division of Officer since March 1, 1997. Nestle' USA, Inc., from August 1993 to February 1996; Senior Vice President Marketing and Strategic Planning and various other marketing and sales positions with Nestle' Ice Cream Company from 1988 to 1993. Thomas M. Mishoe, Jr. (44) Chief Financial Officer, Independent Consultant, from August 1995 to February Vice President, Treasurer and 1996; Chief Financial and Administrative Officer, Corporate Secretary since Goldome Credit Corporation from May 1993 to May 1995; February 1996. Senior Manager with Ernst & Young LLP, Capital Markets Group, from 1987 to May 1993. 7 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS The Company's Common Stock trades on the Nasdaq National Market tier of The Nasdaq Stock Market under the symbol "EPIE". As of February 28, 1997, there were approximately 700 Shareholders of Record of the Company's Common Stock (including brokers, dealers, banks and other nominees participating in The Depository Trust Company). The high and low sales prices for shares of the Company's Common Stock as reported on The Nasdaq Stock Market and dividends declared per share during the periods indicated are set forth below: -------------------------------------------------- High Low Dividends - -------------------------------------------------------------------------------- 1996 First Quarter $ 19 $ 16 3/4 $ 0.05 Second Quarter 22 17 1/4 0.05 Third Quarter 17 3/4 14 1/4 0.05 Fourth Quarter 16 1/2 7 1/2 0.05 - -------------------------------------------------------------------------------- 1995 First Quarter $ 21 1/4 $ 18 1/2 $ 0.05 Second Quarter 20 1/2 14 3/4 0.05 Third Quarter 19 3/4 15 1/2 0.05 Fourth Quarter 19 3/4 18 0.05 - -------------------------------------------------------------------------------- On March 4, 1997, the Board of Directors declared a quarterly cash dividend of $.05 per share, payable April 3, 1997, to Shareholders of Record on March 14, 1997. While the Company anticipates a regular quarterly dividend, the amount and timing of any future dividends will depend on the general business conditions encountered by the Company, as well as the financial condition, earnings and capital requirements of the Company and other factors deemed relevant by the Board of Directors. 8 ITEM 6. SELECTED FINANCIAL DATA - ---------------------------------------------------------------------------------------------------------------------------- For the year ended and as of December 31, 1996(1) 1995 1994(2) 1993(3) 1992 - ---------------------------------------------------------------------------------------------------------------------------- (In thousands, except per share data) Income Statement Data: Net sales $ 74,084 $ 83,975 $ 70,893 $ 66,082 $ 62,878 Operating income (loss) (2,009) 8,804 8,289 7,809 7,183 Net income (loss) $ (2,046) $ 5,076 $ 4,850 $ 3,479 $ 4,549 Per Share Data: Primary Weighted average number of common shares outstanding 3,460,729 3,475,119 3,541,419 3,603,901 3,537,933 Income (loss) before cumulative effect of accounting changes $ (0.59) $ 1.46 $ 1.37 $ 1.34 $ 1.29 Net income (loss) $ (0.59) $ 1.46 $ 1.37 $ 0.97 $ 1.29 Fully diluted Weighed average number of common shares outstanding 3,623,296 3,637,686 3,677,708 - - Net income (loss) $ (0.54) $ 1.42 $ 1.34 - - Cash dividends $ 0.20 $ 0.20 $ 0.20 $ 0.20 $ 4.52(4) Balance Sheet Data: Cash and short term investments $ 2,143 $ 717 $ 5,142 $ 8,305 $ 4,972 Working capital 6,802 9,193 9,175 9,210 5,253 Total assets 44,440 45,872 41,913 27,612 23,486 Total debt 9,800 9,800 9,844 219 394 Shareholders' equity 22,470 25,687 21,284 18,622 16,719 - ---------------------------------------------------------------------------------------------------------------------------- - -------- 1 Net income includes special charges ($1,482) incurred during the third quarter of the year. Additional discussion is provided in Management's Discussion and Analysis of Financial Condition and Results of Operations. 2 Includes the results of the Sugar Creek Foods acquisition beginning March 1, 1994. 3 Net income includes the cumulative effect of the change in accounting principle ($1,350) resulting from the adoption of SFAS 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions". 4 Special one-time dividend paid on March 17, 1992 to Shareholders of Record on February 28, 1992. 9 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION RESULTS OF OPERATIONS For the year ended December 31, 1996, the Company recorded net sales of $74.1 million and a net loss of $2.0 million or $0.54 per share on a fully diluted basis. The net loss is attributable to a softening of sales in its principal markets, related third quarter inventory and equipment write-offs and a severance accrual related to a recent change in executive management. Exclusive of the third quarter write-offs and severance accrual, which total $1.5 million after related tax benefits, the Company would have reported a net loss of $564,000 or $0.13 per share on a fully diluted basis for the year. Additional details are provided below. Net Sales and Gross Profit Net sales consist of the following: ----------------------- ------------------- -------------------- For the year ended December 31, 1996 1995 1994 - ------------------------------------------------------ ----------------------- ------------------- -------------------- (In thousands) Brand or item Company owned brands $ 30,382 $ 44,921 $ 42,840 Sublicensed brands 29,686 26,458 16,354 Flavors, packaging and other 14,016 12,596 11,699 --------- -------- -------- $ 74,084 $ 83,975 $ 70,893 ======== ======== ======== - ------------------------------------------------------ ----------------------- ------------------- -------------------- The entire ice cream industry experienced a difficult year in 1996 as a result of the increased cost of dairy products and reduced consumer demand due in part to the mild summer experienced throughout most of the country. As a result, the frozen novelty category has shown declines from 1995 results according to IRI. These factors, along with a decrease in the rate of promotional spending by the Company, as discussed in Expenses and Other Income below, combined to negatively impact the Company's sale of licensed and sublicensed products. The sale of products under Company owned brands decreased 32.4% in 1996 as a result of the factors cited above and differences in the timing of customer shipments associated with Eskimo Pie brand products. The 4.9% increase in 1995 is attributable to the 1995 introduction of several new Eskimo Pie products and the inclusion of soft serve yogurt operations, acquired in March 1994, for the entire year in 1995 as opposed to ten months in 1994. The sale of sublicensed brand products (Welch's, Weight Watchers, Snackwell's, OREO and RealFruit brands) increased by 12.2% in 1996 as a result of the Snackwell's and OREO brand product introductions in December 1995. The Snackwell's and OREO introductions offset 1996 sales declines in the remaining sublicensed brands which, in general, were caused by the same factors impacting Eskimo Pie brand sales. The comparison between 1996 and 1995 is also impacted by the inclusion in 1995 of $1.7 million of Weight Watchers finished goods which were acquired and sold by the Company upon the execution of the licensing agreement. The sale of sublicensed brand products increased in 1995 due to the inclusion of the Weight Watchers, RealFruit and Nabisco lines of products beginning in January, April and December 1995, respectively. 10 Flavors, packaging and other sales continue to grow with increases of 11.3% and 7.7% in 1996 and 1995, respectively. Substantially all of this increase is the result of the successful sales efforts being undertaken to expand the flavors business beyond its traditional licensee base. Gross profit, as a percent of sales, declined to 35.6% in 1996 and 42.2% in 1995 primarily as a result of the change in product mix referred to above. Sublicensed brands, which accounted for 40.1% of sales in 1996 as compared with 31.5% in 1995, return lower gross profit due primarily to the royalty costs associated with these brands. The continued improvement in the highly competitive flavors business, although incremental to earnings, also lowered the Company's consolidated gross profit percentage in 1996. During 1996, gross profit was also affected by $920,000 in special charges relating to the disposal of licensee and Company owned inventories (primarily cartons) which the Company concluded in the third quarter did not have future use. Expenses and Other Income While advertising and sales promotion expense increased 8.0% in 1996 and 23.8% in 1995 due primarily to additional brand management costs and new product introductions, the actual amount allocated to each licensed brand and individual products within the brands has declined in recent years. For example, excluding expenditures for the Snackwell's and OREO products introduced in December 1995, 1996 advertising and sales promotion expense would have approximated 1994 levels. Given the addition of four new Eskimo Pie brand items, two additional national sublicensed brands comprising 15 different products among several product categories and the additional flavors business, the actual rate of spending has decreased. General and administrative expenses increased during 1996 primarily due to severance charges of $593,000 relating to the resignation of the Company's former President and Chief Executive Officer. General and administrative expenses increased in 1995 to support the demands of the additional sublicensed brands acquired in 1995. As a percent of sales, general and administrative expenses decreased from 13.3% in 1994 to 12.4% in 1995 as a result of additional sales provided by the newly acquired sublicensed brands. The loss on disposal of fixed assets reflects, in addition to minor recurring items, the disposal of certain equipment leased to one of the Company's licensees. The equipment has been dismantled and no alternative use is available. Seasonality The frozen dessert industry is seasonal with sales concentrated in the summer months. Because the Company supplies packaging and ingredients to manufacturers of its licensed and sublicensed products, the Company has a higher level of shipments preceding and during the summer months and a lower level of shipments in the first and fourth quarters. The following table provides two years of unaudited quarterly financial data: For the 1996 quarter ended March 31 June 30 Sept 30 Dec 31 - ---------------------------------------- -------------------- -------------------- ------------------- ---------------- (In thousands, except per share data) Net sales $19,769 $25,324 $16,898 $12,093 Gross profit 7,761 10,260 5,172 3,217 Net income (loss) 1,071 1,694 (2,799) (2,012) Per share Primary 0.31 0.49 (0.81) (0.58) Fully diluted 0.30 0.47 (0.77) (0.55) 11 For the 1995 quarter ended March 31 June 30 Sept 30 Dec 31 - ---------------------------------------- -------------------- -------------------- ------------------- ---------------- (In thousands, except per share data) Net sales $18,953 $29,800 $19,745 $15,477 Gross profit 7,801 13,551 7,940 6,175 Net income 1,035 2,567 1,275 199 Per share Primary 0.30 0.74 0.37 0.06 Fully diluted 0.29 0.71 0.36 0.06 - ---------------------------------------- -------------------- -------------------- ------------------- ---------------- During the third quarter of 1996, the Company recorded special charges not identifiable with preceding interim periods of approximately $2.4 million. These special charges include accruals relating to the previously mentioned executive severance ($593,000), the loss on disposal of fixed assets ($725,000) and the disposal of licensee and Company held inventories ($920,000). After related tax benefits, the special charges reduced net income by approximately $1.5 million. LIQUIDITY AND CAPITAL RESOURCES The Company's utilization of licensees allows it to operate with relatively low capital requirements. This reduces the Company's working capital requirements to that necessary to support its licensing strategy rather than the amounts required to support the manufacture of finished consumer goods. Working capital requirements generally precede the seasonal pattern of the Company's sales. The Company believes that the cash generated from operations and funds available under its credit agreements provide the Company with sufficient funds and the financial flexibility to support its ongoing business, strategic objectives and debt repayment requirements. The Company's principal customers are approximately 20 licensees, each having specific geographic territories. As a result of its national territorial licensing system, the top four and ten customers, respectively, account for approximately 50% and 70% of the Company's net sales. The Company's licensing strategy allows it to select a stronger customer base which it can actively monitor to minimize the impact of an unforeseen loss of any such customer. In addition, its licensing agreements generally provide for a six month transition period in the event of termination of any such agreement. The loss of one or more of these major licensees could cause some disruption in the Company's operations, although, based upon prior experience with replacing major licensees, management believes it could find a suitable replacement within a short period of time and, as a result, such customer loss would not have a significant impact on the Company's operations, liquidity or capital resources. The Company's financial position remains strong as evidenced by its ability to generate cash flow from operations of approximately $5.7 million in 1996. The Company had working capital of approximately $6.8 million at December 31, 1996 and committed credit facilities in 1997 which provide for up to $11.7 million in additional borrowings. The Company has used approximately $1 million of these facilities to finance recent computer hardware, software and network installations, and expects to expend an additional $700,000 in 1997. The total $1.7 million investment will provide for improved management information and analysis to support enhanced decision making processes. The credit facilities impose, among other things, certain requirements on the ratio of total debt to net worth, the maintenance of minimum shareholders' equity and minimum interest coverage. No Company assets are pledged as security under these agreements. During the first half of 1996, the Company made approximately $1.7 million in estimated federal and state tax payments in connection with earnings recognized through June 30, 1996. In January 1997, the Company received a $1.4 million cash refund of estimated federal tax payments. Approximately $800,000 of 12 additional tax benefits relating to 1996 estimated state tax payments and net operating losses can be recovered in 1997 as cash refunds of prior year tax payments. During 1996, the Company's Board of Directors increased management's authorization to repurchase the Company's Common Stock. The additional 112,000 shares, when combined with previously approved authorizations, will allow the Company to repurchase up to 348,000 shares or approximately 10% of the then outstanding Common Stock. Pursuant to this renewed authorization, management repurchased 35,000 shares in 1996 at a cost of approximately $611,000. On March 4, 1997, the Board of Directors declared a quarterly cash dividend of $.05 per share, payable April 3, 1997, to Shareholders of Record on March 14, 1997. While the Company anticipates a regular quarterly dividend, the amount and timing of any future dividends will depend on the general business conditions encountered by the Company, as well as the financial condition, earnings and capital requirements of the Company and other factors deemed relevant by the Board of Directors. 13 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA CONSOLIDATED STATEMENTS OF INCOME For the year ended December 31, 1996 1995 1994 - ------------------------------------------------------------------------ ------------------- --------------- ------------- (In thousands, except share data) Net sales $ 74,084 $ 83,975 $ 70,893 Cost of products sold 47,674 48,508 40,092 ------------------- --------------- ------------- Gross profit 26,410 35,467 30,801 Advertising and sales promotion expenses 17,518 16,217 13,101 General and administrative expenses 10,901 10,446 9,411 ------------------- --------------- ------------- Operating income (loss) (2,009) 8,804 8,289 Interest income 217 185 285 Interest expense and other - net (714) (810) (530) Loss on disposal of fixed assets (777) - - ------------------- --------------- ------------- Income (loss) before income taxes (3,283) 8,179 8,044 Income tax expense (benefit) (1,237) 3,103 3,194 ------------------- --------------- ------------- Net income (loss) $ (2,046) $ 5,076 $ 4,850 =================== =============== ============= Per common share Primary Weighted average number of common shares outstanding 3,460,729 3,475,119 3,541,419 Net income (loss) $ (0.59) $ 1.46 $ 1.37 =================== =============== ============= Fully diluted Weighted average number of common shares outstanding 3,623,296 3,637,686 3,677,708 Net income (loss) $ (0.54) $ 1.42 $ 1.34 =================== =============== ============= CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY Common Stock Additional Retained (In thousands, except share data) Shares Amount Capital Earnings Total - ----------------------------------------------------- ---------------- ------------ ----------- ------------ ------------ Balance at January 1, 1994 3,557,487 $ 3,557 $ 5,932 $ 9,133 $ 18,622 Net income 4,850 4,850 Cash dividends ($0.20 per share) (708) (708) Issuance of common stock 8,450 9 139 148 Purchase of common stock (92,000) (92) (1,471) (1,563) Foreign currency translation (65) (65) ---------------- ------------ ----------- ------------ ------------ Balance at December 31, 1994 3,473,937 3,474 4,600 13,210 21,284 Net income 5,076 5,076 Cash dividends ($0.20 per share) (694) (694) Issuance of common stock 1,066 1 20 21 ---------------- ------------ ----------- ------------ ------------ Balance at December 31, 1995 3,475,003 3,475 4,620 17,592 25,687 Net (loss) (2,046) (2,046) Cash dividends ($0.20 per share) (692) (692) Issuance of common stock 7,570 8 124 132 Purchase of common stock (35,000) (35) (576) (611) ---------------- ------------ ----------- ------------ ------------ Balance at December 31, 1996 3,447,573 $ 3,448 $ 4,168 $ 14,854 $ 22,470 ================ ============ =========== ============ ============ 14 CONSOLIDATED BALANCE SHEETS As of December 31, 1995 1996 - ----------------------------------------------------------------------------------------------- -------------- ------------- (In thousands, except share data) Assets Current assets: Cash and cash equivalents $ 2,143 $ 717 Receivables 4,051 8,695 Inventories 6,608 5,323 Prepaid expenses 3,262 1,375 -------------- ------------- Total current assets 16,064 16,110 Property, plant and equipment - net 8,716 9,055 Goodwill and other intangibles 17,999 18,864 Other assets 1,661 1,843 -------------- ------------- Total assets $ 44,440 $ 45,872 ============== ============= Liabilities and Shareholders' Equity Current liabilities: Short term borrowings $ - $ 1,200 Accounts payable 5,283 3,592 Accrued advertising and promotion 2,026 975 Accrued compensation and related amounts 730 430 Other accrued expenses 723 542 Income taxes - 178 Current portion of long term debt 500 - -------------- ------------- Total current liabilities 9,262 6,917 Long term debt 5,500 6,000 Convertible subordinated notes 3,800 3,800 Postretirement benefits and other liabilities 3,408 3,468 Shareholders' equity: Preferred stock, $1.00 par value; 1,000,000 shares authorized, none issued and outstanding Common stock, $1.00 par value; 10,000,000 shares authorized, 3,447,573 issued and outstanding in 1996 and 3,475,003 in 1995 3,448 3,475 Additional capital 4,168 4,620 Retained earnings 14,854 17,592 -------------- ------------- Total shareholders' equity 22,470 25,687 -------------- ------------- Total liabilities and shareholders' equity $ 44,440 $ 45,872 ============== ============= See accompanying notes to consolidated financial statements. 15 CONSOLIDATED STATEMENTS OF CASH FLOWS For the year ended December 31, 1996 1995 1994 - ------------------------------------------------------------------------------- -------------- -------------- -------------- (In thousands) Operating activities Net income (loss) $ (2,046) $ 5,076 $ 4,850 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization 2,530 2,360 2,136 Loss on disposal of fixed assets 777 - - Change in deferred income taxes and other assets (290) 183 72 Change in postretirement benefits and other liabilities (177) 73 641 Change in receivables 4,644 (1,275) (2,213) Change in inventories and prepaid expenses (2,807) (1,873) (969) Change in accounts payable and accrued expenses 3,047 (1,790) 410 -------------- -------------- -------------- Net cash provided by operating activities 5,678 2,754 4,927 Investing activities Acquisition of business and other intangibles, net of cash acquired (269) (6,799) (11,152) Capital expenditures (1,674) (849) (694) Sale of short term investments - net - 345 2,695 Other 165 7 84 -------------- -------------- -------------- Net cash used in investing activities (1,778) (7,296) (9,067) Financing activities Short term borrowings and (repayments) - net (1,200) 1,200 - Borrowings under long term credit facility - - 6,000 Principal payments on long term debt - (44) (175) Issuance of common stock 29 - 118 Purchase of common stock (611) - (1,563) Cash dividends (692) (694) (708) -------------- -------------- -------------- Net cash (used in) provided by financing activities (2,474) 462 3,672 -------------- -------------- -------------- Change in cash and cash equivalents 1,426 (4,080) (468) Cash and cash equivalents at beginning of year 717 4,797 5,265 -------------- -------------- -------------- Cash and cash equivalents at end of year $ 2,143 $ 717 $ 4,797 ============== ============== ============== See accompanying notes to consolidated financial statements. 16 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE A - SIGNIFICANT ACCOUNTING POLICIES The Company markets and manufactures through its own plants and licensed dairies a broad range of frozen novelties, frozen yogurt, ice cream and sorbet products under the Eskimo Pie, Welch's, Weight Watchers, SnackWell's, OREO and RealFruit brand names. The Company continues to manufacture ingredients and packaging for sale to the dairy industry and has recently begun to license the Eskimo Pie brand name in other product categories. Principles of Consolidation: The accounts of the Company, and its wholly-owned subsidiaries are included in the consolidated financial statements after elimination of all material intercompany balances and transactions. Cash and Cash Equivalents: The Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents. The carrying amount of cash equivalents approximates fair value because of the short maturity of those investments. Inventories: Inventories are stated at the lower of cost or market. The cost of inventories is determined by the last-in, first-out (LIFO) method except for approximately $650,000 of inventories at December 31, 1996 and 1995 which was determined by the first-in, first-out (FIFO) method. If the FIFO method was applied to LIFO inventories, they would increase by approximately $1,050,000 at December 31, 1996 and $1,100,000 in 1995. Property, Plant, Equipment and Depreciation: Property, plant and equipment are stated at cost. Depreciation is provided by the straight line method over the estimated useful lives which are generally 30 years for buildings and six to ten years for machinery and equipment. Goodwill and Other Intangibles: Goodwill, which represents the excess of the purchase price of acquired companies over the fair value of the net assets acquired, is amortized on a straight line basis over 40 years. Other intangibles include costs associated primarily with trademarks, sub-licensed brand names and carton development and are amortized on a straight line basis over periods which generally range from four to twenty years. The Company periodically evaluates the recoverability of material components of goodwill and other intangibles based on expected undiscounted cash flows. Any impairment in value would be charged to earnings in the year recognized. The Company believes that no impairment of value exists as of December 31, 1996. Accumulated amortization at December 31, 1996 and 1995 was approximately $3,165,000 and $2,085,000, respectively. Advertising and Sales Promotion Expenses: The Company generally expenses advertising and sales promotion costs in the period incurred. There were no capitalized advertising and sales promotion costs as of December 31, 1996 and 1995. Product Development and Quality Control Costs: Costs for product development and quality control, which are performed by the same personnel, are expensed as incurred and were approximately $1,050,000 in 1996, $1,150,000 in 1995 and $900,000 in 1994. 17 Earnings Per Share: Primary earnings per share is calculated by dividing the Company's net income or loss by the weighted average number of common shares outstanding for the respective year. Fully diluted earnings per share is calculated by dividing the Company's net income or loss, adjusted to reflect the after tax benefits from interest savings on the assumed conversion of the Company's convertible subordinated notes, by the weighted average number of common shares increased by the number of shares issued (162,567) in the assumed conversion of the convertible subordinated notes. Shares to be issued under the exercise of stock options are not included in earnings per share calculations as the result would not be materially dilutive. Stock Options: The Company accounts for stock option grants made under Incentive Stock Plans in accordance with APB Opinion No. 25, "Accounting for Stock Issued to Employees" and accordingly recognizes no compensation expense for its stock options granted at fair market value. Use of Estimates: The preparation of financial statements in conformity with generally accepted accounting principles requires management to make certain estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. NOTE B - INVENTORIES Inventories are classified as follows: - -------------------------------------------------------------------- ------------------------- ------------------------ As of December 31, 1996 1995 - -------------------------------------------------------------------- ------------------------- ------------------------ (In thousands) Finished goods $ 4,987 $ 3,802 Raw materials and packaging supplies 2,672 2,631 ----------- ---------- Total FIFO inventories 7,659 6,433 Reserve to adjust inventories to LIFO (1,051) (1,110) ------------ ----------- $ 6,608 $ 5,323 ========== ========= - -------------------------------------------------------------------- ------------------------- ------------------------ NOTE C - PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment is classified as follows: - -------------------------------------------------------------------- ------------------------- ------------------------ As of December 31, 1996 1995 - -------------------------------------------------------------------- ------------------------- ------------------------ (In thousands) Land $ 774 $ 747 Buildings 5,814 5,746 Machinery and equipment 9,153 8,749 Equipment leased or loaned to customers 3,546 5,884 Projects in progress 978 29 ------------ ------------- 20,265 21,155 Less accumulated depreciation (11,549) (12,100) ---------- ----------- $ 8,716 $ 9,055 ========== =========== - -------------------------------------------------------------------- ------------------------- ------------------------ 18 NOTE D - INCOME TAXES Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. At December 31, 1996, the Company had $462,000 ($102,000 in 1995) of current deferred tax assets included in prepaid expenses and $154,000 ($87,000 in 1995) of long term deferred tax assets included in other assets which have been netted by tax jurisdiction for presentation purposes. The significant components of these amounts are as follows: - -------------------------------------------------------------------- ------------------------- ------------------------ As of December 31, 1996 1995 - -------------------------------------------------------------------- ------------------------- ------------------------ (In thousands) Current: Accrued severance benefits $ 174 $ - Advertising, promotion and other liabilities 288 102 ---------- ---------- 462 102 Non-Current: Accrued postretirement benefits 1,065 1,155 Depreciation & amortization (1,006) (1,122) Other 95 54 ----------- ----------- 154 87 ---------- ----------- Total deferred tax assets $ 616 $ 189 ========= ========= - -------------------------------------------------------------------- ------------------------- ------------------------ Also included in prepaid assets at December 31, 1996 are $1,400,000 in 1996 estimated federal tax payments recovered by the Company in January 1997 and approximately $800,000 in tax benefits that can be realized as cash refunds of prior year payments. Significant components of the provision for income taxes are as follows: - -------------------------------------------- ------------------------- ------------------------ ----------------------- For the year ended December 31, 1996 1995 1994 - -------------------------------------------- ------------------------- ------------------------ ----------------------- (In thousands) Current: Federal $ (678) $ 2,488 $ 2,455 State (143) 392 505 Foreign 11 37 37 ---------- ---------- ---------- (810) 2,917 2,997 Deferred: Federal (353) 159 165 State (74) 27 32 ------------- ---------- ---------- (427) 186 197 ------------ --------- --------- Total income tax provision $ (1,237) $ 3,103 $ 3,194 =========== ========= ======== - -------------------------------------------- ------------------------- ------------------------ ----------------------- Amounts paid for income taxes totaled $1,878,000 in 1996, $2,850,000 in 1995, and $3,160,000 in 1994. A reconciliation of federal statutory and effective income tax rates is as follows: - -------------------------------------------- ------------------------- ------------------------ ----------------------- For the year ended December 31, 1996 1995 1994 - -------------------------------------------- ------------------------- ------------------------ ----------------------- Federal statutory rate (34.0)% 34.0% 34.0% Effect of State taxes (4.3) 3.4 4.5 Permanent differences and other .6 .5 1.2 ---------- ------- ------ Effective income tax rate (37.7)% 37.9% 39.7% ====== ===== ===== - -------------------------------------------- ------------------------- ------------------------ ----------------------- 19 NOTE E - FINANCING ARRANGEMENTS - ---------------------------------------------------------------- ------------------------------------------------------ Long Term Debt Carrying Amount As of December 31, 1996 1995 - ---------------------------------------------------------------- --------------------------- -------------------------- (In thousands) Revolving credit facility $ 6,000 $ 6,000 (variable interest rate, currently 6.1%) Convertible subordinated notes 3,800 3,800 ---------- ---------- (4.5% interest rate) 9,800 9,800 Less current maturities (500) - ------------ ------------- $ 9,300 $ 9,800 ========= ========= - ---------------------------------------------------------------- --------------------------- -------------------------- Based upon prevailing interest rates and after consideration of credit risk, the carrying value of the Company's long term debt is a fair approximation of market value. In May 1994, the Company entered into a $6,000,000, ten year revolving credit facility with a commercial bank which provides for renewable loans without required principal reduction until 1997. Beginning in June 1997, the Company will be required to reduce the then existing debt evenly over a seven year period. Except for the amounts due in 1997, the Company has classified all of this loan as long term debt based upon its ability and intention to defer payment past 1997. In December 1995, the Company entered into an interest rate swap agreement which effectively fixes the interest rate on the revolving credit facility at 6.1% through December 1998. The amount to be paid or received as a result of this agreement is accrued as interest rates change and is recognized as an adjustment to interest expense. The fair value of the swap agreement was not material at December 31, 1996 and 1995. The Company believes that material loss from non-performance is remote due to the strength of the counterparty. As partial consideration made in connection with the 1994 acquisition of Sugar Creek Foods, the Company issued $3,800,000 in convertible subordinated notes to the former Sugar Creek Foods shareholders. These notes become due in February 1999 if not previously converted to common stock. The Company has reserved 162,567 shares of its common stock for conversion of the notes (at $23 3/8 per share). At December 31, 1996, the Company had a $1,700,000 line of credit with a commercial bank to finance the acquisition of a related amount of computer hardware and software. Borrowings under the line, which are expected to take place beginning in the first quarter of 1997, bear interest at the 30 day LIBOR rate plus 100 basis points and must be repaid in equal monthly installments over a 30 month period beginning in October 1997. During February 1997, the Company renewed its $10,000,000 committed line of credit with another commercial bank. The committed line of credit is available for general Corporate purposes through April 1998. Borrowings under the line bear interest at the bank's overnight money market rate plus 75 basis points. The revolving and committed credit agreements impose, among other things, certain requirements on the ratio of total debt to net worth, the maintenance of minimum shareholders' equity and minimum interest coverage. No assets are pledged as security under these agreements. Interest paid totaled approximately $715,000 in 1996, $799,000 in 1995, and $413,000 in 1994. The interest rate on short term borrowings at December 31, 1995 was 6.4%. 20 NOTE F - SHAREHOLDERS' EQUITY Stock Options Under the Company's Incentive Stock Plans (the Plans), key employees and non-employee directors of the Company may receive grants and awards of up to a total of 425,000 shares of stock options, stock appreciation rights and restricted stock. Stock options are granted at a price not less than the fair market value on the date the options are granted, become exercisable at various intervals from six months to four years after the date of the grant and expire after ten years. The details of stock option activity are as follows: --------------------------- -------------------------- ---------------------- Range of Weighted Average Number of shares Exercise Prices Exercise Price - ----------------------------------------- --------------------------- -------------------------- ---------------------- 1994 Outstanding, beginning of year 143,414 $17.00-19.75 Exercised 7,000 17.00 Cancelled 20,957 17.25-19.75 Outstanding, end of year 115,457 17.00-19.75 Exercisable, end of year 38,800 17.00-19.75 1995 Granted 65,000 20.50 Cancelled 22,000 17.25-20.50 Outstanding, end of year 158,457 17.00-20.50 $ 18.48 Exercisable, end of year 59,025 17.00-19.75 1996 Granted 142,711 18.75-21.25 18.80 Exercised 1,667 17.25 17.25 Cancelled 161,274 17.00-20.50 18.67 Outstanding, end of year 138,227 17.00-21.25 18.60 Exercisable, end of year 60,609 17.00-21.25 17.87 - ----------------------------------------- --------------------------- -------------------------- ---------------------- In 1996, the Company adopted the disclosure-only provisions of Statement of Financial Accounting Standards No. 123 (SFAS 123), "Accounting for Stock Based Compensation". As permitted by the provisions of SFAS 123, the Company continues to follow Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees", and related interpretations in accounting for its stock based awards. As stock options are generally issued at the fair market value on the date of grant, the Company does not recognize compensation cost related to its stock option plans. The following information is provided solely in connection with the disclosure requirements of SFAS 123. If the Company had elected to recognize compensation cost related to its stock options granted in 1996 and 1995 in accordance with the provisions of SFAS 123, there would have been a pro forma net loss of $2,343,000 in 1996 ($0.62 per share on a fully diluted basis) and pro forma net income of $4,972,000 in 1995 ($1.40 per share on a fully diluted basis). These pro forma amounts are not indicative of the future effects of applying the provisions of SFAS 123 since the respective vesting periods are used to measure pro forma compensation expense and 1996 and 1995 amounts reflect expense for two years and one year of vesting, respectively. The fair value for these options was estimated at the date of grant using the Black-Scholes option pricing model with the following weighted-average assumptions for 1996 and 1995, respectively; volatility factors of .292 and .315; risk-free interest rates of 21 6.53% and 7.53%; dividend yields of .98%; and an expected life of 8.5 years. Under these assumptions, the weighted average fair value of options granted in 1996 was $9.64 per share. As of December 31, 1996, the weighted average remaining contractual life of all outstanding stock options was 8.4 years. The Company has also granted restricted stock awards in accordance with the Plans. In 1996, 6,416 shares of restricted stock were issued with a weighted average fair value of $17.58. At December 31, 1996, approximately 255,000 shares were available for future grants under the Plans. Shareholder Rights Plan In January 1993, the Board of Directors approved the adoption of the Shareholder Rights Agreement wherein, effective February 5, 1993, one Right attaches to and trades with each share of Common Stock. Each Right entitles the registered holder to purchase from the Company one one-hundredth of a share (Unit) of Series A Junior Participating Preferred Stock, par value $1.00 per share. The Company has designated 100,000 shares of its Preferred Stock as Series A Junior Participating Preferred Stock. The exercise price per Right is $75.00, subject to adjustment. Each Unit of Preferred Stock is structured to be the equivalent of one share of Common Stock. The Rights are initially exercisable to purchase one Unit of Preferred Stock at the exercise price only if a person or group (Acquiring Person) acquires 20% or more of the Company's Common Stock or announces a tender offer for 20% or more of the outstanding Common Stock at which time the Rights detach and trade separately from the Common Stock. At any time thereafter, the Company may issue 1.5 shares of Common Stock in exchange for each Right other than those held by the Acquiring Person. Generally, if an Acquiring Person acquires 30% or more of the Company's Common Stock or an Acquiring Person merges into or combines with the Company, or if the Company is acquired in a merger or other business combination in which it does not survive, or if 50% of its earnings power or assets is sold, each Rights holder other than the Acquiring Person may be entitled, upon payment of the exercise price, to purchase securities of the Company or the surviving company having a market value equal to twice the exercise price. The Rights, which do not have voting privileges, expire in 2003, but may be redeemed under certain circumstances by the Board prior to that time for $.01 per Right. NOTE G - RETIREMENT PLANS The Company currently maintains two defined benefit pension plans covering substantially all salaried employees. These plans provide retirement benefits based primarily on employee compensation and years of service. The Company funds pension costs as accrued. The following table sets forth information on the net periodic pension costs: - ---------------------------------------------- ------------------------ --------------------- ------------------------- For the year ended December 31, 1996 1995 1994 - ---------------------------------------------- ------------------------ --------------------- ------------------------- (In thousands) Service cost $ 311 $ 239 $ 237 Interest cost 76 52 36 Actual return on plan assets (79) (168) (7) Net amortization and deferrals 18 124 (24) ------- ------- ------- $ 326 $ 247 $ 242 ====== ====== ===== - ---------------------------------------------- ------------------------ --------------------- ------------------------- 22 The following table sets forth information on the net pension liability: - ----------------------------------------------------------------------- --------------------- ------------------------- As of December 31, 1996 1995 - ----------------------------------------------------------------------- --------------------- ------------------------- (In thousands) Actuarial present value of accumulated benefit obligation: Vested $ 877 $ 641 Nonvested 127 72 ---------- --------- Accumulated benefit obligation $ 1,004 $ 713 ======== ======= Projected benefit obligation 1,428 $1,028 Plan assets at fair value 1,163 717 --------- -------- Plan assets less than projected benefit obligation 265 311 Unrecognized net loss 31 49 ---------- --------- Net pension liability $ 234 $ 262 ======== ======= - ----------------------------------------------------------------------- --------------------- ------------------------- The assumptions used in determining the projected benefit obligation and net periodic pension costs are as follows: - ---------------------------------------------- ------------------------ --------------------- ------------------------- 1996 1995 1994 - ---------------------------------------------- ------------------------ --------------------- ------------------------- Weighted average discount rate 7% 7% Weighted average rate of increase in compensation levels 5% 5% Expected long term rate of return on assets 8% 8% 8% - ---------------------------------------------- ------------------------ --------------------- ------------------------- At December 31, 1996, plan assets were 49% invested in common stocks, 44% in U.S. Treasury instruments and the balance in cash and money market funds. The Company also sponsors a defined contribution plan which covers substantially all salaried and hourly employees. Contributions are generally determined as a percentage of the covered employees' annual salary. Amounts expensed under this plan were approximately $140,000 in 1996 and 1995. The Company entered into an agreement to indemnify the cost of retiree health care and life insurance benefits for salaried employees of the Company who had retired prior to April 1992. Under the agreement, the Company may elect to prepay the Company's remaining obligation. The Company does not provide postretirement health and life insurance benefits for employees who retire subsequent to April 1992. The Company's liability for postretirement benefits is comprised primarily of accumulated benefit obligations of approximately $2,800,000 at December 31, 1996 and 1995. There was no significant net postretirement benefit cost in 1996 due to the amortization of deferred gains which largely offset interest cost. The Company annually recognizes 20% of deferred gains or losses. The net postretirement benefit cost for 1995 and 1994 was approximately $180,000 representing interest cost. The weighted average annual assumed rate of increase in the per capita cost of covered benefits (i.e., health care cost trend rate) is 10% for 1997 and is assumed to decrease gradually to 5% in 2006 and remain at that level thereafter. Each one percentage point change in the assumed health care cost trend rate would change the accumulated postretirement benefit obligation by approximately $140,000 and the net periodic postretirement benefit cost by approximately $10,000. The weighted-average discount rate used in determining the accumulated postretirement benefit obligation was 7% for all periods presented. 23 NOTE H - OTHER INFORMATION The Company is subject to litigation incidental to the conduct of its business, the disposition of which is not expected to have a significant effect on the Company's financial condition. The Company is also subject to government agency regulations relating to food products, environmental matters and other aspects of its business. The Company is involved in environmental improvement activities resulting from past operations. The Company has recorded amounts which, in management's best estimate, will be sufficient to satisfy the anticipated cost of such activities. During 1996, four customers accounted for 16%, 14%, 13% and 10% of net sales, respectively. During 1995, four customers accounted for 16%, 15%, 11% and 10% of net sales, respectively. During 1994, three customers accounted for 17%, 16% and 11% of net sales, respectively. Based upon prior experience, management believes it could find a suitable replacement for the loss of any of its licensees and, as a result, such customer loss would not have a significant impact on the Company's operations, liquidity or capital resources. In 1991, the Company sold, at its cost, approximately $1,000,000 of machinery and equipment purchased for resale. As a result of the sale, the Company received a ten year note, payable annually, from its customer. The long term portion of the note receivable amounts to approximately $512,000 at December 31, 1996 ($612,000 in 1995), which is included in other assets, and is net of unamortized discount of approximately $160,000 ($228,000 in 1995). The note bears interest at approximately 10% and is collateralized by the machinery and equipment. Based upon prevailing interest rates, after consideration of credit risk, the carrying value is a fair approximation of market value. 24 REPORT OF INDEPENDENT AUDITORS, REPORT OF MANAGEMENT ERNST & YOUNG LLP Shareholders and Board of Directors Eskimo Pie Corporation Eskimo Pie Corporation The consolidated financial statements and other financial We have audited the accompanying consolidated balance information of Eskimo Pie Corporation have been prepared by sheets of Eskimo Pie Corporation as of December 31, management, which is responsible for their integrity and 1996 and 1995, and the related consolidated statements objectivity. These statements have been prepared in accordance of income, changes in shareholders' equity and cash with generally accepted accounting principles and, where flows for each of the three years in the period ended appropriate, reflect estimates based on judgements of management. December 31, 1996. These financial statements are the responsibility of the Company's management. Our The Company maintains a system of internal financial responsibility is to express an opinion on these controls which considers the expected costs and benefits of financial statements based on our audits. specific control procedures and provides reasonable assurance that Company assets are protected against loss or misuse, that We conducted our audits in accordance with transactions are executed in accordance with management's generally accepted auditing standards. Those authorization and that the financial records can be relied upon standards require that we plan and perform the audit to produce financial statements in accordance with generally to obtain reasonable assurance about whether the accepted accounting principles. The internal financial controls financial statements are free of material system is supported by the management of the Company through the misstatement. An audit includes examining, on a test establishment and communication of business and accounting basis, evidence supporting the amounts and disclosures policies, the division of responsibility in organizational in the financial statements. An audit also includes matters, and the careful selection and training of management assessing the accounting principles used and personnel. significant estimates made by management, as well as evaluating the overall financial statement The consolidated financial statements have been audited presentation. We believe that our audits provide a by the Company's independent auditors, Ernst & Young LLP. Their reasonable basis for our opinion. audit was conducted in accordance with generally accepted auditing standards and their report is included elsewhere In our opinion, the consolidated financial herein. As a part of their audit, Ernst & Young LLP develops statements referred to above present fairly, in all and maintains an understanding of the Company's internal material respects, the consolidated financial position accounting controls and conducts such tests and employs such of Eskimo Pie Corporation at December 31, 1996 and procedures as they consider necessary to render their opinion on 1995, and the consolidated results of its operations the financial statements. and its cash flows for each of the three years in the period ended December 31, 1996, in conformity with The Board of Directors exercises its oversight role with generally accepted accounting principles. respect to the Company's system of internal financial controls primarily through its Audit Committee which consists of outside directors. The Board of Directors, upon the recommendation of the Audit Committee, selects the independent auditors subject to ratification by the shareholders. The Audit Committee meets /s/ Ernst & Young LLP periodically with representatives of management. Ernst & Young LLP has full and free access to meet with the Audit Committee, with or without the presence of management representatives. Richmond, Virginia February 21, 1997 /s/ Arnold H. Dreyfuss /s/ Thomas M. Mishoe, Jr. Arnold H. Dreyfuss Thomas M. Mishoe, Jr. Chairman of the Board Chief Financial Officer, and Chief Executive Officer Vice President, Treasurer and Corporate Secretary 25 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Information on the Company's Board of Directors is included under the caption "Election of Directors" in the Registrant's Proxy Statement for the Annual Meeting to be held on May 7, 1997 (Proxy Statement) and is incorporated herein by reference. ITEM 11. EXECUTIVE COMPENSATION Information on executive compensation is included under the caption "Executive Compensation" in the Proxy Statement and is incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Information on security ownership of certain beneficial owners and management is included under the caption "Security Ownership of Certain Beneficial Owners and Management" in the Proxy Statement and is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Information on certain relationships and related transactions is included under the caption "Certain Relationships" in the Proxy Statement and is incorporated herein by reference. 26 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) (1) The following financial statements of Eskimo Pie Corporation are included in Item 8: Consolidated Statements of Income for the years ended December 31, 1996, 1995 and 1994 Consolidated Statements of Changes in Shareholders' Equity for the years ended December 31, 1996, 1995 and 1994 Consolidated Balance Sheets at December 31, 1996 and 1995 Consolidated Statements of Cash Flows for the years ended December 31, 1996, 1995 and 1994 Notes to Consolidated Financial Statements Report of Independent Auditors, Ernst & Young LLP (2) Financial Statements Schedules No financial statement schedules are required because the required information is not present in amounts sufficient to warrant submission of the schedules or the required information is included in the consolidated financial statements or notes to consolidated financial statements. (b) Reports on Form 8-K No reports on Form 8-K were filed by the registrant during the last quarter of the period covered by this report. (c) Exhibits The exhibits listed in the accompanying "Index of Exhibits" are filed as part of this Annual Report. Management Contracts or Compensatory Plans Set forth below are the management contracts or compensatory plans and arrangements required to be filed as Exhibits to this Annual Report pursuant to Item 14 (c) hereof, including their location: Executive Severance Agreement between the Company and Thomas M. Mishoe, Jr. dated February 19, 1996 - Exhibit 10.2 to the Company's Annual Report on Form 10-K for the year ended December 31, 1995. Executive Severance Agreement between the Company and C. D. Hornbeak dated February 24, 1994 - Exhibit 10.3 to the Company's Annual Report on Form 10-K for the year ended December 31, 1994. 27 Executive Severance Agreement between the Company and K. P. Ferryman dated August 21, 1995 - Exhibit 10.4 to the Company's Annual Report on Form 10-K for the year ended December 31, 1995. Executive Severance Agreement between the Company and N. D. Glaeser dated October 21, 1995 - Exhibit 10.5 to the Company's Annual Report on Form 10-K for the year ended December 31, 1995. Executive Severance Agreement between the Company and V. Stephen Kangisser dated May 15, 1996 - Exhibit 10.6 to the Company's Report on Form 10-Q for the quarter ended, June 30, 1996. Executive Severance Agreement between the Company and David B. Kewer dated March 1, 1997 - Exhibit 10.6 to the Company's Annual Report on Form 10-K for the year ended December 31, 1996. Incentive Stock Plan dated February 17, 1992 - Exhibit 10.8 to the Company's Registration Statement on Form S-1 (Registration No. 33-45852). 1996 Incentive Stock Plan - Exhibit A to the Company's Proxy Statement for its 1996 Annual Meeting of Shareholders. Senior Management Annual Incentive Plan, dated as of January 1, 1993 - Exhibit 10.7 to the Company's Annual Report on Form 10-K for the year ended December 31, 1992. Salaried Retirement Plan dated as of April 6, 1992 - Exhibit 10.9 to the Company's Annual Report on Form 10-K for the year ended December 31, 1992. Executive Retirement Plan and Trust dated as of April 6, 1992 - Exhibit 10.10 to the Company's Annual Report on Form 10-K for the year ended December 31, 1992. Letter Agreement dated January 31, 1997 between the Company and Thomas M. Mishoe, Jr. - Exhibit 10.12 to the Company's Annual Report on Form 10-K for the year ended December 31, 1996. Letter Agreement dated January 31, 1997 between the Company and Neal D. Glaeser - Exhibit 10.13 to the Company's Annual Report on Form 10-K for the year ended December 31, 1996. Letter Agreement dated January 31, 1997 between the Company and Carl D. Hornbeak - Exhibit 10.14 to the Company's Annual Report on Form 10-K for year ended December 31, 1996. Letter Agreement dated January 31, 1996 between the Company and V. Stephen Kangisser - Exhibit 10.15 to the Company's Annual Report on Form 10-K for the year ended December 31, 1996. Letter Agreement dated January 31, 1996 between the Company and Kimberly P. Ferryman - Exhibit 10.16 to the Company's Annual Report on Form 10-K for the year ended December 31, 1996. Letter Agreement dated September 19, 1996 between the Company and David V. Clark - Exhibit 10.15 to the Company's Report on Form 10-Q for the quarter ended September 30, 1996. 28 Signatures Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, as of the 28th day of March, 1997. ESKIMO PIE CORPORATION /s/ Arnold H. Dreyfuss ------------------------------- Arnold H. Dreyfuss Chairman of the Board, Interim Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities as of the 28th day of March 1997. Signature Title --------- ----- /s/ Arnold H. Dreyfuss Chairman of the Board, - --------------------------------- Interim Chief Executive Officer Arnold H. Dreyfuss (Principal Executive Officer) /s/ Thomas M. Mishoe, Jr. Chief Financial Officer, - --------------------------------- Vice President, Treasurer Thomas M. Mishoe, Jr. and Corporate Secretary (Principal Financial and Accounting Officer) /s/ William T. Berry, Jr. Assistant Vice President, Controller - --------------------------------- William T. Berry, Jr. */s/ Terrence D. Daniels Director - --------------------------------- Terrence D. Daniels */s/ W. M. Fariss, Jr. Director - --------------------------------- W. M. Fariss, Jr. */s/ Wilson H. Flohr, Jr. Director - --------------------------------- Wilson H. Flohr, Jr. */s/ F. Claiborne Johnston, Jr. Director - --------------------------------- F. Claiborne Johnston, Jr. */s/ Judith B. McBee Director - --------------------------------- Judith B. McBee *By /s/ Arnold H. Dreyfuss - --------------------------------- Arnold H. Dreyfuss Attorney-in-fact 29 INDEX OF EXHIBITS Exhibit No. Description 3.1 Amended and Restated Articles of Incorporation incorporated herein by reference to Exhibit C to the Company's Proxy Statement for its 1996 Annual Meeting of Shareholders. 3.2 Amended and Restated Bylaws incorporated herein by reference to Exhibit 3.2 to the Company's Report on Form 10-Q for the quarter ended June 30, 1996. 4.1 Rights agreement dated as of January 21, 1993, between the Company and Mellon Securities Trust Company, incorporated herein by reference to Exhibit 28.1 to the Company's Current Report on Form 8-K dated January 21, 1993. 4.2 The Company agrees to furnish to the Commission upon request any instrument with respect to long-term debt as to which the total amount of securities authorized thereunder does not exceed 10% of the Company's total consolidated assets. 10.1 Executive Severance Agreement between the Company and Thomas M. Mishoe, Jr. dated February 19, 1996, incorporated herein by reference to Exhibit 10.2 to the Company's Annual Report on Form 10-K for the year ended December 31, 1995. 10.2 Executive Severance Agreement between the Company and C. D. Hornbeak, dated February 25, 1994, incorporated herein by reference to Exhibit 10.3 to the Company's Annual Report on Form 10-K for the year ended December 31, 1994. 10.3 Executive Severance Agreement between the Company and K. P. Ferryman dated August 21, 1995 incorporated herein by reference to Exhibit 10.4 to the Company's Annual Report on Form 10-K for the year ended December 31, 1995. 10.4 Executive Severance Agreement between the Company and N. D. Glaeser dated October 21, 1995 incorporated herein by reference to Exhibit 10.5 to the Company's Annual Report on Form 10-K for the year ended December 31, 1995. 10.5 Executive Severance Agreement between the Company and V. Stephen Kangisser dated May 15, 1996, incorporated herein by reference to Exhibit 10.6 to the Company's Report on Form 10-Q for the quarter ended June 30, 1996. 10.6 Executive Severance Agreement between the Company and David B. Kewer dated March 1, 1997, filed herewith. 10.7 Incentive Stock Plan dated February 17, 1992, incorporated herein by reference to Exhibit 10.8 to the Company's Registration Statement on Form S-1 (Registration No.33-45852). 10.8 1996 Incentive Stock Plan, incorporated herein by reference to Exhibit A to the Company's Proxy Statement for its 1996 Annual Meeting of Shareholders. 10.9 Senior Management Annual Incentive Plan, dated as of January 1, 1993, incorporated herein by reference to Exhibit 10.7 of the Company's Annual Report on Form 10-K for the year ended December 31, 1992. 30 10.10 Salaried Retirement Plan dated as of April 6, 1992, incorporated herein by reference to Exhibit 10.9 of the Company's Annual Report on Form 10-K for the year ended December 31, 1992. 10.11 Executive Retirement Plan and Trust dated as of April 6, 1992, incorporated herein by reference to Exhibit 10.10 of the Company's Annual Report on Form 10-K for the year ended December 31, 1992. 10.12 Letter Agreement dated January 31, 1997 between the Company and Thomas M. Mishoe, Jr., filed herewith. 10.13 Letter Agreement dated January 31, 1997 between the Company and Neal D. Glaeser, filed herewith. 10.14 Letter Agreement dated January 31, 1997 between the Company and Carl D. Hornbeak, filed herewith. 10.15 Letter Agreement dated January 31, 1997 between the Company and V. Stephen Kangisser, filed herewith. 10.16 Letter Agreement dated January 31, 1997 between the Company and Kimberly P. Ferryman, filed herewith. 10.17 Letter Agreement dated September 19, 1996 between the Company and David V. Clark, incorporated herein by reference to Exhibit 10.15 to the Company's Report on Form 10-Q for the Quarter ended September 30, 1996. 10.18 Master License Agreement between the Company and Welch Foods Inc. dated as of August 31, 1992, incorporated herein by reference to Exhibit 10.1 to the Company's Annual Report on Form 10-K for the year ended December 31, 1992. 10.19 Revolving Credit Agreement for $10,000,000 between the Company and Crestar Bank dated January 31, 1994 as amended, incorporated herein by reference to Exhibit 10.11 to the Company's Annual Report on Form 10-K for the year ended December 31, 1995. 10.20 Credit Agreement dated as of May 5, 1992 between the Company and First Union National Bank of Virginia as amended, incorporated herein by reference to Exhibit 10.12 to the Company's Annual Report on Form 10-K for the year ended December 31, 1995. 10.21 Agreement dated February 17, 1992 between the Company and Reynolds, incorporated herein by reference to Exhibit 10.17 to the Company's Registration Statement on Form S-1 (Registration No. 33-45852). 10.22 Form of Reimbursement Agreement dated as of February 17, 1992 between the Company and Reynolds, incorporated herein by reference to Exhibit 10.18 to the Company's Registration Statement on Form S-1 (Registration No. 33-45852). 21. Subsidiaries of the Registrant. 23. Consent of Independent Auditors, Ernst & Young LLP. 31 24. Powers of Attorney. 27. Financial Data Schedules. - ---------------------------------------- In accordance with the Securities and Exchange Commission's requirements, we will furnish copies of the exhibits listed for a copying fee of 10 cents per page. Please direct your request to: Corporate Secretary Eskimo Pie Corporation P.O. Box 26906 Richmond, Virginia 23261-6906 Phone No. (804) 560-8400 32 Exhibit 10.6 EXECUTIVE SEVERANCE AGREEMENT This Agreement ("Agreement") is entered into as of 1st Day of March, 1997 between ESKIMO PIE CORPORATION, a Virginia corporation ("Eskimo Pie"), and David B. Kewer ("Executive"). WHEREAS, the maintenance of a strong and experienced management is essential in protecting and enhancing the best interests of Eskimo Pie and its stockholders, and in this connection Eskimo Pie recognizes that the possibility of a change in control may result in the departure or distraction of management personnel to the detriment of Eskimo Pie and its stockholders; and WHEREAS, the Compensation Committee and the Board of Directors of Eskimo Pie have each determined that appropriate steps should be taken to reinforce and encourage the continued attention and dedication of key members of management to their regular duties without distraction arising from a possible change in control of Eskimo Pie; and WHEREAS, the Compensation Committee and the Board have each carefully reviewed the information presented to them and have determined that the anticipated benefits to Eskimo Pie from entering into this Agreement with Executive, thereby encouraging his continued attention and dedication to his duties, exceed the anticipated costs to Eskimo Pie of entering into such Agreement; and WHEREAS, the Compensation Committee and the Board have each concluded this Agreement is in the best interests of Eskimo Pie and its stockholders; and WHEREAS, Executive is a key executive of Eskimo Pie and has been selected by the Compensation Committee to enter into such an agreement with Eskimo Pie; NOW, THEREFORE, to assure Eskimo Pie that it will have the continued dedication of Executive and the availability of his advice and counsel notwithstanding the possibility or occurrence of a change in control of Eskimo Pie, and to induce Executive to remain in the employ of Eskimo Pie, and for other good and valuable consideration, Eskimo Pie and Executive agree as follows: 1. Definitions of Certain Terms. For purposes of this Agreement, (a) a "Termination" shall occur if Executive's employment by Eskimo Pie is terminated by Eskimo Pie at any time within three years following a Change in Control for reasons other than: (i) for Cause (as defined in Section 3(a); (ii) as a result of Executive's death, permanent disability, or retirement at or after the first day of the month following the month in which Executive attains age 65 ("Normal Retirement Date"); 33 (b) a "Termination" shall also occur if Executive's employment by Eskimo Pie is terminated by Executive for Good Reason (as defined in Section 4) within three years following a Change in Control; and (c) "Change in Control" shall mean: (i) the acquisition by any individual, entity or group (within the meaning of Section 13 (d) (3) or 14 (d) (2) of the Securities Exchange Act of 1934, as amended (the "Exchange Act") (a "Person") of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 20% or more of either (A) the then outstanding shares of common stock of Eskimo Pie (the "Outstanding Common Stock") or (B) the combined voting power of the then outstanding voting securities of Eskimo Pie entitled to vote generally in the selection of directors (the "Outstanding Voting Securities"). Notwithstanding the foregoing, the following acquisitions shall not constitute a Change in control: (A) any acquisition directly from Eskimo Pie, (B) any acquisition by Eskimo Pie, (C) any acquisition by, or benefit distribution from, any employee benefit plan (or related trust) sponsored or maintained by Eskimo Pie or any Corporation controlled by Eskimo Pie, (D) any acquisition pursuant to any compensatory stock option or stock purchase plan for employees, or (E) any acquisition pursuant to a reorganization, merger or consolidation, if, following such reorganization, merger or consolidation, the conditions described in clauses (A), (B), and (C) of Subsection (iii) of this Section 1(c) are satisfied; or (ii) Individuals who, as of the date hereof, constitute the Board (the "Incumbent Board") cease for any reason to constitute at least a majority of the Board; provided, however, that any individual becoming a director subsequent to the date hereof whose election or nomination for election was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board (with his predecessor thereafter ceasing to be a member); or (iii) Approval by the shareholders of Eskimo Pie of the reorganization, merger, or consolidation of Eskimo Pie unless, following such reorganization, merger, or consolidation, (A) more than 60% of the then outstanding shares of common stock and the then outstanding voting securities of the resulting corporation is then beneficially owned by all or substantially all of the beneficial owners, respectively, of the Outstanding Common Stock and Outstanding Securities immediately prior to such reorganization, merger, or consolidation, (B) no Person (excluding (I) Eskimo Pie, (II) any employee benefit plan (or related trust) of Eskimo Pie or such corporation resulting from such reorganization, merger, or consolidation, and (III) any Person beneficially owning, immediately prior to such reorganization, merger, or consolidation, 20% or more of the Outstanding Common Stock or Outstanding Voting Securities, (as the case may be) beneficially owns 20% or more of the then outstanding shares of common stock or the combined voting power of the then outstanding voting securities of the resulting corporation, and (C) at least a majority of the members of the board of directors of the resulting corporation were members of the Incumbent Board at the time of the execution of the initial agreement providing for such reorganization, merger, or consolidation; or (iv) Approval by the shareholders of Eskimo Pie of (A) a complete liquidation or dissolution of Eskimo Pie, or (B) the sale or other disposition of all or substantially all of the assets of 34 Eskimo Pie other than to a corporation with respect to which, following such sale or other disposition, (I) more than 60% of the outstanding shares of common stock and the then outstanding voting securities of such corporation is beneficially owned by all or substantially all of the beneficial owners, respectively, of the Outstanding Common Stock and Outstanding Voting Securities immediately prior to such sale or disposition; (II) no Person (excluding (x) Eskimo Pie, (y) any employee benefit plan (or related trust) of Eskimo Pie or such corporation, and (z) any Person beneficially owning, immediately prior to such sale or other disposition, 20% or more of the Outstanding Common Stock or Outstanding Voting Securities, as the case maybe, beneficially owns 20% or more of the then outstanding shares of common stock or the combined voting power of the then outstanding voting securities of such corporation, and (III) at least a majority of the members of the board of directors of such corporation were members of the Incumbent Board at the time of the execution of the initial agreement providing for such sale or other disposition of the assets of the corporation. 2. Benefit upon Termination. Except as provided in Section 3, upon Termination, Eskimo Pie agrees to provide or cause to be provided to Executive the benefits described in Section 2(a) below, subject to the limitations set forth in Sections 2(b) and (c) below: (a) Benefit Payment. Executive shall receive within five business days of Termination a lump sum payment in cash in an amount equal to 2.99 times Executive's Earnings (as defined in this Section 2(a)); provided, however, that if there are fewer than 36 months remaining from the date of Termination to Executive's Normal Retirement Date, the amount calculated pursuant to this Section 2(a) shall be reduced by multiplying such amount by a fraction, the numerator of which is the number of months (including any fraction of a month) remaining to Executive's Normal Retirement Date and the denominator of which is 36. For purposes of this Section 2(a), "Earnings" shall mean the average annual compensation payable by Eskimo Pie and includible in the gross income of Executive for the taxable years during the period consisting of the most recent three taxable years ending before the date on which the Change in Control occurs (or such portion of such period during which Executive performed personal services for Eskimo Pie). (b) Other Benefit Plans and Perquisites. The benefit payable upon Termination in accordance with this Section 2 is not intended to exclude Executive's participation in any benefit plans or enjoyment of other perquisites which are available to executive personnel generally in the class or category of Executive or to preclude such other compensation or benefits as may be authorized from time to time by the Board of Directors of Eskimo Pie or by its Compensation Committee; provided, however, that any amount otherwise payable in accordance with Section 2(a) above shall be reduced by any amounts payable to Executive upon termination of employment pursuant to any termination allowance policy or other severance pay plan covering Eskimo Pie employees. (c) Excise Taxes. If Executive becomes entitled to a payment under this Section 2 ("Severance Payment"), and if any part or all of the Severance Payment will be subject to the tax ("Excise Tax") imposed by Section 4999 of the Internal Revenue Code of 1986, as amended (the "Code"), then the amount otherwise payable to Executive in accordance with Section 2(a) above shall be reduced as necessary so that no part of such payment shall be subject to the Excise Tax. (d) No Duty to Mitigate. Executive's entitlement to benefits hereunder shall not be governed by any duty to mitigate his damages by seeking further 35 employment nor offset by any compensation which he may receive from future employment. 3. Conditions to the Obligations of Eskimo Pie. Eskimo Pie shall have no obligation to provide or cause to be provided to Executive the benefit described in Section 2 hereof if either of the following events shall occur: (a) Termination for Cause. Eskimo Pie shall terminate Executive's employment for Cause. For purposes of this Agreement, termination of employment for "Cause" shall mean termination solely for dishonesty, conviction of a felony, or willful unauthorized disclosure of confidential information of Eskimo Pie. (b) Resignation as Director and/or Officer. Executive shall not, promptly after Termination and upon receiving a written request to do so, resign as a director and/or officer of Eskimo Pie and of each subsidiary and affiliate of Eskimo Pie for which he is then serving as a director and/or officer. 4. Termination for Good Reason. Executive may terminate his employment with Eskimo Pie following a Change in Control for Good Reason and shall be entitled to receive the benefit described in Section 2 hereof. For purposes of this Agreement, "Good Reason" shall mean: (a) the assignment to Executive of any duties inconsistent with the position (including status, offices, titles, and reporting requirements) or authority in Eskimo Pie that Executive held immediately prior to the Change in Control, or a significant adverse alteration in the nature or status of Executive's responsibilities or the conditions of Executive's employment from those in effect immediately prior to such Change in Control; (b) reduction by Eskimo Pie in Executive's annual base salary as in effect on the date hereof or as the same may be increased from time to time; (c) the relocation of Eskimo Pie's principal executive offices to a location outside the Richmond Metropolitan Area or Eskimo Pie's requiring Executive to be based anywhere other than Eskimo Pie's principal executive offices except for required travel on Eskimo Pie's business to an extent substantially consistent with Executive's present business travel obligations; (d) except in the event of reasonable administrative delay, the failure by Eskimo Pie to pay to Executive any portion of Executive's current compensation or to pay to Executive any portion of an installment of deferred compensation under any deferred compensation program of Eskimo Pie within seven (7) days of the date such compensation is due; (e) the failure by Eskimo Pie to continue in effect any compensation plan in which Executive participates immediately prior to the Change in Control that is material to Executive's total compensation or any substitute plans adopted prior to the Change in Control, unless an equitable arrangement (embodied in an ongoing substitute or alternative plan) has been made with respect to such plan, or the failure by Eskimo Pie to continue Executive's participation therein (or in such substitute or alternative plan) on a basis not materially less favorable, both in terms of the amount of benefits provided and the level of Executive's participation relative to other participants, as it existed at the time of the Change in Control; (f) the failure by Eskimo Pie to continue to provide Executive with benefits substantially similar to those enjoyed by Executive under any of Eskimo 36 Pie's life insurance, medical, health and accident, disability plans, or other welfare and defined benefit plans (qualified and non-qualified) in which Executive was participating at the time of the Change in Control, the taking of any action by Eskimo Pie which would directly or indirectly materially reduce any of such benefits or deprive Executive of any material fringe benefit enjoyed by Executive at the time of the Change in Control, or the failure by Eskimo Pie to provide Executive with the number of paid vacation days to which Executive is entitled on the basis of years of service with Eskimo Pie in accordance with Eskimo Pie's normal vacation policy in effect at the time of the Change in Control; or (g) the failure of Eskimo Pie to obtain a satisfactory agreement from any successor to assume and agree to perform this Agreement, as contemplated in Section 10 hereof. 5. Other Covenants. Upon Termination, if Executive is entitled to receive the benefit described in Section 2, then: (a) If a leased automobile is assigned to Executive at the time of his Termination, Executive shall have the right to purchase such automobile, free and clear of any liens and encumbrances, at its fair market value (as determined by the leasing company). If Executive wishes to exercise this right, he shall (i) give Eskimo Pie notice to such effect within 10 days following the date of Termination, (ii) tender the purchase price within 10 days after he is given notice of the fair market value, and (iii) be solely responsible for maintaining and insuring the automobile effective from the date of Termination. (b)At Executive's request, Eskimo Pie shall arrange outplacement services for Executive, at Eskimo Pie's expense, for a period of one year following Termination. (c) Executive and/or his qualified dependents shall be provided coverage, at his/their expense, under any medical benefit plans covering him and/or them at the time of Termination in accordance with the provisions of the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended from time to time. 6. Confidentiality: Non-Solicitation: Cooperation. (a) Confidentiality. At all times following Termination, Executive will not, without the prior written consent of Eskimo Pie, disclose to any person, firm or corporation any confidential information of Eskimo Pie or its subsidiaries or affiliates which is now known to him or which hereafter may become known to him as a result of his employment or association with Eskimo Pie and which could be helpful to a competitor; provided, however, that the foregoing shall not apply to confidential information which becomes publicly disseminated by means other than a breach of this Agreement. (b) Non-Solicitation. For a period of three years following the date of Termination (or until Executive's Normal retirement Date, whichever is sooner), Executive will not induce or attempt to induce, either directly or indirectly, any management or executive employee of Eskimo Pie or of any of its subsidiaries or affiliates to terminate his or her employment. (c) Cooperation. At all times following Termination, Executive will furnish such information and render such assistance and cooperation as may reasonably be requested in connection with any litigation or legal proceedings concerning Eskimo Pie or any of its subsidiaries or affiliates (other than any legal proceedings concerning Executive's employment). In connection with such 37 cooperation, Eskimo Pie will pay or reimburse Executive for reasonable expenses actually incurred. (d) Remedies for Breach. It is recognized that damages in the event of breach of Sections 6(a) and (b) above by Executive would be difficult, if not impossible, to ascertain, and it is therefore specifically agreed that Eskimo Pie, in addition to and without limiting any other remedy or right it may have, shall have the right to an injunction or other equitable relief in any court of competent jurisdiction, enjoining any such breach. The existence of this right shall not preclude Eskimo Pie from pursuing any other rights and remedies at law or in equity which Eskimo Pie may have. 7. Term of Agreement. This Agreement shall commence on the date hereof and shall remain in force until December 31, 1997; provided, however, that on each anniversary of such date, the term of this Agreement shall be automatically renewed for successive one year terms, unless at least 60 days prior to the expiration of the then current term, Eskimo Pie shall give notice to Executive that the Agreement shall not be renewed; and further provided, however, that if a Change in Control occurs during the term of this Agreement, this Agreement shall continue in effect for a period of 36 months beyond the month in which the Change in Control occurred. Notwithstanding the foregoing, this Agreement shall terminate if either Eskimo Pie or Executive terminates the employment of Executive before a Change in Control occurs. Except as otherwise provided in Section 9(b), this Agreement shall also terminate upon the Executive's death or permanent disability or his Normal Retirement Date. 8. Adjudication and Expenses. (a) If a dispute or controversy arises under or in connection with this Agreement, Executive shall be entitled to an adjudication in an appropriate court of the State of Delaware, or in any other court of competent jurisdiction. Alternatively, Executive, at Executive's option, may seek an award in arbitration to be conducted by a single arbitrator under the Commercial Arbitration Rules of the American Arbitration Association. (b) Eskimo Pie shall pay or reimburse Executive for all costs and expenses, including without limitation court costs and attorneys' fees, incurred by Executive as a result of any claim, action or proceeding (including without limitation a claim, action or proceeding by Executive against Eskimo Pie) arising out of, or challenging the validity or enforceability of, this Agreement or any provision hereof, if Executive is successful on the merits or otherwise in such claim, action or proceeding. 9. Successors; Binding Agreement. (a) This Agreement shall inure to the benefit of and be binding upon Eskimo Pie and its successors and assigns. Eskimo Pie will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of Eskimo Pie to assume expressly and agree to perform this Agreement in the same manner and to the same extent that Eskimo Pie would be required to perform it if no such succession had taken place. As used in this Agreement, "Eskimo Pie" shall mean Eskimo Pie as herein before defined and any successor to its business and/or assets as aforesaid which assumes and agrees to perform this Agreement by operation of law, or otherwise. (b) This Agreement shall inure to the benefit of and be enforceable by Executive's personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If Executive should die 38 while any amount would still be payable hereunder if Executive had continued to live, any such amount, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to Executive's devisee, legatee or other designee or, if there is no such designee, Executive's estate. 10. Miscellaneous. (a) Assignment. No right, benefit or interest here-under shall be subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance or charge, except by will or the laws of descent and distribution, and any attempt thereat shall be void; and no right, benefit or interest hereunder shall, prior to receipt of payment, be in any manner liable for or subject to the recipient's debts, contracts, liabilities, engagements or torts. (b) Construction of Agreement. Nothing in this Agreement shall be construed to amend any provision of any plan or policy of Eskimo Pie. This Agreement is not, and nothing herein shall be deemed to create, a commitment of continued employment of Executive by Eskimo Pie or by any of its subsidiaries and affiliates. (c) Statutory References. Any reference in this Agreement to a specific statutory provision shall include that provision and any comparable provision or provisions of future legislation amending, modifying, supplementing or superseding the referenced provision. (d) Amendment. This Agreement may not be amended, modified or terminated except by written agreement of both parties. (e) Waiver. No provision of this Agreement may be waived except by a writing signed by the party to be bound thereby. Executive may at any time or from time to time waive any or all of the benefits provided for herein which have not been received by Executive at the time of such waiver. In addition, prior to the last day of the calendar year in which Executive's Termination occurs, Executive may waive any or all rights and benefits provided for herein which have been received by Executive; provided that Executive repays to Eskimo Pie the amount of the benefits received (together with interest at the rate provided in Section l274(b)(2)(B) of the Code). Any waiver of benefits pursuant to this section shall be irrevocable. (f) Severability. If any provision or portion of this Agreement shall be determined to be invalid or unenforceable for any reason, the remaining provisions of this Agreement shall remain in full force and effect to the fullest extent permitted by law. (g) Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be considered an original and all of which together shall constitute one agreement. (h) Taxes. Any payment required under this Agreement shall be subject to all requirements of the law with regard to withholding of taxes, filing, making of reports and the like, and Eskimo Pie shall use its best efforts to satisfy promptly all such requirements. (i) Governing Law. This Agreement shall be governed by, and construed in accordance with, the laws of the State of Virginia. 39 (j) Entire Agreement. This Agreement sets forth the entire agreement and understanding of the parties hereto with respect to the matters covered hereby. Each of the parties has therefore caused this Agreement to be executed on its or his behalf as of the date first written above. ESKIMO PIE CORPORATION EXECUTIVE By /s/ Arnold H. Dreyfuss By /s/ David B. Kewer Arnold H. Dreyfuss David B. Kewer 40 Exhibit 10.12 January 31, 1997 Thomas M. Mishoe, Jr. Richmond, Virginia Dear Mr. Mishoe, This letter is to advise you of certain actions taken by the Board of Directors of Eskimo Pie Corporation (the Company") in connection with your continued employment by the Company. In consideration of your decision to remain with the Company and your commitment to use your best efforts to promote the success of the Company's business, the Company will make the provisions set forth in this letter for your benefit in the event your employment is terminated or altered under the following circumstances. The Company will pay you a severance payment in the amount set forth in the next paragraph if, within a period of (12) months of the date of this letter, the Board of Directors employs an individual to serve as President and/or Chief Executive Officer not previously in the employ of the Company and such individual determines either, (1) at the time of his or her employment or (b) within (6) months thereafter, to terminate your employment or to materially alter the terms and conditions of our employment in a manner adverse to you. Such severance payment will be an amount equal to not less than (12) months base salary (based upon the amount of your annual base compensation in effect at the time of the termination), plus the amount of any bonus paid for the year immediately preceding the year in which such termination takes place. The severance payment will be payable at the option of the Company either in a lump sum or in (12) equal monthly installments, subject to applicable withholding. You understand that this severance payment is a benefit to which you would not otherwise be entitled and that this letter does not confer upon you any right to continue in the employ of the Company. Please confirm your understanding by signing below. ESKIMO PIE CORPORATION By /s/ Arnold H. Dreyfuss Arnold H. Dreyfuss Interim Chief Executive Officer ACKNOWLEDGED: /s/ Thomas M. Mishoe, Jr. Employee Signature January 31, 1997 Date 41 Exhibit 10.13 January 31, 1997 Neal D. Glaeser Richmond, Virginia Dear Mr. Glaeser, This letter is to advise you of certain actions taken by the Board of Directors of Eskimo Pie Corporation (the Company") in connection with your continued employment by the Company. In consideration of your decision to remain with the Company and your commitment to use your best efforts to promote the success of the Company's business, the Company will make the provisions set forth in this letter for your benefit in the event your employment is terminated or altered under the following circumstances. The Company will pay you a severance payment in the amount set forth in the next paragraph if, within a period of (12) months of the date of this letter, the Board of Directors employs an individual to serve as President and/or Chief Executive Officer not previously in the employ of the Company and such individual determines either, (1) at the time of his or her employment or (b) within (6) months thereafter, to terminate your employment or to materially alter the terms and conditions of our employment in a manner adverse to you. Such severance payment will be an amount equal to not less than (12) months base salary (based upon the amount of your annual base compensation in effect at the time of the termination), plus the amount of any bonus paid for the year immediately preceding the year in which such termination takes place. The severance payment will be payable at the option of the Company either in a lump sum or in (12) equal monthly installments, subject to applicable withholding. You understand that this severance payment is a benefit to which you would not otherwise be entitled and that this letter does not confer upon you any right to continue in the employ of the Company. Please confirm your understanding by signing below. ESKIMO PIE CORPORATION By /s/ Arnold H. Dreyfuss Arnold H. Dreyfuss Interim Chief Executive Officer ACKNOWLEDGED: /s/ Neal D. Glaeser Employee Signature January 31, 1997 Date 42 Exhibit 10.14 January 31, 1997 Carl D. Hornbeak Richmond, Virginia Dear Mr. Hornbeak, This letter is to advise you of certain actions taken by the Board of Directors of Eskimo Pie Corporation (the Company") in connection with your continued employment by the Company. In consideration of your decision to remain with the Company and your commitment to use your best efforts to promote the success of the Company's business, the Company will make the provisions set forth in this letter for your benefit in the event your employment is terminated or altered under the following circumstances. The Company will pay you a severance payment in the amount set forth in the next paragraph if, within a period of (12) months of the date of this letter, the Board of Directors employs an individual to serve as President and/or Chief Executive Officer not previously in the employ of the Company and such individual determines either, (1) at the time of his or her employment or (b) within (6) months thereafter, to terminate your employment or to materially alter the terms and conditions of our employment in a manner adverse to you. Such severance payment will be an amount equal to not less than (12) months base salary (based upon the amount of your annual base compensation in effect at the time of the termination), plus the amount of any bonus paid for the year immediately preceding the year in which such termination takes place. The severance payment will be payable at the option of the Company either in a lump sum or in (12) equal monthly installments, subject to applicable withholding. You understand that this severance payment is a benefit to which you would not otherwise be entitled and that this letter does not confer upon you any right to continue in the employ of the Company. Please confirm your understanding by signing below. ESKIMO PIE CORPORATION By /s/ Arnold H. Dreyfuss Arnold H. Dreyfuss Interim Chief Executive Officer ACKNOWLEDGED: /s/ Carl D. Hornbeak Employee Signature January 31, 1997 Date 43 Exhibit 10.15 January 31, 1997 V. Stephen Kangisser Richmond, Virginia Dear Mr. Kangisser, This letter is to advise you of certain actions taken by the Board of Directors of Eskimo Pie Corporation (the Company") in connection with your continued employment by the Company. In consideration of your decision to remain with the Company and your commitment to use your best efforts to promote the success of the Company's business, the Company will make the provisions set forth in this letter for your benefit in the event your employment is terminated or altered under the following circumstances. The Company will pay you a severance payment in the amount set forth in the next paragraph if, within a period of (12) months of the date of this letter, the Board of Directors employs an individual to serve as President and/or Chief Executive Officer not previously in the employ of the Company and such individual determines either, (1) at the time of his or her employment or (b) within (6) months thereafter, to terminate your employment or to materially alter the terms and conditions of our employment in a manner adverse to you. Such severance payment will be an amount equal to not less than (12) months base salary (based upon the amount of your annual base compensation in effect at the time of the termination), plus the amount of any bonus paid for the year immediately preceding the year in which such termination takes place. The severance payment will be payable at the option of the Company either in a lump sum or in (12) equal monthly installments, subject to applicable withholding. You understand that this severance payment is a benefit to which you would not otherwise be entitled and that this letter does not confer upon you any right to continue in the employ of the Company. Please confirm your understanding by signing below. ESKIMO PIE CORPORATION By /s/ Arnold H. Dreyfuss Arnold H. Dreyfuss Interim Chief Executive Officer ACKNOWLEDGED: /s/ V. Stephen Kangisser Employee Signature January 31, 1997 Date 44 Exhibit 10.16 January 31, 1997 Kimberly P. Ferryman Richmond, Virginia Dear Mrs. Ferryman, This letter is to advise you of certain actions taken by the Board of Directors of Eskimo Pie Corporation (the Company") in connection with your continued employment by the Company. In consideration of your decision to remain with the Company and your commitment to use your best efforts to promote the success of the Company's business, the Company will make the provisions set forth in this letter for your benefit in the event your employment is terminated or altered under the following circumstances. The Company will pay you a severance payment in the amount set forth in the next paragraph if, within a period of (12) months of the date of this letter, the Board of Directors employs an individual to serve as President and/or Chief Executive Officer not previously in the employ of the Company and such individual determines either, (1) at the time of his or her employment or (b) within (6) months thereafter, to terminate your employment or to materially alter the terms and conditions of our employment in a manner adverse to you. Such severance payment will be an amount equal to not less than (12) months base salary (based upon the amount of your annual base compensation in effect at the time of the termination), plus the amount of any bonus paid for the year immediately preceding the year in which such termination takes place. The severance payment will be payable at the option of the Company either in a lump sum or in (12) equal monthly installments, subject to applicable withholding. You understand that this severance payment is a benefit to which you would not otherwise be entitled and that this letter does not confer upon you any right to continue in the employ of the Company. Please confirm your understanding by signing below. ESKIMO PIE CORPORATION By /s/ Arnold H. Dreyfuss Arnold H. Dreyfuss Interim Chief Executive Officer ACKNOWLEDGED: /s/ Kimberly P. Ferryman Employee Signature January 31, 1997 Date 45 Exhibit 21 SUBSIDIARIES OF THE REGISTRANT Subsidiaries of the Registrant Organized Under the Laws of - ------------------------------ --------------------------- Sugar Creek Foods, Inc.; Consolidated subsidiary Virginia Eskimo Inc.; Consolidated subsidiary Virginia All other subsidiaries individually and in the aggregate do not constitute a "significant subsidiary" within the meaning of Rule 1-02(v) of Regulation S-X. 46 Exhibit 23 CONSENT OF INDEPENDENT AUDITORS, ERNST & YOUNG LLP We consent to the incorporation by reference in the Registration Statement (Form S-8 No. 33-58576) pertaining to the 1992 Incentive Stock Plan of Eskimo Pie Corporation of our report dated February 21, 1997, with respect to the consolidated financial statements of Eskimo Pie Corporation included in this Annual Report (Form 10-K) for the year ended December 31, 1996. /s/ ERNST & YOUNG LLP Richmond, Virginia March 28, 1997 47 Exhibit 24 POWER OF ATTORNEY I, Terrence D. Daniels, do hereby constitute and appoint Arnold H. Dreyfuss and Thomas M. Mishoe, Jr., my true and lawful attorneys-in-fact, any of whom acting singly is hereby authorized for me and in my name and on my behalf as a director and/or officer of Eskimo Pie Corporation (the "Company"), to act and to execute any and all instruments as such attorneys or attorney deems necessary or advisable to enable the Company to comply with the Securities Exchange Act of 1934, and any rules, regulations, policies or requirements of the Securities and Exchange Commission (the "Commission") in respect thereof, in connection with the preparation and filing with the Commission of the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1996, and any and all amendments to such Report, together with such other supplements, statements, instruments and documents as such attorneys or attorney deem necessary or appropriate. I do hereby ratify and confirm all my said attorneys or attorney shall do or cause to be done by the virtue hereof. WITNESS the execution hereof this 7th day of February, 1997. /s/ Terrence D. Daniels (SEAL) 48 POWER OF ATTORNEY I, William M. Fariss, Jr., hereby constitute and appoint Arnold H. Dreyfuss and Thomas M. Mishoe, Jr., my true and lawful attorneys-in-fact, any of whom acting singly is hereby authorized for me and in my name and on my behalf as a director and/or officer of Eskimo Pie Corporation (the "Company"), to act and to execute any and all instruments as such attorneys or attorney deems necessary or advisable to enable the Company to comply with the Securities Exchange Act of 1934, and any rules, regulations, policies or requirements of the Securities and Exchange Commission (the "Commission") in respect thereof, in connection with the preparation and filing with the Commission of the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1996, and any and all amendments to such Report, together with such other supplements, statements, instruments and documents as such attorneys or attorney deem necessary or appropriate. I do hereby ratify and confirm all my said attorneys or attorney shall do or cause to be done by the virtue hereof. WITNESS the execution hereof this 4th day of February, 1997. /s/ William M. Fariss, Jr. (SEAL) 49 POWER OF ATTORNEY I, Judith B. McBee, do hereby constitute and appoint Arnold H. Dreyfuss and Thomas M. Mishoe, Jr., my true and lawful attorneys-in-fact, any of whom acting singly is hereby authorized for me and in my name and on my behalf as a director and/or officer of Eskimo Pie Corporation (the "Company"), to act and to execute any and all instruments as such attorneys or attorney deems necessary or advisable to enable the Company to comply with the Securities Exchange Act of 1934, and any rules, regulations, policies or requirements of the Securities and Exchange Commission (the "Commission") in respect thereof, in connection with the preparation and filing with the Commission of the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1996, and any and all amendments to such Report, together with such other supplements, statements, instruments and documents as such attorneys or attorney deem necessary or appropriate. I do hereby ratify and confirm all my said attorneys or attorney shall do or cause to be done by the virtue hereof. WITNESS the execution hereof this 6th day of February, 1997. /s/ Judith B. McBee (SEAL) 50 POWER OF ATTORNEY I, F. Claiborne Johnston, Jr., do hereby constitute and appoint Arnold H. Dreyfuss and Thomas M. Mishoe, Jr., my true and lawful attorneys-in-fact, any of whom acting singly is hereby authorized for me and in my name and on my behalf as a director and/or officer of Eskimo Pie Corporation (the "Company"), to act and to execute any and all instruments as such attorneys or attorney deems necessary or advisable to enable the Company to comply with the Securities Exchange Act of 1934, and any rules, regulations, policies or requirements of the Securities and Exchange Commission (the "Commission") in respect thereof, in connection with the preparation and filing with the Commission of the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1996, and any and all amendments to such Report, together with such other supplements, statements, instruments and documents as such attorneys or attorney deem necessary or appropriate. I do hereby ratify and confirm all my said attorneys or attorney shall do or cause to be done by the virtue hereof. WITNESS the execution hereof this 27th day of January, 1997. /s/ F. Claiborne Johnston, Jr. (SEAL) 51 POWER OF ATTORNEY I, Wilson H. Flohr, Jr., do hereby constitute and appoint Arnold H. Dreyfuss and Thomas M. Mishoe, Jr., my true and lawful attorneys-in-fact, any of whom acting singly is hereby authorized for me and in my name and on my behalf as a director and/or officer of Eskimo Pie Corporation (the "Company"), to act and to execute any and all instruments as such attorneys or attorney deems necessary or advisable to enable the Company to comply with the Securities Exchange Act of 1934, and any rules, regulations, policies or requirements of the Securities and Exchange Commission (the "Commission") in respect thereof, in connection with the preparation and filing with the Commission of the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1996, and any and all amendments to such Report, together with such other supplements, statements, instruments and documents as such attorneys or attorney deem necessary or appropriate. I do hereby ratify and confirm all my said attorneys or attorney shall do or cause to be done by the virtue hereof. WITNESS the execution hereof this 6th day of February, 1997. /s/ Wilson H. Flohr, Jr. (SEAL) 52 End.