Catalyst plans to oppose IMAX consent solicitation for senior notes

By Jennifer Chiou

New York, April 5 - Significant noteholder Catalyst Fund Limited Partnership II announced intentions to oppose IMAX Corp.'s solicitation of consents from holders of its senior notes to provide it with additional time to file its 10-K annual report for 2006.

The solicitation began on April 3.

Catalyst said it is working with a group of bondholders to ensure that the serious issues linked to the consent solicitation and IMAX's financial reporting failures are addressed.

In addition, Catalyst noted that the waiver request comes at a time when Standard & Poor's and Moody's Investors Service have put the credit rating of the bonds under negative review.

The opposing bondholders allege that there are at least two serious flaws in the consent solicitation itself, in addition to at least three serious concerns regarding the process and circumstances under which IMAX has undertaken to obtain the waiver and amend the bond indenture.

They said that the waiver and amendment in the consent solicitation are broader than portrayed by IMAX in its public statements relating to the waiver. Noteholders highlighted one proposed waiver, which purports to waive "any past default or event of default" arising out of IMAX's failure to comply with the Section 1019 reporting provisions of the indenture.

Given that the company has publicly acknowledged potentially serious accounting and reporting issues spanning six years or more, it is unclear whether the requested waiver is intended to cover not only the current 10-K annual report, but any other potential defaults arising out of any infirmities in prior financial reporting, the holders noted.

The opposing bondholders also contend that the proposed 1% consent fee is woefully insufficient even if the waiver were limited to the reporting requirements for the year ended Dec. 31.

Further, the bondholders intend to explore any potential wrongdoing by IMAX in connection with the company's delay in advising noteholders of IMAX's inability to meet its financial reporting deadlines.

The opposing bondholders additionally are concerned that despite the company having filed a 12b-25 notification of late filing with the Securities and Exchange Commission on March 16 and having indicated that its 10-K filing was expected to be made within a 15-day grace period, IMAX apparently sought, only days later, a waiver under its bank credit agreement - prior to advising the noteholders or the public generally that it would be unable to file its 10-K report within the 15-day grace period.

Finally, the holders took note of IMAX's apparent solicitation of only certain bondholders prior to initiation of the formal consent solicitation and said this raises serious concerns about the process undertaken by IMAX and potential violation of the indenture terms.

The Toronto-based motion picture technology company and theater operator previously said that it already has 67% of the necessary approvals from bondholders.

As previously disclosed, IMAX said it will have further delays with the annual report as well as the corresponding filings under Canadian provincial securities laws, pushing them beyond the March 31 deadline.

Noteholders who consent will receive a fee of $10.00 per $1,000 principal amount for the extension to May 31 (plus applicable cure period). IMAX will have the option to extend the deadline to June 30 (plus applicable cure period) on payment of an additional $5.00 fee.

The solicitation ends at 5:01 p.m. ET on April 12.

IMAX said previously that it had already obtained a waiver under its bank credit agreement of the covenant to deliver its audited financial statements until June 30.

Management and the audit committee of the board of directors are evaluating certain accounting errors over a six-year period. As a result, IMAX said it expects to file restated financial statements for certain periods during those years.

After receiving comments from the SEC and the Ontario Securities Commission, the company said it will broaden its review, primarily in connection with its revenue recognition for certain theater system installations in previous periods, including the fourth quarter of 2005.

IMAX said that it and its auditors, PricewaterhouseCoopers LLP, may determine that it is necessary to restate additional items beyond the previously identified errors.

The company previously added that it does not believe that a potential restatement resulting from changes to its revenue recognition accounting would have any impact on its previously reported or existing cash accounts.

As already reported, IMAX noted that it cannot predict when it will complete this review and file its 10-K, adding that it does not believe its operations will be impacted by any delays in filing.

In addition, the company expects to receive a notice of delisting from Nasdaq as a result of the delayed filing.

Catalyst said it encourages other noteholders to contact Gabriel de Alba (416 945-3020).

Global Bondholder Services Corp. is information agent and tabulation agent for the solicitation (866 857-2200) or (212 430-3774). Credit Suisse is solicitation agent (contact Liability Management Group at 212 325-7596).

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