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The incredible shrinking ice cream company Add to ...

Another July, another CoolBrands share slide. On July 21, 2006, a few days after it reported a third-quarter loss of $11.8 million (U.S.), the company announced that an unnamed subsidiary had violated a covenant in a loan agreement with JPMorgan Chase Bank. The covenant gave the bank the right to call the loan if the subsidiary's operating earnings dipped below a certain level. CoolBrands shares plunged by 60 cents, to close at just 88 cents.

A few days later, the company disclosed more details, and the big picture became clearer: The decision years earlier to borrow for U.S. expansion had come back to haunt CoolBrands. The troubled subsidiary was Americana Foods. In the announcement on July 21, Stein said, "It is unfortunate that this event has occurred, but the company is working with its subsidiary and JPMorgan to resolve the situation."

In fact, the two sides weren't resolving anything. The bank wanted its money, period. Americana Foods could be forced into bankruptcy. That would likely cause CoolBrands to hit the wall as well. Stein moved fast and sold off Eskimo Pie's Value America flavours and ingredients division for $8.3 million (U.S.) in September. But CoolBrands shares continued to stagger under $1. In October, Americana Foods ceased operations and began liquidating its assets under Chapter 7 of the U.S. Bankruptcy Code.

In November, Michael Serruya couldn't stand it any longer. He took over from Stein as CEO and announced that Stein and four independent directors had been replaced on the board. A scaled-down board would be comprised of three independents and the Serruya brothers. In April, 2006, CoolBrands had consolidated its debts in two credit lines (one of them for Americana) worth a total of $73.5 million (U.S.). Now Serruya spent $21.7 million (U.S.) of his own money to buy the Americana credit line from JPMorgan. In exchange, CoolBrands was obligated to use proceeds from any asset sales to pay back Serruya and cover any shortfall on the other credit line. He also received warrants that would entitle him to buy 5.5 million company shares for just 50 cents apiece.

The company also issued a release announcing that Seymour Schulich had bought 1.1 million shares, raising his total to six million, or roughly 12%, making him the largest shareholder. And Ron Binns, CFO of Schulich's Nevada Capital Corp. Ltd., was a new CoolBrands director. Word that the savvy billionaire was back in the picture helped push CoolBrands' shares back above $1. He had sold the 7% stake he bought in 2001 years earlier, but he apparently started buying again in late 2005. (Schulich declined to be interviewed for this story.)

Since then, Serruya has methodically sold off practically all of CoolBrands' remaining businesses. In early January, he sold the fresh yogurt holdings-mainly the Breyers products-to a U.S. private equity firm for $45 million (U.S.) in cash, $5 million (U.S.) worth of notes and some warrants to buy stock. Then he sold Eskimo Pie, as well as the Chipwich trademark, to Nestlé's Dreyer's Grand Ice Cream unit for $18.9 million (U.S.).

By the end of February, all that was left was Whole Fruit sorbet, Fruit-a-Freeze, some other small licensed brands, and roughly 100 employees. That essentially left CoolBrands as a TSX-listed shell company with about $65 million (U.S.) in cash and some real estate. Insiders say Michael Serruya is considering new food-related ventures.

Indeed, he has done the groundwork for some sort of future for the company. In a management circular for CoolBrands' annual meeting, scheduled for March 29, Serruya proposed biting the bullet and making good on his 2005 promise to eliminate the multiple voting shares. That would reduce the Serruyas' voting stake to about 8%. "They probably recognize that their forte is not running public companies," says a source close to CoolBrands. But they also recognize that if they do approach the public markets again, supershares just won't fly. "Markets will never forgive or forget," says the source.

If CoolBrands rises for the third time in its history, and the share price takes off, shareholder rights advocates might still complain about Michael Serruya's 5.5 million warrants. It's a problem Serruya would probably welcome.

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