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Transaction Under Which Parent Of Retail Supplier Will Acquire Energy Services Company Will Now Also Include Affiliated Solar, Microgrid Developer

August 21, 2017

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Copyright 2010-17 EnergyChoiceMatters.com
Reporting by Paul Ring • ring@energychoicematters.com

ONEnergy Inc. ("ONEnergy" or the "Corporation") and OZZ Electric Inc. ("OZZ") provided an update on their proposed transaction.

On August 10, 2017, ONEnergy, OZZ and OZZ Clean Energy Inc. ("OCE") entered into an arrangement agreement (the "Arrangement Agreement"), whereby ONEnergy, OZZ and OCE propose to effect a plan of arrangement (the "Arrangement") in accordance with Section 182 of the Business Corporations Act (Ontario). Subsequent to entering into the previously announced letter of intent with respect to the proposed Arrangement, ONEnergy and OZZ agreed to include OCE as part of the proposed Arrangement. OCE is a private company that is an affiliate of OZZ.

ONEnergy is the parent of Sunwave Gas & Power

OCE’s primary business is to develop and build (and sometimes to own, operate, and manage) solar photovoltaic systems for commercial and residential properties as well as renewable energy micro-grids that incorporate, integrate, and optimize PV generation, traditional turbine-based generation, advanced energy storage, and energy management control systems harmonizing new and existing energy systems. OCE is a private corporation existing under the laws of Ontario and is currently active in Canada and the northeast United States. It is also in the process of expanding into Latin America and the Caribbean. OCE’s customer base includes governments, utilities, school boards, pension funds, privately and publicly owned businesses and individual homeowners.

OCE is 51% beneficially owned and controlled by Steven Muzzo, the Chief Executive Officer of OCE.

OZZ is a diversified electrical contracting and energy services firm with a core competency in large-scale industrial, commercial & institutional (ICI) and residential projects. OZZ also specializes in the engineering, procurement and construction of photovoltaic (PV) solar systems, and the design and construction of energy reduction services for the multi-residential and ICI markets.

See background on the originally proposed transaction here

The Arrangement

Commencing at the effective time of the Arrangement, among other things: (a) ONEnergy will sell and transfer to a wholly-owned subsidiary of ONEnergy to be incorporated prior to the closing of the Arrangement ("Newco"), all of ONEnergy’s right, title and interest in substantially all of ONEnergy’s business and assets and Newco will assume certain of ONEnergy’s liabilities in exchange for 5,993,875 common shares of Newco ("Newco Shares"), which ONEnergy will distribute to its non-dissenting shareholders on a pro rata basis; (b) 728,015 outstanding stock options and 410,176 outstanding deferred share units of ONEnergy will be exchanged for 728,015 stock options and 410,176 deferred share units of Newco, respectively, with 0.25 Newco Shares being reserved for issuance pursuant to each such option and deferred share unit; (c) 98,000 outstanding common shares of OZZ (each, an "OZZ Share") (including OZZ Shares issued upon conversion of the Subscription Receipts assuming completion of the Minimum Financing (both as defined below)) will be exchanged for 49,000,000 Newco Shares; and (d) 1,000,000 outstanding common shares of OCE (each, an "OCE Share") will be exchanged for 2,500,000 Newco Shares. ONEnergy shareholders, except for those that duly exercise their rights of dissent pursuant to the Arrangement, will retain their current shares of ONEnergy.

Upon completion of the Arrangement, it is the intention of the parties that Newco will be renamed "OZZ Energy + Infrastructure Inc." (the "Resulting Issuer") and its shares (the "Resulting Issuer Shares") will be listed for trading on the TSX Venture Exchange (the "TSXV") under the ticker symbol "OZZ".

ONEnergy has called a special meeting of its shareholders to be held on September 28, 2017 to approve the Arrangement (the "Meeting"). To be effective, the special resolution of the shareholders of ONEnergy approving the Arrangement must be approved by at least 66 2/3% of the votes cast in person or by proxy at the Meeting.

OZZ Private Placement

In connection with the Arrangement, OZZ has entered into an engagement letter (the "Engagement Letter") with Desjardins Capital Markets to act as lead agent and sole bookrunner on behalf of a syndicate of agents (the "Agents") in connection with a proposed private placement (the "Private Placement") of a minimum of 23,000 subscription receipts (each, a "Subscription Receipt") and a maximum of 30,000 Subscription Receipts at a subscription price of $1,000 per Subscription Receipt (the "Issue Price") for aggregate gross proceeds of a minimum of $23,000,000 (the "Minimum Financing") and a maximum of $30,000,000. It is a condition precedent of the Arrangement that at least the Minimum Financing is completed. (all $ Canadian)

OZZ has granted the Agents an option (the "Agents’ Option"), exercisable up to 48 hours prior to the closing date of the Private Placement (the "Private Placement Closing Date"), to increase the size of the Private Placement by up to an additional 15% of the number of Subscription Receipts sold pursuant to the Private Placement at a price equal to the Issue Price.

The gross proceeds of the Private Placement, less 50% of the Agency Fee (as defined below) and certain costs and expenses of the Agents, will be deposited in escrow with an escrow agent until the satisfaction of certain release conditions, including that all conditions precedent to the Arrangement have been met (the "Release Conditions").

Upon the satisfaction of the Release Conditions, each Subscription Receipt will be converted into one OZZ Share without payment of any additional consideration or further action on the part of the holder thereof; and at the effective time of the Arrangement, each such OZZ Share will be exchanged for 500 Newco Shares.

In the event that the Release Conditions have not been satisfied prior to 90 days following the Private Placement Closing Date, except as may be extended in accordance with the terms of the Subscription Receipts or with the consent of holders of not less than 66 2/3% of the then outstanding Subscription Receipts obtained pursuant to the terms of the subscription receipt indenture, the subscription funds shall be returned to the applicable holders of the Subscription Receipts in accordance with the terms of the Subscription Receipts, and such Subscription Receipts shall be automatically cancelled and be of no further force and effect.

In connection with the Private Placement, the Agents are entitled to receive a cash commission of 6% of the gross proceeds of the Private Placement (including pursuant to any exercise of the Agents’ Option) (the "Agency Fee"), along with compensation options ("Compensation Options") equal to 6% of the number of Subscription Receipts sold pursuant to the Private Placement (including pursuant to any exercise of the Agents’ Option). Notwithstanding the foregoing, with respect to orders completed pursuant to a president’s list, the Agency Fee will be 3% and no Compensation Options will be issuable. Provided the Release Conditions are satisfied, each Compensation Option shall be exercisable to acquire one OZZ Share at a price per OZZ Share equal to the Issue Price for a period of 12 months following the date of issue of the Compensation Options. In connection with the Arrangement and on satisfaction of the Release Conditions, each Compensation Option shall be exchanged for one compensation option of the Resulting Issuer ("Resulting Issuer Compensation Option"), each exercisable for 500 Newco Shares at a price of $2.00 per share for a period of 12 months from the date of issue of the Compensation Options. If the Release Conditions are not satisfied, the Compensation Options shall be immediately cancelled.

The Agency Fee will be payable to the Agents as follows: (i) 50% on the Private Placement Closing Date payable from the gross proceeds of the Private Placement; and (ii) 50% upon release of the escrow funds following satisfaction of the Release Conditions. In the event the Release Conditions are not satisfied, the Agency Fee will be limited to the 50% paid on the OZZ Private Placement Closing Date and no Compensation Options will be issued.

It is expected that the net proceeds received from the Private Placement will be used for debt repayment, to repurchase the preferred shares of OZZ and for general corporate purposes.

Upon completion of the Arrangement, the board of directors of the Resulting Issuer will be comprised of Steven Muzzo, Stanley H. Hartt, Michael Harris, Stephen J.J. Letwin and David McFadden.

Excluding certain preferred shares of OZZ that are expected to be repurchased for cancellation immediately prior to the effective time of the Arrangement, OZZ is 80% beneficially owned by CSE Utility Management Inc., an Ontario corporation beneficially owned by Steven Muzzo, the Executive Chairman and Chief Executive Officer of OZZ. The remaining 20% of OZZ is beneficially owned by Cinozz Holdings Inc., an Ontario corporation beneficially owned by John Cinelli, a director of OZZ.

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