Court File and Parties

COURT FILE NO.: CV-23-00694464-00CL DATE: 20230327 SUPERIOR COURT OF JUSTICE – ONTARIO

IN THE MATTER OF AN APPLICATION UNDER SECTION 182 OF THE BUSINESS CORPORATIONS ACT (ONTARIO), R.S.O. 1990, CHAP. B.16, AS AMENDED

AND IN THE MATTER OF RULES 14.05(2) AND 14.05(3) OF THE RULES OF CIVIL PROCEDURE

AND IN THE MATTER OF A PROPOSED PLAN OF ARRANGEMENT INVOLVING MAGNET FORENSICS INC. AND MORPHEUS PURCHASER INC.

BEFORE: Kimmel J.

COUNSEL: Ryan Morris / Seumas Woods, for Magnet Forensics Inc. Matthew Fleming / Jason Saltzman / Ara Basmadjian, Special Committee, Magnet Forensics Brett Harrison / Paul Davies, Morpheus Purchaser Inc.

HEARD: March 27, 2023

Endorsement

The Arrangement

[1] This is an application under section 182 of the Ontario Business Corporations Act (the OBCA) for an order approving a proposed plan of arrangement (the "Arrangement") by which Morpheus Purchaser Inc. (the “Purchaser”) will acquire all of issued and outstanding subordinated voting shares (“SV Shares”) and multiple voting shares (the "MV Shares", together with the SV Shares, the "Shares") of Magnet Forensics Inc. (“Magnet”), and by which all options, deferred share units (“DSUs”) and restricted share units (“RSUs”) in Magnet will be surrendered and/or cancelled and terminated, pursuant to an arrangement agreement (the “Arrangement Agreement”) between Magnet and the Purchaser dated January 20, 2023.

[2] The Purchaser has agreed to pay $44.25 in cash per Share, RSU and DSU (or the difference between $44.25 and the option strike price for options), with the exception of those held by Messrs. Jad Saliba, Adam Belsher and Jim Balsillie and their respective associates (the "Rolling Shareholders"). The Purchaser will acquire all of the issued and outstanding Shares and options held or controlled by the Rolling Shareholders at a price of $39.00 in cash per Share, other than certain Shares that will be exchanged for shares of the Purchaser (such to be exchanged, collectively, the "Rollover Shares") that will be contributed to the Purchaser and exchanged for shares of the Purchaser at an implied value of $39.00 per Rollover Share.

[3] Magnet’s subordinate voting shares (“SV Shares”) are publicly listed and traded on the Toronto Stock Exchange. Upon completion of the Arrangement, Magnet’s Shares will no longer be publicly traded. The Purchaser is, and will continue to be, a privately held company.

[4] The Arrangement will ultimately result in a new entity that combines the business of Magnet with another company, Grayshift LLC. The continued involvement (and equity investment) of certain of the Rolling Shareholders in the new combined business was a condition of the Purchaser from the initial proposal.

[5] The reduced price to be paid for the Rollover Shares, compared to the other Shares, was the result of the negotiations that followed the initial unsolicited offer to purchase the Shares that was received by Magnet from Thoma Bravo, to enhance the purchase price to be paid to the non-Rolling Shareholders. The $39 reduced cash to be paid to the Rolling Shareholders for their Shares was negotiated as part of the quid pro quo for increasing the cash price to be paid for the Shares, options, DSUs and RSUs held by other shareholders from the initial offer price of $34 per Share to the final offer price of $44.25 per Share. The implied value of $39 for the Rollover Shares is the product of information and calculations contained in, inter alia, the Formal Valuation and Fairness Opinion of CIBC, provided to the Magnet’s Board and Special Committee on January 20, 2023, the advice and input of Magnet’s professional advisors and the agreement of the Rolling Shareholders.

[6] Following a meeting of all the holders of all classes of Magnet Shares (the “Shareholders”) called and held on March 23, 2023 (the “Meeting”) in accordance with this court’s interim order made February 15, 2023 (the “Interim Order”), the Arrangement was approved and passed by: 99.01% of the votes cast by all classes of Shareholders, 68.17% of the votes cast by holders of SV Shares, 100% of the votes cast by holders of MV Shares, and 66.85% of the votes cast by Minority Shareholders (Shareholders voting, excluding the Rolling Shareholders and any other Shareholders required to be excluded under Multilateral Instrument 61-101). In each case, these exceeded the level of shareholder approval required by the Interim Order.

The Dissenting Shareholders

[7] Dissent rights have been provided for under the Initial Order. Nellore Capital Management LLC ("Nellore") issued a number of press releases opposing the Arrangement prior to the Initial Order being made. On February 27, 2023, Nellore issued a dissident proxy circular outlining its opposition to the Arrangement.

[8] Two days before the Meeting was scheduled to be held, Nellore's counsel advised Magnet that while his client believed it had secured the votes necessary to block the Arrangement's approval by Shareholders, if Shareholders did approve it, Nellore had decided that it would not oppose the Arrangement's approval by the Court and would not attend the final approval hearing. Nellore did not attend the final approval hearing.

[9] As of the Dissent Deadline Date of March 21, 2023, Magnet had received dissent notices from six shareholders, collectively holding 1,427,605 SV Shares (representing 3.46% of all issued and outstanding Shares as of the Record Date). That included dissents from Nellore Capital Partners LP and Nellore Capital Partners QP LP. This was below the threshold of 5% of dissenting shareholders that would have allowed the Purchaser to terminate the Arrangement Agreement.

[10] The dissent rights exercised by dissenting shareholders will be addressed in due course. Under the Interim Order, any amounts that they are found to be entitled to receive as a result of the exercise of their dissent rights will be paid by the Purchaser.

Approval of the Arrangement

[11] To make an order approving an arrangement under section 182(5) of the OBCA, the Court must be satisfied that: (a) the statutory procedures have been met; (b) the application has been put forward in good faith; and (c) the arrangement is fair and reasonable. See Re Magna International Inc., 2010 ONSC 4123, at paras. 99-105; aff'd 2010 ONSC 4685 (Div. Ct.), at paras. 31-41; BCE Inc. v. 1976 Debentureholders, 2008 SCC 69, at para. 137.

[12] For the reasons set out below (and in the applicant’s factum), Magnet has satisfied all of those requirements:

a. The Arrangement involves (as set out in section 182(1) of the OBCA), among other things, an exchange of securities of a corporation for money or other securities of another body corporate that is not a takeover bid as defined in Part XX of the Securities Act. Magnet has satisfied the requirements set out in the Interim Order. It provided notice of the Meeting and copies of the meeting materials to all those it was supposed to notify. It called, held, and conducted the Meeting as required. It obtained the required shareholder approval. The OBA Director provided a letter of non-appearance dated February 7, 2023.

b. The Application has been put forward in good faith following a lengthy and comprehensive process that involved a comprehensive market check by the Special Committee's financial advisor, lengthy negotiations and an increase of 30% over the price initially offered by the Purchaser.

c. The Arrangement is fair and reasonable. The Arrangement has a valid business purpose and the costs and benefits are fairly balanced, including the concerns of Nellore which it has elected to address through the exercise of its statutory right to dissent. The factors that establish the fairness and reasonableness of this Arrangement are detailed in the applicant’s factum at paragraphs 36 through 43, which when considered together, demonstrate that the rights of interested parties have been fairly and reasonably balanced. These include consideration of the non-exhaustive list of factors set out in BCE:

i. The results of the vote by Shareholders (which is an important, even if not determinative, factor regarded as a manifestation of the shareholders' business judgment and the strongest evidence of the objectives of those whose legal rights are being affected by the arrangement: see [Re St. Lawrence & Hudson Railway Co., [1998] O.J. No. 3934 (Gen.Div.), at para. 27](https://www.canlii.org/en/on/onsc/doc/1998/1998canlii14900/1998canlii14900.html#par27); see also [BCE, at paras. 141 and 150](https://www.canlii.org/en/ca/scc/doc/2008/2008scc69/2008scc69.html#par141)), which exceeded the required approvals under the Interim Order after a well-published dissident proxy campaign.

ii. The absence of any negative impact on securityholders, who are receiving a price that represents a 15% premium over Magnet’s Share price on the day before the announcement of the proposed Arrangement;

iii. The unanimous approval of the Special Committee and their unanimous determination that the Arrangement was fair, from a financial point of view, and in the best interests of Magnet;

iv. The Fairness Opinions of Morgan Stanley and CIBC that the consideration to be paid to Shareholders (other than the Rolling Shareholders) is fair from a financial point of view; and

v. The availability of rights of dissent and appraisal, which some Shareholders have chosen to exercise.

d. Additional factors supporting the conclusion that the Arrangement is fair and reasonable and in the best interests of Magnet and its stakeholders (excluding the Rolling Shareholders) include the absence of any opposition to the approval of the Arrangement and the absence of any alternative proposal (which Magnet had the ability to consider under the Arrangement Agreement). Although there is no solvency test requirement for the approval of an Arrangement under the OBCA, there is evidence that Magnet is not insolvent.

Order

[13] The proposed form of order is consistent with the Commercial List model order.

[14] For the foregoing reasons, order to go in the form signed by me today with immediate effect.

Kimmel J. Date: March 27, 2023