ESKIMO PIE CORP, DEFM14A, 2000-07-19

ESKIMO PIE CORP
DEFM14A, 2000-07-19
ICE CREAM & FROZEN DESSERTS

Previous: APPLIED VOICE RECOGNITION INC /DE/, SB-2, EX-23.2, 2000-07-19

Next: SENETEK PLC /ENG/, 8-K, 2000-07-19

<PAGE>

SCHEDULE 14A INFORMATION

Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934

Filed by the Registrant [X]

Filed by a Party other than the Registrant [_]

Check the appropriate box:

[_] Preliminary Proxy Statement [_] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))

[X] Definitive Proxy Statement

[_] Definitive Additional Materials

[_] Soliciting Material under (S) 240.14a-12

Eskimo Pie Corporation
(Name of Registrant as Specified in Its Charter)

(Name of Person(s) Filing Proxy Statement if other than the Registrant)

Payment of Filing Fee (Check the appropriate box):

[_] No fee required

[_] $125 per Exchange Act Rules O-11(c)(1)(ii), 14a-6(i)(1), 14a-6(i)(2) or
Item 22(a)(2) of Schedule 14A.

[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and O-11.

1) Title of each class of securities to which transaction applies:

Common Stock, par value $1.00 per share

2) Aggregate number of securities to which transaction applies:

2,898,057 shares (plus 50,000 shares subject to option)

3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule O-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):

The filing fee of $5,944 represents 1/50th of 1% of the sum of: (a) the
product of: (i) 2,898,057 shares of Common Stock of the Registrant and
(ii) $10.25 per share, which is the cash amount per share to be
received by the stockholders in the merger proposal to which this Proxy
Statement relates, and (b) a $12,500 payment (or $0.25 per share) for
50,000 shares subject to option at an exercise price below $10.25.

4) Proposed maximum aggregate value of transaction:

$29,717,585

5) Total fee paid:

$5,944

[X] Fee paid previously by written preliminary materials.

[_] Check box if any part of the fee is offset as provided by Exchange Act
Rule O-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.

1) Amount Previously Paid:

2) Form Schedule or Registration Statement No.:

3) Filing Party:

4) Date Filed:
<PAGE>

[LOGO APPEARS HERE]

dated July 18, 2000

Dear Fellow Shareholder:

The board of directors of Eskimo Pie Corporation has unanimously approved an
Agreement and Plan of Merger, dated as of May 3, 2000, as amended as of June
1, 2000, among Eskimo Pie, CoolBrands International Inc. (previously known as
Yogen Fruz World-Wide Incorporated) and EP Acquisition Corp., a wholly-owned
subsidiary of CoolBrands, and is seeking your approval of this important
transaction. If the merger is completed, Eskimo Pie shareholders will receive
$10.25 in cash for each share of Eskimo Pie stock they own.

The Eskimo Pie board of directors believes that the merger is in your and
Eskimo Pie's best interests and unanimously recommends that you vote FOR
approval and adoption of the merger agreement and the merger.

Eskimo Pie has scheduled a special meeting of shareholders of Eskimo Pie
Corporation to be held on September 6, 2000 at the SunTrust Bank (formerly
Crestar Bank) auditorium, 4th Floor, 919 East Main Street, Richmond, Virginia
at 10:00 a.m., local time. At the special meeting, you will be asked to
consider and vote upon a proposal to adopt and approve the merger agreement
and the merger. Under the terms of the merger, each issued and outstanding
share of Eskimo Pie Common Stock will be converted into the right to receive
$10.25 cash.

Your participation in the special meeting, in person or by proxy, is
important. Even if you anticipate attending in person, we urge you to mark,
sign and return the enclosed proxy card promptly in the enclosed postage-paid
envelope to ensure that your shares of Eskimo Pie common stock will be
represented at the special meeting. If you do attend in person, you will be
entitled to vote your shares in person. If you do not vote, it will have the
same effect as voting against the merger.

In the materials accompanying this letter, you will find a notice of special
meeting, a proxy statement relating to the actions to be taken by Eskimo Pie's
shareholders at the special meeting and a proxy card. The proxy statement
provides you with detailed information about the merger. I encourage you to
read the entire proxy statement and notice carefully.

On behalf of your board of directors, I thank you for your support and urge
you to vote FOR approval and adoption of the merger agreement and the merger.
Should you have any questions about the merger, please call Corporate Investor
Communications, Inc., toll free at 888-509-4647.
David B. Kewer
Chairman of the Board

Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of the transaction, passed upon the
merits or fairness of the transaction, or passed upon the adequacy or
accuracy of the disclosure in this document. Any representation to the
contrary is a criminal offense.

This Proxy Statement is dated July 18, 2000 and is
first being mailed to Shareholders on or about July 20, 2000.

<PAGE>

ESKIMO PIE CORPORATION

----------------

NOTICE OF SPECIAL MEETING OF SHAREHOLDERS

----------------

TO BE HELD WEDNESDAY, SEPTEMBER 6, 2000

A special meeting of the shareholders of Eskimo Pie Corporation will be held
at the SunTrust Bank (formerly Crestar Bank) auditorium, 4th Floor, 919 East
Main Street, Richmond, Virginia, at 10:00 a.m., local time, on September 6,
2000, for the following purposes:

1. To consider and vote upon a proposal to approve the Agreement and Plan
of Merger, dated as of May 3, 2000, as amended as of June 1, 2000, among
Eskimo Pie, CoolBrands International Inc. and EP Acquisition Corp., a
wholly owned subsidiary of CoolBrands, providing for the merger of EP
Acquisition with and into Eskimo Pie, with Eskimo Pie becoming a wholly
owned subsidiary of CoolBrands; and

2. To act upon any other matters properly coming before the special meeting
and any adjournment or postponement of the meeting.

Only holders of record of Eskimo Pie common stock at the close of business
on July 13, 2000 are entitled to vote at the special meeting or any
adjournment or postponement thereof. Approval of the merger proposal at the
special meeting requires the affirmative vote of the holders of at least two-
thirds of the outstanding shares of Eskimo Pie common stock, other than the
shares beneficially owned by CoolBrands.

By Order of the Board of Directors

Thomas M. Mishoe, Jr.
Chief Financial Officer, Vice
President
Treasurer and Corporate Secretary

July 18, 2000

Please mark, sign, date and return your proxy promptly,
whether or not you plan to attend the special meeting.

The Eskimo Pie board of directors unanimously
recommends that shareholders vote FOR the proposal to approve
the merger agreement and the merger at the special meeting.
<PAGE>

TABLE OF CONTENTS

<TABLE>
<CAPTION>
Page
----
<S> <C>
QUESTIONS AND ANSWERS ABOUT THE TRANSACTION............................... 1

SUMMARY TERM SHEET........................................................ 3
General................................................................. 3
Parties to the Transaction.............................................. 3
The Special Meeting..................................................... 3
Required Vote........................................................... 4
The Merger.............................................................. 4
Subsequent Tender Offer if Merger is Not Approved by Required
Shareholder Vote ...................................................... 4
Reasons of Eskimo Pie for the Transaction............................... 4
Recommendation of the Eskimo Pie Board of Directors..................... 5
Opinion of Eskimo Pie's Financial Advisor............................... 5
Merger Consideration.................................................... 5
Material Federal Income Tax Consequences................................ 5
Interests of Eskimo Pie's Directors and Officers in the Transaction..... 5
Accounting Treatment for the Merger..................................... 6
No Appraisal or Dissenters' Rights...................................... 6
Regulatory Matters...................................................... 6
Conditions to the Merger................................................ 6
No Solicitation of Transactions by Eskimo Pie........................... 6
Termination of the Merger Agreement..................................... 7
Termination Fees and Expenses........................................... 7

SPECIAL FACTORS........................................................... 8
Background of the Transaction........................................... 8
Recommendation of the Eskimo Pie Board of Directors; Fairness of the
Transaction ........................................................... 11
Opinion of Eskimo Pie's Financial Advisor............................... 13
Purposes for the Transaction............................................ 16
Interests of Eskimo Pie's Directors and Officers in the Transaction..... 16
Proposed Arrangements Between CoolBrands and Executive Officers of
Eskimo Pie............................................................. 18

RISK FACTORS.............................................................. 19

CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING INFORMATION .............. 19

THE SPECIAL MEETING....................................................... 20
Meeting Date............................................................ 20
Matters to be Considered at the Special Meeting......................... 20
Record Date and Voting Rights and Requirements.......................... 20
Voting of Proxies....................................................... 21
Revocation of Proxies................................................... 21
Solicitation of Proxies................................................. 21

THE MERGER AGREEMENT...................................................... 22
Description of the Merger............................................... 22
Subsequent Tender Offer If the Merger is Not Approved at Special
Meeting................................................................ 24
No Solicitation of Transactions by Eskimo Pie........................... 24
Representations and Warranties.......................................... 25
Covenants Under the Merger Agreement.................................... 27
Indemnification and Insurance of Directors and Officers................. 28
Termination of the Merger Agreement..................................... 28
</TABLE>

i
<PAGE>

<TABLE>
<CAPTION>
Page
----
<S> <C>
Termination Fees and Expenses............................................ 29
Material Federal Income Tax Consequences................................. 30
No Appraisal or Dissenters' Rights....................................... 30
Accounting Treatment..................................................... 30
Regulatory Matters....................................................... 31

ACQUISITION FINANCING...................................................... 31

FEES AND EXPENSES.......................................................... 31

PRICE RANGE OF ESKIMO PIE COMMON STOCK..................................... 32

BUSINESS OF ESKIMO PIE..................................................... 32

BUSINESS OF COOLBRANDS..................................................... 33

DIRECTORS AND EXECUTIVE OFFICERS OF ESKIMO PIE............................. 33

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT ............ 35

INDEPENDENT AUDITORS....................................................... 36

SELECTED FINANCIAL INFORMATION CONCERNING ESKIMO PIE....................... 37

LEGAL MATTERS.............................................................. 38

OTHER MATTERS.............................................................. 39

WHERE YOU CAN FIND MORE INFORMATION........................................ 39

INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE............................ 39
</TABLE>

<TABLE>
<CAPTION>
ANNEXES
-------
<C> <S> <C>
ANNEX A Agreement and Plan of Merger, dated as of May 3, 2000, as
amended (composite conformed copy)
ANNEX B Opinion of First Union Securities, Inc.
ANNEX C Eskimo Pie Annual Report on Form 10-K for fiscal year ended
December 31, 1999
ANNEX D Amendment No. 1 to Eskimo Pie Annual Report on Form 10-K for
fiscal year ended December 31, 1999
ANNEX E Eskimo Pie Quarterly Report on Form 10-Q for fiscal quarter
ended March 31, 2000
</TABLE>

ii
<PAGE>

QUESTIONS AND ANSWERS ABOUT THE TRANSACTION

Q: What am I being asked to vote on at the special meeting?

A: You are being asked to approve the merger agreement that provides for the
merger of a wholly owned subsidiary of CoolBrands with and into Eskimo
Pie, with Eskimo Pie becoming a wholly owned subsidiary of CoolBrands.

Q: What vote of Eskimo Pie shareholders is required to approve the merger?

A: The Virginia Affiliated Transactions Statute includes complicated
provisions requiring a higher than usual shareholder vote to approve
certain transactions. Because CoolBrands acquired more than 10% of the
outstanding shares of Eskimo Pie common stock without first being exempted
from the provisions of that statute, any merger transaction between Eskimo
Pie and CoolBrands or an affiliate of CoolBrands is subject to those
provisions. Consequently, the proposed merger will not be effected unless
it is approved by the holders of at least two-thirds of the shares of
Eskimo Pie common stock, excluding the approximately 587,700 shares
beneficially owned by CoolBrands. This means that, of the approximately
3,485,757 shares of Eskimo Pie stock outstanding, approximately 1,932,038
shares other than the shares owned by CoolBrands must vote for the merger
agreement and the merger.

Q: What will I receive when the merger occurs?

A: You will receive $10.25 in cash in exchange for each of your shares of
Eskimo Pie common stock if the merger occurs.

Q: How do I vote my shares?

A: After carefully reading and considering the information contained in this
document, you should fill out and sign your proxy card. Then mail your
completed, signed proxy card in the enclosed return envelope as soon as
possible so that your shares can be voted at the special meeting of Eskimo
Pie shareholders.

If you intend to vote to approve the merger, you should mark the box on
the proxy card to indicate that you vote FOR the merger. The board of
directors recommends a vote FOR the merger agreement and the merger.

You should return your proxy card whether or not you plan to attend the
special meeting. If you attend the special meeting, you may revoke your
proxy at any time before it is voted and vote in person.

Q: Can I change my vote after I have mailed my proxy?

A: Yes. You may change your vote at any time before your proxy is voted at
the special meeting. You can do this either by (1) submitting to the Chief
Financial Officer of Eskimo Pie a written notice of revocation or a
completed, later-dated proxy card or (2) attending the special meeting and
voting in person.

Q: If my shares are held in "street name" by my broker, will my broker vote
my shares for me?

A: Your broker will not be able to vote your shares without instructions from
you. You should follow the directions provided by your broker to vote your
shares.

Q: When will the merger be completed?

A: Eskimo Pie and CoolBrands are working to complete the merger as soon as
possible after the special meeting of shareholders. Eskimo Pie and
CoolBrands expect to complete the merger on or about September 6, 2000 if
the shareholders approve the merger at the special meeting.
<PAGE>

Q: What will happen if the shareholders do not approve the merger?

A: If the vote of the shareholders at the special meeting is insufficient to
approve the merger, shortly after the special meeting, CoolBrands will
commence a tender offer to purchase shares of Eskimo Pie stock. If the
conditions to the tender offer, including the condition that at least
1,180,179 shares be tendered, are satisfied and the tender offer is
consummated, CoolBrands will pay a cash price of $10.25 per share for the
Eskimo Pie shares tendered. If a tender offer is commenced, the terms and
conditions of that offer will be described to you in an offer to purchase
and letter of transmittal, which will be sent to you if and when the tender
offer is commenced.

Q: To whom should I address questions?

A: If you have questions, you should contact Corporate Investor Communications
toll free at 1-888-509-4647.

2
<PAGE>

SUMMARY TERM SHEET

General

This summary highlights selected information from this proxy statement and
may not contain all of the information that is important to you. To understand
the merger fully and for a more complete description of the legal terms of the
merger, you should read carefully this entire proxy statement and the documents
incorporated by reference in this proxy statement. See "WHERE YOU CAN FIND MORE
INFORMATION."

Parties to the Transaction

COOLBRANDS INTERNATIONAL INC.
4175 Veterans Highway
Suite 303
Ronkonkoma, New York 11779
(631) 737-9700

CoolBrands sells and distributes a variety of pre-packaged frozen dessert
products to distributors and various retail establishments throughout Canada
and the United States under the Tropicana, Betty Crocker, Yoplait, Colombo, and
Trix trademarks and a variety of other trademarks, pursuant to exclusive long-
term license agreements. In addition, CoolBrands franchises and licenses Yogen
Fruz, I Can't Believe its Yogurt, Bresler's, Swensen's, Ice Cream Churn, Java
Coast Fine Coffees and Golden Swirl outlets in 82 countries and operates
company-owned ice cream and yogurt stores in Canada and the United States.

ESKIMO PIE CORPORATION
901 Moorefield Park Drive
Richmond, Virginia 23236
(804) 560-8400

Eskimo Pie Corporation, headquartered in Richmond, Virginia, markets a broad
range of frozen novelties, ice cream and sorbet products under the Eskimo Pie,
Real Fruit, Welch's, Weight Watchers Smart Ones, SnackWell's and OREO brand
names. These nationally branded products are generally manufactured by a select
group of licensed dairies which purchase the necessary flavors ingredients and
packaging directly from the company. Eskimo Pie Foodservice is a leading
supplier of premium soft serve ice cream, frozen yogurt, custard and smoothies
to the foodservice industry. Eskimo Pie also sells a full line of quality
flavors and ingredients for use in private label dairy products in addition to
the brands it licenses.

The Special Meeting (see page 20)

The special meeting will be held on September 6, 2000 at 10:00 a.m., local
time, at the SunTrust Bank (formerly Crestar Bank) auditorium, 4th Floor, 919
East Main Street, Richmond, Virginia. At the meeting, you will be asked:

2. To transact such other business as may properly come before the special
meeting and any adjournment or postponement thereof.

Only Eskimo Pie shareholders of record as of the close of business on July
13, 2000, will be entitled to notice of, and to vote at, the special meeting.

3
<PAGE>

Required Vote (see page 20)

Virginia law requires that the merger agreement and the merger receive the
affirmative vote of at least two-thirds of the shares entitled to vote, other
than shares beneficially owned by CoolBrands, in order for the merger to occur.
This means that, of the approximately 3,485,757 shares of Eskimo Pie stock
outstanding, approximately 1,932,038 shares other than the shares owned by
CoolBrands must vote for the merger agreement and the merger.

The Merger (see page 22)

The merger agreement provides that EP Acquisition, a wholly owned subsidiary
of CoolBrands, will merge with and into Eskimo Pie, with Eskimo Pie becoming a
wholly owned subsidiary of CoolBrands. The merger agreement is included in this
proxy statement as Annex A. Eskimo Pie and CoolBrands are working together to
complete the merger as quickly as possible after the special meeting of Eskimo
Pie shareholders. Eskimo Pie and CoolBrands expect to complete the merger on or
about September 6, 2000.

Subsequent Tender Offer if Merger is Not Approved by Required Shareholder Vote
(see page 24)

If the merger does not receive the affirmative vote of shareholders required
under Virginia law to approve the merger, CoolBrands will commence a tender
offer within five business days after the shareholders meeting. Pursuant to
that tender offer, CoolBrands will offer to purchase, at a cash price of $10.25
per share, all shares of Eskimo Pie common stock not already owned by
CoolBrands. The tender offer would be conditioned on a minimum of at least
1,180,179 shares of Eskimo Pie common stock, not including shares already owned
by CoolBrands, being tendered. The purchase of at least 1,180,179 shares,
together with the 587,700 shares already owned by CoolBrands, would result in
CoolBrands owning a majority of the outstanding common stock of Eskimo Pie,
calculated on a fully diluted basis.

CoolBrands will commence the tender offer only if the merger is not approved
by Eskimo Pie shareholders. If the merger is approved, CoolBrands will not
commence a tender offer and all shares of Eskimo Pie common stock will be
purchased by CoolBrands in the merger transaction.

Reasons of Eskimo Pie for the Transaction (see page 11)

Eskimo Pie's board of directors approved the merger agreement and the merger
based on its consideration of a number of material factors, including the
following:

. the indications received from a number of Eskimo Pie's shareholders that
they favored a sale of Eskimo Pie either as an entity or through a "break
up" sale of various operating units and other assets of Eskimo Pie to
different purchasers, and the board's commitment to effect a sale;

. the Board's conclusion, based upon Eskimo Pie's and its financial
advisor's efforts in an extensive sale transaction process over an
approximate 16 month period, that the CoolBrands proposal represented the
most favorable sale transaction known to be available to Eskimo Pie;

. trends affecting the frozen novelty industry, which led the board to
conclude that Eskimo Pie needed to become part of a larger, better
capitalized entity; those trends include (1) continued ice cream and
dairy industry consolidation and the effects of that consolidation on
Eskimo Pie's long term competitive position in the industry; (2)
increased costs of obtaining shelf space and participation in retailer
promotion programs at large national and regional grocery chains; (3)
increased marketing and trade promotion expenses necessary to support
Eskimo Pie's owned and licensed brand names; (4) domination of the ice
cream category by two large, multi-national corporations; and (5)
consolidation of and reduced access to ice cream distribution supply
chains;

4
<PAGE>

Eskimo Pie through a merger or by other means, and, in respect of each
alternative, the range of possible benefits to Eskimo Pie's shareholders
and the timing and likelihood of actually accomplishing such alternative;
and

. A review of the terms of the merger agreement.

The Eskimo Pie board of directors considered these and other factors as a
whole, and did not attempt to quantify, rank or otherwise assign relative
weights to the specific factors it considered.

Recommendation of the Eskimo Pie Board of Directors (see page 11)

The Eskimo Pie board of directors believes that the merger is in your and
Eskimo Pie's best interests and unanimously recommends that you vote FOR
approval of the merger agreement and the merger.

Opinion of Eskimo Pie's Financial Advisor (see page 13)

First Union Securities, Inc., Eskimo Pie's financial advisor, delivered an
opinion to Eskimo Pie's board of directors that, as of the date of execution of
the merger agreement, the consideration to be received in the transaction was
fair to Eskimo Pie shareholders (other than CoolBrands) from a financial point
of view, subject to certain factors, qualifications and assumptions described
in its opinion. First Union Securities, Inc. has confirmed its opinion by
delivery to the Eskimo Pie board of a written opinion, dated May 3, 2000. The
complete opinion of First Union Securities, Inc. is attached as Annex B. You
should read the opinion in its entirety.

Merger Consideration (see page 22)

Under the merger agreement, upon consummation of the merger each share of
Eskimo Pie common stock will be converted into $10.25 in cash.

Material Federal Income Tax Consequences (see page 30)

The disposition of shares of Eskimo Pie common stock in the merger will be a
taxable transaction for federal income tax purposes, and may also be a taxable
transaction under applicable state, local, foreign or other tax laws. You
should consult with your tax advisor about the tax consequences of the merger
in light of your individual circumstances, including the application of any
federal, state, local or foreign law.

Interests of Eskimo Pie's Directors and Officers in the Transaction (see page
16)

When considering the recommendation of Eskimo Pie's board, you should be
aware that some of Eskimo Pie's directors and officers have interests in the
proposed transaction that are different from, or in addition to, your
interests.

In particular, a number of executive officers of Eskimo Pie, including one
executive officer who is also a director, are entitled to benefits as a result
of the transaction. The benefits are payable under employment, retention and
severance benefits agreements. Each of these executive officers will receive
significant compensation if they remain employees of Eskimo Pie until the
transaction is completed. Each retention and severance agreement also provides
for additional payments to an executive officer whose employment is terminated
following completion of the proposed transaction. These agreements reflect
changes made in 1999 to provide incentives to key employees to remain with
Eskimo Pie until specified dates selected based on the board's goal for
entering into an agreement for a sale transaction, and to reduce the amounts
previously payable under prior agreements to those employees upon a sale of the
company.

5
<PAGE>

Accounting Treatment for the Merger (see page 30)

The merger will be accounted for as a purchase for accounting and financial
reporting purposes.

No Appraisal or Dissenters' Rights (see page 30)

Under Virginia law, you are not entitled to appraisal or dissenters' rights
in the merger.

Regulatory Matters (see page 31)

Under the Hart-Scott-Rodino Antitrust Improvements Act, Eskimo Pie and
CoolBrands may not complete the merger until they have each furnished
information and materials to the Antitrust Division of the Department of
Justice and to the Federal Trade Commission and the applicable waiting period
has terminated or expired. Eskimo Pie and CoolBrands each filed with the
Department of Justice and the Federal Trade Commission a Notification and
Report Form with respect to the merger on June 28, 2000. The applicable waiting
period was terminated on July 11, 2000.

Under the New Jersey Industrial Site Recovery Act, the merger may not be
completed without satisfaction of certain requirements and execution of certain
agreements with the New Jersey Department of Environmental Protection with
respect to Eskimo Pie's real property located in Bloomfield, New Jersey. Eskimo
Pie has complied with the New Jersey Industrial Site Recovery Act, as evidenced
by a remediation agreement dated as of July 13, 2000, executed by Eskimo Pie
and the New Jersey Department of Environmental Protection.

Conditions to the Merger (see page 23)

Eskimo Pie's and CoolBrands' respective obligations to complete the merger
are subject to the satisfaction or waiver of a number of conditions, including
the following, among others:

. Eskimo Pie shareholders vote to approve the merger and the merger
agreement;

. No law or court order prohibits the merger or makes the merger illegal;

. Eskimo Pie and CoolBrands obtain all regulatory approvals necessary to
complete the merger;

. The respective representations and warranties of the parties to the
merger agreement must be true and correct and there must not have been or
be threatened a material adverse effect on Eskimo Pie or its business;

. Each of Eskimo Pie, CoolBrands and the subsidiary of CoolBrands which
will merge into Eskimo Pie must have complied with its respective
obligations under the merger agreement; and

. CoolBrands must have received an opinion of counsel to the effect that
the merger shall have become effective under Virginia law.

No Solicitation of Transactions by Eskimo Pie (see page 24)

The merger agreement includes provisions that prohibit Eskimo Pie from
soliciting or encouraging submission of a third party proposal, but which
permit Eskimo Pie to negotiate with and furnish information to a third party if
the Eskimo Pie board determines that failure to negotiate with or provide the
information to the third party would be inconsistent with the board's fiduciary
duties under applicable law.

6
<PAGE>

Termination of the Merger Agreement (see page 28)

The merger agreement may be terminated under various circumstances at any
time before completion of the merger, as summarized below. The merger agreement
may be terminated:

. By mutual consent of Eskimo Pie and CoolBrands;

. Subject to limited exceptions, by either Eskimo Pie or CoolBrands if, by
November 30, 2000, the merger has not been completed and the tender offer
has not been consummated;

. Subject to limited exceptions, by CoolBrands if the Eskimo Pie
shareholders do not approve the merger and the merger agreement at the
special meeting and the tender offer expires or terminates in accordance
with its terms without CoolBrands purchasing any Eskimo Pie shares
because the conditions to the tender offer were not satisfied;

. Subject to limited exceptions, by Eskimo Pie if the Eskimo Pie
shareholders do not approve the merger and the merger agreement at the
special meeting and CoolBrands terminates the tender offer without
CoolBrands purchasing a sufficient number of Eskimo Pie shares so that,
with the Eskimo Pie shares previously held by CoolBrands, CoolBrands owns
a majority of the voting stock in Eskimo Pie;

. By either Eskimo Pie or CoolBrands if there is a final governmental order
that cannot be appealed prohibiting the merger or the tender offer;

. Under some circumstances, by Eskimo Pie in order for Eskimo Pie to accept
a proposal from a party other than CoolBrands on terms that would be more
favorable to Eskimo Pie and its shareholders than the merger and the
tender offer; or

. By CoolBrands if the Eskimo Pie board withdraws or adversely modifies its
approval or recommendation of the merger agreement, the merger or the
tender offer or recommends, or resolves to recommend, a superior proposal
from another party.

Termination Fees and Expenses (see page 29)

Eskimo Pie must pay CoolBrands a termination fee of approximately $1.74
million if the merger agreement is terminated by reason of:

. The Eskimo Pie board's withdrawal or adverse modification of its
recommendation of the merger agreement, the merger or the tender offer or
recommendation of, or resolution to recommend, a superior proposal from
another party;

. Eskimo Pie's termination of the merger agreement in order for Eskimo Pie
to accept a proposal from a party other than CoolBrands on terms that
would be more favorable to Eskimo Pie and its shareholders than the
merger and the tender offer; or

. The failure of the Eskimo Pie board, simultaneously with consummation of
the tender offer, to recommend, approve and elect to the Eskimo Pie board
of directors, persons to be designated by CoolBrands in accordance with
the terms of the merger agreement.

Except as otherwise provided in the merger agreement, each party to the
merger agreement will bear its own expenses incurred in connection with the
merger agreement, the merger and the tender offer, whether or not the merger or
tender offer is consummated.

7
<PAGE>

SPECIAL FACTORS

Background of the Transaction

1997 Through February 1999. Beginning in 1997, CoolBrands (then known as
Yogen Fruz World-Wide Incorporated) initiated a series of informal telephone
contacts with Eskimo Pie regarding potential business opportunities between
CoolBrands and Eskimo Pie. These contacts did not result in any formal
negotiations between the companies.

In November 1998, CoolBrands made unsolicited proposals for the purchase of
all the outstanding shares of Eskimo Pie's stock at $10.00 per share and
$10.25 per share, subject to certain conditions. Following consultation with
representatives of the investment banking firm of Bowles Hollowell Conner, a
part of First Union Capital Markets with whom Eskimo Pie has had a long-
standing professional relationship, and Mays & Valentine, L.L.P., the
company's corporate counsel, the board of directors of Eskimo Pie concluded
that CoolBrands' proposals were inadequate, particularly in light of the
conditional nature of the proposals, and not in the best interests of Eskimo
Pie's shareholders and so advised CoolBrands.

Following the initial CoolBrands proposals, Eskimo Pie entered into an
engagement letter, dated November 23, 1998, with Bowles Hollowell Conner. The
engagement letter provided that Bowles Hollowell Conner would deliver
financial advisory services to Eskimo Pie. As a part of its services, Bowles
Hollowell Conner agreed to:

. analyze the business, properties and operations of Eskimo Pie;

. assist in identifying and screening parties that might represent
acquisition opportunities for Eskimo Pie;

. consult with management concerning market developments or other matters
of a financial nature; and

. analyze and provide advice with respect to any merger, consolidation or
similar transaction involving Eskimo Pie.

The agreement provided also that Bowles Hollowell Conner would receive:

. an advisory fee payable upon execution of the agreement;

. a transaction fee, based on a percentage of the aggregate consideration
paid for the capital stock of Eskimo Pie as a result of any merger or
similar transaction Eskimo Pie might consummate during the term of the
engagement; provided that Eskimo Pie would receive credit for the
advisory fee against any transaction fee payable; and

. additional fees if Bowles Hollowell Conner provided a fairness opinion
with respect to any consummated transaction.

On November 25, 1998, CoolBrands made a new proposal to acquire Eskimo Pie
at $13.00 per share, subject to, among other conditions, assurances concerning
the assignment of certain of Eskimo Pie's license agreements with third
parties. Following consideration of this proposal with its financial and legal
advisors, and given the problematic nature of the requested assurances, the
board concluded that the proposal was inadequate and not in the best interests
of Eskimo Pie's shareholders and advised CoolBrands accordingly.

In further response to CoolBrands' November 25 proposal, Eskimo Pie's board
of directors directed management, with the help of Bowles Hollowell Conner, to
proceed to explore a broad range of strategic options to enhance long-term
shareholder value.

On December 10, 1998, CoolBrands filed a Schedule 13D with the Commission
indicating that it had accumulated approximately 445,700 shares or 12.89% of
Eskimo Pie's common stock. On December 17, 1998, CoolBrands filed an amended
Schedule 13D indicating that it had accumulated 587,700 shares or 16.89% of
Eskimo Pie's common stock.

8
<PAGE>

Beginning in December 1998, Bowles Hollowell Conner and Eskimo Pie explored
the strategic opportunities available to Eskimo Pie. Bowles Hollowell Conner
contacted 33 potentially interested parties. Eskimo Pie ultimately executed
confidentiality agreements with 15 of these parties, and provided written
information packages concerning Eskimo Pie to each of them. Eskimo Pie then
entered into intensive discussions with five parties, including CoolBrands,
which provided the most attractive and credible indications of interest.

On January 26, and again on January 28, 1999, shortly before Eskimo Pie was
to begin a scheduled series of in-person meetings with the five interested
parties, CoolBrands submitted revised proposals indicating a willingness to
purchase all of Eskimo Pie's outstanding stock at $16.25 and $16.50 per share,
respectively. Eskimo Pie understood these proposals to be subject to numerous
conditions, including further due diligence and receipt of assurances
regarding the transferability of certain of Eskimo Pie's license agreements
with certain of its significant licensors. Furthermore, CoolBrands stated that
each of these proposals must be accepted within 24 hours or the proposal would
terminate. The board concluded that the revised CoolBrands proposals were
inadequate, due to their highly conditional nature. For that reason, and in
light of the meetings with other interested parties scheduled to commence
later the same week, Eskimo Pie's board decided to continue with the process
then underway, including discussions with CoolBrands.

In late February 1999, after its own extensive due diligence and discussions
with Eskimo Pie, CoolBrands advised Eskimo Pie that its prior offers for
Eskimo Pie were no longer in effect and declined at that time to make any
acquisition proposal. Although Eskimo Pie engaged in extended discussions
throughout the first quarter of 1999 with several other parties regarding the
purchase of Eskimo Pie, Eskimo Pie did not receive any formal acquisition
offers. At that point, the Eskimo Pie board determined that the best means of
maximizing shareholder value would be by implementation of the company's
growth and restructuring plan.

Proxy Contest. Thereafter, CoolBrands and Eskimo Pie commenced discussions
to explore various business opportunities that might be in the best interest
of both companies. In the course of these discussions, CoolBrands indicated it
was considering taking actions to commence a proxy contest at Eskimo Pie's
annual meeting scheduled for May 12, 1999, if the meeting were held as
scheduled. In order to provide Eskimo Pie and CoolBrands additional time to
discuss and evaluate potential mutually beneficial, joint strategic
opportunities, Eskimo Pie rescheduled its annual meeting for September 8,
1999. These discussions did not result in any agreement.

In June 1999, CoolBrands notified Eskimo Pie of its intention to solicit
proxies and to present certain shareholder proposals at the rescheduled annual
meeting. On July 2, 1999, CoolBrands filed an amendment to its Schedule 13D
stating that it was holding its Eskimo Pie common stock "with a view towards
acquiring control of Eskimo Pie for the purpose of thereafter causing it to
take such actions as [CoolBrands] deems to be advisable in order to maximize
shareholder value. Such actions may include, among other things, a sale of all
or a part of Eskimo Pie to a third party, a change in management of Eskimo Pie
and/or a restructuring of Eskimo Pie."

CoolBrands commenced a proxy contest to remove the Eskimo Pie board of
directors and install its own slate of directors to pursue a strategy of
selling Eskimo Pie's various business segments separately.

During the six weeks leading up to the 1999 annual meeting, the board and
its representatives engaged in numerous discussions with various parties
regarding a possible transaction. None of these discussions resulted in a firm
unconditional offer to acquire Eskimo Pie. By the end of this period, however,
the board had concluded:

. it was apparent that a number of Eskimo Pie's shareholders favored a sale
of Eskimo Pie; and

. the then current board and management were in the best position to
conduct that sale in a manner that would be in the best interests of
Eskimo Pie and its shareholders.

The board authorized Bowles Hollowell Conner to aggressively seek potential
buyers for Eskimo Pie or one or more of its business segments, whichever
maximized shareholder value.

9
<PAGE>

At the annual meeting of the Eskimo Pie shareholders on September 8, 1999,
all of Eskimo Pie's nominees for the board were re-elected by a vote of at
least 54% of the shares voted. On that same date, Eskimo Pie announced its
intention to pursue a sale of the company.

September 1999 to May 2000. After the annual meeting, Bowles Hollowell
Conner contacted CoolBrands to discuss their proposed disposition strategy and
to obtain their ideas of various parties who might be interested in buying
segments of Eskimo Pie. At that time, CoolBrands indicated interest in
purchasing only the Eskimo Pie foodservice division and one of its licenses.

From October 1999 to May 2000, Bowles Hollowell Conner, by then a part of
First Union Securities, Inc., contacted or re-contacted 22 parties regarding
their interest in acquiring Eskimo Pie or any of its strategic assets.

Seven different parties, including CoolBrands, at various times during this
period engaged in substantive discussions with First Union Securities, Inc.,
conducted a due diligence investigation of Eskimo Pie and proposed some form
of transaction involving Eskimo Pie or one or more of its strategic assets.
None of these efforts resulted in a firm offer for Eskimo Pie either with no
conditions or with conditions that the board could conclude were likely to be
met.

By February 2000, only one potential acquiror besides CoolBrands remained in
discussions with First Union Securities, Inc. and Eskimo Pie, offering $10.25
per share, subject to the assignment of licenses, resolution of the
environmental issues at Eskimo Pie's Bloomfield, New Jersey facility and
execution of management contracts.

By the end of February 2000, CoolBrands had indicated an interest in
pursuing a merger transaction at a price of $10.50 per share, subject to
resolution of the Bloomfield environmental issues and a possible reduction of
the purchase price if the cost of remediation of the Bloomfield property
exceeded $500,000. Counsel for Eskimo Pie delivered to CoolBrands a draft
merger agreement on February 28, 2000.

On March 1, 2000, the other remaining interested party submitted a written
proposal to acquire Eskimo Pie in a merger transaction at a price of $10.25
per share, subject to contingencies that included resolution of the Bloomfield
environmental issue and maintenance of licenses, and requesting that Eskimo
Pie execute an exclusivity agreement. During March 2000, CoolBrands and the
other interested party each continued to conduct due diligence and negotiate
the terms of a potential transaction. In light of the apparent difficulty of
CoolBrands consummating a merger transaction with Eskimo Pie as proposed due
to the Virginia Affiliated Transactions Statute, the board authorized
execution of an exclusivity agreement with the other interested party
requiring Eskimo Pie to reimburse that party for expenses in the amount of
$350,000 if, under specified circumstances, Eskimo Pie consummated a sale of
the company at a price per share in excess of $10.25 on or before October 6,
2000.

Negotiations continued with the other interested party throughout March
without resolution of significant issues. The transaction proposed by the
other interested party never included a purchase price in excess of $10.25 per
share and remained subject to the receipt of licensor consents.

Also during March, discussions with CoolBrands continued. Those discussions
related primarily to the challenges presented by the high shareholder vote
required under the Virginia Affiliated Transactions Statute to approve a
merger between Eskimo Pie and CoolBrands or one of its affiliates.

In early April 2000, Eskimo Pie received a revised formal offer and revised
draft agreement and plan of merger from CoolBrands, providing for the
acquisition of 100% of the outstanding shares of Eskimo Pie at $10.50 per
share in cash either through a tender offer or merger structure and removing
most of the remaining contingencies, including resolution of the Bloomfield
environmental issues. This proposal appeared to address satisfactorily the
concerns that CoolBrands might be unable to effect a merger transaction under
the Virginia Affiliated Transactions Statute. Eskimo Pie management and
counsel proceeded to review and negotiate the terms of the proposed agreement
with CoolBrands and suspended negotiations with the other interested party.

10
<PAGE>

During mid-April, CoolBrands conducted additional due diligence and reduced
the price at which it was willing to consummate a transaction to $10.25 per
share. Eskimo Pie continued discussions with CoolBrands and resumed
discussions with the other interested party.

By the end of April 2000, Eskimo Pie and Cool Brands had agreed on the
material terms of a merger agreement. On May 1, 2000, however, Cool Brands
reduced its offering price to $10.00 per share. In response, Eskimo Pie
suspended further discussions with CoolBrands. On May 2, 2000, Cool Brands
indicated that it would raise the purchase price to $10.25 per share and
execute the definitive agreement, as negotiated, as soon as possible. On the
afternoon of May 3, CoolBrands executed the definitive agreement and delivered
it to Eskimo Pie for its approval.

A special meeting of the Eskimo Pie board was held on the evening of May 3,
2000, to discuss and consider the CoolBrands agreement. After discussion, the
board unanimously approved the merger agreement and authorized execution of
the agreement on behalf of Eskimo Pie.

On June 1, 2000, the parties executed a technical amendment to the merger
agreement to extend the termination date of the merger agreement to November
30, 2000 and to modify the provisions addressing the time at which CoolBrands
would commence a tender offer to purchase Eskimo Pie shares if the merger is
not approved by the requisite vote of Eskimo Pie shareholders.

Recommendation of the Eskimo Pie Board of Directors; Fairness of the
Transaction

At its meeting on May 3, 2000, Eskimo Pie's board of directors voted
unanimously to enter into the merger agreement and to recommend that Eskimo
Pie's shareholders vote to approve the merger and the merger agreement. Eskimo
Pie's board made its determination after careful consideration of, and based
on, a number of factors including the following material factors:

. the board's conclusion, based upon Eskimo Pie's and its financial
advisor's efforts in an extensive sale transaction process over an
approximate 16 month period, that the CoolBrands proposal represented the
most favorable sale transaction known to be available to Eskimo Pie;

. trends affecting the frozen novelty industry which led the board to
conclude that Eskimo Pie needed to be part of a larger, better
capitalized entity; these trends included (1) continued ice cream and
dairy industry consolidation and the effects of that consolidation on
Eskimo Pie's long term competitive position in the industry; (2)
increased costs of obtaining shelf space and participation in retailer
promotion programs at large national and regional grocery chains; (3)
increased marketing and trade promotion expenses necessary to support
Eskimo Pie's owned and licensed brand names; (4) domination of the ice
cream category by two large, multi-national corporations; and (5)
consolidation of and reduced access to ice cream distribution supply
chains;

. a review of the possible alternatives to the transactions contemplated by
the merger agreement, including the possibilities of continuing to
operate Eskimo Pie as an independent entity, and a sale or partial sale
of Eskimo Pie through a merger or by other means, and, in respect of each
alternative, the range of possible benefits to Eskimo Pie's shareholders
and the timing and likelihood of actually accomplishing such alternative;

. the financial and valuation analyses presented to the board of directors
by First Union Securities, Inc., including market prices and financial
data relating to other companies engaged in businesses considered
comparable to Eskimo Pie and the prices and premiums paid in recent
selected acquisitions of companies engaged in businesses considered
comparable to those of Eskimo Pie;

11
<PAGE>

. the opinion of First Union Securities, Inc. that, based on certain
assumptions and subject to certain limitations described below under "--
Opinion of Eskimo Pie's Financial Advisor," the consideration to be
received by the shareholders of Eskimo Pie (other than CoolBrands)
pursuant to the merger agreement is fair to such shareholders from a
financial point of view;

. the likelihood that the merger or the tender offer would be consummated,
including the risks to Eskimo Pie if the transaction were not consummated
following its public announcement;

. the amount and form of the consideration to be received by Eskimo Pie
shareholders in the transaction and information on the historical trading
ranges of Eskimo Pie common stock;

. the approximately 17% ownership position of Eskimo Pie held by
CoolBrands, and the threat of renewed proxy contests at future annual
meetings of shareholders; and the attendant disruption to, and ability of
the company to conduct, its business, the impact on employee morale and
the ability to retain employees in this environment of uncertain future
events; and

. the financial and other terms and conditions of the merger, the merger
agreement and the tender offer including without limitation: (1) the
limited conditions to CoolBrands' obligation to close the merger or to
consummate the tender offer; and (2) the fact that the terms of the
merger agreement should not unduly discourage third parties from making
bona fide proposals subsequent to signing the merger agreement and, if
any such proposal were made, that Eskimo Pie's board of directors, in the
exercise of its good faith business judgment of the best interests of
Eskimo Pie and its shareholders, could authorize Eskimo Pie to provide
information to, engage in negotiations with, and, subject to payment of
the termination fee, enter into a transaction with, another party.

In view of the number and wide variety of factors considered in connection
with its evaluation of the merger and the tender offer, and the complexity of
these matters, Eskimo Pie's board of directors did not find it practicable to,
nor did it attempt to, quantify, rank or otherwise assign relative weights to
the specific factors it considered. In addition, the Eskimo Pie board did not
undertake to make any specific determination as to whether any particular
factor was favorable or unfavorable to the board of directors' ultimate
determination or assign any particular weight to any factor, but rather
conducted an overall analysis of the factors described above, including
considering the information, opinions, reports and statements presented by
Eskimo Pie's management and its legal and financial advisors. In considering
the foregoing factors, individual members of the board of directors may have
given different weight to different factors. Eskimo Pie's board of directors
considered all these factors as a whole, and overall considered the factors to
be favorable to, and to support, its determination.

Eskimo Pie's board of directors believes that the terms of the merger are
fair to and in the best interests of Eskimo Pie and its shareholders and
unanimously recommends to its shareholders that they vote FOR the proposal to
adopt and approve the merger and the merger agreement.

None of Eskimo Pie, CoolBrands or EP Acquisition has made any provision in
connection with the merger to grant shareholders other than CoolBrands access
to Eskimo Pie's corporate records or to obtain counsel or appraisal services
at the expense of Eskimo Pie, CoolBrands or EP Acquisition.

The merger agreement does not specifically require that Eskimo Pie's
directors or executive officers vote to approve the merger. The company has
not asked any of its individual directors or executive officers whether they
intend to vote to approve the merger, but anticipates, after making reasonable
inquiry, that each director and executive officer of Eskimo Pie currently
intends to vote in favor of the merger.

Except as set forth in the merger agreement and this proxy statement, Eskimo
Pie is not engaged in any negotiation in response to the merger agreement that
relates to or would result in (i) an extraordinary transaction, such as a
merger, reorganization or liquidation, involving Eskimo Pie or any subsidiary
of Eskimo Pie, (ii) a purchase, sale or transfer of a material amount of
assets by Eskimo Pie, (iii) a tender offer for or other acquisition of
securities by or of the company or (iv) any material change in the present
dividend rate or policy or

12
<PAGE>

indebtedness or capitalization of Eskimo Pie. Also, except as described in
this proxy statement, there are no transactions, board of directors
resolutions, agreements in principle or signed contracts in response to the
merger agreement that relate to or would result in one or more of the events
referred to above.

Opinion of Eskimo Pie's Financial Advisor

Eskimo Pie engaged First Union Securities, Inc. to act as its exclusive
financial advisor in connection with the transaction. On May 3, 2000, at a
meeting of the board held to evaluate the proposed transaction, First Union
Securities, Inc. rendered to the board an oral opinion (which opinion was
subsequently confirmed by delivery of a written opinion dated May 3, 2000) to
the effect that, as of such date and based upon and subject to certain matters
stated in such opinion, the consideration to be received in the transaction by
holders of Eskimo Pie shares (other than shares owned by CoolBrands) was fair
from a financial point of view to such holders. The board imposed no
limitations upon First Union Securities, Inc. with respect to the
investigations made or the procedures followed by it in rendering its opinion.

The full text of the written opinion of First Union Securities, Inc. dated
May 3, 2000, which sets forth the assumptions made, matters considered, and
limitations of the review undertaken, is attached as Annex B to this proxy
statement and is incorporated herein by reference. First Union Securities,
Inc.'s opinion is directed to the board, addresses only the fairness of the
consideration to be received in the transaction by the holders of Eskimo Pie
shares (other than shares owned by CoolBrands) from a financial point of view,
and does not constitute a recommendation to any stockholder as to whether or
not such stockholder should vote to approve the merger. The summary of the
opinion of First Union Securities, Inc. set forth herein is qualified in its
entirety by reference to the full text of such opinion.

In arriving at its opinion, First Union Securities, Inc. (i) reviewed and
analyzed certain publicly available business and financial information; (ii)
reviewed certain information including internal financial statements,
financial projections, and other financing and operating data concerning the
company furnished to First Union Securities, Inc. by the company; (iii) held
discussions with members of senior management of the company regarding the
business and prospects of the company; (iv) compared certain financial and
stock market information for the company with similar information for certain
other companies whose securities are publicly traded; (v) reviewed the
financial terms of certain recent business combinations which First Union
Securities, Inc. deemed comparable in whole or in part; (vi) performed certain
discounted cash flow analyses and leveraged buyout analyses; (vii) reviewed
the terms of the merger agreement dated May 3, 2000; and (viii) performed such
other studies and analyses and considered such other factors as First Union
Securities, Inc. deemed appropriate.

As described in its opinion, First Union Securities, Inc. assumed and relied
upon, without independent verification, the accuracy, completeness, and
fairness of the information furnished to, or otherwise reviewed by or
discussed with, First Union Securities, Inc. for purposes of its opinion. With
respect to the information relating to the prospects of the company, First
Union Securities, Inc. assumed that such information reflected the best
currently available judgments and estimates of the management of the company
as to the likely future financial performance of the company. First Union
Securities, Inc. did not make nor was it provided with an independent
evaluation or appraisal of the assets or liabilities of the company. In
connection with its engagement to provide financial advisory services to the
board concerning strategic alternatives, First Union Securities, Inc. was
requested to solicit, and did solicit, interest from third parties with
respect to the acquisition of the company. In arriving at its opinion, First
Union Securities, Inc. considered the nature, scope, and results of such
solicitation. First Union Securities, Inc.'s opinion was based on market,
economic, and other conditions as they existed and could be evaluated as of
the date of its opinion. Although First Union Securities, Inc. evaluated the
purchase price from a financial point of view, the type and amount of
consideration payable in the transaction was determined through negotiation
between Eskimo Pie and CoolBrands.

13
<PAGE>

The following is a summary of the material analyses and factors considered
by First Union Securities, Inc. in connection with its opinion to the board
dated May 3, 2000:

Analysis of Selected Public Company Trading and Financial Information. First
Union Securities, Inc. compared certain financial and stock market information
for the company with similar information for nine selected publicly held
companies in the branded foods sector of the consumer products industry:
Bridgford Foods Corp.; Golden Enterprises, Inc.; J&J Snack Foods Corp.; John
B. Sanfilippo & Son, Inc.; Lance, Inc.; Riviana Foods, Inc.; J.M. Smucker Co.;
Tasty Baking Co.; and CoolBrands International, Inc. (formerly Yogen Fruz
World-Wide, Inc.) (collectively, the "selected companies"). First Union
Securities, Inc. calculated market values relative to each company's earnings
per share ("EPS") for the latest twelve months and estimates for calendar year
2000, and enterprise values (equity market value, plus debt, less cash and
equivalents) relative to each company's revenues and earnings before interest,
taxes, depreciation, and amortization ("EBITDA") for the latest twelve months.
All multiples were based on closing stock prices on April 13, 2000. EPS
estimates for calendar year 2000 for the selected companies were based on
analysts' estimates as reported by First Call, which is a market research
database, and EPS estimates for Eskimo Pie were also based on analysts'
estimates as reported by First Call. This analysis indicated multiples for the
selected companies for the latest twelve months and estimated calendar 2000
EPS of 7.7x to 33.8x (with a median of 11.5x) and 5.9x to 12.9x (with a median
of 9.7x), respectively, and latest twelve months revenues and EBITDA of 0.31x
to 0.74x (with a median of 0.51x) and 3.8x to 7.7x (with a median of 5.0x),
respectively. Implied multiples for Eskimo Pie, based on the purchase price,
for the latest twelve months and estimated calendar 2000 EPS are 18.6x and
13.7x, respectively, and for the latest twelve months revenue and EBITDA are
0.64x and 7.2x, respectively.

Analysis of Selected Merger and Acquisition Transactions. First Union
Securities, Inc. reviewed the purchase price and implied transaction multiples
paid in nine selected merger and acquisition transactions in the branded foods
sector of the consumer products industry, consisting of (acquiror/target):
Brookstone Holdings/Anderson Bakery; Sparta Foods, Inc./Food Products Corp.;
Archibald Candy Corp./Sweet Factory Group, Inc.; Genesee Corp./TKI Foods, Inc.
& Spectrum Foods; Ralcorp Holdings, Inc./Flavor House; Agrobios S.A./Authentic
Specialty Foods, Inc.; Fresh Foods, Inc./Pierre Foods Division of Hudson
Foods, Inc.; International Home Foods, Inc./Grist Mill Co.; and Yogen Fruz
World-Wide, Inc./Integrated Brands, Inc. (collectively, the "selected merger
and acquisition transactions"). All multiples were based on publicly available
information at the time of announcement of such transaction. This analysis
indicated multiples for the latest twelve months revenues and EBITDA in the
selected merger and acquisition transactions of 0.40x to 1.88x (with a median
of 0.90x) and 4.3x to 8.7x (with a median of 7.3x), respectively. Implied
multiples for Eskimo Pie, based on the purchase price, for the latest twelve
months revenues and EBITDA are 0.64x and 7.2x, respectively.

Discounted Cash Flow Analysis. First Union Securities, Inc. performed a
discounted cash flow analysis of the company to estimate the present value of
the stand-alone, unleveraged, after-tax free cash flows that Eskimo Pie could
generate over the fiscal years 2000 through 2004, based on internal estimates
by the management of the company. First Union Securities, Inc. did not
discount or otherwise risk-adjust management's revenue growth and EBITDA
estimates. The stand-alone discounted cash flow analysis of the company was
determined by (i) adding (x) the present value at December 31, 1999 of
projected free cash flows over the five-year period 2000 through 2004, and (y)
the present value at December 31, 1999 of the estimated perpetual value of the
company in year 2004 and (ii) subtracting the estimated net debt of the
company at March 31, 2000. The range of estimated perpetual values for the
company at the end of the five-year period was calculated by applying
perpetual growth rates ranging from 2.0% to 4.0%. The cash flows and perpetual
values of the company were discounted to present value using discount rates
ranging from 14.0% to 16.0%. This analysis yielded an equity reference range
for the company of approximately $8.39 to $12.00 per share as compared to the
purchase price of $10.25 per share.

Leveraged Buyout Analysis. First Union Securities, Inc. performed a
leveraged buyout analysis of Eskimo Pie assuming (i) a leverage ratio (Total
Debt to EBITDA) of 3.5x and (ii) an interest rate of 8.5%. This analysis was
based on internal estimates by the management of the company. First Union
Securities, Inc. did not discount

14
<PAGE>

or otherwise risk-adjust management's revenue growth and EBITDA estimates.
Using EBITDA exit multiples in 2004 ranging from 6.5x to 7.5x and an internal
rate of return to investors ranging from 27.5% to 32.5%, the leveraged buyout
analysis yielded an equity reference range for the company of approximately
$8.51 to $10.27 per share as compared to the purchase price of $10.25 per
share.

The summary set forth above does not purport to be a complete description of
the opinion of First Union Securities, Inc. to the board or the financial
analyses performed and factors considered by First Union Securities, Inc. in
connection with its opinion. The full text of the written opinion of First
Union Securities, Inc. dated May 3, 2000 which sets forth the assumptions
made, matters considered, and limitations on the review undertaken is attached
hereto as Annex B and is incorporated herein by reference. The preparation of
a fairness opinion is a complex analytic process involving various
determinations as to the most appropriate and relevant methods of financial
analyses and the application of those methods to the particular circumstances
and, therefore, such an opinion is not readily susceptible to summary
description. First Union Securities, Inc. believes that its analyses and the
summary set forth above must be considered as a whole and that selecting
portions of its analyses, without considering all analyses, or selecting
portions of the above summary, without considering all factors and analyses,
could create a misleading or incomplete view of the processes underlying such
analyses and opinion. In performing its analyses, First Union Securities, Inc.
made numerous assumptions with respect to industry performance, general
business, economic, market, and financial conditions and other matters, many
of which are beyond the control of the company. No company, transaction, or
business used in such analyses as a comparison is identical to Eskimo Pie or
the proposed transaction, nor is an evaluation of the results of such analyses
entirely mathematical; rather, such analyses involve complex considerations
and judgments concerning financial and operating characteristics and other
factors that could affect the acquisition, public trading, or other values of
the companies, business segments, or transactions being analyzed. The
estimates contained in such analyses and the ranges of valuations resulting
from any particular analysis are not necessarily indicative of actual values
or future results, which may be significantly more or less favorable than
those suggested by such analyses. In addition, analyses relating to the value
of businesses or securities do not purport to be appraisals or to reflect the
prices at which businesses or securities actually may be sold. Accordingly,
such analyses and estimates are inherently subject to substantial uncertainty.
First Union Securities, Inc.'s opinion and financial analyses were only one of
many factors considered by the board in its evaluation of the proposed
transaction and should not be viewed as determinative of the views of the
board or management with respect to the transaction or the consideration
payable in the transaction.

First Union Securities, Inc. is a nationally recognized investment banking
firm and, as a part of its investment banking business, is continually engaged
in the valuation of businesses and their securities in connection with
mergers, acquisitions, tender offers, divestitures, leveraged buyouts, and
private placements of debt and equity securities. Eskimo Pie selected First
Union Securities, Inc. to serve as its financial advisor based on First Union
Securities, Inc.'s reputation, expertise, and familiarity with the company. In
the ordinary course of business, affiliates of First Union Securities, Inc.
may actively trade the securities of the company for their own account and the
accounts of its customers and, accordingly, may at any time hold a long or
short position in securities of the company.

Pursuant to the terms of First Union Securities, Inc.'s engagement, Eskimo
Pie agreed to pay to First Union Securities, Inc. $300,000 upon the rendering
of a fairness opinion. In addition, in connection with the proposed
transaction, upon consummation of the transaction, the company has agreed to
pay First Union Securities, Inc. as consideration for serving as financial
advisor to the company additional compensation in an amount based on a
percentage of the value of the consideration payable in the transaction. In
addition, the company has agreed to reimburse First Union Securities, Inc. for
its reasonable out-of-pocket expenses, including reasonable fees and
disbursements of counsel, and to indemnify First Union Securities, Inc. and
certain related parties against certain liabilities, including certain
liabilities under the federal securities laws, relating to, or arising out of,
its engagement.

15
<PAGE>

Purposes for the Transaction

CoolBrands is engaged in businesses substantially similar to those engaged
in by Eskimo Pie. CoolBrands believes that the combined businesses will have
greater sales and enjoy cost savings through operational and strategic
synergies.

CoolBrands is exploring a possible sale of the Eskimo Pie Flavors Division
and has had exploratory conversations with several potential purchasers about
a possible transaction. No definitive proposals have been received and no
final decision has been made to sell the Flavors Division. CoolBrands does
intend to sell the Eskimo Pie corporate headquarters office building located
in Richmond, Virginia, following consummation of the merger or tender offer.
CoolBrands has had preliminary discussions with several potential purchasers
of the property, but has not yet received any offer it is willing to consider.
Except for the possible sale of the Flavors Division or a sale of the
corporate headquarters office building in Richmond, CoolBrands is not
currently engaged in any negotiation that relates to or would result in an
extraordinary transaction, such as a merger, reorganization or liquidation,
involving Eskimo Pie or any subsidiary of Eskimo Pie, or a purchase, sale or
transfer of a material amount of assets by Eskimo Pie and has not, at this
time, made any decision to pursue any such transaction. If the merger
transaction is closed, CoolBrands will become the sole shareholder of Eskimo
Pie and Eskimo Pie shares will no longer be listed or publicly traded.

Interests of Eskimo Pie's Directors and Officers in the Transaction

In considering the recommendation of Eskimo Pie's board of directors with
respect to the merger proposal, Eskimo Pie shareholders should be aware that
some Eskimo Pie executive officers, including one executive officer who is
also a director, have interests in the proposed transaction that are in
addition to their interests as Eskimo Pie shareholders generally. Eskimo Pie's
board of directors was aware of these interests and considered them, among
other matters, in approving the merger.

Severance Benefits Agreements Between Eskimo Pie and Certain Employees

Eskimo Pie entered into substantially similar severance agreements with each
of Messrs. Hettrich, Kangisser, Kewer, Mishoe and Weiskopf and Ms. Ferryman
upon their being named executive officers of Eskimo Pie. The agreements
provided that termination compensation would be paid if the executive's
employment were terminated by Eskimo Pie within three years after a change in
control, including the merger or the tender offer, other than for cause (as
defined in the agreements). Under the agreements, termination compensation
consisted of a cash payment equal to approximately three times the average
annual compensation paid to the executive for the three most recent taxable
years of Eskimo Pie ending prior to the change in control. In addition, the
agreements provided for the continuation of certain medical, life and
disability benefits. These agreements renewed annually unless terminated by
Eskimo Pie by notice given 60 days prior to expiration of the current term.

In connection with the board of directors' decision in September 1999 to
seek a sale of Eskimo Pie, Eskimo Pie undertook to restructure its overall
retention and severance program for both salaried and hourly employees. This
restructuring reflected the necessity of retaining key employees and
maintaining their focus on managing the ongoing business of Eskimo Pie in
order to preserve and enhance the value of Eskimo Pie through any possible
future sale of Eskimo Pie. In this connection, Eskimo Pie entered into new
Executive Retention Bonus and Severance Agreements with each of the executive
officers in place of their previous severance agreements. The revised
agreements provide benefits in the form of retention payments payable, without
regard to a termination of employment, following certain specified events. The
retention payments were set at a fixed dollar amount, payable 25% in January
2000 to those executive officers who were still employed by Eskimo Pie at
December 31, 1999. This date was selected because at the time of Eskimo Pie's
announced intent in September 1999 to seek a sale of the company as promptly
as reasonably practical, the board had a goal of negotiating a definitive
agreement for such a transaction by the end of 1999. Under the revised
retention and severance agreements, the balance of the retention payment is
payable upon a sale of the company or, in the case of

16
<PAGE>

Mr. Kewer, 30 days after a sale of the company unless he has voluntarily left
the employ of the company prior to that date. The definition of "sale of the
company" in the revised agreements includes the merger and the tender offer.
If the effective time of the merger or the consummation of the tender offer
occurs on or after January 1, 2001, these agreements terminate without the
payment of the remaining 75% benefit. The effect of the restructuring of the
severance agreements was to reduce the amount potentially payable under the
agreements for all executive officers as a group from approximately $2.62
million to approximately $1.55 million.

Under the terms of the merger agreement, when the merger is effective, all
outstanding Eskimo Pie stock options will be cancelled in consideration of a
cash payment equal to the difference between their exercise price and $10.25.
See "THE MERGER AGREEMENT--Description of the Merger--Treatment of Eskimo Pie
Stock Options and Restricted Shares."

David B. Kewer. Under Mr. Kewer's severance agreement, he will be entitled
to a severance benefit of approximately $600,000 (including the payment made
in January 2000). The balance of Mr. Kewer's severance payment is payable
thirty days after closing of the merger or tender offer, unless he voluntarily
terminates his employment with the company prior to that date. In addition,
Mr. Kewer holds an option on 50,000 shares of Eskimo Pie common stock at an
exercise price of $10.00 per share which, in accordance with the terms of the
merger agreement, will be cancelled at the effective time of the merger in
consideration of a payment to Mr. Kewer of $12,500.

Thomas M. Mishoe, Jr. Under Mr. Mishoe's severance agreement, he will be
entitled to a severance benefit of approximately $225,000 (including the
payment made in January 2000). The balance of Mr. Mishoe's severance payment
is payable upon closing of the merger or tender offer, unless he voluntarily
terminates his employment with the company prior to that date. Mr. Mishoe does
not hold any Eskimo Pie stock options with an exercise price below $10.25.

Craig L. Hettrich. Under Mr. Hettrich's severance agreement, he will be
entitled to a severance benefit of approximately $225,000 (including the
payment made in January 2000). The balance of Mr. Hettrich's severance payment
is payable upon closing of the merger or tender offer, unless he voluntarily
terminates his employment with the company prior to that date. Mr. Hettrich
does not hold any Eskimo Pie stock options with an exercise price below
$10.25.

V. Stephen Kangisser. Under Mr. Kangisser's severance agreement, he will be
entitled to a severance benefit of approximately $225,000 (including the
payment made in January 2000). The balance of Mr. Kangisser's severance
payment is payable upon closing of the merger or tender offer, unless he
voluntarily terminates his employment with the company prior to that date. Mr.
Kangisser does not hold any Eskimo Pie stock options with an exercise price
below $10.25.

William J. Weiskopf. Under Mr. Weiskopf's severance agreement, he will be
entitled to a severance benefit of approximately $150,000 (including the
payment made in January 2000). The balance of Mr. Weiskopf's severance payment
is payable upon closing of the merger or tender offer, unless he voluntarily
terminates his employment with the company prior to that date. Mr. Weiskopf
does not hold any Eskimo Pie stock options with an exercise price below
$10.25.

Kimberly P. Ferryman. Under Ms. Ferryman's severance agreement, she will be
entitled to a severance benefit of approximately $150,000 (including the
payment made in January 2000). The balance of Ms. Ferryman's severance payment
is payable upon closing of the merger or tender offer, unless she voluntarily
terminates her employment with the company prior to that date. Ms. Ferryman
does not hold any Eskimo Pie stock options with an exercise price below
$10.25.

Indemnification; Insurance. Under the merger agreement, CoolBrands has
agreed to:

. cause Eskimo Pie, as the surviving corporation, to indemnify and hold
harmless each person who is or has been at any time prior to the date of
the merger agreement, an officer, director, employee or agent of

17
<PAGE>

Eskimo Pie or any of its subsidiaries against any losses, claims, damages,
judgments, settlements, liabilities, costs or expenses (including
reasonable attorneys' fees and out-of-pocket expenses) incurred in
connection with any claim, action, suit, proceeding or investigation
arising out of or pertaining to acts or omissions, or alleged acts or
omissions, by them in their capacities as such occurring at or prior to
the effective time of the merger (including actions taken or omitted in
connection with the merger), to the fullest extent that Eskimo Pie or such
subsidiaries would have been permitted under the Eskimo Pie articles of
incorporation or bylaws or the organizational documents of such
subsidiaries; and

. subject to certain cost limitations, cause Eskimo Pie, as the surviving
corporation, to purchase liability insurance providing, for a period of
six years following consummation of the merger, directors' and officers'
liability insurance coverage on terms that are no less advantageous to
the intended beneficiaries than the existing directors' and officers'
liability insurance.

Stock Options and Stock Awards. Pursuant to the merger agreement,
outstanding and unexercised options to purchase shares of Eskimo Pie common
stock granted under Eskimo Pie's stock option plans and restricted shares of
Eskimo Pie common stock issued under Eskimo Pie's stock option plans,
including those held by Eskimo Pie's executive officers and directors, will be
cancelled at the effective time of the merger, in consideration of a cash
payment. See "THE MERGER AGREEMENT--Description of the Merger." Options held
by directors will vest immediately upon the director's separation from service
as a director following a change in control and become fully exercisable at
that time.

Similarly, as of the effective time of the merger, shares of restricted
Eskimo Pie common stock will become unrestricted and vested and converted into
the right to receive the merger consideration of $10.25 per share.

Proposed Arrangements Between CoolBrands and Executive Officers of Eskimo Pie

Although no agreement or understanding has been reached, CoolBrands has made
the following proposals to executive officers of Eskimo Pie:

. CoolBrands has proposed that V. Stephen Kangisser be named an executive
officer of a subsidiary of CoolBrands to be formed after closing of the
merger. That newly formed subsidiary would be organized to manage a
portion of the National Brands Division business currently conducted by
Eskimo Pie. Discussions regarding this proposed position have occurred
between Mr. Kangisser and CoolBrands, but no formal agreement has been
reached.

. CoolBrands has discussed with Craig L. Hettrich the possibility of Mr.
Hettrich becoming president of the foodservice division of the combined
CoolBrands and Eskimo Pie businesses. Discussions regarding this proposed
position have occurred between Mr. Hettrich and CoolBrands, but no formal
agreement has been reached.

. CoolBrands has discussed with David B. Kewer the possibility of Mr. Kewer
serving as a member of the board of directors of Eskimo Pie after closing
of the transaction. No discussions of compensation have occurred between
Mr. Kewer and CoolBrands, and no formal proposal has been made. Mr. Kewer
has indicated to CoolBrands that he might be interested in serving as a
board member of Eskimo Pie after closing but has not formally agreed to
accept any proposal.

18
<PAGE>

RISK FACTORS

In addition to the other information provided in this proxy statement or
incorporated herein by reference, you should consider carefully the matters
described below in determining whether to approve the merger agreement and the
merger:

Eskimo Pie Faces Some Risks if Neither the Merger nor the Tender Offer is
Consummated

If neither the merger nor the tender offer is consummated, there can be no
assurance that Eskimo Pie will be able to sustain or improve upon its recent
financial performance. Factors that may adversely impact Eskimo Pie's future
financial performance if no transaction is consummated include:

. continuing pressure from Eskimo Pie's shareholders, including CoolBrands,
to effect a sale of Eskimo Pie or certain of its assets, which will
result in continuing distractions for management in running the day-to-
day operations of Eskimo Pie;

. increased difficulty retaining existing employees and wholesale and
retail customers and attracting new employees and wholesale and retail
customers in light of the uncertainties that may then surround Eskimo
Pie;

. the possibility that some of the companies that license their brand names
to Eskimo Pie, such as Welch's, Weight Watchers or Nabisco, could decide
to terminate their license agreements to the extent permitted under their
agreements with Eskimo Pie; and

. increased competition from existing and new competitors in the frozen
novelty industry, particularly in light of the dominant position in the
industry held by two multi-national companies, Unilever and Nestle, and
in light of the continuing consolidation occurring in this industry and
in the retail grocery chains.

If the Merger is Not Consummated and the Tender Offer is Consummated,
Shareholders Who Do Not Tender Their Shares May Face a Liquidity Risk

If the merger is not approved by the Eskimo Pie shareholders and closed,
CoolBrands will commence and consummate the tender offer if the conditions to
the tender offer are satisfied. Eskimo Pie shareholders who tender their
Eskimo Pie shares will be paid $10.25 per share tendered when the tender offer
is consummated. Eskimo Pie shares purchased in the tender offer would be
purchased and paid for by CoolBrands approximately one month or more later
than those shares would have been purchased and paid for in the merger, if the
merger had been approved and closed. Eskimo Pie shareholders who fail to
tender their shares will keep their shares until either they are able to sell
them on the open market or CoolBrands is able to effect a subsequent merger
between Eskimo Pie and CoolBrands or one of its affiliates. Eskimo Pie
shareholders who remain shareholders following consummation of the tender
offer should expect the market for their shares to be limited.

CoolBrands has agreed in the merger agreement that, if the merger is not
approved and the subsequent tender offer is consummated, CoolBrands will
propose and take reasonable steps required to effect a merger of Eskimo Pie
and CoolBrands or an affiliate at such time as it may do so without
application of provisions of Virginia law requiring more than a majority vote
of shareholders. CoolBrands has also agreed to pay to remaining Eskimo Pie
shareholders $10.25 per share in connection with such a merger. The provisions
of Virginia law which currently require a greater than majority vote of
shareholders should cease to apply to CoolBrands in December 2001, but there
can be no assurance that CoolBrands will be able to effect such a merger at
that time.

CAUTIONARY STATEMENT CONCERNING
FORWARD-LOOKING INFORMATION

This proxy statement, including information incorporated by reference herein,
contains "forward looking statements" for purposes of the Securities and
Exchange Commission's "safe harbor" provisions under the

19
<PAGE>

Private Securities Litigation Reform Act of 1995 and under the Securities
Exchange Act of 1934. Forward looking statements include statements concerning
objectives, goals, strategies, future events or performance, as well as
information relating to the merger and the tender offer, and underlying
assumptions and other statements which are not statements of historical fact.
The words "expects," "projects," "estimates," "predicts," "anticipates,"
"believes" and similar expressions are also intended to identify forward
looking statements. Because these statements are forward looking, the
information to which they relate is uncertain and subject to various risks and
uncertainties, including those detailed in Eskimo Pie's filings with the
Commission. Accordingly, any forward looking statements contained or
incorporated by reference herein do not purport to be predictions of future
events or circumstances, and the statements may differ materially from actual
results and should be read with caution.

THE SPECIAL MEETING

Eskimo Pie is furnishing this proxy statement to Eskimo Pie shareholders as
part of the solicitation of proxies by the Eskimo Pie board of directors for
use at a special meeting of Eskimo Pie shareholders. Eskimo Pie is mailing
this proxy statement and the enclosed proxy to Eskimo Pie shareholders on or
about July 20, 2000.

Meeting Date

The special meeting will be held at 10:00 a.m., local time, Wednesday,
September 6, 2000, at the SunTrust Bank (formerly Crestar Bank) auditorium,
4th Floor, 919 East Main Street, Richmond, Virginia.

Matters to be Considered at the Special Meeting

The purpose of the special meeting is to consider and vote on a proposal to
approve the Agreement and Plan of Merger, dated as of May 3, 2000, as amended
as of June 1, 2000, among Eskimo Pie, CoolBrands and EP Acquisition, a wholly
owned subsidiary of CoolBrands, and the merger of EP Acquisition with and into
Eskimo Pie. According to the merger agreement, when EP Acquisition is merged
into Eskimo Pie, Eskimo Pie will become a subsidiary of CoolBrands, and all
outstanding shares of Eskimo Pie common stock, excluding shares held by
CoolBrands or EP Acquisition, will be converted into cash. Eskimo Pie
shareholders may also be asked to consider any other business that properly
comes before the special meeting. Finally, Eskimo Pie shareholders may be
asked to vote on a proposal to adjourn or postpone the special meeting, which
could be used to allow more time for the soliciting of additional votes to
approve the merger agreement. Each copy of the proxy statement mailed to
Eskimo Pie shareholders is accompanied by a proxy for use at the special
meeting.

Record Date and Voting Rights and Requirements

Record Date. The Eskimo Pie board of directors has fixed July 13, 2000, as
the record date for the determination of Eskimo Pie shareholders entitled to
receive notice of, and to vote at, the special meeting. Accordingly, only
Eskimo Pie shareholders of record at the close of business on the record date
will be entitled to notice of, and to vote at, the special meeting. At the
close of business on the record date, there were 3,485,757 shares of Eskimo
Pie common stock outstanding and entitled to vote at the special meeting, held
by approximately 575 holders of record.

Voting Rights. Each share of Eskimo Pie common stock outstanding on the
record date entitles its holder to one vote on the proposal to approve the
merger agreement and the merger and on any other proposal that properly comes
before the special meeting.

Quorum Requirement. The presence, in person or by proxy, of shares of Eskimo
Pie common stock representing a majority of the total voting power of the
shares entitled to vote on the record date is necessary to constitute a quorum
at the special meeting.

Vote Required. Eskimo Pie's articles of incorporation require the
affirmative vote of a majority of the votes cast in order to approve the
merger agreement and the merger. However, because CoolBrands acquired more

20
<PAGE>

than 10% of the outstanding voting shares of Eskimo Pie without first being
exempted from the provisions of the Virginia Affiliated Transactions Statute,
that statute requires that the merger be approved by the affirmative vote of
the holders of two-thirds of the voting shares other than shares held by
CoolBrands or its affiliates. This means that, of the approximately 3,485,757
shares of Eskimo Pie stock outstanding, approximately 1,932,038 shares other
than the 587,700 shares owned by CoolBrands must vote for the merger agreement
and the merger.

Abstentions and Broker Non-Votes. Abstentions and broker non-votes (shares
held by brokers for customers which may not be voted on the merger because the
broker has not received specific instructions from the customer) will be
counted for purposes of determining whether a quorum is present to transact
business at the special meeting, but will not be counted as "cast" for
purposes of determining whether the merger agreement and merger have been
approved and, therefore, will have no effect with regard to the merger.
Accordingly, the board of directors of Eskimo Pie urges each Eskimo Pie
shareholder to complete, sign and date the enclosed proxy card and return it
promptly in the enclosed, postage-paid envelope. If you do not vote, it will
have the same effect as voting against the merger.

Voting of Proxies

Eskimo Pie shareholders may use the proxy that came with this proxy
statement if they are unable to attend the special meeting in person or wish
to have their shares voted by proxy even if they do attend the special
meeting. All shares represented by valid proxies received pursuant to this
solicitation and not revoked before they are exercised will be voted in the
manner that the proxies specify. If Eskimo Pie shareholders return proxies
without specifying how their proxies are to be voted, their proxies will be
voted for approval of the merger agreement and the merger. There are no
matters other than voting on the merger agreement and the merger that are
scheduled to be brought before the special meeting. If any other business is
properly brought before the special meeting, including a motion to adjourn or
postpone the special meeting to another time and/or place for the purpose of
soliciting additional proxies in favor of the merger agreement and the merger
or to permit dissemination of information regarding material developments
relating to the merger or otherwise relevant to the special meeting, the
persons named in the proxy will vote the shares represented by proxies as
determined in their discretion.

If the special meeting is adjourned for any reason prior to the approval of
the merger agreement and the merger, then the approval of the merger agreement
and the merger may be considered and voted on by shareholders at any
subsequently reconvened meeting.

Revocation of Proxies

An Eskimo Pie shareholder may revoke his or her proxy at any time before it
is exercised either by submitting to the Chief Financial Officer of Eskimo
Pie, before or at the special meeting, a written notice of revocation or a
properly executed proxy of a later date or by attending the special meeting
and voting in person. However, attendance by an Eskimo Pie shareholder at the
special meeting will not in and of itself constitute a revocation of his or
her proxy. Eskimo Pie shareholders should address any written notice of
revocation and other communications about the revocation of Eskimo Pie proxies
to Eskimo Pie Corporation, 901 Moorefield Park Drive, Richmond, Virginia,
23236, Attention: Thomas M. Mishoe, Jr., Chief Financial Officer.

Solicitation of Proxies

This solicitation of proxies is made on behalf of the Eskimo Pie board of
directors. Eskimo Pie will pay all of the costs of soliciting the proxies as
well as the cost of printing and mailing this proxy statement and the cost of
filing the proxy statement with the Commission. Proxies may be solicited by
officers, directors and employees of Eskimo Pie, none of whom will receive any
additional compensation for their services, but who may be reimbursed for
reasonable out-of-pocket expenses in connection with the solicitation. In
addition, Eskimo Pie has engaged Corporate Investor Communications, Inc. to
solicit proxies for a fee of approximately $20,000, including expenses.
Solicitations or proxies may be made personally or by mail, telephone,
facsimile or

21
<PAGE>

messenger. Moreover, Eskimo Pie may pay persons holding shares of Eskimo Pie
common stock in their names or in the names of nominees, but not owning the
shares beneficially, such as brokerage houses, banks and other fiduciaries,
for the expense of forwarding soliciting materials to their principals.

THE MERGER AGREEMENT

The following description of the merger agreement, the merger and the
possible subsequent tender offer does not purport to be complete and is
qualified in its entirety by reference to the full text of the merger
agreement, a copy of which is included in this proxy statement as Annex A and
is incorporated herein by reference.

Description of the Merger

Form of Merger. Eskimo Pie, CoolBrands and EP Acquisition have entered into
a merger agreement, which provides that, if all of the conditions set forth in
the merger agreement are satisfied or waived, EP Acquisition will merge with
and into Eskimo Pie. Eskimo Pie will be the surviving corporation in the
merger and will become a wholly owned subsidiary of CoolBrands.

Consideration to be received in the Merger; Cancellation of Certificates. On
the date the merger becomes effective, each issued and outstanding share of
Eskimo Pie common stock, excluding shares of Eskimo Pie common stock held by
CoolBrands and its subsidiaries, will be converted into, and become
exchangeable for, the merger consideration in the amount of $10.25 cash.
Shares held by CoolBrands and its subsidiaries will be cancelled. Certificates
representing shares of Eskimo Pie common stock immediately prior to the merger
will, after the merger is effective, represent only the right to receive, upon
surrender of the certificate, the merger consideration of $10.25 per share.
Eskimo Pie shareholders will cease to have an equity interest in, or possess
any rights as shareholders of, the surviving corporation. Each share of common
stock in EP Acquisition outstanding immediately before closing of the merger
will be converted into and exchangeable for a share of common stock in Eskimo
Pie as the surviving corporation immediately after the merger occurs.

The Effective Time. The merger will be effected by delivering articles of
merger to the State Corporation Commission of Virginia as soon as practicable
after the closing of the merger, in accordance with the provisions of the
Virginia Stock Corporation Act. The merger will become effective at the time
the State Corporation Commission of Virginia issues a certificate of merger
or, if CoolBrands and Eskimo Pie have so agreed, at a later date or time
specified in the articles of merger.

The closing of the merger will take place as soon as practicable, and no
later than the fifth business day following satisfaction or waiver of all of
the conditions to consummation of the merger. See "--Description of the
Merger--Conditions to the Merger."

Payment of Merger Consideration; Surrender of Certificates. On the date that
the merger becomes effective, CoolBrands will deposit into an exchange fund
with the exchange agent the cash to be paid as the merger consideration. No
later than three days after the effective time of the merger, Eskimo Pie, as
the surviving corporation, will cause the exchange agent to mail a letter of
transmittal to each Eskimo Pie shareholder. The letter of transmittal will
contain instructions on how to surrender Eskimo Pie common stock certificates
to the exchange agent and receive cash.

Any merger consideration deposited with the exchange agent that has remained
unclaimed by Eskimo Pie shareholders for one year after the effective date of
the merger will be paid to Eskimo Pie, as the surviving corporation, upon
demand. Thereafter, Eskimo Pie shareholders that have not previously complied
with the exchange procedures pursuant to the merger agreement may look only to
Eskimo Pie, as the surviving corporation, upon demand for payment of any
merger consideration, without interest, upon surrender of their certificates
representing shares of Eskimo Pie common stock.

The exchange agent or Eskimo Pie, as the surviving corporation, will be
entitled to deduct and withhold from the merger consideration any amounts that
they are required to deduct and withhold under applicable tax

22
<PAGE>

laws. Any amounts so withheld will be treated for all purposes of the merger
agreement as having been paid to the holder of the shares of Eskimo Pie common
stock in respect of which the deduction and withholding has been made.

Treatment of Eskimo Pie Stock Options and Restricted Shares. Not later than
immediately prior to the time the merger becomes effective, each unexpired and
unexercised option granted by Eskimo Pie to purchase shares of Eskimo Pie
common stock will be cancelled in exchange for the right to receive in cash
the amount by which $10.25 exceeds the per share exercise price. Prior to the
effective time of the merger, Eskimo Pie will act to remove all restrictions
from restricted Eskimo Pie shares issued pursuant to the Eskimo Pie incentive
stock plans so that, at the effective time of the merger, each share of Eskimo
Pie restricted common stock will become unrestricted and vested, converted
into the right to receive the merger consideration upon presentation of the
certificates representing the shares of restricted Eskimo Pie common stock in
accordance with the procedures provided for surrender of certificates
representing Eskimo Pie common stock.

Conditions to the Merger. The parties' respective obligations to complete
the merger are subject to the satisfaction of each of the following
conditions:

. no statute, rule or regulation having been enacted or promulgated which
prohibits, restricts or makes illegal the consummation of the merger;

. no court order or injunction being in effect precluding or restricting
consummation of the merger;

. approval and authorization by Eskimo Pie shareholders of the merger
agreement;

. termination or expiration of any waiting period under the Hart-Scott
Rodino Antitrust Improvements Act of 1976;

. receipt by Eskimo Pie of evidence of compliance with the requirements of
the New Jersey Industrial Site Recovery Act necessary to consummate the
merger; and

. delivery by Eskimo Pie to CoolBrands of a copy of the opinion of First
Union Securities, Inc. with respect to the fairness of the consideration
to be paid in the transaction to the Eskimo Pie shareholders, other than
CoolBrands.

The obligations of CoolBrands and EP Acquisition to consummate the merger
are further subject to the following conditions:

. Eskimo Pie's representations and warranties in the merger agreement must
be true and correct at the time the merger is to become effective (except
as to any representation or warranty which speaks to a specific date,
which must be true and correct as of the specific date) except where the
failure to be true and correct would not reasonably be expected to cause
a material adverse effect, provided that certain representations and
warranties of Eskimo Pie with respect to the number of outstanding shares
of capital stock of Eskimo Pie must be true and correct in all respects;

. Eskimo Pie must have performed all of its obligations and complied with
all covenants necessary to be complied with under the merger agreement
required to be performed before the effective time of the merger except
where failure to comply or perform would not reasonably be expected to
have a material adverse effect;

. during the period from the date of the merger agreement to the date of
the closing of the merger, there must not have occurred or be threatened
any material adverse effect on the business, financial condition, results
of operations, assets or liabilities of Eskimo Pie and its subsidiaries,
taken as a whole;

. the Eskimo Pie board shall have caused the Eskimo Pie rights agreement
not to apply to the merger, the tender offer or other transactions
contemplated in the merger agreement;

23
<PAGE>

. CoolBrands and EP Acquisition must have received an opinion from Mays &
Valentine, L.L.P. with respect to the fact that the Eskimo Pie board has
not taken any action to cause the merger or the tender offer to be
subject to affiliated transactions or control share acquisition
provisions of Virginia law; and

. CoolBrands must have received an opinion from Mays & Valentine, L.L.P. to
the effect that the merger is effective under Virginia law.

The obligation of Eskimo Pie to consummate the merger is subject to the
satisfaction of the following express conditions:

. Eskimo Pie must have received an opinion from First Union Securities,
Inc. to the effect that the consideration to be received by the Eskimo
Pie shareholders in the merger is fair to the Eskimo Pie shareholders
from a financial point of view;

. the representations and warranties made by CoolBrands and EP Acquisition
in the merger agreement must be true and correct at the time the merger
is to become effective (except as to any representation or warranty which
speaks as of a specific date, which must be true as of that date) except
where the failure of those representations to be true and correct would
not reasonably be expected to have a material adverse effect, as if made
at and as of that time; and

. CoolBrands and EP Acquisition must have performed all of their
obligations and complied with all covenants necessary to be performed by
or complied with by either of them before the time of effectiveness of
the merger, except where failure to comply or perform would not
reasonably be expected to have a material adverse effect.

Subsequent Tender Offer If the Merger is Not Approved at Special Meeting

If the merger is not approved at the special meeting, within five business
days of that meeting EP Acquisition, a wholly owned subsidiary of CoolBrands,
will commence a tender offer pursuant to which it will offer to purchase all
of the outstanding shares of Eskimo Pie common stock not already owned by EP
Acquisition or CoolBrands, at a cash offer price of $10.25 per share. The
tender offer would be made on the terms and subject to the conditions
described in an offer to purchase and a related letter of transmittal, which
would be sent to Eskimo Pie shareholders at the time the tender offer is
commenced. If the merger is approved by the required vote of shareholders at
the special meeting, the parties will proceed to satisfy any remaining
conditions to the merger and to close the merger, and CoolBrands will not
commence a tender offer.

No Solicitation of Transactions by Eskimo Pie

Eskimo Pie has agreed to certain limitations on its ability to take action,
prior to the time the merger becomes effective or the tender offer is
consummated, with respect to any acquisition proposal. Notwithstanding these
limitations, Eskimo Pie may respond to a superior proposal. Under the merger
agreement,

. the term "acquisition proposal" means any proposal regarding a sale of
any shares of Eskimo Pie's capital stock or any of its subsidiaries'
capital stock, merger, consolidation or other sale or spin-off of all or
a substantial part of the assets of Eskimo Pie or any of its subsidiaries
or a liquidation or a recapitalization of Eskimo Pie or any of its
subsidiaries, or any similar transaction; and

. the term "superior proposal" means any proposal to acquire, directly or
indirectly, for consideration consisting of cash or securities, all of
the Eskimo Pie common shares then outstanding or all or substantially all
the assets of Eskimo Pie, and otherwise on terms which the board of
directors of Eskimo Pie, after receiving advice from its financial
advisor, determines in good faith to be more favorable to Eskimo Pie and
the Eskimo Pie shareholders than the merger and the tender offer.

Prior to the merger becoming effective or the consummation of the tender
offer, Eskimo Pie has agreed not to solicit, initiate, or encourage or
disclose directly or indirectly any information not customarily disclosed

24
<PAGE>

concerning its business and properties, or afford any access to its
properties, books and records, to any person or group in connection with an
acquisition proposal and has agreed not to enter into any agreement with
respect to any acquisition proposal or approve any acquisition proposal.

Eskimo Pie may, however, engage in discussions with and furnish information
to a third party in response to an unsolicited acquisition proposal if the
Eskimo Pie board determines in good faith, based on the advice of its outside
legal counsel that the failure to participate in those discussions or
negotiations or to furnish such information would be inconsistent with the
Eskimo Pie board's fiduciary duties under applicable law. Eskimo Pie may also
take and disclose to the Eskimo Pie shareholders a position with respect to
any acquisition proposal by any person other than CoolBrands and amend or
withdraw its position with respect to that acquisition proposal.

Eskimo Pie has also agreed to provide CoolBrands with detailed information
about any inquiries or proposals, or indications of desire to make a proposal
that it receives with respect to an acquisition proposal. If Eskimo Pie
determines to provide any information as described above or receives an
acquisition proposal, Eskimo Pie must promptly inform CoolBrands in writing
that information is to be provided and will furnish to CoolBrands the identity
of the recipient of the information or the person who submitted the
acquisition proposal and the terms of the acquisition proposal, except to the
extent that the Eskimo Pie board determines in good faith, based on the advice
of its outside legal counsel, that any action described in this sentence would
be inconsistent with the board's fiduciary duties under applicable law. Eskimo
Pie will keep CoolBrands reasonably informed of the status of any acquisition
proposal except to the extent that the board of directors determines in good
faith, based on the advice of its outside legal counsel, that keeping
CoolBrands reasonably informed would be inconsistent with the Eskimo Pie
board's fiduciary duties under applicable law.

Eskimo Pie has agreed that the Eskimo Pie board will not withdraw or modify
or propose to withdraw or modify, in any manner adverse to CoolBrands, the
board's approval or recommendation of the merger agreement, the merger or the
tender offer, or approve or recommend, or propose to approve or recommend, any
acquisition proposal, unless, in each case, the board determines in good
faith, after receiving advice from its financial advisor, that the acquisition
proposal is a superior proposal.

Eskimo Pie's acceptance of a superior proposal could result in termination
of the merger agreement. Eskimo Pie may terminate the merger agreement prior
to CoolBrands' purchase of Eskimo Pie shares pursuant to the tender offer or
in order to accept a superior proposal. In such a circumstance, Eskimo Pie
must notify CoolBrands in writing that it is terminating the merger agreement
to accept a superior proposal. If the merger agreement is terminated by Eskimo
Pie in order to accept a superior proposal, Eskimo Pie is required to pay to
CoolBrands a termination fee of approximately $1.74 million. See "--
Termination of the Merger Agreement."

Representations and Warranties

The merger agreement contains representations and warranties made by each of
the parties to the agreement. None of these representations and warranties
will survive beyond the time the merger becomes effective or the tender offer
is consummated. If the merger agreement is terminated before the effective
time of the merger or the consummation of the tender offer, the
representations and warranties made by Eskimo Pie with regard to payment of
the fees of its financial advisor survive termination.

The merger agreement contains customary representations and warranties of
Eskimo Pie and each of CoolBrands and EP Acquisition as to, among other
things:

. due organization and good standing;

. corporate authorization of the merger agreement and authorization to
enter into the transactions contemplated thereby;

. the binding effect of the merger agreement;

25
<PAGE>

. governmental approvals required in connection with the transactions
contemplated by the merger agreement;

. conflicts, violations and defaults under its charter and bylaws, any
other agreements or instruments, or any judgments, orders or laws as a
result of the transactions contemplated by the merger agreement;

. filings with the Securities and Exchange Commission;

. brokers fees, commissions or similar fees in connection with the
transactions contemplated by the merger agreement;

. the information included in this proxy statement; and

. undisclosed liabilities.

In addition, the merger agreement contains representations and warranties by
Eskimo Pie as to, among other things:

. capitalization;

. Securities and Exchange Commission reporting;

. financial statements;

. no undisclosed liabilities;

. significant contracts;

. contracts limiting ability of Eskimo Pie to compete;

. compliance with laws and permits;

. status of permits;

. pending litigation, actions and proceedings;

. conduct of business and material adverse changes or effects since the end
of its most recent fiscal year, except as disclosed in Eskimo Pie's
filings with the Securities and Exchange Commission;

. the required vote of Eskimo Pie's shareholders to approve the merger;

. ownership and condition of tangible assets;

. rights to intangible assets;

. environmental matters;

. labor matters;

. tax matters and compliance with relevant tax laws;

. material employee benefit plans;

. the existence of any agreements or benefit plans, to which Eskimo Pie is
a party, under which any benefits will be increased or the vesting of the
benefits accelerated by the occurrence of, or under which the value of
the benefits will be calculated on the basis of, any of the transactions
contemplated by the merger agreement;

. material contracts;

. receipt of a fairness opinion from its financial advisor; and

. the applicability of state anti-takeover statutes or of anti-takeover
provisions in Eskimo Pie's organizational documents to Eskimo Pie or
CoolBrands, Eskimo Pie's common stock and the transactions contemplated
by the merger agreement.

26
<PAGE>

In addition, CoolBrands (i) represents and warrants in the merger agreement
that at the effective time of the merger, it will have available cash funds in
an amount equal to the exchange fund and all fees and expenses related to the
exchange fund and (ii) makes certain representations and warranties with
respect to the activities of EP Acquisition.

The representations and warranties in the merger agreement are complicated
and not easily summarized. You are urged to read carefully the sections of the
merger agreement entitled "Representations and Warranties of the Company" and
"Representations and Warranties of the Parent and Newco."

Covenants under the Merger Agreement

Conduct of Eskimo Pie's Business. Eskimo Pie has agreed that until the
earlier of the time the merger becomes effective and the consummation of the
tender offer, or unless CoolBrands consents in writing, that it will, and will
cause each of its subsidiaries to, conduct its operations according to its
ordinary course of business, consistent with past practice. Unless permitted
or disclosed under the merger agreement, Eskimo Pie has agreed to operate its
business, and to cause each of its subsidiaries to conduct its business, in
compliance with certain restrictions relating to the following:

. amendment of articles of incorporation or bylaws;

. issuance, disposition, redemption or encumbrance of capital stock,
securities convertible into shares of capital stock, or rights to acquire
capital stock;

. splits, re-combinations or reclassification of shares of its capital
stock;

. declaration or issuance of dividends;

. alteration of the corporate structure or ownership of any Eskimo Pie
subsidiary:

. incurrence of indebtedness;

. guarantees and assumption of indebtedness;

. making of loans, advances or capital contributions;

. sales or encumbrances of fixed assets;

. modification or termination of certain contracts;

. waivers of certain rights;

. employment, severance and consulting agreements;

. compensation of officers, employees and directors;

. pension and welfare plans and other plans, arrangements and policies for
the benefit of any director, officer or employee;

. insurance policies;

. accounting principles, policies and procedures;

. commitments and transactions outside the ordinary course;

. acquisitions of certain assets or businesses;

. settlement of litigation or material claims;

. material changes;

. acquisitions of securities, loans and capital contributions, and other
investments; and

. actions relating to ability of CoolBrands to vote and exercise rights as
a shareholder of Eskimo Pie.

27
<PAGE>

The covenants in the merger agreement relating to the conduct of Eskimo
Pie's business are complicated and not easily summarized. You are urged to
read carefully the section of the merger agreement entitled "Conduct of
Business by Eskimo Pie."

Other Covenants. The merger agreement contains a number of mutual covenants
of Eskimo Pie and CoolBrands, including covenants relating to:

. accuracy of information to be supplied for inclusion in this proxy
statement;

. cooperation in obtaining governmental approval relating to antitrust
matters;

. cooperation in the preparation and filing of the proxy statement relating
to the merger; and

. keeping each other apprised of the status of matters relating to the
completion of the transactions contemplated by the merger agreement,
including by promptly furnishing the other with notice of defaults or
events that may become defaults under the merger agreement and copies of
any notice or other communication received from any third party relating
to the merger.

In addition, the merger agreement contains covenants requiring each of the
parties to:

. use all reasonable efforts to do, or cause to be done, all things
required to consummate and make effective the transactions contemplated
by the merger agreement, including satisfying the conditions to the
merger (See "--Description of the Merger--Conditions to the Merger") and
making the merger effective;

. if any anti-takeover statute or regulation is or may become applicable to
the merger or other transactions contemplated by the merger agreement,
take the actions necessary to minimize the effects of the statute or
regulation on the merger and other transactions;

. consult with each other before issuing any press release with respect to
the transactions contemplated in the merger agreement; and

. take actions to supplement securities filings relating to the merger or
offer as appropriate or required by law.

The merger agreement also contains covenants of Eskimo Pie relating to (i)
access to information about Eskimo Pie; (ii) obtaining shareholder approval of
the merger agreement; (iii) actions of Eskimo Pie to comply with the New
Jersey Industrial Site Recovery Act in order to consummate the merger or the
tender offer in accordance with that act (See "--Regulatory Matters"); and
(iv) assisting CoolBrands in obtaining certain third party consents to the
merger or tender offer.

Indemnification and Insurance of Directors and Officers

The merger agreement provides that CoolBrands will cause Eskimo Pie, as the
surviving corporation in the merger, to provide for indemnification of the
officers, directors, employees and agents of Eskimo Pie and its subsidiaries
and, subject to certain cost limitations, to purchase a liability insurance
policy providing, for a period of six years following consummation of the
merger, directors' and officers' liability insurance on terms that are no less
advantageous to the intended beneficiaries than the existing directors' and
officers' liability insurance coverage.

Termination of the Merger Agreement

The merger agreement may be terminated, and the transactions contemplated by
the merger agreement abandoned, at any time prior to the closing of the
merger, whether before or after approval of the merger agreement by Eskimo Pie
shareholders:

. by mutual written agreement of CoolBrands and Eskimo Pie;

28
<PAGE>

. by either CoolBrands or Eskimo Pie, if neither the merger nor the tender
offer has become effective on or before November 30, 2000, except that
the right to terminate the merger agreement for that reason is not
available to any party if that party has committed a material breach of
any representation, warranty, covenant or agreement set forth in the
merger agreement where that breach has been the cause of or resulted in,
the failure of the merger to become effective or the tender offer to be
consummated;

. by either CoolBrands or Eskimo Pie, if there is any final, non-appealable
governmental order or other action permanently restraining, enjoining or
otherwise prohibiting the consummation of the merger or tender offer;

. by either CoolBrands or Eskimo Pie, if both (1) the merger fails to
receive the requisite vote by Eskimo Pie shareholders at the special
meeting and (2) the tender offer has expired or terminated in accordance
with its terms due to any of the conditions to the offer set forth in the
merger agreement, unless such termination or expiration is caused by or
results from the failure by CoolBrands to perform in any material respect
any of its covenants or agreements contained in the merger agreement;

. by Eskimo Pie if both (1) the merger fails to receive the requisite vote
by Eskimo Pie shareholders at the special meeting and (2) the tender
offer has been terminated by CoolBrands without CoolBrands having
accepted for payment and paying for such Eskimo Pie common shares which,
together with the Eskimo Pie common shares owned by CoolBrands and EP
Acquisition represent a majority of the voting power of the capital stock
of Eskimo Pie on a fully diluted basis, provided that Eskimo Pie may not
terminate the merger agreement pursuant to the provisions described above
if Eskimo Pie has failed to perform in any material respect any of its
covenants or agreements contained in the merger agreement;

. by Eskimo Pie prior to the purchase of Eskimo Pie common shares by
CoolBrands pursuant to the tender offer or the effective time of the
merger in order for Eskimo Pie to accept a superior proposal; or

. by CoolBrands if, at any time prior to the time at which the merger is to
become effective or prior to the purchase of shares by CoolBrands
pursuant to the tender offer, the Eskimo Pie board has withdrawn or
modified or changed in any manner adverse to CoolBrands or EP Acquisition
its approval or recommendation of the merger agreement, the merger or the
tender offer or has recommended a superior proposal or has resolved to do
any of the above.

In the event of termination of the merger agreement by CoolBrands, EP
Acquisition or Eskimo Pie as described above, no provision of the merger
agreement will survive other than (i) provisions relating to the obligation of
CoolBrands and EP Acquisition to keep confidential and not to use certain
information obtained from Eskimo Pie; (ii) Eskimo Pie's obligation to pay the
fees of its investment advisor; (iii) rights of either CoolBrands or Eskimo
Pie to pursue legal action to obtain injunctions to prevent breaches of the
merger agreement and specific performance of the obligations contained in the
merger agreement; and (iv) Eskimo Pie's obligation to pay a termination fee to
CoolBrands in certain circumstances described below.

Termination Fees and Expenses

Pursuant to the merger agreement, Eskimo Pie must immediately make a
termination payment to CoolBrands in the amount of approximately $1.74 million
if the merger agreement is terminated:

. by Eskimo Pie in connection with Eskimo Pie's acceptance of a superior
proposal; or

. by CoolBrands in connection with the Eskimo Pie board's withdrawal or
adverse modification or change of its approval or recommendation of the
merger agreement, the merger or the tender offer or the Eskimo Pie
board's recommendation of a superior proposal.

In addition, if, simultaneously with the acceptance of Eskimo Pie common
shares for payment and payment for those shares by CoolBrands pursuant to the
tender offer, the Eskimo Pie board has not taken action to recommend and elect
EP Acquisition's designees as disinterested directors with respect to
CoolBrands, EP Acquisition and their affiliates for purposes of Virginia law,
Eskimo Pie is required to pay to CoolBrands a termination fee in the amount of
approximately $1.74 million.

29
<PAGE>

Upon receipt of the termination payments as provided in the merger
agreement, CoolBrands will not be entitled to and will waive the right to seek
damages or other amounts or remedies from Eskimo Pie for breach of, or
otherwise in connection with, the merger agreement. If, however, the merger
agreement is terminated by Eskimo Pie, on the one hand, or CoolBrands or EP
Acquisition, on the other hand, and the non-terminating party is not entitled
to receive the termination payments, then the non-terminating party will be
entitled to pursue any available legal rights to recover actual damages,
including, without limitation, its reasonable costs and expenses incurred in
pursuing such recovery (including, without limitation, reasonable attorneys'
fees).

Except as provided above, the merger agreement provides that if the merger
agreement is not consummated, CoolBrands and EP Acquisition, on the one hand,
and Eskimo Pie, on the other hand, will bear their respective legal fees and
expenses relating to the merger agreement, the merger and the tender offer.

Material Federal Income Tax Consequences

The following summarizes the material federal income tax consequences to
Eskimo Pie shareholders of consummation of the merger or the tender offer.
This summary is based on current law, which is subject to change at any time,
possibly with retroactive effect. This summary is not a complete description
of all tax consequences of consummation of the merger or the tender offer and,
in particular, may not address federal income tax consequences applicable to
you if you are subject to special treatment under federal income tax law, such
as rules relating to Eskimo Pie shareholders who are not citizens or residents
of the United States, who are financial institutions, tax-exempt
organizations, insurance companies or dealers in securities, shareholders who
acquired their shares of Eskimo Pie common stock pursuant to the exercise of
options or otherwise as compensation, and shareholders who hold their shares
of Eskimo Pie common stock as part of a straddle or conversion transaction. In
addition, this summary does not address the tax consequences of the merger or
the tender offer under applicable state, local or foreign laws. This
discussion assumes you hold your shares of Eskimo Pie common stock as a
capital asset within the meaning of Section 1221 of the Internal Revenue Code.
Each Eskimo Pie shareholder should consult with his or her tax advisor about
the tax consequences of the merger or the tender offer in light of his or her
individual circumstances, including the application of any federal, state,
local or foreign law.

. The exchange of your Eskimo Pie common stock for cash will be a taxable
transaction.

. The exchange of your Eskimo Pie common stock for cash generally will be
treated as a sale of the stock. Accordingly, you should recognize gain or
loss equal to the difference between the amount of cash received and your
tax basis in your Eskimo Pie common stock. The gain or loss generally
will be capital gain or loss.

No Appraisal or Dissenters' Rights

Shareholders of a corporation that is proposing to merge or consolidate with
another entity are sometimes entitled to appraisal or dissenters' rights in
connection with the proposed transaction depending on the circumstances. Most
commonly, these rights confer on shareholders who oppose the merger the right
to receive the fair value for their shares as determined in a judicial
appraisal proceeding, in lieu of the consideration being offered in the
merger.

Eskimo Pie shareholders are not entitled to appraisal or dissenters' rights
under Virginia law in connection with the merger because Eskimo Pie common
shares were listed on The Nasdaq Stock Market on the record date for the
special meeting.

Accounting Treatment

The merger will be accounted for under the purchase method of accounting
under which the total consideration paid in the merger will be allocated among
Eskimo Pie's consolidated assets and liabilities based on the fair values of
the assets acquired and liabilities assumed as provided for under generally
accepted accounting principles.

30
<PAGE>

Regulatory Matters

Under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 and the rules
promulgated thereunder by the Federal Trade Commission, certain acquisition
transactions may not be consummated unless notice has been given and certain
information has been furnished to the Antitrust Division of the United States
Department of Justice and the Federal Trade Commission and certain waiting
period requirements have been satisfied. The merger, if it is successful, is
subject to these requirements.

CoolBrands and Eskimo Pie each filed with the Antitrust Division and the
Federal Trade Commission a Notification and Report Form with respect to the
transaction on June 28, 2000. Under the Hart-Scott-Rodino Act, the merger can
not be consummated until the expiration of a waiting period of at least 30
days following the receipt of each filing, unless the waiting period is
earlier terminated. The parties were notified that the Federal Trade
Commission granted early termination of the waiting period on July 11, 2000.

The FTC and the Antitrust Division frequently scrutinize the legality of
transactions such as the merger and the tender offer under the antitrust laws.
Notwithstanding the early termination of the waiting period under the HSR Act,
at any time before or after the effective time of the merger or consummation
of the tender offer, the FTC or the Antitrust Division could take such action
under the antitrust laws as it deems necessary or desirable in the public
interest, including seeking to enjoin the merger or seeking the divestiture of
Eskimo Pie by CoolBrands, in whole or in part, or the divestiture of
substantial assets of CoolBrands, Eskimo Pie or their respective subsidiaries.

Under the New Jersey Industrial Site Recovery Act, the merger may not be
completed without satisfaction of certain requirements and execution of
certain agreements with the New Jersey Department of Environmental Protection
with respect to Eskimo Pie's real property located in Bloomfield, New Jersey.
Eskimo Pie has complied with the New Jersey Industrial Site Recovery Act, as
evidenced by a remediation agreement, dated as of July 13, 2000, executed by
Eskimo Pie and the New Jersey Department of Environmental Protection.

ACQUISITION FINANCING

CoolBrands intends to use internal funds to finance the purchase of Eskimo
Pie common stock in the merger or the tender offer. In the event that
CoolBrands' internal funds are insufficient to finance such purchase, to the
extent necessary, CoolBrands intends to borrow up to $30 million from The
Chase Manhattan Bank. CoolBrands does not yet have a definitive agreement with
The Chase Manhattan Bank.

FEES AND EXPENSES

The total transaction costs incurred by Eskimo Pie, CoolBrands and EP
Acquisition to effect the merger will be approximately as follows:

<TABLE>
<CAPTION>
Expense or Fee Estimated Cost
-------------- --------------
<S> <C>
Acquisition of outstanding Eskimo Pie shares held by
shareholders other than CoolBrands and EP Acquisition......... $29,705,095

Payment to persons holding Eskimo Pie stock options with an
exercise price below $10.25, in exchange for cancellation of
those options................................................. 12,500

Financial Advisory Fees to First Union Securities, Inc......... 1,002,400

Legal Fees and Expenses........................................ 700,000

Accounting Fees and Expenses................................... 67,000

Filing, Printing and Mailing Costs............................. 100,000

Proxy Solicitation Costs....................................... 20,000

Miscellaneous.................................................. 125,000

TOTAL:......................................................... $31,731,995
</TABLE>

31
<PAGE>

PRICE RANGE OF ESKIMO PIE COMMON STOCK

The Eskimo Pie common stock trades on the Nasdaq National Market tier of The
Nasdaq Stock Market under the ticker symbol "EPIE." The following table sets
forth the range of high and low sale prices of the common stock on The Nasdaq
Stock Market for the current period and during each fiscal quarter within the
two most recent fiscal years and the first and second quarters of the 2000
fiscal year:

<TABLE>
<CAPTION>
HIGH LOW
---- ---
<S> <C> <C>
1998:
1st Quarter................................................ 14 1/4 10 1/8
2nd Quarter................................................ 16 1/4 11 9/16
3rd Quarter................................................ 13 5/16 7 3/4
4th Quarter................................................ 14 7 1/8
1999:
1st Quarter................................................ 15 6 5/8
2nd Quarter................................................ 10 1/4 6 5/8
3rd Quarter................................................ 11 1/2 8 1/8
4th Quarter................................................ 10 3/8 7 3/8
2000:
1st Quarter................................................ 9 7/8 7 27/64
2nd Quarter................................................ 10 7 13/16
3rd Quarter (through July 17, 2000)........................ 10 1/8 9 27/32
</TABLE>

On April 26, 2000, one week prior to the public announcement of the merger
agreement, the closing price of the common stock was $8.25 per share. On May
3, 2000, the last trading date prior to the public announcement of the merger
agreement, the closing price of the common stock was $9.00 per share. On July
17, 2000, the last trading day before the printing of this proxy statement,
the closing price of the common stock was $9 15/16 per share. As of July 13,
2000, there were 3,485,757 shares of common stock outstanding held by
approximately 1,840 beneficial holders and 575 record holders of common stock,
as shown on our transfer agent's records. Eskimo Pie declared and paid
dividends in each quarter of fiscal 1998 and the first two quarters of fiscal
1999 of $0.05 per share. Eskimo Pie did not declare or pay dividends in the
last two quarters of fiscal 1999 and has not declared or paid dividends in
fiscal 2000. The merger agreement prohibits Eskimo Pie from declaring or
paying any dividend prior to closing of the merger or the tender offer or
termination of the merger agreement without the prior written agreement of
CoolBrands.

BUSINESS OF ESKIMO PIE

Eskimo Pie 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 Smart Ones, SnackWell's and OREO brand
names. These nationally branded products are generally manufactured by a
select group of licensed dairies that purchase the necessary flavors,
ingredients and packaging directly from the company. Eskimo Pie 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 premium ice cream products for
sale to the foodservice industry.

Eskimo Pie's strengths include national brand recognition, quality 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 development and marketing of
frozen dessert products through the licensing of other well-known national
brands under sublicensing arrangements, 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.

32
<PAGE>

BUSINESS OF COOLBRANDS

CoolBrands sells and distributes a variety of pre-packaged frozen dessert
products to distributors and various retail establishments throughout Canada
and the United States under the Tropicana, Betty Crocker, Yoplait, Colombo,
and Trix trademarks and a variety of other trademarks, pursuant to exclusive
long-term license agreements. In addition, CoolBrands franchises and licenses
Yogen Fruz, I Can't Believe its Yogurt, Bresler's, Swensen's, Ice Cream Churn,
Java Coast Fine Coffees and Golden Swirl outlets in 82 countries and operates
company-owned ice cream and yogurt stores in Canada and the United States.

DIRECTORS AND EXECUTIVE OFFICERS OF ESKIMO PIE

<TABLE>
<C> <S>
Kimberly P. Ferryman........ Vice President, Quality Assurance and Development
901 Moorefield Park Drive of Eskimo Pie since February 1995.
Richmond, Virginia 23236

Wilson H. Flohr, Jr......... Retired Executive Vice President and General
901 Moorefield Park Drive Manager of Paramount's Kings Dominion, a regional
Richmond, Virginia 23236 family theme park in Doswell, Virginia. Prior to
his retirement in January 1999, Mr. Flohr had
served in this position for more than the prior 5
years.

Craig L. Hettrich........... General Manager of Eskimo Pie's Foodservice
901 Moorefield Park Drive Division since February 1998; previously Vice
Richmond, Virginia 23236 President Sales and Marketing Friornor U.S.A.
(1996 to 1998) and Director of National Sales
General Mills (1991 to 1996).

F. Claiborne Johnston, Jr... Attorney-at-Law, Partner in the law firm of Mays
1111 East Main Street & Valentine, L.L.P., Richmond, Virginia, since
P.O. Box 1122 1972.
Richmond, Virginia 23218

V. Stephen Kangisser........ Senior Vice President of Sales for Eskimo Pie
901 Moorefield Park Drive since August 1998; previously Vice President--
Richmond, Virginia 23236 Marketing (May 1996 to July 1998) of Eskimo Pie
and Vice President, Sales and Marketing (1993 to
1996) of H.P. Hood, Inc.

David B. Kewer.............. Effective May 2000, Chairman of the Board of
901 Moorefield Park Drive Directors, and effective March 1998, President
Richmond, Virginia 23236 and Chief Executive Officer of Eskimo Pie.
Previously, beginning March 1997, President and
Chief Operating Officer of Eskimo Pie. Formerly
(1993 until 1997), President of Willy Wonka Candy
Factory, a subsidiary of Nestle USA, Inc. From
1988 through 1993, various senior level positions
at Drumstick Co. which was acquired by Nestle in
1991.

Daniel J. Ludeman .......... Effective October 1, 1999, President and Chief
West Tower, 5th Floor Executive Officer of First Union Securities, a
901 E. Byrd Street division of First Union Securities, Inc., which
Richmond, Virginia 23219 is a wholly-owned brokerage and investment
banking subsidiary of First Union Corporation.
Previously, since 1991, Chairman and Chief
Executive Officer of Mentor Investment Group, LLC
(now Mentor Investment Advisors), a Richmond,
Virginia based asset management company.

Judith B. McBee............. Since January 1997, Senior Vice President,
4421 Waterfront Drive Marketing of Hamilton Beach Proctor-Silex, Inc.,
Glen Allen, Virginia 23060 a small appliance manufacturer headquartered in
Richmond, Virginia; previously Executive Vice
President, Marketing (June 1994 to December 1996)
and Executive Vice President, Sales/Marketing
(January 1990 to June 1994), Hamilton
Beach/Proctor-Silex, Inc.
</TABLE>

33
<PAGE>

<TABLE>
<C> <S>
Thomas M. Mishoe, Jr...... Chief Financial Officer, Vice President, Secretary
901 Moorefield Park Drive and Treasurer of Eskimo Pie since February 1996;
Richmond, Virginia 23236 previously, Independent Consultant (1995 to 1996)
and Chief Financial Officer of Goldome Credit
Corporation (1992 to 1995).

Robert C. Sledd........... Chairman of the Board (since February 1995) and
6800 Paragon Place Chief Executive Officer (since 1987) of Performance
Suite 500 Food Group Company, a foodservice distributor
Richmond, Virginia 23230 headquartered in Richmond, Virginia.

William J. Weiskopf....... Vice President and General Manager of Eskimo Pie's
901 Moorefield Park Drive Flavors Division since September 1997; previously,
Richmond, Virginia 23236 National Sales Manager--Flavors (November 1995 to
August 1997) and Flavors Sales Manager (May 1994 to
November 1995) for Eskimo Pie.
</TABLE>

None of the individuals listed above has been convicted in a criminal
proceeding during the past five years. None of the individuals listed above
was a party to any judicial or administrative proceeding during the past five
years that resulted in a judgment, decree or final order enjoining the
individual from future violations of, or prohibiting activities subject to,
federal or state securities laws, or a finding of any violation of federal or
state securities laws. Each of the individuals listed above is a citizen of
the United States.

34
<PAGE>

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The table below sets forth, as of June 30, 2000, the number and percentage
of shares of Eskimo Pie's common stock held by persons known to Eskimo Pie to
be the owners of more than five percent of Eskimo Pie's issued and outstanding
common stock, each of Eskimo Pie's directors and executive officers during the
last fiscal year and all of Eskimo Pie's directors and executive officers as a
group. Except to the extent that shares may be held in joint tenancy with a
spouse or as otherwise indicated, each director or executive officer has sole
voting and investment power with respect to the shares shown. The beneficial
ownership shown for the four shareholders other than Eskimo Pie's directors
and executive officers is based upon the most recent filings received by
Eskimo Pie for such shareholders pursuant to Section 13(d) of the Securities
Exchange Act of 1934.

<TABLE>
<CAPTION>
Amount and Nature of Percent of
Beneficial Ownership Common Stock
Name and Address of Beneficial Owner of Common Stock Outstanding
------------------------------------ -------------------- ------------
<S> <C> <C>
CoolBrands International Inc. (1)........... 587,700 15.9%
(formerly, Yogen Fruz World-Wide, Inc.)
Toronto, Canada
Shamrock Farms Company (2).................. 514,566 13.9%
Phoenix, Arizona
Dimensional Fund Advisors Inc. (3).......... 213,800 5.8%
Santa Monica, California
Peak Management, Inc. (4)................... 160,600 4.3%
Boston, Massachusetts
Arnold H. Dreyfuss.......................... 28,080(5) *
Jupiter, Florida
Kimberly P. Ferryman........................ 21,254(6)(7) *
Richmond, Virginia
Wilson H. Flohr, Jr......................... 13,385(5)(8) *
Richmond, Virginia
Craig L. Hettrich........................... 6,443(6)(7) *
Richmond, Virginia
F. Claiborne Johnston, Jr................... 3,700(5)(9) *
Richmond, Virginia
V. Stephen Kangisser........................ 14,050(6)(7) *
Richmond, Virginia
David B. Kewer.............................. 82,255(6)(7) 2.2%
Richmond, Virginia
Daniel J. Ludeman........................... 9,698(5) *
Richmond, Virginia
Judith B. McBee............................. 7,125(5) *
Richmond, Virginia
Thomas M. Mishoe, Jr........................ 21,135(6)(7) *
Richmond, Virginia
Robert C. Sledd............................. 5,645(5) *
Richmond, Virginia
William J. Weiskopf......................... 8,482(6)(7) *
Richmond, Virginia
All Directors and Executive Officers........ 221,252(5)(6)(7) 6.0%
of Eskimo Pie as a Group (12 persons)
</TABLE>
--------
* Beneficial ownership does not exceed one percent of the outstanding shares
of Eskimo Pie's common stock.

(1) Based on a Schedule 13D, filed December 10, 1998, by CoolBrands (formerly
Yogen Fruz World-Wide Incorporated), as amended by Amendment Nos. 1, 2 and
3, filed December 17, 1998, July 1, 1999, and July 2, 1999, respectively.

35
<PAGE>

(2) Based on a Schedule 13D, filed September 10, 1999, by Shamrock Farms
Company, as amended by Amendment No. 1, filed October 26, 1999.
(3) Based on a Schedule 13G, filed by Dimensional Fund Advisors Inc. for the
year ended December 31, 1999, stating that it is a registered investment
advisor whose advisory clients own the shares indicated, but that
Dimensional possesses voting and/or investment power over the shares of
Eskimo Pie's common stock. Dimensional disclaims beneficial ownership of
such securities.
(4) Based on a Schedule 13D, filed on November 30, 1998, by Peak Management,
Inc., Peak Investment Limited Partnership and Peter H. Kamin, as amended
by Amendment Nos. 1, 2 and 3, filed September 28, 1999, January 27, 2000
and June 28, 2000, respectively. These filings indicate that Mr. Kamin has
shared voting and dispositive power over all the shares of Eskimo Pie's
common stock reported as beneficially owned by the collective Peak
entities in the preceding table.
(5) Includes shares under option that are currently exercisable or will be
exercisable within 60 days of June 30, 2000, and shares of restricted and
unrestricted stock, in each case granted to non-employee directors as
compensation for board service under the 1996 Incentive Stock Plan.
(6) Includes 6,000, 12,093, 66,667, 17,140, 7,667 and 19,990 shares under
option that are currently exercisable or will be exercisable by Messrs.
Hettrich, Kangisser, Kewer, Mishoe and Weiskopf and Ms. Ferryman,
respectively, within 60 days of June 30, 2000, granted under Eskimo Pie's
1992 and 1996 Incentive Stock Plans.
(7) Includes shares held by executive officers in Eskimo Pie's 401(k) Savings
Plan and Employee Stock Purchase Plan. Each participant in the respective
plans has the right to instruct the plans' trustee with respect to the
voting of shares allocated to his or her account.
(8) Includes 1,500 shares held by Mr. Flohr's wife; 2,000 shares held by Mr.
Flohr's wife as trustee; and 200 shares held as custodian.
(9) Includes 400 shares held by, or for the benefit of, a family member living
in Mr. Johnston's household, as to which shares Mr. Johnston disclaims
beneficial ownership.

To Eskimo Pie's knowledge, no director or executive officer of CoolBrands
holds any shares of Eskimo Pie common stock.

INDEPENDENT AUDITORS

The consolidated financial statements of Eskimo Pie appearing in Eskimo
Pie's Annual Report on Form 10-K for the year ended December 31, 1999,
incorporated herein by reference, have been audited by Ernst & Young, LLP,
independent auditors, as set forth in their report included therein and
incorporated herein by reference. Such consolidated financial statements are
incorporated herein by reference in reliance upon such report of such firm
given on their authority as experts in accounting and auditing.

36
<PAGE>

SELECTED FINANCIAL INFORMATION CONCERNING ESKIMO PIE

The following selected financial data for the two years ended December 31,
1999 was derived from the audited consolidated financial statements of Eskimo
Pie contained in Eskimo Pie's Annual Report on Form 10-K for the year ended
December 31, 1999. The financial data for the three month periods ended March
31, 2000 and 1999 was derived from the unaudited financial statements
contained in Eskimo Pie's Quarterly Report on Form 10-Q for the period ended
March 31, 2000. The unaudited statements include all adjustments, consisting
of normal recurring accruals, which Eskimo Pie considers necessary for a fair
presentation of the financial position and the results of operations for these
periods. Operating results for the three months ended March 31, 2000 are not
necessarily indicative of the results that may be expected for the entire year
ending December 31, 2000. The data should be read in conjunction with the
consolidated financial statements, related notes and other financial
information incorporated by reference herein. These reports and other
documents may be inspected at, and copies may be obtained from the same places
and in the manner set forth under "Where You Can Find More Information."

<TABLE>
<CAPTION>
Fiscal Quarter
Fiscal Year Ended: Ended:
------------------------- -------------------
December 31, December 31, March 31, March 31,
1999 1998 2000 1999
------------ ------------ --------- ---------
(Unaudited)
<S> <C> <C> <C> <C>
Statement of Operations Data:
Net sales....................... $66,452 $63,492 $16,386 $16,129
Cost of products sold........... 38,657 37,410 8,974 9,283
------- ------- ------- -------
Gross profit.................. 27,795 26,082 7,412 6,846
Advertising and sales promotion
expenses....................... 16,195 16,074 4,365 3,881
Selling, general and
administrative expenses........ 8,109 8,253 1,663 2,143
Special charges(1).............. 1,808 -- 200 314
------- ------- ------- -------
Operating income................ 1,683 1,755 1,184 508
Interest (income)/expense and
other--net..................... 356 493 65 140
------- ------- ------- -------
Pretax income from continuing
operations................... 1,327 1,262 1,119 368
Income tax expense.............. 491 467 414 136
------- ------- ------- -------
Net income.................... $ 836 $ 795 $ 705 $ 232
======= ======= ======= =======
Ratio of earnings to fixed
charges........................ $ 3.46 $ 2.79 $ 10.91 $ 3.31
Per Share Data:
Basic net income per share...... $ 0.24 $ 0.23 $ 0.20 $ 0.07
Diluted net income per share.... $ 0.24 $ 0.23 $ 0.20 $ 0.07
Balance Sheet Data (at end of
period):
Total current assets............ $12,397 $13,133 $15,701 $14,965
Property plant and equipment--
net............................ 6,578 7,665 6,374 7,070
Goodwill and other intangibles.. 16,598 17,645 16,390 17,395
Other assets.................... 913 1,645 734 1,636
Total assets.................... 36,486 40,088 39,199 41,066
Total current liabilities....... 8,468 6,788 10,473 9,115
Long term debt(2)............... 2,929 7,701 2,714 6,411
Postretirement benefits and
other liabilities.............. 2,293 3,373 2,350 3,201
Total shareholders' equity...... 22,796 22,226 23,662 22,339
</TABLE>
--------
(1) Special charges includes costs associated with the pursuit of a sale of
Eskimo Pie, examination of strategic alternatives to enhance shareholder
value, development of the company's growth and restructuring plan, payment
of retention bonuses to certain key employees, severance costs associated
with programs to reduce overhead expenses and proxy contest expenses
associated with the delayed annual meeting of shareholders held September
8, 1999.
(2) Includes bank debt and convertible subordinated notes outstanding on
December 31, 1998.

37
<PAGE>

In September 1999, the company's board of directors approved a plan which
would provide certain lump sum payments to key employees if a change in
control of the company occurred prior to December 31, 2000. Assuming all
employees covered remain employed through a change in control, these payments
would total approximately $1.8 million. In addition, the plan also provides
for certain lump sum payments as well as continued medical and healthcare
benefits to employees who are terminated subsequent to a change in control of
the company. None of these contingent liabilities is reflected in the summary
financial data provided above.

LEGAL MATTERS

Virginia Affiliated Transactions Statute

Eskimo Pie is subject to the Virginia Affiliated Transactions Statute which
is a part of the Virginia Stock Corporation Act. The Virginia Affiliated
Transactions Statute generally prohibits a publicly held Virginia corporation
from engaging in an "affiliated transaction" with an "interested shareholder"
for a period of three years after the date on which the person became an
interested shareholder, unless (i) a majority of disinterested directors
approved in advance the transaction in which the interested shareholder became
an interested shareholder, or (ii) the affiliated transaction is approved by
the affirmative vote of a majority of the disinterested directors and by the
affirmative vote of the holders of two-thirds of the voting shares other than
the shares beneficially owned by the interested shareholder. A corporation may
engage in an affiliated transaction with an interested shareholder beginning
three years after the date of the transaction in which the person became an
interested shareholder if (A) the transaction is approved by a majority of the
disinterested directors or by the affirmative vote of the holders of two-
thirds of the voting shares other than the shares beneficially owned by the
interested shareholder, or (B) the transaction complies with certain statutory
fair price provisions.

Subject to certain exceptions, under the Virginia Affiliated Transactions
Statute, an "interested shareholder" is a person who beneficially owns 10% or
more of any class of the corporation's outstanding voting securities or an
affiliate or associate of a corporation that was an interested shareholder at
any time within the preceding three years. In general terms, an "affiliated
transaction" includes: (i) any merger or share exchange with an interested
shareholder; (ii) the transfer to any interested shareholder of corporate
assets with a fair market value greater than 5% of the corporation's
consolidated net worth; (iii) the issuance to any interested shareholder of
voting shares with a fair market value greater than 5% of the aggregate fair
market value of all outstanding voting shares of the corporation; (iv) any
reclassification of securities or corporate reorganization that will have the
effect of increasing by more than 5% the percentage of the corporation's
outstanding voting shares beneficially owned by any interested shareholder;
and (v) the dissolution of the corporation if proposed by or on behalf of any
interested shareholder.

Because CoolBrands became a 10% shareholder of Eskimo Pie in December 1998,
without the advance approval of a majority of disinterested directors of
Eskimo Pie, CoolBrands is an "interested shareholder" with respect to the
proposed merger. As a result, to be approved, the merger must receive the
affirmative vote of a majority of the disinterested directors and the
affirmative vote of the holders of two-thirds of Eskimo Pie's voting shares
other than the shares beneficially owned by CoolBrands. This means that of the
3,485,757 shares of Eskimo Pie common stock outstanding, 1,932,038 of those
shares (other than those held by CoolBrands) need to vote in favor of the
merger in order for the merger to be approved by the shareholders of Eskimo
Pie.

Control Share Acquisition Statute

Eskimo Pie is also subject to the Control Share Acquisition Statute under
the Virginia Stock Corporation Act. The Control Share Acquisition Statute
provides that shares of a publicly held Virginia corporation that are acquired
in a "control share acquisition" generally will have no voting rights unless
such rights are conferred on those shares by the vote of the holders of a
majority of all the outstanding shares other than interested shares. A control
share acquisition is defined, with certain exceptions, as the acquisition of
the beneficial ownership of voting shares which would cause the acquirer to
have voting power within the following ranges or to move upward from one range
into another: (i) 20% to 33-1/3%; (ii) 33-1/3% to 50%; or (iii) more than 50%,
of such votes.

38
<PAGE>

The Control Share Acquisition Statute does not apply to an acquisition of
shares of a publicly held Virginia corporation (i) pursuant to a merger or
share exchange effected in compliance with the Virginia Stock Corporation Act
if the issuing public corporation is a party to the merger or share exchange
agreement, (ii) pursuant to a tender or exchange offer that is made pursuant
to an agreement to which the issuing public corporation is a party, or (iii)
directly from the issuing public corporation. Eskimo Pie is a party to the
merger agreement, under which the merger or tender offer would be consummated.
Accordingly, the provisions of the Control Share Acquisition Statute are not
applicable to the merger, the tender offer or the other transactions
contemplated by the merger agreement.

OTHER MATTERS

Eskimo Pie knows of no other matter to be presented at the special meeting.
However, if other matters should properly come before the special meeting, it
is the intention of the persons named in the enclosed proxy to vote the proxy
with respect to such matters in accordance with their best judgment.

WHERE YOU CAN FIND MORE INFORMATION

Eskimo Pie files annual, quarterly and other reports, proxy statements and
other information with the Securities and Exchange Commission. You may read
and copy any documents Eskimo Pie files with the Commission at the
Commission's public reference rooms in the following locations:

Public Reference Room New York Regional Office Chicago Regional Office
450 Fifth Street,N.W. 7 World Trade Center Citicorp Center
Room 1024 Suite 1300 500 West Madison Street
Washington, D.C. 20549 New York, NY 10048 Suite 1400
Chicago, IL 60661-2511

You can call the Commission at 1-800-732-0330 for further information about
the public reference rooms. Eskimo Pie's Commission filings are also available
to the public over the Internet at the Commission 's web site at
http://www.sec.gov. In addition, Eskimo Pie's Common Stock is listed and
traded on The Nasdaq Stock Market. Reports, proxy statements and other
information can be inspected and copied at The Nasdaq Stock Market, 1735 K
Street, NW, Washington, DC 20006-1500. Many of Eskimo Pie's Commission filings
also may be accessed on the worldwide web at http://www.cfonews.com/epie/.

We have not authorized anyone to provide you with information with respect
to the merger or the companies that is different from, or in addition to, that
contained in this proxy statement or in any of the materials that we have
incorporated by reference into this proxy statement. Therefore, if anyone does
give you information of this sort, you should not rely on it. You should rely
only on the information provided (and not later changed) in this proxy
statement and in any of the materials that we have incorporated by reference
herein. You also should not assume that the information in this proxy
statement is accurate as of any date other than the date on the front of this
document.

INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE

The following documents previously filed by Eskimo Pie with the Commission
(File No. 0-19867) are incorporated herein by reference:

1. Eskimo Pie's Annual Report on Form 10-K for the fiscal year ended
December 31, 1999, as amended;

2. Eskimo Pie's Quarterly Report on Form 10-Q for the fiscal quarter ended
March 31, 2000;

3. Eskimo Pie's Current Report on Form 8-K, filed with the Commission on
May 4, 2000, regarding the execution of the merger agreement by Eskimo
Pie, EP Acquisition and CoolBrands;

39
<PAGE>

4. Eskimo Pie's Current Report on Form 8-K, filed with the Commission on
June 1, 2000, regarding the execution of an amendment to the merger
agreement by Eskimo Pie, EP Acquisition and CoolBrands; and

5. Eskimo Pie's Current Report on Form 8-K, filed with the Commission on
July 14, 2000, regarding the execution of a remediation agreement by
Eskimo Pie and the New Jersey Department of Environmental Protection,
execution of Amendment No. 2 to the Eskimo Pie Rights Agreement and
certain actions taken by the Eskimo Pie board in connection with the
proposed transaction.

Copies of the documents listed above (other than exhibits thereto that are
not specifically incorporated by reference herein) are available, without
charge, to any person, including any beneficial owner of Eskimo Pie common
stock, to whom this proxy statement is delivered, upon oral or written request
to Thomas M. Mishoe, Jr., Secretary, Eskimo Pie Corporation, 901 Moorefield
Park Drive, Richmond, Virginia 23236 (telephone: 804-560-8400).

In addition, Eskimo Pie's Annual Report on Form 10-K for the fiscal year
ended December 31, 1999, the Amendment No. 1 on Form 10-K/A to its Annual
Report on Form 10-K for the fiscal year ended December 31, 1999, and its
Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 2000, are
attached as Annexes C, D and E, respectively, to this proxy statement.

Any statements contained in a document incorporated or deemed to be
incorporated herein shall be deemed to be modified or superseded for purposes
hereof to the extent that a statement contained herein modifies or supersedes
such statement. Any statement so modified or superseded shall not be deemed to
constitute a part hereof except as so modified or superseded. All information
appearing in this proxy statement is qualified in its entirety by the
information and financial statements (including notes thereto) appearing in
the documents incorporated herein by reference.

40
<PAGE>

ANNEX A --
COMPOSITE
CONFORMED
COPY

--------------------------------------------------------------------------------

AGREEMENT AND PLAN OF MERGER

AMONG

COOLBRANDS INTERNATIONAL INC.

EP ACQUISITION CORP.

AND

ESKIMO PIE CORPORATION

Dated as of May 3, 2000

--------------------------------------------------------------------------------
* This Composite Conformed Copy reflects an amendment that was entered into on
June 1, 2000.
<PAGE>

AGREEMENT AND PLAN OF MERGER

TABLE OF CONTENTS
(Not Part of the Agreement)

<TABLE>
<CAPTION>
Page
----
ARTICLE 1
The Tender Offer
<C> <S> <C>
1.1 The Offer......................................................... A-1
1.2 Company Action.................................................... A-2
1.3 Board of Directors................................................ A-3

ARTICLE 2
The Merger
2.1 The Merger........................................................ A-4
2.2 Articles of Incorporation......................................... A-4
2.3 Bylaws............................................................ A-5
2.4 Directors and Officers............................................ A-5
2.5 Effective Time.................................................... A-5

ARTICLE 3
Conversion of Shares
3.1 Conversion of Shares.............................................. A-5
3.2 Conversion of Newco Common Stock.................................. A-5
3.3 Exchange of Shares................................................ A-5
3.4 Company Stock Plans............................................... A-7

ARTICLE 4
Representations and Warranties of the Company
4.1 Organization...................................................... A-8
4.2 Capitalization.................................................... A-8
4.3 Authorization of this Agreement................................... A-9
4.4 Governmental Consents and Approvals............................... A-9
4.5 No Conflicts or Violations........................................ A-10
4.6 Compliance........................................................ A-10
4.7 Financial Statements and SEC Reports: No Undisclosed Liabilities.. A-11
4.8 Certain Contracts and Arrangements................................ A-12
Offer Documents; Proxy Statement; Other Information; Schedule 14D-
4.9 9................................................................. A-12
4.10 Assets Owned by the Company or Used in the Business............... A-12
4.11 Intellectual Property............................................. A-13
4.12 Labor Relations; Employees........................................ A-14
4.13 Employee Agreements and Plans..................................... A-14
4.14 Absence of Certain Changes........................................ A-15
4.15 Litigation........................................................ A-15
4.16 Taxes............................................................. A-16
4.17 Environmental Matters............................................. A-16
4.18 Board Approval; State Takeover Statutes; Shareholder Vote......... A-17
4.19 Finders and Investment Bankers.................................... A-17
4.20 Insurance Policies................................................ A-17
4.21 Material Contracts and Agreements................................. A-18
</TABLE>
<PAGE>

<TABLE>
<CAPTION>
Page
----
ARTICLE 5
Representations and Warranties of the Parent and Newco
<C> <S> <C>
5.1 Organization...................................................... A-18
5.2 Authorization of this Agreement................................... A-18
5.3 Consents and Approvals; No Violations............................. A-18
5.4 Offer Documents; Proxy Statement; Other Information............... A-19
5.5 Financial Ability to Perform...................................... A-19
5.6 Organization of Newco............................................. A-19
5.7 Finders and Investment Bankers.................................... A-19

ARTICLE 6
Covenants
6.1 Conduct of the Business of the Company............................ A-19
6.2 Access to Information............................................. A-21
6.3 Shareholder Approval.............................................. A-21
6.4 Best Efforts...................................................... A-22
6.5 Governmental Consents............................................. A-22
6.6 Public Announcements.............................................. A-22
6.7 Consent of the Parent............................................. A-22
6.8 No Solicitation................................................... A-22
6.9 Indemnification; Insurance........................................ A-23
6.10 Employee Benefits................................................. A-25
6.11 Transfer Taxes.................................................... A-25
6.12 Anti-takeover Statutes............................................ A-25
6.13 Notification of Certain Matters................................... A-25
6.14 Amendment to Schedule To, Proxy Statement and Schedule 14D-9...... A-25
6.15 Satisfaction of New Jersey Industrial Site Recovery Act........... A-26
6.16 Third Party Consents.............................................. A-26

ARTICLE 7
Closing Conditions
7.1 Conditions to the Obligations of the Parent, Newco and the
Company........................................................... A-26
7.2 Conditions to the Obligations of the Company...................... A-27
7.3. Conditions to the Obligations of the Parent and Newco............. A-27

ARTICLE 8
Closing
8.1 Time and Place.................................................... A-28
8.2 Filings at the Closing............................................ A-28

ARTICLE 9
Termination and Abandonment
9.1 Termination....................................................... A-28
9.2 Procedure and Effect of Termination............................... A-29
9.3 Fees and Expenses................................................. A-29

ARTICLE 10
Miscellaneous
10.1 Amendment and Modification........................................ A-29
10.2 Waiver of Compliance; Consents.................................... A-29
10.3 Survival of Warranties............................................ A-30
10.4 Notices........................................................... A-30
10.5 Assignment; Parties in Interest................................... A-31
10.6 Specific Performance.............................................. A-31
</TABLE>

A-ii
<PAGE>

<TABLE>
<CAPTION>
Page
----
<C> <S> <C>
10.7 Governing Law...................................................... A-31
10.8 Counterparts....................................................... A-31
10.9 Interpretation..................................................... A-31
10.10 Entire Agreement................................................... A-31
</TABLE>

<TABLE>
<C> <S> <C>
Annex A (Conditions to the Offer).............................. A-33
Annex B (Plan of Merger)....................................... A-35
Annex C (Company Disclosure Letter)............................ (not included)
</TABLE>

A-iii
<PAGE>

GLOSSARY OF DEFINED TERMS

<TABLE>
<CAPTION>
Defined Term Where Defined
------------ -------------
<S> <C>
Acquisition Proposal.......................... Section 6.8(a)
affiliate..................................... Section 10.9(b)
Agreement..................................... First paragraph of this Agreement
Antitrust Division............................ Section 4.4
Antitrust Laws................................ Section 4.4
Articles...................................... Section 2.2
Articles of Merger............................ Section 2.5
associate..................................... Section 10.9(b)
Benefit Plan.................................. Section 4.13(a)
Board of Directors............................ Recitals
Business...................................... Section 4.11(a)
Bylaws........................................ Section 2.3
Cash Payment.................................. Section 3.4(a)
Certificate................................... Section 3.1(a)
Closing....................................... Section 8.1
Closing Date.................................. Section 8.1
Code.......................................... Section 4.16(d)
Company....................................... First paragraph of this Agreement
Company Benefit Plan.......................... Section 4.13(a)
Company Common Stock.......................... Recitals
Company Disclosure Letter..................... Article 4
Company-owned Marks........................... Section 4.11(a)
Confidentiality Agreement..................... Section 1.2
Disclosure Statements......................... Section 4.7(a)
Effective Time................................ Section 2.5
Environmental Laws............................ Section 4.17(a)
Environmental Permits......................... Section 4.17(b)
ERISA......................................... Section 4.13(a)
ERISA Affiliate............................... Section 4.13(a)
Exchange Act.................................. Section 1.3(a)
Exchange Agent................................ Section 3.3(a)
Exchange Fund................................. Section 3.3(a)
Executive Retention Agreements................ Section 4.13(d)
FTC........................................... Section 4.4
FUSI Opinion.................................. Section 7.2
GAAP.......................................... Section 4.7(a)
Governmental Entity........................... Section 4.4
Hazardous Materials........................... Section 4.17(b)
HSR Act....................................... Section 4.4
Indemnified Party............................. Section 6.9(a)
Indemnified Parties........................... Section 6.9(a)
Initial Expiration Date....................... Section 1.1(a)
Intellectual Property......................... Section 4.11(f)
ISRA.......................................... Section 6.15
Laws.......................................... Section 4.6(a)
Leased Personal Property...................... Section 4.10(a)
Leased Real Property.......................... Section 4.10(c)
Liens......................................... Section 4.5
Material Adverse Effect....................... Section 4.1(a)
</TABLE>

A-iv
<PAGE>

<TABLE>
<CAPTION>
Defined Term Where Defined
------------ -------------
<S> <C>
Merger........................................ Recitals
Merger Agreement.............................. First paragraph of this Agreement
Merger Consideration.......................... Section 3.1(a)
Minimum Condition............................. Section 1.1(a)
Newco......................................... First paragraph of this Agreement
Newco Common Stock............................ Section 3.2
NJDEP......................................... Section 6.15
Offer Conditions.............................. Section 1.1(a)
Offer......................................... Recitals
Offer Price................................... Recitals
Offer Documents............................... Section 1.1(b)
Options....................................... Section 3.4(a)
Owned Real Property........................... Section 4.10(b)
Parent........................................ First paragraph of this Agreement
Permits....................................... Section 4.6(b)
person........................................ Section 10.9(a)
Plan of Merger................................ Section 1.2(b)
Potential Acquirer............................ Section 6.8(b)
Preferred Stock............................... Section 4.2(a)
Proxy Statement............................... Section 4.9
Restricted Shares............................. Section 3.4(b)
Return........................................ Section 4.16(d)
Rights Agreement.............................. Section 1.2(b)
Savings Plan.................................. Section 3.4(c)
SEC........................................... Section 1.1(b)
Securities Act................................ Section 4.7(a)
Schedule 14D-9................................ Section 1.2(c)
Shares........................................ Recitals
Shareholders.................................. Recitals
Shareholders' Meeting......................... Section 1.1(a)
Stock Incentive Plans......................... Section 3.4(a)
Stock Plans................................... Section 3.4(d)
Stock Purchase Plan........................... Section 3.4(c)
subsidiary.................................... Section 10.9(c)
Superior Proposal............................. Section 6.8(e)
Surviving Corporation......................... Section 2.1(a)
Surviving Corporation Common Stock............ Section 3.2
Tax........................................... Section 4.16(d)
Termination Date.............................. Section 9.1(b)
Termination Fee............................... Section 9.3(b)
to the knowledge.............................. Section 10.9(d)
Virginia Act.................................. Section 1.2(b)
Virginia Commission........................... Section 2.5
Welfare Benefit Plan.......................... Section 6.10
</TABLE>

A-v
<PAGE>

AGREEMENT AND PLAN OF MERGER

AGREEMENT AND PLAN OF MERGER, dated as of May 3, 2000, among CoolBrands
International Inc., a Canadian corporation (the "Parent"), EP Acquisition
Corp., a Virginia corporation and wholly-owned subsidiary of the Parent
("Newco"), and Eskimo Pie Corporation, a Virginia corporation (the "Company").
(This Agreement and Plan of Merger together with the Offer Conditions and the
Plan of Merger (each as defined below), are hereinafter referred to
collectively as the "Agreement" or the "Merger Agreement").

RECITALS

WHEREAS, the respective boards of directors of the Parent, Newco and the
Company, and the sole shareholder of Newco have approved the acquisition of
the Company by Newco pursuant and subject to the terms and conditions of this
Agreement;

WHEREAS, to complete such acquisition, the respective boards of directors of
the Parent, Newco and the Company and the sole shareholder of Newco, have
approved the merger of Newco into the Company (the "Merger"), pursuant to and
subject to the terms and conditions of this Agreement;

WHEREAS, to address the possibility that the Company may not be able to
obtain the requisite vote of Company Shareholders to enable the Merger to be
approved in accordance with applicable Virginia law, Parent has agreed to make
a cash tender offer (the "Offer") to purchase for cash all of the issued and
outstanding shares as of the date hereof (the "Shares") of common stock, $1.00
par value per share, of the Company (the "Company Common Stock"), pursuant and
subject to the terms and conditions of this Agreement, at a price of $10.25
per Share net to the holders (the "Shareholders") of the Shares in cash (such
price or such higher price per Share as may be paid in the Offer being
referred to herein as the "Offer Price"); and

WHEREAS, the Board of Directors of the Company (the "Board of Directors")
has unanimously (i) determined that each of the Merger and the Offer is fair
to, and in the best interests of, the Shareholders; (ii) approved each of the
Offer and the Merger and adopted this Agreement; (iii) recommended the
approval and adoption of this Agreement by the Shareholders; and (iv) agreed
to recommend acceptance of the Offer by the Shareholders.

AGREEMENT

NOW, THEREFORE, in consideration of the premises and of the mutual
covenants, representations, warranties and agreements herein contained, the
parties hereto agree as follows:

ARTICLE 1

The Tender Offer

1.1. The Offer. (a) Provided that this Agreement shall not have been
terminated in accordance with Article 9 hereof and no event shall have
occurred which would result in a failure to satisfy any of the conditions set
forth in Annex A hereto (the "Offer Conditions"), if the requisite shareholder
vote for adoption and approval of the Merger and the Agreement shall not have
been obtained at the special meeting of the Shareholders, or any adjournment
thereof, duly called by the Company and held for the purpose of approving the
Merger and the Agreement (the "Shareholders's Meeting"), then not later than 5
business days after the Shareholders' Meeting, Newco shall, and the Parent
shall cause Newco to, commence (within the meaning of Rule 14d-2(a) of the
Exchange Act) the Offer. The Offer shall be made by means of an offer to
purchase and related letter of transmittal containing the terms set forth in
this Agreement and the Offer Conditions. The obligations of Newco and the
Parent to consummate the Offer and to accept for payment and purchase the
Shares tendered shall be subject only to the Offer Conditions. Newco expressly
reserves the right to waive any of the Offer Conditions or modify any of the
terms of the Offer; provided, however, that without the consent of the
Company, Newco shall not, and the Parent shall not permit Newco to, (i) reduce
the number of Shares sought in the Offer,

-A-1-
<PAGE>

(ii) reduce the Offer Price, (iii) modify the condition set forth in clause
(ii) of the first sentence of Annex A (the "Minimum Condition"), (iv) impose
conditions to the Offer in addition to the Offer Conditions, (v) except as
required by any rule, regulation, interpretation or position of the SEC
applicable to the Offer, extend the Offer beyond the Termination Date as
specified in Section 9.1(b), (vi) change the form of consideration payable in
the Offer, or (vii) amend any other condition of the Offer in any manner
adverse to the Shareholders. Notwithstanding the foregoing, Newco shall, and
the Parent agrees to cause Newco to, extend the Offer up to sixty (60) days in
the aggregate after the initial expiration date of the Offer (the "Initial
Expiration Date"), in one or more periods of not more than 10 business days,
if at the Initial Expiration Date of the Offer, or any extension thereof, any
condition to the Offer (other than the condition set forth in paragraph (b) of
the Offer Conditions) is not satisfied or waived. In addition, if all of the
Offer Conditions, including the Minimum Condition, are satisfied as of the
Initial Expiration Date, Newco shall, and the Parent agrees to cause Newco to,
provide a subsequent offering period pursuant to Rule 14d-11 of the Exchange
Act. The Offer Conditions are for the sole benefit of the Parent and Newco and
may be asserted by the Parent and Newco regardless of the circumstances giving
rise to any failure to satisfy such Offer Conditions and, except as otherwise
provided in this paragraph, may be waived by Newco in whole or in part.
Subject only to the Offer Conditions and as soon as reasonably practicable,
Newco shall, and the Parent shall cause Newco to, pay for all of the Shares
validly tendered and not withdrawn pursuant to the Offer.

(b) Provided that this Agreement shall not have been terminated in
accordance with Article 9 hereof and no event shall have occurred which would
result in a failure to satisfy any of the Offer Conditions, the Parent and
Newco shall file with the Securities and Exchange Commission (the "SEC"), as
promptly as practicable on the date of commencement of the Offer, a Tender
Offer Statement on Schedule TO (together with all supplements or amendments
thereto, and including all exhibits, the "Offer Documents") with respect to
the Offer. The Parent and Newco shall give the Company and its counsel a
reasonable opportunity to review and comment on the Offer Documents prior to
their being filed with the SEC. The Parent and Newco shall furnish the Company
and its counsel in writing with any comments that the Parent, Newco or their
counsel may receive from the SEC or its staff with respect to the Offer
Documents, promptly after receipt of such comments and shall provide the
Company and its counsel with a reasonable opportunity to participate in the
response of the Parent or Newco to such comments. It is acknowledged by the
parties that the letter of transmittal constituting part of the Offer
Documents shall include an irrevocable proxy in favor of designees of Newco to
vote in such manner as each such designee (or his substitute) shall, in his
sole discretion, deem proper, and otherwise act (including pursuant to written
consent) with respect to all the Shares tendered pursuant to such letter of
transmittal which are accepted for payment and purchased by Newco prior to the
time of such vote or action.

(c) The Parent shall provide or cause to be provided to Newco all of the
funds necessary to purchase any Shares that Newco becomes obligated to
purchase pursuant to the Offer.

(d) If the Offer is consummated, the Board of Directors shall, to the extent
it deems appropriate, take the actions contemplated to be taken pursuant to
Section 3.4 if the Merger were to be consummated.

(e) If the Offer is consummated, at such time as Parent and Newco are able
to effect a merger of Newco (or any other subsidiary or affiliate of Parent)
and the Company under the Virginia Act and other applicable law, Parent will
propose and take all reasonable acts required to consummate a merger
transaction in which the remaining Shareholders would receive $10.25 net per
share for their shares of stock in the Company.

1.2. Company Action. (a) In connection with the Offer, the Company (unless
the Company and Parent agree that the Company will make such mailing on behalf
of Parent and Newco) shall cause its transfer agent as promptly as possible to
furnish Newco with mailing labels, security position listings and any
available listings or computer files containing the names and addresses of
record holders of the Shares as of a recent date, and shall

-A-2-
<PAGE>

furnish Newco with such additional information (including, but not limited to,
updated lists of holders of Shares and their addresses) and such other
assistance as the Parent or Newco may reasonably request in communicating the
Offer to the Shareholders. The information contained in any such labels,
listings and files shall be used solely for the purpose of communicating the
Offer or disseminating any other documents necessary to consummate the Merger
as contemplated in this Agreement and shall in all other respects be subject
to the provisions of the Confidentiality Agreement, dated December 23, 1998
(the "Confidentiality Agreement"), between the Parent and the Company. The
Confidentiality Agreement shall remain in full force and effect and, if this
Agreement is terminated and neither the Offer nor the Merger is consummated,
the Parent shall deliver or cause to be delivered to the Company all copies of
any such labels, listings, files and other additional information provided by
the Company then in the Parent's or Newco's possession or in the possession of
any of their agents or representatives.

(b) The Company hereby consents to the Offer and the Merger, and represents
and warrants to the Parent and Newco that the Board of Directors of the
Company (at a meeting duly called and held at which a quorum was present), as
part of its approval of this Agreement, has unanimously (i) approved the Offer
and the Merger and adopted the Agreement, including without limitation the
Plan of Merger set forth in Annex B hereto and made a part hereof (the "Plan
of Merger"), in accordance with the requirements of the Virginia Stock
Corporation Act, as amended (the "Virginia Act"), which approval satisfies in
full the requirement in Section 13.1-725.1 of the Virginia Act that the Merger
be approved by the affirmative vote of a majority (but not less than two) of
the disinterested directors and the requirement of Section 13.1-718 of the
Virginia Act that the Plan of Merger be adopted by the Board of Directors,
(ii) determined that each of the Offer and the Merger is advisable, fair to
and in the best interests of the Shareholders, (iii) resolved to recommend
approval and adoption of this Agreement and approval of the Merger (pursuant
to the Virginia Act) by the Shareholders, (iv) resolved to recommend
acceptance of the Offer by the Shareholders, and (v) taken all action
necessary to render the Rights Agreement dated as of January 21, 1993 between
the Company and First Union National Bank, as successor Rights Agent, as
amended (the "Rights Agreement") inapplicable to the Offer and the Merger. The
Company and the Board of Directors shall take such other and further actions
within its authority that are necessary or appropriate, at the reasonable
request of the Parent or Newco, to obtain the vote of the Shareholders
required to approve the Merger (to the extent such approval is required by the
Virginia Act).

(c) Concurrently with the commencement of the Offer, the Company shall file
with the SEC a Tender Offer Solicitation/Recommendation Statement on Schedule
14D-9 (together with any amendments or supplements thereto, and including all
exhibits, the "Schedule 14D-9") with respect to the Offer which shall contain
the recommendations of the Board of Directors referred to in Section 1.2(b)
above. If requested by the Parent, the Schedule 14D-9 shall be mailed together
with the Offer Documents. The Company shall give the Parent and Newco and
their counsel a reasonable opportunity to review and comment on the Schedule
14D-9 prior to its being filed with the SEC. The Company shall furnish the
Parent and Newco and their counsel in writing with any comments that the
Company or its counsel may receive from the SEC or its staff with respect to
the Schedule 14D-9, promptly after receipt of such comments and shall provide
the Parent and Newco and their counsel with a reasonable opportunity to
participate in the response of the Company to such comments.

1.3. Board of Directors. (a) If requested by the Parent, simultaneously with
the acceptance for payment of, and payment by Newco in accordance with the
Offer of, Shares which, together with the Company Common Stock owned by Parent
and Newco, represent a majority of the total voting power of all shares of
capital stock of the Company outstanding on a fully diluted basis, the Company
shall take all actions necessary to entitle Newco to designate such number of
directors on the Board of Directors of the Company, rounded up to the next
whole number, as shall give Newco, subject to compliance with Section 14(f) of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
representation on such Board of Directors equal to at least that number of
directors which equals the product of the total number of directors on the
Board of Directors (giving effect to the directors elected pursuant to this
sentence) multiplied by the percentage that such number of Shares so accepted
for payment and paid for, purchased or otherwise acquired or owned by Newco or
the Parent bears to

-A-3-
<PAGE>

the aggregate number of Shares outstanding and the Company and its Board of
Directors shall, at such time, take any and all such action reasonably
necessary to cause Newco's designees to be appointed to the Company's Board of
Directors (including increasing the size of the Board of Directors and/or
causing directors to resign). The Company shall cause Newco's designees to be
recommended, approved and elected by the Company's Board of Directors, which
recommendation, approval and election shall satisfy in full the requirement in
Section 13.1-725 of the Virginia Act that such designees be recommended for
election by, or be elected to fill a vacancy and receive the affirmative vote
of, a majority of the disinterested directors then on the Board of Directors,
so that the designees of Newco shall constitute "disinterested directors" with
relation to the Parent, Newco and their affiliates for purposes of Article 14
of the Virginia Act. In addition, at the same time that Newco is entitled to
representation on the Board of Directors pursuant to the preceding provisions,
the Company, if so requested, shall cause persons designated by Newco to
constitute the same percentage of each committee of the Board of Directors,
each board of directors of each subsidiary of the Company and each committee
of each such board.

(b) The Company's obligations with respect to the election of Newco's
designees to the Board of Directors shall be subject to Section 14(f) of the
Exchange Act and Rule 14f-1 promulgated thereunder. The Company shall promptly
take all actions required pursuant to Section 14(f) and Rule 14f-1 in order to
fulfill its obligations under this Section 1.3 and shall include in the
Schedule 14D-9 such information with respect to the Company and its officers
and directors as is required under Section 14(f) and Rule 14f-1. The Parent
and Newco shall supply to the Company in writing and will be solely
responsible for any information required by Section 14(f) and Rule 14f-1 with
respect to either of them and their nominees, officers, directors and
affiliates.

(c) The Parent, Newco and the Company shall, prior to consummation of the
Offer, take such actions as are necessary to call a special meeting of the
holders of shares of Company Common Stock, to be held not later than five (5)
business days following the Initial Expiration Date and consummation of the
Offer in accordance with the terms of this Agreement, for the purpose of
electing to the Board of Directors, in the place and stead of the then current
members of the Board of Directors, nominees of Newco, as set forth in the
Proxy Statement. The Company shall cause such nominees of Newco to be
recommended for election to the Board of Directors by the members of the Board
of Directors as constituted prior to consummation of the Offer, which
recommendation shall satisfy in full the requirement in Section 13.1-725 of
the Virginia Act that such designees be recommended for election by, or be
elected to fill a vacancy and receive the affirmative vote of, a majority of
the disinterested directors then on the Board of Directors, so that the
nominees of Newco shall constitute "disinterested directors" with relation to
the Parent, Newco and their affiliates for purposes of Article 14 of the
Virginia Act.

ARTICLE 2

The Merger

2.1. The Merger. (a) Upon the terms and subject to the satisfaction or
waiver, if permissible, of the conditions set forth in Article 7 hereof, as
promptly as practicable in accordance with the provisions of this Agreement
and the Virginia Act, the parties hereto shall cause Newco to be merged with
and into the Company in accordance with this Agreement and pursuant to the
Plan of Merger, and the Company shall be the surviving corporation
(hereinafter sometimes called the "Surviving Corporation") and shall continue
its corporate existence under the laws of the Commonwealth of Virginia. At the
Effective Time, pursuant to the Virginia Act the separate existence of Newco
shall cease.

(b) The Surviving Corporation shall retain the name of the Company and shall
possess all the rights, privileges, immunities, powers and franchises of Newco
and the Company and shall by operation of law become liable for all the debts,
liabilities and duties of the Company and Newco. In addition, the Merger shall
have the other effects provided for in the applicable provisions of the
Virginia Act.

2.2. Articles of Incorporation. The Articles of Incorporation, as amended,
of the Company (the "Articles"), as in effect immediately prior to the
Effective Time, shall be the articles of incorporation of the Surviving
Corporation, until thereafter amended as provided therein and in accordance
with the Virginia Act.

-A-4-
<PAGE>

2.3. Bylaws. The bylaws, as amended, of the Company (the "Bylaws"), as in
effect immediately prior to the Effective Time, shall be the bylaws of the
Surviving Corporation, until thereafter amended as provided therein and in
accordance with the Virginia Act.

2.4. Directors and Officers. At the Effective Time, the directors of Newco
immediately prior to the Effective Time shall be the directors of the
Surviving Corporation, each of such directors to hold office, subject to the
applicable provisions of the articles of incorporation and bylaws of the
Surviving Corporation, until the next annual shareholders' meeting of the
Surviving Corporation and until their respective successors shall be duly
elected or appointed and qualified. At the Effective Time, the officers of
Newco immediately prior to the Effective Time shall, subject to the applicable
provisions of the articles of incorporation and bylaws of the Surviving
Corporation, be the officers of the Surviving Corporation until their
respective successors shall be duly elected or appointed and qualified.

2.5. Effective Time. As soon as is practicable after the Closing, the
parties hereto shall cause the Merger to be consummated by delivering to the
State Corporation Commission of the Commonwealth of Virginia (the "Virginia
Commission") articles of merger (the "Articles of Merger") in such form as
required by, and executed and acknowledged in accordance with, the relevant
provisions of the Virginia Act. The Merger shall become effective as of the
time that the Virginia Commission finds that the Articles of Merger comply
with the requirements of law and that all required fees have been paid and it
shall issue a certificate of merger with respect to the Merger for record in
accordance with the relevant provisions of the Virginia Act (or at such later
time specified as the effective time in the Articles of Merger) (the
"Effective Time").

ARTICLE 3

Conversion of Shares

3.1. Conversion of Shares. (a) At the Effective Time, each Share (except for
Shares then owned beneficially or of record by the Parent or Newco or any
other subsidiary of the Parent), shall, by virtue of the Merger and without
any action on the part of the holder thereof, be converted into the right to
receive $10.25 (the "Merger Consideration") in cash payable to the holder
thereof, without interest thereon, upon surrender of the certificate
representing such Share (the "Certificate").

(b) At the Effective Time, each Share that is then owned beneficially or of
record by the Parent or Newco or any other subsidiary of the Parent shall, by
virtue of the Merger and without any action on the part of the holder thereof,
be canceled and retired and cease to exist, without any conversion thereof.

(c) At the Effective Time, the Shareholders shall cease to have any rights
as shareholders of the Company and, except as otherwise expressly set forth
herein, their sole right shall be the right to surrender their Certificates in
exchange for payment of the Merger Consideration per Share.

3.2. Conversion of Newco Common Stock. Each share of common stock, par value
$.01 per share ("Newco Common Stock"), of Newco issued and outstanding
immediately prior to the Effective Time shall, by virtue of the Merger and
without any action on the part of the holder thereof, be converted into and
exchangeable for one fully paid and non-assessable share of common stock, par
value $1.00 per share ("Surviving Corporation Common Stock"), of the Surviving
Corporation. From and after the Effective Time, each outstanding certificate
theretofore representing shares of Newco Common Stock shall be deemed for all
purposes to evidence ownership of and to represent the same number of shares
of Surviving Corporation Common Stock.

3.3. Exchange of Shares. (a) Immediately prior to the Effective Time, Newco
shall, and the Parent shall cause Newco to, deposit in trust with a bank or
trust company in the United States, designated by Newco and reasonably
acceptable to the Company (the "Exchange Agent"), cash in an aggregate amount
(such aggregate amount being hereinafter referred to as the "Exchange Fund")
equal to the sum of: (i) the product of (x) the

-A-5-
<PAGE>

number of Shares (other than any Shares owned beneficially or of record by the
Parent or Newco or any other subsidiary of the Parent, but including
Restricted Shares and Shares held under the Savings Plan and Stock Purchase
Plan) and (y) the Merger Consideration, and (ii) the aggregate amount of the
Cash Payments to be made to holders of Options. The Exchange Agent shall,
pursuant to irrevocable instructions, make the payments provided for in
Sections 3.1(a) and 3.4 of this Agreement out of the Exchange Fund. The
Exchange Agent shall invest the Exchange Fund as the Parent directs, in direct
obligations of the United States of America, obligations for which the full
faith and credit of the United States of America is pledged to provide for the
payment of all principal and interest, commercial paper obligations receiving
the highest rating from either Moody's Investors Services, Inc. or Standard &
Poor's Corporation, or certificates of deposit, bank repurchase agreements or
banker's acceptances of commercial banks with capital exceeding
$10,000,000,000. The Exchange Fund shall not be used for any purpose except as
expressly provided in this Agreement.

(b) Promptly after the Effective Time, but in no event later than three (3)
days following such date, the Surviving Corporation shall cause the Exchange
Agent to mail to each record holder (other than the Parent, Newco or any other
subsidiary of the Parent) as of the Effective Time of an outstanding
Certificate or Certificates that immediately prior to the Effective Time
represented Shares, a form letter of transmittal (which shall specify that
delivery of the Certificates shall be effected, and risk of loss and title to
the Certificates shall pass, only upon proper delivery of the Certificates to
the Exchange Agent) and instructions for use in effecting the surrender of the
Certificates for payment for the Shares represented thereby. Upon surrender to
the Exchange Agent of a Certificate, together with such letter of transmittal
duly executed and completed in accordance with the instructions thereon, and
any other items specified by the letter of transmittal, the holder of such
Certificate shall receive in exchange therefor cash in an amount equal to the
product of the number of Shares represented by such Certificate and the Merger
Consideration, less any applicable withholding tax, and such Certificate shall
be canceled. No interest shall be paid or accrued on the Merger Consideration
per Share payable upon the surrender of the Certificates. If payment is to be
made to a person other than the person in whose name the Certificate
surrendered is registered, it shall be a condition of payment that the
Certificate so surrendered shall be properly endorsed or otherwise in proper
form for transfer and that the person requesting such payment shall pay any
tax required by reason of the payment to a person other than the registered
holder of the Certificate surrendered or establish to the satisfaction of the
Exchange Agent and the Surviving Corporation that such tax has been paid or is
not applicable. Until surrendered in accordance with the provisions of this
Section 3.3, each Certificate (other than Certificates representing Shares
owned beneficially or of record by the Parent, Newco or any other subsidiary
of the Parent) shall be deemed to represent, for all purposes, only the right
to receive the Merger Consideration in cash multiplied by the number of Shares
evidenced by such Certificate less any applicable withholding tax, without any
interest thereon.

(c) After the Effective Time, there shall be no transfers on the stock
transfer books of the Surviving Corporation of Shares that were outstanding
immediately prior to the Effective Time. If, after the Effective Time,
Certificates (other than Certificates representing Shares owned beneficially
or of record by the Parent, Newco or any other subsidiary of the Parent) are
presented to the Surviving Corporation, they shall be canceled and exchanged
for cash as provided in this Article 3. At the close of business on the day of
the Effective Time the stock ledger of the Company with respect to the Shares
shall be closed.

(d) All cash, certificates and other instruments in the possession of the
Company or the Exchange Agent that constitute any portion of the Exchange Fund
(other than net earnings on the Exchange Fund, which shall be paid to the
Parent) that remain unclaimed by the Shareholders for one year after the
Effective Time (including any interest received with respect thereto) shall be
paid to the Surviving Corporation, upon demand. Any Shareholders who have not
theretofore complied with Section 3.3(b) shall thereafter look only to the
Surviving Corporation (subject to applicable abandoned property, escheat or
other similar laws) for payment of the Merger Consideration per Share, without
any interest thereon, but shall have no greater rights against the Surviving
Corporation than may be accorded to general creditors of the Surviving
Corporation under applicable law. Notwithstanding the foregoing, neither the
Exchange Agent nor any party hereto shall be liable to a Shareholder for any
Merger Consideration delivered to a public official pursuant to applicable
abandoned property, escheat and similar laws.

-A-6-
<PAGE>

(e) The Surviving Corporation shall pay all charges and expenses, including
those of the Exchange Agent, in connection with the exchange of the Merger
Consideration per Share for the Certificates.

3.4. Company Stock Plans. (a) Prior to the Effective Time, the Board of
Directors (or, if appropriate, any committee thereof) shall adopt, subject to
the terms of the Stock Incentive Plans (as hereinafter defined), such
resolutions as are necessary or appropriate, if any, to adjust the terms of
all outstanding stock options to purchase shares of Company Common Stock (the
"Options") granted under the Company's 1992 Incentive Stock Plan and the
Company's 1996 Incentive Stock Plan (together, the "Stock Incentive Plans") to
provide: (i) that, not later than immediately prior to the Effective Time,
each Option, whether or not then exercisable or vested, shall become fully
exercisable and vested; and (ii) for the cancellation, effective as of the
Effective Time, of such Options as set forth in this Section 3.4(a). The
Company shall use its reasonable best efforts to insure that each Option
outstanding immediately prior to the Effective Time shall be cancelled in
exchange for a payment, not later than immediately prior to the Effective
Time, from the Company (subject to any applicable withholding taxes) in cash
(the "Cash Payment") equal to the product of (x) the total number of shares of
Company Common Stock subject to such Option and (y) the excess, if any, of the
Merger Consideration over the exercise price per share of such Option.

(b) Prior to the Effective Time, the Board of Directors (or, if appropriate,
any committee thereof) shall adopt, subject to the terms of the Stock
Incentive Plans, such resolutions as are necessary or appropriate, if any, to
amend the terms of all restricted Shares (collectively, the "Restricted
Shares") granted under the Stock Incentive Plans to remove all restrictions
from such Shares so that, at the Effective Time, each Restricted Share shall,
by virtue of the Merger and without any action on the part of the holder
thereof: (i) be and become fully unrestricted and vested; and (ii) be
converted into the right to receive the Merger Consideration upon presentation
by the holder of such Restricted Share of the Certificate, as provided in
Section 3.1(a).

(c) Prior to the Effective Time, the Board of Directors (or, if appropriate,
any committee thereof) shall have taken the appropriate action to provide
that: (i) not later than immediately prior to the Effective Time, each Share
held under the Company's Employee Stock Purchase Plan (the "Stock Purchase
Plan") shall become fully vested; and (ii) any Shares remaining in the
Company's Savings Plan (the "Savings Plan") or Stock Purchase Plan at the
Effective Time shall be converted, by virtue of the Merger and without any
action on the part of the holder thereof, into the right to receive the Merger
Consideration per Share.

(d) Except as provided herein, the Stock Incentive Plans and the Stock
Purchase Plan (collectively, the "Stock Plans") shall terminate as of the
Effective Time and the provisions of any other plan, program or arrangement
(including without limitation the Savings Plan) providing for the issuance,
transfer, grant, acquisition or holding of any capital stock of the Company or
any interest of any capital stock of the Company shall be amended as of the
Effective Time to provide no continuing rights to acquire, hold, transfer or
grant any capital stock of the Company or any interest in capital stock of the
Company (other than in respect of the Merger Consideration or Cash Payment, as
the case may be). The Company shall use its reasonable best efforts to ensure
that following the Effective Time no holder of an Option or Restricted Shares
nor any other participant in the Savings Plan or in any Stock Plan shall have
any right thereunder to acquire equity securities of the Company, the Parent
or the Surviving Corporation or any subsidiary thereof, subject to the payment
of the Merger Consideration or Cash Payment, as the case may be.

-A-7-
<PAGE>

ARTICLE 4

Representations and Warranties of the Company

Except as set forth in a letter from the Company to the Parent, dated as of
the date of this Agreement (which letter contains appropriate references to
identify the representations and warranties herein to which the information in
such letter relates and is attached hereto as Annex C) (the "Company
Disclosure Letter") or as disclosed in the Disclosure Statements, the Company
represents and warrants to the Parent and Newco and agrees as follows:

4.1. Organization. (a) The Company and each of its subsidiaries is a
corporation duly organized, validly existing and in good standing under the
laws of the jurisdiction of its incorporation and has all requisite corporate
power and authority to own, lease and operate its properties and to conduct
its business as now being conducted, except where the failure to be so
organized, existing and in good standing or to have such power and authority
would not, individually or in the aggregate, have a material adverse effect on
the Business, properties, assets, financial condition or results of operations
of the Company and its subsidiaries, taken as a whole, or on the Company's
ability to perform its obligations or to consummate the transactions under
this Agreement (a "Material Adverse Effect"). The subsidiaries listed on
Schedule 4.1(a) to the Company Disclosure Letter are the only subsidiaries of
the Company. Schedule 4.1(a) indicates the state of organization of the
Company and each of its subsidiaries and where each is qualified to do
business. Each of the Company and its subsidiaries is duly qualified or
licensed and in good standing to do business as a foreign corporation in each
jurisdiction in which the property owned, leased or operated by it or the
nature of the Business conducted by it makes such qualification necessary,
except where the failure to be so qualified or licensed and in good standing
would not, individually or in the aggregate, have a Material Adverse Effect.

(b) The Company has heretofore delivered to the Parent accurate and complete
copies of the articles of incorporation and the bylaws or other organizational
documents of the Company and each of its subsidiaries, each as currently in
effect. Each of the organizational documents of the Company and each of its
subsidiaries is in full force and effect and neither the Company nor any of
its subsidiaries is in violation of any of the provisions of its
organizational documents. The respective articles of incorporation and bylaws
or other organizational documents of the subsidiaries of the Company do not
contain any provision limiting or otherwise restricting the ability of the
Company to control such subsidiaries.

4.2. Capitalization. (a) The authorized capital stock of the Company
consists of (i) 10,000,000 shares of Company Common Stock, par value $1.00 and
(ii) 1,000,000 shares of preferred stock, par value $1.00 of the Company (the
"Preferred Stock"). On May 3, 2000, there were (i) 3,483,253 Shares issued and
outstanding (including shares of Restricted Stock and uncertificated shares,
other than Shares issuable to members of the Board of Directors for directors'
compensation earned since March 31, 2000), (ii) 218,721 shares of Company
Common Stock subject to vested Options outstanding under the Company's Stock
Incentive Plans and (iii) 75,573 shares of Company Common Stock subject to
Options not yet vested outstanding under the Company's Stock Incentive Plans.
No shares of Preferred Stock are issued and outstanding. On May 3, 2000, there
were 100,000 shares of Series A Junior Participating Preferred Stock reserved
for issuance pursuant to the Rights Agreement. All issued and outstanding
Shares are duly authorized, validly issued, fully paid and nonassessable and
are not subject to, nor were they issued in violation of, any preemptive
rights. Except as expressly set forth above or as otherwise contemplated by
this Agreement, there are not now, and at the Effective Time or the
consummation of the Offer, as the case may be, there shall not be, any
existing, authorized or outstanding options, warrants, calls, subscriptions,
claims of any character, preemptive rights or other rights or other
agreements, convertible or exchangeable securities, or commitments, or
obligations contingent or otherwise, whatsoever obligating the Company or any
of its subsidiaries to issue, transfer, deliver or sell or cause to be issued,
transferred, delivered or sold any additional shares of capital stock of the
Company or any of its subsidiaries, or obligating the Company or any of its
subsidiaries to issue shares of Company Common Stock, any other shares of its
capital stock or any securities convertible into, exchangeable for, or
evidencing the right to subscribe for, any shares of the capital stock of the
Company. Schedule 4.2(a) to the Company Disclosure

-A-8-
<PAGE>

Letter sets forth (i) the number of Restricted Shares and uncertificated
Shares held in book entry form under the Stock Incentive Plans (other than
uncertificated Shares issued or issuable to members of the Board of Directors
for directors' compensation earned since December 31, 1999), (ii)
uncertificated Shares issued in book entry form to members of the Board of
Directors for directors' compensation earned from January 1, 2000 through
March 31, 2000, (iii) the compensation earned by members of the Board of
Directors for directors' compensation earned from April 1, 2000 through the
date of this Agreement, and (iv) the number of Options and each of the
exercise prices for each Option. The Company has no authorized or outstanding
bonds, debentures, notes, or other indebtedness the holders of which have the
right to vote (or convertible or exchangeable into or exercisable for
securities having the right to vote) with the Shareholders or shareholders of
any of its subsidiaries on any matter. After the Effective Time, and subject
to the payments provided for in Sections 1.1(d), 3.3 and 3.4 being made, the
Surviving Corporation shall have no obligation to issue, transfer or sell any
shares of common stock of the Surviving Corporation pursuant to any Benefit
Plan or otherwise.

(b) All of the outstanding shares of capital stock of each of the Company's
subsidiaries have been duly authorized and validly issued, are fully paid and
non-assessable, are not subject to, nor were they issued in violation of, any
preemptive rights, and are owned, of record and beneficially, by the Company,
free and clear of any liens, encumbrances, options or claims whatsoever. No
shares of capital stock of any of the Company's subsidiaries are reserved for
issuance, except to the Company or another subsidiary of the Company. There
are no outstanding options, warrants, rights, subscriptions, claims of any
character, agreements, obligations, convertible or exchangeable securities, or
other commitments, contingent or otherwise, relating to the capital stock of
any subsidiary of the Company, pursuant to which such subsidiary is or may
become obligated to issue any shares of capital stock of such subsidiary or
any securities convertible into, exchangeable for, or evidencing the right to
subscribe for, any shares of such subsidiary, other than such rights granted
to the Company or a subsidiary of the Company. There are no restrictions of
any kind which prevent the payment of dividends by any of the Company's
subsidiaries.

(c) There are no voting trusts or other agreements or understandings to
which the Company or any of its subsidiaries is a party with respect to the
voting of the capital stock of the Company or any of its subsidiaries. None of
the Company or its subsidiaries is required to redeem, repurchase or otherwise
acquire shares of capital stock of the Company, or any of its subsidiaries,
respectively, as a result of the transactions contemplated by this Agreement
or otherwise.

4.3. Authorization of this Agreement. The Company has all requisite
corporate power and authority to execute and deliver this Agreement and,
subject to approval by the Shareholders to the extent required by law, to
perform its obligations hereunder to consummate the transactions contemplated
hereby. The execution and delivery of this Agreement and the consummation of
the transactions contemplated hereby have been duly and validly authorized and
approved by the Company's Board of Directors and, except for the approval of
this Agreement by the Shareholders to the extent required by law, no other
corporate proceedings on the part of the Company are necessary to authorize
this Agreement or consummate the transactions contemplated hereby. This
Agreement has been duly and validly executed and delivered by the Company, and
constitutes a valid and binding agreement of the Company, subject to approval
and adoption of this Agreement by the Shareholders to the extent required by
law, and (assuming due and valid authorization, execution and delivery hereof
by the other parties thereto and the enforceability of this Agreement against
them) is enforceable against the Company in accordance with its terms, except
to the extent that enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium, fraudulent transfer or other similar laws of
general applicability relating to or affecting the enforcement of creditors'
rights and by the effect of general principles of equity (regardless of
whether enforceability is considered in a proceeding in equity or at law).

4.4. Governmental Consents and Approvals. Except for (i) filings required
under the Exchange Act, (ii) the filing of a Pre-Merger Notification and
Report Form by the Company under the Hart-Scott-Rodino Antitrust Improvements
Act of 1976 and the rules and regulations thereunder (together, the "HSR Act")
with the Federal Trade Commission (the "FTC ") and the Antitrust Division of
the Department of Justice (the "Antitrust Division") and such filings as may
be required under any other Antitrust Laws, (iii) the filing and recordation
of

-A-9-
<PAGE>

appropriate merger documents as required by the Virginia Act and, if
applicable, the laws of other states in which the Company is qualified to do
business, (iv) filings under federal, state and Canadian securities laws or
blue sky laws or takeover statutes of the various states and Canadian
Provinces, (v) approvals required by any state environmental or regulatory
body and (vi) filings in connection with any applicable transfer or other
taxes in any applicable jurisdiction, no filing with, and no permit,
authorization, consent or approval of, any court, arbitral tribunal,
administrative commission, governmental or regulatory body, agency or
authority whether domestic or foreign (each, a "Governmental Entity"), is
necessary for the consummation by the Company of the transactions contemplated
by this Agreement, the failure to make or obtain which would have a Material
Adverse Effect or would prevent or materially delay consummation of the
transactions contemplated by this Agreement. "Antitrust Laws" means the
Sherman Act, as amended, the Clayton Act, as amended, the HSR Act, the Federal
Trade Commission Act, as amended, and all other federal and state statutes,
rules, regulations, orders, decrees, administrative and judicial doctrines,
and other laws, whether domestic or foreign, that are designed or intended to
prohibit, restrict or regulate actions having the purpose or effect of
monopolization or restraint of trade.

4.5. No Conflicts or Violations. Except for undertaking the filings and
obtaining the approvals described in Section 4.4 above, neither the execution
and delivery of this Agreement nor the consummation of the transactions
contemplated hereby nor compliance by the Company with any of the provisions
hereof shall (i) conflict with or result in any violation of any provision of
the Articles or Bylaws of the Company, or the certificate of incorporation or
bylaws (or equivalent instruments) of any of its subsidiaries, (ii) result in
a violation or breach of, or constitute (with or without due notice or lapse
of time or both) a default (or give rise to any right of termination,
cancellation or acceleration) under, or result in the creation of any
mortgage, lien, security interest, pledge, charge, encumbrance or other
adverse claim of any kind (collectively, "Liens") upon any of the properties
or assets of the Company or any of its subsidiaries under, any of the terms,
conditions or provisions of any note, bond, mortgage, indenture, license,
agreement or other instrument or obligation to which the Company or any of its
subsidiaries is a party or by which any of them or any of their properties or
assets is bound or (iii) violate any statute, rule, regulation, order,
injunction, writ or decree of any Governmental Entity applicable to the
Company or any of its subsidiaries or by which the Company or any of its
subsidiaries or any of their respective assets or properties may be bound,
excluding from the foregoing clauses (ii) and (iii) conflicts, violations,
breaches or defaults which would not, either individually or in the aggregate,
have a Material Adverse Effect or prevent or materially delay consummation of
the transactions contemplated by this Agreement.

4.6. Compliance. (a) The Company and each of its subsidiaries are in
compliance with all constitutions, treaties, statutes, laws (including common
laws), codes, rules, regulations, decisions, judgments, ordinances or orders,
whether domestic or foreign, (collectively, "Laws") of any Governmental Entity
applicable to the Business and operations of Company and its subsidiaries or
any of their respective properties or assets, except for such non-compliance
as would not have, individually or in the aggregate, a Material Adverse Effect
or prevent or materially delay consummation of the transactions contemplated
by this Agreement.

(b) Each of the Company and each of its subsidiaries has in effect all
federal, state and local governmental approvals, authorizations, certificates,
filings, franchises, licenses, notices, permits and rights ("Permits")
necessary for it to own, lease or operate its properties and assets and to
carry on its business as now conducted, including without limitation the
Permits listed on Schedule 4.6(b) to the Company Disclosure Letter, and there
has occurred no default under any such Permit, except such as would not,
individually or in the aggregate, have a Material Adverse Effect. All such
Permits have been duly obtained and are held by the Company or its
subsidiaries and are in full force and effect except where failure would not,
individually or in the aggregate, have a Material Adverse Effect. There is no
pending or, to the knowledge of the Company, threatened investigation or
proceeding, seeking the suspension, revocation or cancellation of any such
Permit; neither the Company nor any of its subsidiaries has been notified in
writing that any such Permit shall be materially adversely modified,
suspended, canceled or cannot be renewed in the ordinary course of business;
and, the Company is not aware of any basis for any such revocation,
cancellation, suspension, modification or nonrenewal.

-A-10-
<PAGE>

(c) Neither the Company nor any of its subsidiaries is in default or
violation of, any note, bond, mortgage, indenture, contract, agreement, lease,
license, permit, franchise or other instrument or obligation to which the
Company or any of its subsidiaries is a party or by which the Company or any
of its subsidiaries or its or any of their respective properties are bound or
affected, except for any such defaults or violations which would not have a
Material Adverse Effect or prevent or materially delay the consummation of the
transactions contemplated by this Agreement.

4.7. Financial Statements and SEC Reports; No Undisclosed Liabilities. (a)
The Company has timely filed with the SEC all forms, reports and documents
required to be filed by it for periods beginning on and after January 1, 1997
pursuant to the Securities Act of 1933, as amended, and the rules and
regulations promulgated thereunder (the "Securities Act"), and the Exchange
Act and the rules and regulations promulgated thereunder, all of which have
complied in all material respects with all applicable requirements of the
Securities Act and the Exchange Act and the rules and regulations promulgated
thereunder (such forms, reports, registration statements and other filings and
financials, together with any exhibits, any amendments thereto and information
incorporated by reference therein, filed with the SEC prior to the date
hereof, are sometimes collectively referred to as the "Disclosure
Statements"). None of the subsidiaries is required to file any forms, reports
or other documents with the SEC pursuant to Section 12 or 15 of the Exchange
Act. None of the Disclosure Statements, at the time filed, contained any
untrue statement of a material fact or omitted to state a material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading. The consolidated balance sheets and the related consolidated
statements of income, cash flows and shareholders' equity (including the notes
thereto) of the Company and its subsidiaries contained or incorporated by
reference in the Disclosure Statements, were prepared from, and are in
accordance with, the books and records of the Company and its consolidated
subsidiaries, compiled as of their respective dates in all material respects
with applicable accounting requirements and with the published rules and
regulations of the SEC with respect thereto, and presented fairly the
consolidated financial position of the Company and its subsidiaries as of
their respective dates, and the consolidated results of their income and their
cash flows for the periods presented therein, in conformity with United States
generally accepted accounting principles ("GAAP") applied on a consistent
basis, except as otherwise noted therein and, in the case of unaudited
quarterly financial statements, as permitted by Form 10-Q under the Exchange
Act, and subject in the case of quarterly financial statements to normal year-
end audit adjustments.

(b) The Company shall deliver to the Parent as soon as they become available
true and complete copies of any press release and any report or statement
mailed by it to the Shareholders generally or filed by it with the SEC
subsequent to the date hereof and prior to the Effective Time. As of their
respective dates, such press releases, reports and statements (excluding any
information therein provided by the Parent or Newco, as to which the Company
makes no representation) shall not contain any untrue statement of a material
fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they are made, not misleading and shall comply in all material respects
with all applicable requirements of the federal securities laws and the SEC
rules and regulations thereunder. The consolidated financial statements of the
Company to be included in such reports and statements (excluding any
information therein provided by the Parent or Newco, as to which the Company
makes no representation) shall be prepared in accordance with GAAP (as in
effect from time to time) applied on a consistent basis (except as may be
indicated therein or in the notes or schedules thereto) and shall fairly
present in all material respects the consolidated financial position of the
Company and its consolidated subsidiaries as of the dates thereof and the
results of their operations and their cash flows for the periods then ended
(subject, in the case of any unaudited financial statements, to normal year-
end audit adjustments).

(c) Except for liabilities and obligations reflected in the Disclosure
Statements or incurred in connection with the consummation of the transactions
contemplated hereby, there is no liability of the Company or any subsidiary
thereof of any nature, whether direct, indirect, known, unknown, absolute,
accrued, contingent or otherwise, which, individually or in the aggregate, is
material to the Company and its subsidiaries, taken as a whole, other than
liabilities incurred in the ordinary course of business since December 31,
1999.

-A-11-
<PAGE>

4.8. Certain Contracts and Arrangements. (a) All contracts and other
agreements to which the Company or any of its subsidiaries is a party or by or
to which either the Company or any of its subsidiaries or its or their assets
or properties are bound or subject and that are or were required to have been
filed as exhibits to the Disclosure Statements have been so filed. All of such
contracts and other agreements are in full force and effect and neither the
Company nor any subsidiary of the Company is in default under any of them,
nor, to the knowledge of the Company, except as provided in Section 4.6, (i)
is any other party to any such contract or other agreement in default
thereunder, (ii) does any condition exist that with notice or lapse of time or
both would constitute a default thereunder, nor (iii) would the transactions
contemplated hereby constitute a default thereunder if, in any such case, such
defaults, individually or in the aggregate, have a Material Adverse Effect.

(b) Neither the Company nor any of its subsidiaries is a party to or is
bound by any contract that contains covenants limiting the freedom of the
Company or any of its subsidiaries to engage in any line of business in any
geographic area (except the territorial limitations contained in those license
agreements among the Company, its subsidiaries and certain third parties set
forth on Schedule 4.8(b) to the Company Disclosure Letter) or to compete with
any person or entity or restricting the ability of the Company or any of its
subsidiaries to acquire equity securities of any person or entity.

4.9. Offer Documents; Proxy Statement; Other Information; Schedule 14D-
9. None of the information supplied in writing by the Company specifically for
inclusion in the documents pursuant to which the Offer shall be made,
including the Offer Documents and the Schedule TO will, at the respective
times the Offer Documents or any amendments or supplements thereto are filed
with the SEC, contain any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary in order to make
the statements therein, in light of the circumstances under which they were
made, not misleading. The Schedule 14D-9 on the date filed with the SEC shall
not contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading; provided, however, that the foregoing shall not apply to the
extent that any such untrue statement of a material fact or omission to state
a material fact was made by the Company in reliance upon and in conformity
with written information furnished to the Company by the Parent or Newco
specifically for use in the Schedule 14D-9. No proxy solicitation materials
distributed by the Company to the Shareholders and/or filed with the SEC in
connection with the Merger, including any amendments or supplements thereto
(collectively, the "Proxy Statement") will, at the time the Proxy Statement is
mailed to the Shareholders, contain any untrue statement of a material fact,
or omit to state any material fact required to be stated therein or necessary
in order to make the statements therein, in light of the circumstances under
which they were made, not misleading or, at the time of the meeting of
shareholders to which the Proxy Statement, as then amended or supplemented,
relates or at the Effective Time omit to state any material fact necessary to
correct any statement which has become false or misleading in any earlier
communication with respect to the solicitation of any proxy for such meeting;
except that no representation is made by the Company with respect to
information furnished to the Company by the Parent or Newco specifically for
use in the Proxy Statement. The Schedule 14D-9 and the Proxy Statement each
shall comply in all material respects, both as to form and otherwise, with the
requirements of the Exchange Act and the rules and regulations promulgated
thereunder.

4.10. Assets Owned by the Company or Used in the Business. With respect to
property owned by the Company or used in the Business:

(a) Schedule 4.10(a) to the Company Disclosure Letter sets forth a list of
all personal property leased by the Company for use in the Business (the
"Leased Personal Property"), the leases for which are being assumed by Newco
in connection with the Merger. With the exception of the Leased Personal
Property, the Company or its subsidiaries has good, marketable and valid title
to all of the personal property used by the Company in the Business, free and
clear of Liens, except for Liens that would not, individually or in the
aggregate, have a Material Adverse Effect;

(b) The "Owned Real Property" consists of all real property used by the
Company or its subsidiaries in the Business, other than the Leased Real
Property, as of the date of this Agreement. Schedule 4.10(b) to the

-A-12-
<PAGE>

Company Disclosure Letter sets forth a list of all of the Company's Owned Real
Property and a list of all Company debt which is secured by a lien on the
Company's Owned Real Property. With respect to the Owned Real Property, the
Company or its subsidiaries has good, marketable and valid title to all of the
Owned Real Property, free of Liens, except for Liens that would not,
individually, or in the aggregate, have a Material Adverse Effect;

(c) "Leased Real Property" means the real property and improvements subject
to the leases set forth on Schedule 4.10(c) to the Company Disclosure Letter;
and

(d) Each of the Company and its subsidiaries owns, has valid leasehold
interests in or valid contractual rights to use all of the assets, tangible or
intangible, used by, or necessary to conduct the Business, as currently
conducted, except where the failure to own, have valid leasehold interests or
such valid contractual rights would not, individually or in the aggregate,
have a Material Adverse Effect.

4.11. Intellectual Property. (a) Schedule 4.11(a)(i) to the Company
Disclosure Letter sets forth all (i) trademark registrations and applications
relating to trademarks owned by the Company or its subsidiaries, (ii) patent
registrations and patent applications relating to patents owned by the Company
or its subsidiaries, (iii) copyright registrations and applications relating
to copyrights owned by the Company and its subsidiaries, (iv) registered
tradenames used in the business of the Company or its subsidiaries as
currently conducted and as contemplated to be conducted (the "Business"), (v)
material unregistered trade names, corporate names, or Internet domain names
owned or used by the Company or any of its subsidiaries; (vi) material
unregistered trademarks, service marks, copyrights and mask works owned or
used by the Company or any of its subsidiaries; (vii) all computer software
owned or used by the Company or any of its subsidiaries (other than mass-
marketed software with a license fee of less than $10,000) that is material to
the Business; and (viii) all material licenses or similar agreements or
arrangements pertaining to Intellectual Property to which the Company or any
of its subsidiaries is a party, either as licensee or licensor. The Company
and its subsidiaries own all right, title and interest in and to the
trademarks set forth on Schedule 4.11(a)(ii) to the Company Disclosure Letter
(the "Company-owned Marks").

(b) No claim or demand has been received from any person, and no proceeding
is pending or threatened, which challenges the rights of the Company or any of
the subsidiaries in respect of the Company-owned Marks; and, except as
provided in the license agreements and sublicense agreements set forth on
Schedule 4.11(b) to the Company Disclosure Letter, neither the Company nor any
of the subsidiaries has granted any license or right to use, option, release
or covenant not to sue or non-assertion assurance to any third person with
respect to, or granted any outstanding lien or security interest in, any of
the Company-owned Marks.

(c) The Company and its subsidiaries own all right, title and interest in,
or have the valid and legal right to use pursuant to license, sublicense,
agreement or permission, all material Intellectual Property used in the
Business, free and clear of any Liens, and have the right to use the same
without payment to a third party (except for license fees or royalties payable
pursuant to the terms of any such licenses, sublicenses or agreements). The
Intellectual Property that is owned by the Company and its subsidiaries and
the Intellectual Property used pursuant to such licenses, sublicenses,
agreements or permissions constitutes all of the Intellectual Property
necessary to the conduct of the Business of the Company and its subsidiaries
as currently conducted and as contemplated to be conducted. Immediately after
the Merger, the Surviving Corporation shall own or have the right to use all
of the Intellectual Property currently used in the Business, in each case free
from any Liens, and on the same terms and conditions as in effect prior to the
Merger.

(d) The conduct of the Business does not infringe upon, conflict in any way
with or misappropriate any Intellectual Property of any third party, except
for infringements, conflicts or misappropriations that, individually and in
the aggregate, would not have a Material Adverse Effect. To the knowledge of
the Company, none of the Intellectual Property used in the Business is being
infringed or used by any third party without the permission of the Company,
except for such infringements or uses as, individually and in the aggregate,
would not have a Material Adverse Effect.

-A-13-
<PAGE>

(e) None of the material Intellectual Property owned by the Company or any
subsidiary or used in the Business is subject to any outstanding order,
ruling, decree, judgment or stipulation by or with any Governmental Entity.

(f) As used herein, "Intellectual Property" shall mean all patents and
applications, including all reissues, continuations, divisions, continuations-
in-part, renewals or extensions thereof; trademarks, service marks, trade
names, trade dress, domain names, logos, Business and product names, slogans,
and registrations and applications for registration or renewal thereof;
copyrights and registrations or renewals thereof; software; inventions,
processes, designs, formulae, trade secrets, know-how, confidential and
technical information; all other intellectual property and proprietary rights;
copies and tangible embodiments thereof (in whatever form or medium, including
electronic media); and licenses of any of the foregoing.

(g) Upon consummation of the Merger or the Offer, the Company shall deliver
to Parent complete and accurate copies of all formulae, specifications,
production guidelines and manuals and other technical documentation related to
the Company's products, including without limitation any new products or
research and development projects.

4.12. Labor Relations; Employees. (a) None of the employees of the Company
or its subsidiaries are represented by any labor organization and, to the
knowledge of the Company, no union claims to represent such employees have
been made. To the knowledge of the Company, there have been no union
organizing activities with respect to employees of the Company or its
subsidiaries within the past five years. The Company and its subsidiaries are
not, and have not been, engaged in any unfair labor practices as defined in
the National Labor Relations Act or similar applicable Law nor is there
pending any unfair labor practice charge.

(b) The Company and each of its subsidiaries have not during the past two
years effectuated a "plant closing" or "mass layoff" (as defined in the Worker
Adjustment and Retraining Notification Act) affecting any of their sites of
employment or one of or more facilities or operating units within any site of
employment or facility, nor does the Company have any present plan to take any
such action within the 90 day period prior to the Effective Time.

4.13. Employee Agreements and Plans. (a) Schedule 4.13(a) to the Company
Disclosure Letter sets forth all material employee or retiree compensation or
benefit plans, arrangements, contracts or agreements (including, without
limitation, stock purchase plans, stock option plans or other equity plans,
bonus plans, paid vacation policies, employment agreements, change of control,
retention, severance and other similar agreements) of any type (including but
not limited to plans described in section 3(3) of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA")), whether written or
unwritten (each, a "Benefit Plan"), (x) maintained, or contributed to, by the
Company, any of its subsidiaries or any other trade or business, whether or
not incorporated (an "ERISA Affiliate"), that together with the Company or any
of its subsidiaries would be deemed a "single employer" within the meaning of
section 414 of the Code or section 4001(b) of ERISA for the benefit of any
employee or former employee of the Company or any of its subsidiaries or (y)
with respect to which the Company, any of its subsidiaries or any ERISA
Affiliate has or has had, within the preceding six years, an obligation to
contribute or the Company or any of its subsidiaries has or may have a
liability for the benefit of any employee or former employee of the Company or
any of its subsidiaries (any Benefit Plan maintained or contributed to by the
Company or any ERISA Affiliate for the benefit of any employee or former
employee of the Company or any of its subsidiaries, hereinafter called a
"Company Benefit Plan").

(b) Neither the Company, any of its subsidiaries nor any ERISA Affiliate has
any formal plan or any commitment or has communicated to any current or former
employee any intention, whether legally binding or not, to create or to modify
in any material way any Company Benefit Plan.

(c) With respect to each Company Benefit Plan currently in effect or under
which the Company has an obligation to make payments or contributions, the
Company has delivered to the Parent accurate and complete copies of all plan
texts, summary plan descriptions, summaries of material modifications, trust
agreements, other

-A-14-
<PAGE>

funding arrangements and other related agreements including all amendments to
the foregoing; the two most recent IRS Form 5500 annual reports, including all
Schedules and attachments thereto; the most recent annual and periodic
accounting of plan assets; the most recent determination letter received from
the United States Internal Revenue Service; and the two most recent actuarial
reports, to the extent any of the foregoing may be applicable to a particular
Company Benefit Plan.

(d) Except for the executive retention bonus and severance agreements (the
"Executive Retention Agreements") and other commitments and agreements
identified on Schedule 4.13(d) to the Company Disclosure Letter, the
consummation of the transactions contemplated by this Agreement, whether alone
or in combination with other events, shall not entitle any individual to
severance pay or other termination benefits or accelerate the time of payment
or vesting, or increase the amount, of compensation or benefits due to any
individual and does not constitute, whether alone or in combination with other
events, a triggering event under any Company Benefit Plan, policy,
arrangement, statement, commitment or agreement, which shall or may result in
any payment, acceleration, vesting or increase in benefits to any employee or
former employee or director of the Company or any of its subsidiaries.

(e) Neither the Company nor any of its subsidiaries has incurred or
reasonably expects to incur any material liability or obligation (whether
directly or indirectly, including as a result of an indemnification obligation
or by reason of any relationship to any ERISA Affiliate) under or pursuant to
Title I or IV of ERISA or under any Benefit Plan of an ERISA Affiliate which
is not a Company Benefit Plan or the penalty or excise tax provisions of the
Code relating to employee benefit plans. Each of the Company Benefit Plans
have been operated and administered in substantial compliance with their terms
and all applicable Laws, except where noncompliance has not and would not
result in any material liability for the Company or any ERISA Affiliate.

4.14. Absence of Certain Changes. Since December 31, 1999, the Company and
its subsidiaries have conducted their respective businesses and operations
consistent with past practice only in the ordinary and usual course of
business and there have not occurred (i) any events, changes, or effects
(including the incurrence of any liabilities or obligations of any nature,
whether accrued, contingent or otherwise) having, or which would have or
reasonably be expected to have, individually or in the aggregate, a Material
Adverse Effect; (ii) any declaration, setting aside or payment of any dividend
or other distribution (whether in cash, stock or property) with respect to the
equity interests of the Company or of any of its subsidiaries; (iii) any
change by the Company or any of its subsidiaries in accounting principles,
practices or methods, except insofar as may be required by a change in GAAP;
(iv) any grant of options or stock appreciation rights under any Benefit Plan
other than in the ordinary course of business consistent with past practice;
(v) any increase in the compensation of any officer or grant of any general
salary or benefits increase to the employees of the Company other than in the
ordinary course of business consistent with past practice; (vi) any entry by
the Company into any agreement, commitment or transaction or any incurrence of
any liability (direct, contingent or otherwise) that is material to the
Company and its subsidiaries, taken as a whole, other than in the ordinary
course of business. Since December 31, 1999, the Company has not amended or
terminated any contract involving in excess of $100,000, waived, released or
assigned any right or claim involving in excess of $100,000 or taken any
action described in Section 6.1(h) or (l) which, if taken after the date of
this Agreement, would require the written consent of Parent.

4.15. Litigation. Schedule 4.15 to the Company Disclosure Letter lists all
suits, actions, proceedings or investigations currently pending or, to the
knowledge of the Company, threatened, against the Company the court (if any)
in which such action is pending, and the identity of counsel representing the
Company. There is no suit, action, proceeding or investigation (whether at law
or equity, before or by any federal, state or foreign court, tribunal,
commission, board, agency or instrumentality, or before any arbitrator)
pending or, to the knowledge of the Company, threatened in writing against or
affecting the Company or any of its subsidiaries, the outcome of which would
reasonably be expected to, individually or in the aggregate, have a Material
Adverse Effect, nor is there any judgment, decree, injunction, rule or order
of any court, governmental department, commission, agency, instrumentality or
arbitrator outstanding against the Company or any of its subsidiaries having,
or which would reasonably be expected to have, a Material Adverse Effect.
Schedule 4.15 lists all written engagement letters

-A-15-
<PAGE>

between the Company and counsel representing the Company in such matters and
all responses of counsel to requests from the Company on behalf of its
auditors relating to the Company's fiscal year ended December 31, 1999.

4.16. Taxes. (a) (i) All Returns with respect to the Company or any of its
subsidiaries required to be filed have been filed except for those the failure
of which to file would not have a Material Adverse Effect, (ii) all such
Returns are true and correct in all material respects, (iii) all Taxes
(whether or not reflected on such Returns) with respect to the Company or any
of its subsidiaries required to be paid have been paid except for those where
failure to pay would not have a Material Adverse Effect, (iv) all Taxes with
respect to the Company or any of its subsidiaries for any taxable period (or a
portion thereof) ending on or prior to the Effective Time (which are not yet
due and payable on or prior to the Effective Time) have (or shall have by the
Effective Time) been properly reserved for in the books and records of the
Company or such subsidiary, except for those that would not have a Material
Adverse Effect, and (v) the Company and its subsidiaries have duly and timely
withheld all Taxes required to be withheld, and such withheld Taxes have been
either duly and timely paid to the proper governmental authority or properly
set aside in accounts for such purpose and shall be duly and timely paid to
the proper governmental authority, except where failure to withhold or pay
would not, individually or in the aggregate, have a Material Adverse Effect.

(b) (i) There is no agreement or other document waiving or extending, or
having the effect of waiving or extending, the statute of limitations or the
period of assessment or collection of any Taxes with respect to the Company or
any of its subsidiaries, (ii) no power of attorney with respect to any such
Taxes has been filed or entered into with any governmental authority, and
(iii) the time for filing any Return with respect to the Company or any of its
subsidiaries has not been extended to a date later than the date of this
Agreement.

(c) (i) No Taxes with respect to the Company or any of its subsidiaries are
under audit, examination or investigation by any governmental authority, and
(ii) no governmental authority has asserted in writing against the Company or
any of its subsidiaries any deficiency or claim for Taxes or any adjustment to
Taxes.

(d) As used herein, "Code" means the Internal Revenue Code of 1986, as
amended; "Return" means any return, report, declaration, form, claim for
refund or information return or statement relating to Taxes, including any
schedule or attachment thereto, and including any amendment thereof; and "Tax"
means any federal, state, local or foreign income, alternative, minimum,
accumulated earnings, personal holding company, franchise, capital stock,
profits, windfall profits, gross receipts, sales, use, value added, transfer,
registration, stamp, premium, excise (including, without limitations, taxes
under Chapter 52 of the Code), customs duties, severance, environmental
(including, without limitations, taxes under section 59A of the Code), real
property, personal property, ad valorem, occupancy, license, occupation,
employment, payroll, social security, disability, unemployment, workers'
compensation, withholding, estimated or other similar tax, duty, fee,
assessment or other governmental charge or deficiencies thereof (including all
interest and penalties thereon and additions thereto).

4.17. Environmental Matters. (a) The Company and its subsidiaries have
obtained all Environmental Permits required to conduct the Business as it is
presently being conducted, including, without limitation, those relating to
(i) emissions, discharges or threatened discharges of Hazardous Materials into
the air, surface water, ground water or the ocean, or on or into the land and
(ii) the manufacture, processing, distribution, use, treatment, storage,
disposal, transport or handling of Hazardous Materials, except where failure
to obtain any Environmental Permit could not reasonably be expected,
individually or in the aggregate, to have a Material Adverse Effect. All such
Environmental Permits are in effect and there are no actions pending or, to
the knowledge of the Company, threatened to revoke such Environmental Permits.
No governmental consents or authorizations or ownership transfer applications
are required with respect to such Environmental Permits as a result of the
transactions contemplated by this Agreement. The Company and each of its
subsidiaries are in compliance in all material respects with all of the terms
and conditions set forth in such Environmental Permits and are also in
compliance in all material respects with all of the terms and conditions
contained in or required of them by any law, regulation, policy, guideline,
order, judgment or decree of any federal, state, local or foreign court or

-A-16-
<PAGE>

governmental authority applicable to or having jurisdiction over the Company's
Owned or Leased Real Property that relates to the environment or to public
health and safety as it may be affected by the environment ("Environmental
Laws"). Except as set forth in Schedule 4.17(a) to the Company Disclosure
Letter, to the knowledge of the Company, there is no action, activity,
circumstance, condition, event, or incident, including, without limitation,
the release, emission, discharge or presence of any Hazardous Material on or
from the Company's Owned or Leased Real Property that (a) interferes with,
prevents, or, with the passage of time, could reasonably be expected to
interfere with or prevent continued compliance in all material respects with
any of the Company's or its subsidiaries' Environmental Permits or any
Environmental Laws, (b) may give rise to any liability (whether based in
contract, tort, implied or express warranty, criminal or civil statute or
otherwise) under any Environmental Law, or (c) obligates the Company or any of
its subsidiaries or, with the passage of time, could cause the Company or any
of its subsidiaries to be obligated to clean up, remedy or otherwise restore
to a former condition, by themselves or jointly with others, any contaminated
surface water, ground water, soil or any natural resources associated
therewith, except in any event for actions, activities, circumstances,
conditions, events or incidents that could not reasonably be expected,
individually or in the aggregate, to have a Material Adverse Effect.

(b) As used in this Agreement, (i) the term "Environmental Permits" means
all licenses, permits, approvals and authorizations issued by governmental
agencies that relate to environmental matters (including those relating to the
handling of Hazardous Materials), and (ii) the term "Hazardous Materials"
means any substance, whether solid, liquid or gaseous in nature: (A) the
presence of which requires investigation or remediation under any
Environmental Law; (B) which is defined as a "hazardous waste," "hazardous
substance," "pollutant" or "contaminant" under any Environmental Law,
including, without limitation, the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended, (42 U.S.C. (S)(S) 9601 et
seq.) and/or the Resource Conservation and Recovery Act of 1976, as amended
(42 U.S.C. (S)(S) 96.01 et seq.); (C) which is toxic, explosive, corrosive,
flammable, infectious, radioactive, carcinogenic, mutagenic, or otherwise
hazardous and is the subject of any Environmental Law; or (D) which contains
polychlorinated biphenyls (PCBs) or friable asbestos.

4.18. Board Approval; State Takeover Statutes; Shareholder Vote. The Board
of Directors has taken the actions specified in Section 1.2 hereof. The Board
of Directors has not taken any action to cause the Offer, the Merger or any of
the other transactions contemplated by this Agreement on or after the date
hereof to be subject to: (1) any of the restrictions or other provisions of
restrictions of Article 14, (S)(S) 13.1-725--13.1-728 (Affiliated
Transactions) of the Virginia Act; or (2) any of the restrictions or other
provisions of Article 14.1, (S)(S) 13.1-728.1--13.1-728.9 (Control Share
Acquisitions) of the Virginia Act. At the Closing, the Company shall deliver
to the Parent and Newco a written opinion of Virginia counsel to the Company
with respect to the foregoing matters. Neither the Company nor any of the
members of its Board of Directors shall take any action to: (A) subject the
Parent, Newco, their direct or indirect subsidiaries, the Offer, the Merger or
any of the other transactions contemplated by this Agreement to the provisions
of any takeover, affiliated transaction, business combination, control share
acquisition or other provision of: (i) law or regulation adopted by the
Commonwealth of Virginia (including the Virginia Act) or any department or
agency thereof, (ii) the Articles or Bylaws of the Company, or (iii) the
Rights Agreement or (B) increase the shareholder vote required to approve the
Merger in excess of the vote otherwise required pursuant to the Virginia Act.

4.19. Finders and Investment Bankers. No agent, broker, person or firm
acting on behalf of the Company is, or shall be, entitled to any fee,
commission or broker's or finder's fees from any of the parties hereto, or
from any person controlling, controlled by, or under common control with any
of the parties hereto, in connection with this Agreement or any of the
transactions contemplated hereby, except for First Union Securities, Inc.,
whose fees, to the extent payable, shall be paid by the Company. A copy of the
agreement, and any amendments thereto, between the Company and First Union
Securities, Inc. has been provided to Parent.

4.20. Insurance Policies. Schedule 4.20 to the Company Disclosure Letter
lists all insurance policies carried by the Company or any of its subsidiaries
on the date hereof, and each such policy is, as of the date hereof, in full
force and effect. Copies of each such policy have been delivered to Parent.

-A-17-
<PAGE>

4.21. Material Contracts and Agreements. Schedule 4.21 to the Company
Disclosure Letter lists all contracts and agreements relating to amounts of at
least $100,000 per year to which the Company or any of its subsidiaries is a
party, or by which they or any of their properties are bound, which are not
otherwise disclosed in the Company Disclosure Letter. All such contracts and
agreements are in full force and effect and enforceable against the Company or
its subsidiaries, as the case may be, and the other parties thereto in
accordance with their respective terms, except to the extent that
enforceability may be limited by bankruptcy, insolvency, reorganization,
moratorium, fraudulent transfer or other similar laws of general applicability
relating to or affecting the enforcement of creditors' rights and by the
effect of general principles of equity, except where the failure to be so
valid and binding, in full force and effect or enforceable would not,
individually or in the aggregate, have a Material Adverse Effect. Neither the
Company nor any of its subsidiaries is in default under any such contract or
agreement, nor, to the knowledge of the Company, except as provided in Section
4.5 of this Agreement, (i) is any other party to any such contract or other
agreement in default thereunder; nor (ii) does any condition exist that with
notice or lapse of time or both would constitute a default.

ARTICLE 5

Representations and Warranties of the Parent and Newco

Each of the Parent and Newco jointly and severally represents and warrants
to the Company and agree as follows:

5.1. Organization. Each of the Parent and Newco is a corporation duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation. Newco is a wholly-owned subsidiary of the
Parent.

5.2. Authorization of this Agreement. Each of the Parent and Newco has all
requisite corporate power and authority to execute and deliver this Agreement
and to consummate the transactions contemplated hereby. The execution and
delivery of this Agreement and the consummation of the transactions
contemplated hereby have been duly and validly authorized and approved by the
respective Boards of Directors of the Parent and Newco and by the Parent as
the sole shareholder of Newco, and no other corporate proceedings on the part
of the Parent or Newco are necessary to authorize this Agreement or consummate
the transactions contemplated hereby. This Agreement has been duly and validly
executed and delivered by each of the Parent and Newco and this Agreement
(assuming the due and valid authorization, execution and delivery of this
Agreement by the Company and the enforceability of this Agreement against it)
constitutes a valid and binding agreement of the Parent and Newco enforceable
against each of them in accordance with its terms, except to the extent that
enforceability may be limited by bankruptcy, insolvency, reorganization,
moratorium, fraudulent transfer or other similar laws of general applicability
relating to or affecting the enforcement of creditors' rights and by the
effect of general principles of equity (regardless of whether enforceability
is considered in a proceeding in equity or at law).

5.3. Consents and Approvals; No Violations. Except for (i) filings required
under the Exchange Act, (ii) the filing of a Pre-Merger Notification and
Report Form by the Parent under the HSR Act, and such filings as may be
required under any other Antitrust Laws, (iii) the filing and recordation of
appropriate merger documents as required by the Virginia Act, (iv) filings
under federal, state and Canadian securities laws or blue sky laws or takeover
statutes of the various states and Canadian provinces, (v) approvals required
by any state environmental or regulatory body and (vi) filings in connection
with any applicable transfer or other taxes in any applicable jurisdiction, no
filing with, and no permit, authorization, consent or approval of, any
Governmental Entity is necessary for the consummation by the Parent and Newco
of the transactions contemplated by this Agreement, the failure to make or
obtain which would materially impair the ability of the Parent or Newco to
perform their respective obligations hereunder or to consummate the
transactions contemplated hereby. Neither the execution and delivery of this
Agreement nor the consummation of the transactions contemplated hereby nor
compliance by the Parent or Newco with any of the provisions hereof shall (i)
conflict with or result in any violation of any

-A-18-
<PAGE>

provision of the organizational documents of the Parent or the articles of
incorporation or bylaws of Newco, (ii) result in a violation or breach of, or
constitute (with or without due notice or lapse of time or both) a default (or
give rise to any right of termination, cancellation or acceleration) under, or
result in the creation of any Liens upon any of the properties or assets of
the Parent or Newco or any of their subsidiaries under, any of the terms,
conditions or provisions of any note, bond, mortgage, indenture, license,
agreement or other instrument or obligation to which the Parent or Newco or
any of their subsidiaries is a party, or by which any of them or any of their
respective properties or assets is bound, or (iii) violate any statute, rule,
regulation, order, injunction, writ or decree of any Governmental Entity
applicable to the Parent or Newco or any of their subsidiaries or by which any
of their respective properties or assets may be bound, excluding from the
foregoing clauses (ii) and (iii) conflicts, violations, breaches or defaults
which would not, either individually or in the aggregate, prevent or
materially delay consummation of the transactions contemplated by this
Agreement.

5.4. Offer Documents; Proxy Statement; Other Information. The Offer
Documents shall comply in all material respects, both as to form and
otherwise, with the requirements of the Exchange Act and the rules and
regulations thereunder. The Schedule TO on the date filed with the SEC shall
not contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading; provided, however, that the foregoing shall not apply to the
extent that any such untrue statement of a material fact or omission to state
a material fact was made by the Parent or Newco in reliance upon and in
conformity with written information furnished to the Parent or Newco by the
Company specifically for use in the Schedule TO. None of the information
supplied or to be supplied in writing by the Parent or Newco specifically for
inclusion in the Schedule 14D-9 or in the Proxy Statement will, at the time
the Schedule 14D-9 is filed with the SEC or the Proxy Statement is mailed to
the Shareholders, as the case may be, contain any untrue statement of a
material fact, or omit to state any material fact required to be stated
therein or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading or, in the case of
the Proxy Statement, at the time of the meeting of shareholders to which such
Proxy Statement, as then amended or supplemented, relates, or at the Effective
Time, omit to state any material fact necessary to correct any statement which
has become false or misleading in any earlier communication with respect to
the solicitation of any proxy for such meeting. Notwithstanding the foregoing,
no representation or warranty is made by Parent or Newco with respect to any
information with respect to the Company or its officers, directors and
affiliates provided to the Parent or Newco by the Company in writing for
inclusion in the Offer Documents or amendments or supplements thereto.

5.5. Financial Ability to Perform. The Parent and Newco shall have available
at the Effective Time cash funds in an amount equal to the Exchange Fund and
all related fees and expenses.

5.6. Organization of Newco. Newco was formed solely for the purpose of
engaging in the transactions contemplated hereby and has not engaged in any
business activities or conducted any operations other than in connection with
the transactions contemplated hereby.

5.7. Finders and Investment Bankers. No agent, broker, person or firm acting
on behalf of the Parent or Newco is, or shall be, entitled to any fee,
commission or broker's or finder's fees from any of the parties hereto, or
from any person controlling, controlled by, or under common control with any
of the parties hereto, in connection with this Agreement or any of the
transactions contemplated hereby.

ARTICLE 6

Covenants

6.1. Conduct of the Business of the Company. Except as contemplated by this
Agreement, as agreed to in writing by the Parent or as set forth in the
Company Disclosure Letter, during the period from the date of this Agreement
and prior to the earlier of (i) the Effective Time or (ii) the consummation of
the Offer, the Company

-A-19-
<PAGE>

and its subsidiaries shall each conduct its operations according to its
ordinary course of business, consistent with past practice. Without limiting
the generality of the foregoing, and except as otherwise expressly
contemplated by this Agreement or as set forth in the Company Disclosure
Letter, prior to the earlier of (i) the Effective Time or (ii) the
consummation of the Offer, neither the Company nor any of its subsidiaries
will, without the prior written consent of the Parent:

(a) amend its Articles or Bylaws (or equivalent instruments);

(b) authorize for issuance, issue, sell, deliver or agree or commit to
issue, sell or deliver (whether through the issuance or granting of additional
options, warrants, commitments, subscriptions, rights to purchase or
otherwise) any shares of capital stock of any class or any securities
convertible into shares of capital stock of any class, except as required by
any Company Benefit Plan or agreement existing as of the date hereof and
described in the Company Disclosure Letter;

(c) split, combine or reclassify any shares of its capital stock, declare,
set aside or pay any dividend or other distribution (whether in cash, stock or
property or any combination thereof) in respect of its capital stock, or
redeem or otherwise acquire any shares of its capital stock;

(d) (i) pledge or otherwise encumber shares of capital stock of the Company
or any of its subsidiaries; (ii) except in the ordinary course of business
consistent with past practices: (A) create, incur, assume, maintain, prepay,
or permit to exist any long-term debt (including obligations in respect of
capital leases) or obligations with respect to letters of credit or any
material short-term debt, other than indebtedness that is mandatorily
prepayable in accordance with its terms; (B) assume, guarantee, endorse or
otherwise become liable or responsible (whether directly, contingently or
otherwise) for the obligations of any person other than any subsidiary of the
Company; or (C) make any loans, advances or capital contributions to, or
investments in, any person other than any of the subsidiaries of the Company;

(e) sell, transfer, mortgage or otherwise dispose of or encumber, any
business, subsidiary, assets of the Company and its subsidiaries, or fixed
assets, other than in the ordinary course of business consistent with past
practice;

(f) amend or terminate any contracts involving in excess of $75,000 (other
than those involving the purchase of inventory in the ordinary course of
business) or waive, release or assign any right or claim involving in excess
of $75,000;

(g) permit any material insurance policy naming it as a beneficiary or a
loss payable payee to be canceled or terminated;

(h) grant any increase in the compensation payable or to become payable to
any of its officers or key employees or establish, adopt, enter into, make any
new grants or awards under, be obligated to grant any awards under, or amend,
any collective bargaining (except as required by law), bonus, profit sharing,
thrift, compensation, stock option or other equity, pension, retirement,
incentive or deferred compensation, employment, retention, termination,
severance, health, life or other welfare, fringe or other plan, agreement,
trust, fund, policy or arrangement for the benefit of any current or former
directors, officers or employees of the Company or any of its subsidiaries, or
grant or pay any benefit not required by any existing plan or arrangement
(including, without limitation, the granting of stock options, stock
appreciation rights, shares of restricted stock or performance units) other
than in the ordinary course of business and consistent with past practice;

(i) change in any material respect any of the accounting principles used by
it except as may be required by GAAP;

(j) enter into any material commitment or transaction with respect to the
Company or its subsidiaries outside the ordinary course of business other than
any such transactions between or among the Company and its subsidiaries or
otherwise transfer any business or material portion thereof;

-A-20-
<PAGE>

(k) acquire or agree to acquire, by merging or consolidating with, by
purchasing an equity interest in or a portion of the assets of, or by any
other manner, any business or any corporation, partnership, association or
other business organization or division thereof, or otherwise acquire or agree
to acquire any assets of any other person (other than the purchase of assets
in the ordinary course of business and consistent with past practice);
provided, however, that the Company shall give prior written notice to the
Parent of any individual purchase of assets, other than inventory, in excess
of $100,000, whether or not in the ordinary course of business;

(l) except as may be required by law or existing written contractual or
collective bargaining agreements, take any action to terminate or amend any of
its pension plans or retiree medical plans with respect to or for the benefit
of any employee of the Company or its subsidiaries;

(m) (i) take any action, engage in any transaction or enter into any
agreement which would cause any of the representations or warranties set forth
in Article 4 hereof that are subject to, or qualified by, a "Material Adverse
Effect," or other materiality qualification to be untrue as of the Closing
Date, or any such representations and warranties that are not so qualified to
be untrue in any respect which would have a Material Adverse Effect on the
Company and its subsidiaries taken as a whole or (ii) purchase or acquire, or
offer to purchase or acquire, any shares of capital stock of the Company;

(n) take any action, including without limitation, the adoption of any
shareholder rights plan or amendments to the Company's Articles, which would,
directly or indirectly, restrict or impair the ability of the Parent to vote,
or otherwise to exercise the rights and receive the benefits of a shareholder
with respect to, securities of the Company that may be acquired or controlled
by the Parent or Newco or permit any Shareholder to acquire securities of the
Company on a basis not available to the Parent in the event that the Parent
were to acquire securities of the Company; and

(o) agree to do any of the foregoing actions.

6.2. Access to Information. From the date hereof to the earlier of the
Effective Time or the consummation of the Offer, the Company shall, and shall
cause its subsidiaries, officers, employees, auditors and other agents to,
afford the officers, employees, auditors and other agents of the Parent, and
the representatives of and advisors to financing sources, reasonable access to
its officers, employees, agents, properties, offices, plants and other
facilities and to all books, records and contracts, and shall furnish the
Parent and such financing sources with all financial, operating and other data
and information as the Parent, through its officers, employees or agents, or
such financing sources may from time to time reasonably request. The Company
shall promptly furnish to the Parent a copy of each material document executed
or received by the Company or filed by it pursuant to the Federal securities
laws or Federal, state, local or foreign tax laws after the date hereof.
Unless otherwise required by law, the Parent shall hold, and cause its
officers, employees, auditors and other agents to hold, any such information
which is nonpublic in confidence in accordance with the provisions of the
Confidentiality Agreement.

6.3. Shareholder Approval. (a) In order to consummate the Merger, as soon as
practicable following the execution of this Agreement, the Company, acting
through its Board of Directors, shall in accordance with applicable law, take
all steps necessary duly to call, set a record date for, give notice of,
convene and hold a meeting of the Shareholders as soon as practicable for the
purpose of adopting and approving this Agreement and the transactions
contemplated hereby. At such meeting, the Parent and Newco (to the extent
permitted by Virginia law) shall each vote, or cause to be voted, all Shares
beneficially owned by it or any of its subsidiaries on the record date for
such meeting, in favor of the approval and adoption of this Agreement and the
transactions contemplated hereby. The Company shall use its reasonable best
efforts to solicit from the Shareholders proxies, and shall take all other
action necessary and advisable, to secure the vote of shareholders required by
applicable law to obtain the approval for this Agreement.

(b) The Company will, as promptly as practicable, prepare and file a Proxy
Statement with the SEC, and shall use best efforts to obtain and furnish the
information required to be included by it in the Proxy Statement

-A-21-
<PAGE>

and, after consultation with the Parent, to respond promptly to any comments
made by the SEC with respect to the Proxy Statement and any preliminary
version thereof, to furnish all information required to prepare the definitive
Proxy Statement (including, without limitation, financial statements and
supporting schedules and certificates and reports of independent public
accountants) and cause the Proxy Statement to be mailed to the Shareholders at
the earliest practicable time. If necessary, after the definitive Proxy
Statement shall have been so mailed, the Company shall promptly circulate
amended, supplemental or supplemented proxy material and, if required in
connection therewith, resolicit proxies. The Company shall not use any proxy
material in connection with the meeting of the Shareholders without the
Parent's prior approval, such consent not to be unreasonably withheld. The
Board of Directors and the board of directors of the Parent and Newco have
each determined that the Merger and the Offer are advisable, fair to and in
the best interests of the Shareholders of their respective companies and
approved the Offer and the Merger and adopted this Agreement. The Board of
Directors will, unless it determines in good faith, based on the advice of its
outside legal counsel that any of the following would be inconsistent with the
fiduciary duties of the Board of Directors to the Shareholders, (i) recommend
to the Shareholders the adoption and approval of this Agreement and the
transactions contemplated hereby and the other matters to be submitted to the
Shareholders in connection therewith (including the election of Newco's
designees to the Board of Directors), (ii) use all reasonable best efforts to
obtain the necessary approval by the Shareholders of this Agreement and the
transactions contemplated hereby, (iii) include in the Proxy Statement the
unanimous recommendation of its Board of Directors that the Shareholders
approve and adopt this Agreement and approve the Merger, (iv) unanimously
recommend to the Shareholders the acceptance of the Offer in accordance with
its terms as set forth herein and (v) use all reasonable best efforts to
encourage Shareholders to accept the Offer in accordance with its terms as set
forth herein. The Parent shall provide the Company with the information
concerning the Parent and Newco required to be included in the Proxy
Statement.

6.4. Best Efforts. Subject to the terms and conditions herein provided, each
of the parties hereto agrees to cooperate and use their respective
commercially reasonable best efforts consistent with applicable legal
requirements to take, or cause to be taken, all action, and to do, or cause to
be done, all things necessary or proper and advisable under applicable laws
and regulations to ensure that the conditions set forth in Article 7 hereof
are satisfied and to consummate and make effective, in the most expeditious
manner practicable, the transactions contemplated by this Agreement.

6.5. Governmental Consents. The Parent and the Company each shall use their
best efforts to obtain all material consents of governmental authorities, and
to make all filings (including, without limitation, under any applicable
Antitrust Laws) with all Governmental Entities, necessary to the consummation
of the transactions contemplated by this Agreement. The Company, the Parent
and Newco shall as soon as practicable file Pre-Merger Notification and Report
Forms under the HSR Act with the FTC and the Antitrust Division, and shall use
their best efforts to respond as promptly as practicable to all inquiries
received from the FTC or the Antitrust Division for additional information or
documentation.

6.6. Public Announcements. The Parent and the Company shall consult with
each other before issuing any press release or otherwise making any public
statements with respect to the Merger, the Offer or the transactions
contemplated by this Agreement and shall not issue any such press release or
make any such public statement prior to such consultation, except as may be
required by law or by obligations pursuant to any listing agreement with any
securities exchange, whether domestic or foreign.

6.7. Consent of the Parent. The Parent, as the sole shareholder of Newco, by
executing this Agreement consents to the execution and delivery of this
Agreement by Newco and the consummation of the Merger and the other
transactions contemplated hereby and such consent shall be treated for all
purposes as a vote duly cast at a meeting of the shareholders of Newco held
for such purpose by written consent of its sole shareholder.

6.8. No Solicitation. (a) Neither the Company nor any of its subsidiaries
nor any of their respective officers, directors, employees, agents or
representatives (including, without limitation, investment bankers, attorneys
and accountants) shall, directly or indirectly, except as expressly permitted
below, (i) solicit, initiate or encourage, or disclose directly or indirectly
any information not customarily disclosed concerning its Business

-A-22-
<PAGE>

and properties to, or afford any access to its properties, books and records
to, any corporation, partnership or other person or group in connection with
any possible proposal (an "Acquisition Proposal") regarding a sale of any
shares of the capital stock of the Company or any of its subsidiaries or a
merger, consolidation or sale or spin-off of all or a substantial portion of
the assets of the Company or any subsidiary of the Company, or a liquidation
or a recapitalization of the Company or any of its subsidiaries, or any
similar transaction, or (ii) enter into any agreement with respect to any
Acquisition Proposal or approve any Acquisition Proposal.

(b) Notwithstanding anything to the contrary contained in this Merger
Agreement, the Company and its Board of Directors (i) may participate in
discussions or negotiations (including, as a part thereof, making any
counterproposal) with or furnish information to any third party making an
unsolicited Acquisition Proposal (a "Potential Acquiror") if the Board of
Directors determines in good faith, based on the advice of its outside legal
counsel, that the failure to participate in such discussions or negotiations
or to furnish such information would be inconsistent with the Board of
Directors' fiduciary duties under applicable law, and (ii) shall be permitted
to take and disclose to the Shareholders a position with respect to any tender
or exchange offer by a third party, or amend or withdraw such position,
pursuant to Rules 14d-9 and 14e-2 of the Exchange Act.

(c) In the event that the Company shall determine to provide any information
as described above, or shall receive any Acquisition Proposal, it shall
promptly inform the Parent in writing as to the fact that information is to be
provided and shall furnish to the Parent the identity of the recipient of such
information or the Potential Acquiror and the terms of such Acquisition
Proposal, except to the extent that the Board of Directors determines in good
faith, based on the advice of its outside legal counsel, that any such action
described in this sentence would be inconsistent with the Board of Directors'
fiduciary duties under applicable law. The Company shall keep the Parent
reasonably informed of the status of any such Acquisition Proposal except to
the extent that the Board of Directors determines in good faith, based on the
advice of its outside legal counsel, that any such action would be
inconsistent with the Board of Director's fiduciary duties under applicable
law.

(d) The Board of Directors of the Company shall not (i) withdraw or modify
or propose to withdraw or modify, in any manner adverse to the Parent, the
approval or recommendation of such Board of Directors of this Merger
Agreement, the Offer or the Merger or (ii) approve or recommend, or propose to
approve or recommend, any Acquisition Proposal unless, in each case, the Board
of Directors determines in good faith, after receiving advice from its
financial advisor, that such Acquisition Proposal is a Superior Proposal.

(e) The term "Superior Proposal" means any proposal to acquire, directly or
indirectly, for consideration consisting of cash or securities, all of the
Shares then outstanding or all or substantially all the assets of the Company,
and otherwise on terms which the Board of Directors of the Company, after
receiving advice from its financial advisor, determines in good faith to be
more favorable to the Company and the Shareholders than the Merger and the
Offer.

6.9. Indemnification; Insurance. (a) For a period of six years after the
earlier of the Effective Time or consummation of the Offer, the Parent shall,
and shall cause the Surviving Corporation or the Company, as applicable, to,
indemnify, defend and hold harmless the present and former officers,
directors, employees and agents of the Company and its subsidiaries (each an
"Indemnified Party" and collectively, the "Indemnified Parties") from and
against, and pay or reimburse the Indemnified Parties for, all losses,
obligations, expenses, claims, damages or liabilities (whether or not
resulting from third-party claims and including interest, penalties, out-of-
pocket expenses and attorneys' fees incurred in the investigation or defense
of any of the same or in asserting any of their rights hereunder) with respect
to actions or omissions arising out of such individuals' services as officers,
directors, employees or agents of the Company or any of its subsidiaries or as
trustees or fiduciaries of any plan for the benefit of employees of the
Company or any of its subsidiaries occurring on or prior to the earlier of the
Effective Time or consummation of the Offer (including, without limitation,
the transactions contemplated by this Agreement) to the full extent permitted
or required under applicable law and, in the case of indemnification by the
Surviving Corporation, to the extent permitted under the provisions of the
Articles and the Bylaws of the Company, each as in effect at the date hereof
(which provisions shall not be amended in any manner that adversely affects
any Indemnified Party, for a period of six years), including

-A-23-
<PAGE>

provisions relating to advances of expenses incurred in the defense of any
action or suit; provided that in the event any claim or claims are asserted or
made within such six-year period, all rights to indemnification in respect of
each such claim shall continue until final disposition of such claim. Without
limiting the foregoing, in any case in which approval by the Surviving
Corporation or the Company is required to effectuate any indemnification, the
Parent shall cause the Surviving Corporation or the Company to direct, at the
election of the Indemnified Party, that the determination of any such approval
shall be made by independent counsel selected by the Indemnified Party and,
provided further, that nothing in this Section 6.9 shall impair any rights or
obligations of any present or former directors or officers of the Company.

(b) Any Indemnified Party wishing to claim indemnification under Section
6.9(a) shall provide notice to the Parent promptly after such Indemnified
Party has actual knowledge of any claim as to which indemnity may be sought,
and the Indemnified Party shall permit the Parent (at the Parent's expense) to
assume the defense of any claim or any litigation resulting therefrom;
provided that (i) counsel for the Parent who shall conduct the defense of such
claim or litigation shall be reasonably satisfactory to the Indemnified Party,
and the Indemnified Party may participate in such defense at such Indemnified
Party's expense, and (ii) the omission by any Indemnified Party to give notice
as provided herein shall not relieve the Parent of its indemnification
obligation under this Agreement except to the extent that such omission
results in a failure of actual notice to the Parent and the Parent is
materially damaged as a result of such failure to give notice. The Parent
shall not, in the defense of any such claim or litigation, except with the
consent of the Indemnified Party, consent to entry of any judgment or enter
into any settlement that provides for injunctive or other non-monetary relief
affecting the Indemnified Party or that does not include as an unconditional
term thereof the giving by the claimant or plaintiff to such Indemnified Party
of a release from all liability with respect to such claim or litigation. In
the event that the Parent does not accept the defense of any matter as above
provided, or counsel for the Indemnified Parties advises that there are issues
which raise conflicts of interest between the Parent or the Surviving
Corporation or the Company and the Indemnified Parties, the Indemnified
Parties may retain counsel satisfactory to them and approved by the Parent
(which approval shall not be unreasonably withheld), and the Parent or the
Surviving Corporation or Company shall pay all reasonable fees and expenses of
such counsel for the Indemnified Parties promptly as statements therefor are
received; provided that the Parent shall not be liable for any settlement
effected without its prior written consent. In any event, the Parent and the
Indemnified Parties shall cooperate in the defense of any action or claim
subject to this Section 6.9 and the records of each shall be available to the
other with respect to such defense.

(c) At or prior to the earlier of the Effective Time or consummation of the
Offer, at the election of Parent, either (i) the Company shall purchase an
insurance policy providing extended discovery period directors' and officers'
insurance coverage for a period of six years after the earlier of the
Effective Time or consummation of the Offer or (ii) Parent shall deliver to
the Company, or shall cause the Company to obtain, an insurance policy, and
shall maintain such policy for not less than six years after the earlier of
the Effective Time or consummation of the Offer, providing directors' and
officers' liability insurance, in either case covering the Indemnified Parties
who are currently covered by the Company's existing directors' and officers'
liability insurance, on terms and conditions no less favorable to such
directors and officers than those in effect on the date hereof; provided that
in no event shall the Parent be required to expend for the policy or policies
in any one year an amount in excess of 150% of the annual premiums currently
paid by the Company for such insurance; and, provided, further, that if the
annual premiums of such insurance coverage exceed such amount, the Parent
shall be obligated to obtain a policy with the greatest coverage it can obtain
upon the exercise of its reasonable best efforts for a cost not exceeding such
amount. (The Company represents that the annual premium is currently
approximately $114,000). In the event the Parent or any of its successors or
assigns (i) consolidates with or merges into any other person and shall not be
the continuing or surviving corporation or entity of such consolidation or
merger, or (ii) transfers or conveys all or substantially all of its
properties and assets to any person, then, and in each such case, to the
extent necessary to effectuate the purposes of this Section 6.9, proper
provision shall be made so that the successors and assigns of the Parent
assume the obligations set forth in this Section 6.9 and none of the actions
described in clauses (i) or (ii) of this Section 6.9 shall be taken until such
provision is made.

-A-24-
<PAGE>

6.10. Employee Benefits. The Parent shall cause the Surviving Corporation to
perform all the obligations of the Company under each of the Executive
Retention Agreements, Company Benefit Plans (including without limitation the
Company's Welfare Benefit Plan set forth on Schedule 4.13(a) to the Company
Disclosure Letter (the "Welfare Benefit Plan")) and other commitments and
agreements identified on Schedule 4.13(d) to the Company Disclosure Letter.

6.11. Transfer Taxes. Except as otherwise provided in Article 3, Newco shall
pay any transfer Taxes payable in connection with the Merger and shall be
responsible for the preparation and filing of any required Tax Returns with
respect to such Taxes.

6.12. Anti-takeover Statutes. If, notwithstanding the actions taken pursuant
to Section 1.2(b), any "fair price," "moratorium," "control share acquisition"
or other form of anti-takeover statute is or shall become applicable to the
Offer, the Merger or other transactions contemplated hereby, the Company and
the members of the Board of Directors, to the extent permitted by applicable
law, shall grant such approvals and take such actions as are necessary and are
reasonably practicable to be granted or taken so that the Offer, the Merger
and other transactions contemplated hereby may be consummated as promptly as
practicable on the terms contemplated hereby and otherwise act to eliminate or
minimize the effects of any such anti-takeover statute on the transactions
contemplated hereby.

6.13. Notification of Certain Matters. Each of the Company and the Parent
shall give prompt notice to each other party of any notice of, or other
communication relating to, a default or event that, with notice or lapse of
time or both, would become a default, received by such party subsequent to the
date of this Agreement and prior to the earlier of the Effective Time or
consummation of the Offer, under any material contract to which such party is
a party or is subject. Each of the Company and the Parent shall give prompt
notice to the other party of (a) any notice or other communication from any
third party alleging that the consent of such third party is or may be
required in connection with the transactions contemplated by this Agreement
and (b) the occurrence, or non-occurrence, of any events the occurrence, or
non-occurrence, of which would cause either (i) a representation or warranty
contained in this Agreement to be untrue or inaccurate in any material respect
at any time from the date hereof to the earlier of the Effective Time or the
date Shares are accepted for payment pursuant to the Offer, or (ii) any
covenant, condition or agreement to be complied with or satisfied under this
Agreement to be unsatisfied in any material respect at any time from the date
hereof to the earlier of the Effective Time or the date Shares are accepted
for payment pursuant to the Offer; provided, however, that the delivery of any
notice pursuant to this Section 6.13 shall not limit or otherwise affect the
remedies available under this Agreement to the party receiving such notice.

6.14. Amendment to Schedule TO, Proxy Statement and Schedule 14D-9. (a) If
at any time prior to the expiration or termination of the Offer any event
occurs which should be described in an amendment or supplement to the Schedule
TO or any amendment or supplement thereto, Newco shall file and disseminate,
as required, an amendment or supplement which complies in all material
respects with the Exchange Act and the rules and regulations thereunder and
any other applicable laws. Prior to its filing with the SEC, the amendment or
supplement shall be delivered to the Company and its counsel.

(b) If at any time prior to the expiration or termination of the Offer any
event occurs which should be described in an amendment or supplement to the
Schedule 14D-9 or any amendment or supplement thereto, the Company shall file
and disseminate, as required, an amendment or supplement which complies in all
material respects with the Exchange Act and the rules and regulations
thereunder and any other applicable laws. Prior to its filing with the SEC,
the amendment or supplement shall be delivered to the Parent and Newco and
their counsel.

(c) If at any time prior to the Effective Time any event with respect to the
Company or any of its subsidiaries, or with respect to information supplied by
the Company for inclusion in the Proxy Statement, occurs which should be
described in an amendment or supplement to the Proxy Statement, the Company
shall file and disseminate, as required, an amendment or supplement which
complies in all material respects with the Exchange

-A-25-
<PAGE>

Act and the rules and regulations thereunder and any other applicable laws.
Prior to its filing with the SEC, the amendment or supplement shall be
delivered to the Parent and Newco and their counsel.

6.15. Satisfaction of New Jersey Industrial Site Recovery Act. The Company
will take such actions as may be reasonably necessary to comply with the New
Jersey Industrial Site Recovery Act (N.J.C.A. 13:1K-6 et seq.) ("ISRA") in
order to consummate the Merger or the Offer in accordance with the
requirements of such act. The Company agrees to execute and deliver such
documents and agreements between the New Jersey Department of Environmental
Protection ("NJDEP") and the Company as may be required pursuant to ISRA in
connection with the Company's real property located in Bloomfield, New Jersey
including entering into a remediation agreement or any other expedited review
option available under ISRA with the NJDEP. Parent and Newco agree to execute
the purchaser's acknowledgement portion of any such ISRA application and
deliver such purchaser's signature to the NJDEP. Parent and Newco further
agree to reasonably assist and cooperate with the Company in its efforts to
comply with ISRA in order to consummate the Merger or the Offer in accordance
with the requirements of such act, provided that neither Parent nor Newco
shall have any obligation to incur any financial expense or obligation with
respect thereto.

6.16. Third Party Consents. (a) To the extent that any consent or approval
with respect to any license, contract or other agreement to which the Company
or any of its subsidiaries is a party is required in connection with, or as a
result of, the transactions contemplated by this Agreement (including without
limitation to assign the Company's or any of its subsidiaries' rights
thereunder to the Surviving Corporation at the Effective Time, or to preserve
the Company's, or any of its subsidiaries', rights thereunder after the
consummation of the Offer) between the date of this Agreement and the earlier
of the consummation of the Offer or the Effective Time, the Company will
cooperate with Parent and use its reasonable best efforts to obtain such
consents and approvals prior to the consummation of the Offer or the Effective
Time, as applicable.

(b) The Company will, if requested by Parent, within five (5) days of such
request, request in writing the consent of any party to the agreements
identified on Schedule 6.16 to the assignment of the rights and obligations of
the Company and of any of its subsidiaries thereunder to a third party to be
designated by Parent and on terms acceptable to Parent, provided that such
assignment would be effective simultaneously with consummation of the Offer or
the Effective Time, as applicable.

(c) The Company, Parent and Newco acknowledge and agree that neither (i)
failure to obtain any consent of a licensor or other party with respect to the
licenses, contracts or agreements described in Section 6.16(a) or 6.16(b), nor
(ii) failure of any party to any such license, contact or agreement to honor
its obligations under any such license, contract or agreement from and after
the Effective Time or consummation of the Offer, would, individually or in the
aggregate, for any purpose of this Agreement, constitute a Material Adverse
Effect.

ARTICLE 7

Closing Conditions

7.1. Conditions to the Obligations of the Parent, Newco and the Company. The
respective obligations of each party to effect the Merger shall be subject to
the fulfillment at or prior to the Effective Time of the following conditions:

(a) There shall not be in effect any statute, rule or regulation enacted,
promulgated or deemed applicable by any governmental authority of competent
jurisdiction that makes consummation of the Merger illegal and no temporary
restraining order, preliminary or permanent injunction or other order issued
by any court of competent jurisdiction or other legal restraint or prohibition
preventing the consummation of the Merger shall be in effect; provided,
however, that each of the parties shall use their best efforts to prevent the
entry of any such injunction or other order and to appeal as promptly as
possible any injunction or other order that may be entered.

-A-26-
<PAGE>

(b) If required by applicable law, this Agreement shall have been approved
and adopted by the affirmative vote of the holders of the requisite number of
shares of Company Common Stock in accordance with the Virginia Act and other
applicable law and the Articles and Bylaws of the Company.

(c) Any waiting period (and any extension thereof) under the HSR Act
applicable to the Merger shall have expired or been terminated.

(d) The Company shall have received evidence that the Company has complied
with the requirements of the New Jersey Industrial Site Recovery Act necessary
to consummate the Merger or the Offer.

(e) Newco shall have received a complete copy of the FUSI Opinion.

7.2. Conditions to the Obligations of the Company. The obligations of the
Company to effect the Merger shall be subject to the fulfillment at or prior
to the Effective Time of the following conditions:

(a) On or prior to the mailing of the Proxy Statement to the Company's
Shareholders, and on or prior to the Effective Time, the Company shall have
received an opinion of First Union Securities, Inc., to the effect that, as of
such date, the consideration to be received by the Shareholders in the Merger
or pursuant to the Offer is fair to the Shareholders from a financial point of
view (the "FUSI Opinion").

(b) The representations and warranties of the Parent and Newco set forth in
this Agreement shall be true and correct on and as of the Effective Time
(except as to any such representation or warranty which speaks as of a
specific date, which must be true and correct as of such specific date),
except where the failure to be so true and correct would not reasonably be
expected to have a material adverse effect on the Parent.

(c) The Parent and Newco shall each have performed all obligations and
complied with all covenants necessary to be performed or complied with by it
at or prior to the Effective Time, except for such failures to perform that
would not reasonably be expected to have a material adverse effect on the
Parent.

7.3. Conditions to the Obligations of the Parent and Newco. The obligations
of the Parent and Newco to effect the Merger shall be subject to the
fulfillment at or prior to the Effective Time of the following conditions:

(a) The representations and warranties of the Company set forth in this
Agreement shall be true and correct on and as of the Effective Time (except as
to any such representation or warranty which speaks as of a specific date,
which must be true and correct as of such specific date), except where the
failure to be so true and correct would not reasonably be expected to have a
Material Adverse Effect; provided that the representations and warranties of
the Company set forth in the first two sentences of Section 4.2 shall be true
and correct as of the date specified therein, whether or not the failure to be
so true and correct would reasonably be expected to have a Material Adverse
Effect.

(b) The Company shall have performed all obligations and complied with all
covenants necessary to be performed or complied with by it at or prior to the
Effective Time, except for such failures to perform that would not reasonably
be expected to have a Material Adverse Effect.

(c) The Board of Directors shall have caused the Rights Agreement not to
apply to the Merger or the other transactions contemplated by this Agreement.

(d) The Company and Newco shall have received the opinion referred to in
Section 4.18 and an opinion of Virginia counsel to the Company that the Merger
shall have become effective under the Virginia Act.

(e) No change, development, effect or circumstance shall have occurred or be
threatened that is reasonably likely to have a Material Adverse Effect.

(f) To the extent dissenters' appraisal rights are available to
Shareholders, Shareholders owning not more than 5% of the outstanding Shares
request such rights.

-A-27-
<PAGE>

ARTICLE 8

Closing

8.1. Time and Place. The closing of the Merger (the "Closing") shall take
place at the offices of Mays & Valentine, L.L.P., Bank of America Center, 23rd
Floor, Richmond, Virginia, or such other place as the parties may agree, as
soon as practicable, which shall be no later than the fifth business day
following satisfaction or waiver, if permissible, of the conditions set forth
in Article 7. The date on which the Closing actually occurs is herein referred
to as the "Closing Date."

8.2. Filings at the Closing. At the Closing, the Parent, Newco and the
Company shall cause the Articles of Merger, together with any other documents
required by law to effectuate the Merger, to be filed with the Virginia
Commission in accordance with the provisions of the Virginia Act, and shall
take any and all other lawful actions and do any and all other lawful things
necessary to cause the Merger to become effective.

ARTICLE 9

Termination and Abandonment

9.1. Termination. This Agreement may be terminated at any time prior to the
Effective Time, whether before or after approval by the Shareholders:

(a) by mutual consent of the board of directors of the Parent and the Board
of Directors of the Company;

(b) by either the Parent or the Company if by November 30, 2000 (the
"Termination Date") both (i) the Effective Time shall not have occurred and
(ii) the Offer shall not have been consummated, and provided, further, that a
party may not terminate this Agreement pursuant to this Section 9.1(b) if such
party has committed a material breach of any representation, warranty,
covenant or agreement set forth in this Agreement, which breach has been the
cause of or resulted in the failure of the Effective Time to occur or the
Offer to be consummated;

(c) by the Parent if both (i) at a duly held meeting of the shareholders of
the Company or any adjournment thereof at which this Agreement and the Merger
are voted upon, the requisite shareholder vote for adoption and approval shall
not have been obtained, and (ii) the Offer shall have expired or terminated in
accordance with its terms without any Shares having been purchased thereunder
due to a failure of any of the conditions set forth in Annex A to be
satisfied, unless such termination or expiration has been caused or resulted
from the failure by the Parent to perform in any material respect any of its
covenants or agreements contained in this Agreement;

(d) by the Company if the Parent, Newco or any of their affiliates shall
have failed to commence the Offer on or prior to the date which is 5 business
days after the Shareholders' Meeting; provided, that the Company may not
terminate this Agreement pursuant to this Section 9.1(d) if the Company has
failed to perform in any material respect any of its covenants or agreements
contained in this Agreement;

(e) by the Company, if both (i) at a duly held meeting of the shareholders
of the Company or any adjournment thereof at which this Agreement and the
Merger are voted upon, the requisite shareholder vote for adoption and
approval shall not have been obtained, and (ii) the Offer has been terminated
by the Parent without the Parent having accepted for payment and paying for
such number of Shares which, together with the Company Common Stock owned by
Parent and Newco, represent a majority of the voting power of the capital
stock of the Company on a fully diluted basis, provided, that the Company may
not terminate this Agreement pursuant to this Section 9.1(e) if the Company
has failed to perform in any material respect any of its covenants or
agreements contained in this Agreement;

(f) by either the Parent or the Company, if any court of competent
jurisdiction in the United States or other governmental agency of competent
jurisdiction shall have issued an order, decree or ruling or taken any other
action (which order, decree, ruling or other action the parties hereto shall
use their respective reasonable best

-A-28-
<PAGE>

efforts to lift) restraining, permanently enjoining or otherwise prohibiting
the consummation of the Offer or the Merger, and such order, decree, ruling or
other action shall have become final and non-appealable;

(g) by the Company prior to the purchase of Shares pursuant to the Offer or
the Effective Time, in order to accept a Superior Proposal; or

(h) by the Parent if, prior to purchase of Shares pursuant to the Offer or
the Effective Time, the Board of Directors shall have withdrawn, or modified
or changed in a manner adverse to the Parent or Newco its approval or
recommendation of this Agreement, the Offer or the Merger or shall have
recommended a Superior Proposal or shall have resolved to do any of the
foregoing.

9.2. Procedure and Effect of Termination. In the event of termination of
this Agreement and abandonment of the Merger and the Offer by the Parent,
Newco or the Company pursuant to Section 9.1, written notice thereof shall
forthwith be given to the other party or parties specifying the provision
hereof pursuant to which such termination is made and this Agreement shall
terminate and the Merger and the Offer shall be abandoned, without further
action by any of the parties hereto. Newco agrees that any termination by the
Parent shall be conclusively binding upon it, whether given expressly on its
behalf or not, and the Company shall have no further obligation with respect
to it. If this Agreement is terminated as provided herein, no party hereto
shall have any liability or further obligation to any other party to this
Agreement, provided that any termination shall be without prejudice to the
rights of any party hereto arising out of breach by any other party of any
covenant or agreement contained in this Agreement, and provided, further, that
the obligations set forth in the second and third sentences of Section 1.2(a)
and in Sections 4.19, 5.7, 9.3 and 10.6 shall in any event survive any
termination.

9.3. Fees and Expenses. (a) Except as otherwise provided for in this
Agreement, all costs and expenses incurred in connection with this Agreement,
the Merger and the Offer, and any transactions contemplated thereby, shall be
paid by the party incurring such expenses, whether or not any transaction is
consummated.

(b) If this Agreement is terminated by the Company pursuant to Section
9.1(g) or Section 9.1(h) of this Agreement, simultaneously with the
termination of this Agreement and as a condition thereof, the Company shall
pay to the Parent a termination fee in the amount of $1,739,982 (the
"Termination Fee"). If the condition set forth in clause (v) of Annex A
attached hereto is not satisfied and, as a result of the failure of such
condition to be satisfied, Parent does not consummate the Offer, within two
(2) business days thereafter the Company shall pay to the Parent the
Termination Fee.

ARTICLE 10

Miscellaneous

10.1. Amendment and Modification. This Agreement may be amended, modified or
supplemented only by written agreement of the Parent, Newco and the Company at
any time prior to the Effective Time or the consummation of the Offer with
respect to any of the terms contained herein, provided, that after this
Agreement is adopted by the Shareholders pursuant to Section 6.3, no such
amendment or modification shall be made that reduces the amount or changes the
form of the Merger Consideration or otherwise materially and adversely affects
the rights of the Shareholders hereunder, without the further approval of the
Shareholders.

10.2. Waiver of Compliance; Consents. Any failure of the Parent or Newco, on
the one hand, or the Company, on the other hand, to comply with any
obligation, covenant, agreement or condition herein may be waived by the
Company or the Parent, respectively, only by a written instrument signed by
the party granting such waiver, but such waiver or failure to insist upon
strict compliance with such obligation, covenant, agreement or condition shall
not operate as a waiver of, or estoppel with respect to, any subsequent or
other failure. Whenever this Agreement requires or permits consent by or on
behalf of any party hereto, such consent shall be given in writing in a manner
consistent with the requirements for a waiver of compliance as set forth in
this

-A-29-
<PAGE>

Section 10.2. Newco hereby agrees that any consent or waiver of compliance
given by the Parent hereunder shall be conclusively binding upon it, whether
given expressly on its behalf or not.

10.3. Survival of Warranties. Each and every representation and warranty
made in Article 4, other than Section 4.19 (if this Agreement is terminated
before consummation of the Offer or the Merger), and Article 5, other than
Section 5.7 (if this Agreement is terminated before consummation of the Offer
or the Merger), of this Agreement shall expire with, and be terminated and
extinguished by, consummation of the Offer or the Merger, or the termination
of this Agreement pursuant to Section 9.1. This Section 10.3 shall have no
effect upon any other obligation of the parties hereto pursuant to Section 9.2
or otherwise, whether to be performed before or after consummation of the
Offer or the Merger.

10.4. Notices. All notices and other communications hereunder shall be in
writing and shall be deemed given if (a) delivered personally or by overnight
courier, or (b) mailed by registered or certified mail, return receipt
requested, postage prepaid, and in each case, addressed to the parties at the
following addresses (or at such other address for a party as shall be
specified by like notice; provided that notices of a change of address shall
be effective only upon receipt thereof), together with a copy transmitted by
telecopier:

(a) if to the Parent or Newco, to:

CoolBrands International Inc.
4175 Veterans Highway
Suite 303
Ronkonkoma, New York 11779
Telecopy: (631) 737-9792
Attention: Mr. David J. Stein

with a copy to:

Blank Rome Tenzer Greenblatt LLP
23rd Floor
405 Lexington Avenue
New York, New York 10174
Telecopy: (212) 885-5001
Attention: Benjamin Raphan, Esq.

(b) if to the Company, to:

Eskimo Pie Corporation
901 Moorefield Park Drive
Richmond, Virginia 23236
Telecopy: (804) 330-3559
Attention: Mr. David B. Kewer

with a copy to:

Mays & Valentine, L.L.P.
1111 East Main Street
P.O. Box 1122
Richmond, Virginia 23218-1122
Telecopy: (804) 697-1339
Attention: F. Claiborne Johnston, Jr., Esquire

Any notice so addressed shall be deemed to be given (i) three business days
after being mailed by first-class, registered or certified mail, return
receipt requested, postage prepaid and (ii) upon delivery, if transmitted by
hand delivery or overnight courier.

-A-30-
<PAGE>

10.5. Assignment; Parties in Interest. This Agreement and all of the
provisions hereof shall be binding upon and inure to the benefit of the
parties hereto and their respective successors and permitted assigns, but
neither this Agreement nor any of the rights, interests or obligations
hereunder shall be assigned by any of the parties hereto without the prior
written consent of the other parties (except that Parent may assign to any
direct or indirect wholly-owned subsidiary of the Parent any and all rights
and obligations of Parent under this Agreement, and Newco may assign to the
Parent or any other direct or indirect wholly-owned subsidiary of the Parent
any and all rights and obligations of Newco under this Agreement, provided
that in neither case shall any such assignment relieve the Parent or Newco
from any of its respective obligations under this Agreement). Except for
Sections 6.9 and 6.10, which are intended for the benefit of the Company's
directors, officers, employees and agents, this Agreement is not intended to
confer upon any other person except the parties any rights or remedies under
or by reason of this Agreement.

10.6. Specific Performance. The parties hereto agree that irreparable damage
would occur in the event that any of the provisions of this Agreement were not
performed in accordance with their specific terms or were otherwise breached.
It is accordingly agreed that the parties shall be entitled to an injunction
or injunctions to prevent breaches of this Agreement and to enforce
specifically the terms and provisions hereof in any court of the United States
or any state having jurisdiction, this being in addition to any other remedy
to which they are entitled at law or in equity.

10.7. Governing Law. This Agreement shall be governed by the laws of the
Commonwealth of Virginia (regardless of the laws that might otherwise govern
under applicable principles of conflicts of law) as to all matters, including
but not limited to matters of validity, construction, effect, performance and
remedies.

10.8. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.

10.9. Interpretation. The article and section headings contained in this
Agreement are solely for the purpose of reference, are not part of the
agreement of the parties and shall not in any way affect the meaning or
interpretation of this Agreement. As used in this Agreement, (a) the term
"person" shall mean and include an individual, a partnership, a joint venture,
a corporation, a trust, an unincorporated organization and a government or any
department or agency thereof; (b) the terms "affiliate" and "associate" shall
have the meanings set forth in Rule 12b-2 of the General Rules and Regulations
promulgated under the Exchange Act; (c) the term "subsidiary" shall mean as to
any person, (x) any corporation 50% or more of whose stock of any class or
classes having by the terms thereof ordinary voting power to elect a majority
of the directors of such corporation (irrespective of whether or not at the
time stock of any class or classes of such corporation shall have or might
have voting power by reason of the happening of any contingency) is at the
time owned by such person and/or one or more subsidiaries of such person and
(y) any partnership, association, joint venture, limited liability company or
other entity in which such person and/or one or more subsidiaries of such
person has a 50% or more equity interest at the time; and (d) the phrase "to
the knowledge" of any specified corporation shall refer only to the actual
knowledge of the directors or officers of such corporation.

10.10. Entire Agreement. This Agreement, including Annexes A, B and C,
embodies the entire agreement and understanding of the parties hereto in
respect of the subject matter contained herein and supersedes all prior
agreements and understandings between the parties with respect to such subject
matter.

-A-31-
<PAGE>

IN WITNESS WHEREOF, the Parent, Newco and the Company have caused this
Agreement to be signed by their respective duly authorized officers as of the
date first above written.

Coolbrands International Inc.

/s/ David J. Stein
By___________________________________
Name: David J. Stein
Title: President & Co-CEO

EP Acquisition Corp.

/s/ David J. Stein
By___________________________________
Name: David J. Stein
Title: President & Co-CEO

Eskimo Pie Corporation

/s/ David B. Kewer
By___________________________________
Name: David B. Kewer
Title: President & CEO

-A-32-
<PAGE>

APPENDIX A

OFFER CONDITIONS

Capitalized terms not otherwise defined herein have the meanings set forth
in the Merger Agreement.

Notwithstanding any other provision of the Offer, Newco shall not be
required to accept for payment, or, subject to any applicable rules and
regulations of the SEC, including Rule 14e-1(c) under the Exchange Act
(relating to Newco's obligation to pay for or return tendered Shares after the
termination or withdrawal of the Offer), to pay for any Shares not theretofore
accepted for payment or paid for, and Newco may (subject to the terms of the
Agreement) amend or terminate the Offer and may postpone the acceptance of,
and payment for, as to such Shares not theretofore accepted for payment or
paid for (subject to any such applicable rules and regulations of the SEC)
unless (i) any applicable waiting period under the Antitrust Laws shall have
expired or been terminated, (ii) there shall have been validly tendered and
not withdrawn prior to the expiration date of the Offer a number of shares of
Company Common Stock which, together with the Company Common Stock owned by
the Parent and Newco, represents a majority of the total voting power of all
shares of capital stock of the Company outstanding on a fully-diluted basis
(the "Minimum Condition"), (iii) the Parent shall have received evidence that
the Company has complied with the requirements of the New Jersey Industrial
Site Recovery Act necessary to consummate the Offer, (iv) simultaneously with
the acceptance of Shares for payment and payment therefore in accordance with
the Offer, the Board of Directors shall have taken such actions as may be
necessary to redeem or extinguish the rights issued pursuant to the Rights
Plan and such rights shall have been redeemed or extinguished, (v)
simultaneously with the acceptance of Shares for payment and payment therefore
in accordance with the Offer, the designees of Newco to the Board of Directors
shall have been recommended, approved and elected to the Board of Directors
pursuant to Section 1.3(a), which recommendation, approval and election shall
satisfy in full the requirement in Section 13.1-725 of the Virginia Act that
such designees be recommended for election by, or be elected to fill a vacancy
and receive the affirmative vote of, a majority of the disinterested directors
then on the Board of Directors, so that the designees of Newco shall
constitute "disinterested directors" with relation to the Parent, Newco and
their Affiliates for purposes of Article 14 of the Virginia Act, and (vi) at
any time on or after the date of the Agreement and at or before the time that
the particular Shares are accepted for payment (whether or not any other
Shares shall theretofore have been accepted for payment or paid for pursuant
to the Offer) none of the following conditions exists:

(a) there shall be pending any action or proceeding before any court,
government or governmental authority or agency: (i) challenging or seeking
to make illegal, or to delay or otherwise directly or indirectly to
restrain or prohibit the making of the Offer, the acceptance for payment
of, payment for, or the purchase of, some or all of the Shares by the
Parent, Newco or any other subsidiary or affiliate of the Parent, or
seeking to obtain material damages in connection with the Offer, or (ii)
seeking to prohibit ownership or operation by the Parent, Newco or any
other subsidiary or affiliate of the Parent of all or a material portion of
the business or assets of the Parent, the Company or any of their
respective subsidiaries or affiliates or to compel the Parent, Newco or any
other subsidiary or affiliate of the Parent to dispose of or to hold
separately all or a material portion of the business or assets of the
Parent, the Company or any of their respective subsidiaries or affiliates,
as a result of the Offer, or (iii) seeking to impose or confirm limitations
(other than as imposed under the Virginia Act) on the ability of the
Parent, Newco or any other subsidiary or affiliate of the Parent
effectively to exercise full rights of ownership and control of any Shares
(or any shares of capital stock of any subsidiary of the Company)
(including, without limitation, the right to vote any such Shares (or
shares of a subsidiary)) acquired pursuant to the Offer or otherwise
(directly or indirectly), on all matters properly presented to the
Shareholders (or any such subsidiary's shareholders), or (iv) seeking to
require divestiture by the Parent, Newco or any other subsidiary or
affiliate of the Parent of any Shares, or (v) invalidating or rendering
unenforceable any material provision of the Agreement, or (vi) that has had
a Material Adverse Effect, provided that the Parent shall have used all
reasonable efforts to cause any such judgment, order or injunction to be
vacated or lifted;

(b) the Effective Time shall have occurred;

A-33
<PAGE>

(c) there shall have occurred (i) any general suspension of trading in,
or limitation on prices for, securities on any national securities exchange
or in the over-the-counter market in the United States, (ii) a declaration
of a banking moratorium or any suspension of payments in respect of banks
in the United States, (iii) any limitation (whether or not mandatory) by
any government or governmental, administrative or regulatory authority or
agency, domestic or foreign, on, or any other event that would materially
adversely affect, the extension of credit by banks or other lending
institutions in the United States or (iv) a commencement of a war or armed
hostilities or other national or international calamity directly involving
the United States which would reasonably be expected to have a Material
Adverse Effect or prevent (or materially delay) the consummation of the
Offer;

(d) (i) the Board of Directors or any committee thereof shall have
withdrawn or modified in a manner adverse to the Parent or Newco the
approval or recommendation of the Offer, the Merger, the Merger Agreement
or Newco's nominees to the Board of Directors pursuant to Section 1.3 of
the Agreement, or approved or recommended any takeover proposal or any
other acquisition of Shares other than the Offer and the Merger, (ii) any
person (other than Parent, Newco or any of their affiliates) shall have
entered into a definitive agreement or an agreement in principle with the
Company with respect to a tender offer or exchange offer for any Shares or
a merger, consolidation or other business combination with or involving the
Company or (iii) the Board of Directors or any committee thereof shall have
resolved to do any of the foregoing;

(e) the Agreement shall have been terminated in accordance with its terms
or the Offer shall have been terminated with the written consent of the
Company;

(f) the Board of Directors shall not have taken such actions as shall be
necessary to cause the Rights Agreement not to apply to the Offer or the
other transactions contemplated by the Agreement;

(g) any of the representations or warranties of the Company contained in
the Agreement shall not have been true and correct at the date when made or
(except for those representations and warranties made as of a particular
date which need only be true and correct as of such date) shall cease to be
true and correct (without giving effect to any limitation as to
"materiality" or "Material Adverse Effect" set forth therein) at any time
prior to consummation of the Offer, except where the failure to be so true
and correct would not, either individually or in the aggregate, reasonably
be expected to have a Material Adverse Effect;

(h) the Company shall have breached or failed to perform or comply in any
material respect with any obligation, agreement or covenant required by the
Agreement to be performed or complied with by it, except for any such
breaches that, would not, either individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect; or

(i) any change, development, effect or circumstance shall have occurred
or be threatened that is reasonably likely to have a Material Adverse
Effect.

The foregoing conditions are for the sole benefit of Newco and may be
asserted by the Parent and Newco regardless of the circumstances giving rise
to any such condition or may be waived by the Parent or Newco in whole or in
part at any time and from time to time in their sole discretion (subject to
the terms of the Agreement). The failure by the Parent or Newco at any time to
exercise any of the foregoing rights shall not be deemed a waiver of any such
right, the waiver of any such right with respect to particular facts and other
circumstances shall not be deemed a waiver with respect to any other facts and
circumstances, and each such right shall be deemed an ongoing right that may
be asserted at any time and from time to time.

A-34
<PAGE>

APPENDIX B

PLAN OF MERGER

EP ACQUISITION CORP.

with and into

ESKIMO PIE CORPORATION

1. The Corporations Proposing to Merge. The parties to this Plan of Merger
are EP Acquisition Corp., a Virginia corporation ("Newco") and wholly-owned
subsidiary of CoolBrands International Inc., a Canadian corporation
("Parent"), and Eskimo Pie Corporation, a Virginia corporation (the
"Company").

2. The Merger.

(a) The Merger. At the Effective Time (as defined in Section 2(c) hereof),
in accordance with this Plan of Merger and the Virginia Stock Corporation Act
(the "Virginia Act"), Newco shall be merged with and into the Company (the
"Merger"), and the Company shall be the surviving corporation (the "Surviving
Corporation") and shall continue its corporate existence under the laws of the
Commonwealth of Virginia. At the Effective Time, the separate existence of
Newco shall cease.

(b) Effect of the Merger. The Surviving Corporation shall retain the name of
the Company and shall possess all the rights, privileges, immunities, powers
and franchises of Newco and the Company and shall by operation of law become
liable for all the debts, liabilities and duties of the Company and Newco. The
Merger shall have the other effects provided for in the applicable provisions
of the Virginia Act.

(c) Consummation of the Merger. The parties hereto shall cause the Merger to
be consummated by delivering to the State Corporation Commission of the
Commonwealth of Virginia (the "Virginia Commission") articles of merger (the
"Articles of Merger") in such form as required by, and executed and
acknowledged in accordance with, the relevant provisions of the Virginia Act.
The Merger shall become effective as of the time that the Virginia Commission
finds that the Articles of Merger comply with the requirements of law and that
all required fees have been paid and it shall issue a certificate of merger
with respect to the Merger for record in accordance with the relevant
provisions of the Virginia Act (or at such later time specified as the
effective time in the Articles of Merger) (the "Effective Time").

(d) Articles of Incorporation; Bylaws; Directors and Officers. The articles
of incorporation, as amended, of the Company, as in effect immediately prior
to the Effective Time shall be the articles of incorporation of the Surviving
Corporation, until thereafter amended as provided therein and in accordance
with the Virginia Act. The bylaws, as amended, of the Company, as in effect
immediately prior to the Effective Time shall be the bylaws of the Surviving
Corporation until thereafter amended as provided therein and in accordance
with the Virginia Act. The directors of Newco immediately prior to the
Effective Time shall be the directors of the Surviving Corporation, each of
such directors to hold office, subject to the applicable provisions of the
articles of incorporation and bylaws of the Surviving Corporation, until the
next annual shareholders' meeting of the Surviving Corporation and until their
respective successors shall be duly elected or appointed and qualified. The
officers of Newco immediately prior to the Effective Time shall, subject to
the applicable provisions of the articles of incorporation and bylaws of the
Surviving Corporation, be the officers of the Surviving Corporation until
their respective successors shall be duly elected or appointed and qualified.

A-35
<PAGE>

3. Conversion of Securities.

(a) Conversion of Shares. At the Effective Time, by virtue of the Merger and
without any action on the part of the holder thereof:

(i) each share of common stock, $1.00 par value per share, of the Company
(the "Company Common Stock"), issued and outstanding immediately prior to
the Effective Time (the "Shares") (except for Shares then owned
beneficially or of record by the Parent or Newco or any other subsidiary of
the Parent), shall be converted into the right to receive $10.25 (such
price per Share being referred to hereinafter as the "Merger
Consideration") in cash payable to the holder thereof, without interest
thereon, upon surrender of the certificate representing such Share (the
"Certificate");

(ii) each Share that is then owned beneficially or of record by the
Parent or Newco or any other subsidiary of the Parent shall be canceled and
retired and cease to exist, without any conversion thereof; and

(iii) the holders of Certificates shall cease to have any rights as
shareholders of the Company, and their sole right shall be the right to
surrender their Certificates in exchange for payment of the Merger
Consideration per Share evidenced by such Certificates.

(b) Conversion of Newco Common Stock. Each share of common stock, par value
$.01 per share ("Newco Common Stock"), of Newco issued and outstanding
immediately prior to the Effective Time shall, by virtue of the Merger and
without any action on the part of the holder thereof, be converted into and
exchangeable for one fully paid and non-assessable share of common stock, par
value $1.00 per share of the Surviving Corporation ("Surviving Corporation
Common Stock"). From and after the Effective Time, each outstanding
certificate theretofore representing shares of Newco Common Stock shall be
deemed for all purposes to evidence ownership of and to represent the same
number of shares of Surviving Corporation Common Stock.

(i) Immediately prior to the Effective Time, Newco shall, and the Parent
shall cause Newco to, deposit in trust with a bank or trust company in
United States, designated by Newco and reasonably acceptable to the Company
(the "Exchange Agent"), cash in an aggregate amount (such aggregate amount
being hereinafter referred to as the "Exchange Fund") equal to the sum of:
(A) the product of (x) the number of Shares (other than any Shares owned
beneficially or of record by the Parent or Newco or any other subsidiary of
the Parent), and (y) the Merger Consideration, and (B) the aggregate amount
of the Cash Payments to be made to holders of Options (as defined in
Section 3(d)(I)). The Exchange Agent shall, pursuant to irrevocable
instructions, make the payments provided for in Sections 3(a)(I) and 3(d)
hereof out of the Exchange Fund. The Exchange Agent shall invest the
Exchange Fund as the Parent directs, in direct obligations of the United
States of America, obligations for which the full faith and credit of the
United States of America is pledged to provide for the payment of all
principal and interest, commercial paper obligations receiving the highest
rating from either Moody's Investors Services, Inc. or Standard & Poor's
Corporation, or certificates of deposit, bank repurchase agreements or
banker's acceptances of commercial banks with capital exceeding
$10,000,000,000;

(ii) Promptly after the Effective Time, but in no event later than three
(3) days following such date, the Surviving Corporation shall cause the
Exchange Agent to mail to each record holder (other than the Parent, Newco
or any other subsidiary of the Parent), as of the Effective Time, of a
Certificate or Certificates that immediately prior to the Effective Time
represented Shares, a form letter of transmittal (that shall specify that
delivery shall be effected, and risk of loss and title to the Certificates
shall pass, only upon proper delivery of the Certificates to the Exchange
Agent) and instructions for use in effecting the surrender of the
Certificates for payment for the Shares represented thereby. Upon surrender
to the Exchange Agent of a Certificate, together with such letter of
transmittal duly executed and completed in accordance with the instructions
thereon, and any other items specified by the letter of transmittal, the
holder of such Certificate shall be entitled to receive in exchange
therefor cash in an amount equal to the product of the number of

A-36
<PAGE>

Shares represented by such Certificate and the Merger Consideration, less
any applicable withholding tax, and such Certificate shall be canceled. No
interest shall be paid or accrued on the Merger Consideration per Share
payable upon the surrender of the Certificates. If payment is to be made to
a person other than the person in whose name the Certificate surrendered is
registered, it shall be a condition of payment that the Certificate so
surrendered shall be properly endorsed or otherwise in proper form for
transfer and that the person requesting such payment shall pay any tax
required by reason of the payment to a person other than the registered
holder of the Certificate surrendered or establish to the satisfaction of
the Exchange Agent and the Surviving Corporation that such tax has been
paid or is not applicable. Until surrendered in accordance with the
provisions of this Section 3(c), each Certificate (other than Certificates
representing Shares owned beneficially or of record by the Parent, Newco or
any other subsidiary of the Parent) shall be deemed to represent, for all
purposes, only the right to receive the Merger Consideration in cash
multiplied by the number of Shares evidenced by such Certificate less any
applicable withholding tax, without any interest thereon;

(iii) After the Effective Time, there shall be no transfers on the stock
transfer books of the Surviving Corporation of Shares that were outstanding
immediately prior to the Effective Time. If, after the Effective Time,
Certificates (other than Certificates representing Shares owned
beneficially or of record by the Parent, Newco or any other subsidiary of
the Parent) are presented to the Surviving Corporation, they shall be
canceled and exchanged for cash as provided in this Section 3. At the close
of business on the day of the Effective Time, the stock ledger of the
Company with respect to the Shares shall be closed;

(iv) All cash, certificates and other instruments in the possession of
the Company or the Exchange Agent that constitute any portion of the
Exchange Fund (other than net earnings on the Exchange Fund which shall be
paid to the Parent) that remain unclaimed by holders of Shares for one year
after the Effective Time (including any interest received with respect
thereto) shall be paid to the Surviving Corporation, upon demand. Any
holders of Shares who have not theretofore complied with Section 3(c)(ii)
shall thereafter look only to the Surviving Corporation (subject to
applicable abandoned property, escheat or other similar laws) for payment
of the Merger Consideration per Share, without any interest thereon, but
shall have no greater rights against the Surviving Corporation than may be
accorded to general creditors of the Surviving Corporation under applicable
law. Notwithstanding the foregoing, neither the Exchange Agent nor any
party hereto shall be liable to a holder of Shares for any Merger
Consideration delivered to a public official pursuant to applicable
abandoned property, escheat and similar laws;

(v) The Surviving Corporation shall pay all charges and expenses,
including those of the Exchange Agent, in connection with the Merger
Consideration per Share for the Certificates.

(d) Company Stock Plans.

(i) Prior to the Effective Time, the board of directors of the Company
(or, if appropriate, any committee thereof) shall adopt, subject to the
terms of the Stock Incentive Plans (as hereinafter defined), such
resolutions as are necessary or appropriate, if any, to adjust the terms of
all outstanding stock options to purchase shares of Company Common Stock
(the "Options") granted under the Company's 1992 Incentive Stock Plan and
the Company's 1996 Incentive Stock Plan (together, the "Stock Incentive
Plans") to provide: (A) that, not later than immediately prior to the
Effective Time, each Option, whether or not then exercisable or vested,
shall become fully exercisable and vested; and (B) for the cancellation,
effective as of the Effective Time, of such Options as set forth in this
Section 3(d)(i). The Company shall use its reasonable best efforts to
insure that each Option outstanding immediately prior to the Effective Time
shall be cancelled in exchange for a payment, not later than immediately
prior to the Effective Time, from the Company (subject to any applicable
withholding taxes) in cash (the "Cash Payment") equal to the product of (x)
the total number of shares of Company Common Stock subject to such Option
and (y) the excess, if any, of the Merger Consideration over the exercise
price per share of such Option.

(ii) Prior to the Effective Time, the board of directors of the Company
(or, if appropriate, any committee thereof) shall adopt, subject to the
terms of the Stock Incentive Plans, such resolutions as are

A-37
<PAGE>

necessary or appropriate, if any, to amend the terms of all restricted
Shares (collectively, the "Restricted Shares") granted under the Stock
Incentive Plans to remove all restrictions from such Shares so that, at the
Effective Time, each Restricted Share shall, by virtue of the Merger and
without any action on the part of the holder thereof: (A) be and become
fully unrestricted and vested; and (B) be converted into the right to
receive the Merger Consideration upon presentation by the holder of such
Restricted Share of the Certificate, as provided in Section 3(a)(i).

(iii) Prior to the Effective Time, the board of directors of the Company
(or, if appropriate, any committee thereof) shall have taken the
appropriate action to provide that: (A) not later than immediately prior to
the Effective Time, each Share held under the Company's Employee Stock
Purchase Plan (the "Stock Purchase Plan") shall become fully vested; and
(B) any Shares remaining in the Company's Savings Plan (the "Savings Plan")
or Stock Purchase Plan at the Effective Time shall be converted, by virtue
of the Merger and without any action on the part of the holder thereof,
into the right to receive the Merger Consideration per Share.

(iv) Except as provided herein, the Stock Incentive Plans and the Stock
Purchase Plan (collectively, the "Stock Plans") shall terminate as of the
Effective Time and the provisions of any other plan, program or arrangement
(including without limitation the Savings Plan) providing for the issuance,
transfer, grant, acquisition or holding of any capital stock of the Company
or any interest of any capital stock of the Company shall be amended as of
the Effective Time to provide no continuing rights to acquire, hold,
transfer or grant any capital stock of the Company or any interest in
capital stock of the Company (other than in respect of the Merger
Consideration or Cash Payment, as the case may be). The Company shall use
its reasonable best efforts to ensure that following the Effective Time no
holder of an Option or Restricted Shares nor any other participant in the
Savings Plan or in any Stock Plan shall have any right thereunder to
acquire equity securities of the Company, the Parent or the Surviving
Corporation or any subsidiary thereof, subject to the payment of the Merger
Consideration or Cash Payment, as the case may be.

A-38
<PAGE>

ANNEX B

[LOGO APPEARS HERE]

May 3, 2000

Board of Directors
Eskimo Pie Corporation
901 Moorefield Park Drive
Richmond, Virginia 23236

Dear Members of the Board:

You have requested our opinion as to the fairness, from a financial point of
view, to the stockholders of Eskimo Pie Corporation ("Eskimo Pie"), of the
consideration to be received by such stockholders (other than CoolBrands
International Corporation ("CoolBrands")) pursuant to the terms of the May 3,
2000 Agreement and Plan of Merger (the "Agreement") among Eskimo Pie,
CoolBrands, and EP Acquisition Corporation, a wholly-owned subsidiary of
CoolBrands. Pursuant to the Agreement, the stockholders of Eskimo Pie will
receive $10.25 in cash for each share of Eskimo Pie Common Stock, par value
$1.00 per share. For purposes of this opinion, the "Transaction" means the
proposed acquisition of up to 100% of the outstanding shares of Eskimo Pie by
CoolBrands on the terms set forth in the Agreement.

In arriving at our opinion, we have, among other things:

. Reviewed the financial terms and conditions of the Agreement;

. Reviewed certain historical business, financial, and other information
regarding Eskimo Pie that was publicly available or furnished to us by
members of Eskimo Pie management;

. Reviewed certain financial forecasts and other data provided to us by
members of Eskimo Pie management relating to its business;

. Conducted discussions with members of Eskimo Pie management with respect
to its business and its prospects and financial forecasts, and the
effects of the Transaction;

. Reviewed the current and historical market prices of Eskimo Pie Common
Stock;

. Compared the financial position and operating results of Eskimo Pie with
those of publicly traded companies engaged in businesses that we
considered comparable to those of the Company;

. Compared the financial terms of the Transaction with the financial
terms, to the extent publicly available, of certain comparable
transactions; and

. Conducted such other financial studies, analyses, and investigations as
we deemed appropriate.

In connection with our review, we have relied upon the accuracy and
completeness of the foregoing financial and other information, and we have not
assumed any responsibility for any independent verification of such
information. With respect to Eskimo Pie's financial projections, we have
assumed that they have been reasonably prepared and reflect the best currently
available estimates and judgements of Eskimo Pie's management as to the
expected future financial performance of Eskimo Pie. We have discussed Eskimo
Pie's financial projections with management of Eskimo Pie, but we assume no
responsibility for and express no view as to Eskimo Pie's financial projections
or the assumptions upon which they are based. In arriving at our opinion, we
have not conducted any physical inspection of the properties or facilities of
Eskimo Pie and have not made or been provided with any evaluations or
appraisals of the assets or liabilities of Eskimo Pie.

[LOGO APPEARS HERE]

B-1
<PAGE>

In rendering our opinion, we have assumed that the Transaction will be
consummated on the terms described in the Agreement, without any waiver of any
material terms or conditions. Our opinion is necessarily based on economic,
market, financial, and other conditions and the information made available to
us as of the date hereof. Although subsequent developments may affect this
opinion, we do not have any obligation to update, revise, or reaffirm this
opinion. Our opinion does not address the relative merits of the Transaction
and the other business strategies considered by Eskimo Pie's Board of
Directors, nor does it address the Board of Directors' decision to proceed
with the Transaction.

First Union Securities, Inc. is an investment banking firm and an affiliate
of First Union Corporation. We have been engaged to render financial advisory
services to Eskimo Pie in connection with the Transaction and will receive a
fee for such services which include the delivery of this opinion. In the
ordinary course of our business, we and our affiliates may actively trade or
hold the securities of Eskimo Pie for our own account or for the account of
our customers and, accordingly, may at any time hold a long or short position
in such securities. We or our affiliates have in the past provided investment
banking and financial advisory services to Eskimo Pie unrelated to the
proposed Transaction, for which services we have received compensation.

Our advisory services and the opinion expressed herein are provided for the
benefit of the Board of Directors of Eskimo Pie, and such opinion does not
constitute a recommendation as to how any stockholder of Eskimo Pie should
respond to the offer by CoolBrands or vote on the proposed Agreement. This
opinion may not be summarized, excerpted from or otherwise publicly referred
to without prior written consent, except that this opinion may be reproduced
in full or summarized in any proxy or information statement mailed or provided
to the stockholders of Eskimo Pie or in any other filing made under the
federal securities laws.

Based upon and subject to the foregoing, our experience as investment
bankers, our work as described above and other factors we deemed relevant, we
are of the opinion that, as of the date hereof, the consideration to be
received by the stockholders of Eskimo Pie (other than CoolBrands) in the
Transaction is fair, from a financial point of view.

Sincerely,

First Union Securities, Inc.

/s/ Brian P. McDonagh

Brian P. McDonagh

Managing Director

B-2
<PAGE>

ANNEX C

-------------------------------------------------------------------------------
-------------------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

----------------

FORM 10-K

(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, 1999

[_]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]

Commission file number 0-19867

----------------

ESKIMO PIE CORPORATION
(Exact name of registrant as specified in its charter)

<TABLE>
<S> <C>
Virginia 54-0571720
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
</TABLE>

901 Moorefield Park Drive
Richmond, VA 23236
(Address of principal executive offices, including zip code)

----------------

Registrant's phone number, including area code:
(804) 560-8400

----------------

Securities registered pursuant to section 12(g) of the Act:

ESKIMO PIE CORPORATION COMMON STOCK, $1.00 par value,
and Preferred Stock Purchase Rights

----------------

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. [X]

There were 3,479,964 shares of the Registrant's Common Stock outstanding on
March 20, 2000. The aggregate market value held by non-affiliates on March 20,
2000 was approximately $29 million.

DOCUMENTS INCORPORATED BY REFERENCE

Certain information in the Registrant's Proxy Statement for the Annual
Meeting to be held on May 3, 2000 is incorporated by reference into Part III
herein.

-------------------------------------------------------------------------------
-------------------------------------------------------------------------------

C-1
<PAGE>

INDEX

Part I

<TABLE>
<CAPTION>
Page
----
<C> <S> <C>
Item 1. Business...................................................... C-4

Item 2. Properties.................................................... C-8

Item 3. Legal Proceedings............................................. C-9

Item 4. Submission of Matters to a Vote of Security Holders........... C-9

Executive Officers of the Registrant.......................... C-10

Part II

Item 5. Market for Registrant's Common Equity and Related Shareholder C-11
Matters.......................................................

Item 6. Selected Financial Data....................................... C-12

Item 7. Management's Discussion and Analysis of Financial Condition C-12
and Results of Operations.....................................

Item 7A. Quantitative and Qualitative Disclosures about Market Risk.... C-19

Item 8. Financial Statements and Supplementary Data................... C-20

Item 9. Changes in and Disagreements with Accountants on Accounting C-38
and Financial Disclosure......................................

Part III

Item 10 Directors and Executive Officers of the Registrant............ C-39

Item 11. Executive Compensation........................................ C-39

Item 12. Security Ownership of Certain Beneficial Owners and C-39
Management....................................................

Item 13. Certain Relationships and Related Transactions................ C-39

Part IV

Item 14. Exhibits, Financial Statement Schedules and Reports on Form
8-K........................................................... C-40
</TABLE>

C-2
<PAGE>

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) and
SnackWell's(R) are the registered trademarks of Nabisco Brands Company
("Nabisco"), San Francisco, California. Weight Watchers(R) and Smart Ones(R)
are the registered trademarks of Weight Watchers International, Inc. ("Weight
Watchers"), Jericho, New York. All Rights Reserved.

Market share and product distribution data were obtained from ACNielsen, a
nationally recognized market research firm based in Schaumburg, Illinois,
which provides the Company with scanner-based product movement data from U.S.
grocery stores.

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 highly competitive nature of the frozen
dessert market and the level of consumer interest in the Company's products,
product costing, the weather, the performance of management, the Company's
relationships with its licensees and licensors and government regulation. For
a more complete discussion of these risks and uncertainties, see "Other
Factors Affecting the Business of the Company" beginning on page 3 hereof. The
Company assumes no duty to update any forward looking statements.

C-3
<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 Smart Ones, 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 premium ice cream
products for sale to the foodservice industry.

The Company's strengths include national brand recognition, quality 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 development and marketing of
frozen dessert products under the licensing of other well-known national
brands under sublicensing arrangements, 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.

In September 1999, the Company announced that its Board of Directors had
authorized management to actively pursue all strategic alternatives to
maximize shareholder value, including a sale of the Company as a whole or one
or more sales of the Company's strategic assets.

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 seven dairies who purchase packaging and
ingredients from the Company for use in the manufacture and distribution of
the Eskimo Pie and other branded novelties and 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 licensees' production and storage
facilities and monitors finished products for adherence to the Company's
quality standards.

Each licensee operates within geographic territorial boundaries under
agreements which generally include three year terms subject to termination by
the Company for quality control violations, failure to meet minimum volume
requirements or material changes in the Company's ownership or the licensee's
business. These agreements provide for six to twelve month transition periods
in the event of termination. Beginning in 1999, licensees were contractually
required to contribute to trade promotion spending and to make separate
quarterly payments to the Company for licensing fees. These licensing fees
amounted to $1,040,000 in 1999 and are expected to total to $1,040,000
annually, through 2001.

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
sublicensed brand products.

C-4
<PAGE>

As a result of the Company's licensing strategy, the seven licensee dairies
account for approximately 60% 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 any of its licensee
customers. The loss of one or more licensees could cause some disruption in
the Company's operations, although, based upon prior experience with replacing
licensees, management believes it could find a suitable replacement within a
short period of time. 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 engages in product/concept development, and 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 13 field sales personnel among the Company's operating
divisions, and engages broker representatives in each 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 and trade relationships and marketing
presence by securing the limited rights for nationally recognized brand names
such as Welch's, Weight Watchers Smart Ones, SnackWell's and OREO. These
rights allow the Company to manage the product development, manufacture,
distribution, marketing and sales of branded frozen novelties and ice cream
products in exchange for royalty payments to the owners of the brand names.

Welch's. Since 1980, the Company has managed the manufacture and marketing
of Welch's brand frozen fruit juice bars under an exclusive agreement with
Welch Foods Inc. (Welch's). Under the Company's management, the four varieties
of Welch's frozen juice bars continue to be leading products in the "All
Family" fruit and juice bar category according to ACNielsen. The Company
introduced, in selected test markets, two new Welch's products in 1999 which
were targeted to attract the attention of a more youthful audience.

Weight Watchers. In January 1995, the Company entered into an agreement with
Weight Watchers Food Company whereby it assumed the management of an existing
line of frozen novelty products. During 1998, the Company transitioned the
Weight Watchers brand to incorporate the Smart Ones trademark consistent with
an overall brand repositioning by Weight Watchers International, Inc. There
are currently six Weight Watchers Smart Ones products being distributed to
retail grocery stores including the new Mocha Java bar which was introduced in
the fourth quarter of 1998.

Nabisco Brands. In December 1994, the Company entered into an agreement with
Nabisco Brands Company under which it has developed and marketed frozen
novelty and packaged ice cream products under the SnackWell's and OREO brand
names. The Company currently manages one SnackWell's and two OREO novelty
products that are currently distributed to the retail grocery and single serve
convenience markets.

Master License Agreements between the Company and each respective licensor
set forth the Company's rights and obligations in connection with the
respective sub-licensed businesses. Although the specific terms vary, each of
the Master License Agreements provides for royalty payments or license fees
(although the basis and rate are different under each agreement), the length
of the agreement (5 to 20 years) and conditions for

C-5
<PAGE>

termination (which may be exercised by either party based on certain
conditions). The agreements have been subjected to various renegotiations and
amendments from time to time as business conditions have changed.

Although each agreement also includes certain threshold performance
requirements (such as the requirement to develop a certain number of new
products each year, reach certain distribution goals, etc.), there are no
guaranteed payments required of the Company by any of the agreements. Failure
to comply with the terms of the Master License Agreements may result in
termination of the respective agreement (or as is more likely the case, some
cure or other renegotiation of terms), but in no case would the Company be
required to make specified payments if the Company does not continue to
utilize the rights under the respective agreements.

Non-licensed Products

In addition to products manufactured for use in its licensed and sublicensed
businesses, the Company sells various other ingredients to the dairy industry
produced at its New Berlin, Wisconsin facility. This business involves
blending, cooking and processing basic flavors and fruits to produce products
which subsequently are used by the Company's customers to flavor frozen
desserts, ice cream novelties and fluid dairy products. This business, which
accounts for approximately 20% 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 premium ice cream mix in
a leased facility in Russellville, Arkansas. Soft serve mix is sold under the
Eskimo Pie brand name to broad- line foodservice distributors, yogurt shops
and other foodservice establishments who, in turn, sell soft serve ice cream
and yogurt products to consumers. The sale of soft serve yogurt and ice cream
mix, which accounts for approximately 14% 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 flexible packaging, such as private label ice
cream novelty wraps, at its Bloomfield, New Jersey plant. These products are
sold to the dairy industry, including many of the Company's licensees.

Other Factors Affecting the Business of the Company

This document and other information or statements the Company may release
from time to time include forward looking statements, within the meaning of
federal securities laws, about the Company's future plans and performance.
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.

Competition. The principal outlet for the Company's licensed and sublicensed
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 300
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 and premium ice cream,
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 an active leader in new product introductions,
as evidenced by Eskimo Pie Sweetened with NutraSweet and the numerous sub-
licensed products developed in recent years. In addition, the Company's
licensing strategy enables it to operate with relatively low capital
requirements.

Product Costing. The Company purchases raw materials such as sugar and
coconut oil from a number of suppliers. Other materials used by the Company
include paper, cartons and chocolate liquor. With the exception

C-6
<PAGE>

of ice cream sandwich wafers, NutraSweet brand aspartame, 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 sales preceding and during the summer months and a lower level
of sales in the first and fourth quarters. Annual sales can be adversely
affected by unseasonably cool weather during the summer months.

Management. The Company is reliant on the abilities of the management team
led by David B. Kewer, the Company's 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.

Licensee Relationships. The nature and extent of the Company's relationships
with its licensees are discussed under "Licensing Strategy" above.

Licensor Relationships. The Company derives approximately 33% of its
revenues from sub-licensed products which, in general, are governed by
contractual agreements between the licensor and the Company (as discussed
under "Sublicensing Efforts" above). The loss of these sub-licensed brands
could have an adverse effect on the Company's business.

Year 2000 Matters. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Impact of Year 2000" for a discussion of
this issue.

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 related
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 currently believe these rules and
regulations will have a significant impact on its operations.

Trademarks. The licensing of trademarks owned and sublicensed by the
Company, especially 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 RealFruit, in Canada and certain other
countries around the world. The Company has made federal and various
international filings with respect to its significant 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.

C-7
<PAGE>

In the third quarter of 1991, the Company learned that small quantities of
cleanup solvents, solvent inks and oil were disposed of many years before 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 the 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 environmental testing and remediation activities at
the Bloomfield plant. Under the agreement, Reynolds will reimburse the Company
for certain 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 1992 of which
approximately $70,000 remains unused at December 31, 1999.

In connection with the Board's decision to explore a possible sale of the
Company, management is attempting to accelerate resolution of the Bloomfield
environmental issue. As a result of its efforts, management has made certain
estimates and recorded an additional liability of $106,000 relating to costs
associated with (1) testing and remediation with respect to certain items as
to which the Company and Reynolds do not agree on the extent of Reynolds'
remediation responsibility under the agreement and (2) expediting the
timeframe under which certain testing results are available for review by
management, regulatory authorities and potential purchasers of the Company.

Except as provided for in the agreement relating to the Bloomfield facility,
Reynolds has not otherwise undertaken any responsibility or assumed liability
for any environmental obligations of the Company.

Employees. At December 31, 1999, the Company employed approximately 105
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 approximately 32,496
square feet on 3.4 acres which serves as the Company's executive and
administrative offices and as the Company's new product development and
quality control facility. Approximately 8,500 square feet of the headquarters
building is leased to outside parties at rates consistent with local market
conditions.

The Company owns its ingredients manufacturing plant in New Berlin,
Wisconsin which consists of approximately 73,820 square feet on 4.0 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 completed $800,000
of capital improvements in the New Berlin facility during 1998 (consisting
primarily of equipment additions) in connection with the consolidation of its
flavors production at the New Berlin facility which was completed in 1997.

The Company also owns its printing and packaging plant in Bloomfield, New
Jersey, which consists of approximately 71,583 square feet on 2.0 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 mix production facility, consisting of approximately 23,805 square feet,
and a packaging facility, consisting of approximately 16,000 square feet, both
located in Russellville, Arkansas. In addition, Sugar Creek Foods, Inc. owns a
freezer facility, consisting of approximately 5,013 square feet, adjacent to
the production facility in Russellville. In 1999, the Company purchased a
small parcel of land adjacent to the freezer facility for future potential
expansion of the freezer facility.

The Company owns virtually all of its equipment and replacement parts for
all manufacturing equipment are readily available.

C-8
<PAGE>

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 or operations.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None

C-9
<PAGE>

EXECUTIVE OFFICERS OF THE REGISTRANT

<TABLE>
<CAPTION>
Present Position and Other Business Experience
Name (Age) Length of Service During Past Five Years
---------- --------------------- -----------------------------
<C> <C> <S>
Arnold H. Dreyfuss (71) Chairman of the Board Director since 1992; Chief
since September 1996 Executive Officer from
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 (43) Vice President, Corporate Director, Quality
Quality Assurance Assurance and Product
and Product Development from March 1994
Development since to February 1995; Senior
February 1995 Product Development
Technologist from November
1988 to February 1994. (All
were . positions with the
Company)

Craig L. Hettrich (40) Vice President and Formerly, Vice President,
General Manager, Sales and Marketing for
Foodservice Division Frionor USA from March 1996
since February 1998. to January 1998; Director of
National Sales and various
other sales and marketing
positions with General Mills
--Yoplait/Columbo Division
from September 1991 to
February 1996.

V. Stephen Kangisser (48) Vice President, Sales Vice President, Marketing,
since August 1998 May 1996 to July 1998;
formerly, Vice President,
Sales and Marketing for H.P.
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 (45) President and Chief Director since May 1997;
Director since March President and Chief Operating
1998 Officer from March 1997 to
February 1998; formerly,
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. (47) Chief Financial Independent Consultant, from
Officer, Vice August 1995 to February 1996;
President, Treasurer Chief Financial and
and Corporate Administrative Officer,
Secretary since Goldome Credit Corporation
February 1996. from May 1993 to May 1995;
Senior Manager with Ernst &
Young LLP, from 1987 to May
1993.

William J. Weiskopf (39) Vice President and National Sales Manager,
General Manager, Flavors, November 1995 to
Flavors Division August 1997; Regional Sales
since August 1997. Manager from May 1994 to
November 1995; formerly
Account Manager, Food Group
for E. T. Horn Company from
1987 to 1994.
</TABLE>

C-10
<PAGE>

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 20, 2000, there were
approximately 500 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:

<TABLE>
<CAPTION>
High Low Dividends
---- ---- ---------
<S> <C> <C> <C>
1999
----
First Quarter.................................... $15 $ 6 5/8 $0.05
Second Quarter................................... 10 1/4 6 5/8 0.05
Third Quarter.................................... 11 1/2 8 1/8 --
Fourth Quarter................................... 10 3/8 7 3/8 --

1998
----
First Quarter.................................... $14 1/4 $10 1/8 $0.05
Second Quarter................................... 16 1/4 11 9/16 0.05
Third Quarter.................................... 13 5/16 7 3/4 0.05
Fourth Quarter................................... 14 7 1/8 0.05
</TABLE>

The Company's Board of Directors voted not to declare the 1999 third and
fourth quarter dividends, in light of the announcement made in September 1999
to pursue all strategic alternatives to maximize shareholder value, including a
possible sale of the Company as a whole or one or more sales of the Company's
strategic assets. The declaration of dividends is subject to the discretion of
the Company's Board of Directors, based 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. Management believes that the elimination of the dividend will enhance
the Company's financial flexibility as it pursues a potential sale of the
Company.

C-11
<PAGE>

ITEM 6. SELECTED FINANCIAL DATA

<TABLE>
<CAPTION>
For the year ended and as of December 31,
-------------------------------------------------------
1999(1) 1998(2) 1997(3) 1996(4) 1995
---------- ---------- ---------- ---------- ----------
(In thousands, except Per Share Data)
<S> <C> <C> <C> <C> <C>
Income Statement Data:
Net sales............. $ 66,452 $ 63,492 $ 66,392 $ 74,084 $ 83,975
Operating income
(loss)............... 1,683 1,755 498 (2,009) 8,804
Net income (loss)..... $ 836 $ 795 $ 108 $(2,046) $ 5,076
Per Share Data:
Basic:
Weighted average
number of common
shares
outstanding........ 3,463,211 3,458,394 3,456,180 3,460,729 3,475,119
Net income (loss)... $ 0.24 $ 0.23 $ 0.03 $ (0.59) $ 1.46
========== ========== ========== ========== ==========
Assuming dilution:
Weighted average
number of common
shares
outstanding........ 3,463,211 3,462,677 3,461,867 3,460,729 3,642,624
Net income (loss)... $ 0.24 $ 0.23 $ 0.03 $ (0.59) $ 1.42
========== ========== ========== ========== ==========
Cash dividends........ $ 0.10 $ 0.20 $ 0.20 $ 0.20 $ 0.20
Balance Sheet Data:
Cash and cash
equivalents.......... $ 1,751 $ 530 $ 3,353 $ 2,143 $ 717
Working capital....... 3,929 6,345 6,732 6,002 9,193
Total assets.......... 36,486 40,088 41,580 44,440 45,872
Total debt............ 3,901 9,018 10,335 9,800 9,800
Shareholders' equity.. 22,796 22,226 22,081 22,470 25,687
</TABLE>
--------
(1) The 1999 results of operations include special charges associated with
analysis of strategic alternatives, restructuring and proxy contest
activities which aggregate to a loss of $1,808,000 ($1,139,000 after
related income tax benefits). 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) The 1998 results of operations include the recovery of $600,000 of past
due rent associated with equipment leased to one of the Company's
licensees and $80,000 of incremental expenses associated with the
Company's consideration of strategic alternatives which aggregate to a
gain of $520,000 ($325,000 after related income tax expense). Additional
discussion is provided in Management's Discussion and Analysis of
Financial Condition and Results of Operations and the Notes to
Consolidated Financial Statements.
(3) The 1997 results of operations include income and expenses associated with
restructuring activities which aggregate to a gain of $272,000 ($169,000
after related income tax expense). Additional discussion is provided in
Management's Discussion and Analysis of Financial Condition and Results of
Operations and the Notes to Consolidated Financial Statements.
(4) The 1996 results of operations include special charges relating to
executive severance accruals ($593,000), a loss on the disposal of fixed
assets ($725,000) and the disposal of licensee and Company held
inventories ($920,000), aggregating to $2,238,000 ($1,482,000 after
related income tax benefits).

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

Results of Operations

For the year ended December 31, 1999, the Company recorded sales of $66.5
million, which resulted in net income of $836,000 or $0.24 per share. These
results compare with net income of $795,000 ($0.23 per share) in 1998 and
$108,000 ($0.03 per share) in 1997. The increased profitability reflects an
improved sales mix towards

C-12
<PAGE>

more profitable business, renegotiated licensing contracts with the Company's
licensees and a continued focus on expense control.

The 1999 results include expenses associated with the Company's analysis of
strategic alternatives of approximately $1,223,000, restructuring activities
of $191,000 and proxy contest expenses of $394,000 which, after related tax
effects, reduced net income by $1,139,000 or $0.33 per share. Exclusive of
these special charges incurred during 1999, net income would have been
$1,975,000 or $0.57 per share.

The 1998 results include the recovery of $600,000 of past due rent
associated with ice cream making equipment leased to one of the Company's
licensee customers as well as approximately $80,000 of incremental expenses
associated with the Company's consideration of strategic alternatives.
Combined, these two items accounted for additional 1998 net income of
approximately $325,000 ($0.09 per share) after related tax effects. The 1997
results include income (offset by certain expenses) associated with
restructuring activities which aggregate to a gain of $169,000 ($0.05 per
share) after related tax effects.

Additional details regarding all of these items are provided below.

Net Sales and Gross Profit

Net sales consist of the following:

<TABLE>
<CAPTION>
For the year ended December 31,
--------------------------------
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
Eskimo Pie brand........................... $ 20,495 $ 22,038 $ 23,380
Other licensed brands...................... 21,618 19,610 21,048
---------- ---------- ----------
Total licensed brands.................... 42,113 41,648 44,428
Flavors and ingredients.................... 13,181 12,040 12,319
Foodservice................................ 9,477 8,127 8,164
Packaging and other revenues............... 1,681 1,677 1,481
---------- ---------- ----------
$ 66,452 $ 63,492 $ 66,392
========== ========== ==========
</TABLE>

The Company's frozen novelty business competes in a mature category which is
dominated by two of the world's largest food conglomerates who together
account for over one third of the category's sales. Consumer demand for frozen
novelty products has been flat in recent years. Packaged ice cream producers
continue to seek consumer attention with retail price promotions thus
providing extensive price competition to the Company's novelty products. The
competitive environment and recent consumption trends have provided challenges
to management's attempts to return the Company to its former profitability.

1999 Compared with 1998, Eskimo Pie Brand

Eskimo Pie brand sales decreased 6.3% in 1999 as compared to 1998. Sales of
"regular" Eskimo Pie milk and dark chocolate products were flat as compared to
1998. Declines in sales velocity and distribution on flanker items in the
Eskimo Pie No Sugar Added product line resulted in overall decline in Eskimo
Pie Brand sales. Consumer resistance to price advances caused by escalating
dairy ingredient prices in 1997 and 1998 continued to affect ice cream novelty
products in 1999.

1999 Compared with 1998, Other Licensed Brands

Sales of other licensed brand products (RealFruit, Welch's, Weight Watchers
Smart Ones, OREO and SnackWell's brands) increased 9.3% in 1999.

Welch's brand sales increased 19% in 1999, primarily due to the introduction
of the Double Dare product line. While trade acceptance of these new products
was very good, consumer takeaway was below expectations.

C-13
<PAGE>

Sales of the regular Welch's fruit juice line were down 5%, following the
trend in overall fruit juice bar novelty sales. Sales gains on the base fruit
juice bars in western markets were more than offset by declines in eastern
markets where the brand experienced significant competitive pressure.

Weight Watcher's novelty sales were up 7.5%, continuing its growth from 1998
spurred by the repositioning to the Smart Ones trademark. A new flavor, Mocha
Java, was introduced in key consumption markets and added incremental sales
volume. Geographic expansion of the line is being considered for the fourth
quarter of 2000 to take advantage of the continuing sales momentum and
consumer interest in the Smart Ones brand.

Nabisco sales increased 4% in 1999. The limited regional introduction of the
OREO Big Stuf ice cream sandwich in retail grocery and club store channels
more than offset declines in the remainder of the Nabisco product line. The
SnackWell brand continued its decline, reflecting the continuing consumer
retreat from "good for you" products. In addition, the OREO cookies'n cream
cone introduced in 1998 was withdrawn from the market due to a complete
interruption of production caused by an explosion at the production facility
contracted to produce the product and the inability to locate an alternative
producer that could provide product of similar quality.

Sales of RealFruit brand sorbet continued to decline in 1999 consistent with
segment trends. In 2000, a number of opportunities will be explored to further
develop the RealFruit brand.

Other licensed brands also include sales of approximately $600,000 to the
single serve impulse market. The Company entered the single serve market
during 1998 with a range of Eskimo Pie, Welch's and OREO brand novelty
products created specifically for this retail channel.

1998 Compared with 1997

Eskimo Pie brand sales decreased 5.8% for the year due to significant sales
declines during the first half of the year, largely due to unseasonably cool
and wet weather in some of the Company's strongest (west coast) markets.
However, Eskimo Pie brand sales increased by 16.9% in the second half of 1998,
as compared with 1997, as a result of increased distribution into the populous
northeast markets and increased promotional activity during the later part of
the 1998 summer selling season.

Sales of other licensed brand products (RealFruit, Welch's, Weight Watchers
Smart Ones, OREO and SnackWell's brands) decreased 6.8% in 1998. As is similar
to the trends noted with the Eskimo Pie brand, these sales were much stronger
in the second half of 1998 (actually showing an 11.3% improvement over 1997)
but not enough to offset declines from the first half of the year.

Welch's brand sales declined in the first half of 1998, largely due to El
Nino weather effects in the west coast markets where the Welch's brand has its
strongest consumer acceptance. Welch's brand sales in the second half of 1998
returned to prior year levels.

Weight Watchers brand sales increased 17.8% during 1998 largely due to the
successful repositioning of this line of products under the Smart Ones
trademark. Weight Watchers International, Inc., the owner of the Weight
Watchers and Smart Ones trademarks, transitioned its entire line of products
to the Smart Ones brand and contributed part of their 1998 earned royalties to
the Company's cost of converting to the new trademark.

Sales of OREO and SnackWell's brands decreased 13.3% during 1998 as compared
with 1997. The decrease is due to the discontinuance of the packaged ice cream
products sold under these brands and the continued consumer retreat from
"good-for-you" products. However, test market introduction of two new OREO
brand novelties provided additional sales volume that reduced the overall
decline in OREO and SnackWell's brand sales.

Other licensed brands also include approximately $850,000 of 1998 sales from
the single serve impulse market.

C-14
<PAGE>

Flavors and Ingredients

Revenue in the Flavors and Ingredients Division increased by 9.5% in 1999,
following slight declines in revenue during 1998 and 1997. The Division's
improvement was primarily due to the successful implementation of the
Company's sales initiative to further penetrate the national frozen dessert
and fluid dairy manufacturers. The Flavors Division secured new business
during 1999 with four targeted national accounts. Management believes this
development of national accounts, coupled with continued support of its
regional dairy customers, will position the Division for further growth in the
rapidly consolidating dairy industry.

Foodservice

Revenue in the Foodservice Division increased by 17% in 1999, following a
relatively flat year in 1998 and a 7% decline in 1997. During 1999, management
implemented a strategy to increase sales and profitability, capitalizing on
the fact that Eskimo Pie markets the only nationally branded premium soft
serve ice cream, in addition to a full range of frozen yogurt and smoothie
products. This message has been delivered to distributors and operators using
the Company's "The Right Choice System." The Right Choice System is a
comprehensive, consultative approach to marketing the Company's soft serve
products which features premium quality products, provides operational support
and provides merchandising and promotional opportunities to foodservice
distributors.

Gross Profit

Gross profit, as a percent of sales, increased 170 basis points in 1999 to
41.8%, as compared to 40.1% in 1998,exclusive of the fourth quarter 1998
benefit of the recovery of $600,000 in past due rental income discussed below.
Renegotiated licensing contracts with the Company's licensees provided for
increases in fixed royalty licensing fees, which more than offset some margin
erosion within the licensed brands. Further margin improvement is attributable
to continued focus on expense control and efficiencies at the manufacturing
facilities, including the discontinuance of certain unprofitable packaging
operations in the first quarter of 1999, as discussed below.

The $600,000 of rental income recorded in 1998 arose in connection with an
arrangement under which one of the Company's licensee customers had leased ice
cream novelty making equipment from the Company which provided rental income
based on the "units of production" manufactured on the equipment. Since 1992,
the Company had received annual rental payments that, in the aggregate, were
less than that required to fully amortize the Company's original investment.
The customer acknowledged its past due obligation and agreed to pay $600,000
to bring the lease current at December 31, 1998. As collectibility of the
lease payments was not reasonably predictable, no contingent rent had been
previously recorded and the $600,000 recovery was recognized in the fourth
quarter 1998 as a reduction of cost of goods sold (consistent with the
previous rent received on this equipment).

During 1998, significant attention was focused on the ice cream industry
based on 1998 butterfat prices which increased by approximately 150% from 1997
levels. As a licensing company that does not actually produce finished novelty
and packaged ice cream products, the Company was not directly impacted by the
increased cost of this commodity. However, as a result of the butterfat cost
increases some of the Company's licensees increased the price of the Company's
licensed ice cream and novelty products they produce which may have ultimately
affected consumer demand and the Company's sale of related components and
packaging. The Company is also affected by butterfat pricing in connection
with premium soft serve ice cream products sold to the foodservice industry.
Butterfat purchases within the Foodservice division traditionally account for
less than 1% of consolidated cost of goods sold. In 1999 butterfat pricing
returned to 1997 levels.

Expenses and Other Income

Advertising and sales promotion for 1999 was consistent with 1998 in
absolute dollars, but as a percent of sales, decreased from 25.3% in 1998 to
24.4% in 1999. Management's intent to increase spending under its

C-15
<PAGE>

previously announced Growth and Restructuring Plan was curtailed as a result
of the Company's September 1999 announcement of its intention to explore a
possible sale of the Company.

Selling, general and administrative expenses decreased in 1999 by $144,000
or 1.7% despite bonus payments of approximately $550,000 (as compared to
$115,000 in 1998). In 1998, these expenses decreased $1,095,000 or 11.7% after
a decrease of $960,000 or 9.3% in 1997. These decreased expenditures are a
result of management's continued focus on cost control initiatives.

During 1999, the Company incurred $1.8 million of restructuring and other
special charges.

The Company incurred approximately $1,223,000 in expenses related to the
analysis of strategic alternatives, the development of the Company's Growth
and Restructuring Plan and management's pursuit of a possible sale of the
Company in whole or in parts. $433,000 of these charges relate to partial
payments of retention incentives intended to maintain the employment of key
personnel during uncertain times. The remaining costs consist primarily of
legal, investment banking, and other professional services.

The Company undertook two reduction-in-force programs in the first half of
the year to reduce overhead expenses, resulting in restructuring charges of
approximately $191,000.

In March 1999, the Company discontinued certain non-core manufacturing
operations and terminated the employment of seven production employees at its
Bloomfield, New Jersey packaging plant who were not involved in the production
of products for the Company's licensing businesses. As a result, the Company
incurred related severance costs of approximately $105,000, all of which has
been paid. As a result of this action, profitability in the Packaging
Division, exclusive of the severance costs, improved by approximately $350,000
over 1998 results.

During the second quarter of 1999, the Company eliminated two vacant
positions and terminated the employment of six employees located at the
Company's corporate headquarters. The severance costs associated with these
terminations totaled approximately $86,000; however, when combined with the
savings from the eliminated positions, these actions are anticipated to
provide annualized savings of approximately $300,000 per year.

The Company incurred approximately $394,000 of proxy contest related
expenses, including legal and other professional service fees and
administrative expenses associated with the Company's delayed annual meeting
of shareholders in 1999.

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 an approximate $1,000,000
gain from the sale of plant assets offset primarily by approximately $300,000
of employee severance expenses. The Company used 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 cost approximately $800,000,
provides the necessary capacity to serve the Company's current and expected
business requirements at costs which are lower than operating two plants.

During the fourth quarter of 1997, the Company completed a restructuring of
its operations into a divisional operating unit alignment. In connection with
this restructuring, two senior level employees were terminated with severance
benefits of approximately $215,000. In addition, $200,000 of previously
incurred severance and other special costs associated with the Company's 1997
restructuring activities were offset against the income recognized from the
flavors consolidation. The Company also recorded $593,000 of restructuring
charges during the third quarter of 1996, relating to severance commitments
associated with a change in executive management. All severance commitments
associated with the above restructuring activities had been paid as of
December 31, 1998.

C-16
<PAGE>

Seasonality

The frozen novelty 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 sales preceding and during the summer months.

The following table provides two years of unaudited quarterly financial
data:

<TABLE>
<CAPTION>
For the 1999 quarter ended
----------------------------------------
March 31 June 30 Sept 30 Dec 31
---------- --------- --------- ---------
(In thousands, except per share data)
<S> <C> <C> <C> <C>
Net sales............................. $ 16,129 $ 22,146 $ 15,686 $ 12,491
Gross profit.......................... 6,846 10,431 6,862 3,656
Net income (loss)..................... 232 1,399 105 (900)
Per share
Basic............................... 0.07 0.40 0.03 (0.26)
Assuming dilution................... 0.07 0.40 0.03 (0.26)

<CAPTION>
For the 1998 quarter ended
----------------------------------------
March 31 June 30 Sept 30 Dec 31
---------- --------- --------- ---------
(In thousands, except per share data)
<S> <C> <C> <C> <C>
Net sales............................. $ 16,031 $ 20,114 $ 15,179 $ 12,168
Gross profit.......................... 6,530 9,062 6,154 4,336
Net income (loss)..................... 201 1,049 65 (520)
Per share
Basic............................... 0.06 0.30 0.02 (0.15)
Assuming dilution................... 0.06 0.30 0.02 (0.15)
</TABLE>

1999 gross profit includes special charges of approximately $1.8 million as
discussed under the caption Expenses and Other Income above. These special
charges, after related tax benefits, reduced 1999 net income by approximately
$1.1 million or $0.33 per share.

As discussed under the caption Net Sales and Gross Profit above, the Company
recorded $600,000 of past due rental income in the fourth quarter of 1998 and
approximately $80,000 of incremental expenses associated with the previously
announced decision to explore strategic alternatives. Combined, these two
items provided additional net income of $325,000 ($0.09 per share) after
related tax effects.

Liquidity, Capital Resources and Other Matters

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.

The Company's principal customers are seven licensee dairies, who account
for approximately 60% of the Company's net sales. Each licensee operates
within geographic territorial boundaries under agreements which generally
include three year terms subject to termination by the Company for quality
control violations, failure to meet minimum volume requirements or material
changes in the Company's ownership or the licensee's business. These
agreements provide for six to twelve month transition periods in the event of
termination. Beginning in 1999, licensees were required to contribute to trade
promotion spending and make separate

C-17
<PAGE>

quarterly payments to the Company for licensing royalty fees which are
expected to aggregate to $1,040,000 annually through 2001.

The Company's licensing strategy allows it to manage a strong licensee base
which it can actively monitor to minimize the impact of an unforeseen loss of
any of its licensees. 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.

During the third quarter of 1998, the Company extended its licensing
agreement with Welch Foods, Inc. (Welch's). Under the agreement, the Company
will continue to provide product development, sales, marketing and production
support for the Welch's Fruit Juice Bars which the Company has managed since
1980. The extended licensing agreement continues through the year 2008 and
provides for enhanced opportunities for new product development under the
Welch's trademark. The Company paid Welch's approximately $800,000 in August
1998 as partial payment against a total of $1,500,000 license fees payable
over the term of the license. There are no guaranteed or required payments
under the license and certain termination clauses exist which would preclude
payment of the balance of the license fees.

As partial consideration in connection with the 1994 acquisition of Sugar
Creek Foods, the Company issued $3,800,000 in convertible subordinated notes
payable to the former Sugar Creek Foods shareholders. These notes became due
in February 1999. Payment of the subordinated debt was initially funded under
the Company's committed line of credit. By December 31, 1999 the balance on
the line of credit had been paid in full, with cash flows provided by the
Company's operations.

On May 20, 1999, the Company renewed its $10 million committed line of
credit, which is now available for general corporate purposes through April
2001. Borrowings under the line bear interest at the lender's overnight money
market rate plus 100 basis points.

In September 1999, the Company's Board of Directors voted to suspend the
quarterly dividend payments indefinitely. The Board's decision to suspend its
dividend was made in light of the Company's decision to pursue all strategic
alternatives to maximize shareholder value, including a possible sale of the
Company as a whole or one or more sales of the Company's strategic assets.
Management believes that the elimination of the dividend will enhance the
Company's financial flexibility as it pursues a possible sale of the Company.

At this time, the Board of Directors has no plans to reinstate the quarterly
dividend payments. The declaration of dividends is subject to the discretion
of the Company's Board of Directors, based 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.

The Company believes that the annual cash generated from operations and
funds available under its credit agreements will provide the Company with
sufficient funds and the financial flexibility to support its ongoing
business, strategic objectives and debt repayment requirements.

Impact of Year 2000

Considerable attention was given to the effect of the Year 2000 (Y2K) on
various computer systems. This concern stemmed from the inability of certain
computerized applications and devices (hardware, software and equipment) to
process dates after December 31, 1999. The Company's efforts to address the
Y2K Problem consisted of the implementation of new management information
systems, review of other internal systems and equipment and inquiries of
external trading partners (key licensees, customers, suppliers and service
providers). As a result of these efforts, the Company has experienced no
significant disruptions in business related to Year 2000 issues. The Company
will continue to monitor its mission critical computer applications and those
of

C-18
<PAGE>

its suppliers and vendors throughout the year 2000 to ensure that any latent
Year 2000 matters that may arise are addressed promptly.

The Company's implementation of its new management information systems was
divided into two phases. One phase of the project was the installation and
continued integration of the Company's plant production management system.
This phase of the project, which is not critical to the Company's Y2K
capabilities, has been slowed as a result of the Company's decision to seek a
sale of the Company in whole or in parts. The other phase related to the
implementation of newly acquired software was completed prior to the end of
the year. This new software is now being used by the Company to run its daily
financial operations.

Project expenditures relating to the new management information systems of
approximately $1.9 million have been capitalized under the provisions of the
AICPA's Statement of Position 98-1 and will be amortized to expense over the
expected useful life.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company believes that its exposure to market risks is not material.

C-19
<PAGE>

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

CONSOLIDATED STATEMENTS OF INCOME

<TABLE>
<CAPTION>
For the year ended December 31,
--------------------------------------
1999 1998 1997
------------ ------------ ------------
(In thousands, except Per Share Data)
<S> <C> <C> <C>
Net sales.............................. $ 66,452 $ 63,492 $ 66,392
Cost of products sold.................. 38,657 37,410 39,682
------------ ------------ ------------
Gross profit......................... 27,795 26,082 26,710
Advertising and sales promotion
expenses.............................. 16,195 16,074 17,136
Selling, general and administrative
expenses.............................. 8,109 8,253 9,348
(Income) expense from restructuring
activities............................ 191 -- (272)
Expense from analysis of strategic
alternatives.......................... 1,223 -- --
Expense from proxy contest............. 394 -- --
------------ ------------ ------------
Operating income..................... 1,683 1,755 498
Interest (income)/expense and other-
net................................... 356 493 508
Gain (loss) on disposal of fixed
assets................................ -- -- 184
------------ ------------ ------------
Income (loss) before income taxes.... 1,327 1,262 174
Income tax expense..................... 491 467 66
------------ ------------ ------------
Net income........................... $ 836 $ 795 $ 108
============ ============ ============
Per Share Data
Basic:
Weighted average number of common
shares outstanding................ 3,463,211 3,458,394 3,456,180
Net income......................... $ 0.24 $ 0.23 $ 0.03
============ ============ ============
Assuming dilution:
Weighted average number of common
shares outstanding................ 3,463,211 3,462,677 3,461,867
Net income......................... $ 0.24 $ 0.23 $ 0.03
============ ============ ============
</TABLE>

C-20
<PAGE>

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY

<TABLE>
<CAPTION>
Common Stock
---------------- Additional Retained
Shares Amount Capital Earnings Total
--------- ------ ---------- -------- -------
(In thousands, except share data)
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1997....... 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
Net income..................... 795 795
Cash dividends ($0.20 per
share)........................ (691) (691)
Issuance of common stock....... 595 1 7 8
Compensation from stock option
grant......................... 33 33
--------- ------ ------ ------- -------
Balance at December 31, 1998..... 3,458,597 $3,459 $4,393 $14,374 $22,226
Net income..................... 836 836
Cash dividends ($0.10 per
share)........................ (346) (346)
Issuance of common stock....... 5,452 5 56 61
Compensation from stock option
grant......................... 19 19
--------- ------ ------ ------- -------
Balance at December 31, 1999..... 3,458,597 $3,464 $4,468 $14,864 $22,796
========= ====== ====== ======= =======
</TABLE>

C-21
<PAGE>

CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
As of December 31,
---------------------------------
1999 1998
---------------- ----------------
(In thousands, except share data)
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents.................. $ 1,751 $ 530
Receivables................................ 6,057 6,817
Inventories................................ 4,032 4,897
Prepaid expenses........................... 557 889
---------------- ----------------
Total current assets..................... 12,397 13,133
Property, plant and equipment--net........... 6,578 7,665
Goodwill and other intangibles............... 16,598 17,645
Other assets................................. 913 1,645
---------------- ----------------
Total assets............................. $ 36,486 $ 40,088
================ ================
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable........................... $ 3,208 $ 2,875
Accrued advertising and promotion.......... 2,217 1,728
Accrued compensation and related amounts... 1,033 211
Other accrued expenses..................... 1,038 657
Current portion of long term debt.......... 972 1,317
---------------- ----------------
Total current liabilities................ 8,468 6,788
Long term debt............................... 2,929 3,901
Convertible subordinated notes............... -- 3,800
Postretirement benefits and other
liabilities................................. 2,293 3,373
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, 3,464,050 issued and
outstanding in 1999 and 3,458,597 in
1998...................................... 3,464 3,459
Additional capital......................... 4,468 4,393
Retained earnings.......................... 14,864 14,374
---------------- ----------------
Total shareholders' equity............... 22,796 22,226
---------------- ----------------
Total liabilities and shareholders'
equity.................................. $ 36,486 $ 40,088
================ ================
</TABLE>

See accompanying notes to consolidated financial statements.

C-22
<PAGE>

CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
For the year ended
December 31,
-------------------------
1998 1997 1999
------- ------- -------
(In thousands)
<S> <C> <C> <C>
Operating activities
Net income (loss)................................. $ 836 $ 795 $ 108
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation.................................... 1,296 1,560 1,426
Amortization.................................... 1,116 1,097 1,086
Gain on disposal of fixed assets................ -- -- (1,183)
Compensation from stock option grant............ 19 33 70
Change in deferred income taxes and other
assets......................................... 419 451 (69)
Change in postretirement benefits and other
liabilities.................................... (1,132) 136 (333)
Change in receivables........................... 761 (1,496) (1,270)
Change in inventories and prepaid expenses...... 1,359 (729) 3,836
Change in accounts payable and accrued
expenses....................................... 2,023 (531) (2,762)
------- ------- -------
Net cash provided by operating activities..... 6,697 1,316 909
Investing activities
Acquisition of intangible assets.................. -- (975) (587)
Capital expenditures.............................. (610) (1,334) (1,413)
Proceeds from disposal of fixed assets............ 401 -- 1,994
Other............................................. 147 178 464
------- ------- -------
Net cash (used in) provided by investing
activities................................... (62) (2,131) 458
Financing activities Borrowings under long term
credit facility 3,800 -- 1,150
Redemption of convertible subordinate notes....... (3,800)
Principal payments on long term debt.............. (5,117) (1,317) (615)
Issuance of common stock.......................... 49 -- --
Cash dividends.................................... (346) (691) (692)
------- ------- -------
Net cash used in financing activities......... (5,414) (2,008) (157)
------- ------- -------
Change in cash and cash equivalents................. 1,221 (2,823) 1,210
Cash and cash equivalents at beginning of year...... 530 3,353 2,143
------- ------- -------
Cash and cash equivalents at end of year............ $ 1,751 $ 530 $ 3,353
======= ======= =======
Income tax payments (recoveries).................... $ -- $ 150 $(1,632)
======= ======= =======
Interest payments................................... $ 437 $ 567 $ 636
======= ======= =======
</TABLE>

See accompanying notes to consolidated financial statements.

C-23
<PAGE>

ESKIMO PIE CORPORATION

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, Smart Ones, 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.

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.

Cash Equivalents and Investments: 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. Investments with
maturities beyond three months are carried at fair value.

Inventories: Inventories are stated at the lower of cost or market. The cost
of inventories is determined by the last-in, first-out (LIFO) method except
for approximately $650,000 of inventories at December 31, 1999 and $625,000 in
1998 which were determined by the first-in, first-out (FIFO) method. LIFO
liquidations reduced cost of goods sold by $118,000 in 1999 and $120,000 in
1997.

Inventories are classified as follows:

<TABLE>
<CAPTION>
As of December 31,
--------------------
1999 1998
--------- ---------
(In thousands)
<S> <C> <C>
Finished goods......................................... $ 2,667 $ 3,294
Raw materials and packaging supplies................... 2,286 2,642
--------- ---------
Total FIFO inventories............................... 4,953 5,936
Reserve to adjust inventories to LIFO.................. (921) (1,039)
--------- ---------
$ 4,032 $ 4,897
========= =========

Property, Plant, and Equipment: Property, plant and equipment is stated at
cost and consists of the following:

<CAPTION>
As of December 31,
--------------------
1999 1998
--------- ---------
(In thousands)
<S> <C> <C>
Land................................................... $ 679 $ 630
Buildings.............................................. 5,315 5,304
Machinery and equipment................................ 11,070 10,789
Equipment leased or loaned to customers................ 2,400 3,727
--------- ---------
19,464 20,450
Less accumulated depreciation and amortization......... (12,886) (12,785)
--------- ---------
$ 6,578 $ 7,665
========= =========
</TABLE>

C-24
<PAGE>

Development and implementation costs for purchased and internally developed
software are capitalized in accordance with AICPA Statement of Position 98-1,
"Accounting for the Costs of Computer Software Development for or Obtained for
Internal Use." At December 31, 1999 and 1998, capitalized software costs
included in machinery and equipment above amounted to $1.9 million and $1.5
million, respectively. Depreciation and amortization are provided by the
straight line method over the estimated useful lives of the assets which is
generally 30 years for buildings, and five to ten years for machinery and
equipment, five to seven years for computer software and three years for
computer hardware.

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 range from four to twenty years. Accumulated amortization
at December 31, 1999 and 1998 was approximately $3,691,000 and $2,831,000,
respectively.

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,
1999.

Revenue Recognition: The Company records sales when products are shipped
from its manufacturing facilities or those of its "drop ship" vendors. No
right of return exists. The Company also accrues licensing fees as they are
earned based upon the terms of the respective licensing agreements.

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,
1999 and 1998.

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 $1,265,000 in 1999, $1,300,000 in 1998 and
$1,350,000 in 1997.

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.

New Accounting Standards: In 1998, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 133, "Accounting for
Derivative Instruments and Hedging Activities." This statement requires the
recognition of all derivatives on the balance sheet at fair value. This
statement is effective for the Company in 2001 and is not expected to
materially affect the consolidated balance sheet or statement of income.

Reclassifications: Certain amounts in the prior year financial statements
have been reclassified to conform with current presentation.

NOTE B--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, 1999,
the Company had $432,000 ($272,000 in 1998) of current deferred tax assets
included in prepaid expenses and $8,000 of long term deferred tax liabilities
included in postretirement benefits and other liabilities. At December 31,
1998, the Company had $567,000 of long term deferred tax assets included in
other assets.

C-25
<PAGE>

The significant components of deferred tax assets and liabilities are as
follows:

<TABLE>
<CAPTION>
As of December 31,
--------------------
1999 1998
--------- ---------
(In thousands)
<S> <C> <C>
Assets:
Bad Debt Reserves.................................... 95 29
Inventory............................................ 238 86
Accrued postretirement benefits...................... 718 1,277
Net operating loss carryforwards..................... 397 429
Other amounts........................................ 204 379
--------- ---------
1,652 2,200
Liabilities:
Depreciation and amortization........................ (1,228) (1,137)
Other amounts........................................ -- (224)
--------- ---------
(1,228) (1,361)
Total deferred tax assets.............................. $ 424 $ 839
========= =========
</TABLE>

At December 31, 1999, there is approximately $397,000 of tax benefits
associated with approximately $1,030,000 of net operating loss (NOL)
carryforwards which expire in 2011. No valuation allowance has been recorded
against the benefits associated with the NOL as the Company believes it will
generate sufficient taxable income in the future to ensure realization of the
tax benefit.

Significant components of the provision for income taxes are as follows:

<TABLE>
<CAPTION>
For the year ended December 31,
-----------------------------------
1999 1998 1997
---------- ---------- ----------
(In thousands)
<S> <C> <C> <C>
Current:
Federal.............................. $ 51 $ (23) $ 165
State................................ 29 (3) 36
---------- ---------- ----------
80 (26) 201
Deferred:
Federal.............................. 341 436 (111)
State................................ 73 57 (24)
---------- ---------- ----------
414 493 (135)
---------- ---------- ----------
Total income tax provision............. $ 494 $ 467 $ 66
========== ========== ==========

A reconciliation of federal statutory and effective income tax rates is as
follows:

<CAPTION>
For the year ended December 31,
-----------------------------------
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
Federal statutory rate................. 34.0% 34.0 % 34.0 %
Effect of
State taxes.......................... 1.4 4.6 4.4
Permanent differences and other...... 1.6 (1.6) (.5)
---------- ---------- ----------
Effective income tax rate.............. 37.0% 37.0 % 37.9 %
========== ========== ==========
</TABLE>

C-26
<PAGE>

NOTE C--FINANCING ARRANGEMENTS

<TABLE>
<CAPTION>
Long Term Debt
As of December 31,
--------------------
Carrying Amount
--------------------
1999 1998
--------- ---------
(In thousands)
<S> <C> <C>
Revolving credit facility (variable interest rate,
currently 7.0%)........................................ $ 3,786 $ 4,643
Long term line of credit (variable interest rate,
currently 6.6%)........................................ 115 575
Convertible subordinated notes (4.5% interest rate)..... -- 3,800
--------- ---------
3,901 9,018
Less current maturities................................. (972) (1,317)
--------- ---------
$ 2,929 $ 7,701
========= =========
</TABLE>

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. Interest expense for 1999, 1998 and 1997 was $437,000, $591,000
and $606,000, respectively.

In 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 2000, the Company has classified all
of this loan as long term debt based upon its ability and intention to defer
payment past 2000.

During 1997, the Company borrowed $1,150,000 under one of the Company's
existing long term lines 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 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, which became due
in February 1999, were classified as long term debt at December 31, 1998 as
the Company had the intent and ability to refinance the notes on a long-term
basis. In February 1999, the Company refinanced the $3.8 million note payment
by transferring the amount to its $10 million committed line of credit
discussed below. During 1999 the Company used cash generated from operations
to pay off the $3.8 million balance. The Company had previously reserved
162,567 shares of its common stock for conversion of the notes (at $23 3/8 per
share).

During 1999, the Company renewed its $10,000,000 committed line of credit
which is available for general corporate purposes through April 2001.
Borrowings under the line bear interest at the bank's overnight money market
rate plus 75 basis points. At December 31, 1999, there were no borrowings
under the line.

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.

The combined aggregate amount of the scheduled maturities for all long term
debt is as follows:

C-27
<PAGE>

NOTE D--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 which generally range from the date of grant to four years after the
date of the grant and expire after ten years. Effective January 7, 1999, the
Board of Directors authorized that all outstanding option agreements be
amended to be immediately vested upon a corporate change of control (as
defined).

The details of stock option activity are as follows:

<TABLE>
<CAPTION>
Range of Weighted Average
Number of Shares Exercise Prices Exercise Price
---------------- --------------- ----------------
<S> <C> <C> <C>
1997
Outstanding, beginning of
year...................... 138,227 17.00 - 21.25 18.60
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

1998
Granted.................... 81,000 13.38 - 14.50 13.39
Cancelled.................. 58,233 10.88 - 21.25 16.45
Outstanding, end of year... 244,106 10.00 - 21.25 12.87
Exercisable, end of year... 55,569 10.00 - 21.25 13.25

1999
Granted.................... 96,700 10.44 - 13.25 13.22
Cancelled.................. 45,012 12.50 - 13.38 13.04
Outstanding, end of year... 295,794 10.00 - 21.25 12.96
Exercisable, end of year... 132,232 10.00 - 21.25 12.92
</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. As a result of this
award, amounts expensed under this plan were approximately $19,000 in 1999,
$33,000 in 1998, and $70,000 in 1997.

As permitted by the provisions of Statement of Financial Accounting
Standards No. 123 (SFAS 123), "Accounting for Stock Based Compensation", 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.

C-28
<PAGE>

The following information is provided solely in connection with the
disclosure requirements of SFAS 123. If the Company had elected to recognize
compensation expense related to its stock options in accordance with the
provisions of SFAS 123, the additional costs from options granted since 1995
would have resulted in a pro forma net income of $ 515,000 in 1999 ($0.15 per
share), $564,000 in 1998 ($0.16 per share), and a pro forma loss of $119,000
in 1997 ($0.03 per share). 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 1999, 1998 and 1997
was $5.51, $5.16 and $5.47 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:

<TABLE>
<CAPTION>
For the year ended December 31,
-----------------------------------
1999 1998 1997
---------- ---------- -----------
<S> <C> <C> <C>
Volatility factor....................... .371 .319 .333
Risk free interest rate................. 4.74% 5.69% 6.49%
Dividend yields......................... 1.5% 1.5% 1.6%
Expected life (years)................... 7.9 7.2 7.1

As of December 31, 1999, the weighted average remaining contractual life of
all outstanding stock options was 7.8 years.

The Company has also granted the following restricted stock awards in
accordance with the Plans:

<CAPTION>
For the year ended December 31,
-----------------------------------
1999 1998 1997
---------- ---------- -----------
<S> <C> <C> <C>
Number of shares issued................. 1,200 1,000 11,000
Weighted average fair value............. $ 10.44 $ 14.13 $ 12.35
</TABLE>

At December 31, 1999, approximately 85,000 shares were available for future
grants under the Plans.

Earnings Per Share

The following table sets forth the computation of earnings per share:

<TABLE>
<CAPTION>
For the year ended December 31,
--------------------------------
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
Net income (loss)......................... $ 836,000 $ 795,000 $ 108,000
========== ========== ==========
Weighted average number of common shares
outstanding ............................. 3,463,211 3,458,394 3,456,180
Dilutive effect of stock options.......... -- 4,283 5,687
---------- ---------- ----------
Weighted average number of common shares
outstanding assuming potential dilution.. 3,463,211 3,462,677 3,461,867
========== ========== ==========
Basic earnings per share.................. $ 0.24 $ 0.23 $ 0.03
========== ========== ==========
Earnings per share--assuming dilution..... $ 0.24 $ 0.23 $ 0.03
========== ========== ==========
</TABLE>

Options to purchase 296,000 shares in 1999, 193,000 shares in 1998 and
170,000 shares in 1997 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.

C-29
<PAGE>

Additional disclosure concerning the convertible subordinated notes is
provided in Note C to the Consolidated Financial Statements. The effect of the
assumed conversion was not considered for its dilutive effect in any of the
years presented 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 E--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. In addition,
the Company entered into an agreement with Reynolds Metals Company 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
above mentioned plans are collectively referred to as the "Plans."

C-30
<PAGE>

The following table reconciles the changes in benefit obligations and plan
assets in 1999 and 1998, and reconciles the funded status to accrued benefit
cost at December 31, 1999 and 1998:

<TABLE>
<CAPTION>
For the year ended December
31,
-----------------------------
Pension Other
Benefits Benefits
-------------- -------------
1999 1998 1999 1998
------ ------ ------ ------
(In thousands)
<S> <C> <C> <C> <C>
Change in Benefit Obligation:
Benefit obligation at beginning of year.......... $2,052 $1,672 $2,542 $2,397
Service cost..................................... 283 268 -- --
Interest cost.................................... 143 116 119 116
Actuarial (gain)/loss............................ (409) 13 54 29
Benefit payments................................. (44) (17) 649 --
------ ------ ------ ------
Benefit obligation at end of year................ 2,025 2,052 2,066 2,542
------ ------ ------ ------
Change in Plan assets:
Fair value of Plan assets at beginning of year... 1,863 1,592 -- --
Actual return on Plan assets..................... 226 196 -- --
Employer contributions........................... 20 92 -- --
Benefit payments................................. (44) (17) -- --
------ ------ ------ ------
Fair value of Plan assets at end of year......... 2,065 1,863 -- --
------ ------ ------ ------
Funded status:
Benefit obligations in excess of Plan assets .... (40) 189 2,006 2,542
Unrecognized actuarial gains..................... 766 285 186 300
------ ------ ------ ------
Accrued benefit cost............................. $ 726 $ 474 $2,252 $2,842
====== ====== ====== ======
</TABLE>

The Company funds its ERISA qualified defined benefit plan in accordance
with guidelines established by the U.S. Department of Labor and limitations
under federal income tax regulations. Other benefit plans are funded as
benefit payments are required. The projected and accumulated benefit
obligation for the Company's unfunded, non-qualified, defined benefit pension
plan were $459,000 and $337,000, respectively, as of December 31, 1999
($400,000 and $245,000, respectively, in 1998). At December 31, 1999 and 1998,
accrued benefit costs of $2,197,000 and $3,316,000 are included in
postretirement benefits and other liabilities; accrued benefit costs of
$781,000 are included in current liabilities at December 31, 1999.

The following table provides the components of the net periodic benefit
cost:

<TABLE>
<CAPTION>
For the year ended December 31,
---------------------------------------
Pension Benefits Other Benefits
------------------- ------------------
1999 1998 1997 1999 1998 1997
----- ----- ----- ----- ----- -----
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Service cost........................... $ 283 $ 268 $ 294 $ -- $ -- $ --
Interest cost.......................... 143 116 100 118 116 126
Expected return on Plan assets......... (149) (127) (101) -- -- --
Recognized net actuarial gain.......... (7) (2) (2) -- (83) (69)
----- ----- ----- ----- ----- -----
Net period benefit cost................ $ 270 $ 255 $ 291 $ 118 $ 33 $ 57
===== ===== ===== ===== ===== =====
</TABLE>

The assumptions used in the measurement of the Company's benefit obligations
are as follows:

<TABLE>
<CAPTION>
Pension Benefits Other Benefits
------------------ ----------------
1999 1998 1999 1998
-------- -------- ------- -------
<S> <C> <C> <C> <C>
Benefit obligation, beginning of
year.............................. 7% 7% 7.75% 7.25%
Rate of compensation increase, end
of year........................... 5% 5%
Expected return on plan assets,
during the year................... 8% 8%
</TABLE>

C-31
<PAGE>

The weighted average annual assumed rate of increase in the per capita cost
of covered benefits (i.e., health care cost trend rate) is 6.50% for 2000 and
is assumed to decrease to 5% by 2003 and remain at that level thereafter. A
one percentage point increase or decrease in the assumed health care cost
trend rate would change the accumulated postretirement benefit obligation by
approximately $100,000 and the net periodic postretirement benefit cost by
approximately $10,000. The Company recognizes 20% of deferred postretirement
gains or losses annually.

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 $109,000 in 1999, $129,000 in 1998 and $140,000 in 1997.

NOTE F--BUSINESS SEGMENTS

Effective January 1, 1998, the Company began operating under a divisional
structure aligned with separate lines of business based on the types of
products sold. Prior to 1998, the Company was operated as a single business
segment under a functional management structure (i.e. sales, production).
Under the former alignment, sales were reported and reviewed by product line
but costs and assets were aggregated on a corporate basis without reference to
the respective products. Therefore, complete segment information required by
Statement of Financial Accounting Standards No. 131, "Disclosures about
Segments of an Enterprise and Related Information," is provided for 1999 and
1998, however only sales is provided for 1997 as other financial data was not
previously captured with adequate detail to allow for accurate restatement.

The Company's reportable segments are separate divisions that offer
different products although customers are often served by more than one
segment (primarily as it relates to the National Brands, Flavors and Packaging
division customers). The National Brands division sells proprietary
flavorings, ingredients and packaging used in the licensed production of the
Company's nationally branded frozen novelties and other ice cream products.
The Flavors division blends, cooks and processes basic flavors and fruits to
produce products which subsequently are used by the Company's customers to
flavor frozen desserts, ice cream novelties and fluid dairy products. The
Foodservice division sells soft serve yogurt and premium ice cream mix to
foodservice distributors. The Other segment consists primarily of amounts
relating to the Company's Packaging division which sells flexible packaging to
dairies for their frozen novelty products. The Company generally does not
require collateral or other security from its licensees and customers.

Management measures divisional operating performance based on operating
profit before selling, general and administrative expenses. Operating profit
for the National Brands and Flavors divisions include the effects of $570,000
in 1999 and $600,000 in 1998 of inter-segment cost allocations associated with
the Flavors division's production of National Brands flavors and ingredients.
This inter-segment charge, which has no net effect on consolidated
profitability, increases Flavors' profitability with an offsetting decrease in
the National Brands profitability.

Segment assets include receivables (1999 only), inventories; property, plant
and equipment; and goodwill and other intangibles. All other assets are
managed on a corporate basis and are not considered in divisional analysis.
The accounting policies for each of the business segments are the same as
those described in the summary of significant accounting policies.

C-32
<PAGE>

<TABLE>
<CAPTION>
Business Segments
--------------------------------------------
National
Brands Flavors Foodservice Other Totals
-------- ------- ----------- ------ -------
(In thousands)
<S> <C> <C> <C> <C> <C>
1999 Segment Data
Sales............................. $42,113 $13,181 $ 9,477 $1,681 $66,452
Depreciation and amortization
expense.......................... 950 354 621 119 2,044
------- ------- ------- ------ -------
Corporate expense............... 368
-------
Total depreciation and
amortization expenses.......... $ 2,412
Segment profitability............. $ 7,500 $ 2,210 $ 1,914 $(24) $11,600
------- ------- ------- ------ -------
Selling, general and
administrative expenses........ 8,109
Restructuring and other special
charges........................ 1,808
Interest income & expenses--
net............................ 356
-------
Income before income taxes...... $ 1,327
=======
Identifiable assets............... $12,229 $ 6,720 $12,377 $ 685 $32,011
------- ------- ------- ------ -------
Corporate assets................ 4,475
-------
Total assets.................... $36,486
=======
Capital Expenditures.............. $ 30 $ 202 $ 164 $ -- $ 396
------- ------- ------- ------ -------
Corporate expenditures.......... 214
-------
Total capital expenditures...... $ 610
=======

1998 Segment Data
Sales............................. $41,648 $12,040 $ 8,127 $1,677 $63,492
Depreciation and amortization
expense.......................... 1,045 363 742 122 2,272
------- ------- ------- ------ -------
Corporate expense............... 385
-------
Total depreciation and
amortization................... $ 2,657
=======
Expenses
Segment profitability............. $ 7,054 $ 1,559 $ 1,848 $(453) $10,008
------- ------- ------- ------ -------
Selling, general and
administrative expenses........ 8,253
Interest income & expenses--
net............................ 493
-------
Income before income taxes...... $ 1,262
=======
Identifiable assets............... $ 9,767 $ 4,773 $12,379 $ 991 $27,910
------- ------- ------- ------ -------
Corporate assets................ 12,178
-------
Total assets.................... $40,088
=======
Capital Expenditures.............. $ 145 $ 639 $ 256 $ 95 $ 1,135
------- ------- ------- ------ -------
Corporate expenditures.......... 199
-------
Total capital expenditures...... $ 1,334
=======
1997 Segment Data
Sales............................. $44,428 $12,319 $ 8,164 $1,481 $66,392
======= ======= ======= ====== =======
</TABLE>

Due to the nature of the Company's licensing operations, four of the
licensee dairies individually account for over 10% of the Company's total net
sales. These four customers, in the aggregate, account for approximately 50%
of annual net sales, most of which occur within the National Brands division.
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 loss
would not have a significant effect on the Company's operations, liquidity or
capital resources.

C-33
<PAGE>

NOTE G--INCOME (EXPENSE) FROM RESTRUCTURING AND OTHER ACTIVITIES

During 1999, the Company incurred $1,808,000 in restructuring and other
special charges, associated with three separate activities.

The Company incurred approximately $1,223,000 in costs associated with its
examination of strategic alternatives to enhance shareholder value, the
development of the Company's Growth and Restructuring Plan and the Company's
pursuit to sell the Company in whole or in parts. $433,000 of these costs
relate to retention bonuses to be paid to certain key employees for their
continued employment. The remaining costs consist primarily of legal,
investment banking, additional directors fees and other professional fees
associated with continued due diligence efforts of potential buyers of the
Company.

The Company executed two programs to reduce overhead expenses. During the
first quarter of 1999, the Company discontinued certain non-core manufacturing
operations and terminated the employment of seven production employees at its
Bloomfield, New Jersey packaging plant. As a result, the Company incurred
related severance costs of approximately $105,000 all of which was paid as of
December 31,1999. During the second quarter of 1999, the Company eliminated
two vacant positions and terminated the employment of six employees at the
Company's corporate headquarters. The severance costs associated with the
terminations totaled $86,000, of which $30,000 remains accrued at December 31,
1999 and will be paid during the first quarter of 2000.

The Company incurred approximately $394,000 of proxy contest expenses
associated with the Company's delayed annual meeting of shareholders held on
September 8, 1999. These costs consisted primarily of legal fees, other
professional fees and administrative costs.

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 or operations. 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 testing 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.

In September 1999, the Company's Board of Directors approved a plan which
would provide certain lump sum payments to key employees if a change in
control of the Company occurred prior to December 31, 2000. Assuming all
employees covered remain employed through a change in control, these payments
would total approximately $700,000. In addition, the plan also provides for
certain lump sum payments as well as continued medical and healthcare benefits
to employees who are terminated subsequent to a change in control of the
Company.

C-34
<PAGE>

The long term portion of the note receivable amounts to approximately $140,000
at December 31, 1999 ($275,000 in 1998), which is included in other assets,
and is net of an unamortized discount of approximately $30,000 ($58,000 in
1998). The note bears imputed interest at approximately 10% and is
collateralized by the machinery and equipment. Based upon prevailing interest
rates, and after consideration of credit risk, the carrying value is a fair
approximation of market value.

During the fourth quarter of 1998, the Company entered into negotiations and
reached a settlement of terms relating to past due rental income owed to the
Company in connection with ice cream making equipment leased to one of the
Company's licensee customers. The Company had previously received rental
income based on the "units of production" manufactured on the equipment since
1992 but at amounts less than that required to fully amortize the Company's
original investment. The customer acknowledged its past due obligation and
agreed to pay $600,000 to bring the lease current at December 31, 1998. As
collectibility of the lease payments was not reasonably predictable, no
contingent rent had been previously recorded and the $600,000 recovery was
recognized in the fourth quarter 1998 as a reduction of cost of goods sold
(consistent with the previous rent received on this equipment). In January
1999, the Company sold the leased equipment to the licensee customer at the
Company's net carrying value of approximately $400,000 which, management
believes, approximated the fair market value.

C-35
<PAGE>

REPORT OF INDEPENDENT AUDITORS, ERNST & YOUNG LLP

Shareholders and Board of Directors
Eskimo Pie Corporation

We have audited the accompanying consolidated balance sheets of Eskimo Pie
Corporation as of December 31, 1999 and 1998, and the related consolidated
statements of income, changes in shareholders' equity and cash flows for each
of the three years in the period ended December 31, 1999. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of Eskimo Pie Corporation at December 31, 1999 and 1998, and the consolidated
results of its operations and its cash flows for each of the three years in
the period ended December 31, 1999, in conformity with accounting principles
generally accepted in the United States.

/s/ Ernst & Young LLP

Richmond, Virginia
March 2, 2000

C-36
<PAGE>

REPORT OF MANAGEMENT

Eskimo Pie Corporation

The consolidated financial statements and other financial information of
Eskimo Pie Corporation have been prepared by management, which is responsible
for their integrity and objectivity. These statements have been prepared in
accordance with generally accepted accounting principles and, where
appropriate, reflect estimates based on judgements of management.

The Company maintains a system of internal financial controls which
considers the expected costs and benefits of specific control procedures and
provides reasonable assurance that Company assets are protected against loss
or misuse, that transactions are executed in accordance with management's
authorization and that the financial records can be relied upon to produce
financial statements in accordance with generally accepted accounting
principles. The internal financial controls system is supported by the
management of the Company through the establishment and communication of
business and accounting policies, the division of responsibility in
organizational matters and the careful selection and training of management
personnel.

The consolidated financial statements have been audited by the Company's
independent auditors, Ernst & Young LLP. Their audit was conducted in
accordance with generally accepted auditing standards and their report is
included elsewhere herein. As a part of their audit, Ernst & Young LLP
develops and maintains an understanding of the Company's internal accounting
controls and conducts such tests and employs such procedures as they consider
necessary to render their opinion on the financial statements.

The Board of Directors exercises its oversight role with respect to the
Company's system of internal financial controls primarily through its Audit
Committee which consists of outside directors. The Board of Directors, upon
the recommendation of the Audit Committee, selects the independent auditors
subject to ratification by the shareholders. The Audit Committee meets
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.

/s/ David B. Kewer /s/ Thomas M. Mishoe, Jr.
_____________________ _____________________
David B. Kewer Thomas M. Mishoe, Jr.
President And Chief Chief Financial Officer,
Executive Officer Vice President, Treasurer
and Corporate Secretary

C-37
<PAGE>

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

None.

C-38
<PAGE>

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 scheduled to be held on May 3, 2000 (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", "Compensation of Directors"
and "Executive Compensation" in the Proxy Statement and is incorporated herein
by reference.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

Information on security ownership of certain beneficial owners and
management is included under the caption "Security Ownership of Certain
Beneficial Owners and Management" in the Proxy Statement and is incorporated
herein by reference.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Information on certain relationships and related transactions is included
under the caption "Certain Relationships" in the Proxy Statement and is
incorporated herein by reference.

C-39
<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,
1999, 1998 and 1997

Consolidated Statements of Changes in Shareholders' Equity for the
years ended December 31, 1999, 1998 and 1997

Consolidated Balance Sheets at December 31, 1999 and 1998

Consolidated Statements of Cash Flows for the years ended December
31, 1999, 1998 and 1997

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.

The exhibits listed in the accompanying "Index of Exhibits" are filed as
part of this Annual Report and each management contract or compensatory plan
or arrangement included therein is identified as such.

C-40
<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 23rd
day of March, 2000.

ESKIMO PIE CORPORATION

/s/ David B. Kewer
By: _________________________________
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 23rd day of March 2000.

<TABLE>
<CAPTION>
Signature Title
--------- -----

<S> <C>
/s/ David B. Kewer President and Chief Executive Officer
______________________________________ (Principal Executive Officer)
David B. Kewer

/s/ Thomas M. Mishoe, Jr. Chief Financial Officer, Vice
______________________________________ President, Treasurer and Corporate
Thomas M. Mishoe, Jr. Secretary (Principal Financial and
Accounting Officer)

/s/ Kathryn L. Tyler Controller
______________________________________
Kathryn L. Tyler

*/s/ Arnold H. Dreyfuss Chairman of the Board
______________________________________
Arnold H. Dreyfuss

*/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

* /s/ Robert C. Sledd Director
______________________________________
Robert C. Sledd
</TABLE>

/s/ David B. Kewer
By: ___________________________
David B. Kewer
Attorney-in-fact

C-41
<PAGE>

INDEX OF EXHIBITS

<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<C> <S>
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, amended through December 16, 1999,
filed herewith.

4.1 (a) 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.

(b)Amendment No. 1, dated as of November 23, 1998, between Eskimo
Pie Corporation and First Union National Bank, as successor Rights
Agent, to Rights Agreement dated as of January 21, 1993, between
the Company and Mellon Securities Trust Company, incorporated
herein by reference to Exhibit 4.1(b) to the Company's Annual
Report on Form 10-K for the year ended December 31, 1998.

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 Retention and Severance Agreement between the Company
and Thomas M. Mishoe, Jr., dated October 23, 1999, filed herewith.

10.2* Executive Retention and Severance Agreement between the Company
and William J. Weiskopf, dated October 25, 1999, filed herewith.

10.3* Executive Retention and Severance Agreement between the Company
and Kimberly P. Ferryman, dated October 25, 1999, filed herewith.

10.4* Executive Retention and Severance Agreement between the Company
and Craig L. Hettrich, dated October 19, 1999, filed herewith.

10.5* Executive Retention and Severance Agreement between the Company
and V. Stephen Kangisser, dated October 25, 1999, filed herewith.

10.6* Executive Retention and Severance Agreement between the Company
and David B. Kewer, dated October 21, 1999, filed herewith.

10.7* Incentive Stock Plan dated February 17, 1992, incorporated herein
by reference to Exhibit 10.8 to the Company's Registration
Statement on Form S-1 (Registration No.33-45852).

10.8* 1996 Incentive Stock Plan, as amended effective December 16, 1999,
filed herewith.

10.9* Senior Management Annual Incentive Plan, dated as of January 1,
1993, incorporated herein by reference to Exhibit 10.7 to the
Company's Annual Report on Form 10-K for the year ended December
31, 1992.

10.10* Salaried Retirement Plan dated as of April 6, 1992, as amended,
filed herewith.

10.11* Executive Retirement Plan and Trust dated as of April 6, 1992, 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, 1998.

10.12 Master License Agreement between the Company and Welch Foods Inc.
dated as of August 1, 1998, incorporated herein by reference to
Exhibit 10.1 to the Company's Report on Form 10-Q for the quarter
ended September 30, 1998.

10.13 (a) Letter Agreement, dated March 20, 1998, for a $10,000,000
revolving line of credit between the Company and Crestar Bank,
incorporated herein by reference to Exhibit 10.15 to the Company's
Annual Report on Form 10-K for the year ended December 31, 1998.
</TABLE>

C-42
<PAGE>

<TABLE>
<C> <S>
(b) Letter Agreement, dated May 20, 1999, between the Company and
Crestar Bank, incorporated herein by reference to Exhibit 10.1 to the
Company's Report on Form 10-Q for the quarter ended June 30, 1999.

10.14 (a) Credit Agreement, dated as of May 5, 1994, between the Company and
First Union National Bank of Virginia, 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.

(b) Amendment No. 1, dated as of April 18, 1997, to the Credit
Agreement, dated as of May 5, 1994, between the Company and First Union
National Bank of Virginia, incorporated herein by reference to Exhibit
10.16(b) to the Company's Annual Report on Form 10-K for the year ended
December 31, 1998.

(c) Amendment No. 2, dated as of April 28, 1998, to the Credit
Agreement, dated as of May 5, 1994, between the Company and First Union
National Bank of Virginia, incorporated herein by reference to Exhibit
10.16(c) to the Company's Annual Report on Form 10-K for the year ended
December 31, 1998.

10.15 Agreement dated February 17, 1992 between the Company and Reynolds
Metals Company, incorporated herein by reference to Exhibit 10.17 to
the Company's Registration Statement on Form S-1 (Registration No. 33-
45852).

10.16 Form of Reimbursement Agreement dated as of February 17, 1992 between
the Company and Reynolds Metals Company, incorporated herein by
reference to Exhibit 10.18 to the Company's Registration Statement on
Form S-1 (Registration No. 33-45852).

10.17* Eskimo Pie Corporation Savings Plan and Trust, as amended, filed
herewith.

10.18* Eskimo Pie Corporation Employee Stock Purchase Plan, as amended,
incorporated herein by reference to Exhibit 10.20 to the Company's
Annual Report on Form 10-K for the year ended December 31, 1998.

21. Subsidiaries of the Registrant.

23. Consent of Independent Auditors, Ernst & Young LLP.

24. Powers of Attorney.

27. Financial Data Schedules.
</TABLE>

--------
*Exhibits are Management Contracts or Compensatory Plans or Arrangements.

C-43
<PAGE>

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

C-44
<PAGE>

ANNEX D

-------------------------------------------------------------------------------
-------------------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K/A

----------------

(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, 1999

[_]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]

Commission file number 0-19867

----------------

ESKIMO PIE CORPORATION
(Exact name of registrant as specified in its charter)

Virginia 54-0571720
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)

901 Moorefield Park Drive
Richmond, VA 23236
(Address of principal executive offices, including zip code)

----------------

Registrant's phone number, including area code:
(804) 560-8400

----------------

Securities registered pursuant to section 12(g) of the Act:

ESKIMO PIE CORPORATION COMMON STOCK, $1.00 par value,
and Preferred Stock Purchase Rights

----------------

There were 3,479,964 shares of the Registrant's Common Stock outstanding on
March 20, 2000. The aggregate market value held by non-affiliates on March 20,
2000 was approximately $29 million.

DOCUMENTS INCORPORATED BY REFERENCE

Certain information in the Registrant's Proxy Statement for the Annual
Meeting to be held on May 3, 2000 is incorporated by reference into Part III
herein.

-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
D-1
<PAGE>

<TABLE>
<CAPTION>
Index
-----
<C> <S> <C>
Item 8. Financial Statements and Supplementary Data

Footnote H--Other Information (as amended to properly reflect
the Company's commitment with respect to payments to be made
upon a change in control of $1.8 million versus $700,000
previously reported).......................................... D-3

Exhibits, Financial Statement Schedules and Reports on Form 8-
Item 14. K

Exhibit 23

Exhibit 24
</TABLE>

D-2
<PAGE>

NOTE H--OTHER INFORMATION

In September 1999, the Company's Board of Directors approved a plan which
would provide certain lump sum payments to key employees if a change in
control of the Company occurred prior to December 31, 2000. Assuming all
employees covered remain employed through a change in control, these payments
would total approximately $1.8 million. In addition, the plan also provides
for certain lump sum payments as well as continued medical and healthcare
benefits to employees who are terminated subsequent to a change in control of
the Company.

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 $140,000 at
December 31, 1999 ($275,000 in 1998), which is included in other assets, and
is net of an unamortized discount of approximately $30,000 ($58,000 in 1998).
The note bears imputed interest at approximately 10% and is collateralized by
the machinery and equipment. Based upon prevailing interest rates, and after
consideration of credit risk, the carrying value is a fair approximation of
market value.

D-3
<PAGE>

SIGNATURES

ESKIMO PIE CORPORATION

/s/ David B. Kewer
By: _________________________________
David B. Kewer
President and Chief Executive
Officer

<TABLE>
<CAPTION>
Signature Title
--------- -----

<S> <C>
/s/ David B. Kewer President and Chief Executive Officer
______________________________________ (Principal Executive Officer)
David B. Kewer

/s/ Kathryn L. Tyler Controller
______________________________________
Kathryn L. Tyler

*/s/ Arnold H. Dreyfuss Chairman of the Board
______________________________________
Arnold H. Dreyfuss

*/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

*/s/ Robert C. Sledd Director
______________________________________
Robert C. Sledd

/s/ David B. Kewer
*By: _________________________________
David B. Kewer
Attorney-in-fact
</TABLE>

D-4
<PAGE>

ANNEX E

-------------------------------------------------------------------------------
-------------------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

----------------

FORM 10-Q

(Mark One)

[X]QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934

For the Quarterly Period Ended March 31, 2000

[_]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

Commission file number 0-19867

----------------

ESKIMO PIE CORPORATION
(Exact name of registrant as specified in its charter)

Virginia 54-0571720
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)

901 Moorefield Park Drive
Richmond, VA 23236
(Address of principal executive offices, including zip code)

----------------

Registrant's phone number, including area code:
(804) 560-8400

----------------

Indicate the number of shares outstanding of each of the issuer's classes of
common stock.

<TABLE>
<CAPTION>
Class Outstanding at April 20, 2000
----- -----------------------------
<S> <C>
Common Stock, $1.00 Par Value.................... 3,483,253
</TABLE>

-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
E-1
<PAGE>

ESKIMO PIE CORPORATION

Index

<TABLE>
<CAPTION>
Page
Number
------
<C> <S> <C>
Part I. Financial Information

Item 1. Financial Statements (Unaudited)

Condensed Consolidated Statements of Income Three Months
Ended March 31, 2000 and 1999.............................. E-3

Condensed Consolidated Balance Sheets March 31, 2000;
December 31, 1999 and March 31, 1999....................... E-4

Condensed Consolidated Statements of Cash Flows Three Months
Ended March 31, 2000 and 1999.............................. E-5

Notes to Condensed Consolidated Financial Statements........ E-6

Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.................................. E-8

Part II. Other Information

Item 6. Exhibits and Reports on Form 8-K............................ E-10
</TABLE>

E-2
<PAGE>

ESKIMO PIE CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

<TABLE>
<CAPTION>
For the three months
ended March 31,
---------------------
2000 1999
---------- ----------
(In thousands, except
Per Share Data)
<S> <C> <C>
Net sales................................................ $ 16,386 $ 16,129
Cost of products sold.................................... 8,974 9,283
---------- ----------
Gross profit........................................... 7,412 6,846
Advertising and sales promotion expenses................. 4,365 3,881
Selling, general and administrative expenses............. 1,663 2,143
Expense from analysis of strategic alternatives.......... 200 --
Expense from restructuring activities.................... -- 314
---------- ----------
Operating income....................................... 1,184 508
Interest income.......................................... 21 19
Interest expense and other--net.......................... 86 159
---------- ----------
Income before income taxes............................. 1,119 368
Income tax expense....................................... 414 136
---------- ----------
Net income............................................. $ 705 $ 232
========== ==========
Per Share Data
Basic:
Weighted average number of common shares
outstanding......................................... 3,479,964 3,462,796
Net income........................................... $ 0.20 $ 0.07
========== ==========
Assuming dilution:
Weighted average number of common shares
outstanding......................................... 3,479,964 3,469,385
Net income........................................... $ 0.20 $ 0.07
========== ==========
Cash dividend.......................................... $ 0.00 $ 0.05
========== ==========
</TABLE>

E-3
<PAGE>

ESKIMO PIE CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

<TABLE>
<CAPTION>
As of
--------------------------------
March 31, December 31, March 31,
2000 1999 1999
--------- ------------ ---------
(In thousands, except share
data)
<S> <C> <C> <C>
Assets
Current assets:
Cash and cash equivalents................... $ 1,142 $ 1,751 $ 48
Receivables................................. 10,093 6,057 8,888
Inventories................................. 3,718 4,032 5,418
Prepaid expenses............................ 748 557 611
------- ------- -------
Total current assets...................... 15,701 12,397 14,965
Property, plant and equipment--net.......... 6,374 6,578 7,070
Goodwill and other intangibles.............. 16,390 16,598 17,395
Other assets................................ 734 913 1,636
------- ------- -------
Total assets.............................. $39,199 $36,486 $41,066
======= ======= =======
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable............................ $ 3,586 $ 3,208 $ 3,876
Accrued advertising and promotion........... 4,359 2,217 2,740
Accrued compensation and related amounts.... 239 1,033 293
Other accrued expenses...................... 1,033 1,038 889
Income Taxes................................ 399 -- --
Current portion of long term debt........... 857 972 1,317
------- ------- -------
Total current liabilities................. 10,473 8,468 9,115
Long term debt................................ 2,714 2,929 6,411
Postretirement benefits and other
liabilities.................................. 2,350 2,293 3,201
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, 3,479,964 issued and
outstanding at March 31, 2000, 3,464,050 at
December 31,1999 and 3,462,796 at March 31,
1999....................................... 3,480 3,464 3,463
Additional capital.......................... 4,614 4,468 4,443
Retained earnings........................... 15,568 14,864 14,433
------- ------- -------
Total shareholders' equity................ 23,662 22,796 22,339
------- ------- -------
Total liabilities and shareholders'
equity................................... $39,199 $36,486 $41,066
======= ======= =======
</TABLE>

E-4
<PAGE>

ESKIMO PIE CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

<TABLE>
<CAPTION>
For the three months
ended March 31,
----------------------
2000 1999
---------- ----------
(In thousands)
<S> <C> <C>
Operating activities
Net income........................................... $ 705 $ 232
Adjustments to reconcile net income to net cash used
in operating activities:
Depreciation and amortization...................... 577 614
Change in deferred income taxes and other assets... -- (3)
Change in postretirement benefits and other
liabilities....................................... 62 (174)
Change in receivables.............................. (4,036) (2,070)
Change in inventories and prepaid expenses......... 122 (242)
Change in accounts payable and accrued expenses.... 2,280 2,351
---------- ----------
Net cash (used in) provided by operating
activities...................................... (290) 708
Investing activities
Capital expenditures................................. (94) (147)
Proceeds from disposal of fixed assets............... -- 401
Other................................................ 104 18
---------- ----------
Net cash provided by investing activities........ 10 272
Financing activities
Borrowings........................................... -- 3,800
Redemption of convertible subordinated notes......... -- (3,800)
Principal payments on long term debt................. (329) (1,289)
---------- ----------
Cash dividends....................................... -- (173)
---------- ----------
Net cash used in financing activities............ (329) (1,462)
---------- ----------
Change in cash and cash equivalents.................... (609) (482)
Cash and cash equivalents at the beginning of the
year.................................................. 1,751 530
---------- ----------
Cash and cash equivalents at the end of the quarter.... $ 1,142 $ 48
========== ==========
</TABLE>

E-5
<PAGE>

ESKIMO PIE CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE A--SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation: The Company's business is highly seasonal which
generally results in a higher level of sales and certain related advertising
and sales promotion expenses preceding and during the summer. In the opinion
of management, the accompanying unaudited condensed consolidated financial
statements reflect all adjustments (consisting of only normal recurring
accruals) necessary for a fair presentation of the Company's financial
position as of March 31, 2000 and its results of operations for the three
months ended March 31, 2000 and 1999. The results of operations for any
interim period are not necessarily indicative of results for the full year.
These financial statements should be read in conjunction with the financial
statements and notes thereto contained in the Company's 1999 Annual Report.

NOTE B--INVENTORIES

Inventories are classified as follows:

<TABLE>
<CAPTION>
As of
--------------------------------
March 31, December 31, March 31,
2000 1999 1999
--------- ------------ ---------
(In thousands)
<S> <C> <C> <C>
Finished goods................................. $2,599 $2,667 $3,471
Raw materials and packaging supplies........... 2,040 2,286 2,986
------ ------ ------
Total FIFO inventories....................... 4,639 4,953 6,457
LIFO reserves.................................. (921) (921) (1,039)
------ ------ ------
$3,718 $4,032 $5,418
====== ====== ======
</TABLE>

NOTE C--EARNINGS PER SHARE

The following table sets forth the computation of earnings per share:

<TABLE>
<CAPTION>
For the three
months ended March
31,
-------------------
2000 1999
--------- ---------
<S> <C> <C>
Net income................................................ $ 705,000 $ 232,000
========= =========
Weighted average number of common shares outstanding...... 3,479,964 3,462,796
Dilutive effect of stock options.......................... -- 6,589
--------- ---------
Weighted average number of common shares outstanding
assuming potential dilution.............................. 3,479,964 3,469,385
========= =========
Basic earnings per share.................................. $ 0.20 $ 0.07
========= =========
Earnings per share--assuming dilution..................... $ 0.20 $ 0.07
========= =========
</TABLE>

Options to purchase 294,294 shares in 2000 and 193,156 in 1999 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. The effect of the assumed conversion of the
previously issued convertible subordinated notes was also excluded from the
earnings per share calculation in 1999 as the assumed conversion would also
have been anti-dilutive.

E-6
<PAGE>

NOTE D--BUSINESS SEGMENTS

<TABLE>
<CAPTION>
Business Segments
---------------------------------------
National Food
Brands Flavors service Other Totals
-------- ------- ------- ----- -------
<S> <C> <C> <C> <C> <C>
Three months ended March 31, 2000
Sales................................. $10,806 $2,982 $2,244 $ 354 $16,386
======= ====== ====== ===== =======
Segment profitability................. $ 2,329 $ 477 $ 231 $ 10 $ 3,047
Selling, general and administrative
expenses........................... (1,663)
Expense from analysis of strategic
alternatives....................... (200)
Interest income and expense--net.... (65)
-------
Income before income taxes.......... $ 1,119
=======

Three months ended March 31, 1999
Sales................................. $10,558 $2,916 $2,113 $ 542 $16,129
======= ====== ====== ===== =======
Segment profitability................. $ 1,952 $ 601 $ 447 $ (35) $ 2,965
Selling, general and administrative
expenses........................... (2,143)
Expense from restructuring
activities......................... (314)
Interest income and expense--net.... (140)
-------
Income before income taxes.......... $ 368
=======
</TABLE>

NOTE E--RESTRUCTURING EXPENSES

During the first quarter of 2000, the Company incurred approximately
$200,000 of expenses associated with the Company's pursuit of a possible sale
of the Company in whole or in parts. These costs consist primarily of legal,
investment banking and other professional services.

In March 1999, the Company discontinued certain non-core manufacturing
operations and as a result, terminated the employment of seven production
employees at its Bloomfield, New Jersey packaging plant. As a result, the
Company incurred related severance costs of approximately $104,000, all of
which was paid in 1999.

Also included in Expense from Restructuring Activities in 1999 is $210,000 of
incremental costs (primarily third party professional service fees)
specifically associated with the Company's previously announced decision to
explore a full range of strategies to enhance shareholder value.

NOTE F --OTHER INFORMATION

In September 1999, the Company's Board of Directors approved a plan which
would provide certain lump sum payments to key employees if a change in
control of the Company occurred prior to December 31, 2000. Assuming all
employees covered remain employed through a change in control, these payments
would total approximately $1.8 million. In addition, the plan also provides
for certain lump sum payments as well as continued medical and healthcare
benefits to employees who are terminated subsequent to a change in control of
the Company.

E-7
<PAGE>

ESKIMO PIE CORPORATION

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS

Eskimo Pie Corporation markets a broad range of frozen novelties, ice cream
and sorbet products under the Eskimo Pie, Real Fruit, Welch's, Weight Watchers
Smart Ones, 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. Eskimo Pie Foodservice is a leading supplier of premium soft serve
ice cream, frozen yogurt, custard and smoothie products to the foodservice
industry. The Company also sells a full line of quality flavors and
ingredients for use in private label dairy products in addition to the brands
it licenses.

Results of Operations

Net income for the quarter ended March 31, 2000 improved by over 200% as
compared to the same period in 1999. During the first quarter of 2000, net
income was $705,000 or $0.20 per share as compared with $232,000 or $.07 per
share in 1999. Exclusive of special charges, net income in the first quarter
of 2000 would have been $831,000 or $.24 per share as compared to $430,000 or
$.12 per share during the comparable period in 1999.

The 2000 results include expenses of approximately $200,000 related to the
Company's continuing pursuit of a possible sale of the Company in whole or in
parts. 1999 results include restructuring charges of $314,000 consisting of
severance costs of $104,000 associated with the discontinuance of certain non-
core and unprofitable manufacturing operations in the Company's Packaging
division and expenses of $210,000 incurred in connection with the Company's
consideration of strategic alternatives.

It is not the Company's intent to imply that alternate measures of
performance are more meaningful than net income as determined in accordance
with generally accepted accounting principles. Management believes, however,
that investors should consider the effects of the special charges as they
assess the results of the Company's on-going operations.

Net Sales and Gross Profit

Sales in the first quarter 2000 increased by 2% over 1999, to $16.4 million.
Sales of Eskimo Pie brand products increased by 5% and Weight Watcher's and
Nabisco sales each increased by over 50%. All divisions showed sales
improvement over the previous year, with the exception of the Packaging
Division, whose sales decrease was due to the discontinuance of non-profitable
business during the first quarter of 1999.

Gross margin for the quarter increased by 280 basis points, from 42.4% in
1999 to 45.2% in 2000. This improvement was due primarily to improved product
mix, with increased sales in the National Brands division as well as savings
from the discontinuance of the non-profitable business in the Packaging
division.

Expenses and Other Income

Consistent with the Company's plans to focus on the rejuvenation and growth
of the Company's core assets, and particularly the Eskimo Pie brand,
advertising and sales promotion expenses increased in both an absolute amount
($484,000) and as a percent of sales (from 24.1% to 26.6%) as compared with
the prior year.

Selling, general and administrative expenses declined by over 20% as
compared to the first quarter of 1999. This is due in part to management's
initiatives to control these costs and the reduction in force that was
completed in the second quarter of 1999. This reduction is also due in part to
a decrease in personnel as a result of voluntary terminations and it has
become increasingly difficult to hire replacements in light of the Company's
announcement to pursue a possible sale of the Company.

E-8
<PAGE>

During the first quarter of 2000, the Company continued its efforts
associated with the consideration of the possible sale of the Company or the
sale of one or more of the Company's strategic assets. As a result the Company
incurred approximately $200,000 of special charges, consisting primarily of
legal, investment banking and other professional fees.

In the first quarter of 1999, the Company also incurred special charges of
$314,000, $104,000 of which was related to the discontinuance of certain non-
core manufacturing operations at its Bloomfield, New Jersey packaging plant,
and $210,000 of expenses (primarily third party professional service fees)
associated with the Company's review of strategic alternatives and the
development of a growth and restructuring plan.

Liquidity, Capital Resources and Other Matters

The Company's financial position continues to show marked improvement.
Payments on long term debt have reduced debt by more than $4.0 million over
the past 12 months and significantly improved the Company's debt to equity
position.

The Company also has a $10 million line of credit which is available for
general corporate purposes through April of 2001. The Company generally seeks
a one year extension of the line of credit during the second quarter of each
year. As of March 31, 2000 there were no borrowings outstanding under this
line.

In September 1999, the Company's Board of Directors voted to suspend the
quarterly dividend payments indefinitely. The Board's decision to suspend the
dividend was made in light of the Company's decision to pursue all strategic
alternatives to maximize shareholder value, including a possible sale of the
Company as a whole or one or more sales of the Company's strategic assets.
Management believes that the elimination of the dividend will enhance the
Company's financial flexibility as it pursues a possible sale of the Company.
At this time the Board of Directors has no plans to reinstate the quarterly
dividend payments.

Future Plans and Financial Expectations

The Management and employees of the Company remain focused on the growth
strategies of the organization and expect continued improvement in financial
performance in 2000, with increases in sales, gross margin and product
contribution, as compared to 1999.

Forward Looking Statements

Statements contained in this Report on Form 10-Q regarding the Company's
future plans and projected performance are forward looking statements within
the meaning of federal securities laws and are based upon management's current
expectations and beliefs about future events and their effect upon Eskimo Pie
Corporation. There can be no assurance that future developments will mirror
those currently anticipated by management. These forward looking statements
involve risks and uncertainties including but not limited to the highly
competitive nature of the frozen dessert market and the level of consumer
interest in the Company's products, product costing, the weather, the
performance of management including management's ability to implement its
plans as contemplated, the Company's relationships with its licensees and
licensors and government regulation. The risks and uncertainties are further
discussed in the Company's Annual Report on Form 10-K as filed with the
Securities and Exchange Commission for the year ended December 31, 1999.
Actual results may vary materially from those included herein and the Company
assumes no responsibility for updating these statements.

E-9
<PAGE>

PART II

OTHER INFORMATION

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits:

27. Financial Data Schedules, filed herewith.

(b) Reports on Form 8-K: None

E-10
<PAGE>

SIGNATURES

Pursuant to the requirements 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.

ESKIMO PIE CORPORATION

Date: May 3, 2000
/s/ David B. Kewer
By: _________________________________
David B. Kewer
President and Chief Executive
Officer

Date: May 3, 2000
/s/ Thomas M. Mishoe, Jr.
By: _________________________________
Thomas M. Mishoe, Jr.
Chief Financial Officer, Vice
President,
Treasurer and Corporate Secretary

Date: May 3, 2000
/s/ Kathryn L. Tyler
By: _________________________________
Kathryn L. Tyler
Controller

E-11
<PAGE>

[Form of Proxy]
(down arrow) FOLD AND DETACH HERE (down arrow)

ESKIMO PIE CORPORATION

PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS

The undersigned hereby (1) acknowledges receipt of the Notice of the Special
Meeting of Shareholders of Eskimo Pie Corporation, to be held on September 6,
2000, at 10:00 a.m., local time ("special meeting") at the SunTrust Bank
(formerly Crestar Bank) Auditorium, 4th Floor, 919 East Main Street, Richmond,
Virginia, and the proxy statement in connection therewith and (2) appoints
David B. Kewer, Thomas M. Mishoe, Jr. and F. Claiborne Johnston, Jr., jointly
and severally, proxies, with full power to act alone, and with full power of
substitution, to represent the undersigned and to vote, as designated below,
all of the shares of common stock of Eskimo Pie Corporation which the
undersigned would be entitled to vote at the special meeting or any
adjournment or postponement thereof, upon the matter set forth in the proxy
statement, and upon any and all other matters which properly may be brought
before such meeting.

PLEASE COMPLETE, SIGN AND DATE THIS PROXY CARD AND PROMPTLY RETURN IT IN THE
ENCLOSED ENVELOPE.

YOU MAY SPECIFY YOUR CHOICES BY MARKING THE APPROPRIATE BOXES, BUT YOU NEED
NOT MARK ANY BOX IF YOU WISH TO VOTE IN ACCORDANCE WITH THE BOARD OF
DIRECTORS' RECOMMENDATIONS. THE PERSONS NAMED ABOVE AS PROXIES CANNOT VOTE
YOUR SHARES UNLESS YOU SIGN AND RETURN THIS CARD.

(continued on reverse side)
<PAGE>

[X] PLEASE MARK YOUR VOTES AS IN THIS EXAMPLE.

THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN.
IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED "FOR" ITEMS 1 and 2. THIS
PROXY MAY BE REVOKED AT ANY TIME PRIOR TO ITS EXERCISE.

The Board of Directors Recommends a Vote FOR Item 1

ITEM 1: Proposal to approve and adopt the Agreement and Plan of Merger, dated
as of May 3, 2000, as amended as of June 1, 2000, among Eskimo Pie,
CoolBrands International Inc. and EP Acquisition Corp., a wholly owned
subsidiary of CoolBrands, providing for the merger of EP Acquisition
with and into Eskimo Pie, with Eskimo Pie becoming a wholly owned
subsidiary of CoolBrands.

[_]FOR [_]AGAINST [_]ABSTAIN

The Board of Directors Recommends a Vote FOR Item 2

ITEM 2: In their discretion, the proxies are authorized to vote upon any other
matter that may properly come before the special meeting and any
adjournment or postponement of the meeting.

[_]FOR [_]AGAINST [_]ABSTAIN

I plan to attend the meeting. [_]

SIGNATURE(S) ______________________________________________________ DATE , 2000

NOTE: Please sign exactly as name appears hereon. Joint owners should each
sign. When signing as attorney, executor, administrator, trustee or guardian,
give full title as such. If signing on behalf of a corporation, sign the full
corporate name by authorized officer. The signer hereby revokes all proxies
heretofore given by the signer to vote at the Special Meeting of Shareholders
of Eskimo Pie Corporation and any adjournment or postponement thereof.