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EXFO announces going-private transaction by its founder and majority shareholder

EXFO Inc. announced today that it has entered into an arrangement agreement pursuant to which 1172239 Canada Inc., a corporation controlled by Germain Lamonde, EXFO’s founder and majority shareholder, will acquire all of the issued and outstanding subordinate voting shares of the Corporation, except for 3,672,474 Subordinate Voting Shares already controlled, directly or indirectly, by Germain Lamonde.

As of June 7, 2021, Germain Lamonde controls, directly or indirectly, the Excluded Shares and 31,643,000 multiple voting shares of the Corporation, representing 14.22% of the issued and outstanding Subordinate Voting Shares, and 100% of the issued and outstanding Multiple Voting Shares and, respectively, representing collectively 61.46% of the issued and outstanding shares of the Corporation and 93.53% of the voting rights attached to all the issued and outstanding Shares.

Transaction Highlights
Holders of Subordinate Voting Shares (other than the Excluded Shares) will receive US $6.00 per Subordinate Voting Share in cash, representing a 62% premium to the closing price per Subordinate Voting Share on the Nasdaq Global Select Market on June 4, 2021, and a 63% premium to the 20-day volume-weighted average trading price for the Subordinate Voting Shares on the Nasdaq Global Select Market for the period ending on June 4, 2021, the last trading day prior to the date of this announcement.

The board of directors of EXFO, with Mr. Germain Lamonde and Philippe Morin having recused themselves from the meeting, acting on the unanimous recommendation of the special committee of the Board of Directors comprised entirely of independent directors, unanimously approved the Arrangement and unanimously recommends that shareholders vote in favour of the Arrangement at a special meeting of shareholders held to approve the Arrangement.

In connection with the proposed transaction, National Bank of Canada and Investissement Québec have provided commitment letters to PurchaseCo for senior and subordinated debt financing, respectively, representing an aggregate principal amount sufficient to cover the purchase of the Subordinate Voting Shares (other than the Excluded Shares). National Bank of Canada will act as the Administrative Agent of the lending syndicate for the senior debt financing and National Bank Financial Markets will act as the Lead Arranger and Sole Bookrunner.

“This transaction is in the best interests of all of EXFO’s stakeholders,” said Germain Lamonde, Founder and Executive Chairman of the Board. “The Arrangement will provide holders of Subordinate Voting Shares with a significant cash premium and immediate liquidity for their Subordinate Voting Shares while ensuring the long-term success of EXFO as a private company for its employees, business partners and all the other stakeholders. My objective is to continue working with our talented management team and employees globally  to further develop what has become a successful global Test and System provider while maintaining its headquarters in Québec City.”

The Special Committee, comprised of Claude Séguin and François Côté, both of whom are independent directors of the Corporation, after receiving the oral fairness opinion and formal valuation of its independent valuator, TD Securities Inc., and legal and financial advice, has unanimously recommended that the Board of Directors approve the Arrangement Agreement and unanimously recommends that the minority shareholders vote in favour of the special resolution to approve the Arrangement at the Meeting. The Board of Directors, after receiving the oral fairness opinion and formal valuation of TD Securities, legal and financial advice and the recommendation of the Special Committee, has unanimously (with Germain Lamonde and Philippe Morin having recused themselves from the meeting) determined that the Arrangement is in the best interests of the Corporation and is fair to EXFO’s minority shareholders and recommends that minority shareholders vote in favour of the Arrangement Resolution.

In connection with the Arrangement, all the directors and certain officers have entered into support and voting agreements pursuant to which they have agreed, subject to the terms thereof, to vote all of their Subordinate Voting Shares in favour of the Arrangement Resolution. Upon completion of the proposed transaction, Germain Lamonde will directly or indirectly beneficially own or control all of the issued and outstanding Subordinate Voting Shares and Multiple Voting Shares.

Fairness opinion and formal valuation
The Special Committee retained TD Securities as financial advisor and independent valuator. TD Securities provided an opinion that, as at June 6, 2021, based upon and subject to the assumptions, limitations and qualifications contained in TD Securities’ written fairness opinion, the consideration to be received by the holders of Subordinate Voting Shares, other than Germain Lamonde and his affiliated entities, in connection with the Arrangement is fair, from a financial point of view, to the holders of Subordinate Voting Shares other than Germain Lamonde and his affiliated entities. TD Securities also provided the Special Committee with a formal valuation that was completed under the supervision of the Special Committee. The formal valuation determined that, as at June 6, 2021, based upon and subject to the assumptions, limitations and qualifications contained in TD Securities’ written valuation report, the fair market value of the Subordinate Voting Shares ranged from US$5.75 to US$7.50 per Subordinate Voting Share. The fairness opinion and formal valuation will be included in the management proxy circular to be filed and mailed to shareholders in connection with the approval of the Arrangement at the Meeting.

Details of the arrangement
The transaction will be implemented by way of a statutory plan of arrangement under the Section 192 of the Canada Business Corporations Act and is subject to court approval and the approval of the shareholders of the Corporation. Implementation of the Arrangement will be subject to the approval of at least (i) two-thirds (662/3%) of the votes cast by shareholders present in person or represented by proxy at the Meeting, voting as a single class (each holder of Subordinate Voting Shares being entitled to one vote per Subordinate Voting Share and each holder of Multiple Voting Shares being entitled to ten votes per Multiple Voting Share); and (ii) because the proposed transaction is subject to of Multilateral Instrument 61-101 – Protection of Minority Security Holders in Special Transactions, the approval of the majority of the holders of Subordinate Voting Shares present in person or represented by proxy at the Meeting, excluding the votes of shareholders whose votes are required to be excluded for the purposes of “minority approval” under MI 61-101 in the context of a, namely the Excluded Shares. Under MI 61-101, the Arrangement Resolution is exempt from “minority approval” by the holders of Multiple Voting Shares. Further details regarding the applicable voting requirements will be contained in the management proxy circular to be filed and mailed to shareholders in connection with the proposed transaction.

The Arrangement Agreement provides for customary non-solicitation covenants on the part of the Corporation and it provides PurchaseCo with a right to match any superior proposal. In addition, pursuant to the Arrangement Agreement, a termination fee equal to 2.75% of the total consideration to be paid by PurchaseCo, representing approximately US $3,650,000 million would be payable by the Corporation to the PurchaseCo in certain circumstances, including if PurchaseCo fails to exercise its right to match in the context of a superior proposal supported by the Corporation. PurchaseCo has also agreed to pay the Corporation a termination fee equal to 2.75% of the total consideration to be paid by PurchaseCo, representing approximately US $3,650,000 million if the proposed transaction is not completed in certain circumstances. The proposed transaction is subject to customary closing conditions, is not subject to any financing condition and is expected to close no later than September 30, 2021. Germain Lamonde has advised the Special Committee that he would not consider any alternative change of control transaction.

The Corporation intends to mail a management proxy circular to its shareholders in the coming weeks and to hold the Meeting before July 30, 2021. Additional details regarding the terms and conditions of the proposed transaction as well as the rationale for the recommendations made by the Special Committee and the Board of Directors will be set out in the management proxy circular to be filed and mailed to shareholders, which, together with the Arrangement Agreement, will be available under EXFO’s profile at www.sedar.com.

In addition, the Corporation will furnish to the U.S. Securities and Exchange Commission a current report on Form 6-K regarding the transaction, which will include as an exhibit thereto the Arrangement Agreement. All parties desiring details regarding the transaction are urged to review these documents, which will be available at the SEC’s website www.sec.gov. CT Bureau

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