Spectra7 Microsystems Inc. — M&A Activity 2025

Mar 19, 2025

FORM 51-102F3

MATERIAL CHANGE REPORT

Item 1
Name and Address of Company
Spectra7 Microsystems Inc. (the “Corporation”)
181 Bay Street, Suite 1800
Toronto, Ontario
M5J 2T9

Item 2
Date of Material Change
March 7, 2025

Item 3
News Release
A news release disclosing the material change was disseminated on March 7, 2025 through NewsWire.

Item 4
Summary of Material Change
On March 7, 2025, the Corporation entered a definitive agreement (the “Purchase Agreement”) with Parade Technologies, Ltd. (TPEx: 4966.TWO) (“Parade”), a leading supplier of video display, touch controller, and high-speed interface ICs, under which Parade will acquire substantially all of the assets (the “Assets”) of the Corporation and its subsidiaries (the “Sale Transaction”) pursuant to the terms and conditions set out in the Purchase Agreement. The Assets include intellectual property (IP), products, designs, inventory, and other specified items. The parties to the Purchase Agreement act at arm’s length.

Item 5
Full Description of Material Change

The Purchase Agreement
Under the terms of the Purchase Agreement, Parade has agreed to acquire all of the Assets. The closing (“Closing”) of the Sale Transaction is subject to a number of customary conditions, including with respect to the truth and accuracy of the parties’ representations and warranties and compliance with their respective covenants. A termination fee of US$2,500,000 (approximately CDN$3,592,500) is payable by the Corporation to Parade should the Sale Transaction not close in the event that the Corporation fails to receive shareholder approval for the Sale Transaction. Following Closing, the Corporation has agreed not to engage in the business of development, design and sale of semiconductor products, including high speed analog devices (the “Business”), and not to solicit any customers or clients of the Business, or employees that were involved in the Business, for a period of two years following the Closing. The Purchase Agreement may be terminated by either the Corporation or Parade if the Closing does not occur on or before June 30, 2025 (the “Outside Date”); provided the terminating party is not then in breach of its covenants, representations or warranties and such breach is the principal cause that the Closing has not occurred by the Outside Date.

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The Corporation has agreed to indemnify Parade for certain specified matters, including breaches of its representations, warranties and covenants in the Purchase Agreement, and certain other matters, subject to certain customary limitations. In the event an indemnification claim is made by Parade, they will have recourse to the Escrow Amount (as defined below).

The purchase price (the “Purchase Price”) for the Assets is US$9,000,000 (approximately CDN$12,933,000¹) in cash. On Closing of the Sale Transaction, Parade shall make a cash payment (the “Closing Payment”) to the Corporation equal to the Purchase Price, less: (i) the Bridge Loans (as defined below), and (ii) US$1,800,000 (approximately CDN$2,586,600) (the “Escrow Amount”). The Escrow Amount shall be deposited into escrow with a third-party escrow agent to cover certain potential indemnity claims by Parade until the date that is one year after Closing (the “Escrow Release Date”). There can be no certainty as to the quantum of the Escrow Amount to be released.

It is intended that, following the Closing and in compliance with Policy 3.2 of the TSX Venture Exchange (the “TSXV”), the Corporation shall make a special distribution (the “Special Distribution”) to the shareholders of the Corporation (“Shareholders”) (other than Shareholders exercising dissent rights under the Business Corporations Act (Ontario)) and to holders of pre-funded warrants of the Corporation (the “Pre-Funded Warrants”) pursuant to the requirements set out in the certificates evidencing such Pre-Funded Warrants of: (i) all of the net cash proceeds from the Closing Payment by way of a Special Distribution (the “Special Cash Distribution”); and (ii) one contingent value right (each, a “CVR”) for each common share in the capital of the Corporation (each, a “Common Share” and collectively, the “Common Shares”) or Pre-Funded Warrant held on the record date for the Special Distribution, expected to be at least five trading days after the Closing date of the Sale Transaction. The distribution of the available Escrow Amount and any unused proceeds of the Sale Transaction shall be made to the holders of the CVRs pursuant to the rights indenture with respect to the CVRs on the Distribution Record Date (as defined below) on the date established by the Corporation that is as soon as possible following the Escrow Release Date (the “CVR Payment Date”).

The Special Cash Distribution shall be equal to the proceeds received by the Corporation at Closing less: (i) transaction costs including legal fees, costs of the meeting of Shareholders of the Corporation to approve the Sale Transaction, among other matters, escrow agent fees and fees payable to the TSXV, and applicable broker fees; (ii) accounts payable and any employee severance and bonus costs; (iii) the amount of the Bridge Loans (as defined below) (together with interest therein) and any additional funds beyond the Bridge Loans used for the Corporation’s ordinary course expenses prior to Closing; (iv) governance and maintenance costs during the period while the Corporation continues to continue to exist as a reporting issuer until on or after the Escrow Release Date; and (v) wind-up costs.

The Special Cash Distribution is estimated to be approximately US$2,762,667 (approximately $3,970,229), or approximately US$0.01 (approximately $0.014) per

¹ The US$/CDN$ exchange rate used throughout this material change report and the associated press release is CDN$1.437 to US$1.00 based upon the Bank of Canada exchange rate as at March 5, 2025.

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Common Share/Pre-Funded Warrant, as applicable, based on the Common Share and Pre-Funded Warrant information below, and is expected to be declared by the board of directors of the Corporation on or shortly after the date of Closing (the “Declaration Date”). The Corporation will issue a press release with respect to the Special Distribution on or immediately after the Declaration Date. The record date (the “Distribution Record Date”) for the Special Distribution shall be at least five trading days after the Declaration Date, in accordance with Policy 3.2 of the TSXV.

Assuming no further Bridge Loans above US$750,000 are required and the Escrow Amount is released in full to the Corporation, the aggregate amount payable to the holders of CVRs on the CVR Payment Date is estimated to be US$1,800,000 (approximately $2,586,780) or approximately US$0.007 (approximately $0.009) per CVR. The CVR Payment Date is expected to be shortly after the applicable time that funds are released from the Escrow Amount. It is expected that any remaining proceeds of the Sale Transaction (other than the Escrow Amount) available as at the time of the CVR Payment Date shall also be distributed to the registered holders of CVRs as part of the “CVR Payment Amount,” being, for each CVR, the sum of (i) the remaining Escrow Amount at the Escrow Release Date; and (ii) any remaining proceeds of the Sale Transaction (other than the Escrow Amount) determined to be available as at the time of the CVR Payment Date, divided by the outstanding number of CVRs.

As of the date of this report, the number of Common Shares outstanding is 154,969,634. Common Shares and the number of issued and outstanding Pre-Funded Warrants is 100,035,411, each exercisable into one Common Share. In addition, a total of 21,617,449 restricted share units of the Corporation are expected to vest and be settled into 21,617,449 Common Shares on or about the Declaration Date and prior to the date of the Special Distribution. Assuming the full exercise of the outstanding Pre-Funded Warrants and full settlement of outstanding restricted share units, the total number of Common Shares outstanding is 276,622,494. Based on the above estimates and such Common Share and Pre-Funded Warrant amounts, the total Special Cash Distribution and CVR Payment Amount to the Shareholders and holders of Pre-Funded Warrants is expected to be approximately US$4,562,667 (approximately $6,557,009) or approximately US$0.016 (approximately $0.024) per Common Share (other than Common Shares held by dissenting Shareholders)/Pre-Funded Warrant, as applicable.

Assuming the completion of the Sale Transaction, the Corporation will announce the amount of the Special Distribution on the Declaration Date. As it is expected that the value of the amount of the Special Distribution will be greater than 25% of the value of the Common Shares on the date the Special Distribution is declared, the payment of the amount of the Special Distribution is expected to be subject to compliance with the “due bill” trading requirements under Policy 3.2 of the TSXV.

Concurrently with the execution of the Purchase Agreement by the parties, Parade has agreed to advance a loan to the Corporation in the amount of US$450,000 (approximately CDN$646,650), with an additional loan in the amount of US$300,000 (approximately CDN$431,100) to be advanced on or about March 21, 2025 (collectively, the “Bridge Loans”), in order to assist the Corporation to maintain its operations and carry on its business until Closing. The Bridge Loans (i) bear interest at the prevailing prime rate; (ii) are secured against certain assets of the Corporation and its subsidiaries; and (iii) will be credited (including interest) at Closing against the Purchase Price. In the event that the

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Sale Transaction is not completed or the Purchase Agreement is terminated, the Bridge Loans become immediately payable by the Corporation to Parade.

Craig-Hallum Capital Group LLC and The Benchmark Company LLC acted as financial advisors to the Corporation in connection with the Sale Transaction, and are together entitled to a transaction fee equal to US$1,000,000 (approximately CDN$1,437,000) on Closing.

Additional details relating to the Sale Transaction, anticipated value and timing of the Special Distributions and the quantum of applicable transaction expenses will be set out in the management information circular of the Corporation to be mailed to Shareholders in connection with the annual and special meeting of Shareholders (the "Meeting").

The Meeting has been set for April 17, 2025. The Sale Transaction is expected to close in the second quarter of 2025.

As stated above, the Closing of the Sale Transaction is subject to various conditions, including the approval of the TSXV and approval of at least 66 2/3% of the votes cast by Shareholders at the Meeting pursuant to the Business Corporations Act (Ontario). The members of the board of directors, after consultation with management and legal and financial advisors, have approved the Sale Transaction and determined that the Sale Transaction is in the best interests of the Corporation and recommend that Shareholders vote in favour of the Sale Transaction at the Meeting.

The Corporation has entered into voting and support agreements with Shareholders holding an aggregate of 93,667,812 Common Shares representing approximately 60.44% of the issued and outstanding Common Shares, who have, among other things, agreed to vote their Common Shares in favour of the Sale Transaction.

Item 6 Reliance on subsection 7.1(2) of National Instrument 51-102

Confidentiality is not requested.

Item 7 Omitted Information

No information has been omitted in respect of the material change.

Item 8 Executive Officer

The following executive officer of the Corporation is knowledgeable about the material change disclosed in this report.

Ron Pasek
Interim Chief Financial Officer
408-710-6462

Item 9 Date of Report

March 19, 2025

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Forward-Looking Statements

Statements in this report contain forward-looking information. Such forward-looking information may be identified by words such as "anticipates", "plans", "proposes", "estimates", "intends", "expects", "believes", "may" and "will". The forward-looking statements included in this report, including statements regarding the Sale Transaction, the receipt of necessary Shareholder and TSXV approvals and satisfaction of other closing conditions, the anticipated timing of the Meeting and timing of Closing, the release of the Escrow Amount and the ultimate quantum and timing of the distributions payable to Shareholders upon Closing and release of the Escrow Amount.

In respect of the forward-looking statements and information included in this report, the Corporation has provided such in reliance on certain assumptions that it believes are reasonable at this time, including assumptions as to the timing of the Meeting, the ability of the parties to the Purchase Agreement to receive, in a timely manner and on satisfactory terms, necessary approvals to complete the Sale Transaction, the ability of such parties to satisfy, in a timely manner, the other conditions to Closing, and assumptions related to the historical burn rate of the Corporation and expenses becoming due prior to Closing. Accordingly, readers should not place undue reliance on the forward-looking statements and information contained in this report. Forward-looking statements necessarily involve known and unknown risks and uncertainties, many of which are beyond the Corporation's control. Such risks and uncertainties include but are not limited to: the risk that the Sale Transaction may not be completed on a timely basis, or at all; risks that the conditions to the consummation of the Sale Transaction may not be satisfied; the risk that the Sale Transaction may involve unexpected costs, liabilities or delays; the risk that, prior to the completion of the Sale Transaction, the Corporation's business may experience significant disruptions, including loss of customers or employees, due to transaction-related uncertainty or other factors; the possible occurrence of an event, change or other circumstance that could result in termination of the Sale Transaction; risks that the Sale Transaction may have a negative impact on the market price and liquidity of the Common Shares; risks related to the diversion of management's attention from the Corporation's ongoing business operations; risks relating to the failure to obtain necessary Shareholder and TSXV approvals; risks related to trade tariffs and retaliatory trade measures, specifically between the United States and Canada; foreign exchange risk; the risk that the Corporation's burn rate until Closing is much higher than anticipated, or that there are unanticipated expenses that become due during such time; and other risks inherent to completing a cross-border transaction of this nature. Further, failure to obtain the requisite approvals or the failure of the parties to otherwise satisfy the conditions to or complete the Sale Transaction, may result in the Sale Transaction not being completed on the proposed terms, or at all. In addition, if the Sale Transaction is not completed, and the Corporation's business continues in its current form, the announcement of the Sale Transaction and the dedication of substantial resources to the completion of the Sale Transaction could have a material adverse impact on the Corporation's share price, its current business relationships (including with future and prospective employees, customers and partners) and on the current and future operations, financial condition and prospects of the Corporation.

When relying on forward-looking statements to make decisions, investors and others should carefully consider the foregoing factors and other uncertainties and potential events. Readers are cautioned that the foregoing list of factors is not exhaustive. Details of additional risk factors relating to the Corporation and its business, generally, are discussed under the heading "Business Risks and Uncertainties" in the the Corporation's Management's Discussion & Analysis for the year ended December 31, 2023, a copy of which is available on the Corporation's SEDAR+ profile at www.sedarplus.ca. These statements speak only as of the date of this report. Except as otherwise required by applicable securities statutes or regulation, the Corporation expressly disclaims any intent or obligation to update publicly forward-looking information, whether as a result of new information, future events or otherwise.