The Rosens, former owners of Rose Art, which Mega Brands bought in 2005, filed suit in 2006 claiming earnout payments and damages related to the deal.
Mega Brands then countersued, claiming the Rosens withheld and misrepresented information about serious defects in the Magnetix line of construction toys.
Magnetix was recalled after one child died and 27 others were seriously injured after swallowing magnets that came loose from the toys, acquired by Mega as part of the takeover of Rose Art.
Under the terms of the settlement, Mega Brands will receive about $17.2 million and the Rosen family forgo all claims for additional consideration, totaling $54.8 million. In exchange, Mega Brands will drop its $200 million counterclaim against the Rosens.
Mega spokesperson, Carine Sroujian said: "It's definitely a victory for Mega Brands. It really is great news. It improves our cash flow and positively impacts our balance sheet immediately."
But the Rosens claimed that, given Mega Brands' worsening financial condition, they were left with no choice but to give up their claim.
Lawrence Rosen commented: "We dropped this case solely on the grounds of their financial weakness and no other reason. Based on their balance sheet, we believe that they are in a very weak position and it wasn't worth spending excess money."
Stroujian replied: "There is no sense in addressing their [the Rosen's] false claims. We are on track with our 2009 business plans and Friday you will be able to see how on track we are."
Mega Brands will announce its third quarter results on Friday November 13th 2009.