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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
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(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1997
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
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ESKIMO PIE CORPORATION
(Exact name of registrant as specified in its charter)
Virginia 54-0571720
(State or 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)
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Registrant's phone number, including area code:
(804) 560-8400
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Securities registered pursuant to section 12(g) of the Act:
ESKIMO PIE CORPORATION COMMON STOCK, $1.00 par value,
and Preferred Stock Purchase Rights
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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 3,458,002 shares of the Registrant's Common Stock outstanding
on March 2, 1998. The aggregate market value held by non-affiliates on March 2,
1998 was approximately $39 million.
DOCUMENTS INCORPORATED BY REFERENCE
Certain information in the Registrant's Proxy Statement for the Annual
Meeting to be held on May 6, 1998 is incorporated by reference into Part III
herein.
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<PAGE>
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..............................6
Part II
Item 5. Market for Registrant's Common Equity and Related
Shareholder Matters...............................................7
Item 6. Selected Financial Data...........................................8
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations.............................. 9
Item 8. Financial Statements and Supplementary Data .....................14
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure...........................28
Part III
Item 10 Directors and Executive Officers of the Registrant ..............28
Item 11. Executive Compensation...........................................28
Item 12. Security Ownership of Certain Beneficial Owners
and Management...................................................28
Item 13. Certain Relationships and Related Transactions ..................28
Part IV
Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K..............................................29
<PAGE>
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Trademarks and service marks of the Company are italicized where they
appear herein. NutraSweet(R) is the registered trademark of Monsanto Company,
Chicago, Illinois. Welch's(R) is the registered trademark of Welch Foods Inc., a
Cooperative ("Welch's"), Concord, Massachusetts. Nabisco(R), OREO(R),
SnackWell's(R), Chips Ahoy!(R), Teddy Grahams(R), and Nilla(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. Southern Comfort(R) is the
registered trademark of Brown-Forman Corporation, Louisville, Kentucky. 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 $1 million.
Forward Looking Statements:
Statements contained in this Annual 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 hereof.
<PAGE>
PART I
ITEM 1. BUSINESS
Introduction
Eskimo Pie Corporation (the Company) created the frozen novelty industry
in 1921 with the invention of the Eskimo Pie ice cream bar. Today, the Company
markets a broad range of frozen novelties, ice cream and sorbet products under
the Eskimo Pie, RealFruit, Welch's, Weight Watchers, SnackWell's and OREO brand
names. These nationally branded products are generally manufactured by a select
group of licensed dairies who purchase the necessary flavors, ingredients and
packaging directly from the Company. The Company also sells a full line of
quality flavors and ingredients for use in dairy and frozen dessert products
outside of those used in its nationally licensed brands business and
manufactures soft serve yogurt and ice cream products for sale to the commercial
foodservice industry.
The Company's strengths include national brand recognition, the quality
of its products and the management of complex sales and distribution networks.
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 to manufacture and distribute 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 12 dairies who purchase
packaging and ingredients from the Company for use in the manufacture and
distribution of Eskimo Pie, RealFruit and sub-licensed branded novelties and
other ice cream 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.
Certain key ingredients (such as chocolate coatings and powders) and
wrappers used by the Company's licensees in the manufacture of Eskimo Pie and
other licensed frozen novelties and ice cream products are produced at Company
owned facilities located in New Berlin, Wisconsin and Bloomfield, 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 include cartons, ice cream sandwich
wafers and proprietary ingredients used in the manufacture of sub-licensed brand
products.
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.
1
<PAGE>
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.
The licensing strategy also 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 and
other licensed 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 a national sales manager in
each operating division and engages broker representatives in almost every major
U.S. market. Distribution of the Company's finished consumer products is handled
by the licensees and distributors in their respective territories.
Sublicensing Efforts
The Company leverages its licensee relationships and marketing presence
by securing the limited rights for nationally recognized brand names (Welch's,
Weight Watchers, SnackWell's, OREO). These rights allow the Company to manage
the manufacture, distribution and marketing of branded frozen novelties and ice
cream 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, three OREO
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 grocery stores.
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Non-licensed Products
In addition to products manufactured for use in its licensed business,
the Company sells various other ingredients to the dairy industry produced at
its New Berlin facility. 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, which accounts for
approximately 19% of the Company's sales, has grown in recent years and provides
a positive gross margin contribution although at lower levels than the Company's
licensing business.
The Company also manufactures soft serve yogurt and ice cream products in
a leased facility in Russellville, Arkansas. Soft serve products are sold under
the Eskimo Pie and SnackWell's brand names to commercial and institutional
foodservice establishments who, in turn, sell soft serve products to consumers.
The sale of soft serve yogurt and ice cream mix, which accounts for
approximately 12% of the Company's sales, is managed by a separate sales force
working within the Company's wholly owned subsidiary, Sugar Creek Foods, Inc.
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 foodservice industry.
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 the Company. 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 $1.8 billion of frozen novelties
annually according to the International Dairy Foods Association. The Company's
branded frozen novelties compete with over 400 national, regional and local
brands, 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.
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
3
<PAGE>
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, for Eskimo Pie and Real Fruit, in Canada and certain European
countries. 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, 1997. Except as
provided for in the agreement, Reynolds has not otherwise undertaken any
responsibility or assumed liability for environmental obligations of the
Company.
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.
4
<PAGE>
New Management Team. The Company is reliant on the abilities of recently
hired personnel as well as those of David B. Kewer, the Company's new President
and Chief Executive 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 32% 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, 1997, the Company employed approximately 150
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. Approximately 6,000 square feet of
the headquarters building is leased to outside parties at rates comparable to
local market rates.
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 by 18,000 square feet in 1990 and purchased certain new
equipment at that time. The Company is in the process of completing $800,000 of
capital improvements (consisting primarily of equipment additions) to the New
Berlin facility in order to meet the requirements of the 1997 production
consolidation.
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 cream
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.
5
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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
<TABLE>
EXECUTIVE OFFICERS OF THE REGISTRANT
<CAPTION>
Present Position and Length
Name (Age) of Service Other Business Experience During Past Five Years
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<S> <C>
Arnold H. Dreyfuss (69) Chairman of the Board Director since 1992; Chief Executive Officer from
since September 19, 1996. September 1996 to February 1998; President of Jupiter
Ocean and Racquet Club of Jupiter, Florida; formerly
(1982 until 1991) Chairman of the Board and Chief
Executive Officer of Hamilton Beach/Proctor-Silex, Inc.
Kimberly P. Ferryman (41) Vice President, Corporate Director, Quality Assurance and Product
Quality Assurance and Development from March 1994 to February 1995; Senior
Product Development Product Development Technologist from November 1988 to
since February 1995. February 1994. (All were positions with the Company)
Craig L. Hettrich (38) Vice President and Formerly, Vice President, Sales and Marketing for
General Manager, Frionor USA from March 1996 to January 1998; Director
Foodservice Division of National Sales and various other sales and marketing
since February 1998. positions with General Mills -
Yoplait/Columbo Division from September 1991 to February
1996.
V. Stephen Kangisser (46) Vice President, Marketing Formerly, Vice President, Sales and Marketing for H.P.
since May 1996. Hood, 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 (43) President and Director since May 1997; President and Chief Operating
Chief Executive Officer Officer from March 1997 to February 1998; formerly,
since March 1, 1998. President, Willy Wonka Candy Factory, a division of
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. (45) Chief Financial Officer, Independent Consultant, from August 1995 to February
Vice President, Treasurer 1996; Chief Financial and Administrative Officer,
and Corporate Secretary Goldome Credit Corporation from May 1993 to May 1995;
since February 1996. Senior Manager with Ernst & Young LLP, Capital Markets
Group, from 1987 to May 1993.
William J. Weiskopf (37) Vice President and National Sales Manager - Flavors, November 1995 to
General Manager, August 1997, Regional Sales Manager from May 1994 to
Flavors Division November 1995; formerly Account Manager, Food Group for
since August 1997. E.T. Horn Company from 1987 to 1994.
</TABLE>
6
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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 March 13, 1998, 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:
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High Low Dividends
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1997
First Quarter $ 14 1/4 $ 10 1/2 $ 0.05
Second Quarter 12 3/4 10 3/4 0.05
Third Quarter 14 11 1/2 0.05
Fourth Quarter 13 3/8 9 1/16 0.05
- ---------------------------------------- ------------ ---------------
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
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On February 20, 1998, the Board of Directors declared a quarterly cash
dividend of $.05 per share, payable April 2, 1998, to Shareholders of Record on
March 13, 1998. 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.
7
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<TABLE>
ITEM 6. SELECTED FINANCIAL DATA
<CAPTION>
- -------------------------------------------------- -------------- ---------------- ------------- -------------- ------------
For the year ended and as of December 31, 1997(1) 1996(2) 1995 1994(3) 1993(4)
- -------------------------------------------------- -------------- ---------------- ------------- -------------- ------------
(In thousands, except Per Share Data)
<S> <C>
Income Statement Data:
Net sales $ 66,392 $ 74,084 $ 83,975 $ 70,893 $ 66,082
Operating income (loss) 498 (2,009) 8,804 8,289 7,809
Net income (loss) $ 108 $ (2,046) $ 5,076 $ 4,850 $ 3,479
Per Share Data:(5)
Basic:
Weighted average number of
common shares outstanding 3,456,180 3,460,729 3,475,119 3,541,419 3,603,901
Income (loss) before cumulative
effect of accounting change $ 0.03 $ (0.59) $ 1.46 $ 1.37 $ 1.34
Cumulative effect of accounting change - - - - 0.37
---------- ----------- ---------- ---------- ----------
Net income (loss) $ 0.03 $ (0.59) $ 1.46 $ 1.37 $ 0.97
========== =========== ========== ========== ==========
Assuming dilution:
Weighted average number of
common shares outstanding 3,461,867 3,460,729 3,642,624 3,709,050 3,606,026
Income (loss) before cumulative
effect of accounting change $ 0.03 $ (0.59) $ 1.42 $ 1.33 $ 1.34
Cumulative effect of accounting change - - - - 0.37
---------- ----------- ---------- ---------- ----------
Net income (loss) $ 0.03 $ (0.59) $ 1.42 $ 1.33 $ 0.97
========== =========== ========== ========== ==========
Cash dividends $ 0.20 $ 0.20 $ 0.20 $ 0.20 $ 0.20
Balance Sheet Data:
Cash and short term investments $ 3,353 $ 2,143 $ 717 $ 5,142 $ 8,305
Working capital 7,313 6,802 9,193 9,175 9,210
Total assets 41,580 44,440 45,872 41,913 27,612
Total debt 10,335 9,800 9,800 9,844 219
Shareholders' equity 22,081 22,470 25,687 21,284 18,622
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
- ----------------
1 Net income includes income and expenses from restructuring activities (which
net to $169). Additional discussion is provided in Management's Discussion
and Analysis of Financial Condition and Results of Operations and the Notes
to Consolidated Financial Statements.
2 Net income includes special charges ($1,482) incurred during the year.
Additional discussion is provided in Management's Discussion and Analysis of
Financial Condition and Results of Operations.
3 Includes the results of the Sugar Creek Foods acquisition beginning March 1,
1994.
4 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".
5 Per Share Data has been restated to reflect the provisions of SFAS 128,
"Earnings Per Share". Additional discussion of earnings per share and the
impact of SFAS 128 is included in the Notes to Consolidated Financial
Statements.
8
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
For the year ended December 31, 1997, the Company recorded sales of $66.4
million which resulted in net income of $108,000 or $0.03 per share. These
results compare with a net loss of $2.0 million ($0.59 per share) in 1996 and
net income of $5.1 million in 1995. The Company faced many challenges during
1996 and 1997 and the improvements noted in the 1997 financial results reflect
the successful execution of management's initiatives to strengthen the Company's
financial performance.
The 1996 loss was attributable to a softening of sales in the Company's
principal markets, related third quarter inventory and equipment write-offs and
a severance accrual, which totalled $1.5 million after related tax benefits.
Exclusive of the write-offs and severance accrual, the Company would have
reported a net loss of $564,000 or $0.16 per share during 1996. Additional
details are provided below.
Net Sales and Gross Profit
<TABLE>
<S> <C>
Net sales consist of the following:
------------------------ ----------------------- ----------------------
For the year ended December 31, 1997 1996 1995
- ----------------------------------------------- ------------------------ ----------------------- ----------------------
Eskimo Pie brand $ 23,380 $ 21,483 $ 34,737
Other licensed brands 21,048 29,685 26,458
--------- --------- ---------
Total licensed brands 44,428 51,168 61,195
Flavors and ingredients 12,319 12,570 11,571
Foodservice/yogurt 8,164 8,763 9,605
Packaging and other revenues 1,481 1,583 1,604
--------- --------- ---------
$ 66,392 $ 74,084 $ 83,975
========= ========= =========
- ----------------------------------------------- ------------------------ ----------------------- ----------------------
</TABLE>
Reduced consumer demand and increased competition combined to
negatively impact sales across all areas of the Company during the past two
years. Consumer purchases within the frozen novelty category decreased 3% in
1997 for the second consecutive year, according to IRI, and impacted the
Company's sales of licensed brands and private label flavors and ingredients.
Price wars amongst the larger ice cream manufacturers reduced the price of
packaged ice cream and provided consumers with a less expensive alternative to
the novelty products licensed by the Company.
In spite of these factors, Eskimo Pie brand sales increased 8.8% in
1997 primarily as a result of the Company's focus on increasing the distribution
of the traditional Eskimo Pie Dark and Milk Chocolate ice cream bars in the
southeastern part of the United States. Company sales of related component
packaging, flavors and ingredients reflect the trends noted in consumer
purchases of Eskimo Pie brand products which showed, according to IRI, its first
increase since 1993.
Eskimo Pie brand sales decreased 38.2% in 1996 as a result of the
reduced consumer demand and competition, differences in the timing of customer
shipments and the absence of repeat sales from new products introduced in 1995.
9
<PAGE>
Sales of other licensed brand products (RealFruit, Welch's, Weight
Watchers, SnackWell's and OREO brands) decreased 29.0% in 1997 primarily due to
a $6.2 million decline in SnackWell's brand sales. Limited repeat sales have
occurred within the SnackWell's half gallon line, introduced in the first
quarter of 1996, as a result of the reduced consumer demand for "good-for-you"
products. Weight Watchers novelties and RealFruit sorbet products experienced
decreased sales in 1997 as a result of reduced consumer demand and increased
competition for similar products. Sales of Welch's brand products increased by
1.4% in 1997 and helped to mitigate the decline in other brands. The Welch's
improvement occurred in spite of a declining category and a major national
competitive introduction within the fruit juice bar category.
The sale of sublicensed brand products increased by 12.2% in 1996 as
a result of national SnackWell's and OREO brand product introductions. 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 private label flavors and ingredients decreased 2.0% in
1997 following an 8.6% increase in 1996. The 1997 decrease resulted from the
loss of two customers following the previously announced closure of the Los
Angeles production facility. The loss of these two customers offset other
increases in this business which are the result of successful sales efforts
undertaken to expand the flavors business beyond its traditional licensee base.
Foodservice and yogurt sales decreased in 1997 and 1996 following the
loss of large volume, low profit, customers. Management has taken steps in 1997
to reduce plant operating expenses in response to lower production needs.
Gross profit as a percent of sales increased to 40.2% in 1997 from
35.6% in 1996. Approximately half of the improvement resulted from a change in
the product sales mix discussed above. Eskimo Pie brand sales provide higher
margins than any other products sold by the Company and as such, increased
Eskimo Pie brand sales resulted in higher overall gross margins. The remaining
improvement in gross margins resulted from negotiated savings in material costs
and reduced costs from inventory obsolescence.
Gross margins declined in 1996 as a result of an unfavorable product
mix (a decline in Eskimo Pie brand sales in favor of other licensed brands) and
approximately $920,000 in special third quarter charges relating to the disposal
of licensee and Company owned inventories.
Expenses and Other Income
In absolute dollars, advertising and sales promotion expenses decreased
2.2% in 1997 following an 8.0% increase in 1996. However, as a percent of sales,
promotional spending increased to 25.8% in 1997 as compared with 23.6% in 1996
and 19.3% in 1995. The increased level of spending reflects the Company's stated
plans to reinvest in its core national branded novelty business.
Selling, general and administrative expenses decreased $960,000 or 9.3% in
1997 as a result of increased management focus on controlling costs throughout
the Company. Savings were realized throughout the Company in all categories of
spending.
10
<PAGE>
During the third quarter of 1997, the Company consolidated its flavors
production in New Berlin, Wisconsin. In connection with the consolidation, the
Company discontinued flavors operations in Los Angeles, California, terminated
the employment of the plant's 14 employees and sold the plant facility. Included
in income from restructuring activities is a $1.0 million gain from the sale of
plant assets offset primarily by approximately $300,000 of employee severances.
With the exception of approximately $50,000 of severance payments which will be
paid to former employees through the second quarter of 1998, all cash receipts
and payments relating to the consolidation have been settled as of December 31,
1997.
The Company will use a portion of the proceeds from the sale of the Los
Angeles facility to complete an expansion of the New Berlin facility. The New
Berlin expansion, which is expected to cost approximately $800,000 to complete,
will provide the necessary capacity to serve the Company's current and expected
business requirements at costs which are lower than operating two plants. The
Company estimates that the consolidation of its two flavors plants into an
expanded New Berlin operation will generate annual cost savings of approximately
$500,000 (before tax) beginning in 1998.
During the fourth quarter of 1997, the Company completed a restructuring
of its operations into a business unit divisional alignment. In connection with
this restructuring, two senior level employees were terminated with severance
benefits of approximately $215,000. Of the total amount accrued, $175,000
remains to be paid during 1998. In addition, $200,000 of previously incurred
severance and other non-recurring costs associated with the Company's 1997
restructuring activities were offset against the income recognized from the
flavors consolidation.
During the third quarter of 1996, the Company recorded $593,000 of
restructuring charges relating to severance commitments associated with a change
in executive management. Of the total amount accrued in 1996, $175,000 remains
to be paid as of December 31, 1997. All of this amount is scheduled to be paid
during 1998.
In the third quarter of 1996, the Company recorded losses on the disposal
of fixed assets of $725,000 relating to equipment leased to one of the Company's
licensees. The licensee had asked to have the equipment removed and no alternate
use appeared available. During 1997, the Company identified buyers for certain
components of the equipment written off in 1996. The 1997 gains on disposal of
fixed assets equals the proceeds received from the sale of the equipment which
had no book value at the beginning of 1997.
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.
11
<PAGE>
<TABLE>
The following table provides two years of unaudited quarterly financial data:
<CAPTION>
<S> <C>
For the 1997 quarter ended March 31 June 30 Sept 30 Dec 31
- ---------------------------------------- -------------------- -------------------- ------------------- ----------------
(In thousands, except per share data)
Net sales $18,078 $23,837 $13,124 $11,354
Gross profit 7,489 10,295 5,160 3,767
Net income (loss) 53 1,013 164 (1,121)
Per share
Basic 0.02 0.29 0.05 (0.32)
Assuming dilution 0.02 0.29 0.05 (0.32)
<CAPTION>
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 10,188 5,172 3,289
Net income 1,071 1,694 (2,799) (2,012)
Per share
Basic 0.31 0.49 (0.81) (0.58)
Assuming dilution 0.30 0.47 (0.81) (0.58)
- ---------------------------------------- -------------------- -------------------- ------------------- ----------------
</TABLE>
During the third quarter of 1996, the Company recorded special charges of
approximately $2.4 million. These special charges included 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
third quarter 1996 net income by approximately $1.5 million ($0.43 per share).
LIQUIDITY AND CAPITAL RESOURCES
The Company's utilization of licensees in its national branded novelty
business allows it to operate with relatively low capital requirements. The
Company's licensing strategy reduces working capital requirements 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. 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, planned capital expenditures of
$1.4 million in 1998, strategic objectives and debt repayment requirements.
The Company's principal customers are approximately 12 licensee dairies,
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 locate 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.
12
<PAGE>
The Company's financial position remains strong as evidenced by its
ability to generate operating cash flows in recent years when profitability
declined. The Company increased its working capital by 7.5% to $7.3 million at
December 31, 1997 and has a committed credit facility which provides for up to
$10 million in additional borrowings. The Company can use $3.8 million of the
credit facility to temporarily refinance the convertible subordinated notes that
mature in February 1999. The credit facility imposes, 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 its debt agreements.
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 February 20, 1998, the Board of Directors declared a quarterly cash
dividend of $.05 per share, payable April 2, 1998, to Shareholders of Record on
March 13, 1998. 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.
IMPACT OF YEAR 2000
The Company is currently in the process of implementing a new management
information system that will, along with other benefits which extend well beyond
Year 2000 issues, address the Company's internal Year 2000 issues. The
implementation project should be completed by December 31, 1998 at a cost which
is not expected to exceed $1 million. The cost of the project is being
capitalized and will be amortized to expense over the expected useful life.
Costs solely attributable to the Year 2000 issue, which are not anticipated to
have a significant impact on the Company's results from operations or liquidity,
will be expensed as incurred.
The Company is also in the process of evaluating the readiness of its
major suppliers, customers and other business partners to Year 2000 issues. At
the current time, the Company can not predict the outcome of this evaluation of
its external business partners, although based on prior experience, management
believes it could locate suitable replacements if any partners were lost as a
result of Year 2000 issues and, as such, any loss should not have a significant
impact on the Company's operations. The Company expects to complete the external
evaluation by December 31, 1998.
13
<PAGE>
<TABLE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
CONSOLIDATED STATEMENTS OF INCOME
<CAPTION>
For the year ended December 31, 1997 1996 1995
- ------------------------------------------------------------------------ -------------- ------------- --------------
(In thousands, except Per Share Data)
<S> <C>
Net sales $ 66,392 $ 74,084 $ 83,975
Cost of products sold 39,682 47,674 48,508
----------- ---------- -----------
Gross profit 26,710 26,410 35,467
Advertising and sales promotion expenses 17,136 17,518 16,217
Selling, general and administrative expenses 9,348 10,308 10,446
Income (expense) from restructuring activities 272 (593) -
----------- ---------- -----------
Operating income (loss) 498 (2,009) 8,804
Interest income 221 217 185
Interest expense and other - net (729) (714) (810)
Gain (loss) on disposal of fixed assets 184 (777) -
----------- ---------- -----------
Income (loss) before income taxes 174 (3,283) 8,179
Income tax expense (benefit) 66 (1,237) 3,103
----------- ---------- -----------
Net income (loss) $ 108 $ (2,046) $ 5,076
=========== ========== ===========
Per Share Data
Basic:
Weighted average number of common shares outstanding 3,456,180 3,460,729 3,475,119
Net income (loss) $ 0.03 $ (0.59) $ 1.46
=========== ========== ===========
Assuming dilution:
Weighted average number of common shares outstanding 3,461,867 3,460,729 3,642,624
Net income (loss) $ 0.03 $ (0.59) $ 1.42
=========== ========== ===========
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
<CAPTION>
Common Stock Additional Retained
(In thousands, except share data) Shares Amount Capital Earnings Total
- ----------------------------------------------------- ---------------- ------------ ----------- -------------- -------------
Balance at January 1, 1995 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
Net income 108 108
Cash dividends ($0.20 per share) (692) (692)
Issuance of common stock 10,429 10 115 125
Compensation from stock option grant 70 70
--------- --------- --------- --------- --------
Balance at December 31, 1997 3,458,002 $ 3,458 $ 4,353 $ 14,270 $ 22,081
========= ========= ========= ========= ========
</TABLE>
14
<PAGE>
<TABLE>
CONSOLIDATED BALANCE SHEETS
<CAPTION>
1997 1996
- --------------------------------------------------------------------------------------------- ---------------- -------------
(In thousands, except share data)
<S> <C>
Assets
Current assets:
Cash and cash equivalents $ 3,353 $ 2,143
Receivables 5,321 4,051
Inventories 4,342 6,608
Prepaid expenses 1,617 3,262
------------- -----------
Total current assets 14,633 16,064
Property, plant and equipment - net 7,892 8,716
Goodwill and other intangibles 17,588 17,999
Other assets 1,467 1,661
------------- -----------
Total assets $ 41,580 $ 44,440
============= ===========
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable $ 3,386 $ 5,283
Accrued advertising and promotion 1,389 2,026
Accrued compensation and related amounts 530 730
Other accrued expenses 698 723
Current portion of long term debt 1,317 500
------------- -----------
Total current liabilities 7,320 9,262
Long term debt 5,218 5,500
Convertible subordinated notes 3,800 3,800
Postretirement benefits and other liabilities 3,161 3,408
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,
3,458,002 issued and outstanding in 1997 and 3,447,573 in 1996 3,458 3,448
Additional capital 4,353 4,168
Retained earnings 14,270 14,854
------------- -----------
Total shareholders' equity 22,081 22,470
------------- -----------
Total liabilities and shareholders' equity $ 41,580 $ 44,440
============= ===========
</TABLE>
See accompanying notes to consolidated financial statements.
15
<PAGE>
<TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>
For the year ended December 31, 1997 1996 1995
- ------------------------------------------------------------------------------- -------------- -------------- --------------
(In thousands)
<S> <C>
Operating activities
Net income (loss) $ 108 $ (2,046) $ 5,076
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization 2,512 2,530 2,360
(Gain) loss on disposal of fixed assets (1,183) 777 -
Compensation from stock option grant 70 - -
Change in deferred income taxes and other assets (288) (290) 183
Change in postretirement benefits and other liabilities (333) (177) 73
Change in receivables (1,270) 4,644 (1,275)
Change in inventories and prepaid expenses 4,055 (2,807) (1,873)
Change in accounts payable and accrued expenses (2,762) 3,047 (1,790)
----------- ----------- -----------
Net cash provided by operating activities 909 5,678 2,754
Investing activities
Acquisition of business and other intangibles, net of cash acquired (587) (269) (6,799)
Capital expenditures (1,413) (1,674) (849)
Proceeds from disposal of fixed assets 1,994 - -
Sale of short term investments - - 345
Other 464 165 7
----------- ----------- -----------
Net cash provided by (used in) investing activities 458 (1,778) (7,296)
Financing activities
Short term borrowings and (repayments) - net - (1,200) 1,200
Borrowings under long term credit facility 1,150 - -
Principal payments on long term debt (615) - (44)
Issuance of common stock - 29 -
Repurchase of common stock - (611) -
Cash dividends (692) (692) (694)
----------- ----------- -----------
Net cash (used in) provided by financing activities (157) (2,474) 462
----------- ----------- -----------
Change in cash and cash equivalents 1,210 1,426 (4,080)
Cash and cash equivalents at beginning of year 2,143 717 4,797
----------- ----------- -----------
Cash and cash equivalents at end of year $ 3,353 $ 2,143 $ 717
=========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
16
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A - SIGNIFICANT ACCOUNTING POLICIES
The Company, which operates primarily in the United States, 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,
RealFruit, Welch's, Weight Watchers, SnackWell's and OREO brand names. The
Company also continues to manufacture ingredients and packaging for sale to the
dairy industry.
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 $700,000 of inventories at December 31, 1997 and $625,000 in 1996
which were determined by the first-in, first-out (FIFO) method. If the FIFO
method was applied to LIFO inventories, total inventories would increase by
approximately $930,000 at December 31, 1997 and $1,050,000 in 1996.
Property, Plant, Equipment and Depreciation: Property, plant and equipment is
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, 1997.
Accumulated amortization at December 31, 1997 and 1996 was
approximately $4,250,000 and $3,165,000, respectively.
Advertising and Sales Promotion Expenses: The Company generally expenses
advertising and sales promotion costs in the period incurred. There were no
material capitalized advertising and sales promotion costs as of December 31,
1997 and 1996.
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 $1,350,000 in 1997, $1,250,000 in 1996 and
$1,350,000 in 1995.
17
<PAGE>
Stock Options: The Company accounts for stock options granted under incentive
stock plans in accordance with Accounting Principles Board Opinion No. 25 (APB
25), "Accounting for Stock Issued to Employees" and related interpretations.
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.
Accounting Change: Effective December 31, 1997, the Company adopted Statement of
Financial Accounting Standards No. 128 (SFAS 128), "Earnings Per Share". SFAS
128 established new standards for computing and presenting earnings per share
which is reflected in Note F to the Consolidated Financial Statements. There was
no change to previously reported earnings per share included in the basic
financial statements as a result of the adoption of SFAS 128.
NOTE B - INVENTORIES Inventories are classified as follows:
- ------------------------------------------- ----------------- -----------------
As of December 31, 1997 1996
- ------------------------------------------- ----------------- -----------------
(In thousands)
Finished goods $ 2,943 $ 4,987
Raw materials and packaging supplies 2,330 2,672
---------- -----------
Total FIFO inventories 5,273 7,659
Reserve to adjust inventories to LIFO (931) (1,051)
------------ ------------
$ 4,342 $ 6,608
========== ==========
- ------------------------------------------- ----------------- -----------------
NOTE C - PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment is
classified as follows:
- ------------------------------------------- ----------------- ------------------
As of December 31, 1997 1996
- ------------------------------------------- ----------------- ------------------
(In thousands)
Land $ 630 $ 774
Buildings 5,136 5,814
Machinery and equipment 8,718 9,153
Equipment leased or loaned to customers 3,665 3,546
Projects in progress 966 978
------------ ------------
19,115 20,265
Less accumulated depreciation (11,223) (11,549)
----------- -----------
$ 7,892 $ 8,716
========== ==========
- ------------------------------------------- ----------------- ------------------
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,
1997, the Company had $593,000 ($462,000 in 1996) of current deferred tax assets
included in prepaid expenses and $158,000 ($154,000 in 1996) of long term
deferred tax assets included in other assets which have been netted by tax
jurisdiction for presentation purposes.
18
<PAGE>
The significant components of deferred taxes are as follows:
- ----------------------------------------------------- ----------- ------------
As of December 31, 1997 1996
- ----------------------------------------------------- ----------- ------------
(In thousands)
Current:
Accrued severance benefits $ 163 $ 174
Inventory 251 81
Advertising, promotion and other liabilities 179 207
--------- ----------
593 462
Non-Current:
Accrued postretirement benefits 1,087 1,065
Depreciation and amortization (1,026 (1,006)
Other 97 95
--------- ----------
158 154
--------- ----------
Total deferred tax assets $ 751 $ 616
========= ==========
- ----------------------------------------------------- ----------- ------------
Also included in prepaid expenses at December 31, 1997 is approximately
$580,000 of tax benefits associated with approximately $1,500,000 of net
operating loss (NOL) carry forwards which expire in 2011. No valuation allowance
has been recorded against the benefit from the NOL as the Company believes it
will generate sufficient taxable income in 1998 to ensure realization of the tax
benefit. Included in prepaid expenses at December 31, 1996 was $800,000 of tax
benefits associated with the NOL carry forwards and $1,400,000 in 1996 estimated
federal tax payments recovered by the Company during 1997.
Significant components of the provision for income taxes are as follows:
- -------------------------------- ---------------- -------------- -----------
For the year ended December 31, 1997 1996 1995
- -------------------------------- ---------------- -------------- -----------
(In thousands)
Current:
Federal $ 165 $ (678) $ 2,488
State 33 (143) 392
Foreign 3 11 37
--------- --------- --------
201 (810) 2,917
Deferred:
Federal (111) (353) 159
State (24) (74) 27
---------- ---------- --------
(135) (427) 186
---------- ---------- --------
Total income tax provision $ 66 $ (1,237) $ 3,103
========= ========== ========
- -------------------------------- ---------------- -------------- -----------
The Company recovered approximately $1,632,000 in previously paid
income taxes during 1997. Amounts paid for income taxes totaled $1,878,000 in
1996 and $2,850,000 in 1995.
A reconciliation of federal statutory and effective income tax rates is as
follows:
- ---------------------------------------- ------------ ----------- ----------
For the year ended December 31, 1997 1996 1995
- ---------------------------------------- ------------ ----------- ----------
Federal statutory rate 34.0% (34.0)% 34.0%
Effect of
State taxes 4.4 (4.3) 3.4
Permanent differences and other (.5) .6 .5
------- --------- ------
Effective income tax rate 37.9% (37.7)% 37.9%
====== ====== =====
- ---------------------------------------- ------------ ----------- ----------
19
<PAGE>
NOTE E - FINANCING ARRANGEMENTS
- -------------------------------------------------- ----------------------------
Long Term Debt Carrying Amount
As of December 31, 1997 1996
- -------------------------------------------------- -------------- -------------
(In thousands)
Revolving credit facility $ 5,500 $ 6,000
(variable interest rate, currently 6.5%)
Long term line of credit 1,035 -
(variable interest rate, currently 6.1%)
Convertible subordinated notes 3,800 3,800
---------- ---------
(4.5% interest rate)
10,335 9,800
Less current maturities (1,317) (500)
----------- ---------
$ 9,018 $ 9,300
========== =========
- -------------------------------------------------- -------------- -------------
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 provided for renewable loans with
required principal reductions beginning in June 1997. Under the terms of the
agreement, the Company will retire the loan over the seven year period ending
June 2004. Except for the amounts due in 1998, the Company has classified all of
this loan as long term debt based upon its ability and intention to defer
payment past 1998.
In December 1995, the Company entered into an interest rate swap
agreement which effectively fixed 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, 1997 and 1996. The Company believes that material
loss from non-performance is remote due to the strength of the counterparty.
During 1997, the Company borrowed $1,150,000 under an existing line of
credit to finance the acquisition of computer hardware and software. Borrowings
under the line bear interest at the 30 day LIBOR rate plus 100 basis points and
will be repaid in equal monthly installments through April 2000.
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).
During March 1998, the Company renewed its $10,000,000 committed line
of credit. The committed line of credit is available for general corporate
purposes through April 2000. 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 $636,000 in 1997, $715,000 in 1996,
and $799,000 in 1995.
20
<PAGE>
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 generally 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:
<TABLE>
<CAPTION>
<S> <C>
--------------------- ------------------ ----------------------
Range of Weighted Average
Number of Shares Exercise Prices Exercise Price
- --------------------------------------------------------- --------------------- ------------------ ----------------------
1995
Outstanding, beginning of year 115,457 $ 17.00 - 19.75
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
1997
Granted at fair market value 125,986 10.88 - 12.50 12.49
Granted at less than fair market value 50,000 10.00 10.00
Cancelled 92,874 12.50 - 20.50 17.53
Outstanding, end of year 221,339 10.00 - 21.25 13.63
Exercisable, end of year 61,236 10.00 - 21.25 15.57
- --------------------------------------------------------- --------------------- ------------------ ----------------------
</TABLE>
Included in the amounts shown above is the effect of certain
modifications made to prior year awards during 1997. On March 4, 1997, the Board
of Directors approved a plan whereby employee stock options on a total of 48,100
shares with a weighted average exercise price of $18.51 were exchanged for
37,486 shares of repriced options with an exercise price of $12.50 per share.
The repriced and forfeited options, which had an equivalent value under the
Black-Scholes Option Pricing Model, are included in the 1997 "Granted at fair
market value" and "Cancelled" captions, respectively, in the above table.
On March 4, 1997, the Company also awarded 50,000 shares of stock
options at a $2.50 discount to the then fair market value of $12.50 per share.
This discount-to-market is being expensed over a three year graded scale
consistent with the terms upon which the options become exercisable.
Approximately $70,000 was charged to expense in 1997 as a result of this award.
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 APB 25 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 except as discussed above as it relates to
stock option grants with exercise prices which were less than the fair market
value on the date of the grant.
21
<PAGE>
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 1997, 1996 and 1995 in
accordance with the provisions of SFAS 123, there would have been a pro forma
loss of $119,000 in 1997 ($0.03 per share), a pro forma loss of $2,343,000 in
1996 ($0.68 per share) and pro forma income of $4,972,000 in 1995 ($1.43 per
share, $1.39 per share assuming dilution). 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 each respective period's pro
forma compensation expense.
The weighted average fair value of options granted in 1997 and 1996 was
$5.47 and $9.64 per share, respectively. The fair values were estimated at the
date of grant using the Black-Scholes Option Pricing Model with the following
weighted-average assumptions:
- -------------------------------- ------------ ------------- ------------
For the year ended December 31, 1997 1996 1995
- -------------------------------- ------------ ------------- ------------
Volatility factor .333 .292 .315
Risk free interest rate 6.49% 6.53% 7.53%
Dividend yields 1.6% 1.0% 1.0%
Expected life 7.1 8.5 8.5
- -------------------------------- ------------ ------------- ------------
As of December 31, 1997, the weighted average remaining contractual
life of all outstanding stock options was 8.7 years.
The Company has also granted restricted stock awards in accordance with
the Plans. In 1997, 11,000 shares of restricted stock were issued with a
weighted average fair value of $12.35. In 1996, 6,416 shares of restricted stock
were issued with a weighted average fair value of $17.58.
At December 31, 1997, approximately 160,000 shares were available for
future grants under the Plans.
Earnings Per Share
<TABLE>
The following table sets forth the computation of earnings per share:
<CAPTION>
<S> <C>
- ------------------------------------------------------------------- ------------------ ---------------- ---------------
For the year ended December 31, 1997 1996 1995
- ------------------------------------------------------------------- ------------------ ---------------- ---------------
Net income (loss) $ 108,000 $ (2,046,000) $ 5,076,000
Reversal of interest expense from convertible
subordinated notes (after tax) - - 106,000
--------- ------------ -----------
Net income (loss) assuming potential dilution $ 108,000 $ (2,046,000) $ 5,182,000
========= ============= ===========
Weighted average number of common shares outstanding 3,456,180 3,460,729 3,475,119
Effect of dilutive securities:
Stock options 5,687 4,938
-
Convertible subordinated notes - 162,567
-
Weighted average number of common shares outstanding
assuming potential dilution 3,461,867 3,460,729 3,642,624
========= ============= ============
Basic earnings per share $0.03 $(0.59) $1.46
===== ====== =====
Earnings per share - assuming dilution $0.03 $(0.59) $1.42
===== ====== =====
- ------------------------------------------------------------------- ------------------ ---------------- ---------------
</TABLE>
22
<PAGE>
Options to purchase 170,000 shares in 1997, 138,000 shares in 1996 and
59,000 shares in 1995 were not considered for their dilutive effect because the
exercise price of the options exceeded the average market price for the
respective year, and as such, the effect would be anti-dilutive.
Additional disclosure concerning the convertible subordinated notes is
provided in Note E to the Consolidated Financial Statements. The effect of the
assumed conversion was not considered for its dilutive effect in the 1997 and
1996 calculations as the conversion would have been anti-dilutive.
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, 1997 1996 1995
- ---------------------------------- -------------- ------------- --------------
(In thousands)
Service cost $ 294 $ 311 $ 239
Interest cost 100 76 52
Actual return on plan assets (225) (79) (168
Net amortization and deferrals 122 18 124
------ ------ ------
$ 291 $ 326 $ 247
====== ====== ======
- ---------------------------------- -------------- ------------- --------------
23
<PAGE>
<TABLE>
The following table sets forth information on the net pension liability:
<CAPTION>
<S> <C>
- ------------------------------------------------------------ ------------- -------------
As of December 31, 1997 1996
- ------------------------------------------------------------ ------------- -------------
(In thousands)
Actuarial present value of accumulated benefit obligation:
Vested $ 1,030 $ 877
Non-vested 212 127
--------- ----------
Accumulated benefit obligation $ 1,242 $ 1,004
========= ========
Projected benefit obligation $ 1,714 $ 1,428
Plan assets at fair value 1,592 1,163
--------- ---------
Plan assets less than projected benefit obligation 122 265
Unrecognized net gain (loss) 190 (31)
---------- ----------
Net pension liability $ 312 $ 234
========== =========
- ------------------------------------------------------------ ------------- -------------
</TABLE>
The assumptions used in determining the projected benefit obligation and net
periodic pension costs are as follows:
- ---------------------------------------------- ---------- ---------- ---------
1997 1996 1995
- ---------------------------------------------- ---------- ---------- ---------
Weighted average discount rate 7% 7% 7%
Weighted average rate
of increase in compensation levels 5% 5% 5%
Expected long term rate of return on assets 8% 8% 8%
- ---------------------------------------------- ---------- ---------- ---------
At December 31, 1997, plan assets were 50% invested in common stocks,
47% 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. Company contributions are
generally determined as a percentage of the covered employees' contributions up
to 3% of the employees' annual salary. Amounts expensed under this plan were
approximately $140,000 in 1997 and 1996.
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, 1997 and 1996. The 1997 net post retirement benefit cost was
approximately $60,000 resulting from the amortization of deferred gains of
$70,000 offset against interest costs of $130,000. There was no significant net
postretirement benefit cost in 1996 as the amortization of deferred gains
substantially offset all interest costs. The net postretirement benefit cost for
1995 was approximately $180,000 representing interest costs.
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 1998 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 $120,000 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. The Company recognizes 20% of deferred gains or losses annually.
24
<PAGE>
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 1997, four customers accounted for 16%, 13%, 11% and 10% of net
sales, respectively. 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. 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 $400,000 at
December 31, 1997 ($512,000 in 1996), which is included in other assets, and is
net of an unamortized discount of approximately $100,000 ($160,000 in 1996). 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.
NOTE I - INCOME (EXPENSE) FROM RESTRUCTURING ACTIVITIES
During the third quarter of 1997, the Company consolidated its flavors
production in New Berlin, Wisconsin. In connection with the consolidation, the
Company discontinued flavors operations in Los Angeles, California, terminated
the employment of the plant's 14 employees and sold the plant facility. The
Company recorded income of $689,000 as a result of these actions.
The income from the flavors consolidation includes a $1.0 million gain
from the sale of the Los Angeles plant offset primarily by employee severances.
With the exception of approximately $50,000 of severance payments which will be
paid to former employees through the second quarter of 1998, all cash receipts
and payments relating to the consolidation have been settled as of December 31,
1997.
During the fourth quarter of 1997, the Company completed a
restructuring of its operations into a business unit divisional alignment. In
connection with this restructuring, two senior level employees were terminated
with severance benefits of approximately $215,000. Of the total amount accrued,
$175,000 remains to be paid during 1998. In addition, $200,000 of previously
incurred severance and other non-recurring costs associated with the Company's
1997 restructuring activities were offset against the income recognized from the
Flavors consolidation.
25
<PAGE>
During the third quarter of 1996, the Company recorded $593,000 of
restructuring charges relating to severance commitments associated with a change
in executive management. Of the total amount accrued in 1996, $175,000 remains
to be paid as of December 31, 1997. All of this amount is scheduled to be paid
during 1998.
26
<PAGE>
<TABLE>
<S> <C>
REPORT OF INDEPENDENT REPORT OF MANAGEMENT
AUDITORS, 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
1997 and 1996, 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, 1997. 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, 1997 and procedures as they consider necessary to render their opinion on
1996, 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, 1997, 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
/s/ Ernst & Young LLP ratification by the shareholders. The Audit Committee meets
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 23, 1998,
except for Note E, as to which
the date is March 20, 1998
/s/ David B. Kewer /s/ Thomas M. Mishoe, Jr.
David B. Kewer Thomas M. Mishoe, Jr.
President Chief Financial Officer,
and Chief Executive Officer Vice President, Treasurer
and Corporate Secretary
</TABLE>
27
<PAGE>
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 6, 1998 (Proxy Statement) and is incorporated
herein by reference. Information on Section 16(a) compliance is included under
the caption "Section 16(a) Beneficial Ownership Reporting Compliance" in the
Proxy Statement and is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
Information on compensation is included under the captions "Compensation
Committee Interlocks and Insider Participation" and "Compensation of Directors"
on page 6 in the Proxy Statement and "Executive Compensation" on pages 6-10 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.
28
<PAGE>
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, 1997, 1996 and 1995
Consolidated Statements of Changes in Shareholders' Equity
for the years ended December 31, 1997, 1996 and 1995
Consolidated Balance Sheets at December 31, 1997 and 1996
Consolidated Statements of Cash Flows for the years ended
December 31, 1997, 1996 and 1995
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 William J.
Weiskopf dated September 1, 1997 - Exhibit 10.2 to the Company's Annual Report
on Form 10-K for the year ended December 31, 1997.
29
<PAGE>
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 Craig L.
Hettrich dated February 2, 1998 - Exhibit 10.4 to the Company's Annual Report on
Form 10-K for the year ended December 31, 1997.
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 October 9, 1997 between the Company and Carl D.
Hornbeak - Exhibit 10.12 to the Company's Annual Report on Form 10-K for year
ended December 31, 1997.
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.
Eskimo Pie Corporation Savings Plan, as amended, - Exhibit 4(c)(ii) to
the Company's Registration Statement on Form S-8 (Registration No. 333-24893).
Eskimo Pie Corporation Employee Stock Purchase Plan, - Exhibit
4(c)(iii) to the Company's Registration Statement on Form S-8 (Registration No.
333-24893).
30
<PAGE>
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 30th day of
March, 1998.
ESKIMO PIE CORPORATION
/s/ David B. Kewer
------------------
David B. Kewer
President and
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 30th day of March 1998.
<TABLE>
<CAPTION>
Signature Title
<S> <C>
President and
/s/ David B. Kewer Chief Executive Officer
- --------------------------------- (Principal Executive Officer)
David B. Kewer
/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/ Arnold H. Dreyfuss, Jr. Chairman of the Board
- ---------------------------------
Arnold H. Dreyfuss, Jr.
*/s/ Terrence D. Daniels Director
- ---------------------------------
Terrence D. Daniels
*/s/ Wilson H. Flohr, Jr. Director
- ---------------------------------
Wilson H. Flohr, Jr.
*/s/ F. Claiborne Johnston, Jr. Director
- ---------------------------------
F. Claiborne Johnston, Jr.
*/s/ Daniel J. Ludeman Director
- ---------------------------------
Daniel J. Ludeman
*/s/ Judith B. McBee Director
- ---------------------------------
Judith B. McBee
*By /s/ David B. Kewer
- ---------------------------------
David B. Kewer
Attorney-in-fact
</TABLE>
31
<PAGE>
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 William J.
Weiskopf, dated September 1, 1997 filed herewith.
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 Craig L.
Hettrich dated February 2, 1998, filed herewith.
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, incorporated herein by reference to Exhibit 10.6
to the Company's Annual Report on Form 10-K for the year ended
December 31, 1996.
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.
32
<PAGE>
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 October 9, 1997 between the Company and Carl
D. Hornbeak, filed herewith.
10.13 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.
10.14 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.
10.15 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.
10.16 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.
10.17 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).
10.18 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).
10.19 Eskimo Pie Corporation Savings Plan, as amended, incorporated herein
by reference to Exhibit 4(c)(ii) to the Company's Registration
Statement on Form S-8 (Registration No.333-24893).
10.20 Eskimo Pie Corporation Employee Stock Purchase Plan, incorporated
herein by reference to Exhibit 4(c)(iii) to the Company's
Registration Statement on Form S-8 (Registration No. 333-24893).
21. Subsidiaries of the Registrant.
23. Consent of Independent Auditors, Ernst & Young LLP.
33
<PAGE>
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
34
Exhibit 10.2
EXECUTIVE SEVERANCE AGREEMENT
This Agreement ("Agreement") is entered into as of September 01, 1997
between ESKIMO PIE CORPORATION, a Virginia corporation ("Eskimo Pie"), and
William J. Weiskopf ("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");
(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
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
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
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
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
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.
(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/ David B. Kewer By /s/ William J. Weiskopf
David B. Kewer William J. Weiskopf
Exhibit 10.4
EXECUTIVE SEVERANCE AGREEMENT
This Agreement ("Agreement") is entered into as of February 2, 1998,
between ESKIMO PIE CORPORATION, a Virginia Corporation ("Eskimo Pie"), and Mr.
Craig L. Hettrich ("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 of Eskimo Pie or any of its business divisions 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 or any of its business divisions; 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 or any of its business divisions, 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) "Termination" shall occur if Executive's employment by
Eskimo Pie is terminated by Eskimo Pie at any time within three years
following a (x) Change in Control or (y) Sale of the Foodservices
Division 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");
(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 or Sale of
the Foodservices Division; and
(c) a "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 election 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,
(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 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 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 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 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.
(d)"Sale of the Foodservices Division" shall mean the sale
or disposition by Eskimo Pie of substantially all the
assets or business of its foodservices division.
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 one (1) times Executive's Earnings (as
defined in this Section 2 (a)); provided, however, that if
there are fewer than 12 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 12.
For purposes of the 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 or Sale of the
Foodservices Division 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 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 or a Sale
of the Foodservices Division 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 Sale of the Foodservices Division, 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 or Sale of the Foodservices Division;
(b)a 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 or Sale of the
Foodservices Division that is material to Executive's
total compensation or any substitute plans adopted prior
to the Change in Control or Sale of the Foodservices
Division, 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 or Sale of the Food Services
Division;
(f)the failure by Eskimo Pie to continue to provide
Executive with benefits substantially similar to those
enjoyed by Executive under any of Eskimo 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 or Sale of the Foodservices
Division, 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 Sale of the Foodservices Division, 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 Sale of the
Foodservices Division; 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 9
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
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 action 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, 1998;
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 or a Sale of the Foodservices
Division 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 or a Sale of the Foodservices
Division occurred.
Notwithstanding the foregoing, this Agreement shall terminate if
either Eskimo Pie or Executive terminates the employment of
Executive before a Change in Control or a Sale of the Foodservices
Division 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
Virginia, 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
attorney's 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 (i) 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 and (ii) successor to the
business or assets of the foodservices division upon a
Sale of the Foodservices Division 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
hereinbefore defined and any successor to its business
and/or assets or to the business and/or assets of the
foodservices division upon a Sale of the Foodservices
Division 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 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 hereunder 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 thereafter 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 1274 (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.
(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/ David B. Kewer /s/ Craig L. Hettrich
Exhibit 10.12
October 9, 1997
Mr. Carl D. Hornbeak
Eskimo Pie Corporation
901 Moorefield Park Drive
Richmond, VA 23236
Dear Carl,
This will confirm our discussion today in which I advised you that in connection
with your voluntary resignation from the employment of, and as an officer of,
Eskimo Pie Corporation effective January 31, 1998 as evidenced by your signature
to this letter, we have agreed upon the following:
1. The Company will (a) consider your employment status active through
October 31, 1997; (b) will provide you with paid leave through January 31,
1998 on the same basis as if you were actively employed; (c) will continue
your current base salary after the date of your resignation through
December 31, 1998, regardless whether or not you commence new employment,
and less applicable withholding taxes; (d) provide medical, dental, basic
life insurance, long term disability and savings plan eligibility on the
same basis as if you were actively employed through January 31, 1998; (e)
provide for accelerated vesting of the 617 shares of restricted stock
awarded to you under the 1992 Incentive Stock Plan which are still subject
to restriction, such that all remaining restrictions will lapse as of
January 31, 1998; (f) provide an extension of eligibility to exercise
stock options under the 1992 and 1996 Incentive Stock Plans through April
30, 1998; all of the foregoing being contingent, however, upon your
execution of the Release in the form attached to this letter as Appendix
"A." It is understood that this salary continuation, benefits continuation
and the other preceding provisions of this paragraph are additional
consideration to you and are not anything to which you are otherwise
entitled.
This also will confirm that you will have at least 10 years of credited
service under the Company's Executive Retirement Plan (the "Plan") as of
the date of your resignation and will receive the benefits to which you
are entitled under the Plan in accordance with the terms of the Plan.
<PAGE>
Mr. Carl D. Hornbeak
October 9, 1997
Page 2
2. I have advised you and am advising you that you should consult an attorney
prior to executing the Release in the form attached as Appendix "A" and
you will have until October 30, 1997 (21 days) to consider executing the
Release. Following your execution of the Release, you will then have a
period of seven (7) days during which time you may revoke the Release, and
thus the Release will not become effective or enforceable until the seven
(7) day revocation period has passed.
3. You agree not to disclose any proprietary or confidential information you
may have acquired or received during your employment with the Company;
provided, however, that this prohibition shall not apply to information
that (a) is or becomes generally available to the public other than as a
result of a disclosure by you, (b) becomes available to you on a
non-confidential basis from a source other than the Company or its
representatives which source has the right to disclose it or (c) was known
to you on a non-confidential basis prior to your employment by the
Company.
4. You agree to be cooperative in the transfer of your normal job
responsibilities and return to the Company all keys, credit cards or other
items of Company property that may be in your possession on or before
October 31, 1997. You also agree not to libel or slander the Company, its
business or any of its officers or employees.
This also will confirm that your authority as an officer and employee of
the Company will cease October 31, 1997. In addition, your perquisite and
club allowances will cease October 31, 1997.
5. You agree to be available for assistance and consultation via telephone
during the salary continuation period. We agree that this is to be for
reasonable and infrequent periods of time, not to exceed more than 10
hours per month, unless we mutually agree otherwise.
6. As a condition of this letter agreement, you agree not to discuss the
terms or existence of this letter agreement with any other person other
than members of your immediate family, and such professional advisors as
you deem necessary who also agree to keep these matters confidential. The
continuation of the salary and benefits, as well as the other provisions
described in paragraph 1 above, shall be conditioned upon your continued
compliance with the provisions of this paragraph 6 and the other
provisions of this letter.
<PAGE>
Mr. Carl D. Hornbeak
October 9, 1997
Page 3
7. This letter agreement reflects the entire understanding between you and
the Company regarding the terms of your resignation and no other
provisions, conditions, representations or warranties have been made to
you on behalf of the Company. This letter agreement shall be binding on
the Company and its successors and assigns, if any.
Very truly yours,
/s/ David B. Kewer
David B. Kewer
President
Enclosure
AGREED: /s/ Carl D. Hornbeak
Carl D. Hornbeak
DATED: October 10, 1997
<PAGE>
APPENDIX A
GENERAL RELEASE OF CLAIMS
In consideration of the benefits promised me in a certain letter from David B.
Kewer to me dated October 9, 1997, the sufficiency of which is hereby
acknowledged, I hereby release ESKIMO PIE CORPORATION, its successors and
assigns, together with it and its successors' and assigns' officers, directors
and employees from any and all rights and claims, including rights and claims
which may arise under the Federal Age Discrimination Employment Act, whatsoever
in law or in equity, which I ever had, now have, or which I, my heirs,
executors, administrators and assigns hereafter can, shall or may have based
upon or arising out of my employment or the termination of my employment with
the Company which terminated by my resignation effective January 31, 1998, other
than the rights I have under Company-sponsored benefit plans or as set forth in
the above-referenced letter dated October 9, 1997.
This Release is given voluntarily by me and with knowledge of Federal, state
and local laws concerning unlawful discrimination and wrongful discharge. I
fully understand that the execution of this Agreement by the Company and the
payment of sums pursuant hereto is in no way an acknowledgment by the Company of
any discriminatory, wrongful or improper acts whatsoever. I am aware that
payment is subject to ordinary tax withholding, including FICA.
/s/ Carl D. Hornbeak
--------------------
Carl D. Hornbeak
STATE OF VIRGINIA
CITY/COUNTY OF Chesterfield, to-wit:
I, Rose S. Borkey, a Notary Public in and for the jurisdiction aforesaid, do
certify that whose signature appears above, has acknowledged the same before me
in my jurisdiction aforesaid.
My commission expires: May 31, 2001.
Given under my hand and seal this 16th day of October, 1997.
/s/ Rose S. Borkey
---------------------------
Notary Public
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.
Exhibit 23
CONSENT OF INDEPENDENT AUDITORS, ERNST & YOUNG LLP
We consent to the incorporation by reference in (a) the Registration Statement
(Form S-8 No. 33-58576) pertaining to the 1992 Incentive Stock Plan of Eskimo
Pie Corporation and (b) the Registration Statement (Form S-8 No. 333-24893)
pertaining to the Eskimo Pie Corporation 1996 Incentive Stock Plan, the Eskimo
Pie Corporation Savings Plan and the Eskimo Pie Corporation Employee Stock
Purchase Plan of our report dated February 23, 1998 (except Note E, as to which
the date is March 20, 1998), 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, 1997.
/s/ ERNST & YOUNG LLP
Richmond, Virginia
March 27, 1998
Exhibit 24
POWER OF ATTORNEY
I, Terrence D. Daniels, do hereby constitute and appoint David B.
Kewer 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, 1997, 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 23rd of March, 1998.
/s/ Terrence D. Daniels (SEAL)
<PAGE>
POWER OF ATTORNEY
I, Judith B. McBee, do hereby constitute and appoint Arnold H.
Dreyfuss, David B. Kewer 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, 1997, 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 3rd day of February, 1998.
/s/ Judith B. McBee (SEAL)
<PAGE>
POWER OF ATTORNEY
I, F. Claiborne Johnston, Jr., do hereby constitute and appoint
Arnold H. Dreyfuss, David B. Kewer 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, 1997, 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 30th day of January, 1998.
/s/ F. Claiborne Johnston, Jr. (SEAL)
<PAGE>
POWER OF ATTORNEY
I, Wilson H. Flohr, Jr., do hereby constitute and appoint Arnold H.
Dreyfuss, David B. Kewer 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, 1997, 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 2nd day of February, 1998.
/s/ Wilson H. Flohr, Jr. (SEAL)
<PAGE>
POWER OF ATTORNEY
I, Arnold H. Dreyfuss, do hereby constitute and appoint David B.
Kewer 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, 1997, 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 19th day of March, 1998.
/s/ Arnold H. Dreyfuss (SEAL)
<PAGE>
POWER OF ATTORNEY
I, Daniel J. Ludeman, do hereby constitute and appoint Arnold H.
Dreyfuss, David B. Kewer 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, 1997, 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, 1998.
/s/ Daniel J. Ludeman (SEAL)
<TABLE> <S> <C>
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<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 3,353
<SECURITIES> 0
<RECEIVABLES> 5,321
<ALLOWANCES> 0
<INVENTORY> 4,342
<CURRENT-ASSETS> 14,633
<PP&E> 19,115
<DEPRECIATION> 11,223
<TOTAL-ASSETS> 41,580
<CURRENT-LIABILITIES> 7,320
<BONDS> 9,018
0
0
<COMMON> 3,458
<OTHER-SE> 18,623
<TOTAL-LIABILITY-AND-EQUITY> 41,580
<SALES> 66,392
<TOTAL-REVENUES> 66,392
<CGS> 39,682
<TOTAL-COSTS> 65,894
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 729
<INCOME-PRETAX> 174
<INCOME-TAX> 66
<INCOME-CONTINUING> 108
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<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 108
<EPS-PRIMARY> .03
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</TABLE>
