CINAR Corporation Announces Agreement With Taxation Authorities.

Business Editors

MONTREAL--(BUSINESS WIRE)--Dec. 19, 2000

CINAR Corporation announced today that it has reached agreements with federal and Quebec tax authorities setting out the terms and principles under which tax matters affecting the Company will be resolved.

"I am satisfied that these agreements provide a reasonable basis for CINAR Corporation and both the Federal taxation authorities and the Quebec taxation authorities to move forward on this question. It is a significant step in the clarification of the Company's financial position, which will reflect the agreements' financial and accounting impact on the Company. It will also enable Federal and Quebec taxation authorities to again deal with CINAR Corporation with trust and confidence," said Barrie Usher, President and Chief Executive Officer. "With this agreement reached," Barrie Usher also said, "we expect that CINAR will now be able to approach its different partners to see how it can restart its activities with them and continue to play an important role in the Canadian entertainment industry."

The agreement with Canada Customs and Revenue Agency (CCRA) is based upon the Company making full restitution to CCRA with respect to amounts improperly claimed and received and adjustments to improper claims, under the film tax credit programmes, in respect of scriptwriting, foreign technical costs, labour costs and other issues, and includes the Company being required to pay in respect thereof, inclusive of penalties, approximately $5,095,000, plus applicable interest. Of this amount, $2,000,000 is payable immediately. Under the agreement, CINAR Corporation will also relinquish claims totalling approximately $6,072,000 in film tax credits claimed but not yet received. CINAR also recognises a tax liability of approximately $3,708,000, plus applicable interest for certain corporate tax matters arising mainly from the early deduction of some expenses, and this liability will be discharged over the next five years. The agreement with the Federal taxation authorities is predicated upon decertifications in terms of CAVCO accreditation of certain productions, which may require reimbursements of certain amounts under funding programmes, the impact of all of which will be reflected in CINAR Corporation's financial results.

The agreement with the Quebec taxation authorities is based upon the Company making full restitution to the Ministere de Revenu de Quebec ("MRQ") with respect to amounts improperly claimed and received and adjustments to improper claims, under the film tax credit programmes, in respect of scriptwriting, foreign technical costs, and other issues and includes the Company being required to pay in respect thereof approximately $7,925,000 dollars inclusive of interest and penalties. Of this amount approximately $2,000,000 is payable immediately. Under the agreement, CINAR Corporation will also relinquish claims totalling approximately $3,595,000 in film tax credits claimed but not yet received. CINAR also recognises a tax liability of approximately $1,068,000 dollars, plus applicable interest for certain corporate tax matters arising mainly from the early deduction of certain expenses, and this liability will be discharged over the next five years.

The Company will be able to claim the production service tax credit for some productions which have been decertified. Therefore the full financial impact of both agreements, including potentially offsetting factors, remains to be determined.

Both of the agreements were reached following a disclosure process initiated by the Company and in which it co-operated fully with taxation authorities. The agreements provide that the Company will cooperate and assist in the verification of information or disclosures made to the Canadian federal authorities and Quebec provincial authorities and each agreement is subject to adjustment in the event of material additions or corrections to the information or disclosures provided. The disclosure process began after public allegations were made in the Canadian House of Commons that the Company had not complied with certain federal rules and guidelines for certified Canadian productions. CINAR Corporation's Audit Committee retained independent legal counsel to undertake an internal review of the matter.

The Company continues to work towards the preparation of financial statements for its financial year ended November 30, 1999.

CINAR Corporation is an integrated entertainment and education company involved in the development, production, post-production and worldwide distribution of non-violent, quality programming and educational products for children and families. CINAR's web site is www.cinar.com.

This release may include information that could constitute forward-looking statements made pursuant to the safe harbor provision of the Private Securities Litigation Reform Act of 1995 (U.S.). Forward-looking statements are identified by words such as "believe," "anticipate," "expect," "intend," "plan," "will," "may," and other similar expressions. Such forward-looking statements are subject to a number of known or unknown risks and uncertainties.