News

Montreal-based Mega Brands Inc. MB-T has settled a bitter legal feud over compensation with the former owners of the New Jersey arts-and-crafts company that it bought four years ago.

Both sides declared victory Monday after reaching a settlement in the litigation, which goes back three years.

The settlement calls for Montreal-based Mega Brands to get $17.2-million in cash from the Rosen family – Lawrence, Jeffrey and Sidney – the former owners of Rose Art Industries Inc. who sold their company to Mega Brands in 2005.

The Rosens also have agreed to abandon any additional claims, estimated at $54.8-million.

Plastic blocks-maker Mega Brands' 2005 acquisition of Rose Art – which specialized in arts and crafts – was supposed to provide a major expansion boost to Mega Brands.

Instead, it turned into in a marketing nightmare when magnets started coming loose from Rose Art's Magnetix construction toys. There were several reported incidents of children being injured, and of one toddler dying, after ingesting the magnets.

The Magnetix fiasco resulted in a series of recalls of the product and an expensive redesign of the construction toy, a major headache for Mega Brands' founding Bertrand family.

A conflict arose over how much the Rosens should get in earnout payments related to the acquisition, partly as a result of difficulties calculating the fallout from the Magnetix issue.

Lawrence Rosen, who had stayed on as head of the Rose Art division, was fired, and both sides filed suits and countersuits in 2006.

Mega Brands claimed the Rosens withheld crucial information about defects in the line of Magnetix toys.

“This is great news for our company,” Marc Bertrand, president and chief executive officer of Mega Brands, said in a statement.

“The settlement validates our long-standing view that serious defects in Magnetix were not disclosed to Mega Brands before it acquired Rose Art. It also justifies the company's decision to dispute the Rosens' claim to an earnout.”

But in a separate news release, the Rosens said they dropped their earnout claim because Mega Brands's poor financial condition doesn't justify incurring further legal costs.

“The Rosens said that faced with the worsening of Mega Brands' already bleak financial condition, Moody's downgrade of the company to a junk rating and the increasing prospects of Mega Brands filing for bankruptcy, they agreed to drop their earnout claim,” said the statement.

“The collection of such a large judgment against MB would be impossible and would not justify incurring further legal costs in the litigation, they said.”

The Rosens now run an new company, Cra-Z-Art, a division of LaRose LLC in Randolph, N.J.