/Not for distribution to U.S. news wire services or dissemination in the
MONTREAL, Aug. 11 /CNW Telbec/ - MEGA Brands Inc. (TSX: MB) (the
"Corporation") announces that it has entered into an agreement with Fairfax
Financial Holdings Ltd. ("Fairfax"), Chiefswood Holdings Limited
("Chiefswood"), The Owners Fund and Victor J. Bertrand Sr., the founder and
chairman of the board of directors (the "Board") of the Corporation, to issue
by way of private placement CA$75 million of senior unsecured convertible
debentures maturing on August 31, 2013 (the "Offering"), with Fairfax
investing CA$64 million and Mr. Bertrand investing $7 million in the offering.
The proceeds of the Offering will be used as working capital and for general
corporate purposes. The Offering is expected to close on August 19, 2008 and
is subject to certain closing conditions, including the approval of the
Toronto Stock Exchange and lender's approval for certain amendments to the
Corporation's senior secured credit facilities.
"We are pleased to have a new investor with a record of creating
shareholder value and corporate growth and the continued support of Victor J.
Bertrand Sr.," said Marc Bertrand, the President and Chief Executive Officer
of the Corporation. "This investment provides MEGA Brands with additional
liquidity to execute its business plan. In addition, we now have greater
flexibility to complete the continuation of our Value Enhancement Plan."
"We greatly appreciate to have the opportunity to invest in a world class
company like Mega Brands, one of the world's leading toy brands," said Prem
Watsa, Fairfax's CEO. "Under the leadership and creative direction of the
founding Bertrand family, the company has prospered for over 40 years and we
look forward to the future."
"We are impressed with MEGA Brands ability to grow its business and
develop a worldwide brand," commented Robert Krembil of Chiefswood.
"With a strong presence in some of the world's leading retailers and a
revitalized balance sheet with new shareholders, I am pleased to make this
investment," added Irwin Rotenberg of Lissom Investment Management Inc.,
investment manager of The Owners Fund.
Description of the Debentures
The debentures will bear interest at a rate of 8% payable semi-annually
in arrears and will be convertible at the option of the holder at any time
prior to the maturity date based on a conversion price equal to approximately
CA$3.19 per common share, subject to customary anti-dilution adjustments. The
debentures will be convertible into 23,512,500 common shares, representing 39%
of the common shares of the Corporation on an as converted basis.
Assuming full conversion of the debentures to be issued to it, Fairfax
would hold 20,064,000 common shares or 35.4% of the outstanding shares of the
Corporation and such a conversion may have a material effect on control.
Following the closing of the Offering, Fairfax will be entitled to nominate
one person to the Board.
Assuming full conversion of the debentures to be issued to him, Victor J.
Bertrand Sr. would hold an additional 2,194,500 common shares which, with his
current holding, will represent 11% of the outstanding shares of the
Corporation. Mr. Bertrand currently holds 4,415,711 common shares representing
approximately 12% of the common shares of the Corporation. Each of Chiefswood
and Owner will obtain, upon full conversion of the debentures to be issued to
them, 627,000 common shares or approximately 1 % of the outstanding shares of
In connection with the Offering, Victor Bertrand Sr. and Fairfax have
entered into a standstill agreement pursuant to which Mr. Bertrand has agreed
not to transfer any common shares of the Corporation until Fairfax owns less
than 12% of the outstanding common shares on a fully diluted basis.
On maturity and under certain conditions, the Corporation may elect to
satisfy its obligation to repay the principal amount of the debentures by
issuing common shares for a price per share equal to 95% of the weighted
average trading price of the common shares on the Toronto Stock Exchange for
the 20 consecutive trading days ending five trading days preceding the
In the event of a change of control involving cash consideration paid to
the shareholders of the Corporation, holders of debentures may be entitled to
receive up to an additional 20.9685 common shares per $1,000 principal amount
of debentures held upon conversion (or up to an aggregate of 1,572,638 common
shares), calculated based on the effective date of the change of control
transaction and the consideration paid per share. If the price per common
share is greater than $20.00 or less than $2.99, no additional shares will be
issued. In addition, upon the occurrence of a change of control, the
Corporation shall be required to make an offer for the repayment of the
Debentures at a price equal to 110% of the principal amount of the debentures
plus accrued and unpaid interest. Holders of debentures may also cause the
Corporation to make an offer for the repayment of their debentures at a price
equal to 110% of the principal amount of the debentures plus accrued and
unpaid interest in the event that the Corporation is de-listed from the TSX or
upon the occurrence of certain fundamental changes, including a change of
A majority of directors of the Corporation, free from any interest in the
Offering and unrelated to the parties involved in the Offering, has
recommended proceeding with the Offering. Based on the recommendation of these
directors, their belief that the Corporation is in serious financial
difficulty due to inadequate liquidity in this period of high demand for
working capital before the holiday season and their belief that the Offering
will considerably improve the Corporation's financial situation, the Board
believes that the Offering is reasonable in the circumstances.
As the number of common shares issuable pursuant to the conversion of the
convertible debentures to be issued exceeds the number of securities issuable
under the rules of the Toronto Stock Exchange ("TSX") without shareholder
approval and the fact that the conversion of the debenture may have a material
effect on control, the Corporation is applying to the TSX for an exemption
from the requirement to seek shareholder approval, as required pursuant to
Section 607(g) of the TSX Company Manual, in accordance with Section 604(e) of
the TSX Company Manual on the basis of the Corporation's financial hardship.
In addition, due to the participation of issuer insiders in the Offering,
the Offering is a related party transaction for the purposes of Multilateral
Instrument 61-101 and the Corporation is relying on exemptions from the formal
valuation and minority approval requirements of Multilateral Instrument
61-101, including based on a determination of financial hardship. A material
change report will be filed less than 21 days before the closing date of the
Offering. This shorter period is reasonable and necessary in the circumstances
as the Corporation wishes to complete the Offering in a timely manner.
BMO Capital Markets acted as exclusive placement agent and financial
advisor to MEGA Brands in connection with the Offering.
This press release is not an offer to sell securities in the United
States. Securities may not be offered or sold in the United States in the
absence of registration or an exemption from registration.
Fairfax Financial Holdings Limited is a financial services holding
company which, through its subsidiaries, is engaged in property and casualty
insurance and reinsurance and investment management.
About MEGA Brands
MEGA Brands is a trusted family of leading global brands in construction
toys, games & puzzles, arts & crafts and stationery. They offer engaging
creative experiences for children and families through innovative,
well-designed, affordable and high-quality products that deliver on our
Creativity to the Rescue promise. Visit http://www.megabrands.com for more
The MEGA logo, Creativity to the Rescue, Mega Bloks, Rose Art, MagNext
and Board Dudes are trademarks of MEGA Brands Inc. or its affiliates.
All statements in this press release that do not directly and exclusively
relate to historical facts constitute "forward-looking statements". These
statements represent the Corporation's intentions, plans, expectations and
beliefs. In certain instances, these statements require us to make assumptions
and there is significant risk that these assumptions may not be correct.
Furthermore, these statements are subject to risks, uncertainties and other
factors, many of which are beyond the Corporation's control. The Corporation
disclaims any intention or obligation to publicly update or revise any
forward-looking statements, whether as a result of new information, future
events or otherwise, other than as required by applicable legislation. Readers
are cautioned not to place undue reliance on these forward-looking statements.
More information about the risks that could cause our actual results to
significantly differ from our current expectations can be found in the "Risks
and Uncertainties" section of our 2007 annual MD&A and Q1 2008 MD&A.
For further information:
For further information: Eric Phaneuf, Vice-President Corporate
Development, MEGA Brands, (514) 333-5555, ext. 2538, firstname.lastname@example.org