Strongco Announces Intention to Pursue Sale of Chadwick-BaRoss, Inc.

TSX Symbol: SQP

MISSISSAUGA, ON, Aug. 4, 2016 /CNW/ - Strongco Corporation today announced that it intends to pursue the sale of 100% of the shares of Chadwick-BaRoss, Inc. for approximately US$12.75 million to ISH Capital Inc. The transaction would be effected by way of ISH Capital's purchase from Strongco of all of the outstanding shares of Strongco's wholly-owned U.S. subsidiary, Strongco USA, Inc. (which owns 100% of the shares of Chadwick-BaRoss). The proposed closing date for the transaction is on or about September 9, 2016 or such other date as may be mutually agreed to by the parties. The transaction remains subject to, among other matters, finalizing and executing a definitive purchase and sale agreement, satisfactory completion by ISH Capital of its due diligence investigations, obtaining certain third party approvals and final approval of the independent directors of Strongco's Board. The purchase price also remains subject to satisfactory completion by ISH Capital of its due diligence investigations. The proceeds from the completion of the transaction would be used by Strongco to reduce its indebtedness under its credit facility, pay trade payables and fund its operations.

Over the past several years, Strongco has made significant investments in the business through building new branches and investing heavily in a new ERP system, with the anticipation of higher growth in sales and service revenues; however, due to the ongoing challenging economic conditions in many of the regions in which the Company operates, this growth has not been realized. These investments, combined with lower revenues and margins, have put significant strain on the Company's earnings and cash flow. Cash flow from operations was negative in 2014 & 2015 and several times over the past two years the company has breached financial covenants under its lending agreements with its bank and equipment finance companies. To compensate for the reduced cash flow, current bank operating lines have been fully utilized and trade accounts payable have been extended.

While revenues have been more stable in the first half of 2016, gross margins were down noticeably. Actions taken to reduce expenses and interest, and improve operational effectiveness, are beginning to impact on cash flow in a positive way; however the current financial situation is no longer sustainable and the Company cannot wait to realize the results of these actions or for markets to recover. Given the Company's current financial position, Management and the Board have determined that an injection of additional new cash is essential and the sale of Strongco's U.S. subsidiary, Chadwick-BaRoss, is potentially the best means to provide additional financial resources in the shorter term until market conditions improve. The Company obtained waivers from its bank and certain of its equipment finance companies in Canada in respect of a breach as at June 30, 2016 of its interest coverage ratio contained in its lending arrangements, and the Company covenanted to complete the sale of Chadwick-BaRoss. The sale of Chadwick-BaRoss at a fair price would allow Strongco to generate liquidity, reduce finance expenses and improve its reputation with both suppliers and customers.

In addition to the proposed sale of Chadwick-BaRoss, the reduction in staffing and general expense control measures, the Company has adopted a salary deferral program for its senior leadership team and directors to further improve cash flow.

Strongco understands that ISH Capital, Inc. together with its affiliates, hold in excess of 20% of the outstanding common shares of Strongco. Accordingly, ISH Capital Inc. is a "related party" and the transaction is a "related party transaction" within the meaning of Multilateral Instrument 61-101 ("MI 61-101"). MI 61-101 requires the Company, in the absence of an exemption, to obtain a formal valuation for, and minority approval of, the transaction. The independent directors of Strongco's Board have determined that an exemption is available from the formal valuation and minority shareholder approval requirements due to financial hardship.

"I remain optimistic that the goal of getting our Canadian operations back on stable footings for the future is within reach," commented Robert Beutel, Executive Chairman of Strongco. "The disposition of Chadwick-BaRoss would provide us the funds to assist our recovery. With the advantage of hindsight our previous expansion was poorly timed, but we are refocusing to create the most value for our customers, employees and our shareholders."

About Strongco

Strongco Corporation is a major multiline mobile equipment dealer with operations across Canada and in the United States, operating through Chadwick-BaRoss, Inc. Strongco sells, rents and services equipment used in diverse sectors such as construction, infrastructure, mining, oil and gas, utilities, municipalities, waste management and forestry. The Company has approximately 700 employees serving customers from 27 branches in Canada and five in the United States. 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 is listed on the Toronto Stock Exchange under the symbol SQP.

Forward-Looking Statements

This news release contains "forward-looking" statements within the meaning of applicable securities legislation which involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of Strongco or industry results, to be materially different from any future results, events, expectations, performance or achievements expressed or implied by such forward-looking statements.

All such forward-looking statements are made pursuant to the "safe harbour" provisions of applicable Canadian securities legislation. 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. This news release contains forward-looking statements relating to Strongco's intention to sell the shares of Chadwick-BaRoss, Inc., and such statements are based upon the expectations of management.

Forward-looking statements involve numerous assumptions and should not be read as guarantees of future performance or results. Such statements will not necessarily be accurate indications of whether or not such future performance or results 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 events or results to differ materially from the events or results discussed in the forward-looking statements, including, the inability of the parties to finalize a purchase and sale agreement, ISH Capital's satisfactory completion of its due diligence investigations and/or the parties obtaining all requisite third party approvals; non-compliance with any conditions set out in the finalized purchase and sale agreement including the failure of a party to the agreement to comply with any conditions under the agreement, and the anticipated impact of the transaction on Strongco's liquidity and its ability to reduce its finance expenses and improve its reputation with suppliers and customers. Although the forward-looking statements contained in this news release are based upon what management of Strongco believes are reasonable assumptions, Strongco cannot assure investors that actual performance or results will be consistent with these forward-looking statements. These statements reflect current expectations regarding future events and operating performance and are based on information currently available to Strongco's management. There can be no assurance that the plans, intentions or expectations upon which these forward-looking statements are based will occur. All forward-looking statements in this news release are qualified by these cautionary statements.

These forward-looking statements and outlook are made as of the date of this news release and, except as required by applicable law, Strongco assumes no obligation to update or revise them to reflect new events or circumstances.

SOURCE Strongco Corporation

J. David Wood, Vice-President and Chief Financial Officer, Telephone: [phone], Email: [email protected], strongco.com