ah802
03-09-2008, 10:59 AM
I've followed Imax from it's first days at Montreal Expo in the labyrinth, and watched the stock at $50 share more to less than $1. Knowing it was a Canadian company and decided to follow the financial pattern before I plunged/gambled in their stock and I almost bought in. I collected reams of news articles and reviews of their technology.
I mean.. how could a company who has line-ups to their theaters lose? They have premiere auditoriums in almost every major city of the world and charge a premium to see the production. Their production budget on a whole averages $12 million per movie and they get to charge a premium ticket price. Even Nasa is involved, and with plans for more theaters, going digital and all those 3D niche markets... you would think Imax was on the road to multi-mega corporation status, but you would be wrong.
I've watched management fall over it self; to pay huge bonuses and salaries, watched as it ignored shareholders, watched as it blew opportunities one after the other... The last chance was a rumoured Sony buy-out and despite what Sony has done in other areas, this would have been a marriage blessed by all.
This is a good example of technologically that appears to have the brightest of futures and yet the vultures hover. The link from the FPost got my goat this morning, don't respond... there is no excuse.
http://www.financialpost.com/story.html?id=361381
article: cut & pasted for those who ask in the future why?
------------------------------------------------------------------------
Imax tied in knots
With some new digital projection technology waiting in the wings to wow audiences, plus multiplex theatre and film deals, the Canadian big-screen movie company's prospects would seem to be looking up. But behind the scenes, trouble is brewing.
At its modified theatre in Oakville, Ont., Imax Corp. is testing its new digital projection system. The prototype, which combines components from Texas Instruments with Imax proprietary technology, has become the company's great hope.
For weeks Geoff Atkins, Imax's general manager for the Americas, has been greeting waves of clients and potential new customers at the revamped 400-seat theatre just west of Toronto. They all ask the same things: "Does the digital system deliver the Imax experience?" and "Can I still get a premiere ticket price for it?"
The big-screen experience has always been about big dreams. Filmmakers have gone from the heights of Mount Everest to 20,000 leagues under the sea in search of the Titanic to bring viewers a heightened movie experience on 15/70 mm film. But40 years after its invention, the Imax format is still teetering on greatness. New digital projection systems, a 100-multiplex theatre deal with AMC Entertainment Inc. and a four-picture film production contract with Dream-Works have helped lift Imax's stock price. Now trading at $6.27, it languished in the $3-to-$4 range last year, and dipped as low as 95¢ in 2001. The new digital technology may reinvigorate Imax's business model. Instead of getting the bulk of its revenue from upfront fees for new theatre installations, it will recoup more at the box-office back end, a better long-term scenario.
"Having been at Imax for 13 years, I've never been in a period where it's all been good news," says Richard Gelfond, Imax's co-chief-executive, who has boosted the company's distribution potential a full 25% with the AMC deal. Imax has also attracted Hollywood directors such as Richard Zemeckis (Beowulf), who have used motion-capture technology to create three-dimensional inserts in their two-dimensional films. With more Hollywood fare hitting the theatres, the company could boost its box-office revenue. In 2007, the company's take at the box office was US$18.1-million, a 56% increase from 2006.
But translating this brave new world into reality will require substantial up-front cash investments. For the AMC deal alone, the company will have to pony up US$50-million to install the new projectors over the next three years. That's not including retrofitting other North American cinemas. Although Imax has renegotiated its US$30-million credit line with Wachovia, it is leveraged to the hilt, says Moody's analyst Karen Berckmann. The AMC deal is good for equity holders in the long term, but the scenario is "ugly over the short term," says Ms. Berckmann, who dropped Imax's rating from positive to stable in January. Imax says it has "full liquidity to do the deal" throughout the roll-out period. Ms. Berckmann points out that the digital roll-out "is way bigger than anything they've ever done."
Then there are the questions about the company's co-chief executives, Mr. Gelfond and Brad Wechsler, who have failed to sell the company despite two separate auctions, and have restated their financials on more than one occasion. For the period from 2002 through 2005, Imax says it overstated revenue by US$10.4-million, on top of US$4-million in previously disclosed errors. It also issued another restatement in November, 2007.
The missteps have battered Imax's stock price, caught the attention of the regulators and led to two class action suits with shareholders -- one filed in Ontario, the other in the United States.
But it may be facing its biggest battle yet. The company is squaring off in court against one of Canada's toughest distress debt fund manager, Catalyst Capital Group Inc., over alleged violations related to legal clauses within the bond agreement. Toronto-based Catalyst, which now owns more than one-third of the bonds, is challenging whether Imax had the necessary support of the majority of the bondholders to delay its filing to the SEC. Imax claimed it had the consent.
The fight over this technicality could have major consequences. Catalyst's tactic is to use the court to leverage its position and force a restructuring. Imax, which once courted private-equity players, is now being hunted.
Newton Glassman, managing director of Catalyst and former managing director at U.S. private equity investment firm Cerberus Capital Management, runs a type of distress fund that used to be referred to as a vulture fund, but is actually closer to private-equity plays. In addition to buying up debt and litigating in court to exercise its rights as a creditor, the company will also add equity and roll up its operational sleeves to turn companies around.
Included in the list of those he has taken on in this manner is Conrad Black. A series of motions launched by Mr. Glassman led to Lord Black being ousted from the board of Hollinger Inc. Now Catalyst has Imax in his sights. As one shareholder states: "The shark is circling and when he bites, he doesn't let go."
Unfortunately for Imax, all of this is playing out in a changing legal landscape. The Canadian courts lifted some barriers to commercial class action suits in 2006. The legal toll was addressed in its filing to the U.S. Securities and Exchange Commission last year. The company stated: "It's incurring significant legal fees in prosecuting and defending its lawsuits." Even analysts such as Larry Witt of Morningstar, who is positive about the AMC deal, says the multiple restatements and resulting litigation is "alarming."
How did a great concept, first conceived by a group of National Film Board auteurs, end up repeatedly on the defensive? Colin Low and Roman Kroitor designed the first big-screen, 15/70 mm film project Labyrinth, for Expo '67 in Montreal. The reaction was overwhelming. By the second screening, there were seven-hour line-ups. "Everyone heard it was terribly unique and it was," says Mr. Low, who is now retired. Fuji Bank was prepared to invest in the technology for Japan's upcoming World Fair, and Mr. Kroitor resigned from the NFB to start a new company with Graeme Ferguson, Bill Shaw and Robert Kerr to exploit the idea. Over the years they designed a rolling-loop projector and a steady camera, then started signing and building theatres, primarily with museum partners. But by 1994, "Imax had gone as far as it could go under our management," says Mr. Kroitor. "We weren't experts at raising capital."
In 1994, the trio sold Imax to a pair of New York investment bankers, Brad Wechsler, Richard Gelfond, and Wasserstein Perella Partners, an investment firm that has since exited. The price tag was $100-million, and the U.S. financiers took Imax public on the Nasdaq stock exchange.
In 1999, the stock peaked at $49.30 a share, and its shares were snapped up. But things began to turn in 2000. The company hired Goldman, Sachs & Co. to find a buyer for the business. Not only did the group fail to land one, but the film business faced a downturn. Imax had to restate some of its earnings to the SEC and reported losses of US$93-million in 2000 and US$145-million in 2001. The managers were forced to cut 130 jobs, and the stock plummeted to 95¢.
Things soon turned again. The company signed a deal with Creative Artists Agency in 2002 to digitally re-master Hollywood films for release to the Imax theatre network. The first Imax blown-up films, Apollo 13 and Spider-Man 2, fared well at the box office. Imax 3-D films such as Polar Express did even better, pulling in more than US$60-million in Imax theatres. The commercial theatre owners took notice. Imax screens have been grossing 300% above the industry average for a Hollywood film, according to Peter Brown, chairman and chief executive of AMC Entertainment.
With new momentum, Imax's principals announced in March, 2006, that they were looking at "strategic alternatives" -- code for buyout. Analysts speculated that several private equity firms were offering good premiums over the share price. By August, Imax announced that it had not found a buyer. At the same time, the company disclosed that it was in the process of "responding to an informal inquiry from the SEC regarding the company's timing of revenue recognition" related to theatre installations. On August 10, 2006, the stock price dropped 40% to from $12.56.
Imax's stockholders were appalled, recalls Eric Noel, a large-format film specialist who bought shares in IMAX close to their peak in the late 1990s. "This is bad corporate governance," says Mr. Noel, referring to management's inability to sell the company on two occasions and restatements.
Meanwhile, they were collecting rich salaries and bonuses. The co-chief executives were paid US$500,000 in salary each, and US$750,000 in bonuses between 2002 to 2004 (US$250,000 in 2005 and US$150,000 in 2006).
Angry shareholders lashed out with two class action suits, one each in the U.S. and Canada, as a result of alleged misrepresentations concerning Imax's 2005 earnings. Although common in the U.S., class action suits by shareholders are a new scenario in Canada. "We only had legislation that made certification of claims possible in 2006," says Dimitri Lascaris, the lawyer for Siskinds who is heading the domestic suit scheduled to be heard in June. The Canadian suit has one advantage over its neighbour's action: Lawyers in the U.S. have to prove Imax showed a recklessness in its behaviour; in Canada, lawyers merely have to show negligence, says Mr. Lascaris.
"Plaintiffs have to prove these damages and have thus far presented nothing to the court to justify them," Imax states.
The time was ripe for the distress funds. When Imax failed to find a buyer in 2006 and its stock stumbled, Catalyst Fund II's Mr. Glassman saw an opportunity. In October, 2006, it strategically bought some of Imax's bonds at a discount, hoping to make a return when company's fortunes improved. Mr. Glassman prefers to work below the radar screen. He won't be photographed or quoted.
But he is not afraid to do battle with boards and chief executives to assert his rights as a creditor and push through his restructuring plans. To be sure, Mr. Glassman is not well-loved in local private-equity circles, but he is known as a "smart" and "very serious" player. "You can control the process once you control the debt," says Andrew Schaefer, partner in the Toronto corporate finance group RSM Richter Inc.
Catalyst launched its first legal salvo in May, 2007, in New York and later in Ontario, after the company sought to delay its financial restatements to the SEC. Catalyst argues that Imax was in default of the terms of its bond related to filing delays to the SEC for the year 2006 and the first quarter of 2007. Catalyst has since halted its New York action. Catalyst argues that bondholders were misled by a press release and documents issued by Imax in April, 2007, that stated it had obtained 67% of the consents required for approval. In addition, Catalyst argues that Imax's second restatement to the SEC in November also breached the bond terms. As a result, Catalyst issued a notice of acceleration on the payment of the bonds, which are due in 2010. Within its application, Catalyst wants an inspector appointed or access to internal Imax communications around the time Imax issued the press release.
In a court filing, Imax argues that it has never been in default of the terms of the bond. It argues that it successfully received consents from the majority of its bondholders waiving any default arising from its failure to report. The threat of acceleration, Imax argues, "constitutes nothing more than a continuation of [the] harassment of the company."
Mr. Glassman is not always successful in court, "but he is tenacious and has hit a few home runs," says Richard Orzy of Bennett Jones. At Cerberus, Mr. Glassman stick-handled a 2001 motion against Vancouver-based Pacifica Papers Inc., seeking the removal of the chairman and stopping the sale of Pacifica to Norske Skog Canada. He was unsuccessful and the sale proceeded.
But Catalyst hit a home run
with Cable Satisfaction International Inc. Catalyst bought outstanding bonds and debt, and filed a restructuring plan that opposed one offered by management. Catalyst eventually took control and sold to Cogeco Cable, for an 86.6% return on its investment.
It's a similar strategy Catalyst is attempting with Imax. Whether the litigation succeeds or not, insiders say that unless Imax comes up with a pile of cash, it will eventually have to deal with the distress fund.
Catalyst's activities, however, have not eclipsed the fact that the company's new product has huge potential. The company hopes to have more than 400 theatres operational by the end of 2009.
In addition to the rollout of the digital projection system this summer, several Hollywood films are expected to be released in the Imax format, including Warner Bros. Pictures Inc's next Batman franchise The Dark Knight , DreamWorks Animation's Kung-Fu Panda, and Para-mount's Shine A Light-Rolling Stones Concert film.
For traditional theatre owners battling piracy and competition from DVDs, Imax offers salvation. "[Imax] is a very exciting format that is differentiated and gets people out to [films]," says AMC Entertainment's Mr. Brown. AMC has been testing the new Imax product in four retrofitted theatres since 2005, and will begin roll out of 50 more this year.
Despite the fact the technology is still considered transitional, clients who have made the trek to Oakville are happily discovering that the black of the batman cape is a true black, the texture of Spider Man's costume remains sharp and the 3-D train in Polar Express still screeches to a terrifying stop inches from viewers' faces.
I mean.. how could a company who has line-ups to their theaters lose? They have premiere auditoriums in almost every major city of the world and charge a premium to see the production. Their production budget on a whole averages $12 million per movie and they get to charge a premium ticket price. Even Nasa is involved, and with plans for more theaters, going digital and all those 3D niche markets... you would think Imax was on the road to multi-mega corporation status, but you would be wrong.
I've watched management fall over it self; to pay huge bonuses and salaries, watched as it ignored shareholders, watched as it blew opportunities one after the other... The last chance was a rumoured Sony buy-out and despite what Sony has done in other areas, this would have been a marriage blessed by all.
This is a good example of technologically that appears to have the brightest of futures and yet the vultures hover. The link from the FPost got my goat this morning, don't respond... there is no excuse.
http://www.financialpost.com/story.html?id=361381
article: cut & pasted for those who ask in the future why?
------------------------------------------------------------------------
Imax tied in knots
With some new digital projection technology waiting in the wings to wow audiences, plus multiplex theatre and film deals, the Canadian big-screen movie company's prospects would seem to be looking up. But behind the scenes, trouble is brewing.
At its modified theatre in Oakville, Ont., Imax Corp. is testing its new digital projection system. The prototype, which combines components from Texas Instruments with Imax proprietary technology, has become the company's great hope.
For weeks Geoff Atkins, Imax's general manager for the Americas, has been greeting waves of clients and potential new customers at the revamped 400-seat theatre just west of Toronto. They all ask the same things: "Does the digital system deliver the Imax experience?" and "Can I still get a premiere ticket price for it?"
The big-screen experience has always been about big dreams. Filmmakers have gone from the heights of Mount Everest to 20,000 leagues under the sea in search of the Titanic to bring viewers a heightened movie experience on 15/70 mm film. But40 years after its invention, the Imax format is still teetering on greatness. New digital projection systems, a 100-multiplex theatre deal with AMC Entertainment Inc. and a four-picture film production contract with Dream-Works have helped lift Imax's stock price. Now trading at $6.27, it languished in the $3-to-$4 range last year, and dipped as low as 95¢ in 2001. The new digital technology may reinvigorate Imax's business model. Instead of getting the bulk of its revenue from upfront fees for new theatre installations, it will recoup more at the box-office back end, a better long-term scenario.
"Having been at Imax for 13 years, I've never been in a period where it's all been good news," says Richard Gelfond, Imax's co-chief-executive, who has boosted the company's distribution potential a full 25% with the AMC deal. Imax has also attracted Hollywood directors such as Richard Zemeckis (Beowulf), who have used motion-capture technology to create three-dimensional inserts in their two-dimensional films. With more Hollywood fare hitting the theatres, the company could boost its box-office revenue. In 2007, the company's take at the box office was US$18.1-million, a 56% increase from 2006.
But translating this brave new world into reality will require substantial up-front cash investments. For the AMC deal alone, the company will have to pony up US$50-million to install the new projectors over the next three years. That's not including retrofitting other North American cinemas. Although Imax has renegotiated its US$30-million credit line with Wachovia, it is leveraged to the hilt, says Moody's analyst Karen Berckmann. The AMC deal is good for equity holders in the long term, but the scenario is "ugly over the short term," says Ms. Berckmann, who dropped Imax's rating from positive to stable in January. Imax says it has "full liquidity to do the deal" throughout the roll-out period. Ms. Berckmann points out that the digital roll-out "is way bigger than anything they've ever done."
Then there are the questions about the company's co-chief executives, Mr. Gelfond and Brad Wechsler, who have failed to sell the company despite two separate auctions, and have restated their financials on more than one occasion. For the period from 2002 through 2005, Imax says it overstated revenue by US$10.4-million, on top of US$4-million in previously disclosed errors. It also issued another restatement in November, 2007.
The missteps have battered Imax's stock price, caught the attention of the regulators and led to two class action suits with shareholders -- one filed in Ontario, the other in the United States.
But it may be facing its biggest battle yet. The company is squaring off in court against one of Canada's toughest distress debt fund manager, Catalyst Capital Group Inc., over alleged violations related to legal clauses within the bond agreement. Toronto-based Catalyst, which now owns more than one-third of the bonds, is challenging whether Imax had the necessary support of the majority of the bondholders to delay its filing to the SEC. Imax claimed it had the consent.
The fight over this technicality could have major consequences. Catalyst's tactic is to use the court to leverage its position and force a restructuring. Imax, which once courted private-equity players, is now being hunted.
Newton Glassman, managing director of Catalyst and former managing director at U.S. private equity investment firm Cerberus Capital Management, runs a type of distress fund that used to be referred to as a vulture fund, but is actually closer to private-equity plays. In addition to buying up debt and litigating in court to exercise its rights as a creditor, the company will also add equity and roll up its operational sleeves to turn companies around.
Included in the list of those he has taken on in this manner is Conrad Black. A series of motions launched by Mr. Glassman led to Lord Black being ousted from the board of Hollinger Inc. Now Catalyst has Imax in his sights. As one shareholder states: "The shark is circling and when he bites, he doesn't let go."
Unfortunately for Imax, all of this is playing out in a changing legal landscape. The Canadian courts lifted some barriers to commercial class action suits in 2006. The legal toll was addressed in its filing to the U.S. Securities and Exchange Commission last year. The company stated: "It's incurring significant legal fees in prosecuting and defending its lawsuits." Even analysts such as Larry Witt of Morningstar, who is positive about the AMC deal, says the multiple restatements and resulting litigation is "alarming."
How did a great concept, first conceived by a group of National Film Board auteurs, end up repeatedly on the defensive? Colin Low and Roman Kroitor designed the first big-screen, 15/70 mm film project Labyrinth, for Expo '67 in Montreal. The reaction was overwhelming. By the second screening, there were seven-hour line-ups. "Everyone heard it was terribly unique and it was," says Mr. Low, who is now retired. Fuji Bank was prepared to invest in the technology for Japan's upcoming World Fair, and Mr. Kroitor resigned from the NFB to start a new company with Graeme Ferguson, Bill Shaw and Robert Kerr to exploit the idea. Over the years they designed a rolling-loop projector and a steady camera, then started signing and building theatres, primarily with museum partners. But by 1994, "Imax had gone as far as it could go under our management," says Mr. Kroitor. "We weren't experts at raising capital."
In 1994, the trio sold Imax to a pair of New York investment bankers, Brad Wechsler, Richard Gelfond, and Wasserstein Perella Partners, an investment firm that has since exited. The price tag was $100-million, and the U.S. financiers took Imax public on the Nasdaq stock exchange.
In 1999, the stock peaked at $49.30 a share, and its shares were snapped up. But things began to turn in 2000. The company hired Goldman, Sachs & Co. to find a buyer for the business. Not only did the group fail to land one, but the film business faced a downturn. Imax had to restate some of its earnings to the SEC and reported losses of US$93-million in 2000 and US$145-million in 2001. The managers were forced to cut 130 jobs, and the stock plummeted to 95¢.
Things soon turned again. The company signed a deal with Creative Artists Agency in 2002 to digitally re-master Hollywood films for release to the Imax theatre network. The first Imax blown-up films, Apollo 13 and Spider-Man 2, fared well at the box office. Imax 3-D films such as Polar Express did even better, pulling in more than US$60-million in Imax theatres. The commercial theatre owners took notice. Imax screens have been grossing 300% above the industry average for a Hollywood film, according to Peter Brown, chairman and chief executive of AMC Entertainment.
With new momentum, Imax's principals announced in March, 2006, that they were looking at "strategic alternatives" -- code for buyout. Analysts speculated that several private equity firms were offering good premiums over the share price. By August, Imax announced that it had not found a buyer. At the same time, the company disclosed that it was in the process of "responding to an informal inquiry from the SEC regarding the company's timing of revenue recognition" related to theatre installations. On August 10, 2006, the stock price dropped 40% to from $12.56.
Imax's stockholders were appalled, recalls Eric Noel, a large-format film specialist who bought shares in IMAX close to their peak in the late 1990s. "This is bad corporate governance," says Mr. Noel, referring to management's inability to sell the company on two occasions and restatements.
Meanwhile, they were collecting rich salaries and bonuses. The co-chief executives were paid US$500,000 in salary each, and US$750,000 in bonuses between 2002 to 2004 (US$250,000 in 2005 and US$150,000 in 2006).
Angry shareholders lashed out with two class action suits, one each in the U.S. and Canada, as a result of alleged misrepresentations concerning Imax's 2005 earnings. Although common in the U.S., class action suits by shareholders are a new scenario in Canada. "We only had legislation that made certification of claims possible in 2006," says Dimitri Lascaris, the lawyer for Siskinds who is heading the domestic suit scheduled to be heard in June. The Canadian suit has one advantage over its neighbour's action: Lawyers in the U.S. have to prove Imax showed a recklessness in its behaviour; in Canada, lawyers merely have to show negligence, says Mr. Lascaris.
"Plaintiffs have to prove these damages and have thus far presented nothing to the court to justify them," Imax states.
The time was ripe for the distress funds. When Imax failed to find a buyer in 2006 and its stock stumbled, Catalyst Fund II's Mr. Glassman saw an opportunity. In October, 2006, it strategically bought some of Imax's bonds at a discount, hoping to make a return when company's fortunes improved. Mr. Glassman prefers to work below the radar screen. He won't be photographed or quoted.
But he is not afraid to do battle with boards and chief executives to assert his rights as a creditor and push through his restructuring plans. To be sure, Mr. Glassman is not well-loved in local private-equity circles, but he is known as a "smart" and "very serious" player. "You can control the process once you control the debt," says Andrew Schaefer, partner in the Toronto corporate finance group RSM Richter Inc.
Catalyst launched its first legal salvo in May, 2007, in New York and later in Ontario, after the company sought to delay its financial restatements to the SEC. Catalyst argues that Imax was in default of the terms of its bond related to filing delays to the SEC for the year 2006 and the first quarter of 2007. Catalyst has since halted its New York action. Catalyst argues that bondholders were misled by a press release and documents issued by Imax in April, 2007, that stated it had obtained 67% of the consents required for approval. In addition, Catalyst argues that Imax's second restatement to the SEC in November also breached the bond terms. As a result, Catalyst issued a notice of acceleration on the payment of the bonds, which are due in 2010. Within its application, Catalyst wants an inspector appointed or access to internal Imax communications around the time Imax issued the press release.
In a court filing, Imax argues that it has never been in default of the terms of the bond. It argues that it successfully received consents from the majority of its bondholders waiving any default arising from its failure to report. The threat of acceleration, Imax argues, "constitutes nothing more than a continuation of [the] harassment of the company."
Mr. Glassman is not always successful in court, "but he is tenacious and has hit a few home runs," says Richard Orzy of Bennett Jones. At Cerberus, Mr. Glassman stick-handled a 2001 motion against Vancouver-based Pacifica Papers Inc., seeking the removal of the chairman and stopping the sale of Pacifica to Norske Skog Canada. He was unsuccessful and the sale proceeded.
But Catalyst hit a home run
with Cable Satisfaction International Inc. Catalyst bought outstanding bonds and debt, and filed a restructuring plan that opposed one offered by management. Catalyst eventually took control and sold to Cogeco Cable, for an 86.6% return on its investment.
It's a similar strategy Catalyst is attempting with Imax. Whether the litigation succeeds or not, insiders say that unless Imax comes up with a pile of cash, it will eventually have to deal with the distress fund.
Catalyst's activities, however, have not eclipsed the fact that the company's new product has huge potential. The company hopes to have more than 400 theatres operational by the end of 2009.
In addition to the rollout of the digital projection system this summer, several Hollywood films are expected to be released in the Imax format, including Warner Bros. Pictures Inc's next Batman franchise The Dark Knight , DreamWorks Animation's Kung-Fu Panda, and Para-mount's Shine A Light-Rolling Stones Concert film.
For traditional theatre owners battling piracy and competition from DVDs, Imax offers salvation. "[Imax] is a very exciting format that is differentiated and gets people out to [films]," says AMC Entertainment's Mr. Brown. AMC has been testing the new Imax product in four retrofitted theatres since 2005, and will begin roll out of 50 more this year.
Despite the fact the technology is still considered transitional, clients who have made the trek to Oakville are happily discovering that the black of the batman cape is a true black, the texture of Spider Man's costume remains sharp and the 3-D train in Polar Express still screeches to a terrifying stop inches from viewers' faces.