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The Corporation .............................................................................................................................................. 5 Organizational Structure.................................................................................................................................. 5
GENERAL DEVELOPMENT OF THE BUSINESS ............................................................................................... 5 DESCRIPTION OF THE BUSINESS OF STRONGCO ......................................................................................... 8
Business and Property ..................................................................................................................................... 8 The Equipment Industry .................................................................................................................................. 8 Strategy ........................................................................................................................................................... 9 Business of Strongco ..................................................................................................................................... 10 Suppliers ........................................................................................................................................................ 11 Competition ................................................................................................................................................... 11 Facilities and Equipment ............................................................................................................................... 11 Employees ..................................................................................................................................................... 12 Environmental Matters .................................................................................................................................. 12 Revenue and Seasonality ............................................................................................................................... 12 Intangible Properties ..................................................................................................................................... 13 Foreign Operations ........................................................................................................................................ 13
INFORMATION CONCERNING THE CORPORATION .................................................................................. 13 Description of the Corporation ...................................................................................................................... 13 Description of Capital ................................................................................................................................... 13 Dividend Policy ............................................................................................................................................. 13 Directors of the Corporation .......................................................................................................................... 13
INFORMATION CONCERNING STRONGCO LP ............................................................................................. 13 Description of Strongco LP ........................................................................................................................... 14 Description of Capital ................................................................................................................................... 14 Allocation of Income and Losses .................................................................................................................. 14 Limited Liability ........................................................................................................................................... 14 Amendments to the Strongco Limited Partnership Agreement ..................................................................... 14 Meetings of Partners ...................................................................................................................................... 15
INFORMATION CONCERNING STRONGCO GP ............................................................................................. 15 Description of Strongco GP .......................................................................................................................... 15 Functions and Powers of Strongco GP .......................................................................................................... 15 Withdrawal or Removal of Strongco GP ....................................................................................................... 15 Directors of Strongco GP .............................................................................................................................. 15
INFORMATION CONCERNING STRONGCO USA .......................................................................................... 15 Description of Strongco USA ........................................................................................................................ 15 Directors of Strongco USA ........................................................................................................................... 16
INFORMATION CONCERNING CHADWICK-BAROSS.................................................................................. 16 Description of Chadwick-BaRoss ................................................................................................................. 16 Directors of Chadwick-BaRoss ..................................................................................................................... 16
CAPITAL STRUCTURE .......................................................................................................................................... 16 Common Shares ............................................................................................................................................ 16 Options .......................................................................................................................................................... 16 LTIP .............................................................................................................................................................. 17
AUDIT COMMITTEE .............................................................................................................................................. 18 MATERIAL DEBT ................................................................................................................................................... 19 DIRECTORS OF THE CORPORATION .............................................................................................................. 20 EXECUTIVE OFFICERS OF STRONGCO .......................................................................................................... 22
Corporate Cease Trade Orders, Bankruptcies and Penalties and Sanctions .................................................. 24
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Business and Economic Cycles ..................................................................................................................... 25 Oil Price Risk ................................................................................................................................................ 25 Capital, Liquidity and Credit Risk................................................................................................................. 25 Distribution Agreements ............................................................................................................................... 26 Relationships with Suppliers ......................................................................................................................... 26 Acquisition and Expansion Risk ................................................................................................................... 26 Competition ................................................................................................................................................... 27 Unpredictability and Volatility of the Price of Common Shares ................................................................... 27 Legal Proceedings ......................................................................................................................................... 27 Product Liability ............................................................................................................................................ 28 Dependence on Key Personnel ...................................................................................................................... 28 Information Systems ..................................................................................................................................... 28 Inventory Obsolescence ................................................................................................................................ 28 Environment .................................................................................................................................................. 28 Foreign Exchange .......................................................................................................................................... 29 Interest Rate................................................................................................................................................... 29 Uninsured and Underinsured Losses ............................................................................................................. 29 Insurance Coverage ....................................................................................................................................... 29 Securities Laws Compliance and Corporate Governance Standards ............................................................. 29 Government Regulation ................................................................................................................................ 29 Income Tax and Other Taxes ........................................................................................................................ 29
MARKET FOR SECURITIES ................................................................................................................................. 30 ESCROWED SECURITIES ..................................................................................................................................... 30 INTERESTS OF MANAGEMENT AND OTHERS IN MATERIAL TRANSACTIONS ................................. 31 TRANSFER AGENT AND REGISTRAR .............................................................................................................. 31 MATERIAL CONTRACTS ..................................................................................................................................... 31 LEGAL PROCEEDINGS AND REGULATORY ACTIONS ............................................................................... 31 EXPERTS ................................................................................................................................................................... 31 ADDITIONAL INFORMATION ............................................................................................................................. 31 APPENDIX "A" ...................................................................................................................................................... A-1
1
GLOSSARY OF TERMS
The following is a glossary of certain terms used in this AIF:
"Affiliate" has the meaning ascribed thereto in the Securities Act (Ontario);
"AIF" means this annual information form of the Corporation;
"Arrangement" means the arrangement completed under the provisions of Section 182 of the OBCA pursuant to
which the Fund was converted from its income trust structure to a corporate structure effective on July 1, 2010;
"Audit Committee" means the Audit Committee of the Corporation;
"associate" has the meaning ascribed thereto in the Securities Act (Ontario);
"Business" means the business of selling and renting new and used equipment and providing after-sale customer
support (parts and service);
"Business Day" means a day, other than a Saturday, Sunday or statutory holiday, when banks are generally open in
the City of Toronto, in the Province of Ontario, for the transaction of banking business;
"Chadwick Agreement" means the share purchase agreement dated as of February 17, 2011 between the Corporation
and Chadwick-BaRoss, pursuant to which the Corporation acquired 100% of the shares of Chadwick-BaRoss for USD
$11.6 million;
"Chadwick-BaRoss" means Chadwick-BaRoss, Inc., a corporation incorporated under the laws of the State of Maine
on May 9, 1973, and a wholly-owned subsidiary of Strongco USA;
"Common Shares" means the common shares in the capital of the Corporation;
"CGNCP Committee" means the Corporate Governance, Nominating, Compensation and Pension Committee of the
Corporation;
March 23, 2010;
"Credit Facilities" means the Canadian Credit Facilities and the US Credit Facilities;
"Canadian Credit Facilities" means the credit facilities established in favour of the Corporation by a Canadian
chartered bank pursuant to the Second Amended and Restated Credit Agreement;
"Director" or "Directors" means a director or the directors of the Corporation;
“First Amended and Restated Credit Agreement” means the amended and restated credit agreement between a
Canadian chartered bank and the Corporation dated as of September 12, 2012, as amended;
“First Amending Agreement” means the amending agreement between a Canadian chartered bank and the
Corporation dated as of July 28, 2015 amending the Second Amended and Restated Credit Agreement;
"Fund" means Strongco Income Fund, an unincorporated, open ended, limited purpose trust established under the
laws of the Province of Ontario pursuant to the Strongco Declaration of Trust, and terminated on July 1, 2010;
"Fund Options" means options to acquire Fund Units;
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"Fund Unit" means a unit of the Fund;
"Income Tax Act" means the Income Tax Act, R.S.C. 1985, c. 1 (5th Supp.), as amended, including the regulations
promulgated thereunder;
"LP Units" means the limited partnership units of Strongco LP;
"LTIP" has the meaning ascribed thereto under the heading "Capital Structure – LTIP" below;
"Meeting" means the annual meeting of the Shareholders to be held on May 11, 2016 and any adjournment(s) thereof;
"OBCA" means the Business Corporations Act (Ontario), R.S.O. 1990, c. B.16, including the regulations promulgated
thereunder, as amended;
"Offering" has the meaning ascribed thereto under the heading "General Development of the Business – Rights
Offering" below;
"ROE" has the meaning ascribed thereto under the heading "Capital Structure – LTIP" below;
"RSUs" has the meaning ascribed thereto under the heading "Capital Structure – LTIP" below;
"Second Amended and Restated Credit Agreement" means the second amended and restated credit agreement
between a Canadian chartered bank and the Corporation dated as of June 24, 2015, as amended by the First Amending
Agreement dated as of July 28, 2015 and as further amended from time to time;
"SEDAR" means the System for Electronic Document Analysis and Retrieval;
"Shareholders" means the beneficial holders of Common Shares;
"Strongco" means, collectively, the Corporation and the Strongco Entities;
"Strongco Declaration of Trust" means the declaration of trust dated March 21, 2005, as amended and restated on
April 28, 2005 and September 1, 2006, pursuant to which the Fund was established;
"Strongco Entities" means, collectively, Strongco LP, Strongco GP, Strongco USA, Chadwick-BaRoss and certain
other wholly-owned inactive Subsidiaries of the Corporation, as applicable;
"Strongco GP" means Strongco GP Inc., a corporation incorporated under the OBCA on July 21, 2006, and a wholly-
owned subsidiary of the Corporation;
"Strongco Limited Partnership Agreement" means the limited partnership agreement dated July 26, 2006 between
Strongco GP, as general partner, and Strongco Inc., as the initial limited partner to which the Corporation became a
party as a limited partner thereof on July 1, 2010;
"Strongco LP" means Strongco Limited Partnership, a limited partnership established under the laws of the Province
of Manitoba on July 26, 2006 pursuant to the Strongco Limited Partnership Agreement;
"Strongco USA" means Strongco USA, Inc., a corporation incorporated under the laws of the State of Delaware on
February 9, 2011, and a wholly-owned subsidiary of the Corporation;
"Subsidiary" means, in relation to any person, any body corporate, partnership, joint venture, association or other
entity of which more than 50% of the total voting power of shares or units of ownership or beneficial interest entitled
to vote in the election of directors (or members of a comparable governing body) is owned or controlled, directly or
indirectly, by such Person;
"TSX" means the Toronto Stock Exchange; and
"US Credit Facilities" has the meaning ascribed thereto under the heading “Material Debt” below.
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ANNUAL INFORMATION FORM
This is the annual information form (the "AIF") of Strongco Corporation. All information in this AIF is presented as
at December 31, 2015 unless otherwise noted. References to dollars are in Canadian dollars unless otherwise noted.
Forward-looking Statements
This AIF may contain "forward-looking" statements (including those under the heading "Risks and Uncertainties")
within the meaning of applicable securities legislation which involve known and unknown risks, uncertainties and
other factors which may cause the actual results, events, performance or achievements of Strongco or industry results,
to be materially different from any future results, events, performance or achievements expressed or implied by such
forward-looking statements. Forward-looking statements may include comments with respect to Strongco’s
objectives, strategies to achieve those objectives, expected financial results, and the outlook for Strongco’s Business.
Forward-looking statements typically contain words or phrases such as "may", "outlook", "objective", "intend",
"estimate", "anticipate", "should", "could", "would", "will", "expect", "believe", "plan" and other similar terminology
suggesting future outcomes or events. Forward-looking statements reflect current expectations regarding future
results, events, performance and achievements and are based on information currently available to Strongco’s
management, anticipated operating and financial results of Strongco, and current and anticipated market conditions.
Forward-looking statements involve numerous assumptions and should not be read as guarantees of future results,
events, performance or achievements. Such statements will not necessarily be accurate indications of whether or not
such future results, events, performance or achievements will be achieved. You should not unduly rely on forward-
looking statements as a number of factors, many of which are beyond the control of Strongco, could cause actual
results, events, performance or achievements to differ materially from the results, events, performance or
achievements discussed in the forward-looking statements, including, but not limited to the factors discussed in
Strongco’s materials filed with the Canadian securities regulatory authorities from time to time. Although the forward-
looking statements contained in this AIF are based upon what management of Strongco believes are reasonable
assumptions, Strongco cannot assure investors that actual results, events, performance or achievements will be
consistent with these forward-looking statements. All forward-looking statements in this AIF are qualified by these
cautionary statements. These forward-looking statements are made as of the date of this AIF and, except as required
by applicable law, Strongco assumes no obligation to update or revise them to reflect new events or circumstances.
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The Corporation
The origins of Strongco date back decades and its predecessor was initially taken public in November 1995. Strongco
Corporation was incorporated on March 23, 2010 pursuant to the provisions of the OBCA and is a successor to
Strongco Income Fund. The Corporation owns, directly or indirectly, all of the securities of Strongco GP and Strongco
LP, Strongco USA and Chadwick-BaRoss. The Corporation is a reporting issuer in all of the provinces of Canada
and is subject to the informational reporting requirements under the securities laws of such jurisdictions. As at
December 31, 2015, there were 13,221,719 issued and outstanding Common Shares. The head and registered office
of the Corporation is located at 1640 Enterprise Road, Mississauga, Ontario L4W 4L4.
Organizational Structure
The following diagram illustrates the organizational structure of Strongco as at the date hereof (for simplification, this
diagram omits certain wholly-owned inactive Subsidiaries of the Corporation).
GENERAL DEVELOPMENT OF THE BUSINESS
Volvo Credit Facility
Effective July 27, 2012, Strongco increased the credit available under its equipment floor plan credit facility with
Volvo Financial Services and Canadian Western Bank to $140 million from $120 million.
Acheson Branch
On April 21, 2011, the Corporation announced plans to expand its presence in Alberta with the construction of a new
branch in Acheson, Alberta. The Corporation commenced business operations at this location in March 2012 and on
June 13, 2012 the Corporation announced the grand opening celebration of this branch. The Acheson branch is a
37,150 square foot facility situated on 6.5 acres of land and is designated as a Volvo branch, carrying the full line of
products from Volvo Construction Equipment as well as other leading complementary brands. On August 6, 2013, the
Corporation completed the sale and fifteen year leaseback of the Acheson branch.
Common Shares
Terex Finlay Dealer Arrangements
On April 12, 2012, the Corporation announced that it had entered into an agreement with Terex USA LLC to be the
exclusive dealer for Terex Finlay mobile crushing and screening equipment in Ontario and Alberta.
The mobile crusher line includes tracked mobile jaw, impact and cone crushers, in addition to an extensive offering
of two and three deck inclined and horizontal screens.
Amended Credit Facility
On September 20, 2011, the Corporation entered into a facility letter agreement which amended and restated the then
existing credit facilities provided by a Canadian chartered bank. On September 12, 2012, the Corporation entered into
a credit agreement which amended and restated the existing credit facilities provided by such Canadian chartered bank
under the facility letter agreement (the “First Amended and Restated Credit Agreement”). The First Amended and
Restated Credit Agreement was subsequently amended on September 30, 2012, March 15, 2013, June 30, 2013, July
31, 2013, March 13, 2014, June 30, 2014, December 22, 2014 and March 27, 2015. On June 24, 2015, the Corporation
entered into a second credit agreement which amended and restated the then existing credit facilities provided by such
Canadian chartered bank under the Frist Amended and Restated Credit Agreement (the “Second Amended and
Restated Credit Agreement”). The Second Amended and Restated Credit Agreement was subsequently amended
on July 28, 2015 (the “First Amending Agreement”). See description under the heading "Material Debt" below for
additional information regarding the Second Amended and Restated Credit Agreement. A copy of each of the First
Amended and Restated Credit Agreement, and all amendments thereto, the Second Amended and Restated Credit
Agreement and the First Amending Agreement have been filed on SEDAR at www.sedar.com.
Fort McMurray Branch
The Corporation first announced on March 5, 2012 that it had entered into a contract to purchase six acres in Fort
McMurray, Alberta in order to expand its presence in the northern part of the province. On January 30, 2013, the
Corporation announced that it had completed the purchase of the land. The Corporation commenced business
operations at this location on February 21, 2014. The Fort McMurray branch is a 23,000 square foot facility carrying
the full line of products from Volvo Construction Equipment and complementary brands as well as Manitowoc,
National and Grove crane products. On July 8, 2014, the Corporation completed the sale and fifteen year leaseback
of the Fort McMurray branch.
Dealer Management System
On September 12, 2012, the Corporation announced that it had selected the SAP® Business All-in-One solution as its
business management software platform, and retained Illumiti as its implementation partner. The Corporation decided
on SAP® Business All-in-One solution because of its integrated functionality, which will provide increased
information visibility and improved operating efficiency. The system implementation was completed and went live
in May 2015.
Saint-Augustin Branch
On February 25, 2013, the Corporation announced that it had completed the purchase of eight acres of land to be used
to build its new branch in Saint-Augustin-de-Desmaures, Quebec to improve its presence in the Quebec City region.
The new branch replaced the existing Sainte-Foy location. On January 13, 2014, the Corporation announced the grand
opening of this location. The Saint-Augustin branch is a 40,500 square foot facility carrying the full line of Volvo
Construction Equipment products, and complementary brands. On August 13, 2014 the Corporation completed the
sale and fifteen year leaseback of the Saint-Augustin branch.
Appointment of New Director
On April 30, 2013, the Corporation announced the appointment of Anne Brace as a Director. Mrs. Brace previously
served as Chief Financial Officer of Softchoice Corporation, a reseller of technology products and services, and of
Applanix Corporation. Mrs. Brace is a Chartered Professional Accountant and has a Masters of Business
Administration Degree.
K-Tec Scraper Agreement
On February 20, 2014, the Corporation announced that it had entered into an agreement with K-Tec Earthmovers Inc.
(“K-Tec”) to be the exclusive dealer for K-Tec earthmoving scrapers in Alberta and Ontario.
Redeployment of Capital from Real Estate Holdings
On May 20, 2014, the Corporation announced its plans to monetize several holdings through sales and leaseback
transactions, in line with the company’s strategy of not committing capital to real estate assets over the long term.
The anticipated gross proceeds from these transactions will be approximately $47 million, which will be used by
Strongco to reduce debt.
On July 8, 2014, the Corporation announced that it had completed the sale and fifteen year leaseback of the Fort
McMurray branch. On August 13, 2014 the Corporation completed the sale and fifteen year leaseback of the Saint-
Augustin branch. On September 29, 2014, the Corporation announced that it had completed the sale and fifteen year
leaseback of the Mississauga branch. On December 18, 2014, the Corporation completed the sale and fifteen year
leaseback of its Moncton, New Brunswick branch.
Konecranes Agreement
On July 14, 2014, the Corporation announced that it had entered into an agreement with Konecranes Inc.
(“Konecranes”) to be the exclusive dealer for Konecranes’ line of heavy lifting equipment in Alberta, Saskatchewan,
Manitoba, Nunavet, Ontario, Quebec, New Brunswick, Prince Edward Island, Nova Scotia and Newfoundland and
Labrador.
Terex Trucks Agreement
On July 16, 2014, the Corporation announced that it had entered into a new agreement with Terex Trucks Ltd. (“Terex
Trucks”) to supply and support Terex-branded rigid haulers in Ontario, Quebec and Atlantic Canada.
SDLG Agreement
On September 4, 2014, the Corporation announced that it became the dealer for the complete lineup of SDLG wheel
loaders in Alberta and Quebec. SDLG products are manufactured by Shandong Lingong Construction Machinery
Co., Ltd., (“Lingong”) in Linyi, China and Pederneiras, Brazil. Volvo Construction Equipment purchased 70% of
Lingong in 2007.
On January 29, 2015, the Corporation became the dealer for the complete lineup of SDLG wheel loaders in Ontario.
On August 26, 2015, the Corporation became the dealer for the complete lineup of SDLG wheel loaders in the
Provinces of Nova Scotia and New Brunswick.
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Sennebogen Agreement
On August 21, 2015, the Corporation announced that it had entered into an agreement with Sennebogen LLC to be
the exclusive dealer for the full range of green line material handlers for much of the Province of Quebec, north of the
Greater Montreal Area and in portions of southern Quebec.
The arrangement builds on the existing agreements that Strongco has with Sennebogen in Ontario, New Brunswick,
Nova Scotia, Newfoundland and Labrador, and Prince Edward Island, and further extends the Company’s geographic
reach in the forestry, scrap, ports and recycling markets in Canada.
Departure of the President and Chief Executive Officer and Appointment of Executive Chairman
On January 22, 2016, the Corporation announced that it reached an agreement with Mr. Robert Dryburgh whereby
Mr. Dryburgh stepped down from the position of President and Chief Executive Officer. Mr. Dryburgh will be
available to Strongco to support a seamless transition. Mr. Robert Beutel was appointed as the Corporation’s Executive
Chairman to serve in the interim period until a successor is appointed.
DESCRIPTION OF THE BUSINESS OF STRONGCO
Business and Property
Strongco is one of the largest multi-line mobile equipment distribution providers in Canada. Approximately 700
employees provide retail service at 27 branches located in Canada from Newfoundland and Labrador to Alberta and
5 branches in the United States located in Maine, New Hampshire and Massachusetts. Strongco sells, rents and
services equipment in diverse sectors such as construction, infrastructure, mining, oil and gas, utilities, municipalities,
waste management and forestry. Strongco represents leading equipment manufacturers with globally recognized
brands, including Volvo Construction Equipment, Case Construction, Manitowoc Crane, including National and
Grove, Terex Cedarapids, Terex Finlay, Terex Fuchs, Terex Trucks, Ponsse, Fassi, Sennebogen, Konecranes and
SDLG. Strongco sells and rents mobile equipment, such as rubber-tired loaders, backhoe loaders, skid-steer loaders,
rigid trucks, wheel loaders, articulated trucks, hydraulic excavators, forklift trucks, forestry equipment, aggregate
crushing and rock drilling equipment, pavers and mobile cranes, telehandlers, crawler dozers and pipelayers, and
provides after-sale customer support (parts and service).
The Equipment Industry
The North American equipment industry consists of a large number of manufacturers and distributors of various types
of equipment used in a wide assortment of industrial activities. Most equipment manufacturers sell their products
primarily through a network of independent distributors which provide the sales and service expertise demanded by
customers. A distributor receives the right, typically on an exclusive basis, to distribute a manufacturer's product
within a designated territory.
There are two types of equipment distributors in North America: "multi-line" distributors, which sell, rent and service
a full range of equipment produced by several different manufacturers, and "single-line" distributors, which sell and
service a similar range of equipment made by a single manufacturer. Strongco is a "multi-line" distributor.
Equipment distributors usually depend upon three interconnected revenue streams: equipment sales, equipment rentals
and parts sales and service revenue. Profit margins derived from the parts and service business are substantially higher
than those derived from equipment sales and, to a lesser degree, rentals. Therefore, maximizing the parts and service
business is important to a distributor's success. In order to maximize the parts and service business, a distributor must
ensure that there is an adequate population of its lines of equipment in the field. In addition, distributors must maintain,
or have quick access to, sufficient inventories in order to meet customers' requirements for fast delivery, an important
factor in a customer's choice of distributor.
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The equipment industry has been consolidating at both the manufacturer and distributor levels for several years.
Among other things, this has led to the emergence of several large distributors, such as Strongco, which grew
substantially through acquisitions during the 1990s. By adding branches that represent the same equipment lines, a
distributor can reduce the level of inventory which it would otherwise carry by virtue of its ability to transfer equipment
and parts inventories among a greater number of locations. Furthermore, when distributors are merged, duplicate
facilities and personnel functions can be eliminated while remaining overhead costs are allocated over a larger revenue
base. The consolidation of the industry has enabled Strongco, primarily through acquisitions, to develop a
geographically diverse network of sales and service facilities to meet customer requirements in its chosen territories.
The industry continues to consolidate as the owners of many distributor businesses choose to exit the business as part
of their retirement plans and as equipment manufacturers indicate a preference for dealing with fewer, larger, better
financed distributors in an industry where, increasingly, scale is an advantage. In 2011, Strongco completed the
acquisition of Chadwick-BaRoss, a distributor with branches in Maine, New Hampshire and Massachusetts. In 2011,
2012 and 2013, Strongco announced the construction of new branches in Alberta, Ontario and Quebec.
Strategy
Strongco's overall strategic objective is to maximize profits across the economic cycle by being a leading multi-line
equipment company within the geographic areas in which it operates while capitalizing on its national scale. In
addition, the strategy includes growing revenues and profits through organic growth and acquisitions which expand
the geography and the brands represented. During the 1990s, Strongco actively pursued a strategy of expanding
Strongco's distribution and service businesses to achieve economies of scale and to take advantage of the consolidation
of the equipment industry. From 2000 through to 2009, when the Canadian economy slipped into recession, its
strategy involved streamlining the Business and enhancing its operational focus by disposing of several non-core
operations, including the sale of the engineered systems segment of the Business ("Engineered Systems Segment")
in May of 2009. Strongco's Engineered Systems Segment designed, manufactured, sold, installed and serviced dry
bulk material handling equipment, including belt conveyors, screw conveyors, idlers, feed milling and grain handling
equipment and their related assemblies. In 2010, following the 2009 recession, Strongco's strategy was to grow its
Business both organically by increasing its market share, and through acquisitions, such as the acquisition of
Chadwick-BaRoss in February 2011.
Strongco has implemented its strategy by building an extensive equipment, parts and service network in Alberta,
Ontario, Quebec and Atlantic Canada by: (i) acquiring businesses which provide it with access to new or additional
product lines, facilities and personnel; and (ii) obtaining distribution rights to new or additional equipment lines
directly from various manufacturers.
One of the principal elements of success in the equipment industry is the ability of a distributor to deliver its products
and services to its customers at the lowest possible cost. Strongco has created an extensive distribution network in
which duplicate overhead costs have been reduced and other costs have been allocated over a larger revenue base.
In 2008, Strongco also established new branches in Red Deer, Alberta and St. John's, Newfoundland as well as
upgraded branches in Boucherville, Quebec and Calgary, Alberta. In 2009, Strongco continued to focus on its core
business of mobile equipment sales and service and on managing expenses and its levels of inventory and debt relative
to the decline of its revenues experienced through the recession in that year. During 2009, Strongco rationalized its
branch network in Ontario, consolidating four branches into two existing branches, leaving eleven branches in the
province. During 2011, Strongco established a new branch in Orillia, Ontario and closed its branch in Timmins,
Ontario, thereby remaining at eleven branches in the province. Also in 2011, Strongco commenced construction of a
new branch in Acheson, Alberta which was completed and commenced operations in March 2012. During 2013,
Strongco built a new branch in St-Augustin-de-Desmaures, Quebec to replace its old branch in Sainte-Foy, Quebec.
The new branch in Saint-Augustin-de-Desmaures was completed in December 2013 and its official opening was held
on January 13, 2014. Also during 2013, Strongco began construction of a new branch in Fort McMurray, Alberta,
which was completed and commenced operations in February 2014.
During 2014, Strongco completed sale and leaseback transactions for its branch locations in Fort McMurray, Alberta,
Saint-Augustin-de-Desmaures, Quebec, Mississauga, Ontario and Moncton, New Brunswick. These transactions were
in line with Strongco’s strategy of redeploying capital from real estate holdings to strengthening its operations.
10
Strongco sells and rents mobile equipment and provides after-sale customer support (parts and service) through a
network of 27 branches in Canada located in Alberta, Ontario, Quebec and Atlantic Canada, and 5 branches in the
United States located in Maine, New Hampshire and Massachusetts. Strongco has one of the largest "multi-line"
equipment distribution operations in Canada.
Products and Customers
and rock drilling equipment, pavers, mobile cranes, telehandlers, crawler dozers and pipelayers.
These products are supplied by a number of manufacturers including the following: Volvo (rubber-tired loaders,
backhoe loaders, skid-steer loaders, articulated trucks, hydraulic excavators and forestry equipment); Manitowoc
Crane Group (hydraulic cranes including Manitowoc lattice-boom crawler cranes, Grove mobile hydraulic cranes and
National Crane telescoping cranes); Case Construction (skid-steer loaders, backhoe loaders, excavators, crawler
dozers and rubber-tired loaders); Sennebogen (material handlers); Konecranes (fork lift trucks); Ponsse (cut-to-length
forestry system); Bombardier (track sidewalk plows); Terex Cedarapids (stone crushing and screening plants); Terex
Finlay (tracked stone crushing and screening plants); Terex Trucks (rigid hauler trucks); Fassi (articulating telescoping
cranes); and SDLG (wheel loaders).
Effective May 17, 2001, Strongco became the exclusive dealer for all Volvo construction equipment products in
Alberta (excluding the Municipal District of Provost; the Municipal District of Wainwright; and the County of
Vermillion River), in addition to its existing dealership arrangements with Volvo in Ontario, Quebec and Atlantic
Canada. Effective September 1, 2006, Strongco began representing Manitowoc in the provinces of Manitoba,
Saskatchewan and Alberta. In 2010, Strongco announced that it had become a dealer for Volvo Penta Canada parts
and services for Ontario. In 2010, Strongco also announced that it had become the dealer for Sennebogen material
handling machines for the provinces of Nova Scotia, Prince Edward Island, New Brunswick and Newfoundland. On
August 21, 2015, Strongco announced the extension of the Sennebogen dealership arrangement into much of the
Province of Quebec. Effective February 17, 2011, upon the acquisition of Chadwick-BaRoss, Strongco became a
Volvo dealer in the States of Maine and New Hampshire. On July 14, 2011, Strongco announced that the dealer
agreement with Sennebogen has been extended to include northern Ontario. On July 25, 2011, Strongco announced
that it had become a dealer for Ormet Jekko minicrane products for Canada. On August 22, 2011, Strongco announced
its U.S. business unit, Chadwick-BaRoss, had been granted distribution rights for Terex Finlay mobile crushing,
screening and washing equipment in Connecticut, Maine, Massachusetts, New Hampshire, Rhode Island and Vermont.
On April 12, 2012, Strongco announced that it had entered into an agreement with Terex USA LLC to be the exclusive
dealer for Terex Finlay mobile crushing and screening equipment in Ontario and Alberta. On July 1, 2014, Strongco
announced that it had entered into an agreement with Konecranes Inc. to be the exclusive dealer for Konecranes line
of heavy lifting equipment. On July 16, 2014, Strongco announced that it had entered into an agreement with Terex
Trucks Ltd., to supply and support Terex-branded rigid haulers in Ontario, Quebec and Atlantic Canada. On
September 4, 2014, Strongco announced that it became the dealer for the complete line of the SDLG wheel loaders in
Alberta and Quebec. On January 15, 2015, Strongco became the dealer for SDLG wheel loaders in Ontario. On
August 26, 2015, Strongco became the dealer for SDLG wheel loaders in Nova Scotia and New Brunswick.
Strongco's customer base includes companies and contractors operating in sectors such as construction, infrastructure,
mining, oil and gas, utilities, municipalities, waste management and forestry.
Components of the Business
In each of 2014 and 2015 Strongco’s equipment distribution business generated 100% of Strongco's total revenue.
11
Equipment Sales and Rentals
Strongco sells equipment, both new and used, and rents equipment under limited term rental contracts. The majority
of the Corporation’s rental contracts are rental purchase option agreements (each an "RPO") where the customer has
the option to purchase the equipment at the end of the rental period for a pre-established price or return the equipment
to Strongco. Strongco will entertain RPOs when there is a high probability that the customer will purchase the
equipment at the end of the rental period. The typical rental term is for a minimum period of three months.
Traditionally, the majority of rental purchase options are converted to sales within a six month period.
Strongco will also rent equipment to certain customers under rental contracts without an option to purchase ("rent-
to-rent") as a service to those customers for a specific project or as a means to recover value from aging equipment
that has not yet sold. Rent-to-rent contracts are typically for terms of between one to five months at the end of which
the equipment is returned to Strongco. Since early 2008, Strongco has expanded its participation in the rent-to-rent
business. This has been augmented since 2008 as the economic downturn has led to some customers preferring to rent
rather than purchase new equipment.
Customer Support
service branches maintain inventories of faster moving replacement parts. More extensive inventories are held at
regional centres in Moncton, New Brunswick; Montreal, Quebec; Mississauga, Ontario; Edmonton, Alberta; and
Westbrook, Maine. Customer service is enhanced by Strongco's on-line, bilingual computer system which provides
all of Strongco's branches with immediate access to all inventories of parts at any branch. In addition, a fleet of
Strongco-operated service vehicles provides on-site customer service.
Suppliers
Most of the Business is governed by distribution agreements with the original equipment manufacturers whose
products Strongco sells. These agreements grant Strongco the right to distribute the manufacturers' products within
defined territories. These territories typically cover an entire province. It is an industry practice that, within a defined
territory, a manufacturer generally grants distribution rights to only one distributor. This is true of most of the
distribution arrangements entered into by Strongco. Similarly, Strongco has exclusive relationships with most of its
suppliers and is unable to sell equipment that directly competes with these suppliers. Most distribution agreements
may be cancelled upon sixty to ninety days’ notice by either party.
Some of the suppliers of the Business provide floor plan financing to assist with the purchase of equipment inventory.
In some cases, this financing is provided by the captive financing arm of the manufacturer, and in other cases the
manufacturer engages a third party lender to provide the financing. Most floor plan arrangements typically include
an interest-free period of up to twelve months.
Competition
Strongco competes with regional and local distributors of competing product lines. It competes on the basis of: (i)
relationships maintained with customers over many years of service; (ii) prompt customer service through a network
of sales and service facilities in key locations; (iii) access to products, which is facilitated within Strongco by an on-
line, bilingual computer system; and (iv) the quality and price of their products. For most product lines in most
geographic areas in which Strongco operates, its main competitors are distributors of Caterpillar products.
Facilities and Equipment
As at the date of this AIF, Strongco operates from 27 facilities in Canada, 26 of which are leased and 1 of which is
owned, and Strongco operates from 5 facilities in the United States, all of which are owned. The following table sets
forth information regarding Strongco's facilities as at the date hereof.
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Location(1)
Ontario – 11 11
TOTAL: 6 26 32
Notes: (1) The locations in Maine, New Hampshire and Massachusetts were acquired in connection with the acquisition of Chadwick-BaRoss on
February 17, 2011.
Employees
Strongco's personnel as at December 31, 2015 consisted of the following active employees:
Department Number of Employees
Total: 697
Strongco's equipment distribution units report to and are supported by corporate head office staff that provide treasury,
accounting, administrative and information systems services. Strongco’s hourly paid employees based out of its
Mississauga, Ontario and Brampton, Ontario parts and service departments belong to Unifor Local 252. The current
collective bargaining agreement in respect of this union, which covers 36 active employees, will expire on December
31, 2017. Strongco’s hourly paid employees located in Alberta in the parts and service departments belong to the
International Association of Machinists and Aerospace Workers, Local Lodge 1722. The current collective bargaining
agreement in respect of this union, which covers 107 active employees, will expire on April 30, 2018.
Environmental Matters
Strongco is subject to environmental regulation by federal, state, provincial and local authorities. Strongco holds all
necessary environmental permits for its operations and is in compliance in all material respects with the terms of its
permits and applicable government regulations. The costs associated with such compliance are not material in
comparison to the revenue generated by such operations and are not expected to be material in the future. There are
currently no environmental orders outstanding or pending against Strongco.
Strongco's policy is to conduct its operations in a manner that complies with all legal requirements regarding health,
safety and the environment. In most instances, it is also Strongco's practice to commission, at a minimum, Phase I
environmental site assessments in respect of every corporate acquisition that it makes.
Strongco has put in place a company-wide health, safety and environmental management system to govern the
environmental conduct and activities related to the Business. Strongco employs a senior manager whose sole
responsibility is to manage all aspects of health, safety and environmental matters of the Business at the operational
level.
Strongco's business activity generally follows a weather related pattern of seasonality. Typically, the first quarter is
the weakest quarter as construction and infrastructure activity is constrained in the winter months. This is followed by
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a strong pickup in the second quarter as construction and other contracts begin to be put out for bid and companies
begin to prepare for summer activity. The third quarter generally tends to be a bit slower from an equipment sales
standpoint, which is partially offset by continued strength in equipment rentals and customer support (parts and
service) activities. Fourth quarter activity generally strengthens as companies make year-end capital spending
decisions in addition to the exercise of purchase options on equipment which has previously been rented pursuant to
RPO contracts. The seasonal patterns may change during times of economic recession.
Intangible Properties
Other than the "Strongco" name, the "Chadwick-BaRoss" name and license rights related to the use of certain
manufacturer names, Strongco does not utilize any intangible properties.
Foreign Operations
On February 17, 2011, Strongco acquired all of the issued and outstanding shares of Chadwick-BaRoss. The
Corporation is not dependent on the Chadwick-BaRoss business.
INFORMATION CONCERNING THE CORPORATION
Description of the Corporation
The Corporation was incorporated pursuant to the provisions of the OBCA on March 23, 2010 under the name
"Strongco Corporation/Corporation Strongco". Upon completion of the Arrangement, the Corporation became a
reporting issuer in all of the provinces of Canada and is subject to the informational reporting requirements under the
securities laws of such jurisdictions. The Corporation does not currently conduct any business but rather it holds,
directly or indirectly, 100% of the issued and outstanding securities of the Strongco Entities. The head and registered
office of the Corporation is located at 1640 Enterprise Road, Mississauga, Ontario L4W 4L4.
Description of Capital
The articles of the Corporation provide that the Corporation is authorized to issue an unlimited number of Common
Shares. As at December 31, 2015, there were 13,221,719 issued and outstanding Common Shares. There are no
constraints on the ownership of the Common Shares. Refer to the section "Capital Structure" in this AIF for further
information on the capital structure of the Corporation.
Dividend Policy
The Corporation does not have a formal dividend policy. As at the date hereof, the Corporation has not declared or
paid any dividends since its incorporation. Refer to the section "Dividends and Distributions" in this AIF for further
information on dividends of the Corporation.
Directors of the Corporation
As at December 31, 2015 the Directors of the Corporation were Messrs. John K. Bell, Robert J. Beutel, Ian C.B.
Currie, Ms. Anne E. Brace and Mr. Robert H. R. Dryburgh. On January 22, 2016 Mr. Robert H. R. Dryburgh resigned
as President, Chief Executive Officer and as a Director of the Corporation. The term of office of all of the Directors
of the Corporation will expire at the next annual meeting of shareholders of the Corporation.
INFORMATION CONCERNING STRONGCO LP
The following is a summary of the material attributes and characteristics of Strongco LP, the LP Units and of certain
provisions of the Strongco Limited Partnership Agreement governing the affairs of Strongco LP. This summary is
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qualified in its entirety by reference to the full text of the Strongco Limited Partnership Agreement which has been
filed on SEDAR at www.sedar.com.
Description of Strongco LP
Strongco LP (the entity that currently carries on the Business in Canada) is a limited partnership established under the
laws of the Province of Manitoba on July 26, 2006 under the name of "Strongco Limited Partnership/Société en
Commandite Strongco". The sole general partner of Strongco LP is Strongco GP. The sole shareholder of Strongco
GP is the Corporation. The sole limited partner of Strongco LP is the Corporation. Strongco LP's head and registered
office is located at 1640 Enterprise Road, Mississauga, Ontario L4W 4L4.
Description of Capital
Strongco LP is authorized to issue an unlimited number of units designated as "LP Units". The Corporation is the
sole limited partner of Strongco LP, holding all of the issued and outstanding LP Units, and Strongco GP is the sole
general partner, holding a 0.01% general partnership interest in Strongco LP. The LP Units entitle the holders thereof
to one vote for each LP Unit held at each meeting of partners of Strongco LP and have economic rights that are
equivalent in all material respects. In addition, the general partner is entitled to one vote at each meeting of partners
of Strongco LP. Holders of LP Units have in the aggregate the right to receive 99.99% of all distributions made by
Strongco LP and the general partner has the right to receive 0.01% of all distributions made by Strongco LP.
Allocation of Income and Losses
The Strongco Limited Partnership Agreement provides that the income or loss of Strongco LP for tax purposes for
each fiscal year is allocated to Strongco GP and the limited partners in proportion to their respective rights to receive
distributions made by Strongco LP.
Limited Liability
The Strongco Limited Partnership Agreement provides that Strongco LP will operate in a manner so as to ensure, to
the greatest extent possible, the limited liability of its limited partners. The limited partners could lose their limited
liability in certain circumstances. Strongco GP will indemnify the Corporation against all claims arising from
assertions that its liability was not limited as intended by the Strongco Limited Partnership Agreement unless the
liability is not so limited as a result of or arising out of any act of the Corporation.
Amendments to the Strongco Limited Partnership Agreement
The Strongco Limited Partnership Agreement may only be amended with the consent of partners holding at least
66% of the outstanding LP Units voted on the amendment at a duly constituted meeting or by a written resolution
of partners holding more than 66% of the outstanding LP Units entitled to vote at a duly constituted meeting.
Notwithstanding the foregoing:
(i) no amendment will be permitted to be made to the Strongco Limited Partnership Agreement changing the
liability of any limited partner, allowing any limited partner to exercise control over the business of Strongco
LP, changing the right of a partner to vote at any meeting, adversely affecting the rights, privileges or
conditions attaching to any of the LP Units or changing Strongco LP from a limited partnership to a general
partnership, in each case, without the unanimous approval of the partners;
(ii) no amendment may be made to the Strongco Limited Partnership Agreement which would adversely affect
the rights and obligations of any particular partner without similarly affecting the rights and obligations of
all other partners without the unanimous approval of the partners; and
(iii) no amendment which would adversely affect the rights and obligations of Strongco GP, as general partner,
will be permitted to be made without its consent.
Meetings of Partners
Strongco GP may call meetings of partners and will be required to convene a meeting of partners on receipt of a
request in writing of partners holding not less than 66% of the outstanding LP Units. A quorum of a meeting of
partners consists of one or more partners present in person or by proxy.
INFORMATION CONCERNING STRONGCO GP
Description of Strongco GP
Strongco GP was incorporated under the laws of the Province of Ontario on July 21, 2006 under the name of "Strongco
GP Inc./Société Strongco GP Inc.". The authorized capital of Strongco GP consists of an unlimited number of
common shares. The Corporation is the holder of 100% of the outstanding securities of Strongco GP. Strongco GP's
head and registered office is located at 1640 Enterprise Road, Mississauga, Ontario L4W 4L4.
Functions and Powers of Strongco GP
The Strongco Limited Partnership Agreement provides that Strongco GP has the exclusive authority to manage the
business and affairs of Strongco LP, to make all decisions regarding the business of Strongco LP and to bind Strongco
LP. Strongco GP is required to exercise its powers and discharge its duties honestly, in good faith and in the best
interests of Strongco LP and to exercise the care, diligence and skill of a reasonably prudent person in comparable
circumstances. The authority and power vested in Strongco GP to manage the business and affairs of Strongco LP
includes all authority necessary or incidental to carry out the objects, purposes and business of Strongco LP, including
without limitation, the ability to engage agents to assist Strongco GP to carry out its management obligations or
administrative functions. Strongco GP does not have the authority to dissolve Strongco LP or wind up Strongco LP's
affairs except in accordance with the provisions of the Strongco Limited Partnership Agreement.
Withdrawal or Removal of Strongco GP
The Strongco Limited Partnership Agreement provides that Strongco GP is not permitted to resign as general partner
of Strongco LP on less than 180 days' written notice to the limited partners of Strongco LP or where such resignation
would have the effect of dissolving Strongco LP.
The Strongco Limited Partnership Agreement also provides that Strongco GP must not be removed as general partner
of Strongco LP unless: (i) Strongco GP has committed a material breach of the Strongco Limited Partnership
Agreement, which breach has continued for 30 days after notice, and that removal is also approved by special
resolution of the limited partners of Strongco LP; or (ii) the shareholders or directors of Strongco GP pass a resolution
in connection with the bankruptcy, dissolution, liquidation or winding-up of Strongco GP, or Strongco GP commits
certain other acts of bankruptcy or ceases to be a subsisting corporation.
Directors of Strongco GP
The directors of Strongco GP are Messrs. Robert J. Beutel, J. David Wood and Leonard V. Phillips. The term of office
of all of the directors of Strongco GP will expire at the next annual meeting of shareholders of Strongco GP scheduled
to be held on or completed by June 30, 2016.
INFORMATION CONCERNING STRONGCO USA
Description of Strongco USA
Strongco USA was incorporated under the laws of the State of Delaware on February 9, 2011 under the name of
"Strongco USA, Inc.". Strongco USA’s certificate of incorporation was amended and restated on December 20, 2011.
The authorized capital of Strongco USA consists of two thousand shares, one thousand of which are common stock,
with no par value per share, and one thousand of which are preferred stock, with no par value per share. Strongco
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USA does not currently conduct any business but rather it holds directly 100% of the issued and outstanding securities
of Chadwick-BaRoss.
Directors of Strongco USA
As at December 31, 2015 the directors of Strongco USA were Messrs. Robert H. R. Dryburgh, J. David Wood and
Leonard V. Phillips. On January 22, 2016 Mr. Robert H. R. Dryburgh resigned as President, Chief Executive Officer
and as a director of Strongco USA. Mr. Robert J. Beutel was appointed on January 22, 2016 as a director and as
President and Chief Executive Officer of Strongco USA. The term of office of all of the directors of Strongco USA
will expire at the next annual meeting of shareholders of Strongco USA scheduled to be held on or completed by June
30, 2016.
INFORMATION CONCERNING CHADWICK-BAROSS
Description of Chadwick-BaRoss
Chadwick-BaRoss was incorporated under the laws of the State of Maine on May 9, 1973 under the name "Chadwick-
BaRoss, Inc.". Chadwick-BaRoss’ articles of incorporation and bylaws were amended and restated on May 8, 2015.
The authorized capital of Chadwick-BaRoss consists of 100,000 Class A voting shares and 300,000 Class B non-
voting shares. Strongco USA is the holder of 100% of the outstanding securities of Chadwick-BaRoss.
Directors of Chadwick-BaRoss
As at December 31, 2015 the directors of Chadwick-BaRoss were Messrs. Robert H. R. Dryburgh, J. David Wood,
Stuart E. Welch and Leonard V. Phillips. On January 22, 2016 Mr. Robert H. R. Dryburgh resigned as a director of
Chadwick-BaRoss. On January 23, 2016 Mr. Stuart E. Welch resigned as a director and Mr. Robert J. Beutel was
appointed as a director of Chadwick-BaRoss. The term of office of all of the directors of Chadwick-BaRoss will expire
at the next annual meeting of shareholders of Chadwick-BaRoss scheduled to be held on or completed by June 30,
2016.
CAPITAL STRUCTURE
Common Shares
The articles of the Corporation provide that the Corporation is authorized to issue an unlimited number of Common
Shares. Common Shares may be issued by the Directors at such times and on such terms and conditions and to such
persons or class or classes of persons as the Directors may determine. The Corporation is allowed, from time to time,
to purchase Common Shares for cancellation in accordance with applicable securities laws and the rules prescribed
under the applicable stock exchange or regulatory policies. The rights of the holders of Common Shares are equal in
all respects and include: the right to vote at all meetings of Shareholders; the right to receive dividends, if, as and
when declared by the Directors; and the right, on a pro rata basis, to receive the remaining property of the Corporation
upon the liquidation, dissolution or winding-up of the Corporation. The Common Shares commenced trading on the
TSX on July 2, 2010 under the trading symbol "SQP". As at December 31, 2015, there were 13,221,719 issued and
outstanding Common Shares and the executive officers and senior managers of Strongco, as a group, held in the
aggregate options to acquire 439,141 Common Shares. There are no constraints on the ownership of the Common
Shares.
Options
On October 29, 2009, the Fund granted to certain executives and management employees (collectively, the
"Recipients") options to purchase an aggregate of 375,000 Fund Units (the "2009 Options") on the terms and
conditions set out in option agreements made December 3, 2009 between the Fund and each of the Recipients. The
2009 Options were approved at the annual and special meeting of the unitholders of the Fund held on May 14, 2010.
The 2009 Options were exercisable at a price of $4.50 per Fund Unit, being equal to the weighted average trading
price of the Fund Units on the TSX for the five trading days prior to the date of the grant. The 2009 Options were
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granted to the Recipients in recognition of the extraordinary efforts of each Recipient and their contribution over
periods of up to two years in transitioning Strongco through an extremely difficult operating period and through
difficult financial circumstances. As part of the Arrangement, the outstanding Fund Options were exchanged for
options to acquire Common Shares. In October 2010, of the 2009 Options outstanding, options to purchase 30,000
Common Shares were forfeited upon the resignation of one of the Recipients, and subsequently cancelled. In June
2012, of the 2009 Options outstanding, options to purchase 100,000 Common Shares were forfeited upon the
resignation of one of the Recipients, and subsequently cancelled. In February 2013, of the 2009 Options outstanding,
options to purchase 15,000 Common Shares were forfeited upon the resignation of one of the Recipients, and
subsequently cancelled.
On March 29, 2011, the Directors of the Corporation adopted a new Stock Option Plan (the "Stock Option Plan"),
which was approved at the annual and special meeting of the Shareholders held on May 26, 2011.
On March 21, 2012, the Directors approved the grant of options to purchase 74,182 Common Shares (the "2012
Options") to certain executives and senior managers of the Corporation, at an exercise price of $6.20 per Common
Share, as part of the 2012 award under the LTIP of the Corporation. In June 2012, of the 2012 Options outstanding,
options to purchase 11,560 Common Shares were forfeited upon the resignation of one of the Recipients, and
subsequently cancelled. In December 2012, of the 2012 Options outstanding, options to purchase 2,344 Common
Shares were forfeited upon the resignation of one of the Recipients, and subsequently cancelled. On January 22, 2016,
upon Mr. Robert H. R. Dryburgh’s resignation as President and Chief Executive Officer, and Director of the
Corporation, all of his 20,266 2012 Options fully vested and will expire on January 22, 2017. Refer to the section
"LTIP" below for further information regarding the 2012 award under the LTIP.
On March 19, 2013, the Directors approved the grant of options to certain executives and senior managers of the
Corporation as part of the 2013 award under the LTIP (the "2013 Options"). The grant of the 2013 Options became
effective on March 28, 2013 and provided for the purchase of 88,714 Common Shares at an exercise price of $4.92
per Common Share. In August 2013, of the 2013 Options outstanding, options to purchase 4,851 Common Shares
were forfeited upon the resignation of one of the Recipients, and subsequently cancelled. On January 22, 2016, upon
Mr. Robert H. R. Dryburgh’s resignation as President, Chief Executive Officer, and Director of the Corporation, all
of his 21,597 2013 Options fully vested and will expire on January 22, 2017. Refer to the section "LTIP" below for
further information regarding the 2013 award under the LTIP.
On March 26, 2014, the Directors approved the grant of options to certain executives and senior managers of the
Corporation (the “2014 Options”). The grant of 2014 Options became effective on May 9, 2014 and provided for the
purchase of 95,000 Common Shares at an exercise price of $3.67 per Common Share. In December 2014, of the 2014
Options outstanding, options to purchase 30,000 Common Shares became vested upon the termination of services of
one of the Recipients.
The directors did not grant any options in 2015 as a result of the Corporation’s overall performance.
LTIP
Strongco provides a long term incentive plan for certain executives and senior managers of Strongco (the "LTIP").
The LTIP was approved by the Directors on December 19, 2011.
Awards under the LTIP include two components:
1. 50% of the award value is delivered in the form of stock options under the Stock Option Plan. Unless
otherwise determined by the Directors, the options have a 7 year term and vest over 5 years from the date of
the award (33% per year, at the end of the 3rd, 4th and 5th years); and
2. 50% of the award value is delivered in the form of restricted share units ("RSUs"). Unless otherwise
determined by the Directors, RSUs vest on the third anniversary following the date of grant. Vested awards
of RSU’s are settled in cash or Common Shares purchased on the open market.
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LTIP awards will be granted each year based on the Corporation’s average return on equity ("ROE") achieved over
the previous three years compared to pre-established ROE performance levels. The current pre-established ROE
performance levels have been set at 12.5% for threshold award; 15% for target award; and 27.5% for maximum award.
The aggregate awards under the LTIP for all participants in any given year is capped and shall not exceed 5% of the
Corporation’s earnings before taxes for the immediately preceding year. Each year the CGNCP Committee will review
the ROE performance measure and underlying targets in order to determine their continued relevance in measuring
long term sustainable performance.
There were no LTIP awards earned by participants of the LTIP in 2015.
CORPORATE GOVERNANCE, NOMINATING, COMPENSATION AND PENSION COMMITTEE
The following is a description of the CGNCP Committee.
Composition of the CGNCP Committee of the Corporation
As at the date hereof, the members of the CGNCP Committee are Ian C.B. Currie (Chair), Anne Brace and John Bell.
The Directors have determined that each member of the CGNCP Committee is "independent" from the Corporation
and the Strongco Entities within the meaning of the Canadian Securities Administrators' National Instrument 58-101
- Disclosure of Corporate Governance Practices.
The CGNCP Committee is responsible for examining corporate governance practices observed within the Corporation
and for making recommendations with respect to such matters to the Directors. In addition, the CGNCP Committee
serves as the nominating committee of the Directors. The responsibilities of the CGNCP Committee as they pertain
to corporate governance matters include: reviewing corporate governance practices in general; examining the
adequacy and effectiveness of the Directors' practices in light of changing requirements and making suggestions for
improvement; maintaining an oversight of the number and composition of the Directors and their committees and
providing advice to the Directors in this regard; reviewing the effectiveness of the Directors including time
commitments, conflicts of interest and continuing qualification, contribution by individual Directors and composition
and effectiveness of committees of the Directors; developing criteria for the selection of Directors and identifying
individuals for appointment as Directors; overseeing orientation and education programs for new Directors; making
recommendations to the Directors as to the committees of the Directors to be constituted from time to time, the
mandate of such committees and the structure of such committees; assessing the quality and effectiveness of the
Directors' relationship with management; recommending topics of interest or importance for discussion and/or action
taken by the Directors and addressing information requirements of the Directors; reviewing and approving the
Corporation's response to applicable corporate governance guidelines on an annual basis for inclusion in the
Corporation's annual report or information circular; assessing the merits of any Shareholder proposals and formulating
draft responses for Director approval; and approving, if requested, the engagement by an individual Director of an
outside legal or other advisor at the expense of the Corporation.
The CGNCP Committee is also responsible for reviewing and making recommendations in respect of compensation
to be paid to the Directors and other compensation matters that the committee may be asked by the Directors to
address. The responsibilities of the CGNCP Committee as they pertain to compensation matters include: reviewing
and making recommendations to the Directors on an annual basis with respect to compensation of the Directors; and
reviewing and approving the report on executive compensation required by regulatory authorities. In addition, the
CGNCP Committee is responsible for implementing, administering and making amendments to, and otherwise dealing
with matters relating to, long-term incentive plans.
The CGNCP Committee is also responsible for the oversight and governance of pension related matters.
AUDIT COMMITTEE
The following is a description of the Audit Committee. Responsibilities and duties of the Audit Committee are set out
in the Audit Committee Charter of the Corporation, the full text of which is set forth in Appendix "A" to this AIF.
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Composition of the Audit Committee of the Corporation
As at the date hereof, the members of the Audit Committee are John K. Bell (Chair), Anne Brace and Ian Currie. Each
of the members of the Audit Committee have been determined by the Directors to be "independent" and "financially
literate" as such terms are defined under Canadian securities laws.
Each member of the Audit Committee has the ability to perform his or her responsibilities as an Audit Committee
member based on his or her education and/or experience as summarized below.
John K. Bell – Mr. Bell is a Chartered Professional Accountant, and is a Fellow of the Institute of Chartered
Professional Accountants of Ontario. Mr. Bell has been a director with a number of public companies, and he is the
chair of the audit committee of another public company.
Ian Currie – Mr. Currie has been a director and president of a liquidation trust and chairman of a manufacturing
company.
Anne Brace – Mrs. Brace is a Chartered Professional Accountant. She held the position of Chief Financial Officer for
a large public corporation and the position of Treasurer for several not-for-profit organizations.
Pre-Approval of Non-Audit Services
In accordance with the Canadian Institute of Chartered Professional Accountants' independence standards for auditors,
the Corporation is restricted from engaging its external auditors to provide certain non-audit services to the
Corporation, including bookkeeping or other services related to the accounting records or financial statements,
information technology services, valuation services, actuarial services, internal audit services, corporate finance
services, management functions, human resources functions, legal services and expert services unrelated to the audit.
The Corporation does engage its external auditors from time to time to provide certain non-audit services other than
the restricted services. All non-audit services must be specifically pre-approved by the Audit Committee.
External Auditor Service Fees
The following table sets forth the aggregate fees billed by Ernst & Young LLP (“E&Y”), the external auditors for the
Corporation, for services rendered for the fiscal years ended December 31, 2015 and 2014:
2015 2014
Audit Fees(1) ................................................................ $289,000 $295,000
Audit-related fees(2) ..................................................... $57,000 $22,000
Tax fees(3) .................................................................... $95,000 $95,000
All other fees(4) ............................................................ 45,600 –
Total ............................................................................ $486,600 $412,000 Notes:
(1) "Audit fees" include the aggregate fees billed by Ernst & Young LLP for the audit of the annual consolidated financial statements, the review of interim unaudited consolidated financial statements and other regulatory audits and filings.
(2) "Audit related fees" include the aggregate fees billed by Ernst & Young LLP, for the provision of technical, accounting and financial
reporting advice services. (3) "Tax fees" include the aggregate fees billed by Ernst & Young LLP for the provision of corporate tax compliance, tax planning and other
tax related services.
(4) "All other fees" includes the aggregate fees billed by Ernst & Young LLP for the provision of advisory services related to the implementation of a new information technology system in 2015.
MATERIAL DEBT
On June 24, 2015, Strongco entered into the Second Amended and Restated Credit Agreement which amended and
restated Strongco’s then existing credit facilities. Pursuant to the Second Amended and Restated Credit Agreement, a
Canadian chartered bank provided the Canadian Credit Facilities in favour of Strongco comprised of a committed
revolving facility in the maximum principal amount of $35 million (the "Revolving Facility"), a foreign exchange
forward contracts facility in the maximum principal amount of U.S. $5.9 million of risk equivalent for the purchase
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of contracts equivalent to a maximum aggregate notional principal of U.S. $18,400,000 (the "Foreign Exchange
Facility") and a swap facility in the maximum principal amount of U.S. $4 million of risk equivalent for the ability to
swap up to approximately U.S. $100,000,000 of floating interest rate debt to a fixed rate for up to five years (the
“SWAP Facility”). The purpose of the Revolving Facility is to finance general corporate requirements, the purpose
of the Foreign Exchange Facility is to hedge foreign currency exposure and the purpose of the SWAP Facility is to
hedge floating interest rate exposure.
Pursuant to the First Amending Agreement to the Second Amended and Restated Credit Facility, on July 28, 2015,
the maximum principal amount of the Revolving Facility was increased from $35 million to $37 million for a
temporary period ending August 30, 2015, at which time, the maximum principal amount reverted back to $35 million.
At the date of this AIF, there is approximately $32.3 million outstanding under the Revolving Facility.
In September 2011, the Corporation entered into an interest rate swap to fix the interest rate on $15 million of floating
interest rate debt at a fixed rate of 1.615% for a period of five years to September 2016. In June 2012, the Corporation
entered into a second interest rate swap to fix the interest rate on $10 million of floating interest rate debt at a fixed
rate of 1.580% for a period of five years to June 2017. The Corporation also entered into an interest rate swap in June
2012 to fix the interest rate on $5 million of floating interest rate debt at a fixed rate of 1.510% for a period of five
years to June 2017. The Corporation terminated the $5 million interest rate swap entered into in June 2012 on
September 19, 2014. In May 2014, the Corporation entered into an interest rate swap to fix the interest rate on $25
million of floating interest rate debt at a fixed rate of 1.780% for a period of three years to May 2017.
The Credit Facilities bear interest which vary in accordance with borrowing rates in Canada and the United States. In
addition, the Revolving Facility bears interest at rates calculated with regard to a certain financial ratio of the
Corporation. The Credit Facilities are secured by a first charge on Strongco’s assets, subject to certain exceptions. In
addition, the Subsidiaries of the Corporation have provided guarantees over the indebtedness of the Corporation and
Strongco LP under the Credit Facilities. The terms of the Credit Facilities provide for restrictions on the operations
and activities of the Corporation and its Subsidiaries. Generally, the most significant restrictions relate to permitted
investments and dividends, as well as the occurrence and maintenance of certain financial ratios related to tangible
net worth (“TNW”), debt to TNW, interest coverage and the ratio of current assets to current liabilities.
The Credit Facilities mature on September 12, 2018.
In addition, the Corporation also has credit facilities comprised of term loans secured by real estate in the United States
(the “US Credit Facilities”). As at December 31, 2015, the outstanding balance on these term loans was U.S. $3.8
million. The term loans are set to expire on April 1, 2020. The Corporation has interest rate swap agreements in place
that have converted the variable rate on the term loans to a fixed rate. The new swap agreements are set to expire in
April 2020, coincident with the term loans.
DIRECTORS OF THE CORPORATION
The following table sets out, as at December 31, 2015, the name, province and country of residence and principal
occupation of each Director, and the period during which each Director has served as a Director of the Corporation.
JOHN K. BELL, F.C.P.A.,
Occupation: Corporate Director
Mr. Bell has been Chair of Onbelay Capital Inc., an investment management
and holding corporation since 2005. He is a director of The Royal Canadian
Mint, Del Mar Pharmaceuticals Inc. and Canopy Growth Corporation. Mr. Bell
was Chief Executive Officer and owner of Polymer Technologies Inc., a global
auto parts manufacturer and prior to that was Chief Executive Officer and
owner of Shred-Tech, a manufacturer of industrial shredders, recycling
systems and mobile document shredders. Mr. Bell is an FCA and ICD.D.
Mr. Bell was a trustee of the Fund from July 30, 2009 to July 1, 2010.
Mr. Bell is the Chair of the Audit Committee and a member of the CGNCP
Committee.
21
Director since June 18, 2010
Occupation: President, Oakwest
Corporation Limited
Mr. Beutel has been an executive officer of Oakwest Corporation Limited, an
investment and management holding company, since 1987. Mr. Beutel is also
a director of Firan Technology Group Corporation, a manufacturer of high
technology printed circuit boards and precision illuminated display systems.
Mr. Beutel was a director of Strongco Inc. from July 2001 to September 1, 2006,
Chairman of the board of directors of Strongco Inc. from November 2003 to
September 1, 2006 and a trustee of the Fund from April 2005 to July 1, 2010.
Mr. Beutel is a director and Chairman of the board of directors of Strongco GP.
Mr. Beutel is the Chairman of the Board of Directors and began serving as
Executive Chairman on January 22, 2016.
IAN C.B. CURRIE Q.C. Residence: Ontario, Canada
Director since June 18, 2010
Occupation: Corporate Director
Prior to January 2011, Mr. Currie was on the board of directors of Jannock
Properties Limited, a liquidation trust, of which he was Chairman and
President. Prior to the Spring of 2000, Mr. Currie was Chairman of Jannock
Limited, a manufacturer and distributor of building products. Mr. Currie was
also Managing Partner and Chief Executive Officer of Fraser Milner Casgrain
LLP (now Dentons Canada LLP), a leading business law firm.
Mr. Currie was a director of Strongco Inc. from April 27, 2006 to September 1,
2006 and a trustee of the Fund from April 2006 to July 1, 2010.
Mr. Currie is the chair of the CGNCP Committee and a member of the Audit
Committee.
Occupation: Corporate Director
Mrs. Brace was Chief Financial Offer of Softchoice Corporation, a reseller of
technology products and services, listed on the TSX from 1998 to 2009. Prior
to 1998, she was the Chief Financial Officer of Applanix Corporation from
1994 to 1997. She is a past chair and director of the Huntington Society of
Canada, Treasurer of Evergreen, Centre for Green Cities, and a director and
Treasurer of Ontario Telemedicine Network. Mrs. Brace is a Chartered
Professional Accountant and has a Masters of Business Administration degree.
Mrs. Brace is a member of the Audit Committee and a member of the CGNCP
Committee.
Occupation: President and Chief
22, 2016
Mr. Dryburgh was the President and Chief Executive Officer of the
Corporation, Strongco LP, Strongco GP and Strongco USA until his resignation
on January 22, 2016. Mr. Dryburgh was appointed as the President and Chief
Executive Officer of the Fund and Strongco GP on August 11, 2008, and was
appointed the President and Chief Executive Officer of the Corporation on June
18, 2010 (following the completion of the Arrangement). Mr. Dryburgh is a
Chartered Professional Accountant and a Chartered Director and obtained the
Audit Committee Certified (A.C.C.) designation from The Directors College (a
joint venture of McMaster University and The Conference Board of Canada) in
2012.
Mr. Dryburgh was a trustee of the Fund from December 2007 to July 1, 2010.
Mr. Dryburgh became the President and Chief Executive Officer and a director
of Strongco USA on February 9, 2011 and a director of Chadwick-BaRoss on
February 17, 2011.
Mr. Dryburgh resigned as President, Chief Executive Officer and as a director
of the Corporation on January 22, 2016.
22
Under its articles, the Corporation is required to have a minimum of three and a maximum of ten directors. The
number of directors is currently fixed at six. The term of office for each of the Directors will expire at the next annual
meeting of Shareholders, which is scheduled to be held on May 11, 2016, or until a successor is appointed.
EXECUTIVE OFFICERS OF STRONGCO
The following table sets out, as at December 31, 2015, the name, province and cou