Catalyst Fund Limited Partnership II Challenges Validity of Process and Majority Vote Allegedly Attained in Consent Solicitation by IMAX Corporation



    TORONTO, April 16 /CNW/ - In response to a press release issued on April
13, 2007 by IMAX Corporation announcing that the company had received consent
from the majority of Senior Notes for its consent solicitation, Catalyst Fund
Limited Partnership II, a significant holder of 9.625% Senior Notes Due 2010
issued by IMAX, sent a formal letter to IMAX challenging the company's claims
and noting that it will continue to challenge the Consent Solicitation.
Specifically, Catalyst refutes IMAX's statement that it has received the
majority vote needed for the consent solicitation to succeed, and also
challenges the validity of IMAX's effort to extend the solicitation period. A
copy of Catalyst's letter to IMAX (which also is being circulated to the
members of IMAX's Board of Directors), the Indenture Trustee, and other
parties follows:

    
    Re: IMAX Corporation ("IMAX"),
        9 5/8% Senior Notes Due
        December 1, 2010 (the "Senior Notes")
    

    Dear Sirs/Mesdames:

    This firm is counsel to Catalyst Fund Limited Partnership II ("Catalyst")
in connection with a consent solicitation relating to the Senior Notes, which
IMAX formally announced after the market closed on April 3, 2007 (the "Consent
Solicitation").(1)

    As you likely know, Catalyst and a group of other holders of the Senior
Notes have been working together to oppose the Consent Solicitation. We are
writing with respect to a press release concerning the Consent Solicitation
that IMAX issued this morning. That press release appears to be either
materially misleading or, at a minimum, seriously confusing. Moreover, this
morning's press release appears to suggest that prior press releases that IMAX
has issued - in particular, a press release that it issued on April 3, 2007,
when it formally commenced the Consent Solicitation - were false and
misleading.

    In this morning's press release, IMAX has taken the position that it has
obtained the requisite consents necessary to make effective the waiver and
amendments to the trust indenture that IMAX seeks pursuant to the Consent
Solicitation. But, certain facts make clear that the Consent Solicitation was
seriously flawed and, therefore, ineffective to cure any defaults.
Specifically, in this morning's press release, IMAX disclosed that, although
it had announced in its April 3 press release that it had obtained two-thirds
of the consents that it required (which would amount to consents from holders
of approximately $53.3 million of the Senior Notes), consents for at least
$25.1 million of that amount (or 47%) could not, in fact, be obtained by the
then-effective expiration date for the Consent Solicitation. To the extent
that IMAX obtained consents after the April 3 press release but before today's
new disclosure (which appears intended to correct the prior misstatement),
IMAX obtained those consents based on false and/or misleading statements.
Thus, those consents are not valid, and no waiver of any default can be
effected by those consents.(2)

    Notably, the representation that IMAX had already obtained two-thirds of
the required consents appears to have been specifically calculated to entice
other noteholders to submit their consents. Indeed, according to the terms of
the Consent Solicitation, IMAX was able to end the solicitation as soon as it
obtained the necessary majority vote and only those noteholders who had
consented by that time would qualify to receive the consent fee. Noteholders
were thereby rushed to submit their consents before IMAX received the
requisite majority because, after that happened, subsequently consenting
noteholders would have been prevented from receiving the consent fee.
Consistent with that, certain noteholders indicated to Catalyst that they
needed to consent, and to do so promptly, to avoid losing the consent fee.
Thus, the misrepresentations clearly were material.

    Based on the foregoing, the Consent Solicitation process was severely
flawed and legally ineffective. Indeed, IMAX appears to concede that the
process was flawed, given that it has included what appears intended to be
curative information in this morning's press release and has announced that it
is extending the solicitation period until April 16, 2007, at 12:01 p.m. (ET).
Credit Suisse, the information agent for the Consent Solicitation, has been
informing callers that IMAX extended the Consent Solicitation precisely to
ensure that at least part of the solicitation period followed the release of
the purportedly curative information. That effort is ineffective, however, for
at least the following reasons. To begin, today's press release is so
confusing that it does little to cure the prior misstatements.

    Moreover, the factual environment in which the consents were obtained
between April 3 and April 12, 2007, cannot be retroactively changed to fit
IMAX's agenda. The false representations contained in the April 3 press
release to the effect that IMAX already had obtained 67% of the required
consents is part of that factual environment and, as noted above, was
specifically meant to and had the effect of inappropriately enticing
noteholders to submit their consents.

    Lastly, according to the terms of the Consent Solicitation Statement, the
solicitation period may be extended only "(i)f the Requisite Consents have not
been received by the Expiration Date." See Consent Solicitation Statement at
9. Similarly, the first page of the Consent Solicitation Statement discloses
that "(w)e may, in our sole discretion extend the Solicitation for a specified
period or on a daily basis until the Requisite Consents (defined below) have
been received."

    Based on these provisions, to the extent that IMAX has received the
Requisite Consents, which it claims it did by the expiration date for the
solicitation, IMAX may not extend the solicitation period. Thus, the
announcement that IMAX has extended the solicitation period is contrary to the
terms of the Consent Solicitation. Any such purported extension is invalid and
constitutes another irregularity in the process. Having announced and
conducted a specific Consent Solicitation process, IMAX cannot now purport to
change that process without seriously prejudicing the rights of noteholders,
including Catalyst.

    Although, as noted above, IMAX's press release this morning was, at a
minimum, confusing, one thing is clear. Either IMAX has received the requisite
consents (though under false pretenses), in which case it may not extend the
solicitation period, or it has not received the requisite consents, in which
case its statement that it has is false (which taints the extension to the
solicitation period).

    Finally, Catalyst continues to question how IMAX could have received the
requisite consents in light of the numbers known to it. Catalyst and other
dissenting noteholders (who entered into lock-up or other agreements not to
support the Consent Solicitation) appear to hold sufficient Senior Notes to
block the Consent Solicitation when one considers that IMAX has announced that
$25.1 million of the Senior Notes could not be voted. Pursuant to the terms of
the Consent Solicitation, the votes of noteholders who did not vote must be
counted as non-consenting. Thus, Catalyst finds it difficult to understand how
IMAX could have obtained a majority vote with respect to $160 million in
Senior Notes.

    Please call me at your soonest opportunity to discuss the foregoing. On
that score, I note that Catalyst's principals have previously asked multiple
times to meet with IMAX representatives in relation to matters pertaining to
the Consent Solicitation. IMAX rejected those overtures, and subsequently
claimed incorrectly of Catalyst that "They've never contacted us and asked us
for anything." Hopefully, IMAX will be more reasonable this time.

    At a minimum, IMAX is required to clarify the issues raised above before
any amendment of the relevant trust indenture can be made. Unless and until
IMAX provides such clarification, Catalyst will oppose any amendment to that
trust indenture, and contends that there has not been an effective waiver of
IMAX's defaults under that indenture. And, to the extent that IMAX or any
other party disregards its obligations in these respects, Catalyst will seek
to hold them accountable for breach of their fiduciary obligations.

    This letter is without waiver to, and subject to a full reservation, of
all of Catalyst's rights.

    Very truly yours,

    Emilio A. Galvan

    
    cc: Mr. Gabriel de Alba
        Catalyst Capital Group, Inc.
        (on behalf of Catalyst Fund Limited Partnership II)
    

    (1) Capitalized terms not defined herein are given the same meaning as in
the Consent Solicitation Statement issued in connection with the Consent
Solicitation.

    (2) Today's disclosure also appears to be inconsistent with a report from
just last night, in which IMAX purported to update the status of its current
default in filing its Annual Report on Form 10-K for the period ending
December 31, 2006, stating that there were "no material developments" in the
matter. Given that, by that time, IMAX must have known about the disclosure
that it made the very next morning by 7:30 a.m., it is difficult to understand
how IMAX could have distributed, pursuant to the guidelines of the Ontario
Securities Commission, a report asserting that there were "no material
developments."




For further information:

For further information: Catalyst Fund Limited Partnership II Gabriel de
Alba, 416-945-3020 gdealba@catcapital.com. or Brown Rudnick Berlack Israels
LLP Emilio A. Galvan, 212-209-4814 egalvan@brownrudnick.com or Robert J.
Stark, 212-209-4862 rstark@brownrdunick.com or Steven Pohl, 617-856-8594
spohl@brownrudnick.com.

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Catalyst Fund Limited Partnership II

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