2014

MEGA Brands to reduce debt by CA$62.4 million and offer cashless exercise right to holders of warrants

MONTREAL, March 26, 2013 /PRNewswire/ - MEGA Brands Inc. (TSX: MB) (the "Corporation") announced today that it intends to reduce the outstanding principal amount of its debentures by CA$62.4 million using proceeds from the exercise of warrants together with a scheduled repayment. As a result, the Corporation's pre-tax cash interest expense will be reduced by approximately CA$6.2 million annually, representing CA$0.22 per diluted common share on a pre-tax basis, assuming exercise of warrants by the warrantholders named herein, and on the assumptions set forth below. The principal amount of debentures outstanding will be reduced to CA$52.2 million, compared to CA$141.7 million as at March 30, 2010 when they were issued.

The Corporation today confirmed that it has received or has commitments to receive in the coming days an aggregate of CA$55.3 million of proceeds from the exercise of outstanding common share purchase warrants (the "Warrants") issued pursuant to a warrant indenture dated January 28, 2010 (the "Warrant Indenture"). As permitted under the terms of the debenture indenture dated January 28, 2010 governing its 10% senior secured debentures (the "Debentures"), these proceeds will be used to purchase CA$55.3 million in principal amount of Debentures on a pro rata basis at a purchase price equal to 100% of the principal amount of Debentures, plus accrued and unpaid interest thereon and, together with scheduled repayments of Debentures of CA$7.1 million on March 30th, will reduce the principal amount of Debentures outstanding by CA$62.4 million, to CA$52.2 million. The Corporation plans to give formal notice to the holders of Debentures informing them of the upcoming purchase and expects to complete the purchase of Debentures by April 15, 2013.

"This significant debt reduction strengthens our financial position and will contribute directly to net earnings through lower interest expenses beginning in the second quarter of this year," said Marc Bertrand, the Corporation's President and Chief Executive Officer.

The Corporation also announced today that it plans to offer to the holders of Warrants the right to submit their Warrants for the exercise of the subscription right thereof for common shares on a cashless basis on the terms and conditions to be set forth in an offer letter to warrantholders (the "Offer Letter") and in the cashless exercise election form to be transmitted therewith (such exercise, a "Cashless Exercise" and such offer, the "Offer").

The Offer will expire at 5:00 p.m. (Eastern Time) on the date which is 35 days after the Offer is made (as such time may be extended in accordance with the terms of the Offer Letter, the "Expiration Time"). Warrants may not be submitted for Cashless Exercise pursuant to the Offer after the Expiration Time.

If the conditions to the Offer described in the Offer Letter are satisfied or waived, then each Warrant properly submitted to the warrant agent pursuant to the Offer will be accepted for Cashless Exercise on the date on which any such Warrants are received by the warrant agent (each such date a "Cashless Exercise Date"), and the holder thereof will thereupon be entitled to receive the number of common shares described in the Offer Letter.

In order to facilitate the making of the Offer and reduce the Corporation's long-term debt, each of Fairfax Financial Holdings Ltd. ("Fairfax") and Victor J. Bertrand, Sr. ("Mr. Bertrand") have agreed to exercise the full amount of Warrants they hold and Trimark Investments ("Trimark") has agreed to exercise 33,978,000 of the Warrants it holds (such exercises collectively representing 45% of all outstanding Warrants), resulting in a total of CA$53.3 million of proceeds to the Corporation, in addition to the CA$2.0 million of warrant exercise proceeds the Corporation has already received over recent months, all of which will be used in connection with the purchase of Debentures referred to above.

The Corporation has also entered into a support agreement with each of Trimark, Lissom Investment Management ("Lissom"), Chiefswood Holdings Ltd. ("Chiefswood") and Chou Associates Management Inc. ("Chou"), which beneficially own in aggregate approximately 17% of the Warrants (after giving effect to the Warrant exercise referenced above), and which have agreed to submit all of their Warrants then held for Cashless Exercise pursuant to the Offer.

To submit Warrants for Cashless Exercise pursuant to the Offer, the holder of such Warrants must, on or prior to the Expiration Time, comply with the procedures described in the Offer Letter. Any submission of Warrants for Cashless Exercise pursuant to the Offer will be irrevocable and may not be withdrawn.

Under the current terms of the Warrant Indenture, exercising 20 Warrants together with the payment of the current exercise price of CA$9.94 entitles warrantholders to receive one common share of the Corporation. In connection with the Offer, amendments ("Amendments") will be made to the Warrant Indenture to permit the Corporation to effect the Offer and other cashless exercise offers from time to time on terms that are consistent with the rules of the Toronto Stock Exchange. The Amendments will be effective as of April 5, 2013. The Corporation also expects to commence the Offer on April 5, 2013. During the offer period determined by the Corporation and specified in the Offer, warrantholders will be provided with the choice to elect to exercise their Warrants on a cashless basis.

Warrantholders may at all times continue to exercise their Warrants and pay the CA$9.94 exercise price or, alternatively, after such date and during the offer period determined by the Corporation and specified in the Offer, they may exercise their Warrants on a cashless basis and receive the number of common shares of the Corporation they are entitled to under a Cashless Exercise.

In connection with a Cashless Exercise of Warrants pursuant to the Offer, the holder of such Warrants (1) will not be required to pay the exercise price in cash and (2) will, in lieu of receiving the number of common shares that such holder would otherwise have received under the Warrant Indenture upon the exercise of the subscription right thereunder, receive the number of common shares (rounded down to the nearest whole number) that is equal to the quotient obtained by dividing (A) (i) one twentieth of the number of such Warrants multiplied by the market price of the common shares on the Cashless Exercise Date minus (ii) one twentieth of the number of such Warrants multiplied by the Warrant exercise price on the Cashless Exercise Date, by (B) the market price of the common shares on the Cashless Exercise Date.

For the purposes of the above formula, "market price" means the volume weighted average trading price ("VWAP") of the common shares on the Toronto Stock Exchange for the five trading days immediately preceding the date on which any Cashless Exercise occurs.  In order to inform warrantholders of the daily market price of the common shares applicable to a Cashless Exercise of the Warrants, the Corporation intends to publish the five-day VWAP on its website at www.megabrands.com beginning on April 5, 2013 and each subsequent trading day until the Expiration Time.

The Offer and the Amendments have been approved by the board of directors of the Corporation (Paul Rivett and Mr. Bertrand abstaining) and will be completed pursuant to an exemption from the minority approval requirements of Multilateral Instrument 61-101 - Protection of Minority Security Holders in Special Transactions pursuant to Section 5.7(a) thereof.

As at March 25, 2013, Fairfax held 3,704,337 (22.3%) common shares, 56,408,000 (23.5%) Warrants, and CA$15,481,996 (13.5%) aggregate principal amount of Debentures.  Following its exercise of Warrants, Fairfax will hold 6,524,737 (29.2%) common shares, no Warrants, and the same amount and proportion of Debentures.

As at March 25, 2013, Trimark held 2,371,246 (14.3%) common shares, 37,304,000 (15.6%) Warrants, and CA$17,638,434 (15.4%) aggregate principal amount of Debentures.  Following its exercise of Warrants, Trimark will hold 4,116,662 (18.4%) common shares, no Warrants and the same amount and proportion of Debentures.

As at March 25, 2013, Mr. Bertrand held 1,466,285 (8.8%) common shares, 16,910,000 (7.1%) Warrants, and CA$7,962,788 (6.9%) aggregate principal amount of Debentures.  Following his exercise of Warrants, he will hold 2,311,785 (10.4%) common shares, no Warrants, and the same amount and proportion of Debentures.

The percentage of common share ownership figures in the three foregoing paragraphs give effect to the cash and cashless exercises by Fairfax, Mr. Bertrand, Trimark, Lissom, Chiefswood and Chou, in the case of any Cashless Exercise of Warrants assuming for illustrative purposes that the market price of the Corporation's common shares at the time of any such Cashless Exercise is equal to the closing price of the common shares on March 25, 2013, and assuming no other Cashless Exercises.

GMP Securities L.P. acted as exclusive financial advisor to the Corporation in connection with the Offer.

Registered holders of Warrants that wish to submit their Warrants for Cashless Exercise pursuant to the Offer must ensure that all requirements for such submission have been satisfied on or prior to the Expiration Time.

Beneficial owners of Warrants, whose Warrants are registered in the name of a brokerage firm, bank or trust company or other intermediary, should promptly contact their intermediaries and obtain and follow their intermediaries' instructions with respect to the applicable submission procedures and deadlines, which may be earlier than the deadlines that are described above and set out in the Offer Letter.

If you have any questions or require assistance with the Cashless Exercise of your Warrants, or if you wish to obtain a copy of the Offer Letter and the cashless exercise election form transmitted therewith, please contact:

CST Phoenix Advisors
North American Toll Free Phone: 1-800-398-1272
Banks, Brokers and collect calls: 201-806-2222
Toll Free Facsimile: 1-888-509-5907
Email: inquiries@phoenixadvisorscst.com

The preceding statements are only a summary of certain provisions of the Offer Letter, cashless exercise election form transmitted therewith, Warrant Indenture and related amendments, and are qualified in their entirety by the full text of each, copies of which will be made available electronically under the System for Electronic Document Analysis and Retrieval (SEDAR) System (www.sedar.com).

The Offer will not be made to, and cashless exercise election forms will not be accepted from or on behalf of, warrantholders in any jurisdiction in which the making of the Offer or the acceptance thereof would not be in compliance with the laws of such jurisdiction.

About MEGA Brands Inc.

MEGA Brands Inc. 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. Visit http://www.megabrands.com for more information.

The MEGA logo, Mega Bloks, Rose Art, MEGA Puzzles, MEGA Games and Board Dudes are trademarks of MEGA Brands Inc. or its affiliates.

Forward-Looking Statements

All statements in this press release that do not directly and exclusively relate to historical facts constitute "forward-looking information" within the meaning of applicable Canadian securities laws These statements represent the Corporation's intentions, plans, expectations and beliefs. Readers are cautioned not to place undue reliance on these forward-looking statements. Forward-looking information and statements are based on a number of assumptions and involve risks, uncertainties and other factors that could cause actual results to differ materially from those expressed or implied by them, including, but not limited to risks, assumptions and uncertainties described in the Corporation's MD&A for the year ended December 31, 2012, which are available at www.sedar.com and on the Corporation's Web site. The Corporation disclaims any intention or obligation to publicly update or revise any forward-looking information, whether as a result of new information, future events or otherwise, other than as required by applicable law.


SOURCE MEGA BRANDS INC.



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