Mr. Frederic Dugre reports

H2O INNOVATION ANNOUNCES COMPLETION OF THE ACQUISITION OF UTILITY PARTNERS, CLOSING OF CONCURRENT PRIVATE PLACEMENTS FOR APPROXIMATELY $23 M

H2O Innovation Inc. has completed its previously announced acquisition of all the memberships interests of Utility Partners LLC, a United States-based company specializing in the operation and maintenance of water and waste water treatment plants, for a total consideration of $17-million (U.S.) ($22.5-million).

Concurrent private placement financings

The company also announces that it has closed the previously announced bought deal private placement, including full exercise of the previously announced overallotment option under such private placement and concurrent additional non-brokered private placement of common shares of the company at a price of $1.20 per common share for total gross proceeds of approximately $23-million. The bought deal was conducted by a syndicate of underwriters led by GMP Securities LP and included Beacon Securities Ltd. Since the completion of the acquisition occurred concurrently with the closing of the bought deal, the company has delivered common shares instead of subscription receipts to investors in the bought deal.

Certain insiders of H2O Innovation have participated in the bought deal, being Elaine C. Phenix for an amount of $15,000, Pierre Gabriel Cote for an amount of approximately $50,000, both directors of the company, Caisse de depot et placement du Quebec, which increased its participation and subscribed to common shares for an amount of $3.8-million, and Investissement Quebec, which also increased its participation and subscribed to common shares for an amount of $4.35-million.

"As the leading institutional investor, we helped H2O Innovation set up the credit arrangement which facilitated the acquisition of Utility Partners. The company is in a position where it can expand its presence in the American market while maintaining its head office in Quebec City, thus contributing to the region's economic development," declared Mr. Cote, president and chief executive officer of Investissement Quebec.

Other insiders of the company, being Richard A. Hoel, director and holder of more than 10 per cent of the common shares, for an amount of $378,000, Lawrence E. Gamst, director of the company, for an amount of $48,000, Ms. Phenix, director of the company, for an amount of $35,000, Marc Blanchet, chief financial officer of the company, for an amount of $250,000, Guillaume Clairet, chief operating officer of the company, for an amount of $270,000, and Frederic Dugre, director and president and chief executive officer of the company, for an amount of $750,000, participated in the additional placement and subscribed for an aggregate of 1,442,498 common shares, representing an aggregate amount of approximately $1.7-million. Additional employees of the company participated in the additional placement for an amount of approximately $200,000, for aggregate gross proceeds under the additional placement of approximately $1.9-million.

Subject to the approval of the disinterested shareholders of the company at the upcoming annual meeting of its shareholders, the company will extend to Mr. Dugre, Mr. Blanchet and Mr. Clairet individual loans in an aggregate amount of $1.25-million in order for them to acquire common shares as part of the additional placement, which loans will bear interest at a rate of 2.5 per cent, be secured by a pledge of the acquired common shares and be reimbursed upon predefined repayment conditions. The common shares acquired by Mr. Dugre, Mr. Blanchet and Mr. Clairet pursuant to the additional placement will be held in escrow until such time as the loans have been approved by the disinterested shareholders of the company.

The participation of insiders of the company in the offerings, as well as the loans by the company to certain officers, constitute related party transactions as defined under Regulation 61-101, respecting protection of minority security holders in special transactions. The issuance of the common shares to insiders is 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 per cent of the company's market capitalization.

The company intends to use all the net proceeds of the offerings to pay for the acquisition price, and the costs associated with the acquisition and the offerings. Any other amount required to pay for the acquisition will come from the $10-million credit facilities, the balance of which will be used for working capital postacquisition, and to support research and innovation initiatives.

The common shares issued as part of the offerings are subject to a statutory resale restriction until Nov. 27, 2016.

The company did not file a material change report 21 days prior to the closing of the offerings as the details of the participation of the related parties of the company had not been confirmed at that time.

Granting of stock options to top management

The company also announces the grant today of a total of 2,303,334 stock options issued to members of top management with a vesting period of eight years, the whole pursuant to the terms and conditions of the company's stock option plan. The stock options entitle their holders to acquire one common share of the company at a price of $1.65 before July 24, 2020. The grant of stock options is a method of compensation which is used to attract and retain personnel, and to provide an incentive to participate in the long-term development of the company and the growth of shareholder value.

We seek Safe Harbor.