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CINAR Letter to Shareholders

(by CINAR, one of Canada's leading animation studios, has issued a letter to its shareholders outlining measures that the company is taking in an attempt to overcome financial difficulties. The letter appears below:

A Message from the President and CEO

Dear Shareholder,

In order to protect shareholder value and in light of the recent termination of talks with a potential buyer, CINAR has decided to move forward with a major restructuring plan. Our objective is to assure the ongoing viability of the Company and to solidify the position of its key entertainment properties. We believe that current economic and market conditions are not conducive to maximize shareholder value by selling the Company's assets at this time. We believe a transaction could be entered into, but we are not prepared to sell at a low price just to get a transaction done.

Since becoming aware of, among other things, allegations that CINAR improperly obtained tax credits from the Canadian government, the transfer of US$122 million into offshore investments without the approval of the Board and discovery of numerous related party transactions, present management has focused on resolving these issues, on clarifying the Company's financial position, correcting the books of the Company and on trying to find a strategic partner/buyer for CINAR's assets.

We are pleased to announce that CINAR has appointed Richter, Usher & Vineberg as its auditors. We intend to produce audited financial statements for fiscal 2001 and we expect that an annual shareholder's meeting will be held April 29, 2002.

Before dealing with the details of the restructuring plan, I feel it is important to review the administrative steps that have been taken to place CINAR on a solid footing once again.

Tax credit and accreditation issues: As previously announced, under an agreement reached in December 2000, CINAR agreed to pay the Canada Customs and Revenue Agency and Revenue Quebec a total of $27 million for tax credits alleged to have been improperly received, as well as penalties and the accumulated interest on these amounts. The issue did not end there however. An agreement also had to be worked out with Telefilm Canada to reflect the new status of our decertified productions. Those negotiations were arduous and demanded a full-scale re-examination of financial records going back almost ten years. Settling these issues became even more difficult due to numerous lawsuits launched at various stages of discussions. It should be noted that agreements with the Canadian Radio-television and Telecommunications Commission (CRTC) and the Canadian Television Fund (CTF) have yet to be concluded. Discussions with these organizations are taking place.

The sales process: Merrill Lynch & Co. were hired in August 2000 to explore strategic options to maximize shareholder value, including business partnerships or mergers. In order to market the Company, Merrill Lynch required credible financial information and projections to include in a Descriptive Memorandum. We began a search for a new CFO, culminating in the hiring of George Rossi in November 2000, and the financial information was provided in early 2001. Merrill Lynch identified 60 companies of which 34 received the Descriptive Memorandum. Of those 34, 16 submitted non-binding expressions of interest by late April. Twelve companies proceeded to the second phase and were provided with more detailed information and attended presentations by CINAR Management. By July 6, eight companies had submitted bids - three for all operating assets, two for Entertainment assets only and three for CINAR Education only. Of these eight only one was felt to reflect acceptable value for shareholders and we elected to move forward with that party and granted an exclusive period to complete an examination of CINAR's books and records

We announced on November 6 that discussions had broken off with that party. Since that time, through Merrill Lynch & Co., we engaged in some follow-up talks with other potential buyers, however, it is clear that present market conditions are having an impact on values. We will continue to seek opportunities offering shareholder value with the expectation that external market conditions will improve and thereby enhance the value of CINAR's library and improve the earnings multiples offered for CINAR Education.

Under the Operating Plan for 2002, the Company will focus on the following priorities:

1. Restructuring: We have taken the difficult decision to downsize
   staff in CINAR's Entertainment Division and in the Montreal
   corporate office from 164 to 110. Of those employees immediately
   affected, 32 are in CINAR's corporate positions and 22 are in CINAR
   studios and animation. The Company has retained the resources
   necessary to assure the continued progress of its key entertainment
   properties Arthur(R) and Caillou(R).

   We believe this decision protects shareholder value by maintaining
   a focus on our key entertainment properties while at the same time
   not incurring new deficits by greenlighting new series. We will
   continue to focus on the sale of the many titles within our
   Entertainment library.

   No staff reductions are planned in our profitable Education
   Division, for which we foresee continued growth.

2. Licensing: Our licensing business has made solid progress in the
   past two years, with Caillou enjoying particular success. Gross
   licensing income has grown from $1.7 million in 2000 to an
   estimated $2.0 million for 2001 and a projected $3.0 million in
   2002. The Caillou property appears to have continued upside
   potential into 2003 at least.

3. Music: CINAR Music was formed in 1995 to maximize music publishing
   and retransmission royalty revenue collection. Gross revenue has
   grown from $1.75 million in 1999 to an estimated $2.3 million in
   2001. Gross revenue is expected to remain relatively stable in
   2002. However, this niche business is expected to add more than
   $1.3 million to our bottom line.

4. Studios: We have a first-class studio facility in Montreal and in
   2001, we began an initiative to attract outside service production
   work.  We have experienced some success in this endeavor and
   intend to build on this success in the year ahead.

5. Legal: As many shareholders are aware, we face a number of legal
   disputes.  Management has set as a priority to resolve
   expeditiously the class action litigation as well as those suits
   lodged by the former owners of our Education subsidiaries,
   provided that we can do so on reasonable terms.

   We will continue to pursue vigorously the Company's action to
   recover some $29 million from three former senior officers of

6. Financial: We intend to produce audited financial statements for
   the fiscal year ending November 30, 2001.  These will be reviewed
   at an annual shareholder's meeting to be held on April 29, 2002.

7. Globe-X Canadiana: We will continue to pursue vigorously recovery
   of CINAR's funds, currently totaling about US$38 million ($59
   million canadian) excluded accrued interest, from the Bahamas.

8. Tax credits: CINAR currently has approximately $43 million in
   receivable tax credits and recoverable Part I taxes. The collection
   of these amounts, while time consuming, remains a priority.

9. CINAR Education: The education companies in the United States are
   important contributors to CINAR's earnings and growth and we intend
   to ensure they have the financial resources to continue to grow and

To provide shareholders with a better perspective on the financial issues that we have been dealing with over the past 21 months, we thought it would be useful to highlight the more significant factors that required us to adjust CINAR's financial statements:

(a) Liabilities related to tax credit issues. As previously announced
    tax credits repaid or foregone plus interest and penalties reduced
    shareholders equity by $27 million.

(b) Issues stemming from the Globe-X investment. As a result of the
    difficulties in recovering our investment, we have reserved the
    entire amount owing by Globe-X-Canadiana. The amount still
    outstanding represents a reduction to shareholders equity of US$38
    million ($59 million canadian) excluded accrued interest.

(C) Investment in Edusoft
    The entire $46 million in goodwill related to the acquisition of
    Edusoft was written off reducing shareholders equity by that

(d) Investment in Lightspan
    The investment in Lightspan was written down to market value
    reducing shareholders equity by $31 million.

(e) Change in accounting policies
    Management has performed an extensive analysis to reconstruct its
    film cost balance based on the adoption of Financial Accounting
    Standards Board No. 53 (FASB 53). In addition, certain costs,
    which were previously recorded as film costs, are now recorded as
    period costs in the period in which they were incurred. As a
    result, the Company has written down the value of its film costs
    by $54.3 million. This is an addition to the $41 million written
    down in 1999.

(f) Related-party transactions
    Hundreds of related-party transactions involving former management
    were reviewed by the Company. Many of these were not entered as
    related party transactions but were described to appear as
    legitimate business transactions. It has been a very time
    consuming and labor intensive process to verify and correct the
    books of the Company. This has resulted in CINAR's claim against
    former senior management of some $29 million.

In closing, we want to assure you that maximizing shareholder value is our key concern. If we are successful in achieving our objectives established for next year, we believe the Company will maintain its value. If the economy turns around, our operating entities should improve in market value. As time passes, we will continue to reassess market conditions to determine how we might best return value to our shareholders.

I want to thank all of our employees for their loyalty and express my sincere regret to those whose services we are no longer able to retain.

CINAR is a Company renowned for the award winning quality of its products and we are committed to ensuring that the market recognizes the value of that high quality.

Barrie Usher
President and Chief Executive Officer

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