H2O Innovation announces the proposed acquisition of Piedmont Pacific Corporation and concurrent bought deal and private placements of up to $8 million

/NOT FOR DISTRIBUTION TO THE U.S. NEWS WIRE SERVICES OR DISSEMINATION IN THE UNITED STATES/

All amounts are in Canadian dollars unless otherwise stated.

TSX-V: HEO
Alternext: MNEMO: ALHEO

QUEBEC CITY, Nov. 25, 2013 /CNW/ - (TSXV: HEO) - H2O Innovation Inc. ("H2O Innovation" or the "Company") announces the signature of an agreement to purchase all of the issued and outstanding shares of Common Stock of Piedmont Pacific Corporation ("Piedmont"), a company located in Oakland, CA and one of the leading manufacturers in the world of flexible pipe couplings and other pipe fittings for highly corrosive environments, for a total consideration of approximately $4.0 million (US$ 3.8 million) (the "Acquisition").

Piedmont, created in 2002, provides a broad product line that spans a wide range of industrial and municipal applications mostly using membrane-related technologies and has been the first to introduce to the market couplings made of duplex and super duplex stainless steel.  Piedmont counts on numerous prestigious references in the desalination industry such as the 263,000 m3/day water reclamation plant in Orange County (USA), the 200,000 m3/day desalination plant of Barcelona (Spain) and the 250,000 m3/day desalination plant of Sydney (Australia). Its revenues mostly come from seawater and brackish water desalination projects through a North American and international sales network of OEMs, distributors, municipal and industrial clients. Piedmont's activities will be integrated under the umbrella of the consumables business line due to the recurring nature of the sales and customers profile.

"The acquisition of Piedmont will allow H2O Innovation to increase its presence in the membrane desalination industry through a large international sales network that we intend to maintain and support actively. Moreover, we envision multiplying the number of cross selling opportunities coming from our existing sales network of specialty chemicals which sells chemicals daily to the same clients regularly buying couplings. From a financial perspective, we expect the transaction to be immediately accretive to our earnings. We believe it will allow H2O Innovation to have 90% of its SG&A expenses covered from the gross margin generated by our consumables sales (chemicals, spare parts, maple products, services and now couplings).  Piedmont will be integrated to our existing ERP system, logistics & supply chain processes and will benefit from the testing, warehousing, packing and shipping capabilities of our existing facility in Vista, CA, thus reducing operating costs. Our strong experience for local and international shipments of speciality chemicals to our clients will enable us to continue to provide the couplings' clients with an outstanding customer care. Moreover, our engineering experience and capabilities related to membrane systems design will strengthen the product offering and customer support", stated Frederic Dugré, President and Chief Executive Officer of H2O Innovation.

The execution of a definitive stock purchase agreement for the Acquisition and the completion of the Acquisition are subject to certain conditions and closing is expected on or around December 5, 2013.

Concurrent Private Placement Financings
H2O Innovation has also entered into an agreement with GMP Securities L.P. (the "Underwriter") to sell to the Underwriter, on a bought deal basis and by way of private placement, 19,565,217 subscription receipts of the Company (the "Subscription Receipts") at a price of $0.23 per Subscription Receipt, for aggregate gross proceeds of approximately $4.5 million (the "Bought Deal"). The Company has also granted the Underwriter an option to purchase up to an additional 13,043,478 Subscription Receipts at the same price, exercisable at any time prior to 48 hours before the completion of the Bought Deal, for additional gross proceeds of up to approximately $3,000,000 (the "Option").

The Underwriter may elect to receive common shares of the Company (the "Common Shares") instead of Subscription Receipts for all or a portion of the Bought Deal. In addition, if the closing of the Acquisition occurs concurrently with the closing of the Bought Deal, the Company will deliver Common Shares instead of Subscription Receipts to investors in the Bought Deal.

In addition, the Company intends to complete a concurrent additional non-brokered private placement of Subscription Receipts at a price of $0.23 per Subscription Receipt, for aggregate gross proceeds of $500,000 with certain of its directors and officers (the "Additional Placement" and, together with the Bought Deal, the "Offerings"). It is anticipated that Élaine Phénix, director, Pierre Coté, director, Philippe Gervais, director and Chairman of the Board, Richard A. Hoel, director and a holder of more than 10% of the common shares of the Company, Frédéric Dugré, director and President and Chief Executive Officer, Guillaume Clairet, Executive Vive-President, Josée Riverin, Vice-President Finance and Marc Blanchet, Vice-President Corporate Affairs will participate in the Additional Placement. The anticipated participation of insiders of the Company in the Additional Placement is expected to constitute a "related party transaction" as defined under Regulation 61-101 respecting Protection of Minority Security Holders in Special Transactions ("Regulation 61-101"). The Additional Placement will be exempt from the formal valuation and minority shareholder approval requirements of Regulation 61-101 as neither the fair market value of securities being issued to insiders nor the consideration being paid by insiders will exceed 25% of the Company's market capitalization.

The gross proceeds of the Offerings less 50% of the commission payable to the Underwriter (the "Escrowed Proceeds") will be held in escrow pending confirmation from the Company (the "Release Notice") that the Company is ready and received confirmation from the vendors that they are ready to sign the stock purchase agreement and complete of the Acquisition and that all closing conditions have been satisfied (and not waived by any party), except for the payment of the purchase price by the Company. Upon delivery of the Release Notice, the Subscription Receipts will be automatically exchanged for Common Shares. If the Release Notice is not provided on or before December 31, 2013 ("Termination Time"), or the Company, prior to the Termination Time, advises the Underwriter or the public that it does not intend to proceed with the Acquisition, the Escrowed Proceeds will be reimbursed pro rata to each holder of Subscription Receipts at the original subscription price, plus such holder's pro rata portion of the interest earned thereon.

The Company intends to use a portion of the net proceeds of the Offerings to finance the Acquisition. The remaining portion of the net proceeds of the Offerings will be used for working capital purposes, as necessary to support the up-coming growth in the Company's systems sales backlog.

The Offerings are expected to close on or about December 5, 2013 and are subject to certain closing conditions, including approval of the TSX Venture Exchange Inc.

The Offerings will be sold on a private placement basis pursuant to "accredited investor" exemptions under National Instrument 45-106 and, with respect to the Additional Placement, pursuant to certain other available and agreed upon exemptions. The Subscription Receipts and the underlying Common Shares issued under the Offerings will be subject to a four-month hold period following closing.

If the Option is exercised in full, the total gross proceeds to H2O Innovation from the sale of Subscription Receipts will be $8 million. The Company has agreed to pay a commission equal to 6.25% of the gross proceeds of the Bought Deal.

H2O Innovation has received an advance income tax ruling from the Ministère du Revenu du Québec confirming that H2O Innovation meets the criteria of a "qualified issuing corporation" in accordance with the Québec Stock Savings Plan II. The Common Shares to be issued under the Offerings, if any and if subscribed by a qualified mutual fund, are "qualifying shares" as per such plan.

The Subscription Receipts and the underlying Common Shares have not and will not be registered under the U.S. Securities Act of 1933, as amended, and may not be offered or sold in the United States absent registration or an applicable exemption from the registration requirements under the Act. This news release shall not constitute an offer to sell or the solicitation of an offer to buy nor shall there be any sale of the securities in any jurisdiction in which such offer, solicitation or sale would be unlawful.

Forward-looking statements
Certain statements set forth in this press release regarding the operations and the activities of H2O Innovation as well as other communications by the Company to the public that describe more generally management objectives, projections, estimates, expectations or forecasts may constitute forward-looking statements within the meaning of securities legislation. Forward-looking statements concern analysis and other information based on forecast future results, performance and achievements and the estimate of amounts that cannot yet be determined. Forward-looking statements include the use of words such as "anticipate", "if", "believe", "continue", "could", "estimate", "expect", "intend", "may", "plan", "potential", "predict", "project", "should" or "will", and other similar expressions, as well as those usually used in the future and the conditional, notably regarding certain assumptions as to the success of a venture. Those forward-looking statements, based on the current expectations of management, involve a number of risks and uncertainties, known and unknown, which may result in actual and future results, performance and achievements of the Company to be materially different than those indicated. Information about the risk factors to which the Company is exposed is provided in the Annual Information Form dated September 24, 2013 available on SEDAR (www.sedar.com). Unless required to do so pursuant to applicable securities legislation, H2O Innovation assumes no obligation to update or revise forward-looking statements contained in this press release or in other communications as a result of new information, future events and other changes.

About H2O Innovation 
H2O Innovation designs and provides state-of-the-art, custom-built, and integrated water treatment solutions based on membrane filtration technology to municipal, energy & natural resources end-users. H2O Innovation also provides a complete line of specialty chemicals and consumables for membrane filtration and reverse osmosis systems. For more, visit www.h2oinnovation.com.

Neither TSX Venture Exchange nor its Regulation Services Provider (as that term is defined in the policies of the TSX Venture Exchange) nor the Alternext Exchange accepts responsibility for the adequacy or accuracy of this release.

SOURCE: H2O Innovation Inc.

For further information:

Source: 
H2O Innovation Inc.
www.h2oinnovation.com

Contact: 
Marc Blanchet
+1 418-688-0170
marc.blanchet@h2oinnovation.com

Profil de l'entreprise

H2O Innovation Inc.

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