Document:

Micromem Technologies Inc.: Exhibit 4.1- Prepared by TNT Filings Inc.

  

SHAREHOLDER RIGHTS PLAN AGREEMENT 

 

BETWEEN 

 

MICROMEM TECHNOLOGIES INC. 

 

and 

 

EQUITY TRANSFER & TRUST COMPANY 

as Rights Agent 

 

Dated as of May 29, 2008 

 

TABLE OF CONTENTS 

	 	 	Page
	 	 	 
	 	
    ARTICLE 1	 
	 	
    DEFINITIONS	 
	 	 	1 
	1.1	Definitions	1
	1.2	Currency	11
	1.3	Acting Jointly or in
    Concert	11
	1.4	Control	12
	1.5	Holder of Rights	12
	1.6	References to this
    Agreement	12
	 	ARTICLE 2	 
	 	THE RIGHTS	 
	 	12	 
	2.1	Legend on Common Share
    Certificates	12
	2.2	Initial Exercise
    Price; Exercise of Rights; Detachment of Rights	13
	2.3	Adjustments to
    Exercise Price; Number of Rights	14
	2.4	Date on Which Exercise
    is Effective	17
	2.5	Execution,
    Authentication, Delivery and Dating of Rights Certificates	18
	2.6	Registration,
    Registration of Transfer and Exchange	18
	2.7	Mutilated, Destroyed,
    Lost and Stolen Rights Certificates	18
	2.8	Persons Deemed Owners	19
	2.9	Delivery and
    Cancellation of Certificates	19
	2.10	Agreement of Rights
    Holders	19
	 	 	 
	 	
    ARTICLE 3	 
	 	
    ADJUSTMENTS TO THE RIGHTS IN THE EVENT OF CERTAIN TRANSACTIONS	 
	 	 	20
	3.1	Flip-in Event	20
	 	 	 
	 	
    ARTICLE 4	 
	 	THE
    RIGHTS AGENT	 
	 	 	21
	4.1	General	21
	4.2	Merger, Amalgamation
    or Consolidation or Change of Name of Rights Agent	22
	4.3	Duties of Rights Agent	22
	4.4	Change of Rights Agent	24
	 	 	 
	 	
    ARTICLE 5	 
	 	
    MISCELLANEOUS	 
	 	 	24
	5.1	Redemption and
    Termination	24
	5.2	Expiration	26
	5.3	Issuance of New Rights
    Certificates	26
	5.4	Supplements and
    Amendments	26
	5.5	Fractional Rights and
    Fractional Shares	27
	5.6	Rights of Action	28
	5.7	Holder of Rights Not
    Deemed a Shareholder	28
	5.8	Notice of Proposed
    Actions	28
	5.9	Notices	29
	5.10	Costs of Enforcement	30
	5.11	Successors	30

-i-

TABLE OF CONTENTS 

(continued) 

	 	 	Page
	 	 	 
	5.12	Benefits of this
    Agreement	30
	5.13	Descriptive Headings	30
	5.14	Governing Law	30
	5.15	Language	30
	5.16	Counterparts	30
	5.17	Severability	30
	5.18	Effective Date	30
	5.19	Shareholder Review	31
	5.20	Regulatory Approvals	31
	5.21	Declaration as to
    Non-Canadian and Non-U.S. Holders	31
	5.22	Determinations and
    Actions by the Board of Directors	31

 

 

-ii- 

SHAREHOLDER RIGHTS PLAN AGREEMENT 

THIS SHAREHOLDER RIGHTS PLAN
AGREEMENT made as of the 29th day of May, 2008. 

BETWEEN: 

MICROMEM
TECHNOLOGIES INC., a body corporate organized under the laws of Ontario
(hereinafter referred to as the "Corporation") 

OF THE FIRST PART 

- and - 

EQUITY TRANSFER &
TRUST COMPANY, a company incorporated under the laws of Canada
(hereinafter referred to as the "Rights Agent") 

OF THE SECOND PART 

WHEREAS the board of directors of the
Corporation (the "Board of Directors") has determined that it is
advisable to adopt a shareholder rights plan (the "Rights Plan") to
ensure, to the extent possible, that all shareholders of the Corporation are
treated fairly in connection with any take-over offer or bid for the common
shares of the Corporation, and to ensure that the Board of Directors is provided
with sufficient time to evaluate unsolicited take-over bids and to explore and
develop alternatives to maximize shareholder value; 

AND WHEREAS, in order to implement
adoption of the Rights Plan as established by this agreement, the Board of
Directors has: 

(a) 

authorized the distribution of one
right (a "Right") in respect of each Common Share (as hereinafter
defined) outstanding at the close of business on May 29, 2008 (the "Record
Time"), such distribution having been made to shareholders of record at the
Record Time; and 

(b) 

authorized the issuance of one Right
in respect of each Common Share issued after the Record Time and prior to the
earlier of the Separation Time (as hereinafter defined) and the Expiration Time
(as hereinafter defined); 

AND WHEREAS each Right entitles the
holder thereof after the Separation Time to purchase securities of the
Corporation pursuant to the terms and subject to the conditions set forth
herein; 

AND WHEREAS the Corporation desires
to confirm the appointment of the Rights Agent to act on behalf of the
Corporation, and the Rights Agent is willing to so act, in connection with the
issuance, transfer, exchange and replacement of Rights Certificates (as
hereinafter defined), the exercise of Rights and other matters referred to
herein; 

NOW THEREFORE in consideration of the
premises and the respective agreements set forth herein, the parties hereby
agree as follows: 

ARTICLE 1 

DEFINITIONS 

1.1 

Definitions 

For purposes of this Agreement, the
following terms have the meanings indicated: 

- 2 - 

(a)

"Acquiring Person" shall mean any
Person who is the Beneficial Owner of 20% or more of the outstanding Common
Shares of the Corporation; provided, however, that the term "Acquiring Person"
shall not include: 

(i)

the Corporation; 

(ii)

any Person who becomes the Beneficial
Owner of 20% or more of the outstanding Common Shares of the Corporation as a
result of any one or a combination of: 

(A)

an acquisition or redemption by the
Corporation of Common Shares of the Corporation which, by reducing the number of
Common Shares outstanding, increases the proportionate number of Common Shares
Beneficially Owned by such Person to 20% or more of the Common Shares of the
Corporation then outstanding; 

(B)

share acquisitions made pursuant to a
Permitted Bid ("Permitted Bid Acquisitions"); 

(C)

share acquisitions (1) in respect of which
the Board of Directors has waived the application of Section 3.1 pursuant to
subsections 5.1(b), 5.1(c) or 5.1(d); or (2) which were made on or prior to the
Effective Date; or (3) pursuant to the receipt or exercise of rights issued by
the Corporation to all the holders of the Common Shares (other than holders
resident in a jurisdiction where such distribution is restricted or
impracticable as a result of applicable law) to subscribe for or purchase Common
Shares or Convertible Securities, provided that such rights are acquired
directly from the Corporation and not from any other Person and provided that
the Person does not thereby acquire a greater percentage of Common Shares or
Convertible Securities so offered than the Person's percentage of Common Shares
or Convertible Securities beneficially owned immediately prior to such
acquisition; or (4) pursuant to a distribution by the Corporation of Common
Shares or Convertible Securities made pursuant to a prospectus, provided that
the Person does not thereby acquire a greater percentage of Common Shares or
Convertible Securities so offered than the Person's percentage of Common Shares
or Convertible Securities beneficially owned immediately prior to such
acquisition; or (5) pursuant to a distribution by the Corporation of Common
Shares or Convertible Securities by way of a private placement or a securities
exchange take-over bid circular or upon the exercise by an individual employee
of stock options granted under a stock option plan of the Corporation or rights
to purchase securities granted under a share purchase plan of the Corporation,
provided that (i) all necessary stock exchange approvals for such private
placement, stock option plan or share purchase plan have been obtained and such
private placement, stock option plan or share purchase plan complies with the
terms and conditions of such approvals and (ii) such Person does not become the
Beneficial Owner of more than 25% of the Common Shares outstanding immediately
prior to the distribution, and in making this determination, the Common Shares
to be issued to such Person in the distribution shall be deemed to be held by
such Person but shall not be included in the aggregate number of outstanding
Common Shares immediately prior to the distribution; or (6) pursuant to an
amalgamation, merger or other statutory procedure requiring shareholder approval
("Exempt Acquisitions"); 

(D)

the acquisition of Common Shares upon the
exercise of Convertible Securities received by such Person pursuant to a
Permitted Bid Acquisition, Exempt Acquisition or a Pro Rata Acquisition (as
defined below) ("Convertible Security Acquisitions"); or 

- 3 - 

(E) 

acquisitions as a
result of a stock dividend, a stock split or other event pursuant to which such
Person receives or acquires Common Shares or Convertible Securities on the same
pro rata basis as all other holders of Common Shares of the same class ("Pro
Rata Acquisitions"); 

provided, however, that if a Person shall become the
Beneficial Owner of 20% or more of the Common Shares of the Corporation then
outstanding by reason of any one or a combination of (i) share acquisitions or
redemptions by the Corporation or (ii) Permitted Bid Acquisitions or (iii)
Exempt Acquisitions or (iv) Convertible Security Acquisitions or (v) Pro Rata
Acquisitions and, after such share acquisitions or redemptions by the
Corporation, Permitted Bid Acquisitions, Exempt Acquisitions, Convertible
Security Acquisitions or Pro Rata Acquisitions, such Person subsequently becomes
the Beneficial Owner of more than an additional 1% of the number of Common
Shares of the Corporation outstanding other than pursuant to any one or a
combination of share acquisitions or redemptions of shares by the Corporation,
Permitted Bid Acquisitions, Exempt Acquisitions, Convertible Security
Acquisitions or Pro Rata Acquisitions, then as of the date of any such
acquisition such Person shall become an "Acquiring Person"; 

(iii) 

for a period of 10 days
after the Disqualification Date, any Person who becomes the Beneficial Owner of
20% or more of the outstanding Common Shares as a result of such Person becoming
disqualified from relying on clause 1.1(d)(B) solely because such Person makes
or announces an intention to make a Take-over Bid, either alone, through such
Person's Affiliates or Associates or by acting jointly or in concert with any
other Person. For the purposes of this definition, "Disqualification Date"
means the first date of public announcement that any Person is making or intends
to make a Take-over Bid, either alone, through such Person's Affiliates or
Associates or by acting jointly or in concert with any other Person; 

(iv) 

an underwriter or
member of a banking or selling group that becomes the Beneficial Owner of 20% or
more of the Common Shares in connection with a distribution of securities by way
of prospectus or private placement; or 

(v) 

a Person (a "Grandfathered
Person") who is the Beneficial Owner of 20% or more of the outstanding
Common Shares of the Corporation as at the Record Time; provided, however, that
this exception shall not be, and shall cease to be, applicable to a
Grandfathered Person in the event that such Grandfathered Person shall, after
the Record Time (A) cease to own 20% or more of the outstanding Common Shares or
(B) become the Beneficial Owner (other than pursuant to any one or a combination
of (1) share acquisitions or redemptions by the Corporation or (2) Permitted Bid
Acquisitions or (3) Exempt Acquisitions or (4) Convertible Security Acquisition
or (5) Pro Rata Acquisitions) of additional Common Shares constituting more than
1% of the number of Common Shares outstanding as at the Record Time. 

(b) 

"Affiliate",
used to indicate a relationship with a specified Person, shall mean a Person
that directly, or indirectly through one or more intermediaries, controls, or is
controlled by, or is under common control with, such specified Person. 

(c) 

"Associate" of a
specified individual shall mean any individual to whom such specified individual
is married or with whom such specified individual is living in a conjugal
relationship, outside marriage, or any relative of such specified individual or
said spouse who has the same home as such specified individual. 

(d) 

A Person shall be
deemed the "Beneficial Owner", and to have "Beneficial Ownership"
of, and to "Beneficially Own": 

- 4 - 

(i) 

any securities as to
which such Person or any of such Person's Affiliates or Associates is the owner
at law or in equity; 

(ii) 

any securities as to
which such Person or any of such Person's Affiliates or Associates has the right
to acquire (A) upon the exercise of any Convertible Securities, or (B) pursuant
to any agreement, arrangement or understanding, in either case where such right
is exercisable within a period of 60 days and whether or not on condition or the
happening of any contingency (other than (1) customary agreements with and
between underwriters and banking group or selling group members with respect to
a distribution to the public or pursuant to a private placement of securities,
or (2) pursuant to a pledge of securities in the ordinary course of business);
and 

(iii) 

any securities which
are Beneficially Owned within the meaning of clauses 1.1(d)(i) or (ii) above by
any other Person with which such Person is acting jointly or in concert; 

provided, however, that a Person shall not be deemed the
"Beneficial Owner", or to have "Beneficial Ownership" of, or to "Beneficially
Own", any security: 

(A) 

where (1) the holder of
such security has agreed to deposit or tender such security pursuant to a
Permitted Lock-up Agreement to a Take-over Bid made by such Person or any of
such Person's Affiliates or Associates or any other Person referred to in clause
1.1(d)(iii), or (2) such security has been deposited or tendered pursuant to a
Take-over Bid made by such Person or any of such Person's Affiliates or
Associates or any other Person referred to in clause 1.1(d)(iii), in each case
until the earliest time at which any such tendered security is accepted
unconditionally for payment or exchange or is taken up and paid for; 

(B) 

where such Person, any
of such Person's Affiliates or Associates or any other Person referred to in
clause 1.1(d)(iii), holds such security provided that (1) the ordinary business
of any such Person (the "Investment Manager") includes the management of
investment funds for others and such security is held by the Investment Manager
in the ordinary course of such business in the performance of such Investment
Manager’s duties for the account of any other Person, including the acquisition
or holding of securities for non-discretionary accounts held on behalf of a
client by a broker or dealer registered under applicable securities laws, or (2)
such Person (the "Trust Company") is licensed to carry on the business of
a trust company under applicable laws and, as such, acts as trustee or
administrator or in a similar capacity in relation to the estates of deceased or
incompetent Persons or in relation to other accounts and holds such security in
the ordinary course of such duties for the estates of deceased or incompetent
Persons or for such other accounts, or (3) such Person (the "Plan Trustee")
is the administrator or trustee of one or more pension funds or plans (each a "Plan")
registered under applicable laws and holds such security for the purposes of its
activity as such, or (4) such Person is a Plan or is a Person established by
statute (the "Statutory Body") for purposes that include, and the
ordinary business or activity of such Person includes the management of
investment funds for employee benefit plans, pension plans, insurance plans
(other than plans administered by insurance companies) or various public bodies,
or (5) such Person is a Crown agent or agency or (6) such Person (the "Manager")
is the manager or trustee of a mutual fund ("Mutual Fund") that is
registered or qualified to issue its securities to investors under the
securities laws of any province of Canada or the laws of the United States of
America or is a Mutual Fund; provided in any of the above cases, that the
Investment Manager, the Trust Company, the Plan Trustee, the Plan, the Statutory
Body, the Crown agent or agency, the Manager or the Mutual Fund, as the case may
be, is not then making a Take-over Bid or has not announced a current intention
to make a Take-over Bid, other than an Offer to Acquire Common Shares or other
securities pursuant to a distribution by the Corporation or by means of ordinary
market transactions (including pre-arranged trades entered into in the ordinary
course of business of such Person) executed through the facilities of a stock
exchange, securities quotation system or organized over-the-counter market,
alone, through its Affiliates or Associates or by acting jointly or in concert
with any other Person; 

- 5 - 

(C) 

because such Person is
a client of or has an account with the same Investment Manager as another Person
on whose account the Investment Manager holds such security, or where such
Person is a client of or has an account with the same Trust Company as another
Person on whose account the Trust Company holds such security, or where such
Person is a Plan and has a Plan Trustee who is also a Plan Trustee for another
Plan on whose account the Plan Trustee holds such security; 

(D) 

where such Person is
(1) a client of an Investment Manager and such security is owned at law or in
equity by the Investment Manager, or (2) an account of a Trust Company and such
security is owned at law or in equity by the Trust Company, or (3) a Plan and
such security is owned at law or in equity by the Plan Trustee; or 

(E) 

where such Person is
the registered holder of such security as a result of carrying on the business
of or acting as a nominee of a securities depositary. 

For purposes of this Agreement, the percentage of Common
Shares Beneficially Owned by any Person, shall be and be deemed to be the
product determined by the formula: 

100 x A/B 

Where: 

A = 

the number of votes for the election of all directors
generally attaching to the Common Shares Beneficially Owned by such Person; and

B = 

the number of votes for the election of all directors
generally attaching to all outstanding Common Shares. 

For the purposes of the foregoing formula, where any Person
is deemed to Beneficially Own unissued Common Shares which may be acquired
pursuant to Convertible Securities, such Common Shares shall be deemed to be
outstanding for the purpose of calculating the percentage of Common Shares
Beneficially Owned by such Person in both the numerator and the denominator, but
no other unissued Common Shares which may be acquired pursuant to any other
outstanding Convertible Securities shall, for the purposes of that calculation,
be deemed to be outstanding. 

(e) 

"Business Day"
shall mean any day other than a Saturday, Sunday or a day that is treated as a
holiday at the Corporation’s principal executive offices in Toronto, Canada. 

(f) 

"Business
Corporations Act" shall mean the Business Corporations Act 
(Ontario), R.S.O. 1990, c. B-16, as amended, and the regulations thereunder, and
any comparable or successor laws or regulations thereto. 

- 6 - 

(g) 

"Canadian-U.S.
Exchange Rate" shall mean on any date the inverse of the U.S.-Canadian
Exchange Rate. 

(h) 

"Canadian Dollar
Equivalent" of any amount which is expressed in United States dollars shall
mean on any day the Canadian dollar equivalent of such amount determined by
reference to the Canadian-U.S. Exchange Rate on such date. 

(i) 

"close of business"
on any given date shall mean the time on such date (or, if such date is not a
Business Day, the time on the next succeeding Business Day) at which the office
of the transfer agent for the Common Shares in the City of Toronto (or, after
the Separation Time, the offices of the Rights Agent in the City of Toronto)
becomes closed to the public. 

(j) 

"Common Shares of
the Corporation" and "Common Shares" shall mean the common shares in
the capital stock of the Corporation and any other share of the Corporation into
which such common shares may be subdivided, consolidated, reclassified or
changed from time to time. 

(k) 

"Competing Permitted
Bid" shall mean a Take-over Bid that: 

(i) 

is made after a
Permitted Bid or another Competing Permitted Bid has been made and prior to the
expiry of the Permitted Bid or another Competing Permitted Bid; 

(ii) 

satisfies all
components of the definition of a Permitted Bid other than the requirements set
out in clause (ii) of that definition; and 

(iii) 

contains, and the
take-up and payment for securities tendered or deposited is subject to, an
irrevocable and unqualified provision that no Common Shares will be taken up or
paid for pursuant to the Take-over Bid prior to the close of business on the
date that is no earlier than the later of (A) the earliest date on which Common
Shares may be taken up or paid for under any Permitted Bid or Competing
Permitted Bid that is then in existence and (B) 35 days (or such other minimum
period of days as may be prescribed by applicable law in Ontario) after the date
of the Take-over Bid constituting the Competing Permitted Bid. 

(l) 

"Convertible
Securities" shall mean, at any time, any securities issued by the
Corporation from time to time (other than the Rights) carrying any exercise,
conversion or exchange right pursuant to which the holder thereof may acquire
Common Shares or other securities which are convertible into or exercisable or
exchangeable for Common Shares. 

(m) 

"Convertible
Security Acquisitions" shall have the meaning set forth in the definition of
"Acquiring Person" herein. 

(n) 

"Co-Rights Agents"
shall have the meaning set forth in subsection 4.1(a). 

(o) 

"Effective Date"
shall mean the close of business on May 29, 2008. 

(p) 

"Exempt Acquisition"
shall have the meaning set forth in the definition of "Acquiring Person" herein.

(q) 

"Exercise Price"
shall mean, as of any date, the price at which a holder may purchase the
securities issuable upon exercise of one whole Right in accordance with the
terms hereof and, subject to adjustment thereof in accordance with the terms
hereof, the Exercise Price shall be: 

(i) 

until the Separation
Time, an amount equal to three times the Market Price, from time to time, per
Common Share; and 

- 7 - 

(ii) 

from and after the
Separation Time, an amount equal to three times the Market Price, as at the
Separation Time, per Common Share. 

(r) 

"Expansion Factor"
shall have the meaning set forth in subsection 2.3(a).   

(s)
 

"Expiration Time" shall mean
the earlier of:   

(i) 

the Termination Time; and 

(ii) 

the termination of the
annual meeting of the shareholders of the Corporation in the year 2011; 

provided, however, that if the resolution referred to in
Section 5.19 is approved by Independent Shareholders in accordance with Section
5.19 at or prior to such annual meeting, "Expiration Time" means the
earlier of (i) the Termination Time and (ii) the termination of the annual
meeting of the shareholders of the Corporation in the year that is three years
after the year in which such approval occurs. 

(t) 

"Fiduciary"
shall mean a trust company registered under the trust company legislation of
Canada or any province thereof, a trust company organized under the laws of any
state of the United States, a portfolio manager registered under the securities
legislation of one or more provinces of Canada or an investment adviser
registered under the United States Investment Advisers Act of 1940 or any other
securities legislation of the United States or any state of the United States.

(u) 

A "Flip-in Event"
shall mean a transaction occurring subsequent to the date of this Agreement as a
result of which any Person shall become an Acquiring Person; provided, however,
that a Flip-in Event shall be deemed to occur at the close of business on the
tenth day (or such later day as the Board of Directors of the Corporation may
determine) after the Stock Acquisition Date. 

(v) 

"Independent
Shareholders" shall mean holders of outstanding Common Shares of the
Corporation excluding (i) any Acquiring Person, or (ii) any Person (other than a
Person referred to in clause 1.1(d)(B)) that is making or has announced a
current intention to make a Take-over Bid for Common Shares of the Corporation
(including a Permitted Bid or a Competing Permitted Bid) but excluding any such
Person if the Take-over Bid so announced or made by such Person has been
withdrawn, terminated or expired, or (iii) any Affiliate or Associate of such
Acquiring Person or a Person referred to in clause (ii), or (iv) any Person
acting jointly or in concert with such Acquiring Person or a Person referred to
in clause (ii), or (v) a Person who is a trustee of any employee benefit plan,
share purchase plan, deferred profit sharing plan or any similar plan or trust
for the benefit of employees of the Corporation or a Subsidiary of the
Corporation, unless the beneficiaries of the plan or trust direct the manner in
which the Common Shares are to be voted or direct whether the Common Shares are
to be tendered to a Take-over Bid. 

(w) 

"Market Price"
per security of any securities on any date of determination shall mean the
average of the daily Closing Price Per Security of such securities (determined
as described below) on each of the 20 consecutive Trading Days through and
including the Trading Day immediately preceding such date; provided, however,
that if an event of a type analogous to any of the events described in Section
2.3 hereof shall have caused the price used to determine the Closing Price Per
Security on any Trading Day not to be fully comparable with the price used to
determine the Closing Price Per Security on such date of determination or, if
the date of determination is not a Trading Day, on the immediately preceding
Trading Day, each such price so used shall be appropriately adjusted in a manner
analogous to the applicable adjustment provided for in Section 2.3 hereof in
order to make it fully comparable with the price per security used to determine
the Closing Price Per Security on such date of determination or, if the date of
determination is not a Trading Day, on the immediately preceding Trading Day.
The "Closing Price Per Security" of any securities on any date shall be: 

- 8 - 

(i) 

the closing board lot sale price or, if such price is not
available, the average of the closing bid and asked prices, for such securities
as reported by the securities exchange or national securities quotation system
on which such securities are listed or admitted for trading on which the largest
number of such securities were traded during the most recently completed
calendar year; 

(ii) 

if, for any reason, none of such prices is available on such
date or the securities are not listed or admitted to trading on a securities
exchange or on a national securities quotation system, the last sale price, or
in case no sale takes place on such date, the average of the high bid and low
asked prices for such securities in the over-the-counter market, as quoted by
any reporting system then in use (as selected by the Board of Directors); or 

(iii) 

if the securities are not listed or admitted to trading as
contemplated in clause 1.1(w)(i) or (ii), the average of the closing bid and
asked prices as furnished by a professional market maker making a market in the
securities; provided, however, that if on any such date the Closing Price Per
Security cannot be determined in accordance with the foregoing, the Closing
Price Per Security of such securities on such date shall mean the fair value per
share of such securities on such date as determined in good faith by an
internationally recognized investment dealer or investment banker with respect
to the fair value per share of such securities. 

The Market Price shall be expressed in Canadian dollars and,
if initially determined in respect of any day forming part of the 20 consecutive
Trading Day periods in question in United States dollars, such amount shall be
translated into Canadian dollars at the Canadian Dollar Equivalent thereof. 

(x) 

"1933 Securities Act" shall mean the 
Securities Act of 1933 of the United States, as amended, and the rules and
regulations thereunder, and any comparable or successor laws or regulations
thereto. 

(y) 

"1934 Exchange Act" shall mean the 
Securities Exchange Act of 1934 of the United States, as amended, and the
rules and regulations thereunder, and any comparable or successor laws or
regulations thereto. 

(z) 

"Offer to Acquire" shall include: 

(i) 

an offer to purchase, or a solicitation of an offer to sell,
Common Shares; and 

(ii) 

an acceptance of an offer to sell Common Shares, whether or
not such offer to sell has been solicited; 

or any combination thereof, and the Person accepting an offer
to sell shall be deemed to be making an Offer to Acquire to the Person that made
the offer to sell. 

(aa) 

"Offeror’s Securities" shall mean Common Shares
Beneficially Owned on the date of an Offer to Acquire by any Person who is
making a Take-over Bid and "Offeror" means a Person who has announced a
current intention to make or is making a Take-over Bid. 

(bb) 

"Permitted Bid" shall mean a Take-over Bid made by a
Person by means of a Take-over Bid circular and which also complies with the
following additional provisions: 

(i) 

the Take-over Bid is made to all holders of record of Common
Shares, other than the Offeror; 

(ii) 

the Take-over Bid shall contain, and the provisions for the
take-up and payment for Common Shares tendered or deposited thereunder shall be
subject to, an irrevocable and unqualified condition that no Common Shares shall
be taken up or paid for pursuant to the Take-over Bid prior to the close of
business on a date which is not less than 60 days following the date of the
Take-over Bid; 

- 9 - 

(iii) 

the Take-over Bid shall contain irrevocable and unqualified
provisions that (A) unless the Take-over Bid is withdrawn, Common Shares may be
deposited pursuant to the Takeover Bid at any time prior to the close of
business on the date of first take-up or payment for Common Shares and (B) all
Common Shares deposited pursuant to the Take-over Bid may be withdrawn at any
time prior to the close of business on such date; 

(iv) 

the Take-over Bid shall contain an irrevocable and
unqualified condition that more than 50% of the outstanding Common Shares held
by Independent Shareholders, determined as at the close of business on the date
of first take-up or payment for Common Shares under the Take-over Bid, must be
deposited to the Take-over Bid and not withdrawn at the close of business on the
date of first take-up or payment for Common Shares; and 

(v) 

the Take-over Bid shall contain an irrevocable and
unqualified provision that in the event that more than 50% of the then
outstanding Common Shares held by Independent Shareholders shall have been
deposited to the Take-over Bid and not withdrawn as at the close of business on
the date of first take-up or payment for Common Shares under the Take-over Bid,
the Offeror will make a public announcement of that fact and the Takeover Bid
will remain open for deposits and tenders of Common Shares for not less than 10
Business Days from the date of such public announcement; 

provided that if a Take-over Bid constitutes a Competing
Permitted Bid, the term "Permitted Bid" shall also mean the Competing Permitted
Bid. 

(cc) 

"Permitted Bid Acquisitions" shall have the meaning
set forth in the definition of "Acquiring Person" herein. 

(dd) 

"Permitted Lock-up Agreement" shall mean an agreement
(the "Lock-up Agreement") between a Person and one or more holders of
Common Shares (each such holder herein referred to as a "Locked-up Person")
(the terms of which are publicly disclosed and a copy of which is made available
to the public (including the Corporation) not later than the date of the Lock-up
Bid (as defined below), or if the Lock-up Bid has been made prior to the date of
the Lock-up Agreement not later than the first Business Day following the date
of the Lock-up Agreement) pursuant to which each Locked-up Person agrees to
deposit or tender the Common Shares held by such holder to a Take-over Bid (the
"Lock-up Bid") made by the Person or any of such Person's Affiliates or
Associates or any other Person referred to in clause 1.1(d)(iii), provided that:

(i) 

the Lock-up Agreement permits the Locked-up Person to
withdraw its Common Shares from the Lock-up Agreement in order to deposit or
tender the Common Shares to another Take-over Bid or to support another
transaction prior to the Common Shares being taken up and paid for under the
Lock-up Bid at a price or value per Common Share that exceeds the price or value
per Common Share offered under the Lock-up Bid; or 

(ii) 

the Lock-up Agreement permits the Locked-up Person to
withdraw its Common Shares from the Lock-up Agreement in order to deposit or
tender the Common Shares to another Take-over Bid or to support another
transaction prior to the Common Shares being taken up and paid for under the
Lock-up Bid at an offer price for each Common Share that exceeds by as much as
or more than a specified amount (the "Specified Amount") the offer price
for each Common Share contained in or proposed to be contained in the Lockup Bid
and that does not by its terms provide for a Specified Amount that is greater
than 7% of the offer price contained in or proposed to be contained in the
Lock-up Bid; 

- 10 - 

and, for greater clarity, the agreement may contain a right
of first refusal or require a period of delay to give the Person who made the
Lock-up Bid an opportunity to match a higher price in another Take-over Bid or
transaction or other similar limitation on a Locked-up Person's right to
withdraw Common Shares from the agreement, so long as the limitation does not
preclude the exercise by the Locked-up Person of the right to withdraw Common
Shares during the period of the other Take-over Bid or transaction; and 

(iii) 

no "break-up" fees,
"top-up" fees, penalties, expenses or other amounts that exceed in aggregate the
greater of: 

(A)

2.5% of the price or value of the consideration payable under
the Lock-up Bid to a Locked-up Person; and 

(B) 

50% of the amount by
which the price or value of the consideration received by a Locked-up Person
under another Take-over Bid or transaction exceeds the price or value of the
consideration that the Locked-up Person would have received under the Lock-up
Bid, 

shall be payable by such Locked-up Person if the Locked-up
Person fails to deposit or tender Common Shares to the Lock-up Bid, or withdraws
Common Shares previously tendered thereto in order to deposit or tender such
Common Shares to another Take-over Bid or support another transaction. 

(ee) 

"Person" shall
mean any individual, firm, partnership, association, trust, trustee, personal
representative, body corporate, corporation, unincorporated organization,
syndicate or other entity. 

(ff) 

"Pro Rata
Acquisition" shall have the meaning set forth in the definition of
"Acquiring Person" herein. 

(gg) 

"Record Time"
shall mean the close of business on May 29, 2008. 

(hh) 

"Redemption Price"
shall have the meaning set forth in subsection 5.1(a) herein. 

(ii) 

"Rights Certificate"
shall mean, after the Separation Time, the certificate representing the Rights
substantially in the form of Exhibit A hereto. 

(jj) 

"Securities Act"
shall mean the Securities Act (Ontario), R.S.O. 1990, c. S-5, and the
rules and regulations thereunder, each as may be amended from time to time, and
any comparable or successor laws, rules or regulations thereto. 

(kk) 

"Separation Time"
shall mean the close of business on the tenth Business Day after the earlier of:

(i) 

the Stock Acquisition
Date; 

(ii) 

the date of the
commencement of, or first public announcement of the intent of any Person (other
than the Corporation or any Subsidiary of the Corporation) to commence, a
Take-over Bid (other than a Take-over Bid which is a Permitted Bid so long as
such Take-over Bid continues to satisfy the requirements of a Permitted Bid);
provided that, if any Take-over Bid referred to in this clause (ii) expires, is
cancelled, terminated or otherwise withdrawn prior to the Separation Time, such
Take-over Bid shall be deemed, for purposes of this subsection 1.1(kk), never to
have been made; and 

(iii) 

the date upon which a
Permitted Bid ceases to be a Permitted Bid; 

- 11 - 

or such later date as may be determined by the Board of
Directors acting in good faith; provided that, if the foregoing results in the
Separation Time being prior to the Record Time, the Separation Time shall be the
Record Time and if the Board of Directors determines pursuant to Section 5.1 to
waive the application of Section 3.1 to a Flip-in Event, the Separation Time in
respect of such Flip-in Event shall be deemed never to have occurred. 

(ll) 

"Stock Acquisition Date" shall mean the first date of
public announcement (which, for purposes of this definition, shall include,
without limitation, a report filed pursuant to Section 101 of the Securities
Act or Section 13(d) under the 1934 Exchange Act) by the
Corporation or an Acquiring Person that a Person has become an Acquiring Person.

(mm) 

"Subsidiary" of any specified Person shall mean any
corporation or other entity controlled by such specified Person. 

(nn) 

"Take-over Bid" shall mean an Offer to Acquire Common
Shares or securities convertible into Common Shares, where the Common Shares
subject to the Offer to Acquire, together with the Common Shares into which the
securities subject to the Offer to Acquire are convertible, and the Offeror’s
Securities, constitute in the aggregate 20% or more of the outstanding Common
Shares at the date of the Offer to Acquire. 

(oo) 

"Termination Time" shall mean the time at which the
right to exercise Rights shall terminate pursuant to Section 5.1, 5.18 or 5.19
hereof. 

(pp) 

"Trading Day", when used with respect to any
securities, shall mean a day on which the securities exchange or national
securities quotation system on which such securities are listed or admitted to
trading on which the largest number of such securities were traded during the
most recently completed calendar year is open for the transaction of business
or, if the securities are not listed or admitted to trading on any securities
exchange, a Business Day. 

(qq) 

"U.S. Canadian Exchange Rate" shall mean on any date:

(i) 

if on such date the Bank of Canada sets an average noon spot
rate of exchange with a conversion of one United States dollar into Canadian
dollars, such rate; 

(ii) 

in any other case, the rate for such date for the conversion
of one United States dollar into Canadian dollars which is calculated in the
manner which shall be determined by the Board of Directors from time to time
acting in good faith. 

(rr) 

"U.S. Dollar Equivalent" of any amount which is
expressed in Canadian dollars shall mean on any day the United States dollar
equivalent of such amount determined by reference to the U.S.-Canadian Exchange
Rate on such date. 

1.2 

Currency  

All sums of money which are referred to in this Agreement are
expressed in lawful money of Canada. 

1.3 

Acting Jointly or in Concert  

For purposes of this Agreement, a Person is acting jointly or
in concert with another Person if such Person has any agreement, arrangement or
understanding (whether formal or informal and whether or not in writing) with
such other Person to acquire, or Offer to Acquire, any Common Shares of the
Corporation (other than (a) customary agreements with and between underwriters
and banking group or selling group members with respect to a distribution of
securities by way of prospectus or private placement, or (b) pursuant to a
pledge of securities in the ordinary course of business). 

- 12 - 

1.4 

Control  

A Person is "controlled" by another Person or two or
more other Persons acting jointly or in concert if: 

(a) 

in the case of a body corporate, securities entitled to vote
in the election of directors of such body corporate carrying more than 50% of
the votes for the election of directors are held, directly or indirectly, by or
for the benefit of the other Person or Persons acting jointly or in concert and
the votes carried by such securities are entitled, if exercised, to elect a
majority of the board of directors of such body corporate; or 

(b) 

in the case of a Person which is not a body corporate, more
than 50% of the voting or equity interests of such entity are held, directly or
indirectly, by or for the benefit of the other Person or Persons; 

and "controls", "controlling" and "under
common control with" shall be interpreted accordingly. 

1.5 

Holder of Rights  

As used in this Agreement, unless the context otherwise
requires, the term "holder" of any Rights shall mean the registered
holder of such Rights (or, prior to the Separation Time, the associated Common
Shares). 

1.6 

References to this Agreement  

In this Agreement, unless otherwise provided herein and
unless the context otherwise requires, references to "this Agreement", "herein",
"hereby" and "hereunder" mean this Shareholder Rights Plan
Agreement dated as of May 29, 2008 between the Corporation and the Rights Agent
as amended and supplemented from time to time. 

ARTICLE 2 

THE RIGHTS  

2.1 

Legend on Common Share Certificates  

Certificates for the Common Shares, including without
limitation Common Shares issued upon the conversion of Convertible Securities,
issued after the Record Time but prior to the earlier of the Separation Time and
the Expiration Time shall evidence one Right for each Common Share represented
thereby and, commencing as soon as reasonably practicable after the Record Time,
shall have impressed on, printed on, written on or otherwise affixed to them a
legend substantially in the following form: 

Until the Separation Time (as defined in the Rights Agreement
referred to below), this certificate also evidences and entitles the holder
hereof to certain Rights as set forth in a Shareholder Rights Plan Agreement
dated as of May 29, 2008, as such may from time to time be amended, restated,
varied or replaced (the "Rights Agreement"), between Micromem Technologies Inc.
(the "Corporation") and Equity Transfer & Trust Company, as Rights Agent, the
terms of which are hereby incorporated herein by reference and a copy of which
is on file at the registered office of the Corporation. In certain
circumstances, as set forth in the Rights Agreement, such Rights may be amended,
redeemed, may expire, may become void (if, in certain cases, they are
"Beneficially Owned" by an "Acquiring Person", as such terms are defined in the
Rights Agreement, or a transferee thereof) or may be evidenced by separate
certificates and may no longer be evidenced by this certificate. The Corporation
will mail or arrange for the mailing of a copy of the Rights Agreement to the
holder of this certificate without charge as soon as practicable after the
receipt of a written request therefor. 

- 13 - 

Certificates representing Common Shares that are issued and
outstanding at the Record Time shall evidence one Right for each Common Share
evidenced thereby notwithstanding the absence of the foregoing legend, until the
earlier of the Separation Time and the Expiration Time. 

2.2 

Initial Exercise Price; Exercise of Rights; Detachment of
Rights  

(a) 

Subject to adjustment as herein set forth, each Right will
entitle the holder thereof, after the Separation Time, to purchase, for the
Exercise Price, or its U.S. Dollar Equivalent as at the Business Day immediately
preceding the day of exercise of the Right, one Common Share. Notwithstanding
any other provision of this Agreement, any Rights held by the Corporation or any
of its Subsidiaries shall be void. 

(b) 

Until the Separation Time, 

(i) 

no Right may be exercised; and 

(ii) 

each Right will be evidenced by the certificate for the
associated Common Share and will be transferable only together with, and will be
transferred by a transfer of, such associated share. 

(c) 

After the Separation Time and prior to the Expiration Time,
the Rights (i) may be exercised, and (ii) will be transferable independent of
Common Shares. Promptly following the Separation Time, the Rights Agent will
mail to each holder of record of Common Shares as of the Separation Time, and in
respect of each Convertible Security converted into Common Shares after the
Separation Time and prior to the Expiration Time promptly after such conversion,
to the holder so converting (other than an Acquiring Person and, in respect of
any Rights Beneficially Owned by such Acquiring Person which are not held of
record by such Acquiring Person, the holder of record of such Rights) at such
holder’s address as shown by the records of the Corporation (the Corporation
hereby agreeing to furnish copies of such records to the Rights Agent for this
purpose), (x) a Rights Certificate with registration particulars appropriately
completed, representing the number of Rights held by such holder at the
Separation Time and having such marks of identification or designation and such
legends, summaries or endorsements printed thereon as the Corporation may deem
appropriate and as are not inconsistent with the provisions of this Agreement,
or as may be required to comply with any law or with any rule or regulation made
pursuant thereto or with any rule or regulation of any stock exchange or
securities quotation system on which the Rights may from time to time be listed
or traded, or to conform to usage, and (y) a disclosure statement describing the
Rights. 

(d) 

Rights may be exercised in whole or in part on any Business
Day (or on any other day which, in the city at which an Election to Exercise (as
hereinafter defined) is duly submitted to the Rights Agent in accordance with
this Agreement, is not a Saturday, Sunday or a day that is treated as a holiday
in such city) after the Separation Time and prior to the Expiration Time by
submitting to the Rights Agent (at its office in the City of Toronto, Canada or
at any other office of the Rights Agent in the cities designated from time to
time for that purpose by the Corporation), the Rights Certificate evidencing
such Rights together with an Election to Exercise (an "Election to Exercise")
substantially in the form attached to the Rights Certificate duly completed,
accompanied by payment by certified cheque, banker’s draft or money order,
payable to the order of the Corporation, of a sum equal to the Exercise Price
multiplied by the number of Rights being exercised and a sum sufficient to cover
any transfer tax or charge which may be payable in respect of any transfer
involved in the transfer or delivery of Rights Certificates or the issuance or
delivery of certificates for Common Shares in a name other than that of the
holder of the Rights being exercised. 

(e) 

Upon receipt of a Rights Certificate, with a duly completed
Election to Exercise (which does not indicate that the holder so exercising is
an Acquiring Person) accompanied by payment as set forth in subsection 2.2(d)
above, the Rights Agent will thereupon promptly: 

- 14 - 

(i) 

requisition from the transfer agent or any co-transfer agent
of the Common Shares certificates for the number of Common Shares to be
purchased (the Corporation hereby irrevocably authorizing its transfer agent to
comply with all such requisitions); 

(ii) 

when appropriate, requisition from the Corporation the amount
of cash to be paid in lieu of issuing fractional Common Shares and, after
receipt, deliver such cash to or to the order of the registered holder of the
Rights Certificate; 

(iii) 

after receipt of the Common Share certificates, deliver the
same to or upon the order of the registered holder of such Rights Certificate,
registered in such name or names as may be designated by such holder; and 

(iv) 

tender to the Corporation all payments received on exercise
of the Rights. 

(f) 

In case the holder of any Rights shall exercise less than all
the Rights evidenced by such holder’s Rights Certificate, a new Rights
Certificate evidencing the Rights remaining unexercised will be issued by the
Rights Agent to such holder or to such holder’s duly authorized assigns. 

(g) 

The Corporation covenants and agrees that it will: 

(i) 

take all such action as may be necessary and within its power
to ensure that all Common Shares delivered upon exercise of Rights shall, at the
time of delivery of the certificates for such Common Shares (subject to payment
of the Exercise Price), be duly and validly authorized, executed, issued and
delivered and fully paid and non-assessable; 

(ii) 

take all such action as may be necessary and within its power
to comply with any applicable requirements of the Business Corporations Act,
the Securities Act, the securities acts or comparable legislation of each
of the other provinces of Canada, the 1933 Securities Act and the 1934
Exchange Act, and the rules and regulations thereunder or any other
applicable law, rule or regulation, in connection with the issuance and delivery
of the Rights Certificates and the issuance of any Common Shares upon exercise
of Rights; 

(iii) 

use reasonable efforts to cause all Common Shares issued upon
exercise of Rights to be listed on the principal exchanges or traded in the
over-the-counter markets on which the Common Shares were traded immediately
prior to the Stock Acquisition Date; 

(iv) 

cause to be reserved and kept available out of its authorized
and unissued Common Shares the number of Common Shares that, as provided in this
Agreement, will from time to time be sufficient to permit the exercise in full
of all outstanding Rights; and 

(v) 

pay when due and payable any and all Canadian and United
States federal, provincial, and state transfer taxes (for greater certainty not
including any income taxes or capital gains of the holder or exercising holder
or any liability of the Corporation to withhold tax) and charges which may be
payable in respect of the original issuance or delivery of the Rights
Certificates or certificates for Common Shares, provided that the Corporation
shall not be required to pay any transfer tax or charge which may be payable in
respect of any transfer involved in the transfer or delivery of Rights
Certificates or the issuance or delivery of certificates for shares in a name
other than that of the holder of the Rights being transferred or exercised. 

2.3 

Adjustments to Exercise Price; Number of Rights  

The Exercise Price, the number and kind of securities subject
to purchase upon exercise of each Right and the number of Rights outstanding are
subject to adjustment from time to time as provided in this Section 2.3. 

- 15 - 

(a) 

In the event the
Corporation shall at any time after the Record Time and prior to the Expiration
Time: 

(i) 

declare or pay a
dividend on the Common Shares payable in Common Shares (or other capital stock
or securities exchangeable for or convertible into or giving a right to acquire
Common Shares or other capital stock) other than pursuant to any optional stock
dividend program, dividend reinvestment plan or a dividend payable on Common
Shares in lieu of a regular periodic cash dividend; 

(ii) 

subdivide or change the
then outstanding Common Shares into a greater number of Common Shares; 

(iii) 

combine or change the
then outstanding Common Shares into a smaller number of Common Shares; or 

(iv) 

issue any Common Shares
(or other capital stock or securities exchangeable for or convertible into or
giving a right to acquire Common Shares or other capital stock) in respect of,
in lieu of or in exchange for existing Common Shares in a reclassification,
amalgamation, merger, statutory arrangement or consolidation, 

the Exercise Price and the number of Rights outstanding, or,
if the payment or effective date therefor shall occur after the Separation Time,
the securities purchasable upon exercise of Rights, shall be adjusted in the
manner set forth below. If the Exercise Price and number of Rights outstanding
are to be adjusted (x) the Exercise Price in effect after such adjustment shall
be equal to the Exercise Price in effect immediately prior to such adjustment
divided by the number of Common Shares (or other capital stock) (the "Expansion
Factor") that a holder of one Common Share immediately prior to such
dividend, subdivision, change, combination or issuance would hold thereafter as
a result thereof, and (y) each Right held prior to such adjustment shall become
that number of Rights equal to the Expansion Factor, and the adjusted number of
Rights will be deemed to be allocated among the Common Shares with respect to
which the original Rights were associated (if they remain outstanding) and the
shares issued in respect of such dividend, subdivision, change, combination or
issuance, so that each such Common Share (or other capital stock) will have
exactly one Right associated with it. If the securities purchasable upon
exercise of Rights are to be adjusted, the securities purchasable upon exercise
of each Right after such adjustment will be the number of securities that a
holder of the securities purchasable upon exercise of one Right immediately
prior to such dividend, subdivision, change, combination or issuance would hold
thereafter as a result thereof. If after the Record Time and prior to the
Expiration Time the Corporation shall issue any shares of capital stock other
than Common Shares in a transaction of a type described in clause 2.3(a)(i) or
(iv), shares of such capital stock shall be treated herein as nearly equivalent
to Common Shares as may be practicable and appropriate under the circumstances
and the Corporation and the Rights Agent agree to amend this Agreement in order
to effect such treatment. If an event occurs which would require an adjustment
under both this Section 2.3 and Section 3.1 hereof, the adjustment provided for
in this Section 2.3 shall be in addition to and shall be made prior to any
adjustment required pursuant to Section 3.1 hereof. Adjustments pursuant to
subsection 2.3(a) shall be made successively, whenever an event referred to in
subsection 2.3(a) occurs. 

In the event the Corporation shall at any time after the
Record Time and prior to the Separation Time issue any Common Shares otherwise
than in a transaction referred to in the preceding paragraph, each such Common
Share so issued shall automatically have one new Right associated with it, which
Right shall be evidenced by the certificate representing such Common Share. 

- 16 - 

(b)

In the event the Corporation shall at any time after the
Record Time and prior to the Expiration Time fix a record date for the making of
a distribution to all holders of Common Shares of rights or warrants entitling
them (for a period expiring within 45 calendar days after such record date) to
subscribe for or purchase Common Shares (or securities convertible into or
exchangeable for or carrying a right to purchase or subscribe for Common Shares)
at a price per Common Share (or, if a security convertible into or exchangeable
for or carrying a right to purchase or subscribe for Common Shares, having a
conversion, exchange or exercise price (including the price required to be paid
to purchase such convertible or exchangeable security or right per share)) less
than 90% of the Market Price per Common Share on such record date, the Exercise
Price shall be adjusted in the manner set forth below. The Exercise Price in
effect after such record date shall equal the Exercise Price in effect
immediately prior to such record date multiplied by a fraction, of which the
numerator shall be the number of Common Shares outstanding on such record date
plus the number of Common Shares which the aggregate offer price of the total
number of Common Shares so to be offered (and/or the aggregate initial
conversion, exchange or exercise price of the convertible or exchangeable
securities or rights so to be offered (including the price required to be paid
to purchase such convertible or exchangeable securities or rights)) would
purchase at such Market Price and of which the denominator shall be the number
of Common Shares outstanding on such record date plus the number of additional
Common Shares to be offered for subscription or purchase (or into which the
convertible or exchangeable securities or rights so to be offered are initially
convertible, exchangeable or exercisable). In case such subscription price is
satisfied in whole or in part by consideration in a form other than cash the
value of such consideration shall be as determined in good faith by the Board of
Directors whose determination shall be described in a statement filed with the
Rights Agent and shall be binding on the Rights Agent and the holders of Rights.

Such adjustment shall be made successively whenever such a
record date is fixed. For purposes of this paragraph (b), the granting of the
right to purchase Common Shares pursuant to any dividend or interest
reinvestment plan and/or any Common Share purchase plan providing for the
reinvestment of dividends or interest payable on securities of the Corporation
and/or the investment of periodic optional payments and/or employee benefit or
similar plans (so long as such right to purchase is in no case evidenced by the
delivery of rights or warrants) shall not be deemed to constitute an issue of
rights or warrants by the Corporation; provided, however, that in the case of
any dividend or interest reinvestment plan, the right to purchase Common Shares
is at a price per share of not less than 90% of the current market price per
share (determined as provided in such plans) of the Common Shares. 

(c) 

In the event the
Corporation shall at any time after the Record Time and prior to the Expiration
Time fix a record date for the making of a distribution to all holders of Common
Shares of evidences of indebtedness or assets (other than a regular periodic
cash dividend or a dividend paid in Common Shares) or rights or warrants
entitling them to subscribe for or purchase Common Shares (or Convertible
Securities in respect of Common Shares) at a price per Common Share (or, in the
case of a Convertible Security in respect of Common Shares having a conversion
or exercise price per share (including the price required to be paid to purchase
such Convertible Security) less than 90% of the Market Price per Common Share on
such record date (excluding those referred to in subsection 2.3(b)), the
Exercise Price shall be adjusted in the manner set forth below. The Exercise
Price in effect after such record date shall equal the Exercise Price in effect
immediately prior to such record date less the fair market value (as determined
in good faith by the Board of Directors of the Corporation) of the portion of
the assets, evidences of indebtedness, rights or warrants so to be distributed
applicable to each of the securities purchasable upon exercise of one Right
(such determination to be described in a statement filed with the Rights Agent
shall be binding on the Rights Agent and the holders of the Rights). Such
adjustment shall be made successively whenever such a record date is fixed. 

(d) 

Each adjustment made
pursuant to this Section 2.3 shall be made as of: 

(i) 

the payment or
effective date for the applicable dividend, subdivision, change, combination or
issuance, in the case of an adjustment made pursuant to paragraph (a) above; and

-17-

(ii)

the record date for the applicable
dividend or distribution, in the case of an adjustment made pursuant to
paragraph (b) or (c) above, 

subject to readjustment to reverse
the same if such dividend or distribution shall not be made. 

(e)

In the event the Corporation shall at any
time after the Record Time and prior to the Expiration Time issue any shares of
capital stock (other than Common Shares), or rights or warrants to subscribe for
or purchase any such capital stock, or securities convertible into or
exchangeable for any such capital stock, in a transaction referred to in clause
(a)(i) or (a)(iv) above, or if the Corporation shall take any other action
(other than the issue of Common Shares) which might have a negative effect on
the holders of Rights, if the Board of Directors acting in good faith determines
that the adjustments contemplated by paragraphs (a), (b) and (c) above are not
applicable or will not appropriately protect the interests of the holders of
Rights, the Corporation may determine what other adjustments to the Exercise
Price, number of Rights and/or securities purchasable upon exercise of Rights
would be appropriate and, if the adjustments contemplated by paragraphs (a), (b)
and (c) above are applicable, notwithstanding such paragraphs, the adjustments
so determined by the Corporation, rather than adjustments contemplated by
paragraphs (a), (b) and (c) above, shall be made. The Corporation and the Rights
Agent shall amend this Agreement in accordance with subsections 5.4(b) and
5.4(c), as the case may be, to provide for such adjustments. 

(f)

Each adjustment to the Exercise Price made
pursuant to this Section 2.3 shall be calculated to the nearest cent. Whenever
an adjustment to the Exercise Price is made pursuant to this Section 2.3, the
Corporation shall: 

(i)

promptly prepare a certificate setting
forth such adjustment and a brief statement of the facts accounting for such
adjustment; and 

(ii)

promptly file with the Rights Agent and
with each transfer agent for the Common Shares a copy of such certificate and
mail a brief summary thereof to each holder of Rights who requests a copy. 

Failure to file such certificate or
cause such summary to be mailed as aforesaid, or any defect therein, shall not
affect the validity of any such adjustment or change. 

(g)

Subject to Section 5.3, irrespective of
any adjustment or change in the securities purchasable upon exercise of the
Rights, the Rights Certificates theretofore and thereafter issued may continue
to express the securities so purchasable which were expressed in the initial
Rights Certificates issued hereunder. 

2.4

Date on Which Exercise is Effective 

Each person in whose name any
certificate for Common Shares is issued upon the exercise of Rights shall for
all purposes be deemed to have become the holder of record of the Common Shares
represented thereby, and such certificate shall be dated the date upon which the
Rights Certificate evidencing such Rights was duly surrendered (together with a
duly completed Election to Exercise) and payment of the Exercise Price for such
Rights (and any applicable transfer taxes and other governmental charges payable
by the exercising holder hereunder) was made; provided, however, that if the
date of such surrender and payment is a date upon which the Common Share
transfer books of the Corporation are closed, such person shall be deemed to
have become the record holder of such shares on, and such certificate shall be
dated, the next succeeding Business Day on which the Common Share transfer books
of the Corporation are open. 

 

-18-

2.5 

Execution, Authentication, Delivery and
Dating of Rights Certificates 

(a)

The Rights Certificates shall be executed
on behalf of the Corporation by any one of its Chairman of the Board, the
President, the Chief Executive Officer or the Chief Financial Officer of the
Corporation. The signature of any of these officers on the Rights Certificates
may be manual or facsimile. Rights Certificates bearing the manual or facsimile
signatures of individuals who were at any time the proper officers of the
Corporation shall bind the Corporation, notwithstanding that such individuals or
any of them have ceased to hold such offices prior to the countersignature and
delivery of such Rights Certificates. Promptly after the Corporation learns of
the Separation Time, the Corporation will notify the Rights Agent of such
Separation Time and will deliver Rights Certificates executed by the Corporation
to the Rights Agent for countersignature, and the Rights Agent shall countersign
(manually or by facsimile signature in a manner satisfactory to the Corporation)
and mail such Rights Certificates to the holders of the Rights pursuant to
subsection 2.2(c) hereof. No Rights Certificate shall be valid for any purpose
until countersigned by the Rights Agent as aforesaid. 

(b) 

Each Rights Certificate shall be
dated the date of countersignature thereof. 

2.6 

Registration, Registration of Transfer and
Exchange 

(a)

The Corporation will cause to be kept a
register (the "Rights Register") in which, subject to such reasonable
regulations as it may prescribe, the Corporation will provide for the
registration and transfer of Rights. The Rights Agent is hereby appointed
"Rights Registrar" for the purpose of maintaining the Rights Register for the
Corporation and registering Rights and transfers of Rights as herein provided.
In the event that the Rights Agent shall cease to be the Rights Registrar, the
Rights Agent will have the right to examine the Rights Register at all
reasonable times. 

(b)

After the Separation Time and prior to the
Expiration Time, upon surrender for registration of transfer or exchange of any
Rights Certificate, and subject to the provisions of subsection 2.6(d) below,
the Corporation shall execute, and the Rights Agent shall countersign and
deliver, in the name of the holder or the designated transferee or transferees,
as required pursuant to the holder’s instructions, one or more new Rights
Certificates evidencing the same aggregate number of Rights as did the Rights
Certificates so surrendered. 

(c)

All Rights issued upon any registration of
transfer or exchange of Rights Certificates shall be the valid obligations of
the Corporation, and such Rights shall be entitled to the same benefits under
this Agreement as the Rights surrendered upon such registration of transfer or
exchange. 

(d)

Every Rights Certificate surrendered for
registration of transfer or exchange shall be duly endorsed, or be accompanied
by a written instrument of transfer in form satisfactory to the Corporation or
the Rights Agent, as the case may be, duly executed by the holder thereof or
such holder’s attorney duly authorized in writing. As a condition to the
issuance of any new Rights Certificate under this Section 2.6, the Corporation
may require the payment of a sum sufficient to cover any tax or other
governmental charge that may be imposed in relation thereto. 

2.7 

Mutilated, Destroyed, Lost and Stolen
Rights Certificates 

(a)

If any mutilated Rights Certificate is
surrendered to the Rights Agent prior to the Expiration Time, the Corporation
shall execute and the Rights Agent shall countersign and deliver in exchange
therefor a new Rights Certificate evidencing the same number of Rights as did
the Rights Certificate so surrendered. 

(b)

If there shall be delivered to the
Corporation and the Rights Agent prior to the Expiration Time (i) evidence of
ownership of any Rights Certificate, (ii) evidence to their satisfaction of the
destruction, loss or theft of any Rights Certificate and (iii) such security or
indemnity as may be required by each of them in their sole discretion to save
each of them and any of their agents harmless, then, in the absence of notice to
the Corporation or the Rights Agent that such Rights Certificate has been
acquired by a bona fide purchaser, the Corporation shall execute and upon its
request the Rights Agent shall countersign and deliver, in lieu of any such
destroyed, lost or stolen Rights Certificate, a new Rights Certificate
evidencing the same number of Rights as did the Rights Certificate so destroyed,
lost or stolen. 

 

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(c)

As a condition to the issuance of any new
Rights Certificate under this Section 2.7, the Corporation may require the
payment of a sum sufficient to cover any tax or other governmental charge that
may be imposed in relation thereto and any other expenses (including the fees
and expenses of the Rights Agent) connected therewith. 

(d)

Every new Rights Certificate issued
pursuant to this Section 2.7 in lieu of any destroyed, lost or stolen Rights
Certificate shall evidence an original additional contractual obligation of the
Corporation, whether or not the destroyed, lost or stolen Rights Certificate
shall be at any time enforceable by anyone, and shall be entitled to all the
benefits of this Agreement equally and proportionately with any and all other
Rights, duly issued hereunder. 

2.8 

Persons Deemed Owners 

The Corporation, the Rights Agent and
any agent of the Corporation or the Rights Agent may deem and treat the Person,
in whose name a Rights Certificate (or, prior to the Separation Time, the
associated Common Share certificate) is registered as the absolute owner thereof
and of the Rights evidenced thereby for all purposes whatsoever. 

2.9 

Delivery and Cancellation of Certificates

All Rights Certificates surrendered
upon exercise or for redemption, registration of transfer or exchange shall, if
surrendered to any Person other than the Rights Agent, be delivered to the
Rights Agent and, in any case, shall be promptly cancelled by the Rights Agent.
The Corporation may at any time deliver to the Rights Agent for cancellation any
Rights Certificates previously countersigned and delivered hereunder which the
Corporation may have acquired in any manner whatsoever, and all Rights
Certificates so delivered shall be promptly cancelled by the Rights Agent. No
Rights Certificate shall be countersigned in lieu of or in exchange for any
Rights Certificates cancelled as provided in this Section 2.9, except as
expressly permitted by this Agreement. The Rights Agent shall, subject to
applicable law, destroy all cancelled Rights Certificates and deliver a
certificate of destruction to the Corporation. 

2.10 

Agreement of Rights Holders 

Every holder of Rights by accepting the same consents
and agrees with the Corporation and the Rights Agent and with every other holder
of Rights: 

(a)

to be bound by and subject to the
provisions of this Agreement, as amended from time to time in accordance with
the terms hereof, in respect of all Rights held; 

(b)

that, prior to the Separation Time, each
Right will be transferable only together with, and will be transferred by a
transfer of, the associated Common Share; 

(c)

that, after the Separation Time, the
Rights Certificates will be transferable only on the Rights Register as provided
herein; 

(d)

that, prior to due presentment of a Rights
Certificate (or, prior to the Separation Time, the associated Common Share
certificate) for registration of transfer, the Corporation, the Rights Agent and
any agent of the Corporation or the Rights Agent may deem and treat the Person
in whose name the Rights Certificate (or, prior to the Separation Time, the
associated Common Share certificate) is registered as the absolute owner thereof
and of the Rights evidenced thereby (notwithstanding any notations of ownership
or writing on such Rights Certificate or the associated Common Share certificate
made by anyone other than the Corporation or the Rights Agent) for all purposes
whatsoever, and neither the Corporation nor the Rights Agent shall be affected
by any notice to the contrary; 

 

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(e)

that such holder of Rights has waived his
right to receive any fractional Rights or any fractional shares upon exercise of
a Right (except as provided herein); 

(f) 

that, subject to
the provisions of Section 5.4, without the approval of any holder of Rights or
Common Shares and upon the sole authority of the Board of Directors acting in
good faith this Agreement may be supplemented or amended from time to time as
provided herein; and 

(g)

that, notwithstanding anything in this
Agreement to the contrary, neither the Corporation nor the Rights Agent shall
have any liability to any holder of a Right or any other Person as a result of
its inability to perform any of its obligations under this Agreement by reason
of any preliminary or permanent injunction or other order, decree or ruling
issued by a court of competent jurisdiction or by a governmental, regulatory or
administrative agency or commission, or any statute, rule, regulation or
executive order promulgated or enacted by any governmental authority,
prohibiting or otherwise restraining performance of such obligation. 

ARTICLE 3 

ADJUSTMENTS TO THE RIGHTS IN THE EVENT OF CERTAIN TRANSACTIONS
 

3.1 

Flip-in Event 

(a)

Subject to subsections 3.1(b), 5.1(b),
5.1(c) and 5.1(d) hereof, in the event that prior to the Expiration Time a
Flip-in Event shall occur, the Corporation shall take such action as shall be
necessary to ensure and provide that, within 10 Business Days thereafter or such
longer period as may be required to satisfy the requirements of the applicable
securities acts or comparable legislation, except as provided below, each Right
shall thereafter constitute the right to purchase from the Corporation, upon
exercise thereof in accordance with the terms hereof, that number of Common
Shares of the Corporation having an aggregate Market Price on the date of
consummation or occurrence of such Flip-in Event equal to twice the Exercise
Price for an amount in cash equal to the Exercise Price (such right to be
appropriately adjusted in a manner analogous to the applicable adjustment
provided for in Section 2.3 in the event that after such date of consummation or
occurrence an event of a type analogous to any of the events described in
Section 2.3 shall have occurred with respect to such Common Shares). 

(b)

Notwithstanding the foregoing or any other
provisions of this Agreement, upon the occurrence of any Flip-in Event, any
Rights that are or were Beneficially Owned on or after the earlier of the
Separation Time or the Stock Acquisition Date by: 

(i)

an Acquiring Person (or any Affiliate or
Associate of an Acquiring Person or any Person acting jointly or in concert with
an Acquiring Person or any Affiliate or Associate of an Acquiring Person); or

(ii)

a transferee, direct or indirect, of an
Acquiring Person (or any Affiliate or Associate of an Acquiring Person or any
Person acting jointly or in concert with an Acquiring Person or any Affiliate or
Associate of an Acquiring Person) in a transfer made after the date hereof,
whether or not for consideration, that the Board of Directors acting in good
faith has determined is part of a plan, arrangement or scheme of an Acquiring
Person (or any Affiliate or Associate of an Acquiring Person or any Person
acting jointly or in connection with an Acquiring Person or any Affiliate or
Associate of an Acquiring Person) that has the purpose or effect of avoiding
clause (i) of this subsection 3.1(b): 

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shall become void and any holder of
such Rights (including transferees) shall thereafter have no right to exercise
such Rights under any provision of this Agreement and shall not have any other
rights whatsoever in respect of such Rights, whether under any provision of this
Agreement or otherwise. 

(c)

Any Rights Certificate that represents
Rights Beneficially Owned by a Person described in either clause (i) or (ii) of
subsection 3.1(b) or transferred to any nominee of any such Person, and any
Rights Certificate issued upon transfer, exchange, replacement or adjustment of
any other Rights Certificate referred to in this sentence, shall contain the
following legend: 

"The Rights represented by this
Rights Certificate were Beneficially Owned by a Person who was an Acquiring
Person or who was an Affiliate or an Associate of an Acquiring Person (as such
terms are defined in the Rights Agreement) or was acting jointly or in concert
with any of them. This Rights Certificate and the Rights represented hereby
shall become void in the circumstances specified in subsection 3.1(b) of the
Rights Agreement."; 

provided, however, that the Rights
Agent shall not be under any responsibility to ascertain the existence of facts
that would require the imposition of such legend but shall be required to impose
such legend only if instructed to do so by the Corporation or if a holder fails
to certify upon transfer or exchange in the space provided on the Rights
Certificate that such holder is not an Acquiring Person, an Affiliate or
Associate thereof or a Person acting jointly or in concert with any of them. 

ARTICLE 4 

THE RIGHTS AGENT  

4.1 

General 

(a)

The Corporation hereby appoints the Rights
Agent to act as agent for the Corporation and the holders of Rights in
accordance with the terms and conditions hereof, and the Rights Agent hereby
accepts such appointment. The Corporation may from time to time appoint such
co-Rights Agents (the "Co-Rights Agents") as it may deem necessary or
desirable, subject to the consent of the Rights Agent, acting reasonably. In the
event the Corporation appoints one or more Co-Rights Agents, the respective
duties of the Rights Agent and Co-Rights Agents shall be as the Corporation may
determine with the approval of the Rights Agent and Co-Rights Agent. The
Corporation agrees to pay to the Rights Agent reasonable compensation for all
services rendered by it hereunder and, from time to time, on demand of the
Rights Agent, its reasonable expenses and counsel fees and other disbursements
reasonably incurred in the execution and administration of this Agreement and
the exercise and performance of its duties hereunder (including the reasonable
fees and disbursements of any expert retained by the Rights Agent with the
approval of the Corporation, such approval not to be unreasonably withheld). The
Corporation also agrees to indemnify the Rights Agent, its directors, officers,
employees and agents for, and to hold them harmless against, any loss,
liability, cost, claim, action, damage or expense, incurred without gross
negligence, bad faith or wilful misconduct on the part of the Rights Agent or
its directors, officers, employees and agents for anything done, suffered or
omitted by the Rights Agent in connection with the acceptance, execution and
administration of this Agreement and the exercise and performance of its duties
hereunder, including the costs and expenses of defending against any claim of
liability, which right to indemnification will survive the termination of this
Agreement or the resignation or removal of the Rights Agent. 

(b)

The Rights Agent shall be protected and
shall incur no liability for or in respect of any action taken, suffered or
omitted by it in connection with its administration of this Agreement in
reliance upon any certificate for Common Shares, Rights Certificate, certificate
for other securities of the Corporation, instrument of assignment or transfer,
power of attorney, endorsement, affidavit, letter, notice, direction, consent,
certificate, statement, or other paper or document believed by it to be genuine
and to be signed, executed and, where necessary, verified or acknowledged, by
the proper person or persons. 

 

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(c)

The Corporation shall inform the Rights
Agent, in a reasonably timely manner, of events which may materially affect the
administration of this Agreement by the Rights Agent. At any time, upon request,
the Corporation shall provide to the Rights Agent an incumbency certificate with
respect to the current directors and officers of the Corporation. 

4.2 

Merger, Amalgamation or Consolidation or
Change of Name of Rights Agent 

(a)

Any corporation into which the Rights
Agent or any successor Rights Agent may be merged or amalgamated or with which
it may be consolidated, or any corporation resulting from any merger,
amalgamation or consolidation to which the Rights Agent or any successor Rights
Agent is a party or any corporation succeeding to the shareholder or stockholder
services business of the Rights Agent or any successor Rights Agent, will be the
successor to the Rights Agent under this Agreement without the execution or
filing of any paper or any further act on the part of any of the parties hereto,
provided that such corporation would be eligible for appointment as a successor
Rights Agent under the provisions of Section 4.4 hereof. In case, at the time
such successor Rights Agent succeeds to the agency created by this Agreement,
any of the Rights Certificates have been countersigned but not delivered, any
such successor Rights Agent may adopt the countersignature of the predecessor
Rights Agent and deliver such Rights Certificates so countersigned; and in case
at that time any of the Rights Certificates have not been countersigned, any
successor Rights Agent may countersign such Rights Certificates either in the
name of the predecessor Rights Agent or in the name of the successor Rights
Agent; and in all such cases such Rights Certificates will have the full force
provided in the Rights Certificates and in this Agreement. 

(b)

In case at any time the name of the Rights
Agent is changed and at such time any of the Rights Certificates shall have been
countersigned but not delivered, the Rights Agent may adopt the countersignature
under its prior name and deliver Rights Certificates so countersigned; and in
case at that time any of the Rights Certificates shall not have been
countersigned, the Rights Agent may countersign such Rights Certificates either
in its prior name or in its changed name; and in all such cases such Rights
Certificates shall have the full force provided in the Rights Certificates and
in this Agreement. 

4.3 

Duties of Rights Agent 

The Rights Agent undertakes the
duties and obligations imposed by this Agreement upon the following terms and
conditions, by all of which the Corporation and the holders of Rights
Certificates, by their acceptance thereof, shall be bound: 

(a)

The Rights Agent may consult with legal
counsel (who may be legal counsel for the Corporation), and the opinion of such
counsel will be full and complete authorization and protection to the Rights
Agent as to any action taken or omitted by it in good faith and in accordance
with such opinion; the Rights Agent may also, with the approval of the
Corporation (such approval not to be unreasonably withheld) and at the expense
of the Corporation, consult with such other experts as the Rights Agent shall
consider necessary or appropriate to properly carry out the duties and
obligations imposed under this Agreement and the Rights Agent shall be entitled
to act and rely in good faith on the advice of any such expert. 

(b)

Whenever in the performance of its duties
under this Agreement the Rights Agent deems it necessary or desirable that any
fact or matter be proved or established by the Corporation prior to taking or
suffering any action hereunder, such fact or matter (unless other evidence in
respect thereof be herein specifically prescribed) may be deemed to be
conclusively proved and established by a certificate signed by a person believed
by the Rights Agent to be the Chairman of the Board, the President, the Chief
Executive Officer or the Chief Financial Officer of the Corporation and
delivered to the Rights Agent; and such certificate will be full authorization
to the Rights Agent for any action taken or suffered in good faith by it under
the provisions of this Agreement in reliance upon such certificate. 

- 23 - 

(c)

The Rights Agent will be liable hereunder
only for its own gross negligence, bad faith or wilful misconduct. 

(d)

The Rights Agent will not be liable for or
by reason of any of the statements of fact or recitals contained in this
Agreement or in the certificates for Common Shares or the Rights Certificates
(except its countersignature thereof) or be required to verify the same, but all
such statements and recitals are and will be deemed to have been made by the
Corporation only. 

(e)

The Rights Agent will not be under any
responsibility in respect of the validity of this Agreement or the execution and
delivery hereof (except the due authorization, execution and delivery hereof by
the Rights Agent) or in respect of the validity or execution of any Common Share
certificate or Rights Certificate (except its countersignature thereof); nor
will it be responsible for any breach by the Corporation of any covenant or
condition contained in this Agreement or in any Rights Certificate; nor will it
be responsible for any change in the exercisability of the Rights (including the
Rights becoming void pursuant to subsection 3.1(b) hereof) or any adjustment
required under the provisions of Section 2.3 hereof or responsible for the
manner, method or amount of any such adjustment or the ascertaining of the
existence of facts that would require any such adjustment (except with respect
to the exercise of Rights after receipt of the certificate contemplated by
Section 2.3 describing any such adjustment); nor will it by any act hereunder be
deemed to make any representation or warranty as to the authorization of any
Common Shares to be issued pursuant to this Agreement or any Rights or as to
whether any Common Shares will, when issued, be duly and validly authorized,
executed, issued and delivered and fully paid and non-assessable. 

(f)

The Corporation agrees that it will
perform, execute, acknowledge and deliver or cause to be performed, executed,
acknowledged and delivered all such further and other acts, instruments and
assurances as may reasonably be required by the Rights Agent for the carrying
out or performing by the Rights Agent of the provisions of this Agreement. 

(g)

The Rights Agent is hereby authorized and
directed to accept instructions with respect to the performance of its duties
hereunder from any person believed by the Rights Agent to be the Chairman of the
Board, the President, the Chief Executive Officer or the Chief Financial Officer
of the Corporation, and to apply to such persons for advice or instructions in
connection with its duties, and it shall not be liable for any action taken or
suffered by it in good faith in reliance upon instructions of any such person;
it is understood that instructions to the Rights Agent shall, except where
circumstances make it impracticable or the Rights Agent otherwise agrees, be
given in writing and, where not in writing, such instructions shall be confirmed
in writing as soon as reasonably possible after the giving of such instructions.

(h)

The Rights Agent and any shareholder or
stockholder, director, officer or employee of the Rights Agent may buy, sell or
deal in Common Shares, Rights or other securities of the Corporation, or become
pecuniarily interested in any transaction in which the Corporation may be
interested, or contract with or lend money to the Corporation, or otherwise act
as fully and freely as though it were not Rights Agent under this Agreement.
Nothing herein shall preclude the Rights Agent from acting in any other capacity
for the Corporation or for any other legal entity. 

(i)

The Rights Agent may execute and exercise
any of the rights or powers hereby vested in it or perform any duty hereunder
either itself or by or through its attorneys or agents, and the Rights Agent
will not be answerable or accountable for any act, omission, default, neglect or
misconduct of any such attorneys or agents or for any loss to the Corporation
resulting from any such act, omission, default, neglect or misconduct, provided
reasonable care was exercised in the selection and continued employment thereof.

 

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4.4 

Change of Rights Agent 

The Rights Agent may resign and be
discharged from its duties under this Agreement upon 60 days’ notice (or such
lesser notice as is acceptable to the Corporation) in writing mailed to the
Corporation and to each transfer agent of Common Shares by registered or
certified mail, and to the holders of the Rights in accordance with Section 5.9
at the expense of the Corporation. The Corporation may remove the Rights Agent
upon 30 days’ notice in writing given to the Rights Agent and to each transfer
agent of the Common Shares (by personal delivery, or registered or certified
mail). If the Rights Agent should resign or be removed or otherwise become
incapable of acting, the Corporation will appoint a successor to the Rights
Agent. If the Corporation fails to make such appointment within a period of 30
days after such removal or after it has been notified in writing of such
resignation or incapacity by the resigning or incapacitated Rights Agent, then
the resigning Rights Agent, at the expense of the Corporation, or any holder of
any Rights may apply to any court of competent jurisdiction for the appointment
of a new Rights Agent. Any successor Rights Agent, whether appointed by the
Corporation or by such a court, shall be a corporation incorporated under the
laws of Canada or a province thereof. After appointment, the successor Rights
Agent will be vested with the same powers, rights, duties and responsibilities
as if it had been originally named as Rights Agent without further act or deed;
but the predecessor Rights Agent shall, upon the receipt of all outstanding fees
and expenses, deliver and transfer to the successor Rights Agent any property at
the time held by it hereunder, and execute and deliver any further assurance,
conveyance, act or deed necessary for the purpose. Not later than the effective
date of any such appointment, the Corporation will file notice thereof in
writing with the predecessor Rights Agent and each transfer agent of the Common
Shares, and mail a notice thereof in writing to the holders of the Rights.
Failure to give any notice provided for in this Section 4.4, however, or any
defect therein, shall not affect the legality or validity of the resignation or
removal of the Rights Agent or the appointment of the successor Rights Agent, as
the case may be. 

ARTICLE 5 

MISCELLANEOUS  

5.1 

Redemption and Termination 

(a)

The Board of Directors acting in good
faith may, with the prior consent of holders of Common Shares or of the holders
of Rights given in accordance with subsection 5.1(f) or 5.1(g), as the case may
be, at any time prior to the occurrence of a Flip-in Event as to which the
application of Section 3.1 has not been waived pursuant to the provisions of
this Section 5.1, elect to redeem all but not less than all of the then
outstanding Rights at a redemption price of $0.000001 per Right appropriately
adjusted in a manner analogous to the applicable adjustment provided for in
Section 2.3 in the event that an event of the type analogous to any of the
events described in Section 2.3 shall have occurred (such redemption price being
herein referred to as the "Redemption Price"). 

(b)

The Board of Directors acting in good
faith may, with the prior consent of the holders of Common Shares given in
accordance with subsection 5.1(f), determine, at any time prior to the
occurrence of a Flip-in Event as to which the application of Section 3.1 has not
been waived pursuant to this Section 5.1, if such Flip-in Event would occur by
reason of an acquisition of Common Shares otherwise than pursuant to a Take-over
Bid made by means of a Take-over Bid circular to all holders of record of Common
Shares and otherwise than in the circumstances set forth in subsection 5.1(d),
to waive the application of Section 3.1 to such Flip-in Event. In the event that
the Board of Directors proposes such a waiver, the Board of Directors shall
extend the Separation Time to a date subsequent to and not more than 10 Business
Days following the meeting of shareholders called to approve such waiver. 

(c)

The Board of Directors acting in good
faith may, prior to the occurrence of a Flip-in Event as to which the
application of Section 3.1 has not been waived under this clause, determine,
upon prior written notice to the Rights Agent, to waive the application of
Section 3.1 to that Flip-in Event provided that the Flip-in Event would occur by
reason of a Take-over Bid made by means of a Take-over Bid circular sent to all
holders of record of Common Shares; further, provided that if the Board waives
the application of Section 3.1 to such a Flip-in Event, the Board of Directors
shall be deemed to have waived the application of Section 3.1 to any other
Flip-in Event occurring by reason of any Take-over Bid made by means of a
Take-over Bid circular to all holders of record of Common Shares which is made
prior to the expiry of any Take-over Bid in respect of which a waiver is, or is
deemed to have been, granted under this subsection 5.1(c). 

- 25 - 

(d)

The Board of Directors acting in good
faith may, in respect of any Flip-in Event, waive the application of Section 3.1
to that Flip-in Event, provided that both of the following conditions are
satisfied: 

(i)

the Board of Directors has determined that
the Acquiring Person became an Acquiring Person by inadvertence and without any
intent or knowledge that it would become an Acquiring Person; and 

(ii)

such Acquiring Person has reduced its
Beneficial Ownership of Common Shares such that at the time of waiver pursuant
to this subsection 5.1(d) it is no longer an Acquiring Person. 

(e)

Where, pursuant to a Permitted Bid, a
Competing Permitted Bid or a Take-over Bid in respect of which the Board of
Directors has waived, or is deemed to have waived, pursuant to subsection
5.1(c), the application of Section 3.1, a Person acquires outstanding Common
Shares, then the Board of Directors shall immediately upon the consummation of
such acquisition without further formality and without any approval under
subsection 5.4(b) or (c) be deemed to have elected to redeem the Rights at the
Redemption Price. 

(f)

If a redemption of Rights pursuant to
subsection 5.1(a) or a waiver of a Flip-in Event pursuant to subsection 5.1(b)
is proposed at any time prior to the Separation Time, such redemption or waiver
shall be submitted for approval to the holders of Common Shares. Such approval
shall be deemed to have been given if the redemption or waiver is approved by
the affirmative vote of a majority of the votes cast by Independent Shareholders
represented in person or by proxy at a meeting of such holders duly held in
accordance with applicable laws and the Corporation’s by-laws. 

(g)

If a redemption of Rights pursuant to
subsection 5.1(a) is proposed at any time after the Separation Time, such
redemption shall be submitted for approval to the holders of Rights. Such
approval shall be deemed to have been given if the redemption is approved by
holders of Rights by a majority of the votes cast by the holders of Rights
represented in person or by proxy at and entitled to vote at a meeting of such
holders. For the purposes hereof, each outstanding Right (other than Rights
which are Beneficially Owned by any Person referred to in clauses (i) to (v)
inclusive of the definition of Independent Shareholders) shall be entitled to
one vote, and the procedures for the calling, holding and conduct of the meeting
shall be those, as nearly as may be, which are provided in the Corporation’s
by-laws and the Business Corporations Act with respect to meetings of
shareholders of the Corporation. 

(h)

Where a Take-over Bid that is not a
Permitted Bid is withdrawn or otherwise terminated after the Separation Time has
occurred and prior to the occurrence of a Flip-in Event, the Board may elect to
redeem all the outstanding Rights at the Redemption Price. Upon such redemption,
all of the provisions of this Agreement shall continue to apply as if the
Separation Time had not occurred and it shall be deemed not to have occurred and
the Corporation shall be deemed to have issued replacement Rights to the holders
of its then outstanding Common Shares, subject to and in accordance with the
provisions of this Agreement. 

(i)

If the Board of Directors elects or is
deemed to have elected to redeem the Rights, and, in circumstances where
subsection 5.1(a) is applicable, such redemption is approved by the holders of
Common Shares or the holders of Rights in accordance with subsection 5.1(f) or
(g), as the case may be, the right to exercise the Rights will thereupon,
without further action and without notice, terminate and the only right
thereafter of the holders of Rights will be to receive the Redemption Price.

 

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(j)

Within 10 Business Days of the Board of
Directors electing or having been deemed to have elected to redeem the Rights
or, if subsection 5.1(a) is applicable within 10 Business Days after the holders
of Common Shares or the holders of Rights have approved a redemption of Rights
in accordance with subsection 5.1(f) or 5.1(g), as the case may be, the
Corporation shall give notice of redemption to the holders of the then
outstanding Rights by mailing such notice to each such holder at its last
address as it appears upon the register of the Rights Agent or, prior to the
Separation Time, on the register of the transfer agent for the Common Shares.
Any notice which is mailed in the manner herein provided will be deemed given,
whether or not the holder receives the notice. Each such notice of redemption
will state the method by which the payment of the Redemption Price will be made.
The Corporation may not redeem, acquire or purchase for value any Rights at any
time in any manner other than that specifically set forth in this Section 5.1 or
in connection with the purchase of Common Shares prior to the Separation Time.

(k)

The Corporation shall give prompt written
notice to the Rights Agent of any waiver of the application of Section 3.1 made
by the Board of Directors under this Section 5.1. 

5.2 

Expiration 

No Person shall have any rights pursuant to this
Agreement or in respect of any Right after the Expiration Time, except the
Rights Agent as specified in subsection 4.1(a) of this Agreement. 

5.3 

Issuance of New Rights Certificates 

Notwithstanding any of the provisions
of this Agreement or of the Rights to the contrary, the Corporation may, at its
option, issue new Rights Certificates evidencing Rights in such form as may be
approved by the Board of Directors to reflect any adjustment or change in the
number of or kind or class of shares purchasable upon exercise of Rights made in
accordance with the provisions of this Agreement. 

5.4 

Supplements and Amendments 

(a)

The Corporation may make amendments to
this Agreement to correct any clerical or typographical error or which are
required to maintain the validity of this Agreement as a result of any change in
any applicable legislation, rules or regulations thereunder. The Corporation
may, prior to the date of the shareholders’ meeting referred to in Section 5.18,
supplement, amend, vary, rescind or delete any of the provisions of this
Agreement without the approval of any holders of Rights or Common Shares
(provided that such action would not materially adversely affect the interests
of the holders of Rights generally) where the Board of Directors acting in good
faith deems such action necessary or desirable. Notwithstanding anything in this
Section 5.4 to the contrary, no such supplement or amendment shall be made to
the provisions of Article 4 except with the written concurrence of the Rights
Agent to such supplement or amendment. 

(b)

Subject to subsection 5.4(a), the
Corporation may, with the prior consent of the holders of Common Shares,
obtained as set forth below, at any time prior to the Separation Time,
supplement, amend, vary, rescind or delete any of the provisions of this
Agreement and the Rights (whether or not such action would materially adversely
affect the interests of the holders of Rights generally). Such consent shall be
deemed to have been given if the action requiring such approval is authorized by
the affirmative vote of a majority of the votes cast by Independent Shareholders
present or represented at and entitled to be voted at a meeting of the holders
of Common Shares duly called and held in compliance with applicable laws and the
articles and by-laws of the Corporation. 

(c)

The Corporation may, with the prior
consent of the holders of Rights, at any time on or after the Separation Time,
supplement, amend, vary, rescind or delete any of the provisions of this
Agreement and the Rights (whether or not such action would materially adversely
affect the interests of the holders of Rights generally), provided that no such
amendment, variation or deletion shall be made to the provisions of Article 4
except with the written concurrence of the Rights Agent thereto. Such consent
shall be deemed to have been given if such amendment, variation or deletion is
authorized by the affirmative votes of the holders of Rights present or
represented at and entitled to be voted at a meeting of the holders held in
accordance with subsection 5.4(d) and representing 50% plus one of the votes
cast in respect thereof. 

 

- 27 - 

(d)

Any approval of the holders of Rights
shall be deemed to have been given if the action requiring such approval is
authorized by the affirmative votes of the holders of Rights present or
represented at and entitled to be voted at a meeting of the holders of Rights
and representing a majority of the votes cast in respect thereof. For the
purposes hereof, each outstanding Right (other than Rights which are void
pursuant to the provisions hereof) shall be entitled to one vote, and the
procedures for the calling, holding and conduct of the meeting shall be those,
as nearly as may be, which are provided in the Corporation’s by-laws and the 
Business Corporations Act with respect to meetings of shareholders of the
Corporation. 

(e)

Any amendment made by the Corporation to
this Agreement pursuant to subsection 5.4(a), other than any amendment to
correct any clerical or typographical error, shall: 

(f)

if made before the Separation Time, be
submitted to the shareholders of the Corporation at the next meeting of
shareholders and the shareholders may, by the majority referred to in subsection
5.4(b), confirm or reject such amendment; and 

(i)

if made after the Separation Time, be
submitted to the holders of Rights at a meeting to be called for on a date not
later than immediately following the next meeting of shareholders of the
Corporation and the holders of Rights may, by resolution passed by the majority
referred to in subsection 5.4(d), confirm or reject such amendment. 

Any such amendment shall be effective
from the date of the resolution of the Board of Directors adopting such
amendment until it is confirmed or rejected or until it ceases to be effective
(as described in the next sentence) and, where such amendment is confirmed, it
continues in effect in the form so confirmed. If such amendment is rejected by
the shareholders or the holders of Rights or is not submitted to the
shareholders or holders of Rights as required, then such amendment shall cease
to be effective from and after the termination of the meeting at which it was
rejected or to which it should have been but was not submitted or from and after
the date of the meeting of holders of Rights that should have been but was not
held, and no subsequent resolution of the Board of Directors to amend this
Agreement to substantially the same effect shall be effective until confirmed by
the shareholders or holders of Rights as the case may be. 

(g)

The Corporation shall be required to
provide the Rights Agent with notice in writing of any such amendment,
rescission or variation to this Agreement as referred to in this Section 5.4
within five days of effecting such amendment, rescission or variation. 

(h)

Any supplement or amendment to this
Agreement pursuant to subsection 5.4(b) through 5.4(e) shall be subject to the
receipt of any requisite approval or consent from any governmental or regulatory
authority having jurisdiction over the Corporation, including without limitation
any requisite approval of stock exchanges on which the Common Shares are listed.

5.5 

Fractional Rights and Fractional Shares

(a)

The Corporation shall not be required to
issue fractions of Rights or to distribute Rights Certificates which evidence
fractional Rights. After the Separation Time there shall be paid to the
registered holders of the Rights Certificates, with regard to which fractional
Rights would otherwise be issuable, an amount in cash equal to the same fraction
of the Market Price of a whole Right in lieu of such fractional Rights as of the
date such fractional Rights would otherwise be issuable. The Rights Agent shall
have no obligation to make any payments in lieu of fractional Rights unless the
Corporation shall have provided the Rights Agent with the necessary funds to pay
in full all amounts payable in accordance with subsection 2.2(e). 

 

- 28 - 

(b)

The Corporation shall not be required to
issue fractional Common Shares upon exercise of the Rights or to distribute
certificates which evidence fractional Common Shares. In lieu of issuing
fractional Common Shares, the Corporation shall pay to the registered holder of
Rights Certificates, at the time such Rights are exercised as herein provided,
an amount in cash equal to the same fraction of the Market Price of one Common
Share at the date of such exercise. The Rights Agent shall have no obligation to
make any payments in lieu of fractional Common Shares unless the Corporation
shall have provided the Rights Agent with the necessary funds to pay in full all
amounts payable in accordance with subsection 2.2(e). 

5.6 

Rights of Action 

Subject to the terms of this
Agreement, rights of action in respect of this Agreement, other than rights of
action vested solely in the Rights Agent, are vested in the respective holders
of the Rights and any holder of any Rights, without the consent of the Rights
Agent or of the holder of any other Rights, may, on such holder’s own behalf and
for such holder’s own benefit and the benefit of other holders of Rights,
enforce, and may institute and maintain any suit, action or proceeding against
the Corporation to enforce, or otherwise act in respect of, such holder’s right
to exercise such holder’s Rights, or Rights to which he is entitled, in the
manner provided in this Agreement and in such holder’s Rights Certificate.
Without limiting the foregoing or any remedies available to the holders of
Rights, it is specifically acknowledged that the holders of Rights would not
have an adequate remedy at law for any breach of this Agreement and will be
entitled to specific performance of the obligations under, and injunctive relief
against actual or threatened violations of, the obligations of any Person
subject to this Agreement. 

5.7 

Holder of Rights Not Deemed a Shareholder

No holder, as such, of any Rights
shall be entitled to vote, receive dividends or be deemed for any purpose the
holder of Common Shares or any other securities which may at any time be
issuable on the exercise of Rights, nor shall anything contained herein or in
any Rights Certificate be construed to confer upon the holder of any Rights, as
such, any of the rights of a shareholder of the Corporation or any right to vote
for the election of directors or upon any matter submitted to shareholders at
any meeting thereof, or to give or withhold consent to any corporate action, or
to receive notice of meetings or other actions affecting shareholders (except as
provided in Section 5.8 hereof), or to receive dividends or subscription rights
or otherwise, until such Rights, or Rights to which such holder is entitled,
shall have been exercised in accordance with the provisions hereof. 

5.8 

Notice of Proposed Actions 

In case the Corporation shall propose after the
Separation Time and prior to the Expiration Time: 

(a)

to effect or permit (in cases where the
Corporation’s permission is required) any Flip-in Event; or 

(b)

to effect the liquidation, dissolution or
winding up of the Corporation or the sale of all or substantially all of the
Corporation’s assets, 

then, in each such case, the
Corporation shall give to each holder of a Right, in accordance with Section 5.9
hereof, a notice of such proposed action, which shall specify the date on which
such Flip-in Event, liquidation, dissolution, or winding up is to take place,
and such notice shall be so given at least 10 Business Days prior to the date of
taking of such proposed action by the Corporation. 

5.9 

Notices 

Notices or demands to be given or
made in connection with this Agreement by the Rights Agent or by the holder of
any Rights to or on the Corporation shall be sufficiently given or made if
delivered or sent by mail, postage prepaid or by fax (with, in the case of fax,
an original copy of the notice or demand sent by first class mail, postage
prepaid, to the Corporation following the giving of the notice or demand by
fax), addressed (until another address is filed in writing with the Rights
Agent) as follows: 

 

- 29 - 

	
     
	
    Micromem
    Technologies Inc.

	
     
	
    777 Bay
    Street

	
     
	
    Suite 1910
	
     

	
     
	
    Toronto,
    Ontario

	
     
	
    M5G 2C8
	
     

	
     
	
    Attention:
	
    Dan Amadori

	
     
	
    Fax:
	
    416-360-4034

Notices or demands to be given or made in connection with
this Agreement by the Corporation or by the holder of any Rights to or on the
Rights Agent shall be sufficiently given or made if delivered or sent by mail,
postage prepaid, or by fax (with, in the case of fax, an original copy of the
notice or demand sent by first class mail, postage prepaid, to the Rights Agent
following the giving of the notice or demand by fax), addressed (until another
address is filed in writing with the Corporation) as follows: 

	
     
	
    Equity
    Transfer & Trust Company

	
     
	
    200
    University Avenue

	
     
	
    Suite 400
	
     

	
     
	
    Toronto,
    Ontario

	
     
	
    M5H 4H1
	
     

	
     
	
    Attention:
	
    Manager, Corporate
    Trust

	
     
	
    Fax:
	
    416-361-0470

Notices or demands to be given or made in connection with
this Agreement by the Corporation or the Rights Agent to or on the holder of any
Rights shall be sufficiently given or made if delivered or sent by first class
mail, postage prepaid, or by fax (with, in the case of fax, an original copy of
the notice or demand sent by first class mail, postage prepaid, to such holder
following the giving of the notice or demand by fax), addressed to such holder
at the address of such holder as it appears upon the register of the Rights
Agent or, prior to the Separation Time, on the register of the transfer agent
for the Common Shares. 

Any notice given or made in accordance with this Section 5.9
shall be deemed to have been given and to have been received on the day of
delivery, if so delivered, on the third Business Day (excluding each day during
which there exists any general interruption of postal service due to strike,
lockout or other cause) following the mailing thereof, if so mailed, and on the
day of faxing (provided such sending is during the normal business hours of the
addressee on a Business Day and if not, on the first Business Day thereafter).
Each of the Corporation and the Rights Agent may from time to time change its
address for notice by notice to the other given in the manner aforesaid. 

If mail service is or is threatened to be interrupted at a
time when the Corporation or the Rights Agent wishes to give a notice or demand
hereunder to or on the holders of the Rights, the Corporation or the Rights
Agent may, notwithstanding the foregoing provisions of this Section 5.9, give
such notice by means, of publication once in each of two successive weeks in the
business section of The Globe and Mail and, so long as the Corporation has a
transfer agent in the United States, in a daily publication in the United States
designated by the Corporation, or in such other publication or publications as
may be designated by the Corporation and notice so published shall be deemed to
have been given on the date on which the first publication of such notice in any
such publication has taken place. 

 

- 30 - 

5.10 

Costs of Enforcement 

The Corporation agrees that if the
Corporation fails to fulfil any of its obligations pursuant to this Agreement,
then the Corporation will reimburse the holder of any Rights for the costs and
expenses (including legal fees) incurred by such holder in actions to enforce
his rights pursuant to any Rights or this Agreement. 

5.11 

Successors 

All the covenants and provisions of this Agreement by
or for the benefit of the Corporation or the Rights Agent shall bind and enure
to the benefit of their respective successors and assigns hereunder. 

5.12 

Benefits of this Agreement 

Nothing in this Agreement shall be
construed to give to any Person other than the Corporation, the Rights Agent and
the holders of the Rights any legal or equitable right, remedy or claim under
this Agreement; but this Agreement shall be for the sole and exclusive benefit
of the Corporation, the Rights Agent and the holders of the Rights. 

5.13 

Descriptive Headings 

Descriptive headings appear herein for convenience
only and shall not control or affect the meaning or construction of any of the
provisions hereof. 

5.14 

Governing Law 

This Agreement and each Right issued
hereunder shall be deemed to be a contract made under the laws of the Province
of Ontario and for all purposes shall be governed by and construed in accordance
with the laws of such Province applicable to contracts to be made and performed
entirely within such Province. 

5.15 

Language 

Les parties aux présentes ont exigé
que la présente convention ainsi que tous les documents et avis qui s’y
rattachent et/ou qui en découleront soient rédigés en langue anglaise. The
parties hereto have required that this Agreement and all documents and notices
related thereto and/or resulting therefrom be drawn up in the English language.

5.16 

Counterparts 

This Agreement may be executed in any
number of counterparts and each of such counterparts shall for all purposes be
deemed to be an original, and all such counterparts shall together constitute
but one and the same instrument. 

5.17 

Severability 

If any term or provision hereof or
the application thereof to any circumstance is, in any jurisdiction and to any
extent, invalid or unenforceable, such term or provision shall be ineffective as
to such jurisdiction to the extent of such invalidity or unenforceability
without invalidating or rendering unenforceable the remaining terms and
provisions hereof or the application of such term or provision to circumstances
other than those as to which it is held invalid or unenforceable. 

5.18 

Effective Date 

This Agreement (subject to receipt of
the approval of the Independent Shareholders and the holders of all Common
Shares as set forth below) is effective from the Effective Date. If this
Agreement is not approved by resolution passed by a majority of the votes cast
by (a) Independent Shareholders, and (b) all holders of Common Shares, at a
meeting of shareholders to be held not later than the date on which the 2008
annual meeting of shareholders of the Corporation terminates, then this
Agreement shall terminate and be void and of no further force and effect. 

 

- 31 - 

5.19 

Shareholder Review 

If required by the rules and
regulations of any stock exchange on which the Common Shares are then listed, at
or prior to the annual meeting of the shareholders of the Corporation in 2011,
provided that a Flip-in Event has not occurred prior to such time, the Board of
Directors shall submit a resolution ratifying the continued existence of this
Agreement to all holders of Common Shares for their consideration and, if
thought advisable, approval. If such approval is not required by the rules and
regulations of any stock exchange on which the Common Shares are then listed, at
or prior to the annual meeting of the shareholders of the Corporation in 2011,
provided that a Flip-in Event has not occurred prior to such time, the Board of
Directors shall submit a resolution ratifying the continued existence of this
Agreement to the Independent Shareholders for their consideration and, if
thought advisable, approval. Unless the majority of the votes cast by all
holders of Common Shares or the Independent Shareholders, as applicable, who
vote in respect of such resolution are voted in favour of the continued
existence of this Agreement, the Board of Directors shall, immediately upon the
confirmation by the Chairman of such shareholders’ meeting of the results of the
votes on such resolution and without further formality, be deemed to elect to
redeem the Rights at the Redemption Price. 

5.20 

Regulatory Approvals 

Any obligation of the Corporation or
action or event contemplated by this Agreement shall be subject to the receipt
of any requisite approval or consent from any governmental or regulatory
authority. Without limiting the generality of the foregoing, any issuance or
delivery of debt or equity securities (other than non-convertible debt
securities) of the Corporation upon the exercise of Rights and any amendment or
supplement to this Agreement shall be subject to the prior consent of any
exchange upon which the Common Shares of the Corporation may be listed if so
required by such exchange. 

5.21 

Declaration as to Non-Canadian and Non-U.S.
Holders 

If in the opinion of the Board of
Directors (who may rely upon the advice of counsel), any action or event
contemplated by this Agreement would require compliance with the securities laws
or comparable legislation of a jurisdiction outside Canada and the United States
of America, its territories and possessions, the Board of Directors acting in
good faith may take such actions as it may deem appropriate to ensure that such
compliance is not required, including without limitation establishing procedures
for the issuance to a Canadian resident Fiduciary of Rights or securities
issuable on exercise of Rights, the holding thereof in trust for the Persons
entitled thereto (but reserving to the Fiduciary or to the Fiduciary and the
Corporation, as the Corporation may determine, absolute discretion with respect
thereto) and the sale thereof and remittance of the proceeds of such sale, if
any, to the Persons entitled thereto. In no event shall the Corporation or the
Rights Agent be required to issue or deliver Rights or securities issuable on
exercise of Rights to Persons who are citizens, residents or nationals of any
jurisdiction other than Canada and a province or territory thereof and the
United States of America and any state thereof in which such issue or delivery
would be unlawful without registration of the relevant Persons or securities for
such purposes. 

5.22 

Determinations and Actions by the Board of
Directors 

All actions and determinations
(including all omissions with respect to the foregoing) which are done or made
by the Board of Directors pursuant to this Agreement, in good faith, shall not
subject any member of the Board of Directors to any liability whatsoever to the
holders of the Rights. 

 

- 32 - 

IN WITNESS WHEREOF, the parties hereto have caused
this Agreement to be duly executed as of the date first above written. 

 

  	
      
      MICROMEM TECHNOLOGIES INC.

	
       
	
       
	
       

	
      PER:
	
       
	
      
      "Joseph Fuda"

	
       
	
      
      Name:
	
      
      Joseph Fuda

	
       
	
      Title:
	
      Chief Executive
      Officer

	
       
	
       
	
       

	
      
      EQUITY TRANSFER & TRUST COMPANY

	
       
	
       
	
       

	
      PER:
	
       
	
      
      "Josette Koffyberg"

	
       
	
      
      Name:
	
      
      Josette Koffyberg

	
       
	
      Title:
	
      Officer, Corporate
      Trust

	
       
	
       
	
       

	
      PER:
	
       
	
      
      "Carol Mikos"

	
       
	
      
      Name:
	
      
      Carol Mikos

	
       
	
      Title:
	
      Senior Advisor Trust
      Services

 

EXHIBIT A 

FORM OF RIGHTS CERTIFICATE 

	
    Certificate No.                      
    
	
                          
    Rights

THE RIGHTS ARE SUBJECT TO REDEMPTION, AT THE OPTION OF THE
CORPORATION, ON THE TERMS SET FORTH IN THE RIGHTS AGREEMENT. IN CERTAIN
CIRCUMSTANCES (SPECIFIED IN SUBSECTION 3.1(b) OF THE RIGHTS AGREEMENT), RIGHTS
BENEFICIALLY OWNED BY AN ACQUIRING PERSON OR TRANSFEREE OF AN ACQUIRING PERSON
OR ITS AFFILIATES OR ASSOCIATES (AS SUCH TERMS ARE DEFINED IN THE RIGHTS
AGREEMENT) OR ANY PERSON ACTING JOINTLY OR IN CONCERT WITH ANY OF THEM MAY
BECOME VOID. 

Rights Certificate 

This certifies that
_________________________________________________ is the registered holder of
the number of Rights set forth above, each of which entitles the registered
holder thereof, subject to the terms, provisions and conditions of the
Shareholder Rights Plan Agreement dated as of May 29, 2008, as such may from
time to time be amended, restated, varied or replaced, (the "Rights Agreement")
between Micromem Technologies Inc., a corporation organized under the laws of
Ontario (the "Corporation"), and Equity Transfer & Trust Company, a
company incorporated under the laws of Canada, as Rights Agent (the "Rights
Agent"), which term shall include any successor Rights Agent under the
Rights Agreement, to purchase from the Corporation at any time after the
Separation Time (as such term is defined in the Rights Agreement) and prior to
the Expiration Time (as such term is defined in the Rights Agreement), one fully
paid common share of the Corporation (a "Common Share") at the Exercise
Price referred to below, upon presentation and surrender of this Rights
Certificate together with the Form of Election to Exercise duly executed to the
Rights Agent at its principal office in the City of Toronto or in such other
cities as may be designated by the Corporation from time to time. Until
adjustment thereof in certain events as provided in the Rights Agreement, the
Exercise Price shall be: (i) until the Separation Time, an amount equal to three
times the Market Price (as such term is defined in the Rights Agreement), from
time to time, per Common Share; and (ii) from and after the Separation Time, an
amount equal to three times the Market Price, as at the Separation Time, per
Common Share. The Exercise Price shall initially be $● per Right accompanied by
payment by certified cheque, banker’s draft or money order, payable to the order
of the Corporation. 

In certain circumstances described in the Rights
Agreement, the number of Common Shares which each Right entitles the registered
holder thereof to purchase shall be adjusted as provided in the Rights
Agreement. 

This Rights Certificate is subject to
all of the terms, provisions and conditions of the Rights Agreement which terms,
provisions and conditions are hereby incorporated herein by reference and made a
part hereof and to which Rights Agreement reference is hereby made for a full
description of the rights, limitations of rights, obligations, duties and
immunities thereunder of the Rights Agent, the Corporation and the holders of
the Rights Certificates. Copies of the Rights Agreement are on file at the
registered office of the Corporation and are available upon written request. 

This Rights Certificate, with or
without other Rights Certificates, upon surrender at any of the offices of the
Rights Agent designated for such purpose, may be exchanged for another Rights
Certificate or Rights Certificates of like tenor and date evidencing an
aggregate number of Rights equal to the aggregate number of Rights evidenced by
the Rights Certificate or Rights Certificates surrendered. If this Rights
Certificate shall be exercised in part, the registered holder shall be entitled
to receive, upon surrender hereof, another Rights Certificate or Rights
Certificates for the number of whole Rights not exercised. 

Subject to the provisions of the
Rights Agreement, the Rights evidenced by this Rights Certificate may be
redeemed by the Corporation at a redemption price of $0.000001 per Right,
subject to adjustment in certain events, under certain circumstances at its
option. 

No fractional Common Shares will be issued upon the
exercise of any Rights evidenced hereby, but in lieu thereof a cash payment will
be made, as provided in the Rights Agreement. 

-2-

No holder of this Rights Certificate,
as such, shall be entitled to vote or receive dividends or be deemed for any
purpose the holder of Common Shares or of any other securities which may at any
time be issuable upon the exercise hereof, nor shall anything contained in the
Rights Agreement or herein be construed to confer upon the holder hereof, as
such, any of the Rights of a shareholder of the Corporation or any right to vote
for the election of directors or upon any matter submitted to shareholders at
any meeting thereof, or to give or withhold consent to any corporate action, or
to receive notice of meetings or other actions affecting shareholders (except as
provided in the Rights Agreement), or to receive dividends or subscription
rights, or otherwise, until the Rights evidenced by this Rights Certificate
shall have been exercised as provided in the Rights Agreement. 

This Rights Certificate shall not be valid or
obligatory for any purpose until it shall have been countersigned by the Rights
Agent. 

WITNESS the facsimile signature of the proper
officers of the Corporation and its corporate seal. 

	
    Date:                                                                                                    
    

	
     

	
    MICROMEM
    TECHNOLOGIES INC.

	
     

	
    By:                                                                                                        
    

	
    Authorized Officer

	
     

	
     

	
    Countersigned:

	
     

	
    EQUITY TRANSFER &
    TRUST COMPANY

	
     

	
    By:                                                                                                        
    

	
    Authorized Signature

 

FORM OF ASSIGNMENT 

(To be executed by the registered holder if such holder
desires to transfer the Rights represented by this Rights Certificate.) 

	
    FOR VALUE RECEIVED
	
     

	
     
	
     

	
    hereby sells, assigns
    and transfers to
	
     

	
     
	
    
    (Please print name and address of transferee)

	
     
	
     

	
    the
    Rights represented by this Rights Certificate, together with all right,
    title and interest therein, and hereby irrevocably constitutes and appoints
    as attorney, to transfer the within Rights on the books of the Corporation,
    with full power of substitution.

 

	
    Dated:
	
     	
     

	
     
	
     	
     

	
    Signature Guaranteed:
	
     	
     

	
     
	
     	
    
    Signature

	
     
	
     	
     

	
     
	
     	
    (Signature must
    correspond to name as written upon the face of this Rights Certificate in
    every particular, without alteration or enlargement or any change
    whatsoever.)

Signature must be guaranteed by a Canadian Schedule 1
chartered bank, a member of a recognized stock exchange or a member of a
recognized Medallion Program (STAMP, MSP or SEMP). 

 

  (To be completed if true)

The undersigned hereby represents, for the benefit of all
holders of Rights and Common Shares, that the Rights evidenced by this Rights
Certificate are not, and, to the knowledge of the undersigned, have never been,
Beneficially Owned by an Acquiring Person or an Affiliate or Associate thereof
or by any Person acting jointly or in concert with any of the foregoing (all
capitalized terms, and the phrase "acting jointly or in concert", are used as
defined in the Rights Agreement). 

	
    Dated:
	
     
	
     	
    Signature:
	
     

	
     
	
     	
     

	
     
	
     	
    (Signature
    must correspond to name as written upon the face of this Rights Certificate
    in every particular, without alteration or enlargement or any change
    whatsoever.)

NOTICE 

In the event the certification set
forth above in the Form of Election to Exercise is not completed upon exercise
of the Right(s) evidenced hereby or in the event that the certification set
forth above in the Form of Assignment is not completed upon the assignment of
the Right(s) evidenced hereby, the Corporation will deem the Beneficial Owner of
the Right(s) evidenced by this Rights Certificate to be an Acquiring Person or
an Affiliate or Associate thereof or a Person acting jointly or in concert with
any of them (each as defined in the Rights Agreement) and, in the case of an
assignment, will affix a legend to that effect on any Rights Certificates issued
in exchange for this Rights Certificate. 

(To be attached to each Rights Certificate) 

FORM OF ELECTION TO EXERCISE 

TO: MICROMEM TECHNOLOGIES INC. 

The undersigned hereby irrevocably elects to exercise
______________________ whole Rights represented by the attached Rights
Certificate to purchase the Common Shares (or other securities or property)
issuable upon the exercise of such Rights and requests that certificates for
such shares (or other, securities or title to such property) be issued in the
name of: 

  
  	
       

	
      (Name)

	
       

	
       

	
      (Street)

	
       

	
       

	
      
      (City and State or Province)

	
       

	
       

	
      
      (Country, Postal Code or Zip Code)

	
       

	
       

	
      
      SOCIAL INSURANCE, SOCIAL SECURITY OR

	
      OTHER TAXPAYER IDENTIFICATION
      NUMBER

  

 

-2-

If such number of Rights shall not be all the Rights
evidenced by this Rights Certificate, a new Rights Certificate for the balance
of such Rights shall be registered in the name of and delivered to: 

  
  	
       

	
      (Name)

	
       

	
       

	
      (Street)

	
       

	
       

	
      
      (City and State or Province)

	
       

	
       

	
      
      (Country, Postal Code or Zip Code)

	
       

	
       

	
      
      SOCIAL INSURANCE, SOCIAL SECURITY OR

	
      OTHER TAXPAYER IDENTIFICATION
      NUMBER

  

 

	
    Dated:
	
     	
     

	
     
	
     	
     

	
    Signature Guaranteed:
	
     	
     

	
     
	
     	
    
    Signature

	
     
	
     	
     

	
     
	
     	
    (Signature must
    correspond to name as written upon the face of this Rights Certificate in
    every particular, without alteration or enlargement or any change
    whatsoever.)

Signature must be guaranteed by a Canadian Schedule 1
chartered bank, a member of a recognized stock exchange or a member of a
recognized Medallion Program (STAMP, MSP or SEMP). 

 

  (To be completed if true)

The undersigned hereby represents, for the benefit of all
holders of Rights and Common Shares, that the Rights evidenced by this Rights
Certificate are not, and, to the knowledge of the undersigned, have never been,
Beneficially Owned by an Acquiring Person or an Affiliate or Associate thereof
or by any Person acting jointly or in concert with any of the foregoing (all
capitalized terms, and the phrase "acting jointly or in concert", are used as
defined in the Rights Agreement). 

	
    Dated:
	
    
	
    	
    Signature:
	
    

	
    
	
    	
    

	
     
	
     	
    (Signature
    must correspond to name as written upon the face of this Rights Certificate
    in every particular, without alteration or enlargement or any change
    whatsoever.)

NOTICE 

In the event the certification set
forth above in the Form of Election to Exercise is not completed upon exercise
of the Right(s) evidenced hereby or in the event that the certification set
forth above in the Form of Assignment is not completed upon the assignment of
the Right(s) evidenced hereby, the Corporation will deem the Beneficial Owner of
the Right(s) evidenced by this Rights Certificate to be an Acquiring Person or
an Affiliate or Associate thereof or a Person acting jointly or in concert with
any of them (each as defined in the Rights Agreement) and, in the case of an
assignment, will affix a legend to that effect on any Rights Certificates issued
in exchange for this Rights Certificate.EX-10.1

AMENDMENT

This Amendment (the “Amendment”) to the Agreement dated April 7, 2008 (the “Agreement”) by and
between Timeline, Inc. (“Assignor”) and Acacia Patent Acquisition LLC (“APAC”)
(collectively referred to herein as the “Parties”) is effective as of the date on which the last
Party executes this Amendment below (the “Amendment Date”). Capitalized terms used herein shall
have the same meaning as those terms defined in the Agreement.

BACKGROUND

WHEREAS, the Parties entered into the Agreement for the purpose of the transfer of ownership and
assignment of the Patents from Assignor to APAC; and

WHEREAS, both Assignor and APAC desire to amend the Agreement as detailed herein.

NOW, THEREFORE, in consideration of the promises and mutual covenants contained herein, and for
other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged
by the Parties, Assignor and APAC agree as follows:

	1.	 	Refer to Section 1.2 of the Agreement, remove the existing language and replace with the
following language:

“Investigation Period. Assignor acknowledges and agrees that APAC shall undertake
and perform a due diligence investigation of the Patents during the period of up to sixty
(60) days following the Effective Date (the “Investigation Period”) for the purpose of
forming its conclusions regarding the investigation of the Patents. In consideration of
APAC’s due diligence investigation of the Patents, Assignor agrees that, during the
Investigation Period and for the period up and until the completion of the Shareholder
Approval process as set forth in Section 1.5, Assignor shall not discuss, negotiate or
pursue with any third parties any offers or proposals with respect to or otherwise relating
to any of the Patents. Assignor agrees to cooperate with APAC and to promptly provide to
APAC any reasonably requested information regarding the Patents, including prompt delivery
for receipt by APAC no later than seven (7) days following the Effective Date of a copy of
the complete prosecution history of each of the Patents (each a “File History”) and copies
of all files, information and documents in Assignor’s possession or control relating to the
Patents. In the event that (i) any of the File Histories or (ii) any of the files,
information and documents relating to the Patents are not delivered to APAC within the seven
(7) day period following the Effective Date, the Investigation Period shall be automatically
extended by the greater of the number of days for which (i) the last of the File Histories
or (ii) any files, information and documents relating to the Patents is delayed. The
Investigation Period will commence on the Effective Date and conclude on the earlier of:
(a) sixty (60) calendar days following, but not including, the Effective Date, subject to
the extensions set forth in this Section 1.2; or (b) such time as APAC transmits written
notice to Assignor of its conclusion regarding the investigation of the Patents. APAC shall
transmit timely written notice to Assignor or its conclusions regarding the investigation of
the Patents no later than (1) the conclusion of the Investigation Period as detailed in
subsection (a) above; or (2) fifteen (15) days after notification by Assignor to APAC
regarding the Shareholder Approval process, whichever is later.”

	2.	 	Refer to Section 1.5 of the Agreement, remove the existing language and replace with the
following language:

“Shareholder Approval. APAC acknowledges and agrees that Assignor’s obligations
under this Agreement to assign, convey, transfer and sell to APAC the entire right, title,
and interest in and to the Patents, is subject to obtaining the approval of at least a
majority of the shareholders of issued and outstanding shares of Assignor common stock
(“Shareholder Approval”). Promptly following execution of this Agreement, Assignor shall
prepare a proxy statement for the solicitation of approval of the shareholders of Assignor
of this Agreement and the transfer of the Patents. APAC will cooperate with Assignor and
shall provide such information about APAC as Assignor shall reasonably request or as
required by the SEC and as necessary for completion of the proxy statement. Such
Shareholder Approval will be obtained within ninety (90) days following the Effective Date
of this Agreement. In the event the Shareholder Approval process takes longer than ninety
(90) days, APAC shall have the sole and absolute right to terminate this Agreement without
any obligations or liability to Assignor.”

	3.	 	Except as expressly set forth herein, no other terms and conditions of the Agreement are
amended or modified and any surviving terms of the Agreement remain fully binding and
enforceable.

	4.	 	This Amendment may be executed in several counterparts, each of which shall constitute an
original, but all of which together shall constitute one and the same instrument. A faxed
copy of a signature page shall be considered an original for purposes of this Amendment. This
Amendment, together with the Agreement, constitutes the entire understanding of the parties
with respect to its subject matter and may not be modified or amended, except in writing by
the Parties.

IN WITNESS WHEREOF, the Parties have executed this Amendment as of the Amendment Date.

	 	 	 
	Timeline, Inc.

	 	ACACIA PATENT ACQUISITION LLC
	By: /s/ Charles Osenbaugh

	 	By: /s/ Dooyong Lee
	 

	 	 
	Print Name: Charles Osenbaugh

Title: President

Date: May 12, 2008

	 	Print Name: Dooyong Lee

Title: Executive Vice President

Date: May 16, 2008

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