HEO H2O Innovation Inc

H2O Innovation Inc. ("H2O Innovation" or the "Company") (TSX
VENTURE:HEO)(ALTERNEXT:MNEMO:ALHEO) announces the execution of an asset purchase
agreement between Membrane Systems, Inc., an indirectly wholly owned U.S.
subsidiary of H2O Innovation, and Professional Water Technologies, Inc.
("Professional Water Technologies" or "PWT") pertaining to the acquisition of
substantially all of the assets of Professional Water Technologies in an arms'
length transaction. Professional Water Technologies is a Vista, California-based
company that develops, manufactures and sells specialty membrane pre-treatment
and maintenance solutions for industrial, municipal and commercial applications
(the "Business"). The purchase price of US$3.7 million is payable in cash at
closing and may be increased up to US$ 5.7 million, whereby entitling PWT to
receive earn-outs payments of up to US$2 million if PWT's sales reach $13.1
million within the 24 months period following the closing of the transaction.
The completion of the transaction is subject to the satisfaction of customary
closing conditions as more fully described below.


H2O Innovation also announces today that it has entered into an agency agreement
with Loewen, Ondaatje, McCutcheon Limited in connection with a proposed equity
financing of up to CAD$$2.75 million as well as of a letter of intent with Le
Fonds d'investissement REA II Natcan Inc. providing for a proposed private
placement of CAD$$1.5 million. The proceeds of both these financings are to be
used for the payment of the purchase price for the proposed acquisition of
assets of Professional Water Technologies and ancillary transaction costs.


H2O Innovation is also contemplating an additional debt financing of up to
CAD$$2.5 million to be used to assist in the growth of its business.


Transaction highlights

- Significantly grows H2O Innovation's sales of services and consumables-which
are generally recurring in nature-in line with the Company's stated growth
strategy


- Professional Water Technologies in numbers:

 - Sales of US$2.6 million based on the unaudited financial statements of
Professional Water Technologies for the year ended December 31, 2008


 - EBITDA of US$0.53 million based on the unaudited financial statements of
Professional Water Technologies for the year ended December 31, 2008-acquisition
is immediately accretive


 - Net book value of US$400,000 for the assets based on the unaudited financial
statements of Professional Water Technologies for the year ended December 31,
2008.


 - Sustained revenue and profitability growth over the last 4 years

 - Professional Water Technologies is presently profitable.

- Improves H2O Innovation's average consolidated gross operating margin

- Expands H2O Innovation's knowledge and brings with it a proprietary line of
specialty patent-pending sustainable membrane pre-treatment and maintenance
products-a growth vehicle for the Company


- Expands H2O Innovation into new geographical markets where the Company is not
active in the equipment business-60% of Professional Water Technologies' sales
are recorded outside the United States and Canada through a network of
distributors in Australia, China, Europe, India, Israel, Mexico, Taiwan, and
Thailand


- Addition of a 12,000 sq. ft. manufacturing facility and office space in Vista,
California


- Additional synergies to be obtained through consolidation of administrative
functions and internal sales


Professional Water Technologies

Founded in 1995 and headquartered in Vista, California, Professional Water
Technologies develops leading products for maintaining and operating municipal,
industrial, and commercial membrane filtration systems, in particular for
reverse osmosis systems. Professional Water Technologies synthesizes and
manufactures a unique line of sustainable specialty solutions for membrane
pre-treatment applications, and develops specific blends for maintenance,
preservation, and cleaning of membrane systems that maximizes the operating
efficiency, economy, and longevity of reverse osmosis systems. In complement to
its product line, Professional Water Technologies also offers comprehensive
analytic and technical capabilities aimed at maximizing the efficiency and
cost-effectiveness of reverse osmosis systems. Professional Water Technologies'
patent-pending product line is sold worldwide through a network of distributors
and sales agents. Based on unaudited financial statements for the year ended
December 31, 2008, Professional Water Technologies had revenues of US$2.6
million and an EBITDA of US$0.53 million.


"This is an important and strategic addition to our operations. Since its
founding in 1995, Professional Water Technologies has steadily developed an
enviable reputation as a membrane filtration maintenance and operations
specialist. We are very pleased to welcome them to H2O Innovation's team.
Professional Water Technologies will play a pivotal role in growing our sales of
services and consumables and maintaining close relationships with our clients-a
key component of our growth strategy," said Frederic Dugre, President and Chief
Executive Officer, H2O Innovation Inc. "Most importantly, this acquisition
positions H2O Innovation as a complete membrane filtration expert providing
everything from customized system design to manufacturing, maintenance and
operational efficiency consulting. PWT also significantly enhances our
international reach through its network of distributors. Its strong track
record, combined with our solid experience in designing and manufacturing
custom-built membrane filtration systems, will undoubtedly make a positive
contribution to H2O Innovation's future successes in North America and
elsewhere" continued Frederic Dugre.


Professional Water Technologies acquisition highlights

H2O Innovation has committed to acquire, subject to the satisfaction of the
closing conditions listed below, substantially all of the assets of Professional
Water Technologies for a price of US$3.7 million. The purchase price of US$3.7
million is payable in cash at closing and may be increased up to US$ 5.7
million, whereby entitling PWT to receive earn-outs payments of up to US$2
million if PWT's sales reach $13.1 million within the 24 months period following
the closing of the transaction. As of the closing of the transaction H2O
Innovation will also assume liabilities accrued, prior to closing, in the normal
course of business of PWT of approximately US$150,000.


"This acquisition continues our growth strategy and brings an added level of
predictability to the Company's business model, as sales of services and
consumables are generally recurring in nature. It will have a positive effect on
H2O Innovation's gross margin, cash flows, and results, which along with the
Company's sustained track record in selling custom-designed membrane filtration
water treatment systems, will help create additional shareholder value,"
concluded Frederic Dugre.


The closing of the transaction is scheduled to take place on or around June 30,
2009 and is subject to the satisfaction of customary closing conditions
including, among others, the following:


- Obtaining by Professional Water Technologies of all approvals, waivers,
consents or releases as are required under applicable laws or agreements to
allow the execution and delivery of the asset purchase agreement and the
transfer and assignment of the acquired assets to H2O Innovation;


- Issuance of all the required permits and licenses to allow the activities of
PWT to be continued post-closing by H2O Innovation;


- Execution of employment and non-competition agreements; and

- Approval of all applicable regulatory authorities.

Equity financings

H2O Innovation has entered into an agency agreement with Loewen, Ondaatje,
McCutcheon Limited (the "Agent") in connection with the private placement, on an
agency basis, of 5,000,000 subscription receipts, for aggregate gross proceeds
of up to CAD$2.75 million at a price of CAD$0.55 per subscription receipt.


H2O Innovation has also granted to the Agent an option, exercisable, in full or
in part prior to the closing of the offering, to arrange for the purchase from
H2O Innovation of up to an additional 1,000,000 subscription receipts for
additional gross proceeds of CAD$550,000. Each subscription receipt will entitle
its holder to receive, for no additional consideration, upon the closing of the
acquisition by H2O Innovation of substantially all of the assets of PWT, one
common share and one common share purchase warrant. Each whole warrant will
entitle its holder to purchase one additional common share of the Company at a
price of CAD$0.85 at any time prior to the date that is 30 months following the
closing date of the offering. The Agent will receive a fee comprised of a cash
payment of 6% of the gross proceeds from the offering and a number of broker
warrants equal to 6% of the aggregate number of subscription receipts sold by
H2O Innovation. Each broker warrant will entitle its holder to acquire, for an
exercise price of CAD$0.55, one unit, having the same terms and conditions as
the units forming part of the offering, for a period of 30 months following the
closing of the offering. In respect of certain pre-identified purchasers, the
Agent will only receive a fee equal to a cash payment of 1% and broker warrants
equal to 1% of the aggregate number of subscription receipts sold by the Company
to those specified investors.


The closing of this private placement of subscription receipts is subject to,
among other things, the approval of the TSX Venture Exchange Inc. and is
expected to take place on or around June 4, 2009.


The Company has also entered into a letter of intent with Le Fonds
d'investissement REA II Natcan Inc. ("Fonds REA II") whereby Fonds REA II has
indicated its interest to acquire from the Company 2,727,273 units at a price of
CAD$0.55 per unit for a total consideration of CAD$1.5 million. Each unit will
be comprised of one common share and one common share purchase warrant and each
warrant will entitle Fonds REA II to purchase one additional common share of the
Company at a price of CAD$0.85 at any time prior to the date that is 30 months
following the closing of this private placement. Closing is subject to customary
closing conditions including, among other things, the obtention by the Company
of an advanced income tax ruling from Revenu Quebec confirming that the common
shares forming part of the units to be issued to Fonds REA II qualify under the
Quebec Stock Savings Plan II as well as the approval of TSX Venture Exchange
Inc.


The closing of this private placement with Fonds REA II is expected to take
place on or around June 30, 2009.


Conference call and webcast

H2O Innovation will hold a conference call today Thursday May 28, 2009, at 10:30
A.M. EDT to review the transaction highlights. The call will begin with a
presentation by Frederic Dugre, President and Chief Executive Officer of H2O
Innovation and Jim Peterson, Chief Operating Officer of H2O Innovation. A
question-and-answer period will follow. Shareholders, analysts, and
institutional investors are invited to participate. To access the call, dial
514-392-9196 in the Montreal area or 1-866-300-7687 toll free in North America.
Overseas callers can dial 001-514-392-9196 for access. Media representatives and
other interested parties can participate in listen-only mode or listen to the
live webcast of the call via H2O Innovation's website at www.h2oinnovation.com.
The webcast will remain available for replay on the Company's website for 90
days in the Investors section.


Prospective disclosures

This press release may contain prospective disclosures representing current
expectations of H2O Innovation and are subject to certain risks and
uncertainties. For details of these risks and uncertainties please refer to the
Company's Annual Information Form dated September 26, 2008 available on SEDAR
(www.sedar.com). H2O Innovation is under no obligation to revise or update the
prospective disclosures contained in this press release.


About H2O Innovation

Exclusively dedicated to water treatment, H2O Innovation is establishing itself
as a key player in sustainable development and the field of clean technologies.
H2O Innovation designs, develops, produces, and integrates state-of-the-art
water treatment systems for the production of drinking water, the reclamation of
water, the treatment of wastewater and industrial processed water in the
municipal, commercial, pharmaceutical, industrial, mining, and energy markets.
H2O Innovation has approximately 100 employees and eight offices including two
manufacturing and assembly plants in Canada and the United States. Shares of H2O
Innovation are listed on the TSX Venture Exchange (HEO) as well as on the NYSE
Euronext Alternext Exchange (MNEMO: ALHEO).

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