UGE International Ltd. Announces Agreement to Spin-Off Wind Operations


TORONTO, ONTARIO--(Aug. 3, 2016) - UGE International Ltd. (the "Company" or "UGE") ( (TSX VENTURE:UGE)(OTCQB:UGEIF), is pleased to announce that it has executed a binding term sheet (the "Term Sheet") to sell all of the issued and outstanding equity shares of its wholly-owned, wind-focused subsidiary UGE Holdings Inc. ("Holdings") to Zhenyu Li (the "Purchaser"). The terms set out in the Term Sheet will be reflected in a definitive share sale agreement (the "Sale Agreement") to be entered into among the parties.

The sale of Holdings to the Purchaser (the "Transaction") provides for the disposition of all of the Company's wind-related assets and operations as well as certain debt liabilities as described herein. As a full service distributed renewable energy company, UGE has historically offered solutions that include one or both of wind and solar power components. However, as its solar business has grown more quickly in recent years, and as management sees solar dominating its business strategy going forward, the Term Sheet was entered into in order to focus UGE's operations, while allowing for the wind business (which includes a manufacturing facility overseas) to refocus its operations around advancing distributed wind technology. The Purchaser has been a Senior Manager of the Company's manufacturing facility in China for the past six years, making the Transaction a related party transaction.

Structure of the Transaction

Holdings is the sole shareholder of the following additional UGE subsidiaries (the "Holdings Group" and collectively with Holdings, the "Sale Group"): Urban Green Energy Hong Kong Ltd., Chengde Urban Green Energy Ltd., Beijing Urban Green Energy Co., Ltd., PingQuan UGE Co., Ltd. ("UGE PingQuan"), and Urban Green Energy Inc. ("Urban Inc."). With the acquisition of Holdings, the Purchaser will also be acquiring all of the Holdings Group, which it anticipates operating under the brand name V-AIR Wind Technologies.

In connection with the Transaction, UGE has incorporated a new wholly-owned Delaware subsidiary called UGE USA Inc. ("UGE USA"). Prior to closing of the Transaction (the "Closing"), and pursuant to the terms of the Term Sheet, Urban Inc. will transfer employment contracts of employees who focus on the solar business to UGE USA along with other solar-related assets (the "Excluded Assets"). New solar contracts will be signed by UGE USA and will not be transferred to the Purchaser in the Transaction.

Following Closing, it is currently anticipated that UGE will have two subsidiaries including: UGE USA, and Endura Energy Project Corp. UGE is also in the process of creating a new subsidiary in the Philippines named UGE Philippines, Inc.

Purchase Price

The Sale Group has experienced historical losses and the net liabilities value of the Sale Group as of December 31, 2015 is US$7.5 million. Pursuant to the Transaction, with the acquisition of the Sale Shares, the Purchaser will assume (through the acquisition of the shares in Holdings) all of the assets and liabilities owned by the Sale Group. As a result, and in consideration for the assumption of liability, the Company intends to pay the Purchaser US$2.6 million pursuant to a promissory note issued by UGE USA, which shall accrue interest at a rate of 6.5% annually, with interest payable quarterly, and a maturity date that is five years from Closing. In addition, UGE USA will issue a promissory note to Urban Inc. in the amount of US$1 million in respect of the Excluded Assets, which shall accrue interest at a rate of 6.5% annually, with interest payable quarterly, and a maturity date that is five years from Closing. Combined, the Transaction represents an improvement in net liabilities of US$3.9 million compared to UGE's audited consolidated balance sheet as at December 31, 2015. The Company's resulting debt balance after the transaction as compared to June 30, 2016 is seen below (all amounts in table and related notes are in USD):

Multilateral Instrument 61-101 - Related Party Transaction

The Purchaser is Zhenyu Li, a Senior Manager of UGE PingQuan, the Company's wholly-owned subsidiary, therefore the Transaction is a "related party transaction" as such term is defined in Multilateral Instrument 61-101 ("MI 61-101"). In addition, Ms. Xiangrong Xie, a director and major shareholder of the Company is expected to participate in the business of the Sale Group as a director following Closing. Pursuant to the provisions of MI 61-101, the Company is required to obtain approval of the majority of the disinterested Shareholders at a meeting of shareholders. The meeting is scheduled for August 30, 2016. It is a condition of Closing that shareholder approval for the Transaction be obtained. Parties who may receive a collateral benefit from the Transaction, and who are also shareholders of the Company, will not be eligible to vote on the resolutions approving the Transaction. MI 61-101 also requires the Company to obtain a formal valuation for the Transaction, unless it can rely on an available exemption from the formal valuation requirements. The Company is relying on the exemption set out in Section 5.5 of MI 61-101 as the Company is not listed on the stock markets enumerated therein. The board of directors of the Company have determined, acting in good faith, that the terms of the Transaction are reasonable and that the Company is eligible to rely on the exemption from the formal valuation requirements.