Member FAQ

The Transaction

1. Why weren’t members consulted about the sale before it was announced?

As a member-based co-op, transparency is important.

MEC has been working on ensuring a more sustainable business model since 2016. Ultimately, in July 2019, the Board brought in new leadership with a mandate to deliver results. Since then, everyone in the MEC organization has been working diligently on an aggressive turnaround plan. These plans were shared widely with our membership in early 2020.

When it became apparent that the unprecedented disruption of the COVID-19 pandemic undermined our ability to secure a refinancing on terms that would meet MEC’s future needs, we examined options and alternatives that would ensure MEC’s continued existence.

In exercising their fiduciary duties, the Board and management received independent expert legal and financial advice while seeking the best outcome for the MEC business in unprecedented times.

If the discussions had been public, it would have caused uncertainty and disruption not only within MEC, but also with vendors and creditors. This uncertainty could have irreparably harmed the organization.

The board prioritized the business, preserving jobs, locations and enabling members continued access to authentic advice and high-quality products at competitive prices.

The board had a stark choice: preserve the MEC brand and business under new ownership or enter liquidation ending the MEC legacy.

2. Why didn’t MEC reach out to members for cash instead of selling?

The Board and management team discussed engaging with members at several stages.

In examining the options and alternatives that would ensure MEC’s survival, the Board looked at various options for recapitalizing through the membership. However, the order of magnitude and urgent timing of MEC’s financial needs made it implausible that a voluntary member assessment or request for financial contribution would allow MEC to continue. The Board also received independent expert advice to this effect.

Ultimately, a sales process and equity infusion as well as court protection was the only option that could save the MEC business from bankruptcy or liquidation.

3. Are members required to approve the sale?

The pandemic created a situation in which MEC became insolvent, necessitating a filing under Companies Creditors Arrangement Act (CCAA). In CCAA, a member vote (or in the case of corporations, a shareholder vote) is not required. Instead, the court oversees the process to ensure fairness.

4. Who is Kingswood Capital Management?

Kingswood Capital Management, LP is a California based private investment firm primarily focused on investing in businesses in transition, such as MEC.

Kingswood brings relevant industry relationships and a broad network of internal and external operating resources that can strengthen the businesses it partners with and enhance value. Longstanding MEC member and Canadian, Eric Claus, will lead Kingswood’s newly formed Canadian affiliate as Board Chair and CEO. Eric looks forward to upholding MEC’s core values and further enhancing the experience for members.

 

The Co-operative and Membership

1. Will MEC still be a co-op?

The business and MEC’s operating assets will move from the current co-op structure into a private company, which will continue to use the MEC name and brand.

Kingswood has tremendous respect for MEC’s legacy and roots as a co-op. The incoming Board Chair and CEO, Eric Claus, is a longstanding member of MEC and understands what membership means to so many Canadians.

2. Do people still need to be members to shop with MEC?

During the period we are in CCAA, MEC continues to operate its business as usual. For this period, we remain a member-based organization, and only members can purchase.

3. Are members eligible for any share value refund?

Unfortunately, the terms of the initial order of the court under CCAA (in accordance with the typical template order) prohibit the redemption of members’ shares at this time. As membership shares in MEC constitute an “equity claim” under CCAA, no payments can be made in respect of such shares until all creditors have been paid in full.

Nevertheless, we are confident that members have received significant value in exchange for their $5 lifetime MEC membership.

4. What will happen to member information?

Canadian privacy laws permit MEC to transfer customer data (such as information about customer purchase history and marketing preferences), to the new company as part of the larger sale of MEC’s assets to the new company.

This information will be used by the new company for legitimate business purposes and in compliance with privacy laws, including for product recalls and warranty returns under MEC’s Rocksolid Guarantee.

By law, the new company is only entitled to use or disclose the transferred personal information for the same purposes for which MEC originally collected the information from you or as required by law. It is not permitted to use or disclose your information for any other purpose that requires your consent without first explaining the new purpose to you and then asking for and obtaining your consent.

 

Customer Experience

1. How will the CCAA process affect MEC members?

MEC is continuing to serve our members through the CCAA process. E-commerce and retail stores will remain open, in accordance with provincial public health guidelines.

2. Will stores be closing?  Will the current closed stores reopen or stay closed?

While it is too early to indicate specifically how many locations will be impacted by the sale, Kingswood has committed to retaining at least 17 retail locations.

Some MEC stores continue to remain closed due to the Covid-19 Pandemic. Details on stores that are currently open or closed can be found here.

3. Will I be able to use my gift card / store credit?

Yes. Gift cards and store credit remain valid and can be used at our stores or online. Kingswood has committed that MEC, under its ownership, will continue to honour all existing gift cards.

 

CCAA Proceedings

1. What is the CCAA?

The Companies’ Creditors Arrangement Act (CCAA) is a law that allows insolvent organizations to restructure their business and financial affairs. Under CCAA an organization can maintain its business ‘in the ordinary course’ while also giving it the breathing room necessary to restructure its affairs—all with a view to preserving as much as possible of its business for the benefit of employees, members/customers, suppliers and other stakeholders in the communities in which it operates.

2. Is an organization that files for protection under CCAA considered to be bankrupt?

While an organization filing for CCAA is insolvent, meaning it has insufficient liquidity to continue to fund its operations and/or its liabilities are greater than its assets available to satisfy those liabilities, the organization is not considered to be “bankrupt”. The stay of proceedings under the CCAA, among other things, prevents creditors from forcing the organization into bankruptcy.

3. Where can I find more information regarding the CCAA proceedings?

If you have questions regarding the CCAA proceedings, you can contact Alvarez & Marsal Canada Inc., the court-appointed Monitor of MEC at 1-844-768-8244 or mec@alvarezandmarsal.com. Their website is www.alvarezandmarsal.com/MEC.