-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, BO58L6sPITuHp6nUOCys/PTvXRDqXR8BgvL/MIMcNeYNPacloGYhhUJeaCeFNXsH Ec164QZyDZMn2OUHkSScYg== 0000950150-97-001350.txt : 19970929 0000950150-97-001350.hdr.sgml : 19970929 ACCESSION NUMBER: 0000950150-97-001350 CONFORMED SUBMISSION TYPE: F-1 PUBLIC DOCUMENT COUNT: 11 FILED AS OF DATE: 19970926 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: RITCHIE BROS AUCTIONEERS INC CENTRAL INDEX KEY: 0001046102 STANDARD INDUSTRIAL CLASSIFICATION: UNKNOWN SIC - 0000 [0000] STATE OF INCORPORATION: A6 FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: F-1 SEC ACT: SEC FILE NUMBER: 333-36457 FILM NUMBER: 97686025 BUSINESS ADDRESS: STREET 1: 9200 BRIDGEPORT RD CITY: RICHMOND STATE: A6 ZIP: 00000 BUSINESS PHONE: 6042737964 F-1 1 FORM F-1 1 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 26, 1997 REGISTRATION NO. 333- ================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------------------ Form F-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ------------------------------------ RITCHIE BROS. AUCTIONEERS INCORPORATED (Exact name of Registrant as specified in its charter) CANADA 7389 NOT APPLICABLE (State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer incorporation or organization) Classification Code Number) Identification No.)
9200 BRIDGEPORT ROAD RICHMOND, BRITISH COLUMBIA, CANADA V6X 1S1 (604) 273-7564 (Address and telephone number of Registrant's principal executive offices) LAWCO OF OREGON, INC. 1211 SW FIFTH AVENUE, SUITE 1500 PORTLAND, OREGON 97204-3715 ATTN: SUSAN KIPPER (503) 727-2000 (Name, address, and telephone number of agent for service) ------------------------------------ Copies to: ROY W. TUCKER, ESQ. BRUCE CZACHOR, ESQ. PERKINS COIE SHEARMAN & STERLING 1211 S.W. FIFTH AVENUE, SUITE 1500 COMMERCE COURT WEST PORTLAND, OREGON 97204-3715 199 BAY STREET, SUITE 4405 (503) 727-2000 TORONTO, ONTARIO, CANADA M5L 1E8 (416) 360-2972
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as practicable after the Registration Statement becomes effective. ------------------------------------ If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, please check the following box. [ ] If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. [ ] ------------------------------------ CALCULATION OF REGISTRATION FEE - -------------------------------------------------------------------------------- TITLE OF EACH CLASS PROPOSED MAXIMUM AGGREGATE AMOUNT OF OF SECURITIES BEING REGISTERED OFFERING PRICE(1)(2) REGISTRATION FEE - ------------------------------------------------------------------------------------------------------------------------- Common Shares, without par value....................................... $53,360,000 $16,170
- -------------------------------------------------------------------------------- (1) Estimated solely for the purposes of calculating the amount of the registration fee pursuant to Rule 457(o) under the Securities Act. (2) Includes shares subject to the Underwriters' over-allotment option. ------------------------------------ THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE SECURITIES ACT OF 1933, OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a), MAY DETERMINE. ================================================================================ 2 PART I EXPLANATORY NOTE This Registration Statement contains two forms of prospectus. One form of prospectus (the "U.S. Prospectus") is to be used in connection with a United States offering and one form of prospectus (the "International Prospectus") is to be used in connection with a concurrent international offering outside the United States. The U.S. Prospectus and the International Prospectus are identical except that they contain different front and back cover pages. The form of U.S. Prospectus is included herein and is followed by those pages to be used in the International Prospectus which differ from, or are in addition to, those used in the U.S. Prospectus. Each of the pages for the International Prospectus included herein is labeled "Alternate Page for International Prospectus." Ten copies of each of the complete U.S. Prospectus and the International Prospectus in the exact forms in which they are to be used after effectiveness will be filed with the Securities and Exchange Commission pursuant to Rule 424(b). 3 Information contained herein is subject to completion or amendment. A registration statement relating to these securities has been filed with the Securities and Exchange Commission. These securities may not be sold nor may offers to buy be accepted prior to the time the registration statement becomes effective. This prospectus shall not constitute an offer to sell or the solicitation of an offer to buy nor shall there be any sale of these securities in any State in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such State. SUBJECT TO COMPLETION PRELIMINARY PROSPECTUS DATED SEPTEMBER 26, 1997 PROSPECTUS [LOGO] 2,900,000 SHARES RITCHIE BROS. AUCTIONEERS INCORPORATED COMMON SHARES ------------------------ All of the Common Shares (the "Common Shares") offered hereby (the "Offering") are being offered by Ritchie Bros. Auctioneers Incorporated in the United States and internationally outside the United States. Prior to the Offering, there has been no public market for the Common Shares. It is currently anticipated that the initial public offering price will be between $14.00 and $16.00 per share. For a discussion of the factors that will be considered in determining the initial public offering price of the Common Shares, see "Underwriting." Application has been made to have the Common Shares approved for listing on the New York Stock Exchange under the symbol "RBA." SEE "RISK FACTORS" BEGINNING ON PAGE 9 FOR A DISCUSSION OF CERTAIN FACTORS WHICH SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON SHARES OFFERED HEREBY. ------------------------ THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. ===================================================================================================== PRICE TO UNDERWRITING PROCEEDS TO PUBLIC COMMISSION(1) COMPANY(2) - ----------------------------------------------------------------------------------------------------- Per Share................................... $ $ $ - ----------------------------------------------------------------------------------------------------- Total(3).................................... $ $ $ =====================================================================================================
(1) The Company has agreed to indemnify the several Underwriters against certain liabilities, including liabilities under the Securities Act of 1933, as amended (the "Securities Act"). See "Underwriting." (2) Before deducting expenses payable by the Company estimated to be $620,000. (3) The Company has granted the Underwriters an option, exercisable within 30 days after the date hereof, to purchase up to 435,000 additional Common Shares solely to cover over-allotments, if any. If such option is exercised in full, the total Price to Public, Underwriting Commission and Proceeds to Company will be $ , $ and $ , respectively. See "Underwriting." ------------------------ The Common Shares offered hereby are offered by the several Underwriters, subject to prior sale, when, as and if delivered to and accepted by them, and subject to approval of certain legal matters by counsel for the Underwriters and certain other conditions. The Underwriters reserve the right to withdraw, cancel or modify such offer and to reject orders in whole or in part. It is expected that delivery of the Common Shares will be made in New York, New York on or about , 1997. ------------------------ MERRILL LYNCH & CO. FURMAN SELZ MORGAN STANLEY DEAN WITTER ------------------------ The date of this Prospectus is , 1997. 4 [PICTURE] CERTAIN PERSONS PARTICIPATING IN THE OFFERING MAY ENGAGE IN TRANSACTIONS THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON SHARES. SUCH TRANSACTIONS MAY INCLUDE STABILIZING, THE PURCHASE OF COMMON SHARES TO COVER SYNDICATE SHORT POSITIONS AND THE IMPOSITION OF PENALTY BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING." 2 5 PROSPECTUS SUMMARY The following summary is qualified in its entirety by the more detailed information and the combined financial statements and related notes thereto appearing elsewhere in this Prospectus. Except as otherwise noted or unless the context otherwise requires, (i) "Ritchie Bros." or the "Company" refers to Ritchie Bros. Auctioneers Incorporated, either alone or together with its subsidiaries, as such entity or entities will exist following the Reorganization to be effected prior to consummation of the Offering, (ii) the information in this Prospectus gives effect to the combination of the predecessor entities to the Company as if completed on May 1, 1992, (iii) "fiscal" in connection with a year means the 12 months ended April 30 of the calendar year specified, (iv) "$" or "dollars" refers to United States dollars and (v) the information in this Prospectus assumes that the Underwriters' over-allotment option will not be exercised. See "-- The Company," "The Reorganization" and "Underwriting." The combined financial statements included elsewhere in this Prospectus have been prepared in accordance with Canadian generally accepted accounting principles ("Canadian GAAP"), and are subject to Canadian auditing and auditor independence standards, and thus may not be comparable to financial statements prepared in accordance with United States generally accepted accounting principles ("U.S. GAAP"). Effective December 31, 1997, the Company intends to change its fiscal year end from April 30 to December 31. The Ritchie Bros. logo and Ritchie Bros. Auctioneers are among the Company's trademarks. Trademarks of other entities are also included in this Prospectus. THE COMPANY Ritchie Bros. is the world's leading auctioneer of industrial equipment, operating through 50 locations in 13 countries in North America, Europe, Asia and Australia. The Company sells, through public auctions, a broad range of used industrial equipment, including equipment used in the construction, transportation, mining, forestry, petroleum and agricultural industries. Ritchie Bros. conducts its auctions on an unreserved basis, with each and every item being sold to the highest bidder on the day of the auction, and no minimum prices or bidding permitted on behalf of consignors. Ritchie Bros. attracts a broad international base of customers to its auctions through its worldwide marketing efforts and reputation for conducting auctions through a fair selling process. Many of the Company's customers are both consignors and buyers. Management believes that the Company's reputation and leading market position, as well as the breadth and international composition of the customers at Ritchie Bros.' auctions, result in a greater volume of consigned equipment and higher gross auction sales than in other auction venues. Ritchie Bros.' auction business has experienced significant growth over the last five years. During that period, the Company's gross auction sales have grown from $477.1 million in its fiscal year ended April 30, 1993 to $792.9 million in its fiscal year ended April 30, 1997, representing a compound annual growth rate of 13.5%. During the same five fiscal years, the Company's annual auction revenues have grown from $45.0 million to $72.2 million, representing a compound annual growth rate of 12.5%, and income before income taxes has grown from $13.0 million to $25.0 million, representing a compound annual growth rate of 17.8%. KEY STRENGTHS Ritchie Bros. has several key operating strengths that provide distinct competitive advantages which have enabled the Company to achieve significant and profitable growth. Reputation for Conducting Fair Auctions. Management believes that the Company's highly publicized commitment to fair dealing and the unreserved auction process has been a key contributor to the Company's past growth and success. All Ritchie Bros. auctions are unreserved, meaning that there are no minimum prices; each and every item is sold to the highest bidder on the day of the auction. By contract, each consignor is prohibited from bidding on its own consigned items at the auction, or in any way artificially affecting the auction result. In addition, the Company adheres to a policy prohibiting it from artificially affecting the auction result by bidding on any items being auctioned. Each bidder has confidence that if he or she makes the highest bid for an item, even if that bid is less than the item's anticipated sale price, the item will be sold to that bidder. Management believes that Ritchie Bros.' reputation for conducting fair auctions is a major competitive 3 6 advantage. Ritchie Bros.' auctions generally draw a larger number of bidders than other industrial equipment auctions. The larger bidder audience at a Ritchie Bros. auction attracts potential consignors who reason that a large number of bidders competing for the same items is the best way to maximize the selling price of their equipment. Greater volume and selection of consigned equipment at an auction, in turn, attracts more bidders to the auction. As a result, a critical mass of both equipment and buyers is achieved in a process that is self reinforcing. High Quality Services for Consignors and Bidders. Ritchie Bros.' auction operations are conducted on a standardized basis around the world and provide consignors assurance that they will obtain the best return on their dispositions of equipment and bidders confidence that they will be given the opportunity to obtain equipment at a fair price. For consignors, Ritchie Bros.' comprehensive services typically begin with an equipment appraisal that gives the prospective consignor a reliable and credible estimate of the value of the appraised equipment. Ritchie Bros. stands behind each of its appraisals with a proposal, tailored to the consignor, that may include an alternative commission structure based upon a guaranteed minimum level of gross sale proceeds, or an outright purchase. Ritchie Bros.' willingness to take consignment of a customer's full equipment fleet (and all ancillary assets, including inventories, parts, tools, attachments and construction materials), rather than only the most desirable items, is another important service to the consignor. Ritchie Bros. also offers repair and refurbishment services to consignors, and provides advice on how to present the equipment in order to maximize the consignor's proceeds. On behalf of the consignors, the Company contracts with selected painters and other trade service providers at each of its auction sites and often provides facilities for on-site cleaning and refurbishment of equipment. For bidders, Ritchie Bros. provides an array of services to make the bidding and purchasing process convenient. Ritchie Bros. personnel perform extensive title searches on the equipment consigned, and the Company warrants free and clear title to each buyer. Equipment being offered at the auction is available for inspection by prospective buyers prior to the auction. Other services include a reception on the evening before the auction, expedited check-in procedures, streamlined paperwork and the provision of meeting rooms, third party financing, access to trucking and freight forwarding, vehicle registration and customs brokerage services at the auction site. International Scope. Ritchie Bros. markets each auction to a global customer base of potential bidders and consignors. Because international buyers are willing to travel to a Ritchie Bros. auction, consignors have confidence that they will receive the highest possible price for their equipment. Ritchie Bros. has conducted auctions in 16 countries throughout the world, and has offices in 13 countries. Approximately 17% of Ritchie Bros.' gross auction sales for fiscal 1997 represented purchases by bidders from countries outside of the country in which the auction was held. Proprietary Databases and Software. The Company's proprietary databases provide access to information regarding potential bidders and equipment valuations that, in the view of management, significantly enhances the Company's ability to effectively market its auction services. The Company's customer database contains over 250,000 names from 167 countries and provides, in respect of each customer, information that can be used in developing a relationship with that customer, such as auction attendance, trade association membership, buying and travel habits and sales tax and banking information. The Company's database of equipment valuations, drawn from sale prices at its own auctions as well as other sources of information, allows the Company to identify market trends that both facilitate accurate appraisals and allow the Company to target its marketing in response to those trends. Size and Financial Strength. In the highly fragmented industrial equipment auction market, Ritchie Bros. is the world's largest auction company. Based upon an industry source that reports sales by companies in the construction equipment segment of the industrial equipment auction market, in calendar 1996 the reported gross auction sales of Ritchie Bros. in that segment exceeded the combined gross auction sales of the other 34 reported companies. Ritchie Bros.' total gross auction sales for calendar 1996 were more than three times the total gross auction sales of its closest competitor in the industrial equipment auction market. 4 7 Dedicated and Experienced Workforce. Ritchie Bros.' dedicated and motivated employees are an important strength of the Company. Of the Company's 202 sales and managerial employees, 52 have been with the Company for over 10 years and an additional 48 have been with the Company for over five years. Average annual turnover among the same group has been less than 7% over the past three years. All employees participate in a performance bonus plan tying their overall compensation to corporate and personal performance. Key employees have a substantial equity stake in the Company. The 15 beneficial owners of the Company's predecessor entities, all of whom have entered into employment agreements with the Company, have a combined 293 years of experience with Ritchie Bros., an average of 19.5 years per individual. See "Business -- Employees" and "Management." GROWTH STRATEGY Ritchie Bros.' strategic objective is to continue its profitable growth by increasing income from operations in the Company's existing markets through developing new and upgrading existing permanent auction sites, and by expanding into new geographic markets. The Company is also assessing possible opportunities to expand its presence in market segments that the Company has not historically emphasized. Increase Income from Operations in Existing Geographic Markets. Management believes that developing new and upgrading existing permanent auction sites will increase the Company's income from operations. Such permanent, purpose-built sites enable the Company to enhance its corporate identity and establish a long-term presence in the communities in which they are located. By establishing itself in its local markets and by holding frequent and regularly scheduled auctions at its permanent sites, the Company is able to more consistently attract a large volume of consignors and bidders to its auctions. Expand into New Geographic Markets. The Company intends to continue to geographically expand its operations by (i) establishing additional auction operations in markets where it has had a strong long-term presence, such as parts of the United States, (ii) increasing its presence in newer markets, such as Europe, Asia and Australia, where it has begun to develop significant business, and (iii) entering new markets such as the Middle East and South America. Management believes that the Company's experience and demonstrated success in developing new geographic markets, its established international base of customers and its reputation as the world's preeminent industrial equipment auctioneer will provide significant advantages to the Company in its efforts to expand into new geographic markets. Expand into New Auction Market Segments. Ritchie Bros. will continue to assess possible opportunities to expand its presence in market segments that the Company has not historically emphasized. Management believes that expansion opportunities exist in agriculture and certain transportation segments of the industrial equipment auction market, among others. Such expansion could be pursued either by acquiring existing businesses, by hiring experienced personnel, or by internally generated growth. --------------- The Company's principal executive offices are located at 9200 Bridgeport Road, Richmond, British Columbia, Canada V6X 1S1, and its telephone number is (604) 273-7564. The Company maintains a web site on the internet at www.rbauction.com. 5 8 THE OFFERING Common Shares offered hereby..................... 2,900,000 shares(1) Common Shares to be outstanding after the Offering................. 16,113,666 shares(1)(2)(3) Use of proceeds............ The net proceeds to the Company from the Offering, after deducting estimated underwriting commissions and estimated expenses, are estimated to be $39.8 million and will be used (i) to acquire and develop additional permanent auction sites, (ii) to replace or to fund improvements at existing permanent auction sites and (iii) for general corporate purposes, including working capital. Listing.................... Application has been made to have the Common Shares approved for listing on the New York Stock Exchange under the symbol "RBA." - --------------- (1) Excludes up to 435,000 Common Shares that may be sold by the Company to the Underwriters to cover over-allotments, if any. (2) Includes (i) 12,715,667 Common Shares to be issued to owners of the Company's predecessor entities in connection with the Reorganization and (ii) 497,999 Common Shares issued or to be issued to employees prior to consummation of the Offering pursuant to the Company's Employee Equity Participation Program. See "The Reorganization" and "Management -- Employee Equity Participation Program." (3) Excludes 1,500,000 Common Shares reserved for issuance pursuant to awards under the Company's 1997 Stock Option Plan (the "Stock Option Plan"), of which 196,333 Common Shares are subject to options with an exercise price of $0.10 per share granted or to be granted to employees prior to consummation of the Offering pursuant to the Employee Equity Participation Program. See "Management -- Employee Equity Participation Program" and "-- Stock Option Plan." RISK FACTORS Prospective purchasers of the Common Shares should consider all of the information contained in this Prospectus before making an investment in the Common Shares. The Company's financial performance is subject to various risks, including risks related to the Company's potential inability to achieve and manage growth, quarterly and seasonal fluctuations in revenues and operating results, exposure to potential losses from guarantees of gross sale proceeds and from direct purchases of inventory, and the effect on its business of downturns in cyclical industries in which its customers operate or adverse changes in general or regional economic conditions. Prospective purchasers should consider these and the other factors set forth herein under "Risk Factors." 6 9 SUMMARY COMBINED FINANCIAL AND OTHER DATA The following summary combined financial and other data relating to the Company has been taken or derived from the combined financial statements and other records of the Company and should be read in conjunction with the combined financial statements and the related notes thereto, "Selected Combined Financial and Other Data," "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the other financial information included elsewhere in this Prospectus. Except as indicated below, the summary combined financial data is not materially different under U.S. GAAP.
THREE MONTHS FISCAL YEAR ENDED APRIL 30, ENDED JULY 31, -------------------------------------------------------- -------------------- 1993 1994 1995 1996 1997 1996 1997 -------- -------- -------- -------- -------- -------- -------- (IN THOUSANDS, EXCEPT SELECTED OPERATING DATA (UNAUDITED) AND PER SHARE DATA) INCOME STATEMENT DATA: Auction revenues(1)...................... $ 45,003 $ 50,066 $ 51,326 $ 65,306 $ 72,186 $ 17,155 $ 22,888 Direct expenses.......................... (10,507) (11,925) (12,979) (13,138) (13,908) (3,320) (5,011) -------- -------- -------- -------- -------- -------- -------- 34,496 38,141 38,347 52,168 58,278 13,835 17,877 Depreciation............................. (1,198) (1,327) (1,708) (1,820) (2,014) (439) (533) General and administrative expense....... (20,319) (20,801) (24,628) (26,848) (31,099) (7,408) (8,156) Employee equity participation expense(2)............................. -- -- -- -- -- -- (7,733) -------- -------- -------- -------- -------- -------- -------- Income from operations................... 12,979 16,013 12,011 23,500 25,165 5,988 1,455 Interest expense......................... (411) (611) (1,274) (1,104) (1,081) (228) (319) Other income............................. 413 1,336 677 1,179 917 121 128 -------- -------- -------- -------- -------- -------- -------- Income before income taxes............... 12,981 16,738 11,414 23,575 25,001 5,881 1,264 Income taxes(3).......................... (2,177) (2,456) (2,975) (4,428) (5,992) (1,400) (1,883) -------- -------- -------- -------- -------- -------- -------- Net income (loss)........................ $ 10,804 $ 14,282 $ 8,439 $ 19,147 $ 19,009 $ 4,481 $ (619) ======== ======== ======== ======== ======== ======== ======== U.S. GAAP -- Net income (loss)(4)........ $ 10,804 $ 14,282 $ 8,439 $ 19,147 $ 19,009 $ 4,481 $ (828) ======== ======== ======== ======== ======== ======== ======== PRO FORMA INCOME STATEMENT DATA (UNAUDITED): General and administrative expense(5).... $(21,286) $(23,300) $(25,136) $(28,826) $(31,432) $ (7,780) $ (8,945) Employee equity participation expense(2)............................. -- -- -- -- -- -- (10,345) Income (loss) from operations............ 12,012 13,514 11,503 21,522 24,832 5,616 (1,946) Income (loss) before income taxes........ 12,014 14,239 10,906 21,597 24,668 5,509 (2,137) Income taxes(3).......................... (5,114) (5,756) (5,030) (7,943) (9,267) (2,159) (2,124) -------- -------- Net income (loss)........................ $ 15,401 $ (4,261) ======== ======== Net income (loss) per share (fully diluted)............................... $ 1.06 $ (0.29) Weighted average shares outstanding (fully diluted)(7)..................... 14,473 14,473 BALANCE SHEET DATA (END OF PERIOD): Working capital.......................... $ 19,461 $ 23,900 $ 21,822 $ 33,132 $ 39,707 $ 34,068 $ 36,241 Total assets............................. 78,685 87,802 98,621 150,969 142,858 82,131 95,607 Total debt............................... 48,808 52,353 60,903 102,168 83,533 32,658 39,556 Total equity............................. 29,877 35,449 37,718 48,801 59,325 49,473 56,051 SELECTED OPERATING DATA: Gross auction sales(6)................... $477,056 $567,506 $634,058 $752,735 $792,865 $192,256 $246,744 Auction revenues as percentage of gross auction sales.......................... 9.43% 8.82% 8.09% 8.68% 9.10% 8.92% 9.28% Number of consignors..................... 8,878 8,650 10,460 10,744 12,088 3,029 3,654 Number of buyers......................... 24,593 25,812 27,401 27,837 30,630 7,286 8,777 Number of permanent auction sites (end of period)................................ 8 10 11 12 13 13 13
(footnotes on following page) 7 10 (1) Auction revenues consist of commissions, gross profit on sales of inventory and interest income that is incidental to the auction business, reduced by any losses arising from gross guarantee consignments and purchases and sales of equipment by the Company as principal. (2) Employee equity participation expense for the three-months ended July 31, 1997 reflects the grant in July 1997 to employees under the Stock Option Plan of options to purchase 133,000 Common Shares with an exercise price of $0.10 per share, and the issuance in such month to other employees of 386,000 Common Shares at the price of $0.10 per share. Pro forma employee equity participation expense reflects the grant in October 1997 to employees under the Stock Option Plan of options to purchase 63,333 Common Shares with an exercise price of $0.10 per share, and the issuance in such month to other employees of 111,999 Common Shares at the price of $0.10 per share. All of these option grants and Common Share issuances (which result in an aggregate non-recurring expense of $10.3 million) have been, or will be, made pursuant to the Employee Equity Participation Program. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Overview," "Management -- Stock Option Plan" and "-- Employee Equity Participation Program." (3) For all periods presented, the majority of the Company's business operations was carried on by predecessor entities to the Company that were partnerships. Consequently, most of the income of the predecessor partnerships was included for income tax purposes in the income of the partner entities, many of which were not predecessor entities to the Company. Pro forma income tax expense has been computed as if the pro forma net income (loss) of the Company would have been subject to income taxes for all periods presented based on the tax laws in effect during the respective periods. See "The Reorganization." Such pro forma income tax expense should not be construed as indicative of future income tax expense. See Note 9 to the Company's combined financial statements included elsewhere in this Prospectus. (4) Net income under U.S. GAAP for the three-months ended July 31, 1997 reflects restructuring expenses of $0.4 million incurred in connection with the Reorganization (which is reflected under Canadian GAAP as a reduction to equity in the Company's combined financial statements) less the reduction in income tax expense of $0.1 million related thereto. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Overview," "The Reorganization" and Note 10 to the Company's combined financial statements included elsewhere in this Prospectus. (5) Adjusted to reflect normalized compensation, pursuant to employment agreements with the Company, to senior employees of the Company who, prior to the Reorganization, were beneficial owners of certain predecessor entities. These senior employees were compensated in part by means of drawings and income allocations rather than salary and bonus and, in some cases, were compensated by entities that are not predecessor entities to the Company. See "The Reorganization." (6) Gross auction sales represent the aggregate selling prices of all items sold at Ritchie Bros. auctions. Gross auction sales are key to understanding the financial results of the Company, since the amount of revenues and, to a lesser extent, certain expenses, are dependant on it. (7) The fully diluted weighted average shares outstanding equals 386,000 outstanding Common Shares and 133,000 Common Shares issuable upon exercise of options granted by the Company in July 1997, plus 111,999 Common Shares to be issued and 63,333 Common Shares issuable upon exercise of options to be granted by the Company in October 1997 pursuant to the Employee Equity Participation Program, plus 12,715,667 Common Shares to be issued in connection with the Reorganization. See "Management -- Employee Equity Participation Program" and "The Reorganization." In addition, it gives pro forma effect to the issuance of 1,062,800 Common Shares, being that number of shares whose proceeds on the Offering would be necessary to fund the excess of the $35.0 million distribution over net income for the preceding fiscal year. Per share information is presented as if the Common Shares issued or issuable were issued at the beginning of the periods presented. 8 11 RISK FACTORS In addition to the other information in this Prospectus, the following risk factors should be considered carefully in evaluating the Company and its business before purchasing the Common Shares offered hereby. The factors discussed below constitute, in the view of the Company's management, all material risk factors incident to the Company's business and operations. POTENTIAL INABILITY TO ACHIEVE AND MANAGE GROWTH A principal component of the Company's strategy is to continue to grow by increasing income from operations in the Company's existing markets and by expanding into new geographic markets. The Company is also assessing opportunities to expand its presence in auction market segments that the Company has not historically emphasized. The Company's future growth will depend upon a number of factors, both within and outside of the Company's control, including the Company's identification and development of new markets, the identification and acquisition on favorable terms of suitable new auction sites and, possibly, of suitable acquisition candidates, the ability to hire and train qualified personnel, the successful integration of new sites and any acquired businesses with the Company's existing operations, the acceptance by potential consignors and industrial equipment buyers of the auction process generally as well as of the Company's expansion into new markets and market segments, the establishment and maintenance of favorable relationships with consignors and bidders in new markets and the maintenance of such relationships in existing markets, the receipt of any required governmental authorizations for proposed development or expansion, and the Company's ability to manage expansion and to obtain required financing. There can be no assurance that the Company will successfully expand its operations or that any expansion will be profitable. The Company has grown primarily by means of internal growth and intends to continue to do so. The Company has little experience with completing and integrating acquisitions. The failure to identify, purchase, develop and integrate new sites or to integrate any acquired businesses effectively could adversely affect the Company's financial condition and results of operations. Further, the results achieved by the Company to date may not be indicative of its prospects or its ability to penetrate new markets, many of which may have different competitive conditions and demographic characteristics than the Company's current markets. See "Business -- Growth Strategy." As a result of expanding its operations, the Company will experience growth in the number of its employees, the scope of its operating and financial systems and the geographic area of its operations. This growth will increase the operating complexity of the Company and the level of responsibility of existing and new management personnel. There can be no assurance that the Company will be able to attract and retain qualified management and employees, that the Company's current operating and financial systems and controls will be adequate as the Company grows, or that any steps taken to attract and retain management and employees and to improve such systems and controls will be sufficient. QUARTERLY AND SEASONAL VARIATIONS IN OPERATING RESULTS The Company's revenues and operating results historically have fluctuated from quarter to quarter. These fluctuations have been and are expected to continue to be caused by a number of factors, including seasonal results of operations (with peak auction revenues and operating income typically occurring in the second and fourth calendar quarters of each year, primarily due to the seasonal nature of the construction and natural resources industries), general economic conditions in the Company's markets, the timing of auctions, the timing of acquisitions and development of auction sites and related costs, and the effectiveness of integrating new sites or acquired businesses. Additionally, the Company generally incurs substantial costs in entering new markets and the profitability of operations at a new location is uncertain, in part because the number and size of auctions at new locations is more variable than at the Company's more established locations. These factors, among others, may cause the Company's results of operations in some future quarters to be below the expectations of securities analysts and investors or results of previous quarters, which could have a material adverse effect on the market price of the Common Shares. 9 12 POTENTIAL LOSSES FROM PRICE GUARANTEES, PURCHASES OF INVENTORY AND ADVANCES BY THE COMPANY The Company generally offers its services to consignors of used industrial equipment on a straight commission basis. In certain circumstances the Company will, subject to its evaluation of the equipment, either (i) offer to guarantee the consignor a minimum level of gross sale proceeds, regardless of the ultimate results of the auction, or (ii) offer to purchase the equipment directly from the consignor and then auction such equipment as principal. If auction proceeds are less than the purchase price paid by the Company, the Company would incur a loss. If auction proceeds are less than the guaranteed amount, the Company's commission would be reduced or, if sufficiently lower, the Company would incur a loss. Because all its auctions are unreserved, the Company cannot protect itself against such losses by bidding on or acquiring any items at the auctions. During the past five years, guarantees and purchases and sales by the Company as principal have averaged in the aggregate approximately 40% of the Company's annual gross auction sales. See "Business -- Operations." Occasionally, the Company advances to consignors a portion of the estimated auction proceeds prior to the auction. The Company generally makes such advances only after taking possession of the equipment to be auctioned and upon receipt of a security interest in the equipment to secure the obligation. If the Company were unable to auction the equipment or if auction proceeds were less than amounts advanced, the Company could incur a loss. See "Business -- Operations." There can be no assurance that the Company will not incur losses in connection with any gross guarantee consignment, purchases and sales of equipment as principal or advances to consignors. ADVERSE CHANGES IN ECONOMIC CONDITIONS; INDUSTRY CYCLICALITY A substantial portion of the Company's revenues are derived from customers in industries that are cyclical in nature and subject to changes in general or regional economic conditions. Adverse changes or downturns in a given industry may decrease demand for related equipment and lead to lower auction revenues. Although auction sales to residents of countries other than the country in which the auction is held have generally been increasing in recent years, the majority of auction revenues are generated by same country purchasers. As a result, the Company's operating results in a particular region may be adversely affected by events or conditions in that region, such as a local economic slowdown, adverse weather affecting local industries and other factors. The Company's operating results may also be adversely affected by increases in interest rates that may lead to a decline in economic activity. RISKS OF COMPETITION The international industrial equipment market and the industrial equipment auction market are highly fragmented. The Company competes for potential purchasers of industrial equipment with other auction companies and with indirect competitors such as equipment manufacturers, distributors and dealers that sell new or used equipment, as well as equipment rental companies. The Company also competes for potential consignors with other auction companies and with indirect competitors such as used equipment dealers. The Company's direct competitors are primarily regional auction companies. Some of the Company's indirect competitors have significantly greater financial and marketing resources and name recognition than the Company. New competitors with greater financial and other resources than the Company may enter the industrial equipment auction market in the future. Additionally, existing or future competitors may succeed in entering and establishing successful operations in new geographic markets prior to the Company's entry into such markets. The Company believes that the industrial equipment auction market will continue to become increasingly consolidated. Consolidation may increase the competitiveness of the market in ways that could adversely affect the Company. To the extent existing or future competitors seek to gain or retain market share by reducing commission rates, the Company may also be required to modify its commission rates, which may adversely affect the Company's results of operations and financial condition. 10 13 RISKS OF NONCOMPLIANCE WITH GOVERNMENTAL AND ENVIRONMENTAL REGULATION In the countries in which it operates, the Company is subject to a variety of federal, provincial, state and local laws, rules and regulations relating to, among other things, the auction business, imports and exports of equipment, worker safety, and the use, storage, discharge and disposal of environmentally sensitive materials. Failure to comply with such laws, rules and regulations could result in substantial liability to the Company, suspension or cessation of certain of the Company's operations, restrictions on the Company's ability to expand at its present locations or into new locations, requirements for the acquisition of additional equipment or other significant expenses. The development or expansion of auction sites is contingent upon receipt of required licenses, permits and other governmental authorizations. The inability of the Company to obtain such required items could have an adverse effect on its results of operations and financial condition. Additionally, changes or concessions required by regulatory authorities could result in significant delays in, or prevent completion of, such development or expansion. Under certain of the laws regulating the use, storage, discharge and disposal of environmentally sensitive materials, an owner or lessee of real estate may be liable for the costs of removal or remediation of certain hazardous or toxic substances located on or in, or emanating from, such real estate, as well as related costs of investigation and property damage. Such laws often impose such liability without regard to whether the owner or lessee knew of or was responsible for the presence of such hazardous or toxic substances. There can be no assurance that environmental contamination does not exist at the Company's acquired or leased auction sites from prior activities at such locations or from neighboring properties or that additional auction sites acquired or leased by the Company will not prove to be so contaminated. Any such contamination could materially adversely affect the Company's financial condition or results of operations. The imposition of additional export or import regulations or of additional duties, taxes or other charges on exports or imports could have a material adverse impact on participation by international bidders or, to a lesser extent, consignors to the Company's auctions. Reduced participation by such parties could materially adversely affect the Company's financial condition or results of operations. POTENTIAL INADEQUACY OF INSURANCE COVERAGE The Company maintains property and general liability insurance. There can be no assurance that such insurance will remain available to the Company at commercially reasonable rates or that the amount of such coverage will be adequate to cover any liability incurred by the Company. If the Company is liable for amounts exceeding the limits of its insurance coverage or for claims outside the scope of its coverage, its business, results of operations and financial condition could be materially adversely affected. RISKS OF INTERNATIONAL OPERATIONS The Company conducts auctions in North America, Europe, Asia and Australia and intends to expand its international presence. The Company's operations in international markets may be affected by fluctuating currency exchange rates and by changing economic, political and governmental conditions and regulations. DEPENDENCE ON KEY PERSONNEL The Company's future performance and development will depend to a significant extent on the efforts and abilities of David E. Ritchie, a co-founder of the Company and its Chairman and Chief Executive Officer, and of its other executive officers, particularly C. Russell Cmolik, President and Chief Operating Officer. The loss of the services of one or more of such individuals or other senior managers could have a material adverse effect on the Company's business. The Company does not maintain key man insurance for any of its employees. The Company's ongoing success will depend on its continuing ability to attract, develop and retain skilled personnel in all areas of its business. See "Management." 11 14 BROAD DISCRETION OF MANAGEMENT REGARDING PROCEEDS OF THE OFFERING A substantial portion of the net proceeds of the Offering has been allocated to general corporate purposes, including working capital. Accordingly, management will have broad discretion as to the application of such net proceeds. Except for the portion of the net proceeds that has been allocated to partially fund the acquisition and development of additional permanent auction sites and the replacement or improvement of existing permanent sites, the Company has not yet identified any other specific uses for the balance of such net proceeds. Pending any specific application, the Company expects to invest the net proceeds in short-term, interest-bearing, investment grade obligations. It is possible that the return on the Company's investment on any portion of the net proceeds that is not immediately used would be less than that which would be realized were such funds to be invested in the Company's business. CONTROL BY PRINCIPAL SHAREHOLDERS Upon consummation of the Offering, five of the Company's existing equity holders, including David E. Ritchie and C. Russell Cmolik, will beneficially own a majority of the Company's issued and outstanding Common Shares. As a result, such shareholders, if they act together, will be able to elect all the directors and exercise significant control over the business, policies and affairs of the Company. Such ownership and control may have the effect of delaying or preventing a takeover of the Company by one or more third parties, which could deprive the Company's shareholders of a control premium that might otherwise be realized by them in connection with an acquisition of the Company. See "Principal Shareholders." NO PRIOR PUBLIC MARKET; POSSIBLE VOLATILITY OF SHARE PRICE Prior to the Offering there has been no public market for the Common Shares, and there can be no assurance that an active trading market will develop as a result of the Offering or, if a trading market does develop, that it will be sustained or that the Common Shares could be resold at or above the initial public offering price. The initial public offering price of the Common Shares will be determined through negotiations between the Company and the representatives of the Underwriters and may not be indicative of the price at which the Common Shares will actually trade after the Offering. For a discussion of the factors that will be considered in determining the initial public offering price of the Common Shares, see "Underwriting." Following consummation of the Offering, the market price of the Common Shares could be subject to significant variation due to fluctuations in the Company's operating results, changes in or actual results varying from earnings or other estimates made by securities analysts, the degree of success the Company achieves in implementing its growth strategy, changes in business or regulatory conditions affecting the Company, its customers or its competitors, and other factors both within and outside of the Company's control. In addition, the stock market may experience volatility that affects the market prices of companies in ways unrelated to the operating performance of such companies, and such volatility may adversely affect the market price of the Common Shares. POTENTIAL FUTURE DILUTION Upon consummation of the Offering, 16,113,666 Common Shares will be issued and outstanding (16,548,666 Common Shares if the Underwriters' over-allotment option is exercised in full). Future sales of substantial amounts of Common Shares by the Company's principal shareholders after the Offering, or the perception that such sales could occur, could adversely affect the market price of the Common Shares. Additionally, the Company has the authority to issue Common Shares in addition to those offered hereby and one or more series of Preferred Shares. No prediction can be made as to the effect, if any, that future sales or issuances of shares, or the availability of shares for future sale, will have on the market price of the Common Shares. The Company also has reserved 1,500,000 Common Shares for issuance under the Stock Option Plan, of which 196,333 Common Shares will be reserved for issuance pursuant to options outstanding immediately prior to consummation of the Offering. The Company intends to register such shares for resale under the Securities Act after consummation of the Offering. See "Management -- Stock Option Plan," "Shares Eligible for Future Sale" and "Description of Share Capital." 12 15 Except for the issuance by the Company of Common Shares to effect the Reorganization and of options under the Stock Option Plan, the Company and its directors, executive officers and certain other shareholders have agreed not to, directly or indirectly, (i) sell, grant any option to purchase or otherwise transfer or dispose of any Common Shares or securities convertible into or exchangeable or exercisable for Common Shares or file a registration statement under the Securities Act with respect to the same or (ii) enter into any swap or other agreement or transaction that transfers, in whole or in part, the economic consequence of ownership of the Common Shares, without the prior written consent of Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill Lynch") for a period of 180 days after the date of this Prospectus. See "Underwriting." Additionally, the owners of the Company's predecessor entities, who together will own approximately 79% of the Common Shares outstanding upon consummation of the Offering, have agreed amongst themselves to impose certain additional restrictions on the sale or transfer of their Common Shares. See "Shares Eligible for Future Sale." SUBSTANTIAL DILUTION TO NEW INVESTORS The initial public offering price will be substantially higher than the net tangible book value per Common Share immediately prior to the Offering. Investors purchasing Common Shares in the Offering will be subject to immediate dilution of $11.22 per share in net tangible book value, assuming an initial public offering price of $15.00 (the mid-point of the range set forth on the cover page of this Prospectus). Additionally, options to purchase 196,333 Common Shares with exercise prices of $0.10 per share will be outstanding immediately prior to the Offering under the Stock Option Plan, all of which will be immediately exercisable. The exercise of such options would result in further dilution to new investors. See "Dilution." POTENTIAL ADVERSE IMPACT OF PREFERRED SHARES The Board of Directors, without further shareholder approval, can issue Preferred Shares with voting and conversion rights which could adversely affect the voting power of the holders of Common Shares. No Preferred Shares will be outstanding upon consummation of the Offering and the Company currently has no plan to issue Preferred Shares. The issuance of Preferred Shares in certain circumstances may have the effect of delaying or preventing a change of control of the Company, may discourage bids for the Common Shares at a premium over the market price of the Common Shares, and may adversely affect the market price of Common Shares. See "Description of Share Capital." 13 16 THE REORGANIZATION Ritchie Bros. Auctioneers Incorporated is a Canadian company incorporated in 1997 under the Canada Business Corporations Act. Upon completion of the Reorganization discussed below, Ritchie Bros. Auctioneers Incorporated will hold, directly or indirectly, a 100% interest in subsidiaries that will conduct the business operations and own all of the assets historically owned by a group of affiliated partnerships and companies that are the predecessor entities to the Company (the "Ritchie Bros. Group"). The 15 key employees of the Company who are beneficial owners of those predecessor entities will beneficially own Common Shares of the Company in amounts proportionate to their interests in the predecessor entities. All such key employees have signed employment agreements with the Company and have agreed to certain phased restrictions on the sale of their Common Shares over a three-year period. See "Shares Eligible for Future Sale." The Reorganization will be completed prior to consummation of the Offering. The Ritchie Bros. Group has conducted auctions of industrial equipment since 1963. During the course of its expansion over the past 34 years, the Ritchie Bros. Group has grown to encompass three operating partnerships and numerous corporations in various jurisdictions around the world, primarily in the United States and Canada. The purpose of the Reorganization is to transform the Ritchie Bros. Group into a corporate form that will facilitate the future growth and expansion of the business and provide an appropriate vehicle for raising capital. Prior to consummation of the Offering, (i) the business of the existing partnerships will be transferred into corporations, (ii) the existing partnerships will be transformed into corporations, (iii) the shares of the newly incorporated operations of the partnerships will be exchanged for shares of Ritchie Bros. Auctioneers Incorporated, and (iv) the owners of the predecessor entities will become shareholders of Ritchie Bros. Auctioneers Incorporated, which will operate as a holding company. Such transactions are collectively referred to as the "Reorganization." Because the majority of Ritchie Bros.' historical business operations has been carried on by partnerships, for income tax purposes, most of the income of the Ritchie Bros. Group has been included in the income of the partners, and not the operating partnerships. The Ritchie Bros. Group does, however, include companies that are partners of the United States operating partnerships and certain of the companies that are partners of the Canadian operating partnership. Because these companies or their subsidiaries will be included within the reorganized Company, the Company's combined financial statements include a provision for income taxes expensed and payable by them. Following completion of the Reorganization, the Company will be subject to income taxation in all relevant jurisdictions. In connection with the Reorganization, the Company will distribute $35.0 million to the pre-Offering owners of the Company's predecessor entities. See "Capitalization." 14 17 USE OF PROCEEDS The net proceeds to the Company from the sale of the Common Shares in the Offering at an assumed initial public offering price of $15.00 per share (the mid-point of the range set forth on the cover page of this Prospectus), after deducting estimated underwriting commissions and estimated expenses, are estimated to be approximately $39.8 million (approximately $45.9 million if the Underwriters' over-allotment option is exercised in full). Of the estimated net proceeds, the Company expects to use approximately $23.0 million to partially fund the acquisition and development of additional permanent auction sites and the replacement or improvement of existing permanent auction sites and the remaining balance for general corporate purposes, including working capital. The foregoing represents the Company's best estimate of its use of the net proceeds of the Offering based on current planning and business conditions. The Company reserves the right to change its use of proceeds when and if market conditions or unexpected changes in operating conditions or results occur. Except for the expenditures identified above, the Company has not yet identified any other specific uses for the balance of such net proceeds. Pending any specific application, the Company expects to invest the net proceeds in short-term, interest-bearing, investment grade obligations. See "Risk Factors -- Broad Discretion of Management Regarding Proceeds of the Offering." DIVIDEND POLICY Subject to financial results and declaration by the Board of Directors, Ritchie Bros. currently anticipates declaring and paying a regular annual dividend on its Common Shares, with the initial dividend to be declared in respect of, and paid following, the fiscal year ending December 31, 1998. The declaration and payment of dividends on the Common Shares will be subject to the discretion of the Board of Directors and the retention of sufficient cash to fund the Company's growth objectives. The timing and amount of dividends, if any, will depend on, among other things, the Company's results of operations, financial condition, cash requirements, restrictions in financing agreements and other factors deemed relevant by the Board of Directors. Because Ritchie Bros. is a holding company with no material assets other than the shares of its subsidiaries, its ability to pay dividends on the Common Shares is dependent on the income and cash flow of its subsidiaries. No financing agreements to which subsidiaries of Ritchie Bros. are party currently restrict those subsidiaries from paying dividends to Ritchie Bros. 15 18 CAPITALIZATION The following table sets forth the capitalization of the Company as of July 31, 1997 (i) on a historical basis; (ii) on a pro forma basis to give effect to (1) the distribution of $35.0 million to the pre-Offering owners of the Company's predecessor entities in connection with the Reorganization, (2) the issuance, in connection with the Reorganization, of 12,715,667 Common Shares to such owners, and (3) the issuance prior to consummation of the Offering of an additional 111,999 Common Shares at the price of $0.10 per share to employees pursuant to the Employee Equity Participation Program; and (iii) on a pro forma basis, as adjusted further to give effect to the sale by the Company of the Common Shares offered hereby and the receipt by the Company of approximately $39.8 million of net proceeds therefrom at an assumed initial public offering price of $15.00 per share (the mid-point of the range set forth on the cover page of this Prospectus), after deducting estimated underwriting commissions and estimated expenses. See "The Reorganization," "Management -- Employee Equity Participation Program" and "Use of Proceeds." The information set forth below should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the Company's combined financial statements and related notes thereto and other financial information included elsewhere in this Prospectus.
AS OF JULY 31, 1997 ------------------------------------- PRO FORMA ACTUAL PRO FORMA AS ADJUSTED ------- --------- ----------- (DOLLAR AMOUNTS IN THOUSANDS) Current portion of long-term debt......................... $ 631 $ 631 $ 631 ======= ====== ====== Long-term debt, less current portion...................... $ 5,746 $ 5,746 $ 5,746 ------- ------ ------ Equity (predecessor entities)(1).......................... 56,012 -- -- Equity: Preferred Shares, without par value; unlimited number of shares authorized; no shares issued and outstanding.......................................... -- -- -- Common Shares, without par value (actual: unlimited number of shares authorized, 386,000 shares issued and outstanding; pro forma: unlimited number of shares authorized, 13,213,666 shares issued and outstanding; pro forma, as adjusted: unlimited number of shares authorized, 16,113,666 shares issued and outstanding)(2)...................................... 39 22,780 62,580 Deficit.............................................. -- (1,669) (1,669) ------- ------ ------ Total equity......................................... 56,051 21,111 60,911 ------- ------ ------ Total capitalization............................... $61,797 $26,857 $66,657 ======= ====== ======
- --------------- (1) Reflects equity in the Company's predecessor entities prior to the Reorganization. (2) Excludes (i) 1,500,000 Common Shares reserved for issuance pursuant to awards under the Stock Option Plan, of which 196,333 Common Shares are subject to options with an exercise price of $0.10 per share granted or to be granted to employees prior to consummation of the Offering and (ii) up to 435,000 Common Shares that may be sold by the Company to the Underwriters to cover over-allotments, if any. See "Description of Share Capital" and "Management -- Stock Option Plan" and "Underwriting." 16 19 DILUTION The net tangible book value of the Company at July 31, 1997, on a pro forma basis after giving effect to the distribution of $35.0 million to the pre-Offering owners of the Company's predecessor entities in connection with the Reorganization and the issuance of Common Shares pursuant to the Employee Equity Participation Program, was approximately $21.1 million, or $1.60 per Common Share. Pro forma net tangible book value per share represents the amount of total tangible assets (as adjusted for such distribution) of the Company less total liabilities, divided by the number of Common Shares that would have been outstanding if the Reorganization had been effected prior to July 31, 1997. See "The Reorganization" and "Management -- Employee Equity Participation Program." After giving effect to the sale by the Company of the Common Shares offered hereby at an assumed initial public offering price of $15.00 per share (the mid-point of the range set forth on the cover page of this Prospectus) and deducting estimated underwriting commissions and estimated expenses, the pro forma net tangible book value of the Company at July 31, 1997 would have been approximately $60.9 million, or $3.78 per share. This represents an immediate increase in net tangible book value of $2.18 per share to existing shareholders and an immediate dilution of $11.22 per share to new investors. The following table illustrates this per share dilution: Assumed initial public offering price per share................... $15.00 Pro forma net tangible book value per share at July 31, 1997.... $1.60 Increase in pro forma net tangible book value per share attributable to new investors................................ 2.18 ------ - Net tangible book value per share after the Offering.............. 3.78 ------ Dilution per share to new investors............................... $11.22 ======
The following table summarizes, as of July 31, 1997, on a pro forma basis, the differences in the number of Common Shares purchased from the Company, the total consideration paid (based upon the Company's equity upon consummation of the Reorganization and amounts paid by employees upon issuance of shares to them pursuant to the Employee Equity Participation Program) and the average price per share paid by the Company's existing shareholders and the new investors in the Offering. For purposes of the table, Common Shares purchased by existing shareholders include (i) 12,715,667 Common Shares to be issued to owners of the Company's predecessor entities in connection with the Reorganization, and (ii) 497,999 Common Shares issued or to be issued at the price of $0.10 per share to employees prior to consummation of the Offering pursuant to the Employee Equity Participation Program. The calculations in this table with respect to Common Shares to be purchased by new investors in the Offering reflect an assumed initial public offering price of $15.00 per share (the mid-point of the range set forth on the cover page of this Prospectus) before deducting estimated underwriting commissions and estimated expenses.
SHARES PURCHASED TOTAL CONSIDERATION ------------------- ----------------------- AVERAGE PRICE NUMBER PERCENT AMOUNT PERCENT PER SHARE --------- ------- ------------- ------- ------------- (IN MILLIONS) Existing shareholders...................... 13,213,666 82.0% $21.1 32.7% $ 1.60 New investors.............................. 2,900,000 18.0 43.5 67.3 15.00 ----- ----- Total.................................... 16,113,666 100.0% $64.6 100.0% ===== =====
The foregoing computations exclude 1,500,000 Common Shares reserved for issuance pursuant to awards under the Stock Option Plan, of which 196,333 Common Shares are subject to options with an exercise price of $0.10 per share granted or to be granted to employees prior to consummation of the Offering. The exercise of such options would result in further dilution to new investors. See "Management -- Employee Equity Participation Program," and "-- Stock Option Plan." 17 20 SELECTED COMBINED FINANCIAL AND OTHER DATA The following selected combined financial and other data relating to the Company has been taken or derived from the combined financial statements and other records of the Company and should be read in conjunction with the combined financial statements and the related notes thereto, "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the other financial information included elsewhere in this Prospectus. The selected financial data for each of the years in the five year period ended April 30, 1997 has been derived from combined financial statements, which have been prepared in accordance with Canadian GAAP and which have been audited by KPMG, independent chartered accountants. The selected financial data for the three months ended July 31, 1996 and 1997 has been derived from unaudited interim financial statements for those periods prepared on the same basis as the audited financial statements and, in the opinion of management, include all adjustments necessary (consisting only of normal recurring adjustments) for a fair presentation of such financial data. The selected financial and other data for the three months ended July 31, 1997 is not necessarily indicative of the results to be expected for the fiscal period ending December 31, 1997 or any other period. Pro forma income statement data has been provided to show the effect upon the Company's income statement of (i) normalized compensation expense for certain employees, and (ii) corporate income tax expense for the Company, in each case as though the Reorganization had been consummated prior to the periods presented. The pro forma financial data, which is based upon available information and certain assumptions that management believes are reasonable, is provided for informational purposes only and should not be construed to be indicative of the Company's results of operations had the Reorganization been consummated prior to the periods presented and do not project the Company's results of operations for any future period. Except as indicated below, the selected combined financial data included herein is not materially different under U.S. GAAP. For a discussion of the material differences between Canadian GAAP and U.S. GAAP as they pertain to the Company, see Note 10 to the combined financial statements included elsewhere in this Prospectus. 18 21
THREE MONTHS FISCAL YEAR ENDED APRIL 30, ENDED JULY 31, -------------------------------------------------------- -------------------- 1993 1994 1995 1996 1997 1996 1997 -------- -------- -------- -------- -------- -------- -------- (IN THOUSANDS, EXCEPT SELECTED OPERATING DATA (UNAUDITED) AND PER SHARE DATA) INCOME STATEMENT DATA: Auction revenues(1)...................... $ 45,003 $ 50,066 $ 51,326 $ 65,306 $ 72,186 $ 17,155 $ 22,888 Direct expenses.......................... (10,507) (11,925) (12,979) (13,138) (13,908) (3,320) (5,011) -------- -------- -------- -------- -------- -------- -------- 34,496 38,141 38,347 52,168 58,278 13,835 17,877 Depreciation............................. (1,198) (1,327) (1,708) (1,820) (2,014) (439) (533) General and administrative expense....... (20,319) (20,801) (24,628) (26,848) (31,099) (7,408) (8,156) Employee equity participation expense(2)............................. -- -- -- -- -- -- (7,733) -------- -------- -------- -------- -------- -------- -------- Income from operations................... 12,979 16,013 12,011 23,500 25,165 5,988 1,455 Interest expense......................... (411) (611) (1,274) (1,104) (1,081) (228) (319) Other income............................. 413 1,336 677 1,179 917 121 128 -------- -------- -------- -------- -------- -------- -------- Income before income taxes............... 12,981 16,738 11,414 23,575 25,001 5,881 1,264 Income taxes(3).......................... (2,177) (2,456) (2,975) (4,428) (5,992) (1,400) (1,883) -------- -------- -------- -------- -------- -------- -------- Net income (loss)........................ $ 10,804 $ 14,282 $ 8,439 $ 19,147 $ 19,009 $ 4,481 $ (619) ======== ======== ======== ======== ======== ======== ======== U.S. GAAP -- Net income (loss)(4)........ $ 10,804 $ 14,282 $ 8,439 $ 19,147 $ 19,009 $ 4,481 $ (828) ======== ======== ======== ======== ======== ======== ======== PRO FORMA INCOME STATEMENT DATA (UNAUDITED): General and administrative expense(5).... $(21,286) $(23,300) $(25,136) $(28,826) $(31,432) $ (7,780) $ 8,945 Employee equity participation expense.... -- -- -- -- -- -- (10,345) Income (loss) from operations............ 12,012 13,514 11,503 21,522 24,832 5,616 (1,946) Income (loss) before income taxes........ 12,014 14,239 10,906 21,597 24,668 5,509 (2,137) Income taxes(3).......................... (5,114) (5,756) (5,030) (7,943) (9,267) (2,159) (2,124) -------- -------- Net income (loss)........................ $ 15,401 $ (4,261) ======== ======== Net income (loss) per share (fully diluted)............................... $ 1.06 $ (0.29) Weighted average shares outstanding (fully diluted)(7)..................... 14,473 14,473 BALANCE SHEET DATA (END OF PERIOD): Working capital.......................... $ 19,461 $ 23,900 $ 21,822 $ 33,132 $ 39,707 $ 34,068 $ 36,241 Total assets............................. 78,685 87,802 98,621 150,969 142,858 82,131 95,607 Total debt............................... 48,808 52,353 60,903 102,168 83,533 32,658 39,556 Total equity............................. 29,877 35,449 37,718 48,801 59,325 49,473 56,051 SELECTED OPERATING DATA: Gross auction sales(6)................... $477,056 $567,506 $634,058 $752,735 $792,865 $192,256 $246,744 Auction revenues as percentage of gross auction sales.......................... 9.43% 8.82% 8.09% 8.68% 9.10% 8.92% 9.28% Number of consignors..................... 8,878 8,650 10,460 10,744 12,088 3,029 3,654 Number of buyers......................... 24,593 25,812 27,401 27,837 30,630 7,286 8,777 Number of permanent auction sites (end of period)................................ 8 10 11 12 13 13 13
(footnotes on following page) 19 22 (1) Auction revenues consist of commissions, gross profit on sales of inventory and interest income that is incidental to the auction business, reduced by any losses arising from gross guarantee consignments and purchases and sales of equipment by the Company as principal. (2) Employee equity participation expense for the three-months ended July 31, 1997 reflects the grant in July 1997 to employees under the Stock Option Plan of options to purchase 133,000 Common Shares with an exercise price of $0.10 per share, and the issuance in such month to other employees of 386,000 Common Shares at the price of $0.10 per share. Pro forma employee equity participation expense reflects the grant in October 1997 to employees under the Stock Option Plan of options to purchase 63,333 Common Shares with an exercise price of $0.10 per share, and the issuance in such month to other employees of 111,999 Common Shares at the price of $0.10 per share. All of these option grants and Common Share issuances (which result in an aggregate non-recurring expense of $10.3 million) have been, or will be, made pursuant to the Employee Equity Participation Program. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Overview," "Management -- Stock Option Plan" and "-- Employee Equity Participation Program." (3) For all periods presented, the majority of the Company's business operations was carried on by predecessor entities to the Company that were partnerships. Consequently, most of the income of the predecessor partnerships was included for income tax purposes in the income of the partner entities, many of which were not predecessor entities to the Company. Pro forma income tax expense has been computed as if the pro forma net income (loss) of the Company would have been subject to income taxes for all periods presented based on the tax laws in effect during the respective periods. See "The Reorganization." Such pro forma income tax expense should not be construed as indicative of future income tax expense. See Note 9 to the Company's combined financial statements included elsewhere in this Prospectus. (4) Net income under U.S. GAAP for the three-months ended July 31, 1997 reflects restructuring expenses of $0.4 million incurred in connection with the Reorganization (which is reflected under Canadian GAAP as a reduction to equity in the Company's combined financial statements) less the reduction in income tax expense of $0.1 million related thereto. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Overview," "The Reorganization" and Note 10 to the Company's combined financial statements included elsewhere in this Prospectus. (5) Adjusted to reflect normalized compensation, pursuant to employment agreements with the Company, to senior employees of the Company who, prior to the Reorganization, were beneficial owners of certain predecessor entities. These senior employees were compensated in part by means of drawings and income allocations rather than salary and bonus and, in some cases, were compensated by entities that are not predecessor entities to the Company. See "The Reorganization." (6) Gross auction sales represent the aggregate selling prices of all items sold at Ritchie Bros. auctions. Gross auction sales are key to understanding the financial results of the Company, since the amount of revenues and, to a lesser extent, certain expenses, are dependant on it. (7) The fully diluted weighted average shares outstanding equals 386,000 outstanding Common Shares and 133,000 Common Shares issuable upon exercise of options granted by the Company in July 1997, plus 111,999 Common Shares to be issued and 63,333 Common Shares issuable upon exercise of options to be granted by the Company in October 1997 pursuant to the Employee Equity Participation Program, plus 12,715,667 Common Shares to be issued in connection with the Reorganization. See "Management -- Employee Equity Participation Program" and "The Reorganization." In addition, it gives pro forma effect to the issuance of 1,062,800 Common Shares, being that number of shares whose proceeds on the Offering would be necessary to fund the excess of the $35.0 million distribution over net income for the preceding fiscal year. Per share information is presented as if the Common Shares issued or issuable were issued at the beginning of the periods presented. 20 23 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion of the Company's historical results of operations and of its liquidity and capital resources should be read in conjunction with the selected combined financial data and the combined financial statements of the Company and related notes thereto appearing elsewhere in this Prospectus. OVERVIEW Ritchie Bros. has experienced consistent and substantial growth since entering the industrial equipment auction business in 1963. During the fiscal years ended April 30, 1993 through 1997, gross auction sales increased from $477.1 to $792.9 million, and auction revenues increased from $45.0 million to $72.2 million, representing compound annual growth rates in gross auction sales and auction revenues of 13.5% and 12.5%, respectively, during the period. During the same period, income before income taxes increased from $13.0 million to $25.0 million, representing a compound annual growth rate of 17.8%. These increases are attributable to the expansion of Ritchie Bros.' auction business in North America as well as in Europe, Asia and Australia. Virtually all growth in the Company has been internally generated. Growth has been financed primarily with cash generated from ongoing operations. Gross auction sales represent the aggregate selling prices of all items sold at Ritchie Bros. auctions during the periods indicated. Gross auction sales are key to understanding the financial results of the Company, since the amount of auction revenues and, to a lesser extent, certain expenses, are dependent on it. Auction revenues include commissions earned as agent for consignors through both straight commission and gross guarantee contracts, plus the net profit on the sale of equipment purchased and sold by the Company as principal. Under a gross guarantee contract, the consignor is guaranteed a minimum amount of proceeds on the sale of its equipment. When the Company guarantees gross proceeds, it earns a commission on the guaranteed amount and typically participates in a negotiated percentage of proceeds, if any, in excess of the guaranteed amount. If auction proceeds are less than the guaranteed amount, the Company's commission would be reduced, or, if sufficiently lower, the Company would incur a loss. Auction revenues are reduced by the amount of any losses on gross guarantee consignments and sales by the Company as principal. Auction revenues also include interest income earned that is incidental to the auction business. The Company's gross auction sales and auction revenues are affected by the seasonal nature of the auction business. Gross auction sales and auction revenues tend to increase during the second and fourth calendar quarters during which the Company generally conducts more auctions than in the first and third calendar quarters. The Company's gross auction sales and auction revenues are also affected on a period-to-period basis by the timing of major auctions. In newer markets where the Company is developing operations, the number and size of auctions and, as a result, the level of gross auction sales and auction revenues, is likely to vary more dramatically from period-to-period than in the Company's established markets where the number, size and frequency of the Company's auctions are more consistent. Finally, economies of scale are achieved as the Company's operations in a region mature from conducting intermittent auctions, establishing a regional auction unit, and ultimately to developing a permanent auction site. Income taxes reported in periods shown are not indicative of tax that would normally be incurred on reported income. The majority of Ritchie Bros.' historical business operations was carried on by predecessor entities to the Company that were partnerships. Consequently, most of the income of the predecessor partnerships has been included for income tax purposes in the income of the partner entities, many of which were not predecessor entities to the Company. Following completion of the Reorganization, the Company will be subject to income taxation in all relevant jurisdictions. Pro forma income statement data has been provided to give effect to estimated income tax expense that would have been incurred if the Company had been subject to income taxes for all periods shown based on the tax laws in effect during the respective periods. Such pro forma income statement data should not be construed as indicative of future tax expense. In connection with the Reorganization, the Company will distribute $35.0 million to the pre-Offering owners of the Company's predecessor entities. See "The Reorganization." 21 24 Employee equity participation expense of $7.7 million for the fiscal quarter ended July 31, 1997 arises from the grant in July 1997 to employees of options to purchase 133,000 Common Shares with an exercise price of $0.10 per share and from the issuance in July 1997 to other employees of 386,000 Common Shares at a purchase price of $0.10 per share. Management anticipates a further compensation expense of $2.6 million in October 1997 as a result of the issuance of additional options to purchase 63,333 Common Shares with an exercise price of $0.10 per share and the issuance of 111,999 additional shares at a purchase price of $0.10 per share. All of these Common Share issuances and option grants (which result in an aggregate non-recurring expense of $10.3 million) have been, or will be, made pursuant to the Employee Equity Participation Program. See "Management -- Employee Equity Participation Program." Under U.S. GAAP, net income for the fiscal quarter ended July 31, 1997 also reflects a non-recurring expense of $0.4 million, representing professional fees and other expenses incurred in connection with the Reorganization, less income tax savings related thereto of $0.1 million. Although the Company cannot accurately anticipate the future effect of inflation, inflation historically has not had a material effect on the Company's operations. RESULTS OF OPERATIONS The following table sets forth for the periods indicated the percentage of gross auction sales represented by certain items in the Company's combined income statement.
THREE MONTHS FISCAL YEAR ENDED APRIL 30, ENDED JULY 31, ---------------------------- ----------------- 1995 1996 1997 1996 1997 ------ ------ ------ ------ ------ Gross auction sales......................... 100.00% 100.00% 100.00% 100.00% 100.00% ------ ------ ------ ------ ------ Auction revenues............................ 8.09 8.68 9.10 8.92 9.28 ------ ------ ------ ------ ------ Direct expenses............................. (2.05) (1.75) (1.75) (1.72) (2.03) ------ ------ ------ ------ ------ Expenses Depreciation.............................. (0.27) (0.24) (0.26) (0.23) (0.22) General and administrative................ (3.88) (3.57) (3.92) (3.85) (3.31) Employee equity participation............. (3.14) ------ ------ ------ ------ ------ (4.15) (3.81) (4.18) (4.08) (6.67) ------ ------ ------ ------ ------ Other income (expense) Interest expense.......................... (0.20) (0.15) (0.14) (0.12) (0.13) Other income.............................. 0.11 0.16 0.12 0.06 0.06 ------ ------ ------ ------ ------ (0.09) 0.01 (0.02) (0.06) (0.07) ------ ------ ------ ------ ------ Income before income taxes.................. 1.80% 3.13% 3.15% 3.06% 0.51% ====== ====== ====== ====== ======
THREE MONTHS ENDED JULY 31, 1997 COMPARED TO THREE MONTHS ENDED JULY 31, 1996 Auction Revenues. Auction revenues of $22.9 million for the three months ended July 31, 1997 increased by $5.7 million, or 33.4%, from the same period in 1996 as a result of both increased gross auction sales and higher average commission rates earned on auction contracts. Gross auction sales of $246.7 million for the three months ended July 31, 1997 increased by $54.5 million, or 28.3%, from the same period in the prior year, primarily as a result of increased gross auction sales outside the United States, including results from the Company's first auction held in Japan. The balance of the increase was attributable to increased sales in the United States. Direct Expenses. Direct expenses are expenses that are incurred as a result of an auction sale being held. Direct expenses include the costs of hiring personnel to assist in the conduct of the auction, lease expenses for temporary auction sites, travel costs for full time employees to attend and work at the auction site, security hired to safeguard equipment while at the auction site, and advertising costs specifically related to the auction. Direct 22 25 expenses increased by $1.7 million for the three months ended July 31, 1997 compared to the same period in the prior year, reflecting increased costs from increased gross auction sales. As a percentage of gross auction sales, direct expenses increased to 2.03% for the three-month period ended July 31, 1997 compared to 1.72% for the same period in 1996. This increase was a result of more auctions being conducted in the period ended July 31, 1997 at temporary sites, where direct expenses generally constitute a higher percentage of gross auction sales as compared to permanent sites. Depreciation Expense. Depreciation is calculated on capital assets employed in the Company's business, including building and site improvements, automobiles, yard equipment, and computers. In the three-month period ended July 31, 1997, depreciation increased $0.1 million, reflecting increased investment in fixed assets at July 31, 1997 compared to the same period in the prior year. Management anticipates that depreciation expense will increase as existing auction sites are improved and additional permanent auction sites are acquired and developed. General and Administrative Expense. General and administrative expense ("G&A") includes employee expenses, such as salaries, wages, bonuses and benefits, non-auction related travel, institutional advertising, insurance, general office, and computer expenses. For the three months ended July 31, 1997, G&A increased by $0.7 million, or 10.1%, from the same period in the prior year, as a result of an increased level of administrative infrastructure to support higher levels of gross auction sales. As a percentage of gross auction sales, G&A declined for the three month period ended July 31, 1997 to 3.31% compared to 3.85% for the same period in 1996. This decrease resulted from gross auction sales growing at a faster rate than G&A. As sales staff are added and new offices opened, gross auction sales and auction revenues in these areas tend to lag behind the related G&A. Management anticipates that G&A will increase as the Company continues to expand its operations. Employee Equity Participation Expense. Employee equity participation expense of $7.7 million incurred in the three-month period ended July 31, 1997 related to the issuance of shares and options to employees of the Company pursuant to the Employee Equity Participation Program. Management anticipates a further employee equity participation expense of $2.6 million in October 1997 as a result of the issuance of additional shares and options pursuant to the Employee Equity Participation Program. Management does not anticipate further issuances of shares or options pursuant to the Employee Equity Participation Program or any related additional employee equity participation expense. See "Management -- Employee Equity Participation Program." Income from Operations. Income from Operations of $1.5 million in the three-month period ended July 31, 1997 decreased by $4.5 million, or 75.7%, from $6.0 million in the same period in the prior year. The decrease is attributable to the employee equity participation expense of $7.7 million recorded in July 1997. Absent this expense, Income from Operations would have increased by $3.2 million, or 53.4%, from the same period in the prior year. Interest Expense. Interest expense includes interest and bank charges paid on term bank debt incurred in fiscal 1993 to accelerate the development of three auction locations in the United States and interest and related fees paid on operating credit lines with banks. Interest expense of $0.3 million for the three months ended July 31, 1997 increased by $0.1 million over the corresponding period in 1996 due to additional short term debt incurred by the Company to finance auctions held outside the United States. Management plans to partially finance the acquisition of additional permanent auction sites by incurring debt, which will result in an increase in interest expense. Other Income. Other income arises from paid appraisals performed by the Company and other miscellaneous sources. Other income of $0.1 million for the three months ended July 31, 1997 was unchanged from the same period in the prior year. Income Taxes. Historical income taxes for the periods shown are not meaningful since many of the predecessor entities to the Company were partnerships not subject to corporate income taxation. See "-- Overview." The pro forma income statement data included elsewhere in this Prospectus gives effect to estimated income tax expense that would have been incurred if the Company had been subject to income taxes 23 26 for all periods shown based on the tax laws in effect during the respective periods. For future financial periods, the Company will be subject to income taxes in all relevant jurisdictions. See "The Reorganization." FISCAL 1997 COMPARED TO FISCAL 1996 Auction Revenues. Auction revenues of $72.2 million in fiscal 1997 increased by $6.9 million, or 10.5%, from $65.3 million in fiscal 1996, as a result of higher gross auction sales and higher average commission rates earned on auction contracts during fiscal 1997. Gross auction sales of $792.9 million in fiscal 1997 increased by $40.1 million, or 5.3%, from fiscal 1996 as a result of increased gross auction sales in the United States due to an increase in the number of consignors during fiscal 1997. Gross auction sales outside of the United States were relatively unchanged between fiscal 1996 and fiscal 1997. Direct Expenses. Direct expenses increased by $0.8 million in fiscal 1997, representing 1.75% of gross auction sales, unchanged from fiscal 1996. Depreciation Expense. In fiscal 1997, depreciation increased by $0.2 million compared to fiscal 1996. This increase is attributable to incremental depreciation on $1.5 million of fixed assets acquired and put in use in fiscal 1997. General and Administrative Expense. In fiscal 1997 G&A increased by $4.3 million, or 15.8%, over fiscal 1996. G&A also increased as a percentage of gross auction sales, from 3.57% in fiscal 1996 to 3.92% in fiscal 1997. The increase was primarily due to the Company's opening new offices in Europe and Asia, and expanding its sales staff in the United States and its global administrative infrastructure. Total full time employees increased from 264 at the end of fiscal 1996 to 300 at the end of fiscal 1997. Non-auction related travel to expand into new regions, together with increased employee performance bonuses, also contributed to the increase. Interest Expense. Interest expense remained relatively constant between fiscal 1996 and fiscal 1997. Other Income. Other income declined in fiscal 1997 by $0.3 million to $0.9 million compared to fiscal 1996 primarily due to a non-recurring gain on sale of redundant land in fiscal 1996 of $0.6 million. Income Taxes. Historical income taxes for the periods shown are not meaningful since many of the predecessor entities to the Company were partnerships not subject to corporate income taxation. See "-- Overview." The pro forma income statement data included elsewhere in this Prospectus gives effect to estimated income tax expense that would have been incurred if the Company had been subject to income taxes for all periods shown based on the tax laws in effect during the respective periods. For future financial periods, the Company will be subject to income taxes in all relevant jurisdictions. See "The Reorganization." FISCAL 1996 COMPARED TO FISCAL 1995 Auction Revenues. Auction revenues of $65.3 million increased by $14.0 million, or 27.2%, in fiscal 1996 compared to fiscal 1995. This increase resulted from a particularly strong fiscal 1996, reflecting increased gross auction sales in Europe and Asia, and relatively weak results in fiscal 1995 due to the impact of losses experienced in certain of the Company's new markets in that year. Gross auction sales of $752.7 million in fiscal 1996 increased by $118.7 million, or 18.7%, from fiscal 1995. This increase primarily resulted from a substantial increase in gross auction sales in both Europe and Asia, reflecting the highly variable nature of auction activity in the Company's newer markets. Direct Expenses. Direct expenses were relatively constant between fiscal 1995 and fiscal 1996. Direct expenses as a percentage of gross sales declined from 2.05% in fiscal 1995 to 1.75% in fiscal 1996. This decline is attributable to economies of scale being achieved from higher average gross auction sales per auction during fiscal 1996, and from the Company's operation of more auctions out of permanent auction sites. General and Administrative Expense. G&A increased in fiscal 1996 by $2.2 million, or 9.0%, over fiscal 1995. The increase was due to increased performance bonuses for staff along with expenses relating to the Company's European expansion, generally higher staffing levels during fiscal 1996 and inflationary wage increases. Total full time employees grew from 241 at April 30, 1995 to 264 at April 30, 1996. As a result of 24 27 achieving economies of scale, G&A as a percentage of gross auction sales declined from 3.88% in fiscal 1995 to 3.57% in fiscal 1996. Interest Expense. Interest expense of $1.1 million in fiscal 1996 declined by 13.3%, from fiscal 1995 due to scheduled debt amortization, resulting in a lower average borrowing level during fiscal 1996. Other Income. Other income increased in fiscal 1996 by $0.5 million due to a non-recurring gain on sale of redundant land in fiscal 1996. Income Taxes. Historical income taxes for the periods shown are not meaningful since many of the predecessor entities to the Company were partnerships not subject to corporate income taxation. See "-- Overview." The pro forma income statement data included elsewhere in this Prospectus gives effect to estimated income tax expense that would have been incurred if the Company had been subject to income taxes for all periods shown based on the tax laws in effect during the respective periods. For future financial periods, the Company will be subject to income taxes in all relevant jurisdictions. See "The Reorganization." LIQUIDITY AND CAPITAL RESOURCES The Company's cash can fluctuate significantly from period to period, due to the difference in the timing of receipt of gross sale proceeds from buyers and the payment of net amounts due to consignors. If auctions are conducted near a fiscal period end, the Company may hold cash in respect of those auctions that will not be paid to consignors until after the period end. Accordingly, management believes a more meaningful measure of the Company's liquidity is working capital. At July 31, 1997 and April 30, 1997, 1996 and 1995, working capital was $36.2 million, $39.7 million, $33.1 million, and $21.8 million, respectively. Consistent with the above discussion of income taxes, these working capital balances do not include certain income tax liabilities that would have been incurred if the Company had been subject to full corporate income taxation in all relevant jurisdictions. Increases in working capital over the annual periods presented resulted primarily from cash generated from operations. The decrease in working capital between April 30, 1997 and July 31, 1997 resulted from distributions to owners of the Company's predecessor entities in excess of net income during the period. Capital expenditures by the Company in its fiscal quarter ended July 31, 1997 and its 1997, 1996, and 1995 fiscal years were $0.7 million, $5.2 million, $1.2 million, and $5.8 million, respectively. In fiscal 1995 and fiscal 1997, the Company acquired additional land for use as permanent auction sites and incurred related development costs. In fiscal 1996 and the fiscal quarter ended July 31, 1997, no property was acquired. During the next three years, the Company intends to incur capital expenditures of approximately $60.0 million for the acquisition and development of additional permanent auction sites and the replacement or improvement of existing permanent auction sites. Certain property sites have already been identified for acquisition, replacement or improvement. Operating credit lines available to the Company exceed $50.0 million. In addition, the Company has credit lines of approximately $15.0 million to fund property acquisitions. The Company utilizes its operating credit lines most frequently during February and August, prior to the spring and fall months when proportionately more auctions are conducted. During other times in the year, the Company typically has not accessed its credit facilities for working capital. The Company believes that cash generated from operations together with available credit lines and the proceeds from the Offering will be sufficient to meet its liquidity needs for the foreseeable future. EXCHANGE RATES The Company generates revenues and incurs expenses in numerous currencies, principally the U.S. dollar and the Canadian dollar, and to a lesser extent, several other currencies, including the Australian dollar and the Dutch Guilder. To the extent the U.S. dollar rises or falls in relation to any of these currencies, the net revenues earned in these currencies will decrease or increase, respectively, upon translation into U.S. dollars for accounting purposes. 25 28 If the Company enters into a significant auction contract in a currency that differs from the currency that will be received upon the sale of the related equipment, the Company enters into either a forward or spot contract to mitigate any substantial foreign exchange risk. Under these circumstances, the cost of any foreign currency hedge is taken into account in the pricing of any gross guarantee or outright purchase contract with the consignor. The Company does not engage in derivative trading. Management believes that the Company's net exposure to currency fluctuations is not material and that currency fluctuations are unlikely to have a material impact on the Company's financial results. IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS Note 9 to the combined financial statements sets out differences between Canadian GAAP and U.S. GAAP. In addition to the U.S. GAAP issues taken into account in the preparation of Note 9, the following accounting standards have been issued by the Financial Accounting Standards Board in the United States and may become applicable to the Company's reported results, but have not yet been adopted by the Company because such standards are not effective for the periods presented. FAS 128, "Earnings per Share," changes the method of computing and presenting earnings per share. The statement simplifies previous requirements to exclude the dilutive effect of common stock equivalents from the basic earnings per share calculation and to include them only in the diluted earnings per share measure. FAS 128 is effective for financial statements issued for periods ending after December 15, 1997. Upon adoption, all earnings per share data presented for prior periods is required to be restated. FAS 129, "Disclosure of Information about Capital Structure," establishes standards for disclosing information about an entity's capital structure and is effective for periods ending after December 15, 1997. FAS 130, "Reporting Comprehensive Income," establishes standards for reporting and display of comprehensive income (which is all changes in the net equity of a business due to transactions or other events not involving owners) and its components (revenues, expenses, gains and losses). While it does not specify a format of presentation, FAS 130 does require that all items that are required to be recognized as components of comprehensive income be reported in a financial statement that is displayed with the same prominence as other financial statements. FAS 130, which does not address issues of recognition or measurement of comprehensive income, is effective for fiscal periods beginning after December 31, 1997. FAS 131, "Disclosures about Segments of an Enterprise and Related Information," establishes new standards for the reporting of information about the operating segments of a business. It also establishes standards for related disclosures about products and services, geographic areas and major customers. Generally, FAS 131 requires that the definition of operating segments reflect the manner in which the enterprise's chief operating decision maker decides how to allocate resources and assess performance. FAS 131 is effective for periods beginning after December 15, 1997. Management of the Company does not believe that the adoption of these new accounting standards will materially affect its historical results of operations as set out in the combined financial statements included elsewhere in this Prospectus. 26 29 BUSINESS GENERAL Ritchie Bros. is the world's leading auctioneer of industrial equipment, operating through 50 locations in 13 countries in North America, Europe, Asia and Australia. The Company sells, through public auctions, a broad range of used industrial equipment, including equipment used in the construction, transportation, mining, forestry, petroleum and agricultural industries. Ritchie Bros. conducts its auctions on an unreserved basis, with each and every item being sold to the highest bidder on the day of the auction and no minimum prices or bidding permitted on behalf of consignors. Ritchie Bros. attracts a broad international base of customers to its auctions through its worldwide marketing efforts and reputation for conducting auctions through a fair selling process. Many of the Company's customers are both consignors and buyers. Management believes that the Company's reputation and leading market position, as well as the breadth and international composition of the customers at Ritchie Bros.' auctions, result in a greater volume of consigned equipment and higher gross auction sales than in other auction venues. Ritchie Bros.' auction business has experienced significant growth over the last five years. During that period, the Company's gross auction sales have grown from $477.1 million in its fiscal year ended April 30, 1993 to $792.9 million in its fiscal year ended April 30, 1997, representing a compound annual growth rate of 13.5%. During the same five fiscal years, the Company's annual auction revenues have grown from $45.0 million to $72.2 million, representing a compound annual growth rate of 12.5%, and income before income taxes has grown from $13.0 million to $25.0 million, representing a compound annual growth rate of 17.8%. Ritchie Bros.' strategic objective is to continue its profitable growth by increasing income from operations in the Company's existing markets and by expanding into new geographic markets. The Company is also assessing possible opportunities to expand its presence in market segments that the Company has not historically emphasized, such as the agricultural and certain transportation segments of the industrial equipment auction market. INDUSTRY The purchase and sale of used industrial equipment in the international marketplace is transacted through auctioneers, dealers, and brokers and directly between end-users. This market includes both mobile and stationary equipment and trucks and trailers produced by manufacturers such as Caterpillar, Case, John Deere, Komatsu, Hitachi, Ingersoll Rand, Kenworth and Mack for the construction, mining, forestry, petroleum, agriculture and transportation industries, among others. Examples of industrial equipment include crawler tractors, excavators, loader backhoes and wheel loaders. Much of the equipment can be used in multiple industries and in diverse geographic locations. Growing Market for Used Industrial Equipment. The international used industrial equipment market has experienced substantial growth in recent years as a result of the following factors: - An increasing, cumulative supply of used equipment, as a result of the substantial ongoing production of new industrial equipment by the major manufacturers. - Increasing turnover rates among first-time owners and sales of idle or underutilized equipment, resulting from the increase in the size of rental fleets as well as the global trends toward outsourcing and reducing investment in capital assets. - Increasing demand for used industrial equipment caused by increased infrastructure expenditures in emerging markets and worldwide economic growth. - Increasing willingness of equipment users to purchase high quality used equipment instead of purchasing new equipment at a higher initial cost. 27 30 Growth of Industrial Equipment Auction Market. The industrial equipment auction market has grown rapidly during the past several years, and management believes that auctions represent an increasingly important industrial equipment distribution channel for the following reasons: - The increasing preference of sellers to utilize the auction marketplace in order to achieve a sale quickly and to maximize proceeds. - The attractiveness and convenience of the auction marketplace to buyers, who often need to purchase many different types of equipment and may not want to be restricted to a single manufacturer, as is the case for many dealers. Attractiveness of Industrial Equipment Auction Market. The industrial equipment auction market is attractive for the following reasons: - The industrial equipment auction business is relatively insulated from cyclical economic trends. In many cases, economic fluctuations or downturns can lead to increased levels of used equipment for consignment, and in greater demand for used, rather than new, equipment. For example, Ritchie Bros. auction sales increased during the economic recessions of the 1980's and 1990's. - Industrial equipment auctioneers typically are not restricted to selling lines of equipment provided by a particular manufacturer or manufactured for a particular industry, or to holding auctions in particular geographic regions. As a result, auction companies can respond quickly to changing market forces and address a variety of customer demands. - The industrial equipment auction business is not capital intensive and auction companies do not have risks associated with holding inventory over extended periods. - The industrial equipment auction industry is generally fragmented; Ritchie Bros. is the only participant that conducts auctions on a global scale. In calendar 1996, of the 35 companies that are followed by an industry source reporting auction results for the construction equipment segment of the industrial equipment auction industry, reported gross auction sales for Ritchie Bros. exceeded those of the other 34 reported companies combined. Ritchie Bros.' total gross auction sales for calendar 1996 were more than three times the total gross auction sales of its closest competitor in the industrial equipment auction market. KEY STRENGTHS Ritchie Bros. has several key operating strengths that provide distinct competitive advantages which have enabled the Company to achieve significant and profitable growth. These competitive advantages include: a reputation for conducting fair auctions; high quality services for both consignors and bidders; international scope and the ability to attract both consignors and bidders from around the world; proprietary database and software infrastructure that can support substantial expansion in the Company's operations; size and financial strength that permit Ritchie Bros. to dominate its existing markets and to move effectively into new markets; and a dedicated and experienced workforce. Reputation for Conducting Fair Auctions. Management believes that the Company's highly publicized commitment to fair dealing and the unreserved auction process has been a key contributor to the Company's past growth and success. All Ritchie Bros. auctions are unreserved, meaning that there are no minimum prices; each and every item is sold to the highest bidder on the day of the auction. By contract, each consignor is prohibited from bidding on its own consigned items at the auction, or in any way artificially affecting the auction result. In addition, the Company adheres to a policy prohibiting it from artificially affecting the auction result by bidding on any items being auctioned. Each bidder has confidence that if he or she makes the highest bid for an item, even if that bid is less than the item's anticipated sale price, the item will be sold to that bidder. Auction practices employed by industrial equipment auctioneers vary widely. Ritchie Bros. does not employ practices such as reserved prices (a minimum sale price which may be stated or unstated), buy-backs (where the consignor or its agent is permitted to bid on and buy back its own equipment), or requiring buyers to pay premiums, commissions or other fees on their auction purchases. 28 31 Management believes that Ritchie Bros.' reputation for conducting fair auctions is a major competitive advantage. Ritchie Bros.' auctions generally draw a larger number of bidders than other industrial equipment auctions. The larger bidder audience at a Ritchie Bros. auction attracts potential consignors who reason that a large number of bidders competing for the same items is the best way to maximize the selling price of their equipment. Greater volume and selection of consigned equipment at an auction, in turn, attracts more bidders to the auction. As a result, a critical mass of both equipment and buyers is achieved in a process that is self reinforcing. High Quality Services for Consignors and Bidders. Ritchie Bros.' auction operations are conducted on a standardized basis around the world and provide consignors assurance that they will obtain the best return on their dispositions of equipment and bidders confidence that they will be given the opportunity to obtain equipment at a fair price. For consignors, Ritchie Bros.' comprehensive services typically begin with an equipment appraisal that gives the prospective consignor a reliable and credible estimate of the value of the appraised equipment. Ritchie Bros. stands behind each of its appraisals with a proposal, tailored to the consignor, that may include an alternative commission structure based upon a guaranteed minimum level of gross sale proceeds, or an outright purchase. Ritchie Bros.' willingness to take consignment of a customer's full equipment fleet (and all ancillary assets, including inventories, parts, tools, attachments and construction materials), rather than only the most desirable items, is another important service to the consignor. In addition to its appraisal services, Ritchie Bros. offers repair and refurbishment services to consignors, and provides advice on how to present the equipment in order to maximize the consignor's proceeds. On behalf of the consignors, the Company contracts with selected painters and other trade service providers at each of its auction sites and often provides facilities for on-site cleaning and refurbishment of equipment. Ritchie Bros. advertises its auctions to a broad, international base of potential buyers. Each Ritchie Bros. auction is promoted through an intensive marketing campaign that is targeted, through Ritchie Bros.' comprehensive database of over 250,000 customers, to the type and location of bidder most likely to be interested in the equipment to be sold at that auction. Following the auction, Ritchie Bros. collects the purchase price and disburses to the consignor the net proceeds accompanied by a standardized settlement statement showing the sale prices, Ritchie Bros.' commission and any amounts deducted for refurbishment or other services authorized by the consignor. For bidders, Ritchie Bros. provides an array of services to make the bidding and purchasing process convenient. Ritchie Bros. personnel perform extensive title searches on the equipment consigned, and the Company warrants free and clear title to each buyer. Equipment being offered at the auction is available for inspection by prospective buyers prior to the auction. Other services include a reception on the evening before the auction, expedited check-in procedures, streamlined paperwork and the provision of meeting rooms, third party financing, access to trucking and freight forwarding, vehicle registration and customs brokerage services at the auction site. International Scope. Ritchie Bros. markets each auction to a global customer base of potential bidders and consignors. Because international buyers are willing to travel to a Ritchie Bros. auction, consignors have confidence that they will receive the highest possible price for their equipment. Ritchie Bros. has conducted auctions in 16 countries throughout the world, and has offices in 13 countries. Approximately 17% of Ritchie Bros.' gross auction sales for fiscal 1997 represented purchases by bidders from countries outside of the country in which the auction was held. Ritchie Bros.' management, sales and operating personnel have substantial expertise in marketing, assembling and conducting auctions in new international markets. The Company conducted its first auction outside the United States and Canada in Europe in 1987. The Company has experience in currency exchange risk management, import and export regulatory issues, local political and economic issues, licensing and other regulatory requirements, and cultural and business traditions in the international markets in which it operates. The success of the Company's auctions in countries such as Australia, Germany, Hong Kong, Japan, Mexico, 29 32 The Netherlands and The Philippines demonstrate the Company's ability to adapt its operations to, and successfully compete in, new international markets. Proprietary Databases and Software. The Company's proprietary databases provide access to information regarding potential bidders and equipment valuations that, in the view of management, significantly enhances the Company's ability to effectively market its auction services. The Company's customer database contains over 250,000 names from 167 countries and provides, in respect of each customer, information that can be used in developing a relationship with that customer, such as auction attendance, trade association membership, buying and travel habits and sales tax and banking information. The Company's database of equipment valuations, drawn from sale prices at its own auctions as well as other sources of information, allows the Company to identify market trends that both facilitate accurate appraisals and allow the Company to target its marketing in response to those trends. Ritchie Bros. has also developed proprietary software which is deployed at the auction sites as a stand-alone system run on personal computers. This system provides the basis for control of auction information about bidders and consignors which is disseminated automatically through the Company's management information system to the relevant marketing, management and title search departments within the Company. Laptop computers provide the Company's territory managers with instant access to customer information, auction results, appraisals and intra-company e-mail. The Company's internet web site is updated daily with descriptions of equipment featured at upcoming auctions. Size and Financial Strength. In the highly fragmented industrial equipment auction market, Ritchie Bros. is the world's largest auction company. Based upon an industry source that reports sales by companies in the construction equipment segment of the industrial equipment auction market, in calendar 1996 the reported gross auction sales of Ritchie Bros. in that segment exceeded the combined gross auction sales of the other 34 reported companies. Ritchie Bros.' total gross auction sales for calendar 1996 were more than three times the total gross auction sales of its closest competitor in the industrial equipment auction market. The Company generated income before income taxes of $25.0 million in fiscal 1997. Management believes that cash generated from operations, together with the net proceeds of the Offering and available debt capacity, will provide the Company with financial resources that exceed those of other industrial equipment auction companies. These resources will enable the Company to continue to expand into profitable new markets, build additional permanent sites and offer its customers services and financial options not offered by auction companies with fewer financial resources. Dedicated and Experienced Workforce. Ritchie Bros.' dedicated and motivated employees are an important strength of the Company. Of the Company's 202 sales and managerial employees, 52 have been with the Company for over 10 years and an additional 48 have been with the Company for over five years. Average annual turnover among the same group has been less than 7% over the past three years. All employees participate in a performance bonus plan tying their overall compensation to corporate and personal performance. Key employees have a substantial equity stake in the Company. The 15 beneficial owners of the Company's predecessor entities, all of whom have entered into employment agreements with the Company, have a combined 293 years of experience with Ritchie Bros., an average of 19.5 years per individual. See "Business -- Employees" and "Management." GROWTH STRATEGY Ritchie Bros.' strategic objective is to continue its profitable growth by increasing income from operations in the Company's existing markets through developing new and upgrading existing permanent auction sites, and by expanding into new geographic markets. The Company is also assessing possible opportunities to expand its presence in market segments that the Company has not historically emphasized. Increase Income from Operations in Existing Geographic Markets. Management believes that developing new and upgrading existing permanent auction sites will increase the Company's income from operations. Such permanent, purpose-built sites enable the Company to enhance its corporate identity and establish a long-term presence in the communities in which they are located. By establishing itself in its local markets and by holding 30 33 frequent and regularly scheduled auctions at its permanent sites, the Company is able to more consistently attract a large volume of consignors and bidders to its auctions. The Company benefits from the logistical efficiencies that permanent sites offer in marketing, setting up, and conducting each auction, as compared to temporary sites where the Company's marketing and operations staff are charged with a host of tasks required to organize each auction. At permanent sites, the Company's personnel can focus on attracting consignors and bidders to the auction, which the Company believes contributes to higher gross auction sales at those sites than at temporary sites. In its existing markets, the Company has the personnel and systems to increase auction revenues without a corresponding increase in expenses. The Company intends to add sales personnel in regions where it has existing permanent sites to maximize the business volume potential of each site. The most recently developed permanent sites provide equipment storage space, as well as customer meeting, parking and support service facilities, that will support larger auctions than those currently being conducted in these regions. The Company's database, information and communications systems have the capacity to address an expanded level of same-site business. Technological capabilities being considered by the Company, such as specialized video-conferencing capabilities tailored to the auction process, are expected to further increase revenues in the future. Expand into New Geographic Markets. The Company intends to continue to geographically expand its operations by (i) establishing additional auction operations in markets where it has had a strong long-term presence, such as parts of the United States, (ii) increasing its presence in newer markets where it has begun to develop significant business, such as Europe, Asia and Australia and (iii) entering new markets such as the Middle East and South America. Management believes that the Company's experience and demonstrated success in developing new geographic markets, its established international base of customers and its reputation as the world's preeminent industrial equipment auctioneer will provide significant advantages to the Company in its efforts to expand into new geographic markets. Ritchie Bros.' entry into a new market usually follows an established sequence. First, bidders from the prospective market attend a Ritchie Bros. auction in a nearby location. Once the Company determines that it has developed sufficient interest from a prospective new area and that a significant consignment from the region can be obtained, an off-site auction will be held in that area. The auction will be managed by personnel from the nearest permanent site or regional auction unit, with support from other regions as necessary. A territory manager will be assigned to the new market for the purpose of sourcing consignments for the nearest regular auction site or auctions in the new area. After sufficient auction activity has taken place in a new market through off-site sales or significant amounts of equipment are being consigned out of that market, Ritchie Bros. will establish a regional auction unit consisting of sales personnel and support staff. The regional auction unit will typically hold auctions on temporary leased sites -- sometimes repeatedly at one or two sites and sometimes at different sites. Once the Company establishes that it can hold at least three significant auctions per year in a region, management assesses the advantages of acquiring land and creating a permanent auction site for the region. Regional auction units and the personnel at permanent sites also conduct off-site auctions in their regions when justified by the nature, quantity and location of the equipment. Expand into New Auction Market Segments. Ritchie Bros. will continue to assess possible opportunities to expand its presence in market segments that the Company has not historically emphasized. Management believes that expansion opportunities exist in agriculture and certain transportation segments of the industrial equipment auction market, among others. Such expansion could be pursued either by acquiring existing businesses, by hiring experienced personnel, or by internally generated growth. OPERATIONS Ritchie Bros. auctions are conducted by employees based at the Company's 13 permanent auction sites in North America and by eight regional auction units based in North America, Europe, Asia and Australia. The auctions are held at permanent sites, leased sites, and on consignor owned land ("off-site" auctions), depending on the nature, amount and location of the equipment to be auctioned. 31 34 Ritchie Bros. has developed a specialized auction site design as a model for its permanent sites. Prototype sites were completed in 1994 in Olympia, Washington and Fort Worth, Texas. These sites include custom designed buildings. The main building is approximately 25,000 square feet including offices, covered theatre style seating for approximately 900 people, an auction display area, space for bidder registration, catering, restrooms, on-site third party financing and meeting areas for representatives from trucking companies, freight forwarders and customs brokers. The main building is designed to accommodate the future addition of satellite transmission equipment so that live two-way feeds of remote auctions can be offered as appropriate technology becomes available. The Company solicits equipment consignments of any magnitude, ranging from a single piece of equipment consigned by a local owner-operator to a large equipment fleet offered by a multi-national consortium upon the completion of a major construction project. While the majority of the Company's gross auction sales come from items that sell for less than $100,000, the Company also sells more valuable items of up to and exceeding $500,000. The appraisal process is an important step in attracting equipment for an auction. Most appraisals commence with Ritchie Bros. personnel visiting the location of the prospective consignor's equipment, where each item to be appraised is described in a standard format prescribed by the Company. The equipment description includes information such as year of manufacture, manufacturer, model, serial number, attachments and condition, including references to refurbishing required to make each item ready for sale. Photographs are taken of as many of the items as possible. The field appraisal is then entered into the Company's central computer whereupon Ritchie Bros. appraisers assign values to each item of equipment. Upon completion of this initial process, the appraisal and management team consults to arrive at a valuation which will form the basis of a tailor-made proposal for the prospective consignor. Ritchie Bros. generally functions as an agent, accepting property on consignment from its selling clients (consignors), but may also purchase and resell equipment as principal. In the case of consignments, the Company sells property as agent of the consignor, bills the buyer for the equipment purchased, receives payment from the buyer, and remits to the consignor the consignor's portion of the buyer's payment after deducting the Company's commission, expenses, and applicable taxes. The Company offers auction services to consignors through straight commission, gross guarantee, or outright purchase. These approaches are described below: Straight Commission. Under a straight commission consignment, Ritchie Bros. earns a commission based on the auction sale price of the equipment. The commission rate is negotiated on a consignor-by-consignor basis. In fiscal 1997, straight commission consignments represented 68% of the Company's gross auction sales. Gross Guarantee. Under this type of consignment, Ritchie Bros. guarantees the consignor a minimum level of gross sale proceeds, regardless of the actual results of the auction. When the Company guarantees gross proceeds, it earns a commission on the guaranteed amount and typically participates in a negotiated percentage of any proceeds in excess of the guaranteed amount. If auction proceeds are less than the guaranteed amount, the Company's commission would be reduced or, if sufficiently lower, the Company would incur a loss. Outright Purchase. Under the outright purchase method, Ritchie Bros. purchases the equipment from the consignor and then auctions the equipment as principal. Ritchie Bros.' commission structure (and, in the case of outright purchases, pricing) reflects the degree of risk assumed by the Company with respect to the equipment being sold. Lower commissions are generally charged for straight commission sales than for gross guarantee sales. In the case of outright purchases, pricing is based upon the risk of ownership that is assumed by the Company. Occasionally, the Company advances to consignors a portion of the estimated auction proceeds prior to the auction. The Company generally makes such advances only after taking possession of the equipment and upon receipt of a security interest in the equipment to secure the obligation. 32 35 Ritchie Bros. has developed a standardized auction procedure that is used in all its locations throughout the world. Most Ritchie Bros. auctions begin with the sale of small items at the commencement of the auction, followed by larger items rolling across a display ramp in front of a covered gallery. The small items are offered at the beginning of the auction to provide time for new participants to become familiar and comfortable with the process. The ramp portion of the auction commences with light vehicles and then proceeds with heavier self-propelled equipment, including trucks, skid steer loaders, loader backhoes, forklifts, wheel loaders, motor graders, crawler tractors, compactors and rollers. Following the auction of these self-propelled items, the auctioneer deploys a mobile sound truck to sell stationary items such as excavators and cranes and smaller items such as compressors, welders and miscellaneous industrial equipment and material. Items are auctioned at an average rate of 80 to 100 items per hour and are sold on an "as-is, where-is" basis. CUSTOMERS The Company considers both consignors and bidders to be its customers. Consignors. Ritchie Bros. solicits equipment consignments of all sizes. Consignors range from owner-operators selling a single piece of equipment, small dealers with several pieces of excess equipment, national equipment rental companies with large recurring fleet disposition needs, to large multi-national construction consortiums selling an equipment fleet and excess material upon completion of a project. In fiscal 1997, Ritchie Bros. auctioned equipment for more than 12,000 consignors, ranging from small contractors and equipment operators to Fortune 100 companies and government agencies. During this period, no one consignor accounted for more than 5% of gross auction sales or auction revenues and the top 10 consignors represented less than 15% of gross auction sales. In recent years, Ritchie Bros. has successfully handled consignments for some of the world's leading equipment manufacturers and distributors, and rental, finance, construction and resource companies. Bidders. In fiscal 1997, Ritchie Bros. registered over 98,000 bidders, ranging from small contractors and owner-operators to Fortune 100 companies and government agencies. Of these bidders, 31% purchased one or more items. During this period, no one buyer accounted for more than 1% of gross auction sales, and the top 10 represented less than 5% of gross auction sales. The Company expands its customer base of equipment buyers by providing a variety of value-added programs and services. For example, in 1994, Ritchie Bros. initiated its Express Bidder program, which includes Platinum, Gold and Orange Express Bidder cards, with the first two categories being restricted to high-volume customers. Possession of a Ritchie Bros. Express Bidder card provides bidders with express check-in procedures and streamlined paperwork processing services. The Company believes that it has established a broad international base of equipment buyers by providing a broad selection of equipment, cost efficient operations, an internationally consistent and fair auction process, pre-auction access to all equipment, on-site third party financing, shipping and customs clearance services, a guarantee of free and clear title to all equipment, and an efficient registration and settlement system. MARKETING AND SALES Ritchie Bros.' marketing and sales efforts are led by the Company's sales force of over 100 territory managers who are deployed by geographic region around the world. Each territory manager is primarily responsible for the development of customer relationships and solicitation of consignments in the manager's region. Each territory manager is also involved in the appraisal and proposal presentation process. To encourage global teamwork and superior customer service, none of the Company's employees is paid a commission. Territory managers, and all other Ritchie Bros. employees, are compensated by a combination of base salary and performance bonus. In support of Ritchie Bros. territory managers, the Company maintains a dual marketing strategy, promoting both Ritchie Bros. and the auction industry in general in what the Company refers to as 'institutional' advertising, and marketing in respect of specific auctions. The dual strategy is designed to attract both consignors and bidders. The institutional advertising includes the use of trade journals and magazines and 33 36 attendance at numerous trade shows held around the world, such as Conexpo in Las Vegas, Intermat in Paris and Bauma in Munich. The Company also participates in international, national and local trade associations. The auction advertising consists of the production and mailing of full color pictorial auction brochures to a strategic selection from the Company's proprietary database of over 250,000 customers. Trade journal, newspaper, radio and television advertising augments the effort. The Company also maintains a web site on the internet at www.rbauction.com, which is updated daily by the addition of major items consigned that day to upcoming auctions. In addition to regional marketing through its territory managers, the Company markets through its national accounts team to large national customers, typically consisting of major equipment owners (such as rental companies) or manufacturers who have recurring, large scale equipment disposition requirements in various regions and countries and can benefit from Ritchie Bros.' international network of auction sites. Building strong name recognition throughout its target markets is an important part of the Company's marketing program. Accordingly, the Company has implemented programs to continually enhance recognition of the Ritchie Bros. corporate name and logo through consistent design elements in its advertising, signage, facilities, and employee uniforms. COMPETITION The international used equipment market and the industrial equipment auction market are highly fragmented. The Company competes for potential purchasers of industrial equipment with other auction companies and with indirect competitors, such as equipment manufacturers, distributors and dealers that sell new or used equipment, and equipment rental companies. The Company also competes for potential consignors with other auction companies and with indirect competitors, such as used equipment dealers. The Company believes that the principal competitive factors in the industrial equipment auction market are reputation, customer service, commission pricing and structure, and the ability to attract the bidders necessary to generate the best possible prices. Some of the Company's indirect competitors have significantly greater financial and marketing resources and name recognition than the Company. See "Risk Factors -- Competition." In calendar 1996, the Company's gross auction sales were more than three times the gross auction sales of its closest direct competitor in the industrial equipment auction market. In addition, based upon an industry resource that reports results for 35 of the largest companies in the construction segment of the industrial equipment auction market, in calendar 1996 the Company's reported gross auction sales in that segment exceeded the combined gross auction sales of the other 34 reported companies. 34 37 FACILITIES The Company's headquarters is located in Vancouver, Canada, on property owned by the Company. Although the Company leases some temporary auction sites, the Company prefers to purchase permanent auction sites once it has determined that a region can generate sufficient auction revenues. The Company attempts to locate permanent sites in industrial areas close to major cities. Permanent sites generally range in size from 20 to 40 acres. The current permanent auction sites, each of which is owned by the Company, are listed below.
LOCATION YEAR PLACED IN SERVICE SIZE (ACRES) -------------------------------------- ---------------------- ------------ UNITED STATES Phoenix, Arizona.................... 1987 9 Denver, Colorado.................... 1985 39 Tampa, Florida...................... 1995 48 Atlanta, Georgia.................... 1997 40 Minneapolis, Minnesota.............. 1991 29 Fort Worth, Texas................... 1994 60 Houston, Texas...................... 1993 25 Olympia, Washington................. 1994 26 CANADA Edmonton, Alberta................... 1976 25 Prince George, British Columbia..... 1980 32 Vancouver, British Columbia......... 1979 8 Halifax, Nova Scotia................ 1997 26 Toronto, Ontario.................... 1988 17
In addition, the Company currently has eight regional auction units that conduct recurring auction operations on leased sites in Baltimore; Chicago; Riverside; Montreal; Subic Bay, Philippines; Rotterdam, The Netherlands; Toluca, Mexico; and Brisbane, Australia. All such premises are leased on a short-term basis. The Company has offices in an additional 29 locations worldwide. EMPLOYEES At July 31, 1997, the Company had 306 full-time employees. The Company also employs approximately 300 employees on a recurring temporary basis in connection with its auctions. The Company expects to increase its customer service and auction yard employees as it expands its operations. The Company is not subject to any collective bargaining agreements and believes that its relationships with its employees are good. GOVERNMENTAL AND ENVIRONMENTAL REGULATIONS In the countries in which it operates, the Company is subject to a variety of federal, provincial, state and local laws, rules and regulations relating to, among other things, the auction business, imports and exports of equipment, worker safety and the use, storage, discharge and disposal of environmentally sensitive materials. In addition, the Company is subject to various local zoning requirements with regard to the location of its auction sites, which vary from location to location. Under certain of the laws regulating the use, storage, discharge and disposal of environmentally sensitive materials, an owner or lessee of real estate may be liable for the costs of removal or remediation of certain hazardous or toxic substances located on or in, or emanating from, such property, as well as related costs of investigation and property damage. Such laws often impose liability without regard to whether the owner or lessee knew of, or was responsible for, the presence of such hazardous or toxic substances. In connection with its site acquisitions, the Company obtains Phase I environmental assessment reports prepared by independent environmental consultants. A Phase I assessment consists of a site visit, historical record review, interviews and reports, with the purpose of identifying potential environmental conditions associated with the subject property. There can be no assurance, however, that acquired or leased sites have been operated in compliance with 35 38 environmental laws and regulations or that future uses or conditions will not result in the imposition of environmental liability upon the Company or expose the Company to third-party actions such as tort suits. The Company has received from the Department of Ecology of the State of Washington (the "DOE") a Notice of Correction with respect to the Company's management of wastewater and hazardous waste at its Olympia, Washington auction site. The Company and the DOE have agreed upon a schedule of compliance for the site, which includes, among other things, the design and installation of a waste water recycling system and improved procedures for handling and containing solid and hazardous wastes. The Company intends to use the resulting upgraded design of the Olympia site, which will exceed applicable regulatory requirements, as a model for its other permanent auction sites. The Company believes that it is in compliance in all material respects with all laws, rules, regulations and requirements that affect its business, other than as discussed above with respect to the Olympia, Washington site, and that compliance with such laws, rules, regulations and requirements do not impose a material impediment on the Company's ability to conduct its business. LEGAL PROCEEDINGS From time to time the Company has been, and expects to continue to be, subject to legal proceedings and claims in the ordinary course of its business. Such claims, even if lacking merit, could result in the expenditure of significant financial and managerial resources. The Company is not aware of any legal proceedings or claims that it believes will have, individually or in the aggregate, a material adverse effect on the Company or on its financial condition or results of operations. 36 39 MANAGEMENT DIRECTORS AND EXECUTIVE OFFICERS Information with respect to the Company's directors and executive officers (the "Executive Officers") is set forth below.
NAME AGE POSITION(S) - -------------------- --- -------------------------------------------- David E. Ritchie.... 61 Chairman of the Board and Chief Executive Officer C. Russell Cmolik... 51 Director, President and Chief Operating Officer Peter J. Blake...... 36 Director, Vice President, Finance and Chief Financial Officer John T. Wild........ 61 Vice President, Administration and Secretary
David E. Ritchie, a co-founder of the Company, has led the Company since 1974. He currently serves as its Chairman and Chief Executive Officer, positions recently established by the Company in connection with the Reorganization. C. Russell Cmolik joined the Company in 1973 as its Controller from a predecessor firm of KPMG, where he was a Chartered Accountant. Mr. Cmolik has acted as the Company's Chief Financial Officer and was appointed President and General Manager in 1991 and to the recently established position of Chief Operating Officer in July 1997. He has served as a Director of the Company since 1975. Peter J. Blake was hired as the Company's Controller in 1991, following his tenure as a Chartered Accountant with Price Waterhouse and predecessor firms of KPMG. Mr. Blake was appointed Vice President, Finance in 1994. In July 1997, he was appointed Chief Financial Officer and elected as a Director of the Company. John T. Wild joined the Company in 1981 as a Regional Business Manager following a 22-year career with a major industrial finance and leasing firm. Mr. Wild was appointed Regional Manager of the Company's Prairie Region in 1991 and Vice President, Administration in 1996. In July 1997, he was appointed Secretary of the Company. BOARD OF DIRECTORS The Company's Articles of Amalgamation provide for a Board of Directors consisting of between three and ten directors. Three directors currently serve on the Board, all of whom are officers or employees of the Company or its affiliates. Following the Offering, the Company intends to appoint at least two directors who are neither officers nor employees of the Company or its affiliates ("independent directors"). Upon the appointment of the independent directors, the Board of Directors will establish an Audit Committee and a Compensation Committee. The Audit Committee, a majority of which will be composed of independent directors, will be responsible for recommending to the Board of Directors the engagement of the independent auditors of the Company and for reviewing with the independent auditors the scope and results of the audits, the internal accounting controls of the Company, audit practices and the professional services furnished by the independent auditors. The Compensation Committee, which will include at least one independent director, will be responsible for reviewing and approving all compensation arrangements for officers of the Company. The Canada Business Corporations Act provides that a company may indemnify its directors and officers as to certain liabilities. The Company's By-laws provide for the indemnification of its directors and officers to the fullest extent permitted by law, and the Company intends to enter into separate indemnification agreements with each of its directors and officers to effectuate these provisions and to purchase directors' and officers' liability insurance. The effect of such provisions is to indemnify, to the fullest extent permitted by law, the directors and officers of the Company against all costs, expenses and liabilities incurred by them in connection with any action, suit or proceeding in which they are involved by reason of their affiliation with the Company. 37 40 COMPENSATION OF DIRECTORS Directors who are not independent directors will receive no compensation for serving on the Board of Directors. It is expected that independent directors will receive an annual retainer fee for their services, attendance fees for board or committee meetings attended by them and equity compensation in the form of Common Shares or stock options. All directors will be reimbursed for expenses incurred in connection with attendance at board and committee meetings. EXECUTIVE COMPENSATION Of the four Executive Officers listed above, only Peter Blake was paid a salary and bonus during the 1997 fiscal year. The other Executive Officers received distributions based on their interests in the predecessor entities to the Company. After the Reorganization, the Executive Officers will each be paid an annual salary and participate with other officers and employees of the Company in the Company's performance bonus program, which considers both Company and individual performance for a given year. Normalized salary and bonus compensation to the Executive Officers for fiscal 1997 would have been approximately $1.1 million if the Reorganization had been effected prior to the commencement of such fiscal year. EMPLOYMENT AGREEMENTS The Company has entered into individual employment agreements (the "Executive Employment Agreements") with each of the Executive Officers. The Executive Employment Agreements may be terminated by the Company at any time, generally upon notice. The Executive Employment Agreements provide for an annual base salary which may be increased by agreement between the Executive Officer and the Company. The Executive Employment Agreements also provide for annual bonuses to be determined in accordance with the Company's performance bonus program. If any of the Executive Officers is terminated without just cause, the Executive Employment Agreements provide for severance payments in an amount of up to eight weeks of the Executive Officer's then current annual salary. The Executive Employment Agreements also include certain noncompetition, nonsolicitation and confidentiality provisions. STOCK OPTION PLAN The Stock Option Plan was adopted by the Company's Board of Directors and the Company's shareholders in July 1997. The Stock Option Plan provides for the award of stock options to selected employees, directors and officers of the Company and to other persons approved by the Board of Directors or its Compensation Committee. Of the 1,500,000 shares that are authorized to be issued under the Stock Option Plan, (a) options to purchase 133,000 shares with an exercise price of $0.10 per share were issued to employees in July 1997 (the "July Options"), (b) options to purchase 63,333 shares with an exercise price of $0.10 per share will be issued to other employees prior to consummation of the Offering (the "October Options"), and (c) the remaining 1,303,667 shares are reserved for issuance pursuant to future option grants. The July Options were granted, and the October Options will be granted, pursuant to the Company's Employee Equity Participation Program described below. Unless extended or determined otherwise by the Stock Option Plan administrator, the July Options will remain exercisable until the earliest of: (i) July 30, 2004, (ii) 60 days from the date on which the optionee ceases to be employed by, or provide services to, the Company, or (iii) if the optionee's employment or eligibility ceases by reason of his or her death or if the optionee dies prior to the expiration of the 60-day period described in clause (ii) above, 180 days from the date of death. The Company anticipates that the exercise price of options granted under the Stock Option Plan after consummation of the Offering will be equal to the fair market value of the underlying Common Shares on the grant date. The Stock Option Plan is currently administered by the Board of Directors, which has the authority, subject to the terms of the Stock Option Plan, to determine the persons to whom options may be granted, the exercise price and number of shares subject to each option, the character of the grant, the time or times at which all or a portion of each option may be exercised and certain other provisions. 38 41 EMPLOYEE EQUITY PARTICIPATION PROGRAM As part of the Reorganization, the 15 beneficial owners of the Company's predecessor entities will receive Common Shares in respect of their interests in such predecessor entities. Substantially all the full-time employees of the Company who are not beneficial owners of such predecessor entities have been, or prior to consummation of the Offering will be, granted an equity interest in the Company (the "Employee Equity Participation Program") by means of issuances of Common Shares at a price of $0.10 per share or grants of options under the Company's Stock Option Plan with an exercise price of $0.10 per share. The Employee Equity Participation Program includes, in addition to the grants of the July Options and the October Options, the issuance of 386,000 Common Shares to employees in July 1997 (the "July Shares") and the further issuance of 111,999 Common Shares to other employees prior to consummation of the Offering (the "October Shares"). The July Shares, the Common Shares issuable upon exercise of the July Options and certain of the October Shares and Common Shares issuable upon exercise of the October Options will be subject to certain purchase rights granted to a special purpose company which are exercisable at a price of $0.10 per share, if the employment of the holder of such shares or options with the Company is terminated for reasons other than death or retirement. The amount of shares subject to such rights will be reduced by 20% on each of the first five anniversaries of the consummation of the Offering. CERTAIN TRANSACTIONS In fiscal 1995, 1996 and 1997, the Company entered into agreements with D.E.R. Resorts Ltd. ("Resorts"), a corporation controlled by David E. Ritchie, a co-founder and the Chairman and Chief Executive Officer of the Company, pursuant to which Resorts agreed to provide meeting rooms, accommodations, meals and recreational activities at its facilities on Stuart Island in British Columbia, Canada, for certain customers of the Company. The agreements set forth the maximum number of excursions to be provided during a given year and the fees and costs per excursion. The Company paid to Resorts $308,000, $315,000 and $312,000 under the agreements in fiscal 1995, 1996 and 1997, respectively. The Company and Resorts have entered into similar agreements for fiscal 1998, at rates substantially similar to those set forth in the fiscal 1997 agreements. The Company intends to enter into similar agreements with Resorts in the future. Historically, certain affiliates of the predecessor entities to the Company have made, directly or indirectly, various loans to such predecessor entities. The loans generally are non-interest bearing until after demand. As at April 30, 1997, the aggregate outstanding amount of such loans was approximately $2.5 million. Outstanding loans will be repaid prior to consummation of the Offering in connection with the Reorganization. See Note 3 to the Company's combined financial statements included elsewhere in this Prospectus and "The Reorganization." Management believes that the terms of each of the transactions discussed above are at least as favourable to the Company as could have been obtained from a third party. The Company has adopted a policy requiring that future transactions between the Company and its officers, directors and principal shareholders and their affiliates be approved by a majority of the disinterested members of the Board of Directors. Under circumstances where the Company has only two disinterested directors, the approval of both such directors will be required. 39 42 PRINCIPAL SHAREHOLDERS The following table sets forth certain information with respect to the beneficial ownership of the Company's Common Shares as of September 1, 1997, as adjusted to give effect to (i) the issuance of Common Shares in connection with the Reorganization, as if the Reorganization had been completed prior to such date and the issuance of the July Shares and the October Shares, and (ii) the sale of the Common Shares offered hereby by (1) each person who is known by the Company to own beneficially 10% or more of the Company's Common Shares and (2) all directors and Executive Officers as a group.
PERCENT BENEFICIALLY OWNED(1) SHARES ------------------------------ 10% BENEFICIAL OWNERS, DIRECTORS BENEFICIALLY AFTER AND EXECUTIVE OFFICERS OWNED PRIOR TO OFFERING OFFERING - -------------------------------------------------------- ------------ ----------------- -------- David E. Ritchie........................................ 4,938,123 37.4% 30.6% 1806 5th Street Nisku, Alberta Canada T9E 7V5 C. Russell Cmolik....................................... 2,098,702 15.9 13.0 9200 Bridgeport Road Richmond, British Columbia Canada V6X 1S1 All Directors and Executive Officers as a group......... 7,390,398 55.9 45.9 (four persons)(2)
- --------------- (1) All amounts assume no exercise of the Underwriters' over-allotment option. (2) A portion of the Common Shares owned by the Executive Officers is subject to certain purchase rights and contractual restrictions on transfer. See "Management -- Employee Equity Participation Program" and "Shares Eligible for Future Sale." 40 43 DESCRIPTION OF SHARE CAPITAL The following summary of certain provisions of the Common Shares, the Senior Preferred Shares and the Junior Preferred Shares (the Senior and Junior Preferred Shares being the "Preferred Shares") does not purport to be complete and is subject, and qualified in its entirety by, the provisions of the Articles of Amalgamation and By-laws of Ritchie Bros. which are included as exhibits to the Registration Statement of which this Prospectus is a part, and by the provisions of applicable law. Upon consummation of the Offering, the authorized share capital of Ritchie Bros. will consist of an unlimited number of Common Shares, without par value, 16,113,666 shares of which will be issued and outstanding, an unlimited number of Senior Preferred Shares, without par value, none of which will be issued and outstanding, and an unlimited number of Junior Preferred Shares, without par value, none of which will be issued and outstanding. Immediately prior to consummation of the Offering, approximately 22.4% of the Company's outstanding Common Shares will be held in the United States by six holders of record. COMMON SHARES Holders of Common Shares are entitled to one vote for each share held on all matters submitted to a vote of the shareholders, including the election of directors. Accordingly, holders of a majority of the Common Shares entitled to vote in any election of directors may elect all of the directors standing for election. The Articles of Amalgamation of Ritchie Bros. do not provide for cumulative voting in the election of directors. There are no limitations on the rights of non-resident or foreign owners to hold or vote Common Shares. Subject to preferences that may be applicable to any Preferred Shares outstanding at the time, holders of Common Shares are entitled to receive ratably such dividends, if any, as may be declared from time to time by the Board of Directors out of funds legally available therefor. See "Dividend Policy." In the event of a liquidation, dissolution or winding up of Ritchie Bros., holders of Common Shares are entitled to share ratably in all assets remaining after payment of liabilities of Ritchie Bros. and the liquidation preferences, if any, of any outstanding Preferred Shares. Holders of Common Shares have no preemptive rights and no rights to convert their Common Shares into any other securities and there are no redemption provisions with respect to such shares. All outstanding Common Shares upon consummation of the Offering will be fully paid and non-assessable. The rights, preferences and privileges of holders of Common Shares are subject to, and may be adversely affected by, the rights of the holders of any series of Preferred Shares which Ritchie Bros. may designate and issue in the future. PREFERRED SHARES The Articles of Amalgamation of Ritchie Bros. provide that the Board of Directors, without further action by the shareholders, may issue Preferred Shares in one or more series and may fix or alter the relative, participating, optional or other rights, preferences, privileges and restrictions, including the voting rights, redemption provisions (including sinking fund provisions), dividend rights, dividend rates, liquidation preferences and conversion rights, and the description of shares constituting any wholly unissued series of Preferred Shares. The Board of Directors, without further shareholder approval, can issue Preferred Shares with voting and conversion rights which could adversely affect the voting power of the holders of Common Shares. No Preferred Shares will be outstanding upon consummation of the Offering and Ritchie Bros. currently has no plans to issue Preferred Shares. The issuance of Preferred Shares in certain circumstances may have the effect of delaying or preventing a change of control of the Company without further action by the shareholders, may discourage bids for the Common Shares at a premium over the market price of the Common Shares, and may adversely affect the market price and the voting and other rights of the holders of Common Shares. MODIFICATIONS, SUBDIVISIONS AND CONSOLIDATIONS In accordance with the Canada Business Corporations Act, the amendment of certain rights of holders of a class of shares, including Common Shares, requires the approval of not less than two-thirds of the votes cast by the holders of such shares voting separately as a class at a special meeting of such holders. In circumstances where the rights of a class of shares may be amended, the shareholders have the right under the Canada Business 41 44 Corporations Act to dissent from such amendment and require that Ritchie Bros. pay them the then fair value of the shares. LISTING Application has been made to have the Common Shares approved for listing on the New York Stock Exchange under the symbol "RBA." TRANSFER AGENT AND REGISTRAR The Transfer Agent and Registrar for the Common Shares is Bank of Montreal Trust Company, New York, New York, and The Trust Company of Bank of Montreal, Vancouver, Canada. SHARES ELIGIBLE FOR FUTURE SALE Upon consummation of the Offering, the Company will have 16,113,666 Common Shares outstanding. Of these shares, the 2,900,000 Common Shares sold by the Company in the Offering will be freely tradable without restriction or further registration under the Securities Act, unless held by an "affiliate" of the Company (as that term is defined under the Securities Act and the regulations promulgated thereunder). The remaining 13,213,666 Common Shares outstanding were issued or sold without registration under the Securities Act and may not be resold in a public distribution except in compliance with the registration requirements of the Securities Act or pursuant to an exemption therefrom, including the exemptions provided by Regulation S and Rule 144 promulgated under the Securities Act. Of the 13,213,666 Common Shares outstanding immediately prior to consummation of the Offering, 10,250,794 Common Shares (the "Non-U.S. Shares") will have been sold by the Company in reliance upon Regulation S under the Securities Act to persons the Company believes were outside the United States at the time of such sale. Of the Non-U.S. Shares, 7,390,398 Common Shares (the "Non-U.S. Affiliate Shares") will be held by persons the Company believes are affiliates and 2,860,396 Common Shares (the "Non-U.S. Non-Affiliate Shares") will be held by persons the Company believes are not affiliates. Common Shares sold outside the United States in reliance upon Regulation S may, under certain circumstances and subject to applicable laws of other jurisdictions, be resold in the United States by persons other than affiliates of the Company without registration under the Securities Act, in some cases immediately after the date of this Prospectus. Common Shares sold outside the United States in reliance upon Regulation S may, under certain circumstances and subject to applicable laws of other jurisdictions, be resold in the United States by affiliates of the Company beginning as soon as 90 days after the date of this Prospectus, subject to the volume and manner of sale requirements, but not the holding period requirements, of Rule 144 under the Securities Act. All Non-U.S. Shares are subject to the lock-up agreements described below. All Common Shares outstanding immediately prior to consummation of the Offering other than the Non-U.S. Shares will be subject to the resale restrictions of Rule 144 under the Securities Act and to the lock-up agreements described below. In general, under Rule 144 as currently in effect, a person (or persons whose shares are aggregated), including an affiliate of the Company, is entitled to sell within any three-month period a number of shares beneficially owned for at least one year that does not exceed the greater of (i) 1% of the then outstanding Common Shares or (ii) the average weekly trading volume of the outstanding Common Shares during the four calendar weeks preceding such sale. Sales under Rule 144 are also subject to certain requirements as to the manner of sale, notice and the availability of current public information about the Company. However, a person (or persons whose shares are aggregated) who is not an affiliate of the Company during the 90 days preceding a proposed sale by such person and who has beneficially owned "restricted securities" for at least two years is entitled to sell such shares under Rule 144 without regard to the volume, manner of sale or notice requirements. As defined in Rule 144, an "affiliate" of an issuer is a person that directly or indirectly controls, or is controlled by, or is under common control with such issuer. Except for the issuance by the Company of Common Shares to effect the Reorganization and of options under the Stock Option Plan, the Company and its directors, executive officers and certain other shareholders 42 45 have agreed not to, directly or indirectly, (i) sell, grant any option to purchase or otherwise transfer or dispose of any Common Shares or securities convertible into or exchangeable or exercisable for Common Shares or file a registration statement under the Securities Act with respect to the same or (ii) enter into any swap or other agreement or transaction that transfers, in whole or in part, the economic consequence of ownership of the Common Shares, without the prior written consent of Merrill Lynch for a period of 180 days after the date of this Prospectus. All other holders of Common Shares outstanding immediately prior to consummation of the Offering who are not subject to such lock-up agreement are prohibited from selling their shares while they are subject to certain purchase rights, which do not begin to lapse until the first anniversary of the consummation of the Offering. See "Management -- Employee Equity Participation Program." The 15 beneficial owners of the Company's predecessor entities, who together will own approximately 79% of the Common Shares outstanding upon consummation of the Offering, have agreed amongst themselves to further restrict the sale or transfer of their shares. Their agreement provides that until the date of the first anniversary of the consummation of the Offering no party will sell, grant any option to purchase or otherwise transfer or dispose of any Common Shares owned by such party prior to consummation of the Offering. The number of shares subject to such restriction will be reduced by one-third on each of the first, second and third anniversaries of the Offering. Immediately prior to consummation of the Offering, options to purchase 196,333 Common Shares will be outstanding under the Stock Option Plan, all of which will be immediately exercisable. An additional 1,303,667 shares will remain available for future option grants under the Stock Option Plan. The Company intends to file a registration statement under the Securities Act after consummation of the Offering to register for resale under the Securities Act all Common Shares reserved for issuance under the Stock Option Plan. Such registration statement will become effective automatically upon filing. Shares issued under the Stock Option Plan after the registration statement is filed may thereafter be sold in the open market, subject, in the case of the various holders, to the Rule 144 volume limitations or prospectus delivery requirements applicable to affiliates and any transfer restrictions imposed on the date of grant or otherwise. Prior to the Offering, there has been no public market for the Common Shares. No predictions can be made of the effect, if any, that future sales of Common Shares, options to acquire Common Shares, or the availability of shares for future sale, will have on the market price prevailing from time to time. Sales of substantial amounts of Common Shares in the public market, or the perception that such sales may occur, could have a material adverse effect on the market price of the Common Shares. See "Risk Factors -- Potential Future Dilution" and "-- No Prior Public Market; Possible Volatility of Share Price." 43 46 TAX CONSEQUENCES UNITED STATES FEDERAL INCOME TAX CONSEQUENCES In the opinion of Perkins Coie, special U.S. tax counsel to the Company, the following summary describes the material U.S. federal income tax matters expected to be relevant to U.S. Holders (as defined below) who hold the Common Shares as capital assets. The following discussion of U.S. federal income tax matters, and the conclusions regarding certain issues of U.S. federal income tax law that are reflected in that discussion, are based upon the United States Internal Revenue Code of 1986, as amended (the "Code"), existing and proposed regulations thereunder, and administrative and judicial interpretations thereof, all as of the date hereof, and upon certain representations made by officers of the Company, some of which relate to anticipated future factual matters and circumstances. No assurance can be given that changes in existing laws or regulations or their interpretation will not occur, or that such changes will not be retroactive, or that anticipated future factual matters and circumstances will in fact occur. As used herein, the term "U.S. Holder" means a beneficial owner of Common Shares who or that is for U.S. federal income tax purposes (i) a citizen or individual resident of the United States, (ii) a corporation created or organized in or under the laws of the United States or any political subdivision thereof, (iii) a domestic partnership within the meaning of the Code (i.e., a partnership created or organized in or under the laws of the United States or any political subdivision thereof), (iv) an estate, the income of which is subject to U.S. federal income taxation regardless of its source, or (v) a trust, if both (A) a U.S. court is able to exercise primary supervision over the administration of the trust, and (B) one or more U.S. trustees or fiduciaries have the authority to control all substantial decisions of the trust. Purchasers of the Common Shares offered hereby may be required to pay stamp taxes and other charges, if any, in accordance with the laws and practices of the locality of purchase in addition to the initial public offering price of the Common Shares offered hereby. THE DISCUSSION BELOW IS A SUMMARY FOR GENERAL INFORMATION ONLY AND DOES NOT ADDRESS POTENTIAL TAX CONSIDERATIONS RELEVANT TO THE COMPANY OR THOSE TAX CONSIDERATIONS THAT DEPEND UPON CIRCUMSTANCES SPECIFIC TO EACH INVESTOR. IN ADDITION, THIS DISCUSSION DOES NOT ADDRESS THE TAX CONSEQUENCES THAT MAY BE RELEVANT TO PARTICULAR INVESTORS SUBJECT TO SPECIAL TREATMENT UNDER CERTAIN U.S. FEDERAL INCOME TAX LAWS, SUCH AS ANY U.S. HOLDER WHO OWNS, DIRECTLY OR INDIRECTLY, 10% OR MORE OF THE TOTAL COMBINED VOTING POWER OF ALL CLASSES OF STOCK OF RITCHIE BROS., DEALERS IN SECURITIES, TAX-EXEMPT ENTITIES, BANKS, INSURANCE COMPANIES AND NON-U.S. HOLDERS. PURCHASERS OF THE COMMON SHARES SHOULD THEREFORE SATISFY THEMSELVES AS TO THE OVERALL TAX CONSEQUENCES OF THEIR OWNERSHIP OF THE COMMON SHARES, INCLUDING THE STATE, LOCAL AND FOREIGN TAX CONSEQUENCES THEREOF (WHICH ARE NOT REVIEWED HEREIN), AND SHOULD CONSULT THEIR OWN TAX ADVISORS WITH RESPECT TO THEIR PARTICULAR CIRCUMSTANCES. U.S. TAXATION OF U.S. HOLDERS OF COMMON SHARES Dividends Dividends paid on the Common Shares will be taxable to a U.S. Holder as ordinary income to the extent such dividends are paid out of the current or accumulated earnings and profits of Ritchie Bros (as determined for U.S. federal income tax purposes). Any distribution by Ritchie Bros. in excess of its current and accumulated earnings and profits will be treated first as a return of capital which will reduce the U.S. Holder's adjusted basis in the Common Shares (but not below zero). To the extent such a distribution exceeds the U.S. Holder's adjusted basis in the Common Shares, the distribution will constitute gain from the sale or exchange of property. Dividends received on the Common Shares by a corporate holder generally will not be eligible for the dividends received deduction. In the case of U.S. Holders who are not residents of Canada, the Canada-United States Income Tax Convention (1980), as amended (the "Convention"), provides that dividends received in respect of the Common Shares generally will be subject to a 15% Canadian withholding tax. For U.S. federal income tax purposes, the gross amount of a distribution with respect to Common Shares will include the amount of any Canadian federal income tax withheld. Subject to the limitations set forth in the Code, as modified by the 44 47 Convention, U.S. Holders may elect to claim a foreign tax credit against their U.S. federal income tax liability for Canadian income tax withheld from dividends paid in respect of Common Shares. Dividends on the Common Shares generally will be foreign source "passive income" for U.S. foreign tax credit purposes. The rules relating to the determination of the foreign tax credit are complex and prospective purchasers should consult their personal tax advisors to determine whether and to what extent they would be entitled to such credit. U.S. Holders that do not elect to claim a foreign tax credit in respect of any foreign taxes paid in a taxable year may instead claim a deduction for Canadian income tax withheld in respect of the Common Shares for the taxable year. If a dividend is paid in Canadian dollars, the amount includible in income will be the U.S. dollar value of the Canadian dollars distributed, as determined on the date of receipt by the U.S. Holder, or by a nominee, custodian or other agent of such holder, regardless of whether the payment is in fact converted into U.S. dollars. A U.S. Holder will have a tax basis in such Canadian dollars for U.S. federal income tax purposes equal to their U.S. dollar value on the date of receipt. Any subsequent gain or loss in respect of such Canadian dollars arising from exchange rate fluctuations will be ordinary income or loss. Sale of Common Shares Any gain or loss on the sale or exchange of the Common Shares (which generally would include the receipt of property in a liquidating distribution) generally will be treated as capital gain or loss. Under recently enacted legislation, an individual U.S. Holder generally will be subject to tax on the net amount of his or her capital gain realized on the sale or exchange of the Common Shares at a maximum rate of (i) 28% for Common Shares held for more than one year but not more than eighteen months, (ii) 20% for Common Shares held for more than eighteen months and (iii) provided that the holding period for such shares begins after December 31, 2000, 18% for Common Shares held for more than five years. Special rules (and generally lower maximum rates) apply for individuals whose taxable income is below certain levels. Gain realized by a U.S. Holder on the sale or other disposition of the Common Shares generally will be treated as income from sources within the United States for purposes of applicable foreign tax credit limitations, unless the gain is attributable to an office or fixed place of business maintained by the holder outside the United States and certain other conditions are met. Capital loss realized by a noncorporate U.S. Holder is allowable as an offset against capital gain and up to $3,000 of ordinary income. Capital loss realized by a corporate U.S. Holder is allowable as an offset only against capital gain. Capital loss not utilized in any taxable year by a noncorporate U.S. Holder may be carried forward indefinitely and used to offset capital gain and up to $3,000 of ordinary income in any future taxable year; capital loss not utilized by a corporate U.S. Holder must first be carried back and applied against gain in the three years preceding the year of the sale giving rise to the loss, and then may be carried forward to the five taxable years subsequent to the year of such sale. Backup Withholding A U.S. Holder may be subject to backup withholding at the rate of 31% with respect to certain payments to such holder, such as the proceeds of a sale, redemption or other disposition of Common Shares (and in certain situations, dividends thereon), unless such holder (i) is a corporation or comes within certain other exempt categories and, when required, demonstrates that fact, or (ii) provides a correct taxpayer identification number, certifies as to no loss of exemption from backup withholding, and otherwise complies with applicable requirements. In addition, such payments, including dividends, may be subject to information reporting. A U.S. Holder who does not provide Ritchie Bros. with the holder's correct taxpayer identification number may be subject to penalties. Any amount of backup withholding may be credited against the holder's U.S. federal income tax liability and may entitle such holder to a refund, provided that the required information is furnished to the Internal Revenue Service. CANADIAN FEDERAL INCOME TAX CONSEQUENCES In the opinion of McCarthy Tetrault, Canadian counsel to the Company, the following summary fairly describes the principal Canadian federal income tax consequences of the acquisition, ownership and disposition 45 48 of Common Shares generally applicable to holders of Common Shares ("U.S. Residents") who (i) are residents of the United States for the purposes of the Convention, (ii) are not residents of Canada for the purposes of the Canadian Tax Act, (iii) hold their Common Shares as capital property, (iv) deal at arm's length with the Company for the purposes of the Canadian Tax Act and (v) do not use or hold, and are not deemed under the Canadian Tax Act to use or hold, such Common Shares in carrying on a business in Canada. Common Shares will generally be considered to be capital property to a U.S. Resident unless they are held as inventory in the course of carrying on a business or were acquired in a transaction considered to be an adventure or concern in the nature of trade. This summary is based upon the current provisions of the Income Tax Act (Canada) and the regulations enacted thereunder as at the date hereof (collectively, the "Canadian Tax Act"), counsel's understanding of the current published administrative and assessing policies of Revenue Canada, Customs, Excise and Taxation ("Revenue Canada") and all specific proposals to amend the Canadian Tax Act (collectively, the "Proposed Amendments") publicly announced by the Minister of Finance before the date hereof, and the provisions of the Convention as at the date hereof. This summary does not take into account provincial, territorial or foreign income tax considerations, and does not take into account or anticipate any changes in law, whether by judicial, governmental or legislative action except to the extent of the Proposed Amendments. No assurance can be given that any of the Proposed Amendments will be enacted into law or that legislation will implement the Proposed Amendments in the manner now proposed. THIS SUMMARY IS OF A GENERAL NATURE ONLY, IS NOT EXHAUSTIVE OF ALL POSSIBLE INCOME TAX CONSIDERATIONS AND IS NOT INTENDED TO BE, NOR SHOULD IT BE CONSTRUED TO BE, LEGAL OR TAX ADVICE TO ANY PARTICULAR U.S. RESIDENT. ACCORDINGLY, U.S. RESIDENTS SHOULD CONSULT THEIR OWN INDEPENDENT TAX ADVISORS FOR ADVICE WITH RESPECT TO THEIR PARTICULAR CIRCUMSTANCES. THE DISCUSSION BELOW IS QUALIFIED ACCORDINGLY. A U.S. Resident will generally not be subject to tax under the Canadian Tax Act in respect of any capital gain realized on the disposition of Common Shares unless such Common Shares are "taxable Canadian property" to the U.S. Resident. The Common Shares will not generally constitute taxable Canadian property to a U.S. Resident unless either (i) at any time during the five year period immediately preceding the disposition of the Common Shares by such U.S. Resident, 25% or more of the issued shares (and in the view of Revenue Canada, taking into account any rights to acquire shares) of any class or series of the capital stock of the Company were owned by such U.S. Resident, persons with whom the U.S. Resident did not deal at arm's length or such U.S. Resident together with those persons, or (ii) the U.S. Resident's Common Shares are otherwise deemed to be taxable Canadian property to him or her. Dividends which are paid or credited, or are deemed to be paid or credited, to a U.S. Resident in respect of the Common Shares will generally be subject to Canadian withholding tax on the gross amount of such dividends. Currently under the Convention, the rate of Canadian withholding tax applicable to dividends paid or credited by the Company to a U.S. Resident is (i) 5% of the gross amount of the dividends if the beneficial owner of the dividends is a corporation which owns at least 10% of the voting stock of the Company and (ii) 15% of the gross amount of the dividends if the beneficial owner of such dividends is any other resident of the United States. PROSPECTIVE INVESTORS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS AS TO THE FEDERAL, STATE AND OTHER TAX CONSEQUENCES OF INVESTING IN THE COMPANY. THE STATEMENTS OF UNITED STATES AND CANADIAN LAWS SET OUT ABOVE ARE BASED UPON THE LAWS IN FORCE AS OF THE DATE OF THIS PROSPECTUS, AND ARE SUBJECT TO ANY CHANGES IN SUCH LAWS OCCURRING AFTER SUCH DATE. 46 49 UNDERWRITING Subject to the terms and conditions set forth in a purchase agreement (the "Purchase Agreement") between the Company and each of the underwriters named below (the "Underwriters"), the Company has agreed to sell to each of the Underwriters, and each of the Underwriters, for whom Merrill Lynch, Pierce, Fenner & Smith Incorporated, Furman Selz LLC and Morgan Stanley & Co. Incorporated are acting as representatives (the "Representatives"), has severally agreed to purchase from the Company, the number of Common Shares set forth opposite its name below:
NUMBER OF UNDERWRITERS SHARES --------- Merrill Lynch, Pierce, Fenner & Smith Incorporated............................................. Furman Selz LLC...................................................... Morgan Stanley & Co. Incorporated.................................... --------- Total................................................... ========
In the Purchase Agreement, the several Underwriters have agreed, subject to the terms and conditions set forth therein, to purchase all of the Common Shares being sold pursuant to such agreement if any of such Common Shares are purchased. Under certain circumstances, the commitments of non-defaulting Underwriters may be increased. The Representatives have advised the Company that the Underwriters propose initially to offer the Common Shares to the public at the public offering price set forth on the cover page of this Prospectus and to certain dealers at such price less a concession not in excess of $ per share. The Underwriters may allow, and such dealers may reallow, a discount not in excess of $ per share to certain other dealers. After the initial public offering, the public offering price, concession and discount may be changed. The Company has granted to the Underwriters an option to purchase up to an aggregate of 435,000 additional Common Shares, exercisable in whole or in part for 30 days after the date of this Prospectus, to cover over-allotments, if any, at the public offering price set forth on the cover page of this Prospectus, less the underwriting commission. To the extent that the Underwriters exercise this option, each Underwriter will have a firm commitment, subject to certain conditions, to purchase approximately the same percentage of such Common Shares that the number of Common Shares to be purchased by it shown in the foregoing table bears to the total number of Common Shares initially offered to the Underwriters hereby. The Company has agreed to indemnify the several Underwriters against certain liabilities, including civil liabilities under the Securities Act, or to contribute to payments the Underwriters may be required to make in respect thereof. Until the distribution of the Common Shares is completed, the rules of the Securities and Exchange Commission may limit the ability of the Underwriters and certain selling group members to bid for or purchase the Common Shares. As an exception to these rules, the Representatives are permitted to engage in certain transactions that stabilize the price of the Common Shares. Such transactions consist of bids or purchases for the purpose of pegging, fixing or maintaining the price of the Common Shares. If the Underwriters create a short position in the Common Shares in connection with the Offering, the Representatives may reduce that short position by purchasing Common Shares in the open market. The Representatives may also elect to reduce any short position by exercising all or part of the over-allotment option described above. The Representatives may impose a penalty bid on certain Underwriters and selling group members. If the Representatives purchase Common Shares in the open market to reduce the Underwriters' 47 50 short position or to stabilize the price of the Common Shares, they may reclaim the amount of the selling concession from the Underwriters and selling group members who sold those Common Shares as part of the Offering. In general, purchases of a security for the purpose of stabilization or to reduce a short position could cause the price of the security to be higher than it might be in the absence of such purchases. The imposition of a penalty bid might also have an effect on the price of a security to the extent that it were to discourage resales of the security. Neither the Company nor any of the Underwriters make any representation or prediction as to the direction or magnitude of any effect that the transactions described above may have on the price of the Common Shares. In addition, neither the Company nor any of the Underwriters make any representation that the Underwriters will engage in such transactions or that such transactions, once commenced, will not be discontinued without notice. Prior to the Offering, there has been no public market for the Common Shares. The initial public offering price will be determined by negotiations among the Company and the Representatives. The factors to be considered in such negotiations are an assessment of the Company's recent results of operations, the future prospects of the Company and its industry in general, market prices of securities of companies engaged in activities similar to those of the Company and prevailing conditions in the securities markets. There can be no assurance that an active market will develop for the Common Shares or that the Common Shares will trade in the public market subsequent to the Offering at or above the initial public offering price. Application has been made to list the Common Shares on the New York Stock Exchange. In order to meet one of the requirements for listing the Common Shares on the New York Stock Exchange, the Underwriters will undertake to sell lots of 100 or more shares to a minimum of 2,000 beneficial holders. Except for the issuance by the Company of Common Shares to effect the Reorganization and of options under the Stock Option Plan, the Company, its directors, executive officers and certain other shareholders have agreed not to, without the prior written consent of Merrill Lynch on behalf of the Underwriters, (i) directly or indirectly, offer, pledge, sell, contract to sell, grant any option, right or warrant to purchase or otherwise transfer or dispose of any Common Share (other than in the Offering) or any securities convertible into or exercisable or exchangeable for Common Shares or file any registration statement under the Securities Act with respect to any of the same, or (ii) enter into any swap or any other agreement or transaction that transfers, in whole or in part, directly or indirectly, the economic consequences of ownership of the Common Shares, for a period of 180 days after the date of this Prospectus. See "Shares Eligible for Future Sale." The Common Shares have not been and will not be qualified for sale under the securities laws of Canada or any province or territory of Canada. The Common Shares may not be offered or sold, and the Underwriters have agreed not to offer or sell the Common Shares, directly or indirectly, in Canada, or to or for the benefit of any resident thereof, in violation of the securities laws of Canada or any province or territory of Canada. Each of the Underwriters has agreed that (i) it has not offered or sold and prior to the date six months after the date of issue of the Common Shares will not offer or sell any Common Shares to persons in the United Kingdom except to persons whose ordinary activities involve them in acquiring, holding, managing or disposing of investments (as principal or agent) for the purposes of their businesses or otherwise in circumstances which have not resulted and will not result in an offer to the public in the United Kingdom within the meaning of the Public Offers of Securities Regulations 1995; (ii) it has complied and will comply with all applicable provisions of the Financial Services Act 1986 with respect to anything done by it in relation to the Common Shares in, from or otherwise involving the United Kingdom; and (iii) it has only issued or passed on and will only issue or pass on in the United Kingdom any document received by it in connection with the issue of the Common Shares to a person who is of a kind described in Article 11(3) of the Financial Services Act 1986 (Investment Advertisements) (Exemptions) Order 1996 or is a person to whom such document may otherwise lawfully be issued or passed on. 48 51 LEGAL MATTERS The validity of the Common Shares offered hereby will be passed upon for the Company by McCarthy Tetrault, Vancouver, British Columbia. Certain other legal matters in connection with the Offering will be passed upon for the Company by Perkins Coie, Portland, Oregon, and for the Underwriters by Shearman & Sterling, Toronto, Ontario and New York, New York. Shearman & Sterling and Perkins Coie will rely as to all matters of Canadian law upon the opinion of McCarthy Tetrault. EXPERTS The financial statements of the Company as of July 31, 1997, and for the period from incorporation on July 28, 1997 to July 31, 1997, and the combined financial statements of the Company as of April 30, 1996 and 1997, and for each of the years in the three-year period ended April 30, 1997, have been included in this Prospectus and in the Registration Statement in reliance upon the report of KPMG, independent chartered accountants, appearing elsewhere herein, and upon the authority of said firm as experts in accounting and auditing. ENFORCEABILITY OF CERTAIN CIVIL LIABILITIES The enforcement by investors of civil liabilities under the United States federal securities laws or the securities or blue sky laws of any state within the United States may be affected adversely by the fact that Ritchie Bros. is incorporated under the federal laws of Canada and certain of its subsidiaries are incorporated under the laws of jurisdictions other than the United States, that some or all of the officers and directors of Ritchie Bros. and its subsidiaries may be residents of Canada or other non-U.S. countries, that some or all of the Underwriters or the experts named in this Prospectus may be residents of Canada or other non-U.S. countries, and that all or a substantial portion of the assets of Ritchie Bros., its subsidiaries and said persons may be located outside the United States. As a result, it may be difficult or impossible for United States investors to effect service of process within the United States upon Ritchie Bros. or such subsidiaries or persons or to realize against them in the United States upon judgments of courts of the United States predicated upon civil liabilities of Ritchie Bros. or such subsidiaries or persons under the United States federal securities laws or the securities or blue sky laws of any state within the United States. In addition, investors should not assume that courts in Canada or in the countries where such subsidiaries are incorporated or such persons reside or in which the assets of Ritchie Bros., its subsidiaries or such persons are located (i) would enforce judgments of United States courts obtained in actions against Ritchie Bros. or such subsidiaries or persons predicated upon the civil liability provisions of the United States federal securities laws or the securities or blue sky laws of any state within the United States or (ii) would enforce, in original actions, liabilities against Ritchie Bros. or such subsidiaries or persons predicated upon the United States federal securities laws or any such state securities or blue sky laws. ADDITIONAL INFORMATION The Company has filed with the Securities and Exchange Commission (the "Commission"), a Registration Statement on Form F-1 (the "Registration Statement") under the Securities Act with respect to the Common Shares offered hereby. This Prospectus, which constitutes a part of the Registration Statement, omits certain information contained in the Registration Statement and the exhibits thereto on file with the Commission, in accordance with the Securities Act and the rules and regulations of the Commission thereunder. For further information with respect to the Company and the Common Shares offered hereby, reference is made to the Registration Statement and the exhibits filed therewith. Statements contained in this Prospectus concerning the provisions of such documents are necessarily summaries of such documents and each such statement is qualified in its entirety by reference to the copy of the applicable document filed with the Commission as an exhibit to the Registration Statement. All provisions of such documents that are material to the subject of such statements, however, are described in the appropriate portions of this Prospectus. The Registration Statement and the exhibits thereto may be inspected, without charge, at the public reference facilities of the Commission at the principal office of the Commission, 450 Fifth Street, N.W., Washington, 49 52 D.C. 20549, and at the Commission's regional offices located at Seven World Trade Center, 13th Floor, New York, New York 10048, and Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661, and copies of all or any part thereof may be obtained from the Public Reference Section of the Commission in Washington, D.C., upon the payment of the fees prescribed by the Commission. In addition, the Registration Statement may be accessed electronically at the Commission's web site on the internet at www.sec.gov. Prior to the Offering, the Company has not been required to file reports under the Securities Exchange Act of 1934, as amended (the "Exchange Act"). Following consummation of the Offering, the Company will be required to file reports and other information with the Commission pursuant to the Exchange Act. Such reports and other information can be inspected and copied at the addresses, and may be accessed electronically at the web site, set forth above. Upon listing of the Common Shares on the New York Stock Exchange, such reports and other information can also be inspected at the offices of the New York Stock Exchange, 20 Broad Street, New York, New York 10005. The Company intends to furnish to its shareholders, proxy statements and annual reports prepared in accordance with applicable Canadian law. The Company's annual report will contain audited consolidated financial statements following the end of each fiscal year and to make available quarterly reports containing unaudited summary consolidated financial information for the first three fiscal quarters of each fiscal year. The Company intends to prepare such financial statements in accordance with Canadian GAAP and to include a reconciliation to U.S. GAAP of the annual consolidated financial statements. As a "foreign private issuer" under the Exchange Act, the Company will be exempt from provisions of the Exchange Act which prescribe the furnishing and content of proxy statements to shareholders and which relate to short swing profit reporting and liability. 50 53 INDEX TO FINANCIAL STATEMENTS INDEX TO COMBINED FINANCIAL STATEMENTS OF RITCHIE BROS. AUCTIONEERS
PAGE ------ Independent Auditors' Report........................................................... F-2 Combined Balance Sheets at April 30, 1996 and 1997 and (unaudited) July 31, 1997 and (unaudited -- restated) July 31, 1997................................................ F-3 Combined Statements of Income for the years ended April 30, 1995, 1996 and 1997 and (unaudited) three months ended July 31, 1996 and 1997................................ F-4 Combined Statements of Equity, for the years ended April 30, 1995, 1996 and 1997 and (unaudited) three months ended July 31, 1996 and 1997................................ F-5 Combined Statements of Cash Flows for the years ended April 30, 1995, 1996 and 1997 and (unaudited) three months ended July 31, 1996 and 1997................................ F-6 Notes to Combined Financial Statements................................................. F-7
INDEX TO FINANCIAL STATEMENTS OF RITCHIE BROS. AUCTIONEERS INCORPORATED Independent Auditors' Report........................................................... F-16 Balance Sheet at July 31, 1997......................................................... F-17 Statement of Cash Flows from incorporation on July 28, 1997 to July 31, 1997........... F-18 Notes to Financial Statements.......................................................... F-19
INDEX TO PRO FORMA FINANCIAL STATEMENTS OF RITCHIE BROS. AUCTIONEERS INCORPORATED Pro Forma Consolidated Balance Sheet at July 31, 1997.................................. F-21 Pro Forma Consolidated Statements of Income for the year ended April 30, 1997 and three months ended July 31, 1997........................................................... F-22 Notes to Pro Forma Consolidated Financial Statements................................... F-23
F-1 54 INDEPENDENT AUDITORS' REPORT To the Partners and Board of Directors of the entities forming RITCHIE BROS. AUCTIONEERS We have audited the combined balance sheets of Ritchie Bros. Auctioneers (the "Group") as at April 30, 1996 and 1997 and the combined statements of income, equity and cash flows for each of the years in the three-year period ended April 30, 1997. These financial statements are the responsibility of the Group's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards in Canada. Those standards require that we plan and perform an audit to obtain reasonable assurance whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. In our opinion, these combined financial statements present fairly, in all material respects, the financial position of the Group as at April 30, 1996 and 1997 and the results of its operations and the changes in its financial position for each of the years in the three year period ended April 30, 1997 in accordance with generally accepted accounting principles in Canada. Significant differences between the accounting and disclosure requirements of Canadian and United States generally accepted accounting principles are quantified and explained in note 10 to the financial statements. Richmond, Canada /s/ KPMG August 15, 1997, except Chartered Accountants as to note 11 which is as of September 25, 1997
F-2 55 RITCHIE BROS. AUCTIONEERS COMBINED BALANCE SHEETS (EXPRESSED IN THOUSANDS OF UNITED STATES DOLLARS)
APRIL 30, APRIL 30, JULY 31, JULY 31, 1996 1997 1997 1997 --------- --------- ----------- ------------- (UNAUDITED -- RESTATED) (UNAUDITED) (NOTE 1(l)) ASSETS Current assets: Cash and cash equivalents.............. $ 77,161 $ 77,980 $ 44,023 $ 9,072 Accounts receivable.................... 34,895 14,107 6,137 6,137 Inventory.............................. 10,006 18,154 12,009 12,009 Advances against auction contracts..... 6,121 6,472 7,094 7,094 Prepaid expenses and deposits.......... 570 772 788 788 -------- -------- ------- ------- 128,753 117,485 70,051 35,100 Fixed assets (note 2).................... 22,216 25,373 25,556 25,556 -------- -------- ------- ------- $ 150,969 $ 142,858 $ 95,607 $ 60,656 ======== ======== ======= ======= LIABILITIES AND EQUITY Current liabilities: Auction proceeds payable............... $ 76,003 $ 53,477 $ 14,128 $ 14,128 Accounts payable and accrued liabilities......................... 10,200 8,928 8,919 8,919 Payables to affiliated entities (note 3).................................. 3,359 3,818 3,188 3,188 Current bank loans (note 4)............ 1,600 5,194 800 800 Payables to employees and others (note 5).................................. 1,222 1,279 1,408 1,408 Income taxes payable................... 3,237 5,082 5,367 5,367 -------- -------- ------- ------- 95,621 77,778 33,810 33,810 Bank term loans (note 6)................. 6,547 5,755 5,746 5,746 -------- -------- ------- ------- 102,168 83,533 39,556 39,556 Equity................................... 48,801 59,325 56,051 21,100 Subsequent events (note 11) -------- -------- ------- ------- $ 150,969 $ 142,858 $ 95,607 $ 60,656 ======== ======== ======= =======
See accompanying notes to combined financial statements. F-3 56 RITCHIE BROS. AUCTIONEERS COMBINED STATEMENTS OF INCOME (EXPRESSED IN THOUSANDS OF UNITED STATES DOLLARS)
THREE MONTHS ENDED YEARS ENDED APRIL 30, JULY 31, ---------------------------------- --------------------- 1995 1996 1997 1996 1997 -------- -------- -------- -------- -------- (UNAUDITED) Auction revenues.................. $ 51,326 $ 65,306 $ 72,186 $ 17,155 $ 22,888 Direct expenses................... (12,979) (13,138) (13,908) (3,320) (5,011) -------- -------- -------- -------- -------- 38,347 52,168 58,278 13,835 17,877 Expenses: Depreciation.................... 1,708 1,820 2,014 439 533 General and administrative...... 24,628 26,848 31,099 7,408 8,156 Employee equity participation (note 7(d)).................. -- -- -- -- 7,733 -------- -------- -------- -------- -------- 26,336 28,668 33,113 7,847 16,422 -------- -------- -------- -------- -------- Income from operations............ 12,011 23,500 25,165 5,988 1,455 Other income (expenses): Interest expense................ (1,274) (1,104) (1,081) (228) (319) Other........................... 677 1,179 917 121 128 -------- -------- -------- -------- -------- (597) 75 (164) (107) (191) -------- -------- -------- -------- -------- Income before income taxes........ 11,414 23,575 25,001 5,881 1,264 Income taxes (note 9)............. 2,975 4,428 5,992 1,400 1,883 -------- -------- -------- -------- -------- Net income (loss)................. $ 8,439 $ 19,147 $ 19,009 $ 4,481 $ (619) ======== ======== ======== ======== ========
See accompanying notes to combined financial statements. F-4 57 RITCHIE BROS. AUCTIONEERS COMBINED STATEMENTS OF EQUITY (EXPRESSED IN THOUSANDS OF UNITED STATES DOLLARS)
YEARS ENDED THREE MONTHS ENDED APRIL 30, JULY 31, ------------------------------- ------------------- 1995 1996 1997 1996 1997 ------- ------- ------- ------- ------- (UNAUDITED) Undistributed income, beginning balance.............................. $33,915 $36,145 $47,015 $47,015 $58,088 Net income (loss)...................... 8,439 19,147 19,009 4,481 (619) Drawings and dividends................. (6,192) (8,281) (8,073) (3,801) (10,147) Capital contributions.................. -- -- 166 164 -- Refundable taxes on investment income............................... (17) 4 (29) -- (71) ------- ------- ------- ------- ------- Undistributed income, ending balance... 36,145 47,015 58,088 47,859 47,251 Reorganization costs................... -- -- -- -- (209) Employee equity participation (note 7(d))................................ -- -- -- -- 7,733 Share capital.......................... 1,885 2,137 2,165 2,150 2,190 Contributed surplus.................... 1,200 1,200 1,200 1,200 1,200 Foreign currency translation adjustment (note 1(g)).......................... (1,512) (1,551) (2,128) (1,736) (2,114) ------- ------- ------- ------- ------- Total equity........................... $37,718 $48,801 $59,325 $49,473 $56,051 ======= ======= ======= ======= =======
See accompanying notes to combined financial statements. F-5 58 RITCHIE BROS. AUCTIONEERS COMBINED STATEMENTS OF CASH FLOWS (EXPRESSED IN THOUSANDS OF UNITED STATES DOLLARS)
THREE MONTHS ENDED YEARS ENDED APRIL 30, JULY 31, ------------------------------- ------------------- 1995 1996 1997 1996 1997 ------- ------- ------- ------- ------- (UNAUDITED) Cash provided by (used in) Operations: Net income (loss).................... $ 8,439 $19,147 $19,009 $ 4,481 $ (619) Items not involving the use of cash Depreciation...................... 1,708 1,820 2,014 439 533 Employee equity participation........ -- -- -- -- 7,733 Changes in non-cash working capital: Accounts receivable............... 2,335 (25,733) 20,788 29,084 7,970 Inventory......................... (1,348) 4,983 (8,148) (1,120) 6,145 Advances against auction contracts....................... 2,457 (2,712) (351) 3,822 (622) Prepaid expenses and deposits..... 517 458 (202) 239 (16) Auctions proceeds payable......... 4,685 38,715 (22,526) (64,476) (39,349) Accounts payable and accrued liabilities..................... 2,015 2,444 (1,272) (6,387) (9) Payables to affiliated entities... 135 174 459 77 (630) Income taxes payable.............. 786 921 1,845 586 285 Other............................. 310 (39) (577) (185) 14 ------- ------- ------- ------- ------- 22,039 40,178 11,039 (33,440) (18,565) Financing: Issuance (redemption) of share capital........................... (270) 252 28 13 25 Payables to employees and others..... 592 242 57 93 129 Bank loans........................... 338 (1,229) 2,802 596 (4,403) Drawings and dividends paid.......... (6,192) (8,281) (8,073) (3,801) (10,147) Capital contributions................ -- -- 166 164 -- Refundable taxes on investment income............................ (17) 4 (29) -- (71) Reorganization costs................. -- -- -- -- (209) ------- ------- ------- ------- ------- (5,549) (9,012) (5,049) (2,935) (14,676) Investments: Fixed asset additions, net........... (5,761) (1,156) (5,171) (1,077) (716) ------- ------- ------- ------- ------- Increase in cash and cash equivalents.......................... 10,729 30,010 819 (37,452) (33,957) Cash and cash equivalents, beginning of period............................... 36,422 47,151 77,161 77,161 77,980 ------- ------- ------- ------- ------- Cash and cash equivalents, end of period............................... $47,151 $77,161 $77,980 $39,709 $44,023 ======= ======= ======= ======= =======
See accompanying notes to combined financial statements. F-6 59 RITCHIE BROS. AUCTIONEERS NOTES TO COMBINED FINANCIAL STATEMENTS (TABULAR DOLLAR AMOUNTS EXPRESSED IN THOUSANDS OF UNITED STATES DOLLARS) APRIL 30, 1995, 1996 AND 1997 AND (UNAUDITED) THREE MONTHS ENDED JULY 31, 1996 AND 1997 1. SIGNIFICANT ACCOUNTING POLICIES: (a) Basis of presentation: These combined financial statements present the financial position, results of operation and changes in equity and in cash flows of the Ritchie Bros. Auctioneers group of companies and partnerships (the "Group") which will ultimately represent the predecessor business to Ritchie Bros. Auctioneers Incorporated ("Incorporated"), a company incorporated in July, 1997 under the Canada Business Corporations Act. As at and for the three months ended July 31, 1997, these statements include Incorporated since the date of its incorporation. The existing businesses which form the Group will be transferred into corporations, the shares of which will be exchanged by their owners for shares of Incorporated (the "Reorganization") prior to the completion of the proposed public offering of shares of Incorporated. These financial statements have been prepared and presented on a combined basis, as the Group has a common ownership structure and related historical and planned prospective business operations. Since the Group has a common ownership structure, its assets, liabilities, revenues and expenses have been combined at the historical cost amounts recorded in the individual entity accounts. All inter-entity accounts and transactions have been eliminated on combination. The combined financial statements of the Group have been prepared in accordance with generally accepted accounting principles in Canada which, except as disclosed in note 10, also comply, in all material respects, with generally accepted accounting principles in the United States. The Group includes three partnerships, one situated in Canada and two situated in the United States, all of which are non-taxable entities. The Group also includes the companies that are partners of the United States partnerships and certain, but not all, of the companies that are partners of the Canadian partnership. To the extent that the Group includes these partner entities, these combined financial statements include the provisions for taxes exigible on partnership income. To the extent that the partner entities do not form part of the Group, no taxes have been provided on the net income allocated to those companies. Note 9 sets out the pro forma impact if all income were taxed within the Group. These combined financial statements also do not include any of the other assets, liabilities, revenues or expenses of the partner entities not included in the Group. (b) Cash equivalents: Cash equivalents consist of highly liquid investments having an original term to maturity of three months or less when acquired. (c) Inventory: Inventory is primarily represented by goods held for auction and has been valued at the lower of cost, determined by the specific identification method, and net realizable value. (d) Advances against auction contracts: Advances against auction contracts represent funds advanced to consignors against proceeds from future auctions. F-7 60 RITCHIE BROS. AUCTIONEERS NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED) (TABULAR DOLLAR AMOUNTS EXPRESSED IN THOUSANDS OF UNITED STATES DOLLARS) APRIL 30, 1995, 1996 AND 1997 AND (UNAUDITED) THREE MONTHS ENDED JULY 31, 1996 AND 1997 1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED): (e) Fixed assets: All fixed assets are stated at cost. Depreciation is provided to charge the cost of the assets to operations over their estimated useful lives based on their usage predominantly as follows: Improvements 39 years-straight line Buildings 39 years-straight line Automotive equipment 30% -- declining balance Computer equipment 30% -- declining balance Yard equipment 20-30% -- declining balance Office equipment 20% -- declining balance Leasehold improvements Term of leases
(f) Revenue recognition: Auction revenues are recognized when the specific items are sold and title passes to the purchaser and are represented by the commissions received from the consignor and the net proceeds received from the sale of self-owned equipment. (g) Foreign currency translation: The Group's reporting currency is the United States dollar. The functional currency for each of the Group's operations is the country of residency. Each of these operations is considered to be self-sustaining. Accordingly, the financial statements of members of the Group that are not located in the United States have been translated into United States dollars using the exchange rate at the end of each reporting period for asset and liability amounts and the average exchange rate for each reporting period for amounts included in the determination of income. Any gains or losses from this translation have been included in the cumulative translation adjustment account which is included in equity. Foreign currency denominated transactions are translated into the appropriate functional currency at the exchange rate in effect on the date of the transaction. Monetary assets and liabilities recorded in foreign currencies are translated into the appropriate functional currency at the rate of exchange in effect at the balance sheet date. All other exchange gains and losses are included in the determination of income. (h) Use of estimates: The preparation of financial statements in conformity with generally accepted accounting principles requires the Group to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from such estimates and assumptions. (i) Financial instruments: Carrying amounts of certain of the Group's financial instruments, including cash and cash equivalents, accounts receivable, auction proceeds payable and accounts payable and accrued liabilities, approximate fair F-8 61 RITCHIE BROS. AUCTIONEERS NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED) (TABULAR DOLLAR AMOUNTS EXPRESSED IN THOUSANDS OF UNITED STATES DOLLARS) APRIL 30, 1995, 1996 AND 1997 AND (UNAUDITED) THREE MONTHS ENDED JULY 31, 1996 AND 1997 1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED): value due to their short maturities. Based on borrowing rates currently available to the Group for loans with similar terms, the carrying value of its bank loans approximates fair value. (j) Credit risk: The Group does not extend credit to purchasers of auctioned items. Equipment is not normally released to the purchasers until it is paid for in full. (k) Unaudited financial information: The financial information as at July 31, 1997 and for the three months ended July 31, 1997 and 1996 is unaudited; however, in the opinion of management, such information includes all adjustments necessary (consisting only of normal recurring adjustments) for a fair presentation of such financial information. (l) Restated balance sheet: The restated balance sheet gives pro forma effect at July 31, 1997 to the distribution (note 11(c)) to the existing owners of the Group which occurred after July 31, 1997. 2. FIXED ASSETS: Fixed assets at April 30, 1996 are as follows:
ACCUMULATED NET BOOK COST DEPRECIATION VALUE ------- ----------- -------- Land and improvements..................................... $10,444 $ 440 $ 10,004 Buildings................................................. 9,573 2,041 7,532 Automotive equipment...................................... 3,375 1,420 1,955 Computer equipment........................................ 1,911 1,280 631 Yard equipment............................................ 2,604 1,574 1,030 Office equipment.......................................... 2,177 1,485 692 Leasehold improvements.................................... 902 530 372 ------- ------ ------- $30,986 $ 8,770 $ 22,216 ======= ====== =======
Fixed assets at April 30, 1997 are as follows:
ACCUMULATED NET BOOK COST DEPRECIATION VALUE ------- ----------- -------- Land and improvements..................................... $12,184 $ 595 $ 11,589 Buildings................................................. 10,606 2,272 8,334 Automotive equipment...................................... 4,022 1,576 2,446 Computer equipment........................................ 2,449 1,454 995 Yard equipment............................................ 2,672 1,722 950 Office equipment.......................................... 2,413 1,620 793 Leasehold improvements.................................... 925 659 266 ------- ------ ------- $35,271 $ 9,898 $ 25,373 ======= ====== =======
F-9 62 RITCHIE BROS. AUCTIONEERS NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED) (TABULAR DOLLAR AMOUNTS EXPRESSED IN THOUSANDS OF UNITED STATES DOLLARS) APRIL 30, 1995, 1996 AND 1997 AND (UNAUDITED) THREE MONTHS ENDED JULY 31, 1996 AND 1997 2. FIXED ASSETS (CONTINUED): Fixed assets at July 31, 1997 are as follows:
ACCUMULATED NET BOOK COST DEPRECIATION VALUE ------- ----------- -------- Land and improvements..................................... $12,528 $ 656 $ 11,872 Buildings................................................. 10,563 2,342 8,221 Automotive equipment...................................... 4,279 1,630 2,649 Computer equipment........................................ 2,432 1,477 955 Yard equipment............................................ 2,595 1,584 1,011 Office equipment.......................................... 2,227 1,599 628 Leasehold improvements.................................... 820 600 220 ------- ------ ------- $35,444 $ 9,888 $ 25,556 ======= ====== =======
3. PAYABLES TO AFFILIATED ENTITIES: The payables to affiliated entities to members of the Group are non-interest bearing until after demand, unsecured and due on demand except for a payable of $222,000 which bears interest at the U.S. Government prescribed interest rate. Included in payables to affiliated entities at April 30, 1997 are amounts repayable in Canadian dollars aggregating $3,500,000 (US $2,500,000). 4. CURRENT BANK LOANS:
APRIL 30, APRIL 30, JULY 31, 1996 1997 1997 --------- --------- ----------- (UNAUDITED) Bank loan, due on demand, bears interest at the Bank's prime rate plus 1% and unconditionally secured by the beneficial owners........................................ $ 903 $ 3,756 $ -- Current portion of bank term loans (note 6)................ 602 631 631 Other...................................................... 95 807 169 ------ ------ ---- $ 1,600 $ 5,194 $ 800 ====== ====== ====
At April 30, 1997, the bank loan, which was subsequently repaid, was repayable in Australian dollars aggregating $4,800,000. At July 31, 1997, the Group has operating credit lines available of in excess of $50,000,000. In addition, the Group has credit lines of approximately $15,000,000 available to fund property acquisitions. 5. PAYABLES TO EMPLOYEES AND OTHERS: The loans from employees are due on demand, unsecured, and bear interest at the U.S. bank prime rate plus 1/2%. Included in payables to employees and others at April 30, 1997 are amounts repayable in Canadian dollars aggregating $860,000 (US $610,000). F-10 63 RITCHIE BROS. AUCTIONEERS NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED) (TABULAR DOLLAR AMOUNTS EXPRESSED IN THOUSANDS OF UNITED STATES DOLLARS) APRIL 30, 1995, 1996 AND 1997 AND (UNAUDITED) THREE MONTHS ENDED JULY 31, 1996 AND 1997 6. BANK TERM LOANS:
APRIL APRIL 30, 30, JULY 31, 1996 1997 1997 ------ ------ ----------- (UNAUDITED) 7.89% term loan, due in monthly instalments of $36,424 including interest, matured September 1, 1996............... $2,638 $ -- $ -- 8.20% term loan, due in monthly instalments of $60,967 including interest, maturing September 1, 1997.............. 4,366 3,983 3,884 7.88% term loan, due in monthly instalments of $31,162 including interest, maturing September 1, 1998.............. -- 1,872 1,820 Other......................................................... 145 531 673 ------ ------ ------ 7,149 6,386 6,377 Less current portion (note 4)................................. (602) (631) (631) ------ ------ ------ $6,547 $5,755 $ 5,746 ====== ====== ======
The bank term loans are secured by deeds of trust for specific property. As at April 30, 1997, principal repayments are required as follows in the next five years (assuming that loans are renewed at equivalent rates): 1998.......................................................................... $631 1999.......................................................................... 710 2000.......................................................................... 769 2001.......................................................................... 834 2002.......................................................................... 904
The assets of the Group and the excluded partner entities have been pledged by way of a floating charge debenture against bank term loans. 7. SHARE CAPITAL - INCORPORATED: (a) Authorized: As at July 31, 1997, Incorporated has the following authorized share capital: Unlimited number of common shares, without par value Unlimited number of senior preferred shares, without par value, issuable in series Unlimited number of junior preferred shares, without par value, issuable in series (b) Issued: At July 31, 1997, Incorporated had issued 386,000 common shares for cash consideration of $0.10 per share (see (d)). F-11 64 RITCHIE BROS. AUCTIONEERS NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED) (TABULAR DOLLAR AMOUNTS EXPRESSED IN THOUSANDS OF UNITED STATES DOLLARS) APRIL 30, 1995, 1996 AND 1997 AND (UNAUDITED) THREE MONTHS ENDED JULY 31, 1996 AND 1997 7. SHARE CAPITAL - INCORPORATED (CONTINUED): (c) Options: Incorporated has adopted a stock option plan which provides for the award of stock options to selected employees, directors and officers of the Company and to other persons approved by the Board of Directors or its Compensation Committee. At July 31, 1997, Incorporated had authorized 1,500,000 common shares to be issued under the plan and had granted stock options to employees to purchase 133,000 common shares with an exercise price of $0.10 per share (see (d)). These options are fully vested and expire on July 31, 2004. (d) Employee equity participation: Substantially all the full-time employees who are not beneficial owners of the predecessor entities to Incorporated have been, or will be prior to the consummation of the offering described in note 11, granted an equity interest in Incorporated pursuant to the Employee Equity Participation Program. This will be by means of issuance of common shares at a cash price of $0.10 per share or grants of stock options having an exercise price of $0.10 per share. At July 31, 1997, Incorporated had issued 386,000 common shares and granted stock options to purchase 133,000 common shares under the Program. The shares issued and options granted have fully vested with the holders. The excess of the estimated mid-point of the offering price range of the shares proposed to be issued to the public of $15 over the issuance price of the shares or the exercise price of the options granted, as applicable in the circumstances, pursuant to the Program is considered to be compensatory for accounting purposes and has been recorded as employee equity participation expense in the accompanying combined financial statements. F-12 65 RITCHIE BROS. AUCTIONEERS NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED) (TABULAR DOLLAR AMOUNTS EXPRESSED IN THOUSANDS OF UNITED STATES DOLLARS) APRIL 30, 1995, 1996 AND 1997 AND (UNAUDITED) THREE MONTHS ENDED JULY 31, 1996 AND 1997 8. SEGMENTED INFORMATION: The Group's principal business activities include the sale of consignment and self-owned equipment at auctions. This business represents a single industry segment. Summarized information on the Group's activities generated by geographic segment are as follows:
UNITED STATES OTHER COMBINED ------------- ------- -------- April 30, 1995: Auction revenues...................................... $31,233 $20,093 $ 51,326 Income before income taxes............................ 6,724 4,690 11,414 Identifiable assets................................... 56,219 42,405 98,624 April 30, 1996: Auction revenues...................................... $35,603 $29,703 $ 65,306 Income before income taxes............................ 10,835 12,740 23,575 Identifiable assets................................... 93,582 57,387 150,969 April 30, 1997: Auction revenues...................................... $36,845 $35,341 $ 72,186 Income before income taxes............................ 8,510 16,491 25,001 Identifiable assets................................... 82,045 60,813 142,858 July 31, 1996 (Unaudited): Auction revenues...................................... $ 9,718 $ 7,437 $ 17,155 Income before income taxes............................ 3,236 2,645 5,881 Identifiable assets................................... 52,252 29,880 82,132 July 31, 1997 (Unaudited): Auction revenues...................................... $13,011 $ 9,877 $ 22,888 Income before income taxes............................ 2,082 (818) 1,264 Identifiable assets................................... 44,450 51,157 95,607
9. INCOME TAXES: Income tax expense differs from that determined by applying the United States statutory tax rate to the Group's results of operations as follows:
APRIL 30, APRIL 30, APRIL 30, JULY 31, JULY 31, 1995 1996 1997 1996 1997 --------- --------- --------- -------- -------- (UNAUDITED) Statutory tax rate in the United States................................. 39% 39% 39% 39% 39% ======= ======= ======= ====== ====== Expected income tax expense.............. $ 4,451 $ 9,194 $ 9,750 $ 2,294 $ 493 Differences: Different tax rates in non-U.S. jurisdictions....................... 386 (903) (968) 172 174 Partnership income not taxed in Group............................... (2,425) (2,854) (3,342) (904) (917) U.S. income taxed at lower graduated rates............................... 563 (1,009) (548) (162) (110) Other.................................. -- -- 1,100 -- -- Employee equity participation expense not tax deductible.................. -- -- -- -- 2,243 ------- ------- ------- ------ ------ Actual income tax expense................ $ 2,975 $ 4,428 $ 5,992 $ 1,400 $ 1,883 ======= ======= ======= ====== ======
F-13 66 RITCHIE BROS. AUCTIONEERS NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED) (TABULAR DOLLAR AMOUNTS EXPRESSED IN THOUSANDS OF UNITED STATES DOLLARS) APRIL 30, 1995, 1996 AND 1997 AND (UNAUDITED) THREE MONTHS ENDED JULY 31, 1996 AND 1997 9. INCOME TAXES (CONTINUED): If all Partnership income were taxed in the Group, income taxes would have been as follows:
APRIL 30, APRIL 30, APRIL 30, JULY 31, JULY 31, 1995 1996 1997 1996 1997 --------- --------- --------- -------- -------- (UNAUDITED) Income taxes............................ $ 5,245 $ 8,778 $ 9,407 $ 2,304 $ 2,800 ------- ------- ------- ------- ------
10. UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES: The combined financial statements are prepared in accordance with generally accepted accounting principles in Canada which differ, in certain respects, from accounting practices generally accepted in the United States and from requirements promulgated by the Securities and Exchange Commission. Material differences to the combined financial statements and related notes of the Group are as follows: (a) Combined statements of cash flows: United States accounting principles require the following supplementary information be presented to a statement of cash flows:
APRIL APRIL APRIL JULY JULY 30, 30, 30, 31, 31, 1995 1996 1997 1996 1997 ------ ------ ------ ------ ------ (UNAUDITED) Interest paid............................... $1,262 $1,067 $1,068 $ 228 $ 310 Income taxes paid........................... $2,189 $3,507 $4,147 $ 814 $1,598 ====== ====== ====== ====== ======
(b) Reorganization costs: In accordance with generally accepted accounting principles in Canada, costs incurred with respect to the reorganization of the Group's operations have been charged, net of tax, against equity. Under generally accepted accounting principles in the United States, such amounts are required to be charged against income. Such costs have only been incurred in the three months ended July 31, 1997 and would have the following effect on that period's statement of income:
CANADIAN UNITED STATES ACCOUNTING ACCOUNTING PRINCIPLES ADJUSTMENT PRINCIPLES ---------- ---------- ------------- Income before income taxes............................. $ 1,264 $ (354) $ 910 Income taxes........................................... 1,883 145 1,738 ---------- ---------- ------------- Net income (loss)...................................... $ (619) $ (209) $ (828) ======== ======== ==========
There would be no effect on total assets or equity. F-14 67 RITCHIE BROS. AUCTIONEERS NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED) (TABULAR DOLLAR AMOUNTS EXPRESSED IN THOUSANDS OF UNITED STATES DOLLARS) APRIL 30, 1995, 1996 AND 1997 AND (UNAUDITED) THREE MONTHS ENDED JULY 31, 1996 AND 1997 11. SUBSEQUENT EVENTS: (a) Reorganization: Incorporated and the owners of the Group intend to enter into various agreements which will ultimately result in all of the assets of the Group being acquired and the liabilities assumed by Incorporated for consideration equal to the issuance of 12,715,667 common shares. Subsequent to completion of the Reorganization, Incorporated will operate as a holding company for the predecessor businesses which form the Group. As the business operations and management of Incorporated will be the same as for the Group and the owners of the entities forming the Group will own substantially all of the shares of Incorporated, the Reorganization will be accounted for in a manner similar to the pooling-of-interests method whereby the assets, liabilities, revenues and expenses are combined on a historical basis at the amounts recorded in the predecessor entities. (b) Offering: Subsequent to July 31, 1997, the Board of Directors of Incorporated authorised the filing of a registration statement with the Securities and Exchange Commission in the United States pursuant to which Incorporated will sell and issue up to 2,900,000 common shares (the "Offering"). For services provided in connection with the Offering, Incorporated has agreed to pay the underwriters a per share commission. In addition, Incorporated has granted the underwriters an option to purchase an additional 435,000 common shares at the public offering price for a period of 30 days after the date of the related prospectus. (c) Distribution: In anticipation of the consummation of the Offering and in connection with the Reorganization, the Group has paid a distribution aggregating $34,951,000 to its owners. (d) Employee Equity Participation Program: In connection with the Program described in note 7(d), Incorporated intends to issue an additional 111,999 common shares and grant stock options to purchase an additional 63,333 common shares prior to the consummation of the Offering. These shares will be considered to be compensatory for accounting purposes and additional employee equity participation expense of $2,612,000 will be recorded when the shares are issued and options granted. F-15 68 INDEPENDENT AUDITORS' REPORT To the Board of Directors of RITCHIE BROS. AUCTIONEERS INCORPORATED We have audited the balance sheet of Ritchie Bros. Auctioneers Incorporated as at July 31, 1997 and the statement of cash flows for the period then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards in Canada. Those standards require that we plan and perform an audit to obtain reasonable assurance whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. In our opinion, these financial statements present fairly, in all material respects, the financial position of the Company as at July 31, 1997 and the results of its operations and cash flows for the period then ended in accordance with generally accepted accounting principles in Canada. Vancouver, Canada /s/ KPMG September 25, 1997 Chartered Accountants F-16 69 RITCHIE BROS. AUCTIONEERS INCORPORATED BALANCE SHEET AT JULY 31, 1997 (EXPRESSED IN THOUSANDS OF UNITED STATES DOLLARS) Assets: Cash............................................................................... $39 --- $39 === Share Capital (note 2): Issued 386,000 common shares....................................................... $39 --- $39 ===
Subsequent events (note 3) See accompanying notes to financial statements. F-17 70 RITCHIE BROS. AUCTIONEERS INCORPORATED STATEMENT OF CASH FLOWS FROM INCORPORATION ON JULY 28, 1997 TO JULY 31, 1997 (EXPRESSED IN THOUSANDS OF UNITED STATES DOLLARS) Cash provided by Financing: Issuance of common shares.......................................................... $39 --- Increase in cash, being cash end of period........................................... $39 ===
See accompanying notes to financial statements. F-18 71 RITCHIE BROS. AUCTIONEERS INCORPORATED NOTES TO FINANCIAL STATEMENTS PERIOD ENDED JULY 31, 1997 1. OPERATIONS: Ritchie Bros. Auctioneers Incorporated ("Incorporated") was incorporated on July 28, 1997 under the Canada Business Corporations Act. These financial statements have been prepared in accordance with generally accepted accounting principles in Canada and also comply, in all material respects, with generally accepted accounting principles in the United States. 2. SHARE CAPITAL (a) Authorized: As at July 31, 1997, Incorporated has the following authorized share capital: Unlimited number of common shares, without par value Unlimited number of senior preferred shares, without par value, issuable in series Unlimited number of junior preferred shares, without par value, issuable in series (b) Issued: At July 31, 1997, Incorporated had issued 386,000 common shares for cash consideration of $0.10 per share (see (d)). (c) Options: Incorporated has adopted a stock option plan which provides for the award of stock options to selected employees, directors and officers of the Company and to other persons approved by the Board of Directors or its Compensation Committee. At July 31, 1997, Incorporated had authorized 1,500,000 common shares to be issued under the plan and had granted stock options to employees to purchase 133,000 common shares with an exercise price of $0.10 per share (see (d)). These options are fully vested and expire on July 31, 2004. (d) Employee equity participation: Substantially all the full-time employees who are not beneficial owners of the predecessor entities to Incorporated have been, or will be prior to the consummation of the offering described in note 3, granted an equity interest in Incorporated pursuant to Incorporated's Employee Equity Participation Program. This will be by means of issuance of common shares at a cash price of $0.10 per share or grants of stock options having an exercise price of $0.10 per share. At July 31, 1997, Incorporated had issued 386,000 common shares and granted stock options to purchase 133,000 common shares under the Program. The shares issued and options granted have fully vested with the holders. The excess of the estimated mid-point of the offering price range of the shares proposed to be issued to the public of $15 over the issuance price of the shares or the exercise price of the options granted, as applicable in the circumstances, pursuant to the Program will be considered to be compensatory for accounting purposes upon completion of the Reorganization and will be recorded as employee equity participation expense in the financial statements of Incorporated at that time. 3. SUBSEQUENT EVENTS: (a) Reorganization: Incorporated and the owners of the Ritchie Bros. Auctioneers group of companies and partnerships (the "Group") intend to enter into various agreements which will ultimately result in all of the assets of the F-19 72 RITCHIE BROS. AUCTIONEERS INCORPORATED NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) PERIOD ENDED JULY 31, 1997 3. SUBSEQUENT EVENTS: (CONTINUED): Group being acquired and the liabilities assumed by Incorporated for consideration equal to the issuance of 12,715,667 common shares. Subsequent to completion of the Reorganization, Incorporated will operate as a holding company for the predecessor businesses which form the Group. As the business operations and management of Incorporated will be the same as for the Group and the owners of the entities forming the Group will own substantially all of the shares of Incorporated, the Reorganization will be accounted for in a manner similar to the pooling-of-interests method whereby the assets, liabilities, revenues and expenses are combined on a historical basis at the amounts recorded in the predecessor entities. (b) Offering: Subsequent to July 31, 1997, the Board of Directors of Incorporated authorised the filing of a registration statement with the Securities and Exchange Commission in the United States pursuant to which Incorporated will sell and issue up to 2,900,000 common shares (the "Offering"). For services provided in connection with the Offering, Incorporated has agreed to pay the underwriters a per share commission. In addition, Incorporated has granted the underwriters an option to purchase an additional 435,000 common shares at the public offering price for a period of 30 days after the date of the related prospectus. (c) Employee Equity Participation Program: In connection with the Program described in note 2(d), Incorporated intends to issue an additional 111,999 common shares and grant options to purchase an additional 63,333 common shares prior to the consummation of the offering. These shares will be considered to be compensatory for accounting purposes and additional employee equity participation expense of $2,612,000 will be recorded when the shares are issued and options granted. F-20 73 RITCHIE BROS. AUCTIONEERS INCORPORATED PRO FORMA CONSOLIDATED BALANCE SHEET (EXPRESSED IN THOUSANDS OF UNITED STATES DOLLARS) AT JULY 31, 1997 (UNAUDITED)
GROUP ADJUSTMENTS PRO FORMA ----------- ----------- --------- (NOTE 3(a)) (NOTE 3) ASSETS Current assets: Cash and cash equivalents......................... $44,023 (b)(34,951) $ 9,083 (c) 11 Accounts receivable............................... 6,137 6,137 Inventory......................................... 12,009 12,009 Advances against auction contracts................ 7,094 7,094 Prepaid expenses and deposits..................... 788 788 -------- ------- 70,051 35,111 Fixed assets........................................ 25,556 25,556 -------- ------- $95,607 $60,667 ======== ======= LIABILITIES AND EQUITY Current liabilities: Auction proceeds payable.......................... $14,128 $14,128 Accounts payable and accrued liabilities.......... 8,919 8,919 Payables to affiliated entities................... 3,188 3,188 Current bank loans................................ 800 800 Payables to employees and others.................. 1,408 1,408 Income taxes payable.............................. 5,367 (c) (368) 4,999 -------- ------- 33,810 33,442 Bank term loans..................................... 5,746 5,746 -------- ------- 39,556 39,188 Share capital....................................... 56,051 (b)(34,951) 23,723 (c) 2,623 Retained earnings (deficit)......................... (c) (2,244) (2,244) -------- ------- $95,607 $60,667 ======== =======
See accompanying notes to pro forma consolidated financial statements. F-21 74 RITCHIE BROS. AUCTIONEERS INCORPORATED PRO FORMA CONSOLIDATED STATEMENTS OF INCOME (EXPRESSED IN THOUSANDS OF UNITED STATES DOLLARS) (UNAUDITED)
YEAR ENDED APRIL 30, 1997 THREE MONTHS ENDED JULY 31, 1997 --------------------------------------------- --------------------------------------------- COMPANY GROUP ADJUSTMENTS PRO FORMA COMPANY GROUP ADJUSTMENTS PRO FORMA -------- -------- ----------- --------- -------- -------- ----------- --------- (NOTE 4(A)) (NOTE 4) (NOTE 4(A)) (NOTE 4) Auction revenues..... -- $ 72,186 -- $ 72,186 -- $ 22,888 -- $ 22,888 Direct expenses...... -- (13,908) -- (13,908) -- (5,011) -- (5,011) -------- -------- -------- -------- -------- -------- -------- -------- -- 58,278 -- 58,278 -- 17,877 -- 17,877 Expenses: Depreciation....... -- 2,014 -- 2,014 -- 533 -- 533 General and administrative... -- 31,099 $(c) 333 31,432 -- 8,156 $(c) 789 8,945 Employee equity participation... -- -- -- -- -- 7,733 (b) 2,612 10,345 -------- -------- -------- -------- -------- -------- -------- -------- -- 33,113 333 33,446 -- 16,422 3,401 19,823 -------- -------- -------- -------- -------- -------- -------- -------- Income from operations......... -- 25,165 (333) 24,832 -- 1,455 (3,401) (1,946) Other income (expenses): Interest expense... -- (1,081) -- (1,081) -- (319) -- (319) Other.............. -- 917 -- 917 -- 128 -- 128 -------- -------- -------- -------- -------- -------- -------- -------- -- (164) -- (164) -- (191) -- (191) -------- -------- -------- -------- -------- -------- -------- -------- Income before income taxes.............. -- 25,001 (333) 24,668 -- 1,264 (3,401) (2,137) Income taxes......... -- 5,992 (d) 3,375 9,267 -- 1,883 (d) 241 2,124 -------- -------- -------- -------- -------- -------- -------- -------- Net income (loss).... -- $ 19,009 (3,608) $ 15,401 -- $ (619) $ (3,642) $ (4,261) ======== ======== ======== ======== ======== ======== ======== ======== Net income (loss) per share.............. $ 1.06 $ (0.29) Weighted average number of shares outstanding (thousands)........ 14,473 14,473 ======== ========
See accompanying notes to pro forma consolidated financial statements. F-22 75 RITCHIE BROS. AUCTIONEERS INCORPORATED NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (EXPRESSED IN UNITED STATES DOLLARS) YEAR ENDED APRIL 30, 1997 AND THREE MONTHS ENDED JULY 31, 1997 1. BASIS OF PRESENTATION: The pro forma consolidated financial statements of Ritchie Bros. Auctioneers Incorporated (the "Company") are based upon the historical financial statements of the Company after giving effect to the transactions described in notes 2, 3 and 4. These pro forma consolidated financial statements are not necessarily indicative of the financial position and results of operations that would have been attained had the transactions actually taken place at the dates indicated and do not purport to be indicative of the effects that may be expected to occur in the future. The pro forma consolidated financial statements have been compiled from financial information in the: (a) audited financial statements of the Company as at and for the period ended July 31, 1997; (b) audited combined financial statements of the Ritchie Bros Auctioneers group of companies and partnerships (the "Group") for the year ended April 30, 1997; (c) unaudited combined financial statements of the Group as at and for the three months ended July 31, 1997; and (d) the additional information set out in notes 2, 3 and 4. The pro forma consolidated financial statements are prepared in accordance with generally accepted accounting principles in Canada and also comply, in all material respects with generally accepted accounting principles in the United States. The pro forma consolidated statements of income excludes non-recurring charges or credits directly attributable to the transactions set out herein. 2. PRO FORMA TRANSACTIONS: The pro forma financial statements give effect to the Reorganization, the distribution, the October 1997 transactions under the Employee Equity Participation Program, and adjustments to compensation expense and income taxes resulting therefrom. (a) Reorganization The Company was incorporated on July 28, 1997 under the Canada Business Corporations Act. Upon completion of the Reorganization described below, the Company will hold, directly or indirectly, a 100% interest in subsidiaries that will conduct all of the business operations and own all of the assets of the Group. In order for the Company to acquire the operations of the Group, the Reorganization will comprise the following steps: (i) the business of the existing partnerships that are in the Group will be transferred into corporations; (ii) the existing partnerships will be transformed into corporations; (iii) the shares of the newly incorporated operations of the partnerships will be exchanged for shares of the Company; and (iv) the owners of the predecessor entities will become shareholders of the Company. Consideration paid by the Company on the acquisition of the businesses of the Group will be 12,715,667 common shares. After giving effect to the Reorganization and the related transactions described below, the former owners of the Group will own approximately 95% of the Company. F-23 76 RITCHIE BROS. AUCTIONEERS INCORPORATED NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (UNAUDITED) (EXPRESSED IN UNITED STATES DOLLARS) YEAR ENDED APRIL 30, 1997 AND THREE MONTHS ENDED JULY 31, 1997 2. PRO FORMA TRANSACTIONS (CONTINUED): As the business operations and management of the Company will be the same as the Group, all of the owners of the Group will become shareholders of the Company, and the controlling group of owners of the Group will retain control of the Company, the Reorganization will be accounted for in a manner similar to the pooling-of-interests method whereby the assets, liabilities, revenues and expenses are combined on a historical basis at the amounts recorded in the predecessor entities. (b) Distribution In anticipation of an initial public offering (the "Offering") of the Company's common shares and in connection with the Reorganization, subsequent to July 31, 1997 the Group has paid a distribution aggregating $34,951,000 to the owners of the Group. (c) Employee Equity Participation Program (the "Program") In connection with the Program, the Company intends to issue an additional 111,999 common shares and grant stock options to purchase an additional 63,333 common shares prior to the consummation of the Offering. These shares will be sold or the options will be granted at $0.10 per share. These shares and options will be compensatory for accounting purposes and additional employee equity participation expense will be recorded upon completion of the Reorganization. 3. PRO FORMA BALANCE SHEET ADJUSTMENTS: The pro forma consolidated balance sheet gives effect to the following transactions as if they had occurred on July 31, 1997: (a) the Reorganization described in note 2(a), including the conversion for accounting purposes of the accumulated owners' equity of the Group into share capital of the Company; (b) the distribution of $34,951,000 described in note 2(b); and (c) the receipt of the cash consideration of $11,200 and the additional capitalization of $2,612,000 related to the compensatory element of the issuances and grants under the Program described in note 2(c). 4. PRO FORMA INCOME STATEMENT ADJUSTMENTS: The pro forma consolidated income statement gives effect to the following transactions as if they had occurred in the periods indicated: (a) the Reorganization described in note 2(a) as if it had occurred on May 1, 1996; (b) additional employee equity participation expense of $2,612,000 in the three month period ended July 31, 1997 related to the issuances and grants under the Program described in note 2(c); (c) additional compensation expense to the senior employees who, prior to the Reorganization, were beneficial owners of certain predecessor entities to the Company. These senior employees were actually compensated in part by means of drawings and income allocations rather than salary and bonus and, in some cases, were compensated by entities that do not form part of the Group; and (d) the income tax impacts of the transactions described in (b) and (c) above. F-24 77 RITCHIE BROS. AUCTIONEERS INCORPORATED NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (UNAUDITED) (EXPRESSED IN UNITED STATES DOLLARS) YEAR ENDED APRIL 30, 1997 AND THREE MONTHS ENDED JULY 31, 1997 5. SHARE CAPITAL: Share capital as at July 31, 1997 in the pro forma consolidated balance sheet is comprised of the following:
ASSIGNED VALUE NUMBER OF ----------- SHARES ---------- (THOUSANDS) Share capital, as set out in the audited consolidated financial statements of the Company........................................ 386,000 $ 39 Shares issued on Reorganization.................................... 12,715,667 21,061 Shares issued under Program in October............................. 111,999 11 Compensatory element of shares issued and stock options granted in October.......................................................... -- 2,612 ---------- ----------- 13,213,666 $ 23,723 ========= ==========
The fully diluted weighted average shares outstanding equals 386,000 outstanding Common Shares and 133,000 Common Shares issuable upon exercise of options granted by the Company in July 1997, plus 111,999 Common Shares to be issued and 63,333 Common Shares issuable upon exercise of options to be granted by the Company in October 1997 pursuant to the Employee Equity Participation Program, plus 12,715,667 Common Shares to be issued in connection with the Reorganization. In addition, it gives pro forma effect to the issuance of 1,062,800 Common Shares, being that number of shares whose proceeds on the Offering would be necessary to fund the excess of the $35.0 million distribution over net income for the preceding fiscal year. Per share information is presented as if the Common Shares issued or issuable were issued at the beginning of the periods presented. F-25 78 ====================================================== NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS IN CONNECTION WITH THE OFFERING COVERED BY THIS PROSPECTUS. IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY THE COMMON SHARES, IN ANY JURISDICTION WHERE, OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS NOT BEEN ANY CHANGE IN THE FACTS SET FORTH IN THIS PROSPECTUS OR IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF. ------------------ TABLE OF CONTENTS
PAGE ---- Prospectus Summary.................... 3 Risk Factors.......................... 9 The Reorganization.................... 14 Use of Proceeds....................... 15 Dividend Policy....................... 15 Capitalization........................ 16 Dilution.............................. 17 Selected Combined Financial and Other Data................................ 18 Management's Discussion and Analysis of Financial Condition and Results of Operations............... 21 Business.............................. 27 Management............................ 37 Certain Transactions.................. 39 Principal Shareholders................ 40 Description of Share Capital.......... 41 Shares Eligible for Future Sale....... 42 Tax Consequences...................... 44 Underwriting.......................... 47 Legal Matters......................... 49 Experts............................... 49 Enforceability of Certain Civil Liabilities......................... 49 Additional Information................ 49 Index to Financial Statements......... F-1
------------------ UNTIL , 1997 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS EFFECTING TRANSACTIONS IN THE COMMON SHARES, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS DELIVERY REQUIREMENT IS IN ADDITION TO THE OBLIGATIONS OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS. ====================================================== ====================================================== 2,900,000 SHARES LOGO RITCHIE BROS. AUCTIONEERS INCORPORATED COMMON SHARES ---------------- PROSPECTUS ---------------- MERRILL LYNCH & CO. FURMAN SELZ MORGAN STANLEY DEAN WITTER , 1997 ====================================================== 79 Information contained herein is subject to completion or amendment. A registration statement relating to these securities has been filed with the Securities and Exchange Commission. These securities may not be sold nor may offers to buy be accepted prior to the time the registration statement becomes effective. This prospectus shall not constitute an offer to sell or the solicitation of an offer to buy nor shall there be any sale of these securities in any State in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such State. [ALTERNATE PAGE FOR INTERNATIONAL PROSPECTUS] SUBJECT TO COMPLETION PRELIMINARY PROSPECTUS DATED SEPTEMBER 26, 1997 PROSPECTUS 2,900,000 SHARES [RITCHIE BROS. LOGO] RITCHIE BROS. AUCTIONEERS INCORPORATED COMMON SHARES ------------------------ All of the Common Shares (the "Common Shares") offered hereby (the "Offering") are being offered by Ritchie Bros. Auctioneers Incorporated internationally outside the United States and in the United States. Prior to the Offering, there has been no public market for the Common Shares. It is currently anticipated that the initial public offering price will be between $14.00 and $16.00 per share and will be identical for all offerings. For a discussion of the factors that will be considered in determining the initial public offering price of the Common Shares, see "Underwriting." Application has been made to have the Common Shares approved for listing on the New York Stock Exchange under the symbol "RBA." SEE "RISK FACTORS" BEGINNING ON PAGE 9 FOR A DISCUSSION OF CERTAIN FACTORS WHICH SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON SHARES OFFERED HEREBY. ------------------------ THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. ===================================================================================================== PRICE TO UNDERWRITING PROCEEDS TO PUBLIC COMMISSION(1) COMPANY(2) - ----------------------------------------------------------------------------------------------------- Per Share................................... $ $ $ - ----------------------------------------------------------------------------------------------------- Total(3).................................... $ $ $ =====================================================================================================
(1) The Company has agreed to indemnify the several Underwriters against certain liabilities, including liabilities under the Securities Act of 1933, as amended (the "Securities Act"). See "Underwriting." (2) Before deducting expenses payable by the Company estimated to be $ . (3) The Company has granted the Underwriters an option, exercisable within 30 days after the date hereof, to purchase up to 435,000 additional Common Shares solely to cover over-allotments, if any. If such option is exercised in full, the total Price to Public, Underwriting Commission and Proceeds to Company will be $ , $ and $ , respectively. See "Underwriting." ------------------------ The Common Shares offered hereby are offered by the several Underwriters, subject to prior sale, when, as and if delivered to and accepted by them, and subject to approval of certain legal matters by counsel for the Underwriters and certain other conditions. The Underwriters reserve the right to withdraw, cancel or modify such offer and to reject orders in whole or in part. It is expected that delivery of the Common Shares will be made in New York, New York on or about , 1997. ------------------------ MERRILL LYNCH INTERNATIONAL FURMAN SELZ MORGAN STANLEY DEAN WITTER ------------------------ The date of this Prospectus is , 1997. 80 [ALTERNATE PAGE FOR INTERNATIONAL PROSPECTUS] ====================================================== NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS IN CONNECTION WITH THE OFFERING COVERED BY THIS PROSPECTUS. IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY THE COMMON SHARES, IN ANY JURISDICTION WHERE, OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS NOT BEEN ANY CHANGE IN THE FACTS SET FORTH IN THIS PROSPECTUS OR IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF. THERE ARE RESTRICTIONS ON THE OFFER AND SALE OF THE COMMON SHARES OFFERED HEREBY IN THE UNITED KINGDOM. ALL APPLICABLE PROVISIONS OF THE FINANCIAL SERVICES ACT OF 1986 AND THE COMPANIES ACT 1985 WITH RESPECT TO ANYTHING DONE BY ANY PERSON IN RELATION TO THE COMMON SHARES IN, FROM OR OTHERWISE INVOLVING THE UNITED KINGDOM MUST BE COMPLIED WITH. IN THIS PROSPECTUS, REFERENCE TO "DOLLARS" AND "$" ARE TO UNITED STATES DOLLARS UNLESS STATED OTHERWISE. ------------------ TABLE OF CONTENTS
PAGE ---- Prospectus Summary.................... 3 Risk Factors.......................... 9 The Reorganization.................... 14 Use of Proceeds....................... 15 Dividend Policy....................... 15 Capitalization........................ 16 Dilution.............................. 17 Selected Combined Financial and Other Data................................ 18 Management's Discussion and Analysis of Financial Condition and Results of Operations............... 21 Business.............................. 27 Management............................ 37 Certain Transactions.................. 39 Principal Shareholders................ 40 Description of Share Capital.......... 41 Shares Eligible for Future Sale....... 42 Tax Consequences...................... 44 Underwriting.......................... 47 Legal Matters......................... 49 Experts............................... 49 Enforceability of Certain Civil Liabilities......................... 49 Additional Information................ 49 Index to Financial Statements......... F-1
------------------ UNTIL , 1997 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS EFFECTING TRANSACTIONS IN THE COMMON SHARES, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS DELIVERY REQUIREMENT IS IN ADDITION TO THE OBLIGATIONS OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS. ====================================================== ====================================================== 2,900,000 SHARES [LOGO] RITCHIE BROS. AUCTIONEERS INCORPORATED COMMON SHARES ---------------- PROSPECTUS ---------------- MERRILL LYNCH INTERNATIONAL FURMAN SELZ MORGAN STANLEY DEAN WITTER , 1997 ====================================================== 81 PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION The following table sets forth the fees and expenses, other than underwriting commissions, payable by the Registrant in connection with the offering described in this Registration Statement. All the expenses are estimates, except the Securities and Exchange Commission registration fee and the NASD filing fee. Securities and Exchange Commission registration fee...................... $ 16,170 NASD filing fee.......................................................... 5,500 New York Stock Exchange listing fee...................................... 124,850 Printing and engraving expenses.......................................... 120,000 Legal fees and expenses.................................................. 250,000 Accounting fees and expenses............................................. 50,000 Transfer Agent and Registrar fees........................................ 2,000 Miscellaneous expenses................................................... 51,480 ------- Total.................................................................... $620,000 =======
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS Section 124 of the Canada Business Corporations Act, as amended, provides as follows: (1) Indemnification. Except in respect of an action by or on behalf of the corporation or body corporate to procure a judgment in its favor, a corporation may indemnify a director or officer of the corporation, a former director or officer of the corporation or a person who acts or acted at the corporation's request as a director or officer of a body corporate of which the corporation is or was a shareholder or creditor, and his heirs and legal representatives, against all costs, charges and expenses, including an amount paid to settle an action or satisfy a judgment, reasonably incurred by him in respect of any civil, criminal or administrative action or proceeding to which he is made a party by reason of being or having been a director or officer of such corporation or body corporate, if (a) he acted honestly and in good faith with a view to the best interests of the corporation; and (b) in the case of a criminal or administrative action or proceeding that is enforced by a monetary penalty, he had reasonable grounds for believing that his conduct was lawful. (2) Indemnification in Derivative Action. A corporation may with the approval of a court indemnify a person referred to in sub-section (1) in respect of an action by or on behalf of the corporation or body corporate to procure a judgment in its favor, to which he is made a party by reason of being or having been a director or an officer of the corporation or body corporate, against all costs, charges and expenses reasonably incurred by him in connection with such action if he fulfills the conditions set out in paragraphs (1)(a) and (b). (3) Indemnity as of Right. Notwithstanding anything in this section, a person referred to in subsection (1) is entitled to indemnity from the corporation in respect of all costs, charges and expenses reasonably incurred by him in connection with the defense of any civil, criminal or administrative action or proceeding to which he is made a party by reason of being or having been a director or officer of the corporation or body corporate, if the person seeking indemnity (a) was substantially successful on the merits in his defense of the action or proceeding; and (b) fulfills the conditions set out in paragraphs (1)(a) and (b). II-1 82 (4) Directors' and Officers' Insurance. A corporation may purchase and maintain insurance for the benefit of any person referred to in subsection (1) against any liability incurred by him (a) in his capacity as a director or officer of the corporation, except where the liability relates to his failure to act honestly and in good faith with a view to the best interests of the corporation; or (b) in his capacity as a director or officer of another body corporate where he acts or acted in that capacity at the corporation's request, except where the liability relates to his failure to act honestly and in good faith with a view to the best interests of the body corporate. (5) Application to Court. A corporation or a person referred to in subsection (1) may apply to a court for an order approving an indemnity under this section and the court may so order and make any further order it thinks fit. (6) Notice to Director. An applicant under subsection (5) shall give the Director notice of the application and the Director is entitled to appear and be heard in person or by counsel. (7) Other Notice. On an application under subsection (5), the court may order notice to be given to any interested person and such person is entitled to appear and be heard in person or by counsel. Sections 5 and 6 of By-Law No. 1 of the Company provide as follows: 5. Indemnification of Directors and Officers. The Company shall indemnify a director or officer of the Company, a former director or officer of the Company or a person who acts or acted at the Company's request as a director or officer of a body corporate of which the Company is or was a shareholder or creditor, and his heirs and legal representatives to the extent permitted by the Canada Business Corporations Act. 6. Indemnity of Others. Except as otherwise required by the Canada Business Corporations Act and subject to paragraph 5, the Company may from time to time indemnify and save harmless any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the Company) by reason of the fact that he is or was an employee or agent of the Company, or is or was serving at the request of the Company as a director, officer, employee, agent of or participant in another body corporate, partnership, joint venture, trust or other enterprise, against expenses (including legal fees), judgments, fines and any amount actually and reasonably incurred by him in connection with such action, suit or proceeding if he acted honestly and in good faith with a view to the best interests of the Company and, with respect to any criminal or administrative action or proceeding that is enforced by a monetary penalty, had reasonable grounds for believing that his conduct was lawful. The termination of any action, suit or proceeding by judgment, order, settlement or conviction shall not, of itself, create a presumption that the person did not act honestly and in good faith with a view to the best interests of the Company and, with respect to any criminal or administrative action or proceeding that is enforced by a monetary penalty, had no reasonable grounds for believing that his conduct was lawful. The Company carries liability insurance which provides for coverage for officers and directors of the Company and its subsidiaries, subject to a deductible for executive indemnification. In addition, the Company intends to enter into separate Indemnification Agreements with each of the Company's officers and directors listed in this Registration Statement, which Agreements will provide for indemnification of the director or officer against certain expenses, judgments, fines and amounts incurred by each officer or director in connection with certain threatened, pending or completed actions, suits or proceedings. Insofar as indemnification for liabilities arising under the United States Securities Act of 1933, as amended (the "Securities Act"), may be permitted to directors, officers or persons controlling the Registrant pursuant to the foregoing provisions, the Registrant has been informed that in the opinion of the United States Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable. II-2 83 ITEM 15. RECENT SALE OF UNREGISTERED SECURITIES During the last three years, the Registrant has sold securities without registration under the Securities Act in the following transaction: On July 31, 1997, the Registrant issued to 34 individuals a total of 386,000 Common Shares, each for a price of $0.10 per share. These shares were issued in consideration of these individuals' services to certain affiliates of the Registrant and are exempt from registration under Rule 903 of the Securities Act. ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES (a) EXHIBITS
EXHIBIT NO. DESCRIPTION ----------- ----------------------------------------------------------------------------- 1 Form of Purchase Agreement 3.1 Articles of Amalgamation 3.2 By-laws 4 Form of Common Share Certificate 5 Opinion of McCarthy Tetrault, as to the legality of the securities being registered 8.1 Opinion of McCarthy Tetrault, as to Canadian tax matters (included in the legal opinion filed as Exhibit 5) 8.2 Opinion of Perkins Coie, as to United States tax matters 10.1 1997 Stock Option Plan, as amended 10.2 Form of Indemnity Agreement for directors and officers 11 Statement regarding computation of per share earnings 21 Subsidiaries of the Registrant 23.1 Consent of McCarthy Tetrault (included in the legal opinion filed as Exhibit 5) 23.2 Consent of Perkins Coie (included in the legal opinion filed as Exhibit 8) 23.3 Consent of KPMG (contained on page II-6) 24 Powers of Attorney (included on signature page to this Registration Statement)
(b) FINANCIAL STATEMENT SCHEDULES The financial statement schedules are omitted because they are inapplicable or the requested information is shown in the combined financial statements of the Registrant or related notes thereto. ITEM 17. UNDERTAKINGS (1) The undersigned Registrant hereby undertakes to provide to the Underwriters at the closing specified in the Underwriting Agreement, certificates in such denominations and registered in such names as required by the Underwriters to permit prompt delivery to each purchaser. (2) Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the Registrant pursuant to the foregoing provisions, or otherwise, the Registrant has been advised that, in the opinion of the Securities and Exchange Commission, such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue. II-3 84 (3) The undersigned Registrant hereby undertakes that: (a) For purposes of determining any liability under the Securities Act, the information omitted from the form of prospectus filed as part of this Registration Statement in reliance upon Rule 430A and contained in a form of prospectus filed by the Registrant pursuant to Rule 424(b) (1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this Registration Statement as of the time it was declared effective. (b) For the purpose of determining any liability under the Securities Act, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. II-4 85 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the Registrant certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form F-1 and has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Richmond, Province of British Columbia, on September 25, 1997. RITCHIE BROS. AUCTIONEERS INCORPORATED By: /s/ C. RUSSELL CMOLIK ------------------------------------- C. Russell Cmolik President and Chief Operating Officer POWER OF ATTORNEY Each person whose signature appears below constitutes and appoints C. Russell Cmolik and Peter J. Blake, either of whom may act without the joinder of the other, as his true and lawful attorneys-in-fact and agents with full power of substitution and resubstitution, for him, and in his name, place and stead, in any and all capacities to sign any and all amendments (including post-effective amendments) and supplements to this Registration Statement and any registration statement for the same offering that is to be effective upon filing pursuant to Rule 462(b) under the Securities Act of 1933, and to file the same, with all exhibits thereto, and all other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents full power and authority to do and perform each and every act and thing requisite and necessary to be done, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or their substitute or substitutes may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities indicated on September 25, 1997. /s/ DAVID E. RITCHIE Chairman and Chief Executive Officer - --------------------------------------------- (principal executive officer) David E. Ritchie /s/ C. RUSSELL CMOLIK Director, President and Chief Operating - --------------------------------------------- Officer C. Russell Cmolik /s/ PETER J. BLAKE Director, Vice President Finance and - --------------------------------------------- Chief Financial Officer (principal financial Peter J. Blake and accounting officer) /s/ KENNETH D. ASBURY Authorized Representative in the United - --------------------------------------------- States Kenneth D. Asbury
II-5 86 CONSENT OF INDEPENDENT CHARTERED ACCOUNTANTS We consent to the reference to our firm under the captions "Selected Combined Financial and Other Data" and "Experts" and to the use of our reports dated August 15, 1997 (except as to note 11 which is dated as of September 25, 1997) on the combined financial statements of Ritchie Bros. Auctioneers, and to the use of our report dated September 25, 1997 on the financial statements of Ritchie Bros. Auctioneers Incorporated, in the Registration Statement in Form F-1 and related Prospectus of Ritchie Bros. Auctioneers Incorporated for the registration of its Common Shares. Richmond, Canada /s/ KPMG September 25, 1997 Chartered Accountants II-6 87 EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION OF EXHIBIT - ----------- --------------------------------------------------------------------------------- 1 Form of Purchase Agreement 3.1 Articles of Amalgamation 3.2 By-laws 4 Form of Common Share Certificate 5 Opinion of McCarthy Tetrault, as to the legality of the securities being registered 8.1 Opinion of McCarthy Tetrault, as to Canadian tax matters (included in the legal opinion filed as Exhibit 5) 8.2 Opinion of Perkins Coie, as to United States tax matters 10.1 1997 Stock Option Plan, as amended 10.2 Form of Indemnity Agreement for directors and officers 11 Statement regarding computation of per share earnings 21 Subsidiaries of the Registrant 23.1 Consent of McCarthy Tetrault (included in the legal opinion filed as Exhibit 5) 23.2 Consent of Perkins Coie (included in the legal opinion filed as Exhibit 8) 23.3 Consent of KPMG (contained on page II-6) 24 Powers of Attorney (included on signature page to this Registration Statement)
EX-1 2 FORM OF PURCHASE AGREEMENT 1 EXHIBIT 1 RITCHIE BROS. AUCTIONEERS INCORPORATED (a Canadian corporation) ______ Common Shares PURCHASE AGREEMENT Dated: _____________, 1997 2 TABLE OF CONTENTS PURCHASE AGREEMENT.................................................................................................. 1 SECTION 1. Representations and Warranties........................................................ 2 (a) Representations and Warranties by the Company......................................... 2 (i) Compliance with Registration Requirements................................... 2 (ii) Independent Accountants..................................................... 3 (iii) Financial Statements........................................................ 3 (iv) No Material Adverse Change in Business...................................... 4 (v) Good Standing of the Company................................................ 4 (vi) Good Standing of Subsidiaries............................................... 4 (vii) Capitalization.............................................................. 5 (viii) Authorization of Agreement.................................................. 5 (ix) Authorization and Description of Securities................................. 5 (x) Absence of Defaults and Conflicts........................................... 5 (xi) Absence of Labor Dispute.................................................... 6 (xii) Absence of Proceedings...................................................... 6 (xiii) Accuracy of Exhibits........................................................ 7 (xiv) Possession of Intellectual Property......................................... 7 (xv) Absence of Further Requirements............................................. 7 (xvi) Possession of Licenses and Permits.......................................... 7 (xvii) Title to Property........................................................... 8 (xviii) Investment Company Act...................................................... 8 (xix) Environmental Laws.......................................................... 8 (xx) Registration Rights......................................................... 9 (xxi) Reorganization.............................................................. 9 (b) Officer's Certificates................................................................ 9 SECTION 2. Sale and Delivery to Underwriters; Closing............................................ 9 (a) Initial Securities.................................................................... 9 (b) Option Securities..................................................................... 9 (c) Payment............................................................................... 10 (d) Denominations; Registration........................................................... 10 SECTION 3. Covenants of the Company.............................................................. 11 (a) Compliance with Securities Regulations and Commission Requests........................ 11 (b) Filing of Amendments.................................................................. 11 (c) Delivery of Registration Statements................................................... 11 (d) Delivery of Prospectuses.............................................................. 12 (e) Continued Compliance with Securities Laws............................................. 12 (f) Canadian Private Placement............................................................ 12 (g) Rule 158.............................................................................. 12 (h) Use of Proceeds....................................................................... 13 (i) Listing............................................................................... 13 (j) Restriction on Sale of Securities..................................................... 13 (k) Reporting Requirements................................................................ 13 (l) Compliance with Rule 463.............................................................. 13
i 3 SECTION 4. Payment of Expenses................................................................... 13 (a) Expenses.............................................................................. 13 (b) Termination of Agreement.............................................................. 14 SECTION 5. Conditions of Underwriters' Obligations............................................... 14 (a) Effectiveness of Registration Statement............................................... 14 (b) Opinion of United States Counsel for Company.......................................... 14 (c) Opinion of Canadian Counsel for Company............................................... 15 (d) Opinion of Dutch Counsel for Company.................................................. 15 (e) Opinion of Counsel for Underwriters................................................... 15 (f) Officers' Certificate................................................................. 15 (g) Accountants' Comfort Letter........................................................... 16 (h) Bringdown Comfort Letter ............................................................. 16 (i) Approval of Listing................................................................... 16 (j) No Objection.......................................................................... 16 (k) Lockup Agreements .................................................................... 16 (l) Reorganization........................................................................ 16 (m) Conditions to Purchase of Option Securities........................................... 16 (i) Officers' Certificate....................................................... 17 (ii) Opinion of United States Counsel for Company................................ 17 (iii) Opinion of Canadian Counsel for Company..................................... 17 (iv) Opinion of Dutch Counsel for Company........................................ 17 (v) Opinion of Counsel for Underwriters......................................... 17 (vi) Bringdown Comfort Letter ................................................... 17 (n) Additional Documents.................................................................. 17 (o) Termination of Agreement.............................................................. 18 SECTION 6. Indemnification....................................................................... 18 (a) Indemnification of Underwriters....................................................... 18 (b) Indemnification of Company, Directors and Officers.................................... 19 (c) Actions against Parties; Notification................................................. 19 (d) Settlement without Consent if Failure to Reimburse.................................... 20 SECTION 7. Contribution.......................................................................... 20 SECTION 8. Representations, Warranties and Agreements to Survive Delivery........................ 22 SECTION 9. Termination of Agreement.............................................................. 22 (a) Termination; General.................................................................. 22 (b) Liabilities........................................................................... 22 SECTION 10. Default by One or More of the Underwriters.................................................... 23 SECTION 11. Agent for Service; Submission to Jurisdiction; Waiver of Immunities............................................................................ 23 SECTION 12. Notices....................................................................................... 24 SECTION 13. Parties....................................................................................... 24 SECTION 14. GOVERNING LAW AND TIME........................................................................ 24 SECTION 15. Effect of Headings............................................................................ 24
ii 4 SCHEDULES Schedule A - List of Underwriters............................................................. Sch A-1 Schedule B - Pricing Information.............................................................. Sch B-1 Schedule C - List of Persons and Entities Subject to Lock-up.................................. Sch C-1 EXHIBITS Exhibit A - Form of Opinion of Company's United States Counsel................................. A-1 Exhibit B - Form of Opinion of Company's Canadian Counsel...................................... B-1 Exhibit C - Form of Opinion of Company's Dutch Counsel......................................... C-1 Exhibit D - Form of Lock-up Letter............................................................. D-1
iii 5 RITCHIE BROS. AUCTIONEERS INCORPORATED (a Canadian corporation) PURCHASE AGREEMENT ____________, 1997 MERRILL LYNCH & CO. Merrill Lynch, Pierce, Fenner & Smith Incorporated FURMAN SELZ LLC MORGAN STANLEY & CO. INCORPORATED as Representatives of the several Underwriters c/o Merrill Lynch & Co. Merrill Lynch, Pierce, Fenner & Smith Incorporated North Tower World Financial Center New York, New York 10281 Ladies and Gentlemen: Ritchie Bros. Auctioneers Incorporated, a Canadian corporation (the "Company"), confirms its agreement with Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill Lynch") and each of the other Underwriters named in Schedule A hereto (collectively, the "Underwriters", which term shall also include any underwriter substituted as hereinafter provided in Section 10 hereof), for whom Merrill Lynch, Furman Selz LLC and Morgan Stanley & Co. Incorporated are acting as representatives (in such capacity, the "Representatives"), with respect to the issue and sale by the Company and the purchase by the Underwriters, acting severally and not jointly, of the respective numbers of Common Shares, without par value, of the Company ("Common Shares") set forth in said Schedule A, and with respect to the grant by the Company to the Underwriters, acting severally and not jointly, of the option described in Section 2(b) hereof to purchase all or any part of - additional Common Shares to cover over-allotments, if any. The aforesaid - Common Shares (the "Initial Securities") to be purchased by the Underwriters and all or any part of the - Common Shares subject to the option described in Section 2(b) hereof (the "Option Securities") are hereinafter called, collectively, the "Securities". The Company understands that the Underwriters propose to make a public offering of the Securities as soon as the Representatives deem advisable after this Agreement has been executed and delivered. 6 The Company has filed with the Securities and Exchange Commission (the "Commission") a registration statement on Form F-1 (No. 333- ) covering the registration of the Securities under the Securities Act of 1933, as amended (the "1933 Act"), including the related preliminary prospectus or prospectuses. Promptly after execution and delivery of this Agreement, the Company will either (i) prepare and file a prospectus in accordance with the provisions of Rule 430A ("Rule 430A") of the rules and regulations of the Commission under the 1933 Act (the "1933 Act Regulations") and paragraph (b) of Rule 424 ("Rule 424(b)") of the 1933 Act Regulations or (ii) if the Company has elected to rely upon Rule 434 ("Rule 434") of the 1933 Act Regulations, prepare and file a term sheet (a "Term Sheet") in accordance with the provisions of Rule 434 and Rule 424(b). The information included in such prospectus or in such Term Sheet, as the case may be, that was omitted from such registration statement at the time it became effective but that is deemed to be part of such registration statement at the time it became effective (a) pursuant to paragraph (b) of Rule 430A is referred to as "Rule 430A Information" or (b) pursuant to paragraph (d) of Rule 434 is referred to as "Rule 434 Information." Each prospectus used before such registration statement became effective, and any prospectus that omitted, as applicable, the Rule 430A Information or the Rule 434 Information, that was used after such effectiveness and prior to the execution and delivery of this Agreement, is herein called a "preliminary prospectus." Such registration statement, including the exhibits thereto and schedules thereto at the time it became effective and including the Rule 430A Information and the Rule 434 Information, as applicable, is herein called the "Registration Statement." Any registration statement filed pursuant to Rule 462(b) of the 1933 Act Regulations is herein referred to as the "Rule 462(b) Registration Statement," and after such filing the term "Registration Statement" shall include the Rule 462(b) Registration Statement. The final prospectus in the form first furnished to the Underwriters for use in connection with the offering of the Securities is herein called the "Prospectus." If Rule 434 is relied on, the term "Prospectus" shall refer to the preliminary prospectus dated , 1997 together with the Term Sheet and all references in this Agreement to the date of the Prospectus shall mean the date of the Term Sheet. For purposes of this Agreement, all references to the Registration Statement, any preliminary prospectus, the Prospectus or any Term Sheet or any amendment or supplement to any of the foregoing shall be deemed to include the copy filed with the Commission pursuant to its Electronic Data Gathering, Analysis and Retrieval system ("EDGAR"). SECTION 1. Representations and Warranties. (a) Representations and Warranties by the Company. The Company represents and warrants to each Underwriter as of the date hereof, as of the Closing Time referred to in Section 2(c) hereof, and as of each Date of Delivery (if any) referred to in Section 2(b) hereof, and agrees with each Underwriter, as follows: (i) Compliance with Registration Requirements. Each of the Registration Statement and any Rule 462(b) Registration Statement has become effective under the 1933 Act and no stop order suspending the effectiveness of the Registration Statement or any Rule 462(b) Registration Statement has been issued under the 1933 Act and no 2 7 proceedings for that purpose have been instituted or are pending or, to the knowledge of the Company, are contemplated by the Commission, and any request on the part of the Commission for additional information has been complied with. At the respective times the Registration Statement, any Rule 462(b) Registration Statement and any post-effective amendments thereto became effective and at the Closing Time (and, if any Option Securities are purchased, at the Date of Delivery), the Registration Statement, the Rule 462(b) Registration Statement and any amendments and supplements thereto complied and will comply in all material respects with the requirements of the 1933 Act and the 1933 Act Regulations and did not and will not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading. Neither the Prospectus nor any amendments or supplements thereto, at the time the Prospectus or any such amendment or supplement was issued and at the Closing Time (and, if any Option Securities are purchased, at the Date of Delivery), included or will include an untrue statement of a material fact or omitted or will omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. If Rule 434 is used, the Company will comply with the requirements of Rule 434 and the Prospectus shall not be "materially different", as such term is used in Rule 434, from the prospectus included in the Registration Statement at the time it became effective. The representations and warranties in this subsection shall not apply to statements in or omissions from the Registration Statement or Prospectus made in reliance upon and in conformity with information furnished to the Company in writing by any Underwriter through Merrill Lynch expressly for use in the Registration Statement or Prospectus. Each preliminary prospectus and the prospectus filed as part of the Registration Statement as originally filed or as part of any amendment thereto, or filed pursuant to Rule 424 under the 1933 Act, complied when so filed in all material respects with the 1933 Act Regulations and each preliminary prospectus and the Prospectus delivered to the Underwriters for use in connection with this offering was identical to the electronically transmitted copies thereof filed with the Commission pursuant to EDGAR, except to the extent permitted by Regulation S-T. (ii) Independent Accountants. The accountants who certified the financial statements and supporting schedules included in the Registration Statement are independent public accountants as required by the 1933 Act and the 1933 Act Regulations. (iii) Financial Statements. The financial statements included in the Registration Statement and the Prospectus, together with the related schedules and notes, present fairly the financial position of the Ritchie Bros. Auctioneers group of partnerships and companies (the "Ritchie Bros. Group") which were the predecessor entities of the Company and its consolidated subsidiaries at the dates indicated and the results of 3 8 operations, equity and cash flows of the Ritchie Bros. Group for the periods specified; said financial statements have been prepared in conformity with generally accepted accounting principles in Canada ("Canadian GAAP") applied on a consistent basis throughout the periods involved and have been reconciled to generally accepted accounting principles in the United States in accordance with applicable U.S. federal securities laws. The selected financial data and the summary financial information included in the Prospectus present fairly the information shown therein and have been compiled on a basis consistent with that of the audited financial statements included in the Registration Statement. The pro forma income statement data and the related notes thereto included in the Registration Statement and the Prospectus present fairly the information shown therein, have been prepared in accordance with the Commission's rules and guidelines with respect to pro forma financial information and have been properly compiled on the bases described therein, and the assumptions used in the preparation thereof are reasonable and the adjustments used therein are appropriate to give effect to the transactions and circumstances referred to therein. (iv) No Material Adverse Change in Business. Since the respective dates as of which information is given in the Registration Statement and the Prospectus, except as otherwise stated therein, (A) there has been no material adverse change in the condition, financial or otherwise, or in the earnings, business affairs or business prospects of the Company and its subsidiaries considered as one enterprise, whether or not arising in the ordinary course of business (a "Material Adverse Effect"), (B) there have been no transactions entered into by the Company or any of its subsidiaries, other than those in the ordinary course of business, which are material with respect to the Company and its subsidiaries considered as one enterprise, and (C) there has been no dividend or distribution of any kind declared, paid or made by the Company on any class of its capital stock. (v) Good Standing of the Company. The Company has been duly organized and is validly existing as a corporation in good standing under the laws of Canada and has corporate power and authority to own, lease and operate its properties and to conduct its business as described in the Prospectus and to enter into and perform its obligations under this Agreement; and the Company is duly qualified as a foreign corporation to transact business and is in good standing in each other jurisdiction in which such qualification is required, whether by reason of the ownership or leasing of property or the conduct of business, except where the failure so to qualify or to be in good standing would not result in a Material Adverse Effect. (vi) Good Standing of Subsidiaries. Each "significant subsidiary" of the Company (as such term is defined in Rule 1-02 of Regulation S-X) (each a "Subsidiary" and, collectively, the "Subsidiaries") has been duly organized and is validly existing as a corporation in good standing under the laws of the jurisdiction of its incorporation, has corporate power and authority to own, lease and operate its properties and to conduct its business as described in the Prospectus and is duly qualified as a foreign corporation to 4 9 transact business and is in good standing in each jurisdiction in which such qualification is required, whether by reason of the ownership or leasing of property or the conduct of business, except where the failure so to qualify or to be in good standing would not result in a Material Adverse Effect; except as otherwise disclosed in the Registration Statement, all of the issued and outstanding capital stock of each such Subsidiary has been, or will be prior to the Closing Time (as defined), duly authorized and validly issued, is fully paid and non-assessable and is owned by the Company, directly or through subsidiaries, free and clear of any security interest, mortgage, pledge, lien, encumbrance, claim or equity; none of the outstanding shares of capital stock of any Subsidiary was issued in violation of the preemptive or similar rights of any securityholder of such Subsidiary. The only subsidiaries of the Company are (a) the subsidiaries listed on Exhibit 21 to the Registration Statement and (b) certain other subsidiaries which, considered in the aggregate as a single Subsidiary, do not constitute a "significant subsidiary" as defined in Rule 1-02 of Regulation S-X. (vii) Capitalization. The authorized, issued and outstanding capital stock of the Company is, or will be prior to the Closing Time (as defined), as set forth in the Prospectus in the column entitled "Pro Forma" under the caption "Capitalization" (except for subsequent issuances, if any, pursuant to this Agreement or pursuant to the exercise of convertible securities or options referred to in the Prospectus). The shares of issued and outstanding capital stock of the Company have been duly authorized and validly issued and are fully paid and non-assessable; none of the outstanding shares of capital stock of the Company was issued in violation of the preemptive or other similar rights of any securityholder of the Company. (viii) Authorization of Agreement. This Agreement has been duly authorized, executed and delivered by the Company. (ix) Authorization and Description of Securities. The Securities have been duly authorized for issuance and sale to the Underwriters pursuant to this Agreement and, when issued and delivered by the Company pursuant to this Agreement against payment of the consideration set forth herein, will be validly issued and fully paid and non-assessable; the Common Shares conform to all statements relating thereto contained in the Prospectus and such description conforms to the rights set forth in the instruments defining the same; no holder of the Securities will be subject to personal liability by reason of being such a holder; and the issuance of the Securities is not subject to the preemptive or other similar rights of any securityholder of the Company. (x) Absence of Defaults and Conflicts. Neither the Company nor any of its subsidiaries is in violation of its charter or by-laws or in default in the performance or observance of any obligation, agreement, covenant or condition contained in any contract, indenture, mortgage, deed of trust, loan or credit agreement, note, lease or other agreement or instrument to which the Company or any of its subsidiaries is a party or by which it or any of them may be bound, or to which any of the property or assets 5 10 of the Company or any subsidiary is subject (collectively, "Agreements and Instruments") except for such defaults that would not result in a Material Adverse Effect; and the execution, delivery and performance of this Agreement and the consummation of the transactions contemplated herein and in the Registration Statement (including the issuance and sale of the Securities and the use of the proceeds from the sale of the Securities as described in the Prospectus under the caption "Use of Proceeds") and compliance by the Company with its obligations hereunder have been duly authorized by all necessary corporate action and do not and will not, whether with or without the giving of notice or passage of time or both, conflict with or constitute a breach of, or default or Repayment Event (as defined below) under, or result in the creation or imposition of any lien, charge or encumbrance upon any property or assets of the Company or any subsidiary pursuant to, the Agreements and Instruments (except for such conflicts, breaches or defaults or liens, charges or encumbrances that would not result in a Material Adverse Effect), nor will such action result in any violation of the provisions of the charter or by-laws or partnership agreement, as the case may be, of the Company or any subsidiary or any applicable law, statute, rule, regulation, judgment, order, writ or decree of any government, government instrumentality or court, domestic or foreign, having jurisdiction over the Company or any subsidiary or any of their assets, properties or operations. As used herein, a "Repayment Event" means any event or condition which gives the holder of any note, debenture or other evidence of indebtedness (or any person acting on such holder's behalf) the right to require the repurchase, redemption or repayment of all or a portion of such indebtedness by the Company or any subsidiary. (xi) Absence of Labor Dispute. No labor dispute with the employees of the Company or any subsidiary exists or, to the knowledge of the Company, is imminent, and the Company is not aware of any existing or imminent labor disturbance by the employees of any of its or any subsidiary's principal suppliers, customers or contractors, which, in either case, may reasonably be expected to result in a Material Adverse Effect. (xii) Absence of Proceedings. There is no action, suit, proceeding, inquiry or investigation before or brought by any court or governmental agency or body, domestic or foreign, now pending, or, to the knowledge of the Company, threatened, against or affecting the Company or any subsidiary, which is required to be disclosed in the Registration Statement (other than as disclosed therein), or which might reasonably be expected to result in a Material Adverse Effect, or which might reasonably be expected to materially and adversely affect the properties or assets thereof or the consummation of the transactions contemplated in this Agreement or the performance by the Company of its obligations hereunder; the aggregate of all pending legal or governmental proceedings to which the Company or any subsidiary is a party or of which any of their respective property or assets is the subject which are not described in the Registration Statement, including ordinary routine litigation incidental to the business, could not reasonably be expected to result in a Material Adverse Effect. 6 11 (xiii) Accuracy of Exhibits. There are no contracts or documents which are required to be described in the Registration Statement or the Prospectus or to be filed as exhibits thereto which have not been so described and filed as required. (xiv) Possession of Intellectual Property. The Company and its subsidiaries own or possess, or can acquire on reasonable terms, adequate patents, patent rights, licenses, inventions, copyrights, know-how (including trade secrets and other unpatented and/or unpatentable proprietary or confidential information, systems or procedures), trademarks, service marks, trade names or other intellectual property (collectively, "Intellectual Property") necessary to carry on the business now operated by them, and neither the Company nor any of its subsidiaries has received any notice or is otherwise aware of any infringement of or conflict with asserted rights of others with respect to any Intellectual Property or of any facts or circumstances which would render any Intellectual Property invalid or inadequate to protect the interest of the Company or any of its subsidiaries therein, and which infringement or conflict (if the subject of any unfavorable decision, ruling or finding) or invalidity or inadequacy, singly or in the aggregate, would result in a Material Adverse Effect. (xv) Absence of Further Requirements. No filing with, or authorization, approval, consent, license, order, registration, qualification or decree of, any court or governmental authority or agency is necessary or required for the performance by the Company of its obligations hereunder, in connection with the offering, issuance or sale of the Securities hereunder or the consummation of the transactions contemplated by this Agreement, except (A) such as have been already obtained or as may be required under the 1933 Act or the 1933 Act Regulations or state securities laws, or (B) such as have been identified as taking place prior to the Closing Time in paragraph (xxi) of this Section 1(a). (xvi) Possession of Licenses and Permits. The Company and its subsidiaries possess such permits, licenses, approvals, consents and other authorizations (collectively, "Governmental Licenses") issued by the appropriate federal, provincial, state, local or foreign regulatory agencies or bodies necessary to conduct the business now operated by them, except where the failure to possess such permits, licenses, approvals, consents and authorizations would not singly or in the aggregate, have a Material Adverse Effect; the Company and its subsidiaries are in compliance with the terms and conditions of all such Governmental Licenses, except where the failure so to comply would not, singly or in the aggregate, have a Material Adverse Effect; all of the Governmental Licenses are valid and in full force and effect, except when the invalidity of such Governmental Licenses or the failure of such Governmental Licenses to be in full force and effect would not have a Material Adverse Effect; and neither the Company nor any of its subsidiaries has received any notice of proceedings relating to the revocation or modification of any such Governmental Licenses which, singly or in the aggregate, if the subject of an unfavorable decision, ruling or finding, would result in a Material Adverse Effect. 7 12 (xvii) Title to Property. The Company and its subsidiaries have good and marketable title to all real property owned by the Company and its subsidiaries and good title to all other properties owned by them, in each case, free and clear of all mortgages, pledges, liens, security interests, claims, restrictions or encumbrances of any kind except such as (a) are described in the Prospectus or (b) do not, singly or in the aggregate, materially affect the value of such property and do not interfere with the use made and proposed to be made of such property by the Company or any of its subsidiaries; and all of the leases and subleases material to the business of the Company and its subsidiaries, considered as one enterprise, and under which the Company or any of its subsidiaries holds properties described in the Prospectus, are in full force and effect, and neither the Company nor any subsidiary has any notice of any material claim of any sort that has been asserted by anyone adverse to the rights of the Company or any subsidiary under any of the leases or subleases mentioned above, or affecting or questioning the rights of the Company or such subsidiary to the continued possession of the leased or subleased premises under any such lease or sublease. (xviii) Investment Company Act. The Company is not, and upon the issuance and sale of the Securities as herein contemplated and the application of the net proceeds therefrom as described in the Prospectus will not be, an "investment company" or an entity "controlled" by an "investment company" as such terms are defined in the Investment Company Act of 1940, as amended (the "1940 Act"). (xix) Environmental Laws. Except as described in the Registration Statement and except as would not, singly or in the aggregate, result in a Material Adverse Effect, (A) neither the Company nor any of its subsidiaries is in violation of any federal, provincial, state, local or foreign statute, law, rule, regulation, ordinance, code, policy or rule of common law or any judicial or administrative interpretation thereof, including any judicial or administrative order, consent, decree or judgment, relating to pollution or protection of human health, the environment (including, without limitation, ambient air, surface water, groundwater, land surface or subsurface strata) or wildlife, including, without limitation, laws and regulations relating to the release or threatened release of chemicals, pollutants, contaminants, wastes, toxic substances, hazardous substances, petroleum or petroleum products (collectively, "Hazardous Materials") or to the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of Hazardous Materials (collectively, "Environmental Laws"), (B) the Company and its subsidiaries have all permits, authorizations and approvals required under any applicable Environmental Laws and are each in compliance with their requirements, (C) there are no pending or threatened administrative, regulatory or judicial actions, suits, demands, demand letters, claims, liens, notices of noncompliance or violation, investigation or proceedings relating to any Environmental Law against the Company or any of its subsidiaries and (D) there are no events or circumstances that might reasonably be expected to form the basis of an order for clean-up or remediation, or an action, suit or proceeding by any private party or governmental body or agency, against or affecting 8 13 the Company or any of its subsidiaries relating to Hazardous Materials or any Environmental Laws. (xx) Registration Rights. There are no persons with registration rights or other similar rights to have any securities registered pursuant to the Registration Statement or otherwise registered by the Company under the 1933 Act. (xxi) Reorganization. All of the agreements entered into by the Company for the purposes of completing the Reorganization (as defined in the Prospectus) are, or will be prior to the Closing Time, in full force and effect with respect to the Company and, to the knowledge of the Company, with respect to the other parties thereto, the representations and warranties of the Company set forth in such agreements are, or will be, as the case may be, true and correct in all material respects, except to the extent any such representation or warranty was expressly made as of a specific date, in which case such representation and warranty was true and correct in all material respects at such date. The Company has obtained all material regulatory and contractual consents and approvals necessary to consummate the Reorganization. All aspects of the Reorganization have been completed prior to the execution of this Agreement [except for ________, which will be completed prior to the Closing Time.] (b) Officer's Certificates. Any certificate signed by any officer of the Company or any of its subsidiaries delivered to the Representatives or to counsel for the Underwriters shall be deemed a representation and warranty by the Company to each Underwriter as to the matters covered thereby. SECTION 2. Sale and Delivery to Underwriters; Closing. (a) Initial Securities. On the basis of the representations and warranties herein contained and subject to the terms and conditions herein set forth, the Company agrees to sell to each Underwriter, severally and not jointly, and each Underwriter, severally and not jointly, agrees to purchase from the Company, at the price per share set forth in Schedule B, the number of Initial Securities set forth in Schedule A opposite the name of such Underwriter, plus any additional number of Initial Securities which such Underwriter may become obligated to purchase pursuant to the provisions of Section 10 hereof. (b) Option Securities. In addition, on the basis of the representations and warranties herein contained and subject to the terms and conditions herein set forth, the Company hereby grants an option to the Underwriters, severally and not jointly, to purchase up to an additional - Common Shares at the price per share set forth in Schedule B, less an amount per share equal to any dividends or distributions declared by the Company and payable on the Initial Securities but not payable on the Option Securities. The option hereby granted will expire 30 days after the date hereof and may be exercised in whole or in part from time to time only for the purpose of covering over-allotments which may be made in connection with the offering and distribution of the Initial Securities upon notice by the Representatives to the Company setting forth the 9 14 number of Option Securities as to which the several Underwriters are then exercising the option and the time and date of payment and delivery for such Option Securities. Any such time and date of delivery (a "Date of Delivery") shall be determined by the Representatives, but shall not be later than seven full business days after the exercise of said option, nor in any event prior to the Closing Time, as hereinafter defined. If the option is exercised as to all or any portion of the Option Securities, each of the Underwriters, acting severally and not jointly, will purchase that proportion of the total number of Option Securities then being purchased which the number of Initial Securities set forth in Schedule A opposite the name of such Underwriter bears to the total number of Initial Securities, subject in each case to such adjustments as the Representatives in their discretion shall make to eliminate any sales or purchases of fractional shares. (c) Payment. Payment of the purchase price for, and delivery of certificates for, the Initial Securities shall be made at the offices of Shearman & Sterling, 199 Bay Street, Commerce Court West, 44th Floor, Toronto, Ontario, or at such other place as shall be agreed upon by the Representatives and the Company, at 9:00 A.M. (Eastern time) on the [fifth] business day after the date hereof (unless postponed in accordance with the provisions of Section 10), or such other time not later than ten business days after such date as shall be agreed upon by the Representatives and the Company (such time and date of payment and delivery being herein called "Closing Time"). In addition, in the event that any or all of the Option Securities are purchased by the Underwriters, payment of the purchase price for, and delivery of certificates for, such Option Securities shall be made at the above-mentioned offices, or at such other place as shall be agreed upon by the Representatives and the Company, on each Date of Delivery as specified in the notice from the Representatives to the Company. Payment shall be made to the Company by wire transfer of immediately available funds to a bank account designated by the Company, against delivery to the Representatives for the respective accounts of the Underwriters of certificates for the Securities to be purchased by them. It is understood that each Underwriter has authorized the Representatives, for its account, to accept delivery of, receipt for, and make payment of the purchase price for, the Initial Securities and the Option Securities, if any, which it has agreed to purchase. Merrill Lynch, individually and not as representative of the Underwriters, may (but shall not be obligated to) make payment of the purchase price for the Initial Securities or the Option Securities, if any, to be purchased by any Underwriter whose funds have not been received by the Closing Time or the relevant Date of Delivery, as the case may be, but such payment shall not relieve such Underwriter from its obligations hereunder. (d) Denominations; Registration. Certificates for the Initial Securities and the Option Securities, if any, shall be in such denominations and registered in such names as the Representatives may request in writing at least one full business day before the Closing Time or the relevant Date of Delivery, as the case may be. The certificates for the Initial Securities and the Option Securities, if any, will be made available for examination and packaging by the 10 15 Representatives in The City of New York not later than 10:00 A.M. (Eastern time) on the business day prior to the Closing Time or the relevant Date of Delivery, as the case may be. SECTION 3. Covenants of the Company. The Company covenants with each Underwriter as follows: (a) Compliance with Securities Regulations and Commission Requests. The Company, subject to Section 3(b), will comply with the requirements of Rule 430A or Rule 434, as applicable, and will notify the Representatives immediately, and confirm the notice in writing, (i) when any post-effective amendment to the Registration Statement shall become effective, or any supplement to the Prospectus or any amended Prospectus shall have been filed, (ii) of the receipt of any comments from the Commission, (iii) of any request by the Commission for any amendment to the Registration Statement or any amendment or supplement to the Prospectus or for additional information, and (iv) of the issuance by the Commission of any stop order suspending the effectiveness of the Registration Statement or of any order preventing or suspending the use of any preliminary prospectus, or of the initiation or threatening of any proceedings for any of such purposes. The Company will promptly effect the filings necessary pursuant to Rule 424(b) and will take such steps as it deems necessary to ascertain promptly whether the form of prospectus transmitted for filing under Rule 424(b) was received for filing by the Commission and, in the event that it was not, it will promptly file such prospectus. The Company will make every reasonable effort to prevent the issuance of any stop order and, if any stop order is issued, to obtain the lifting thereof at the earliest possible moment. (b) Filing of Amendments. The Company will give the Representatives notice of its intention to file or prepare any amendment to the Registration Statement (including any filing under Rule 462(b)), any Term Sheet or any amendment, supplement or revision to either the prospectus included in the Registration Statement at the time it became effective or to the Prospectus, will furnish the Representatives with copies of any such documents a reasonable amount of time prior to such proposed filing or use, as the case may be, and will not file or use any such document to which the Representatives or counsel for the Underwriters shall object. (c) Delivery of Registration Statements. The Company has furnished or will deliver to the Representatives and counsel for the Underwriters, without charge, signed copies of the Registration Statement as originally filed and of each amendment thereto (including exhibits filed therewith or incorporated by reference therein) and signed copies of all consents and certificates of experts, and will also deliver to the Representatives, without charge, a conformed copy of the Registration Statement as originally filed and of each amendment thereto (without exhibits) for each of the Underwriters. The copies of the Registration Statement and each amendment thereto furnished to the Underwriters will be identical to the electronically transmitted copies thereof filed with the Commission pursuant to EDGAR, except to the extent permitted by Regulation S-T. 11 16 (d) Delivery of Prospectuses. The Company has delivered to each Underwriter, without charge, as many copies of each preliminary prospectus as such Underwriter reasonably requested, and the Company hereby consents to the use of such copies for purposes permitted by the 1933 Act. The Company will furnish to each Underwriter, without charge, during the period when the Prospectus is required to be delivered under the 1933 Act or the Securities Exchange Act of 1934 (the "1934 Act"), such number of copies of the Prospectus (as amended or supplemented) as such Underwriter may reasonably request. The Prospectus and any amendments or supplements thereto furnished to the Underwriters will be identical to the electronically transmitted copies thereof filed with the Commission pursuant to EDGAR, except to the extent permitted by Regulation S-T. (e) Continued Compliance with Securities Laws. The Company will comply with the 1933 Act and the 1933 Act Regulations so as to permit the completion of the distribution of the Securities as contemplated in this Agreement and in the Prospectus. If at any time when a prospectus is required by the 1933 Act to be delivered in connection with sales of the Securities, any event shall occur or condition shall exist as a result of which it is necessary, in the opinion of counsel for the Underwriters or for the Company, to amend the Registration Statement or amend or supplement the Prospectus in order that the Prospectus will not include any untrue statements of a material fact or omit to state a material fact necessary in order to make the statements therein not misleading in the light of the circumstances existing at the time it is delivered to a purchaser, or if it shall be necessary, in the opinion of such counsel, at any such time to amend the Registration Statement or amend or supplement the Prospectus in order to comply with the requirements of the 1933 Act or the 1933 Act Regulations, the Company will promptly prepare and file with the Commission, subject to Section 3(b), such amendment or supplement as may be necessary to correct such statement or omission or to make the Registration Statement or the Prospectus comply with such requirements, and the Company will furnish to the Underwriters such number of copies of such amendment or supplement as the Underwriters may reasonably request. (f) Canadian Private Placement. The Company will use its best efforts, in cooperation with the Underwriters, to qualify the Securities for offering and sale on a private placement basis under the applicable securities laws of such jurisdictions in Canada as the Representatives may designate; provided, however, that the Company shall not be obligated to file a prospectus or to register as a dealer in securities in any jurisdiction in which it is not so qualified or to subject itself to taxation in respect of doing business in any jurisdiction in which it is not otherwise so subject. (g) Rule 158. The Company will timely file such reports pursuant to the 1934 Act as are necessary in order to make generally available to its securityholders as soon as practicable an earnings statement for the purposes of, and to provide the benefits contemplated by, the last paragraph of Section 11(a) of the 1933 Act. 12 17 (h) Use of Proceeds. The Company will use the net proceeds received by it from the sale of the Securities in the manner specified in the Prospectus under "Use of Proceeds". (i) Listing. The Company will use its best efforts to effect the listing of the Common Shares (including the Securities) on the New York Stock Exchange. (j) Restriction on Sale of Securities. During a period of 180 days from the date of the Prospectus, the Company will not, without the prior written consent of Merrill Lynch, (i) directly or indirectly, offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase or otherwise transfer or dispose of any Common Share or any securities convertible into or exercisable or exchangeable for Common Shares or file any registration statement under the 1933 Act with respect to any of the foregoing or (ii) enter into any swap or any other agreement or any transaction that transfers, in whole or in part, directly or indirectly, the economic consequence of ownership of the Common Shares, whether any such swap or transaction described in clause (i) or (ii) above is to be settled by delivery of Common Shares or such other securities, in cash or otherwise. The foregoing sentence shall not apply to (A) the Securities to be sold hereunder, (B) the - Common Shares to be issued by the Company to effect the Reorganization or (C) any options granted to employees or directors pursuant to the Stock Option Plan referred to in the Prospectus. (k) Reporting Requirements. The Company, during the period when the Prospectus is required to be delivered under the 1933 Act or the 1934 Act, will file all documents required to be filed with the Commission pursuant to the 1934 Act within the time periods required by the 1934 Act and the rules and regulations of the Commission thereunder. (l) Compliance with Rule 463. The Company will file with the Commission such reports on Form SR as may be required pursuant to Rule 463 of the 1933 Act Regulations. SECTION 4. Payment of Expenses. (a) Expenses. The Company will pay all expenses incident to the performance of its obligations under this Agreement, including (i) the preparation, printing and filing of the Registration Statement (including financial statements and exhibits) as originally filed and of each amendment thereto, (ii) the preparation, printing and delivery to the Underwriters of this Agreement, any Agreement among Underwriters and such other documents as may be required in connection with the offering, purchase, sale, issuance or delivery of the Securities (but excluding the fees of the Underwriters' counsel in connection with preparation of such documents), (iii) the preparation, issuance and delivery of the certificates for the Securities to the Underwriters, including any stock or other transfer taxes and any stamp or other duties payable upon the sale, issuance or delivery of the Securities to the Underwriters, (iv) the fees and disbursements of the Company's counsel, accountants and other advisors, (v) the 13 18 qualification of the Securities under securities laws in accordance with the provisions of Section 3(f) hereof, including filing fees and the reasonable fees and disbursements of counsel for the Underwriters in connection with the preparation of the Blue Sky Survey and any supplement thereto, (vi) the printing and delivery to the Underwriters of copies of each preliminary prospectus, any Term Sheets and of the Prospectus and any amendments or supplements thereto, (vii) the preparation, printing and delivery to the Underwriters of copies of the Blue Sky Survey and any supplement thereto, (viii) the fees and expenses of any transfer agent or registrar for the Securities, (ix) the filing fees incident to, and the reasonable fees and disbursements of counsel to the Underwriters in connection with, the review by the National Association of Securities Dealers, Inc. (the "NASD") of the terms of the sale of the Securities and (x) the fees and expenses incurred in connection with the listing of the Common Shares on the New York Stock Exchange. (b) Termination of Agreement. If this Agreement is terminated by the Representatives in accordance with the provisions of Section 5 or Section 9(a)(i) hereof, the Company shall reimburse the Underwriters for all of their out-of-pocket expenses, including the reasonable fees and disbursements of counsel for the Underwriters. SECTION 5. Conditions of Underwriters' Obligations. The obligations of the several Underwriters hereunder are subject to the accuracy of the representations and warranties of the Company contained in Section 1 hereof or in certificates of any officer of the Company or any subsidiary of the Company delivered pursuant to the provisions hereof, to the performance by the Company of its covenants and other obligations hereunder, and to the following further conditions: (a) Effectiveness of Registration Statement. The Registration Statement, including any Rule 462(b) Registration Statement, has become effective and at Closing Time no stop order suspending the effectiveness of the Registration Statement shall have been issued under the 1933 Act or proceedings therefor initiated or threatened by the Commission, and any request on the part of the Commission for additional information shall have been complied with to the reasonable satisfaction of counsel to the Underwriters. A prospectus containing the Rule 430A Information shall have been filed with the Commission in accordance with Rule 424(b) (or a post-effective amendment providing such information shall have been filed and declared effective in accordance with the requirements of Rule 430A) or, if the Company has elected to rely upon Rule 434, a Term Sheet shall have been filed with the Commission in accordance with Rule 424(b). (b) Opinion of United States Counsel for Company. At Closing Time, the Representatives shall have received the favorable opinion, dated as of Closing Time, of Perkins Coie, United States counsel for the Company, in form and substance satisfactory to counsel for the Underwriters, together with signed or reproduced copies of such letter for each of the other Underwriters to the effect set forth in Exhibit A hereto and to such further effect as counsel to the Underwriters may reasonably request. 14 19 (c) Opinion of Canadian Counsel for Company. At Closing Time, the Representatives shall have received the favorable opinion, dated as of Closing Time, of McCarthy Tetrault, Canadian counsel for the Company, in form and substance satisfactory to counsel for the Underwriters, together with signed or reproduced copies of such letter for each of the other Underwriters to the effect set forth in Exhibit B hereto and to such further effect as counsel to the Underwriters may reasonably request. (d) Opinion of Dutch Counsel for Company. At Closing Time, the Representatives shall have received the favorable opinion, dated as of Closing Time, of _____________________, Dutch counsel for the Company, in form and substance satisfactory to counsel for the Underwriters, together with signed or reproduced copies of such letter for each of the other Underwriters to the effect set forth in Exhibit C hereto and to such further effect as counsel to the Underwriters may reasonably request. (e) Opinion of Counsel for Underwriters. At Closing Time, the Representatives shall have received the favorable opinion, dated as of Closing Time, of Shearman & Sterling, counsel for the Underwriters, together with signed or reproduced copies of such letter for each of the other Underwriters with respect to the matters set forth in clauses (ii), (iii), (vi) (solely as to the information in the Prospectus under "Certain Income Tax Consequences--United States Federal Income Tax Consequences") and the penultimate paragraph of Exhibit A hereto. In giving such opinion such counsel may rely, as to all matters governed by the laws of jurisdictions other than the law of the State of New York and the federal law of the United States, upon the opinions of counsel satisfactory to the Representatives. Such counsel may also state that, insofar as such opinion involves factual matters, they have relied, to the extent they deem proper, upon certificates of officers of the Company and its subsidiaries and certificates of public officials. (f) Officers' Certificate. At Closing Time, there shall not have been, since the date hereof or since the respective dates as of which information is given in the Prospectus, any material adverse change in the condition, financial or otherwise, or in the earnings, business affairs or business prospects of the Company and its subsidiaries considered as one enterprise, whether or not arising in the ordinary course of business, and the Representatives shall have received a certificate of the President or a Vice President of the Company and of the chief financial or chief accounting officer of the Company, dated as of Closing Time, to the effect that (i) there has been no such material adverse change, (ii) the representations and warranties in Section 1(a) hereof are true and correct with the same force and effect as though expressly made at and as of Closing Time, (iii) the Company has complied with all agreements and satisfied all conditions on its part to be performed or satisfied at or prior to Closing Time, and (iv) no stop order suspending the effectiveness of the Registration Statement has been issued and no proceedings for that purpose have been instituted or are pending or are contemplated by the Commission. 15 20 (g) Accountants' Comfort Letter. At the time of the execution of this Agreement, the Representatives shall have received from KPMG a letter dated such date, in form and substance satisfactory to the Representative, together with signed or reproduced copies of such letter for each of the other Underwriters containing statements and information of the type ordinarily included in accountants' "comfort letters" to underwriters with respect to the financial statements and certain financial information contained in the Registration Statement and the Prospectus. (h) Bring-down Comfort Letter. At Closing Time, the Representatives shall have received from KPMG a letter, dated as of Closing Time, to the effect that they reaffirm the statements made in the letter furnished pursuant to subsection (g) of this Section, except that the specified date referred to shall be a date not more than three business days prior to Closing Time. (i) Approval of Listing. At Closing Time, the Common Shares (including the Securities) shall have been approved for listing on the New York Stock Exchange, subject only to official notice of issuance. (j) No Objection. The NASD has confirmed that it has not raised any objection with respect to the fairness and reasonableness of the underwriting terms and arrangements. (k) Lock-up Agreements. At the date of this Agreement, the Representatives shall have received an agreement substantially in the form of Exhibit D hereto signed by the persons listed on Schedule C hereto. In addition the Representatives shall have received agreements from 3395596 Canada Inc. and the Company in which 3395596 Canada Inc. and the Company agree respectively not to waive the provisions of the pooling agreement among certain shareholders and option holders of the Company and 3395596 Canada Inc. (the "Pooling Agreement") and the subscription agreements between certain shareholders of the Company and the Company (the "Subscription Agreements). (l) Reorganization. Prior to, or simultaneously with, the Closing Time, all aspects of the Reorganization shall be completed. (m) Conditions to Purchase of Option Securities. In the event that the Underwriters exercise their option provided in Section 2(b) hereof to purchase all or any portion of the Option Securities, the representations and warranties of the Company contained herein and the statements in any certificates furnished by the Company or any subsidiary of the Company hereunder shall be true and correct as of each Date of Delivery and, at the relevant Date of Delivery, the Representatives shall have received: (i) Officers' Certificate. A certificate, dated such Date of Delivery, of the President or a Vice President of the Company and of the chief financial or 16 21 chief accounting officer of the Company confirming that the certificate delivered at Closing Time pursuant to Section 5(f) hereof remains true and correct as of such Date of Delivery. (ii) Opinion of United States Counsel for Company. The favorable opinion of Perkins Coie, United States counsel for the Company, in form and substance satisfactory to counsel for the Underwriters, dated such Date of Delivery, relating to the Option Securities to be purchased on such Date of Delivery and otherwise to the same effect as the opinion required by Section 5(b) hereof. (iii) Opinion of Canadian Counsel for Company. The favorable opinion of McCarthy Tetrault, Canadian counsel for the Company, in form and substance satisfactory to counsel for the Underwriters, dated such Date of Delivery, relating to the Option Securities to be purchased on such Date of Delivery and otherwise to the same effect as the opinion required by Section 5(c) hereof. (iv) Opinion of Dutch Counsel for Company. The favorable opinion of __________________________, Dutch counsel for the Company, in form and substance satisfactory to counsel for the Underwriters, dated such Date of Delivery, relating to the Option Securities to be purchased on such Date of Delivery and otherwise to the same effect as the opinion required by Section 5(d) hereof. (v) Opinion of Counsel for Underwriters. The favorable opinion of Shearman & Sterling, counsel for the Underwriters, dated such Date of Delivery, relating to the Option Securities to be purchased on such Date of Delivery and otherwise to the same effect as the opinion required by Section 5(e) hereof. (vi) Bring-down Comfort Letter. A letter from KPMG, in form and substance satisfactory to the Representatives and dated such Date of Delivery, substantially in the same form and substance as the letter furnished to the Representatives pursuant to Section 5(h) hereof, except that the "specified date" in the letter furnished pursuant to this paragraph shall be a date not more than five days prior to such Date of Delivery. (n) Additional Documents. At Closing Time and at each Date of Delivery, counsel for the Underwriters shall have been furnished with such documents and opinions as they may require for the purpose of enabling them to pass upon the issuance and sale of the Securities as herein contemplated, or in order to evidence the accuracy of any of the representations or warranties, or the fulfillment of any of the conditions, herein contained; and all proceedings taken by the Company in connection with the issuance and sale of the Securities as herein contemplated shall be satisfactory in form and substance to the Representatives and counsel for the Underwriters. 17 22 (o) Termination of Agreement. If any condition specified in this Section shall not have been fulfilled when and as required to be fulfilled, this Agreement, or, in the case of any condition to the purchase of Option Securities, on a Date of Delivery which is after the Closing Time, the obligations of the several Underwriters to purchase the relevant Option Securities, may be terminated by the Representatives by notice to the Company at any time at or prior to Closing Time or such Date of Delivery, as the case may be, and such termination shall be without liability of any party to any other party except as provided in Section 4 and except that Sections 1, 6, 7 and 8 shall survive any such termination and remain in full force and effect. SECTION 6. Indemnification. (a) Indemnification of Underwriters. The Company agrees to indemnify and hold harmless each Underwriter and each person, if any, who controls any Underwriter within the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act as follows: (i) against any and all loss, liability, claim, damage and expense whatsoever, as incurred, arising out of any untrue statement or alleged untrue statement of a material fact contained in the Registration Statement (or any amendment thereto), including the Rule 430A Information and the Rule 434 Information, if applicable, or the omission or alleged omission therefrom of a material fact required to be stated therein or necessary to make the statements therein not misleading or arising out of any untrue statement or alleged untrue statement of a material fact included in any preliminary prospectus or the Prospectus (or any amendment or supplement thereto), or the omission or alleged omission therefrom of a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading; (ii) against any and all loss, liability, claim, damage and expense whatsoever, as incurred, to the extent of the aggregate amount paid in settlement of any litigation, or any investigation or proceeding by any governmental agency or body, commenced or threatened, or of any claim whatsoever based upon any such untrue statement or omission, or any such alleged untrue statement or omission; provided that (subject to Section 6(d) below) any such settlement is effected with the written consent of the Company; and (iii) against any and all expense whatsoever, as incurred (including the fees and disbursements of counsel chosen by Merrill Lynch), reasonably incurred in investigating, preparing or defending against any litigation, or any investigation or proceeding by any governmental agency or body, commenced or threatened, or any claim whatsoever based upon any such untrue statement or omission, or any such alleged untrue statement or omission, to the extent that any such expense is not paid under (i) or (ii) above; provided, however, that this indemnity agreement shall not apply to any loss, liability, claim, damage or expense to the extent arising out of any untrue statement or omission or alleged 18 23 untrue statement or omission made in reliance upon and in conformity with written information furnished to the Company by any Underwriter through Merrill Lynch expressly for use in the Registration Statement (or any amendment thereto), including the Rule 430A Information and the Rule 434 Information, if applicable, or any preliminary prospectus or the Prospectus (or any amendment or supplement thereto); and provided, further, that the foregoing indemnity with respect to any untrue statement contained in or any omission from any preliminary prospectus shall not inure to the benefit of any Underwriter (or any person controlling such Underwriter) from whom the person asserting any such loss, liability, claim, damage or expense purchased any of the Securities that are the subject thereof if the Company shall sustain the burden of proving that such person was not sent or given a copy of the Prospectus or any supplemental material which corrected the untrue statement or omission at or prior to the written confirmation of the sale of such Securities to such person. (b) Indemnification of Company, Directors and Officers. Each Underwriter severally agrees to indemnify and hold harmless the Company, its directors, each of its officers who signed the Registration Statement, and each person, if any, who controls the Company within the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act against any and all loss, liability, claim, damage and expense described in the indemnity contained in subsection (a) of this Section, as incurred, but only with respect to untrue statements or omissions, or alleged untrue statements or omissions, made in the Registration Statement (or any amendment thereto), including the Rule 430A Information and the Rule 434 Information, if applicable, or any preliminary prospectus or the Prospectus (or any amendment or supplement thereto) in reliance upon and in conformity with written information furnished to the Company by such Underwriter through Merrill Lynch expressly for use in the Registration Statement (or any amendment thereto) or such preliminary prospectus or the Prospectus (or any amendment or supplement thereto). (c) Actions against Parties; Notification. Each indemnified party shall give notice as promptly as reasonably practicable to each indemnifying party of any action commenced against it in respect of which indemnity may be sought hereunder, but failure to so notify an indemnifying party shall not relieve such indemnifying party from any liability hereunder to the extent it is not materially prejudiced as a result thereof and in any event shall not relieve it from any liability which it may have otherwise than on account of this indemnity agreement. In the case of parties indemnified pursuant to Section 6(a) above, counsel to the indemnified parties shall be selected by Merrill Lynch, and, in the case of parties indemnified pursuant to Section 6(b) above, counsel to the indemnified parties shall be selected by the Company. An indemnifying party may participate at its own expense in the defense of any such action; provided, however, that counsel to the indemnifying party shall not (except with the consent of the indemnified party) also be counsel to the indemnified party. If it so elects within a reasonable time after receipt of such notice, an indemnifying party, jointly with any other indemnifying parties receiving such notice, may assume the defense of such action with counsel chosen by it and approved by the indemnified parties defendant in such action, which approval shall not be unreasonably withheld, provided that, if such indemnified party or parties reasonably determine that there may be legal defenses available to them which are different from or in 19 24 addition to those available to such indemnifying party or parties, then such indemnifying party or parties shall not be entitled to assume such defense. If the indemnifying party or parties are not entitled to assume the defense of such action as a result of the preceding sentence, counsel for the indemnifying party or parties shall be entitled to conduct the defense of such indemnifying party or parties and counsel for the indemnified party or parties shall be entitled to conduct the defense of such indemnified party or parties, it being understood that both such counsel will cooperate with each other to conduct the defense of such action as efficiently as possible. If an indemnifying party assumes the defense of such action, the indemnifying parties shall not be liable for any fees and expenses of counsel for the indemnified parties incurred thereafter in connection with such action, unless (i) the indemnified party shall have employed separate counsel in accordance with the next preceding sentence or (ii) the indemnifying party does not promptly retain counsel satisfactory to the indemnified party or (iii) the indemnifying party has authorized the employment of counsel for the indemnified party at the expense of the indemnifying party. In no event shall the indemnifying parties be liable for fees and expenses of more than one counsel (in addition to any local counsel) separate from their own counsel for all indemnified parties in connection with any one action or separate but similar or related actions in the same jurisdiction arising out of the same general allegations or circumstances. No indemnifying party shall, without the prior written consent of the indemnified parties, settle or compromise or consent to the entry of any judgment with respect to any litigation, or any investigation or proceeding by any governmental agency or body, commenced or threatened, or any claim whatsoever in respect of which indemnification or contribution could be sought under this Section 6 or Section 7 hereof (whether or not the indemnified parties are actual or potential parties thereto), unless such settlement, compromise or consent (i) includes an unconditional release of each indemnified party from all liability arising out of such litigation, investigation, proceeding or claim and (ii) does not include a statement as to or an admission of fault, culpability or a failure to act by or on behalf of any indemnified party. (d) Settlement without Consent if Failure to Reimburse. If at any time an indemnified party shall have requested an indemnifying party to reimburse the indemnified party for fees and expenses of counsel, such indemnifying party agrees that it shall be liable for any settlement of the nature contemplated by Section 6(a)(ii) effected without its written consent if (i) such settlement is entered into more than 60 days after receipt by such indemnifying party of the aforesaid request, (ii) such indemnifying party shall have received notice of the terms of such settlement at least 45 days prior to such settlement being entered into and (iii) such indemnifying party shall not have reimbursed such indemnified party in accordance with such request prior to the date of such settlement. SECTION 7. Contribution. If the indemnification provided for in Section 6 hereof is for any reason unavailable to or insufficient to hold harmless an indemnified party in respect of any losses, liabilities, claims, damages or expenses referred to therein, then each indemnifying party shall contribute to the aggregate amount of such losses, liabilities, claims, damages and expenses incurred by such indemnified party, as incurred, (i) in such proportion as is appropriate to reflect the relative benefits received by the Company on the one hand and the Underwriters on the other hand from the offering of the Securities pursuant to this Agreement or (ii) if the 20 25 allocation provided by clause (i) is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (i) above but also the relative fault of the Company on the one hand and of the Underwriters on the other hand in connection with the statements or omissions which resulted in such losses, liabilities, claims, damages or expenses, as well as any other relevant equitable considerations. The relative benefits received by the Company on the one hand and the Underwriters on the other hand in connection with the offering of the Securities pursuant to this Agreement shall be deemed to be in the same respective proportions as the total net proceeds from the offering of the Securities pursuant to this Agreement (before deducting expenses) received by the Company and the total underwriting discount received by the Underwriters, in each case as set forth on the cover of the Prospectus, or, if Rule 434 is used, the corresponding location on the Term Sheet, bear to the aggregate initial public offering price of the Securities as set forth on such cover. The relative fault of the Company on the one hand and the Underwriters on the other hand shall be determined by reference to, among other things, whether any such untrue or alleged untrue statement of a material fact or omission or alleged omission to state a material fact relates to information supplied by the Company or by the Underwriters and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The Company and the Underwriters agree that it would not be just and equitable if contribution pursuant to this Section were determined by pro rata allocation (even if the Underwriters were treated as one entity for such purpose) or by any other method of allocation which does not take account of the equitable considerations referred to above in this Section. The aggregate amount of losses, liabilities, claims, damages and expenses incurred by an indemnified party and referred to above in this Section shall be deemed to include any legal or other expenses reasonably incurred by such indemnified party in investigating, preparing or defending against any litigation, or any investigation or proceeding by any governmental agency or body, commenced or threatened, or any claim whatsoever based upon any such untrue or alleged untrue statement or omission or alleged omission. Notwithstanding the provisions of this Section, no Underwriter shall be required to contribute any amount in excess of the amount by which the total price at which the Securities underwritten by it and distributed to the public were offered to the public exceeds the amount of any damages which such Underwriter has otherwise been required to pay by reason of any such untrue or alleged untrue statement or omission or alleged omission. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the 1933 Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. 21 26 For purposes of this Section, each person, if any, who controls an Underwriter within the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act shall have the same rights to contribution as such Underwriter, and each director of the Company, each officer of the Company who signed the Registration Statement, and each person, if any, who controls the Company within the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act shall have the same rights to contribution as the Company. The Underwriters' respective obligations to contribute pursuant to this Section are several in proportion to the number of Initial Securities set forth opposite their respective names in Schedule A hereto and not joint. SECTION 8. Representations, Warranties and Agreements to Survive Delivery. All representations, warranties and agreements contained in this Agreement or in certificates of officers of the Company or any of its subsidiaries submitted pursuant hereto shall remain operative and in full force and effect, regardless of any investigation made by or on behalf of any Underwriter or controlling person, or by or on behalf of the Company, and shall survive delivery of the Securities to the Underwriters. SECTION 9. Termination of Agreement. (a) Termination; General. The Representatives may terminate this Agreement, by notice to the Company, at any time at or prior to Closing Time (i) if there has been, since the time of execution of this Agreement or since the respective dates as of which information is given in the Prospectus, any material adverse change in the condition, financial or otherwise, or in the earnings, business affairs or business prospects of the Company and its subsidiaries considered as one enterprise, whether or not arising in the ordinary course of business, or (ii) if there has occurred any material adverse change in the financial markets in the United States, any outbreak of hostilities or escalation thereof or other calamity or crisis or any change or development involving a prospective change in national or international political, financial or economic conditions, in each case the effect of which is such as to make it, in the judgment of the Representatives, impracticable to market the Securities or to enforce contracts for the sale of the Securities, or (iii) if trading in any securities of the Company has been suspended or materially limited by the Commission or the New York Stock Exchange, or if trading generally on the American Stock Exchange or the New York Stock Exchange or in the Nasdaq National Market has been suspended or materially limited, or minimum or maximum prices for trading have been fixed, or maximum ranges for prices have been required, by any of said exchanges or by such system or by order of the Commission, the NASD or any other governmental authority, or (iv) if a banking moratorium has been declared by either United States federal, New York or Canadian authorities. (b) Liabilities. If this Agreement is terminated pursuant to this Section, such termination shall be without liability of any party to any other party except as provided in Section 4 hereof, and provided further that Sections 1, 6, 7 and 8 shall survive such termination and remain in full force and effect. 22 27 SECTION 10. Default by One or More of the Underwriters. If one or more of the Underwriters shall fail at Closing Time or a Date of Delivery to purchase the Securities which it or they are obligated to purchase under this Agreement (the "Defaulted Securities"), the Representatives shall have the right, within 24 hours thereafter, to make arrangements for one or more of the non-defaulting Underwriters, or any other underwriters, to purchase all, but not less than all, of the Defaulted Securities in such amounts as may be agreed upon and upon the terms herein set forth; if, however, the Representatives shall not have completed such arrangements within such 24-hour period, then: (a) if the number of Defaulted Securities does not exceed 10% of the number of Securities to be purchased on such date, the non-defaulting Underwriters shall be obligated, each severally and not jointly, to purchase the full amount thereof in the proportions that their respective underwriting obligations hereunder bear to the underwriting obligations of all non-defaulting Underwriters, or (b) if the number of Defaulted Securities exceeds 10% of the number of Securities to be purchased on such date, this Agreement or, with respect to any Date of Delivery which occurs after Closing Time, the obligation of the Underwriters to purchase and of the Company to sell the Option Securities to be purchased and sold on such Date of Delivery shall terminate without liability on the part of any non-defaulting Underwriter. No action taken pursuant to this Section shall relieve any defaulting Underwriter from liability in respect of its default. In the event of any such default which does not result in a termination of this Agreement or, in the case of a Date of Delivery which is after Closing Time, which does not result in a termination of the obligation of the Underwriters to purchase and the Company to sell the relevant Option Securities, as the case may be, either the Representatives or the Company shall have the right to postpone Closing Time or the relevant Date of Delivery, as the case may be, for a period not exceeding seven days in order to effect any required changes in the Registration Statement or Prospectus or in any other documents or arrangements. As used herein, the term "Underwriter" includes any person substituted for an Underwriter under this Section. SECTION 11. Agent for Service; Submission to Jurisdiction; Waiver of Immunities. By the execution and delivery of this Agreement, the Company (i) acknowledges that it has, by separate written instrument, irrevocably designated and appointed Lawco of Oregon, Inc. (or any successor) (together with any successor, the "Agent for Service"), as its authorized agent upon which process may be served in any suit or proceeding arising out of or relating to this Agreement or the Securities, that may be instituted in any federal or state court in the State of New York, or brought under United States federal or state securities laws, and acknowledges that the Agent for Service has accepted such designation, (ii) submits to the jurisdiction of any such court in any such suit or proceeding, and (iii) agrees that service of process upon the Agent for Service (or any successor) and written notice of said service to the Company (mailed or 23 28 delivered to its Corporate Secretary at its principal office in Richmond, British Columbia, Canada), shall be deemed in every respect effective service of process upon the Company in any such suit or proceeding. The Company further agrees to take any and all action, including the execution and filing of any and all such documents and instruments, as may be necessary to continue such designation and appointment of the Agent for Service in full force and effect so long as any of the Securities shall be outstanding. To the extent that the Company has or hereafter may acquire any immunity from jurisdiction of any court or from any legal process (whether through service of notice, attachment prior to judgment, attachment in aid of execution, execution or otherwise) with respect to itself or its property, it hereby irrevocably waives such immunity in respect of its obligations under the above-referenced documents, to the extent permitted by law. SECTION 12. Notices. All notices and other communications hereunder shall be in writing and shall be deemed to have been duly given if mailed or transmitted by any standard form of telecommunication. Notices to the Underwriters shall be directed to the Representatives at North Tower, World Financial Center, New York, New York 10281, attention of Robert D. Grandy; and notices to the Company shall be directed to it at: Ritchie Bros. Auctioneers Incorporated, 9200 Bridgeport Rd., Richmond, British Columbia V6X 1S1, attention of C. Russell Cmolik. SECTION 13. Parties. This Agreement shall inure to the benefit of and be binding upon the Underwriters and the Company and their respective successors. Nothing expressed or mentioned in this Agreement is intended or shall be construed to give any person, firm or corporation, other than the Underwriters and the Company and their respective successors and the controlling persons and officers and directors referred to in Sections 6 and 7 and their heirs and legal representatives, any legal or equitable right, remedy or claim under or in respect of this Agreement or any provision herein contained. This Agreement and all conditions and provisions hereof are intended to be for the sole and exclusive benefit of the Underwriters and the Company and their respective successors, and said controlling persons and officers and directors and their heirs and legal representatives, and for the benefit of no other person, firm or corporation. No purchaser of Securities from any Underwriter shall be deemed to be a successor by reason merely of such purchase. SECTION 14. GOVERNING LAW AND TIME. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. EXCEPT AS OTHERWISE SET FORTH HEREIN, SPECIFIED TIMES OF DAY REFER TO NEW YORK CITY TIME. SECTION 15. Effect of Headings. The Article and Section headings herein and the Table of Contents are for convenience only and shall not affect the construction hereof. 24 29 If the foregoing is in accordance with your understanding of our agreement, please sign and return to the Company a counterpart hereof, whereupon this instrument, along with all counterparts, will become a binding agreement between the Underwriters and the Company in accordance with its terms. Very truly yours, RITCHIE BROS. AUCTIONEERS INCORPORATED By: _________________________________ Name: Title: CONFIRMED AND ACCEPTED, as of the date first above written: MERRILL LYNCH & CO. MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED FURMAN SELZ LLC MORGAN STANLEY & CO. INCORPORATED By: MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED By ________________________________________ Authorized Signatory For themselves and as Representatives of the other Underwriters named in Schedule A hereto. 25 30 SCHEDULE A
Number of Initial Name of Underwriter Securities ------------------- ---------- Merrill Lynch, Pierce, Fenner & Smith Incorporated.............................................. Furman Selz LLC....................................................... Morgan Stanley & Co. Incorporated..................................... ------------ Total........................................................ ============
Sch A - 1 31 SCHEDULE B RITCHIE BROS. AUCTIONEERS INCORPORATED __ Common Shares 1. The initial public offering price per share for the Securities, determined as provided in said Section 2, shall be $__. 2. The purchase price per share for the Securities to be paid by the several Underwriters shall be $__, being an amount equal to the initial public offering price set forth above less $__ per share; provided that the purchase price per share for any Option Securities purchased upon the exercise of the over-allotment option described in Section 2(b) shall be reduced by an amount per share equal to any dividends or distributions declared by the Company and payable on the Initial Securities but not payable on the Option Securities. Sch B - 1 32 SCHEDULE C List of persons and entities subject to lock-up Kenneth D. Asbury Edward H. Banser Banser Family Trust Peter J. Blake Robert L. Brawley Donald F. Chalmers Marvin R. Chantler Mark S. Clarke Clifford R. Cmolik Robert J. Carswell Frank S. McFadden Martin E. Pope David E. Ritchie Michael G. Ritchie Roger W. Rummel Sylvain M. Touchette John T. Wild Sch C- 1 33 Exhibit A FORM OF OPINION OF COMPANY'S UNITED STATES COUNSEL TO BE DELIVERED PURSUANT TO SECTION 5(b) (i) Each United States Subsidiary has been duly incorporated and is validly existing under the laws of the jurisdiction of its incorporation, has corporate power and authority to own, lease and operate its properties and to conduct its business as described in the Prospectus and is duly qualified as a foreign corporation to transact business and is in good standing in each jurisdiction in which such qualification is required, whether by reason of the ownership or leasing of property or the conduct of business, except where the failure so to qualify or to be in good standing would not result in a Material Adverse Effect; except as otherwise disclosed in the Registration Statement, all of the issued and outstanding capital stock of each United States Subsidiary has been duly authorized and validly issued, is fully paid and non-assessable and, to the best of our knowledge, is owned by the Company, directly or through subsidiaries, free and clear of any security interest, mortgage, pledge, lien, encumbrance, claim or equity; none of the outstanding shares of capital stock of any United States Subsidiary was issued in violation of the preemptive or similar rights of any securityholder of such United States Subsidiary. (ii) The Registration Statement, including any Rule 462(b) Registration Statement, has been declared effective under the 1933 Act; any required filing of the Prospectus pursuant to Rule 424(b) has been made in the manner and within the time period required by Rule 424(b); and, to the best of our knowledge, no stop order suspending the effectiveness of the Registration Statement or any Rule 462(b) Registration Statement has been issued under the 1933 Act and no proceedings for that purpose have been instituted or are pending or threatened by the Commission. (iii) The Registration Statement, including any Rule 462(b) Registration Statement, the Rule 430A Information and the Rule 434 Information, as applicable, the Prospectus and each amendment or supplement to the Registration Statement and Prospectus as of their respective effective or issue dates (other than the financial statements and supporting schedules included therein or omitted therefrom, as to which we need express no opinion) complied as to form in all material respects with the requirements of the 1933 Act and the 1933 Act Regulations. (iv) The form of certificate used to evidence the Common Shares complies in all material respects with the requirements of the New York Stock Exchange. (v) To the best of our knowledge, there is not pending or threatened any action, suit, proceeding, inquiry or investigation, to which the Company or any subsidiary is a party, or to which the property of the Company or any subsidiary is subject, before or brought by any court or governmental agency or body in the United States, which might reasonably be expected to result in a Material Adverse Effect, or which might reasonably be expected to materially and adversely affect the properties or assets thereof or the consummation of the transactions contemplated in the Purchase Agreement or the performance by the Company of its obligations thereunder. A-1 34 (vi) The information in the Prospectus under "Shares Eligible for Future Sale", "Certain Income Tax Consequences--United States Federal Income Tax Consequences" and in the Registration Statement under Item 15, to the extent that it constitutes matters of law, summaries of legal matters or legal conclusions, has been reviewed by us and is correct in all material respects; (vii) To the best of our knowledge, there are no United States statutes or regulations that are required to be described in the Prospectus that are not described as required. (viii) All descriptions in the Registration Statement of contracts and other documents to which the Company or its subsidiaries are a party are accurate in all material respects; to the best of our knowledge, there are no franchises, contracts, indentures, mortgages, loan agreements, notes, leases or other instruments required to be described or referred to in the Registration Statement or to be filed as exhibits thereto other than those described or referred to therein or filed or incorporated by reference as exhibits thereto, and the descriptions thereof or references thereto are correct in all material respects. (ix) To the best of our knowledge, none of the United States Subsidiaries is in violation of its charter or by-laws. (x) No filing with, or authorization, approval, consent, license, order, registration, qualification or decree of, any court or governmental authority or agency in the United States (other than under the 1933 Act and the 1933 Act Regulations, which have been obtained, or as may be required under the securities or blue sky laws of the various states, as to which we need express no opinion) is necessary or required in connection with the offering, issuance, sale or delivery of the Securities. (xi) The execution, delivery and performance of the Purchase Agreement and the consummation of the transactions contemplated in the Purchase Agreement and in the Registration Statement (including the issuance and sale of the Securities and the use of the proceeds from the sale of the Securities as described in the Prospectus under the caption "Use Of Proceeds") and compliance by the Company with its obligations under the Purchase Agreement do not and will not, whether with or without the giving of notice or lapse of time or both, conflict with or constitute a breach of, or default or Repayment Event (as defined in Section 1(a)(x) of the Purchase Agreement) under, or result in the creation or imposition of any lien, charge or encumbrance upon any property or assets of the Company or any subsidiary pursuant to, any contract, indenture, mortgage, deed of trust, loan or credit agreement, note, lease or any other agreement or instrument, known to us, to which the Company or any subsidiary is a party or by which it or any of them may be bound, or to which any of the property or assets of the Company or any subsidiary is subject (except for such conflicts, breaches or defaults or liens, charges or encumbrances that would not have a Material Adverse Effect), nor will such action result in any violation of the provisions of the charter or by-laws of any United States Subsidiary, or any applicable law, statute, rule, regulation, judgment, order, writ or decree, known to us, of any government, government instrumentality or court in the United States having jurisdiction over the Company or any subsidiary or any of their respective properties, assets or operations. A-2 35 (xii) To the best of our knowledge, there are no persons with registration rights or other similar rights to have any securities registered pursuant to the Registration Statement or otherwise registered by the Company under the 1933 Act. (xiii) The Company is not an "investment company" or an entity "controlled" by an "investment company," as such terms are defined in the 1940 Act. (xiv) All aspects of the Reorganization have been completed simultaneously with, or prior to, the Closing Time. Nothing has come to our attention that would lead us to believe that the Registration Statement or any amendment thereto, including the Rule 430A Information and Rule 434 Information (if applicable), (except for financial statements and schedules and other financial data included therein or omitted therefrom, as to which we need make no statement), at the time such Registration Statement or any such amendment became effective, contained an untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein not misleading or that the Prospectus or any amendment or supplement thereto (except for financial statements and schedules and other financial data included therein or omitted therefrom, as to which we need make no statement), at the time the Prospectus was issued, at the time any such amended or supplemented prospectus was issued or at the Closing Time, included or includes an untrue statement of a material fact or omitted or omits to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. In rendering such opinion, such counsel may rely (A) as to all matters governed by the laws of jurisdictions other than the law of the State of New York, the State of Oregon, the State of Washington and the federal law of the United States, upon opinions of local counsel, who shall be counsel satisfactory to counsel for the Underwriters (which opinions shall be dated and furnished to the Representatives at the Closing Time, shall be satisfactory in form and substance to counsel for the Underwriters and shall expressly state that the Underwriters may rely on such opinion as if it were addressed to them), provided that Perkins Coie shall state in their opinion that they believe that they and the Underwriters are justified in relying upon such opinion, and (B) as to matters of fact (but not as to legal conclusions), to the extent they deem proper, on certificates of responsible officers of the Company and public officials. Such opinion shall not state that it is to be governed or qualified by, or that it is otherwise subject to, any treatise, written policy or other document relating to legal opinions, including, without limitation, the Legal Opinion Accord of the ABA Section of Business Law (1991). A-3 36 Exhibit B FORM OF OPINION OF COMPANY'S CANADIAN COUNSEL TO BE DELIVERED PURSUANT TO SECTION 5(c) (i) The Company has been duly incorporated and is validly existing as a corporation in good standing under the laws of Canada. (ii) The Company has corporate power and authority to own, lease and operate its properties and to conduct its business as described in the Prospectus and to enter into and perform its obligations under the Purchase Agreement. (iii) The Company is extra-provincially registered or otherwise qualified as an extra-provincial or a foreign corporation to transact business and is in good standing in each jurisdiction in which such qualification is required, whether by reason of the ownership or leasing of property or the conduct of business, except where the failure so to qualify or to be in good standing would not result in a Material Adverse Effect. (iv) The authorized, issued and outstanding share capital of the Company is as set forth in the Prospectus in the column entitled "Pro Forma" under the caption "Capitalization" (except for subsequent issuances, if any, pursuant to the Purchase Agreement or pursuant to the exercise of convertible securities or options referred to in the Prospectus); the issued and outstanding shares in the capital of the Company have been duly authorized and validly issued and are fully paid and non-assessable; and none of the outstanding shares of capital of the Company was issued in violation of the preemptive or other similar rights of any securityholder of the Company. (v) The Securities have been duly authorized for issuance and sale to the Underwriters pursuant to the Purchase Agreement and, when issued and delivered by the Company pursuant to the Purchase Agreement against payment of the consideration set forth in the Purchase Agreement, will be validly issued and fully paid and non-assessable and no holder of the Securities is or will be subject to personal liability by reason of being such a holder. (vi) The issuance of the Securities is not subject to the preemptive or other similar rights of any securityholder of the Company. (vii) The form of certificate used to evidence the Common Shares has been duly approved and adopted by the Company and complies with all applicable statutory requirements and with any applicable requirements of the constating documents of the Company. (viii) Each Canadian Subsidiary has been duly incorporated or organized and is validly existing as a corporation in good standing under the laws of the jurisdiction of its incorporation or organization, has corporate power and authority to own, lease and operate its properties and to conduct its business as described in the Prospectus and is extra-provincially registered or otherwise qualified as a foreign corporation to transact business and is in good standing in each jurisdiction B-1 37 in which such qualification is required, whether by reason of the ownership or leasing of property or the conduct of business, except where the failure so to qualify or to be in good standing would not result in a Material Adverse Effect; except as otherwise disclosed in the Registration Statement, all of the issued and outstanding capital stock of each Canadian Subsidiary has been duly authorized and validly issued, is fully paid and non-assessable and, to the best of our knowledge, is owned by the Company, directly or through subsidiaries, free and clear of any security interest, mortgage, pledge, lien, encumbrance, claim or equity; none of the outstanding shares of capital stock of any Canadian Subsidiary was issued in violation of the preemptive or similar rights of any securityholder of such Canadian Subsidiary. (ix) The Purchase Agreement has been duly authorized, executed and delivered by the Company. (x) To the best of our knowledge, there is not pending or threatened any action, suit, proceeding, inquiry or investigation, to which the Company or any subsidiary is a party, or to which the property of the Company or any subsidiary is subject, before or brought by any court or governmental agency or body in Canada which might reasonably be expected to result in a Material Adverse Effect, or which might reasonably be expected to materially and adversely affect the properties or assets thereof or the consummation of the transactions contemplated in the Purchase Agreement or the performance by the Company of its obligations thereunder. (xi) The information in the Prospectus under "Description of Share Capital", and "Certain Income Tax Consequences--Certain Canadian Federal Income Tax Consequences" and in the Registration Statement under Item 14, to the extent that it constitutes matters of law, summaries of legal matters, the Company's charter and by-laws or legal conclusions, has been reviewed by us and is correct in all material respects. (xii) To the best of our knowledge, there are no Canadian statutes or regulations that are required to be described in the Prospectus that are not described as required. (xiii) To the best of our knowledge, neither the Company nor any Canadian Subsidiary is in violation of its charter or by-laws and no default by the Company or any subsidiary exists in the due performance or observance of any material obligation, agreement, covenant or condition contained in any contract, indenture, mortgage, loan agreement, note, lease or other agreement or instrument that is described or referred to in the Registration Statement or the Prospectus or filed or incorporated by reference as an exhibit to the Registration Statement. (xiv) No filing with, or authorization, approval, consent, license, order, registration, qualification or decree of, any court or governmental authority or agency in Canada is necessary or required in connection with the due authorization, execution and delivery of the Purchase Agreement or for the offering, issuance, sale or delivery of the Securities. (xv) The execution, delivery and performance of the Purchase Agreement and the consummation of the transactions contemplated in the Purchase Agreement and in the Registration Statement (including the issuance and sale of the Securities and the use of the proceeds from the sale of the Securities as described in the Prospectus under the caption "Use Of Proceeds") and compliance by the Company with its obligations under the Purchase Agreement do not and will not B-2 38 result in any violation of the provisions of the charter or by-laws of the Company or any Canadian Subsidiary, or any applicable law, statute, rule, regulation, judgment, order, writ or decree, known to us, of any government, government instrumentality or court in Canada having jurisdiction over the Company or any subsidiary or any of their respective properties, assets or operations. (xvi) A court of competent jurisdiction in the Province of British Columbia (a "British Columbia Court") would give effect to the choice of the law of the State of New York ("New York law") as the proper law governing this Agreement, provided that such choice of law is bona fide (in the sense that it was not made with a view to avoiding the consequences of the laws of any other jurisdiction) and provided that such choice of law is not contrary to public policy as that term is applied by a British Columbia Court ("Public Policy"). In such counsel's opinion, there is no reason under the laws of the Province of British Columbia or the laws of Canada applicable therein for avoiding the choice of New York law to govern this Agreement. (xvii) In an action on a final and conclusive judgment in personam of any federal or state court in the State of New York (a "New York Court") that is not impeachable as void or voidable under New York law, a British Columbia Court would give effect to the appointment by the Company of Lawco of Oregon, Inc. as its agent to receive service of process in the United States of America under this Agreement and to the provisions in this Agreement whereby the Company submits to the non-exclusive jurisdiction of a New York Court. (xviii) If this Agreement is sought to be enforced in the Province of British Columbia in accordance with the laws applicable thereto as chosen by the parties, namely New York law, a British Columbia Court would, subject to paragraph (xvi) above, recognize the choice of New York law and, upon appropriate evidence as to such law being adduced, apply such law, provided that none of the provisions of this Agreement, or of applicable New York law, are contrary to Public Policy, provided, however, that, in matters of procedure, the laws of the Province of British Columbia will be applied, and a British Columbia Court will retain discretion to decline to hear such action if it is contrary to Public Policy, for it to do so, or if it is not the proper forum to hear such an action, or if concurrent proceedings are being brought elsewhere. (xix) The laws of the Province of British Columbia and the laws of Canada applicable therein permit an action to be brought in a British Columbia Court on a final and conclusive judgment in personam of a New York Court that is subsisting and unsatisfied respecting the enforcement of this Agreement, that is not impeachable as void or voidable under New York law and that is for a sum certain if: (A) the New York Court that rendered such judgment had jurisdiction over the judgment debtor, as recognized by a British Columbia Court (and submission by the Company in this Agreement to the jurisdiction of the New York Court will be deemed sufficient for such purpose); (B) such judgment was not obtained by fraud or in a manner contrary to natural justice and the enforcement thereof would not be inconsistent with Public Policy or contrary to any order made by the Attorney General of Canada under the Foreign Extraterritorial Measures Act (Canada); (C) the enforcement of such judgment in British Columbia does not constitute, directly or indirectly, the enforcement of foreign revenue, expropriatory or penal laws; (D) in an action to enforce a default judgment, the judgment contains a manifest error on its face; and (E) the action to enforce such judgment is commenced within six years of the date of such judgment, except that a British Columbia Court may stay an action to enforce a foreign judgment B-3 39 if an appeal is pending or the time for appeal has not expired, provided that under the Currency Act (Canada), a British Columbia Court may only give judgment in Canadian dollars. In rendering such opinion, such counsel may rely (A) as to all matters governed by the laws of jurisdictions other than the laws of the Provinces of British Columbia, Alberta, Ontario and Quebec and the federal laws of Canada applicable therein, upon opinions of local counsel, who shall be counsel satisfactory to counsel for the Underwriters (which opinions shall be dated and furnished to the Representatives at the Closing Time, shall be satisfactory in form and substance to counsel for the Underwriters and shall expressly state that the Underwriters may rely on such opinion as if it were addressed to them), provided that McCarthy Tetrault shall state in their opinion that they believe that they and the Underwriters are justified in relying upon such opinion, and (B), as to matters of fact (but not as to legal conclusions), to the extent they deem proper, on certificates of responsible officers of the Company and public officials. Such opinion shall not state that it is to be governed or qualified by, or that it is otherwise subject to, any treatise, written policy or other document relating to legal opinions. B-4 40 Exhibit C FORM OF OPINION OF COMPANY'S DUTCH COUNSEL TO BE DELIVERED PURSUANT TO SECTION 5(b) (i) Each Dutch Subsidiary has been duly incorporated and is validly existing as a corporation in good standing under the laws of the jurisdiction of its incorporation, has corporate power and authority to own, lease and operate its properties and to conduct its business as described in the Prospectus and is duly qualified as a foreign corporation to transact business and is in good standing in each jurisdiction in which such qualification is required, whether by reason of the ownership or leasing of property or the conduct of business, except where the failure so to qualify or to be in good standing would not result in a Material Adverse Effect; except as otherwise disclosed in the Registration Statement, all of the issued and outstanding capital stock of each Dutch Subsidiary has been duly authorized and validly issued, is fully paid and non-assessable and, to the best of our knowledge, is owned by the Company, directly or through subsidiaries, free and clear of any security interest, mortgage, pledge, lien, encumbrance, claim or equity; none of the outstanding shares of capital stock of any Dutch Subsidiary was issued in violation of the preemptive or similar rights of any securityholder of such Dutch Subsidiary. (ii) To the best of our knowledge, none of the Dutch Subsidiaries is in violation of its charter or by-laws. C-1 41 FORM OF LOCK-UP FROM DIRECTORS, OFFICERS OR OTHER STOCKHOLDERS PURSUANT TO SECTION 5(J) Exhibit D ____________, 1997 MERRILL LYNCH & CO. Merrill Lynch, Pierce, Fenner & Smith Incorporated, MORGAN STANLEY & CO. INCORPORATED FURMAN SELZ LLC as Representatives of the several Underwriters to be named in the within-mentioned Purchase Agreement c/o Merrill Lynch & Co. Merrill Lynch, Pierce, Fenner & Smith Incorporated North Tower World Financial Center New York, New York 10281 Re: Proposed Public Offering by Ritchie Bros. Auctioneers Incorporated Dear Sirs: The undersigned, a stockholder [and an officer and/or director] of Ritchie Bros. Auctioneers Incorporated, a Canadian corporation (the "Company"), understands that Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill Lynch"), Morgan Stanley & Co. Incorporated and Furman Selz LLC propose to enter into a Purchase Agreement (the "Purchase Agreement") with the Company providing for the public offering of Common Shares (the "Securities") of the Company, without par value (the "Common Shares"). In recognition of the benefit that such an offering will confer upon the undersigned as a stockholder [and an officer and/or director of the Company], and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the undersigned agrees with each underwriter to be named in the Purchase Agreement that, during a period of 180 days from the date of the Purchase Agreement, the undersigned will not, without the prior written consent of Merrill Lynch, directly or indirectly, (i) offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant for the sale of, or otherwise dispose of or transfer any Common Shares or any securities convertible into or exchangeable or exercisable for Common Shares, whether now owned or hereafter acquired by the undersigned or with respect to which the undersigned has or hereafter acquires the power of disposition, or file any registration statement under the Securities Act of 1933, as amended, with respect to any of the foregoing or (ii) enter into any swap or any other agreement or any transaction that transfers, in whole or in part, D-1 42 directly or indirectly, the economic consequence of ownership of the Common Shares, whether any such swap or transaction is to be settled by delivery of Common Shares or other securities, in cash or otherwise. Very truly yours, Signature: Print Name: D-2 EX-3.1 3 ARTICLES OF AMALGAMATION 1 EXHIBIT 3.1
FORM 9 FORMULE 9 Canada Business Loi regissant les societes ARTICLES OF AMALGAMATION STATUS DE FUSION Corporations Act par actions de regime federal (SECTION 185) (ARTICLE 185) - ---------------------------------------------------------------------------------------------------------------------------- 1 - Name of amalgamated corporation Denomination de la societe issue de la fusion RITCHIE BROS. AUCTIONEERS INCORPORATED - ---------------------------------------------------------------------------------------------------------------------------- 2- The place in Canada where the registered office is to be Lieu au Canada ou doit etre situe le siege social situated Greater Vancouver Regional District - ---------------------------------------------------------------------------------------------------------------------------- 3- The classes and any maximum number of shares that the Categories et tout nombre maximal d'actions que la corporation is authorized to issue societe est autorisee a emettre The annexed Schedule 1 is incorporated in this form. - ---------------------------------------------------------------------------------------------------------------------------- 4 - Restrictions, if any, on share transfers Restrictions sur le transfert des actions, s'il y a lieu none - ---------------------------------------------------------------------------------------------------------------------------- 5 - Number (or minimum and maximum number) of directors Nombre (ou nombre minimal et maximal) d'administrateurs minimum of 3 and maximum of 10 - ---------------------------------------------------------------------------------------------------------------------------- 6 - Restrictions, if any, on business the corporation may Limites imposees a l'activite commerciale de la carry on societe, s'il y a lieu None - ---------------------------------------------------------------------------------------------------------------------------- 7 - Other provisions, if any Autres dispositions, s'il y a lieu none - ---------------------------------------------------------------------------------------------------------------------------- 8- The amalgamation has been approved pursuant to that 8 - La fusion a ete approvee en accord avec l'article section or subsection of the Act which is indicated as ou le paragraphe de la Loi indique ci-apres follows:
/X/ 183 / / 184(1) / / 184(2)
- ---------------------------------------------------------------------------------------------------------------------------- 9 - Name of the amalgamating corporations Corporation No. Signature Date Title Denomination des societes fusionnantes No de la societe Titre - ---------------------------------------------------------------------------------------------------------------------------- Ritchie Bros. Auctioneers Incorporated 33966-3 Director - ---------------------------------------------------------------------------------------------------------------------------- Banser Investments Ltd. Director - ---------------------------------------------------------------------------------------------------------------------------- M.G. Ritchie Enterprises Ltd. Director - ---------------------------------------------------------------------------------------------------------------------------- Neeram Enterprises Inc. Director - ---------------------------------------------------------------------------------------------------------------------------- FOR DEPARTMENTAL USE ONLY - A L'USAGE DU MINISTERE SEULEMENT Filed - Deposee Corporation No. - N(degree) de la societe - ----------------------------------------------------------------------------------------------------------------------------
2 This is SCHEDULE 1 of the Articles of Amalgamation of RITCHIE BROS. AUCTIONEERS INCORPORATED dated as of September _____, 1997 1. AUTHORIZED CAPITAL The authorized share capital of the Corporation shall consist of: (a) an unlimited number of Preferred Shares designated as Senior Preferred Shares, issuable in series ("Senior Preferred Shares"); (b) an unlimited number of Preferred Shares designated as Junior Preferred Shares, issuable in series ("Junior Preferred Shares"); and (c) an unlimited number of Common Shares ("Common Shares"). 2. SENIOR PREFERRED SHARES The Senior Preferred Shares shall, as a class, have attached thereto the following rights, privileges, restrictions and conditions: 2.1 Directors' Authority to Issue in One or More Series The directors of the Corporation may issue the Senior Preferred Shares at any time and from time to time in one or more series. Before any shares of a particular series are issued, the directors of the Corporation shall fix the number of shares that will form such series and shall determine, subject to the limitations set out in the articles, the designation, rights, privileges, restrictions and conditions to be attached to the Senior Preferred Shares of such series, including, but without in any way limiting or restricting the generality of the foregoing, the rate or rates, amount or method or methods of calculation of dividends thereon, the currency or currencies of payment of dividends, the time and place of payment of dividends, the consideration and the terms and conditions of any purchase for cancellation, retraction or redemption rights (if any), the conversion or exchange rights attached thereto (if any), the voting rights attached thereto (if any) and the terms and conditions of any share purchase plan or sinking fund with respect thereto. Before the issue of the first shares of a series, the directors shall send to the Director (as defined in the Canada Business Corporations Act) articles of amendment containing a description of such series including the designation, rights, privileges, restrictions and conditions determined by the directors. 2.2 Ranking of Senior Preferred Shares No rights, privileges, restrictions or conditions attached to a series of Senior Preferred Shares shall confer upon a series a priority in respect of dividends or return of capital over any other series of Senior Preferred Shares. The Senior Preferred Shares shall be entitled to priority over the Junior Preferred Shares and Common Shares of the Corporation and over any other shares ranking junior to the Senior Preferred Shares with respect to priority 3 in the payment of dividends and the distribution of assets in the event of the liquidation, dissolution or winding-up of the Corporation, whether voluntary or involuntary, or any other distribution of the assets of the Corporation among its shareholders for the purpose of winding up its affairs. If any cumulative dividends or amounts payable on a return of capital in respect of a series of Senior Preferred Shares are not paid in full, the Senior Preferred Shares of all series shall participate rateably in respect of such dividends, including accumulations, if any, in accordance with the sums that would be payable on such shares if all such dividends were declared and paid in full, and in respect of any repayment of capital in accordance with the sums that would be payable on such repayment of capital if all sums so payable were paid in full; provided, however, that in the event of there being insufficient assets to satisfy in full all such claims as aforesaid, the claims of the holders of the Senior Preferred Shares with respect to repayment of capital shall first be paid and satisfied and any assets remaining thereafter shall be applied towards the payment and satisfaction of claims in respect of dividends. The Senior Preferred Shares of any series may also be given such other preferences not inconsistent with clauses 2.1 to 2.4 hereof over the Junior Preferred Shares and Common Shares and over any other shares ranking junior to the Senior Preferred Shares as may be determined in the case of such series of Senior Preferred Shares. 2.3 Voting Rights Except as hereinafter referred to or as otherwise provided by law or in accordance with any voting rights which may from time to time be attached to any series of Senior Preferred Shares, the holders of the Senior Preferred Shares as a class shall not be entitled as such to receive notice of, to attend or to vote at any meeting of the shareholders of the Corporation. 2.4 Approval of Holders of Senior Preferred Shares The rights, privileges, restrictions and conditions attaching to the Senior Preferred Shares as a class may be added to, changed or removed but only with the approval of the holders of Senior Preferred Shares given as hereinafter specified. The approval of the holders of Senior Preferred Shares to add to, change or remove any right, privilege, restriction or condition attaching to the Senior Preferred Shares as a class or any other matter requiring the consent of the holders of the Senior Preferred Shares as a class may be given in such manner as may then be required by law, subject to a minimum requirement that such approval be given by resolution passed by the affirmative vote of at least 2/3 of the votes cast at a meeting of the holders of Senior Preferred Shares duly called for that purpose. The formalities to be observed in respect of the giving of notice of any such meeting or any adjourned meeting and the conduct hereof shall be those from time to time prescribed by the Canada Business Corporations Act (as from time to time amended, varied or replaced) and the by-laws of the Corporations with respect to meetings of shareholders. On every poll taken at a meeting of holders of Senior Preferred Shares as a class, or at a joint meeting of the holders of two or more series of Senior Preferred Shares, each holder of Senior Preferred Shares entitled to vote thereat shall have 1 vote in respect of each Senior Preferred Share held by him/her. - 2 - 4 3. JUNIOR PREFERRED SHARES The Junior Preferred Shares shall, as a class, have attached thereto the following rights, privileges, restrictions and conditions: 3.1 Directors' Authority to Issue in One or More Series The directors of the Corporation may issue the Junior Preferred Shares at any time and from time to time in one or more series. Before any shares of a particular series are issued, the directors of the Corporation shall fix the number of shares that will form such series and shall determine, subject to the limitations set out in the articles, the designation, rights, privileges, restrictions and conditions to be attached to the Junior Preferred Shares of such series, including, but without in any way limiting or restricting the generality of the foregoing, the rate or rates, amount or methods of calculation of dividends thereon, the currency or currencies of payment of dividends, the time and place of payment of dividends, the consideration and the terms and conditions of any purchase for cancellation, retraction or redemption rights (if any), the conversion or exchange rights attached thereto (if any), the voting rights attached thereto (if any) and the terms and conditions of any share purchase plan or sinking fund with resect thereto. Before the issue of the first shares of a series, the directors shall send to the Director (as defined in the Canada Business Corporations Act) articles of amendment containing a description of such series including the designation, rights, privileges, restrictions and conditions determined by the directors. 3.2 Ranking of Junior Preferred Shares No rights, privileges, restrictions or conditions attached to a series of Junior Preferred Shares shall confer upon a series a priority in respect of dividends or return of capital over any other series of Junior Preferred Shares. The Junior Preferred Shares shall be entitled, subject to the prior rights of the holders of the Senior Preferred Shares, to priority over the Common Shares of the Corporation and over any other shares ranking junior to the Junior Preferred Shares with respect to priority in the payment of dividends and in the distribution of assets in the event of the liquidation, dissolution or winding-up of the Corporation, whether voluntary or involuntary, or any other distribution of the assets of the Corporation among its shareholders for the purpose of winding up its affairs. If any cumulative dividends or amounts payable or return of capital in respect of a series of Junior Preferred Shares are not paid in full, the Junior Preferred Shares of all series shall participate rateably in respect of such dividends, including accumulations, if any, in accordance with the sums that would be payable on such shares if all such dividends were declared and paid in full and in respect of any repayment of capital in accordance with the sums that would be payable on such repayment of capital if all sums so payable were paid in full; provided, however, that in the event of there being insufficient assets to satisfy in full all such claims as aforesaid, the claims of the holders of the Junior Preferred Shares with respect to repayment of capital shall first be paid and satisfied and any assets remaining thereafter shall be applied towards the payment and satisfaction of claims in respect of dividends. The Junior Preferred Shares of any series may also be given such other preferences not consistent with clause 3.1 to 3.4 hereof - 3 - 5 over the Common Shares and over any other shares ranking junior to the Junior Preferred Shares as may be determined in the case of such series of Junior Preferred Shares. 3.3 Voting Rights Except as hereinafter referred to or as otherwise provided by law or in accordance with any voting rights which may from time to time be attached to any series of Junior Preferred Shares, the holders of the Junior Preferred Shares as a class shall not be entitled as such to receive notice of, to attend or to vote at any meeting of the shareholders of the Corporation. 3.4 Approval of Holders of Junior Preferred Shares The rights, privileges, restrictions and conditions attaching to the Junior Preferred Shares as a class may be added to, changed or removed but only with the approval of the holders of Junior Preferred Shares given as hereinafter specified. The approval of the holders of Junior Preferred Shares to add to, change or remove any right, privilege, restriction or condition attaching to the Junior Preferred Shares as a class or of any other matter requiring the consent of the holders of the Junior Preferred Shares as a class may be given in such manner as may then be required by law, subject to a minimum requirement that such approval be given by resolution passed by the affirmative vote of at least 2/3 of the votes cast at a meeting of the holders of Junior Preferred Shares duly called for that purpose. The formalities to be observed in respect of the giving of notice of any such meeting or any adjourned meeting and the conduct thereof shall be those from time to time prescribed by the Canada Business Corporations Act (as from time to time amended, varied or replaced) and the by-laws of the Corporation with respect to meetings of shareholders. On every poll taken at a meeting of holders of Junior Preferred Shares as a class, or at a joint meeting of the holders of two or more series of Junior Preferred Shares, each holder of Junior Preferred Shares entitled to vote thereat shall have 1 vote in respect of each Junior Preferred Share held by him/her. 4. COMMON SHARES The Common Shares shall carry and have attached thereto the following rights, privileges, restrictions and conditions: 4.1 Voting Rights The Common Shares shall entitle the holders thereof to notice of, to attend and to 1 vote for each Common Share held at all meetings of shareholders, except meetings at which only holders of a specified class or series of shares of the Corporation are entitled to vote separately as a class or series. - 4 - 6 4.2 Dividend Rights Subject to the prior rights of the holders of the Senior Preferred Shares, the Junior Preferred Shares and any other shares ranking senior to the Common Shares with respect to priority in the payment of dividends, the holders of the Common Shares shall be entitled to receive and the Corporation shall pay thereon dividends if, as and when declared by the board of directors of the Corporation out of moneys or assets of the Corporation properly applicable to the payment of dividends in such amount and payable in such manner as the board of directors may from time to time determine. Subject to the rights of the holders of any other class of shares of the Corporation entitled to receive dividends in priority to or with the holders of the Common Shares, the board of directors may in their sole discretion declare dividends on the Common Shares to the exclusion of any other class of shares of the Corporation. 4.3 Rights upon Dissolution Subject to the prior rights of the holders of the Senior Preferred Shares, the Junior Preferred Shares and any other shares ranking senior to the Common Shares with respect to priority in the distribution of assets, the holders of the Common Shares shall be entitled to receive the remaining property and assets of the Corporation in the event of the liquidation, dissolution or winding-up of the Corporation, whether voluntary or involuntary, or any other distribution of the assets of the Corporation among its shareholders for the purpose of winding up its affairs, provided that such remaining property and assets shall be paid or distributed equally share for share to the holders of the Common Shares at the time outstanding without preference or priority. - 5 - EX-3.2 4 BY-LAWS 1 EXHIBIT 3.2 BY-LAW NO. 1 A by-law relating generally to the transaction of the business and affairs of 3396631 CANADA INC. (hereinafter referred to as the "Company") DIRECTORS 1. Calling of and notice of meetings - Meetings of the board shall be held at such place and time and on such day as they see fit. A director may at any time convene a meeting of the board. Notice of meetings of the board shall be given to each director not less than 48 hours before the time when the meeting is to be held. Each newly elected board may without notice hold its first meeting for the purposes of organization and the appointment of officers immediately following the meeting of shareholders at which such board was elected. 2. Votes to govern - At all meetings of the board every question shall be decided by a majority of the votes cast on the question; and in case of an equality of votes the chairman of the meeting shall be entitled to a second or casting vote. 3. Interest of directors and officers generally in contracts - No director or officer shall be disqualified by his office from contracting with the Company nor shall any contract or arrangement entered into by or on behalf of the Company with any director or officer or in which any director or officer is in any way interested be liable to be voided nor shall any director or officer so contracting or being so interested be liable to account to the Company for any profit realized by any such contract or arrangement by reason of such director or officer holding that office or of the fiduciary relationship thereby established; provided that the director or officer shall have complied with the provisions of the Canada Business Corporations Act. SHAREHOLDERS' MEETINGS 4. Quorum - At any meeting of shareholders, a quorum shall be two persons present in person and each entitled to vote thereat and holding or representing by proxy not less than five per cent of the votes entitled to be cast thereat. 2 INDEMNIFICATION 5. Indemnification of directors and officers - The Company shall indemnify a director or officer of the Company, a former director or officer of the Company or a person who acts or acted at the Company's request as a director or officer of a body corporate of which the Company is or was a shareholder or creditor, and his heirs and legal representatives to the extent permitted by the Canada Business Corporations Act. 6. Indemnity of others - Except as otherwise required by the Canada Business Corporations Act and subject to paragraph 5, the Company may from time to time indemnify and save harmless any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the Company) by reason of the fact that he is or was an employee or agent of the Company, or is or was serving at the request of the Company as a director, officer, employee, agent of or participant in another body corporate, partnership, joint venture, trust or other enterprise, against expenses (including legal fees), judgments, fines and any amount actually and reasonably incurred by him in connection with such action, suit or proceeding if he acted honestly and in good faith with a view to the best interests of the Company and, with respect to any criminal or administrative action or proceeding that is enforced by a monetary penalty, had reasonable grounds for believing that his conduct was lawful. The termination of any action, suit or proceeding by judgment, order, settlement or conviction shall not, of itself, create a presumption that the person did not act honestly and in good faith with a view to the best interests of the Company and, with respect to any criminal or administrative action or proceeding that is enforced by a monetary penalty, had no reasonable grounds for believing that his conduct was lawful. 7. Right of indemnity not exclusive - The provisions for indemnification contained in the by-laws of the Company shall not be deemed exclusive of any other rights to which any person seeking indemnification may be entitled under any agreement, vote of shareholders or directors or otherwise, both as to action in his official capacity and as to action in another capacity, and shall continue as to a person who has ceased to be a director, officer, employee or agent and shall inure to the benefit of the heirs and legal representatives of such a person. 8. No liability of directors or officers for certain matters - To the extent permitted by law, no director or officer for the time being of the Company shall be liable for the acts, receipts, neglects or defaults of any other director or officer or employee or for joining in any receipt or act for conformity or for any loss, damage or expense happening to the Company through the insufficiency or deficiency of title to any property acquired by the Company or for or on behalf of the Company or for the insufficiency or deficiency of any security in or upon which any of the moneys of or belonging to the Company shall be placed out or invested or for any loss or damage arising from the bankruptcy, insolvency or tortious act of any person, firm or body corporate with whom or which any moneys, securities or other assets belonging to the Company shall be lodged or deposited or for any loss, conversion, misapplication or - 2 - 3 misappropriation of or any damage resulting from any dealings with any moneys, securities or other assets belonging to the Company or for any other loss, damage or misfortune whatever which may happen in the execution of the duties of his respective office or trust or in relation thereto unless the same shall happen by or through his failure to act honestly and in good faith with a view to the best interests of the Company and in connection therewith to exercise the care, diligence and skill that a reasonably prudent person would exercise in comparable circumstances. If any director or officer of the Company shall be employed by or shall perform services for the Company otherwise than as a director or officer or shall be a member of a firm or a shareholder, director or officer of a body corporate which is employed by or performs services for the Company, the fact of his being a director or officer of the Company shall not disentitle such director or officer or such firm or body corporate, as the case may be, from receiving proper remuneration for such services. BANKING ARRANGEMENTS, CONTRACTS, ETC. 9. Banking arrangements - The banking business of the Company, or any part thereof, shall be transacted with such banks, trust companies or other financial institutions as the board may designate, appoint or authorize from time to time by resolution and all such banking business, or any part thereof, shall be transacted on the Company's behalf by such one or more officers and/or other persons as the board may designate, direct or authorize from time to time by resolution and to the extent therein provided. 10. Execution of instruments - Contracts, documents or instruments in writing requiring execution by the Company shall be signed by any one officer or director, and all contracts, documents or instruments in writing so signed shall be binding upon the Company without any further authorization or formality. The board is authorized from time to time by resolution to appoint any director or directors, officer or officers or any other person or persons on behalf of the Company to sign and deliver either contracts, documents or instruments in writing generally or to sign either manually or by facsimile signature and deliver specific contracts, documents or instruments in writing. The term "contracts, documents or instruments in writing" as used in this by-law shall include deeds, mortgages, charges, conveyances, powers of attorney, transfers and assignments of property of all kinds including specifically but without limitation transfers and assignments of shares, warrants, bonds, debentures or other securities and all paper writings. MISCELLANEOUS 11. Invalidity of any provisions of this by-law - The invalidity or unenforceability of any provision of this by-law shall not affect the validity or enforceability of the remaining provisions of this by-law. 12. Omissions and errors - The accidental omission to give any notice to any shareholder, director, officer or auditor or the non-receipt of any notice by any shareholder, director, officer or auditor or any error in any notice not affecting the substance thereof shall not - 3 - 4 invalidate any action taken at any meeting held pursuant to such notice or otherwise founded thereon. INTERPRETATION 13. Interpretation - In this by-law and all other by-laws of the Company words importing the singular number only shall include the plural and vice versa; words importing the masculine gender shall include the feminine and neuter genders; words importing persons shall include an individual, partnership, association, body corporate, executor, administrator or legal representative and any number or aggregate of persons; "articles" include the original or restated articles of incorporation, articles of amendment, articles of amalgamation, articles of continuance, articles of reorganization, articles of arrangement and articles of revival; "board" shall mean the board of directors of the Company; "Canada Business Corporations Act" shall mean Canada Business Corporations Act, R.S.C. 1985 c. C-44 as amended from time to time or any Act that may hereafter be substituted therefor; and "meeting of shareholders" shall mean and include an annual meeting of shareholders and a special meeting of shareholders. - 4 - EX-4 5 FORM OF COMMON SHARE CERTIFICATE 1 EXHIBIT 4 TEMPORARY CERTIFICATE -- EXCHANGEABLE FOR DEFINITIVE ENGRAVED CERTIFICATE WHEN READY FOR DELIVERY [LOGO] RITCHIE BROS. AUCTIONEERS
Number Shares RBA-
RITCHIE BROS. AUCTIONEERS INCORPORATED INCORPORATED UNDER THE CANADA BUSINESS CORPORATIONS ACT CUSIP 767744 10 5 THIS CERTIFICATE IS TRANSFERABLE AT THE OFFICE OF BANK OF MONTREAL TRUST COMPANY IN NEW YORK CITY, NEW YORK AND AT THE OFFICE OF THE TRUST COMPANY OF BANK OF MONTREAL IN VANCOUVER, B.C. THIS CERTIFIES THAT SEE REVERSE FOR CERTAIN DEFINITIONS IS THE OWNER OF FULLY PAID AND NON-ASSESSABLE COMMON SHARES, WITHOUT PAR VALUE, OF RITCHIE BROS. AUCTIONEERS INCORPORATED TRANSFERABLE ON THE BOOKS OF THE CORPORATION IN PERSON OR BY DULY AUTHORIZED ATTORNEY UPON SURRENDER OF THIS CERTIFICATE PROPERLY ENDORSED. THIS CERTIFICATE AND THE SHARES REPRESENTED HEREBY ARE ISSUED IN ACCORDANCE WITH AND SHALL BE HELD SUBJECT TO ALL THE PROVISIONS OF THE ARTICLES OF AMALGAMATION, THE ARTICLES OF AMENDMENT AND AMENDMENTS THERETO OF THE CORPORATION, TO ALL OF WHICH THE HOLDER BY THE ACCEPTANCE HEREOF ASSENTS. THIS CERTIFICATE IS NOT VALID UNLESS COUNTERSIGNED AND REGISTERED BY THE TRANSFER AGENT AND REGISTRAR. WITNESS, THE FACSIMILE SEAL OF THE CORPORATION AND THE FACSIMILE SIGNATURES OF ITS DULY AUTHORIZED OFFICERS. DATED: COUNTERSIGNED AND REGISTERED: THE TRUST COMPANY OF BANK OF MONTREAL TRANSFER AGENT AND REGISTRAR IN THE CITY OF VANCOUVER, B.C. BY: AUTHORIZED SIGNATORY PRESIDENT [CORPORATE SEAL] COUNTERSIGNED AND REGISTERED: BANK OF MONTREAL TRUST COMPANY TRANSFER AGENT AND REGISTRAR IN THE CITY OF NEW YORK, N.Y. BY: AUTHORIZED SIGNATORY CHAIRMAN
2 The shares represented by this certificate are subject to certain rights, privileges, restrictions and conditions. Ritchie Bros. Auctioneers Incorporated will furnish to the shareholder, on demand, and without charge, a full copy of the text of the rights, privileges, restrictions and conditions attached to each class authorized to be issued and to each series in so far as the same have been fixed by the directors, and the authority of the directors to fix the rights, privileges, restrictions and conditions of subsequent series. The following abbreviations, when used in the inscription on the face of this certificate, shall be construed as though they were written out in full according to applicable laws or regulations: TEN COM -- as tenants in common UNIF GIFT MIN ACT -- ______________ Custodian __________________ TEN ENT -- as tenants by the entireties (Cust.) (Minor) JT TEN -- as joint tenants with right of Under Uniform Gifts to Minors survivorship and not as tenants Act _____________________________________ in common (State) UNIF TRF MIN ACT -- ______________ Custodian (until age _______ ) (Cust.) __________________ under Uniform Transfers (Minor) to Minors Act _____________________________ (State)
Additional abbreviations may also be used though not in the above list. FOR VALUE RECEIVED, _________________________________________ hereby sells, assigns and transfers unto PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER OF ASSIGNEE ________________________________________________________________________________ (PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE) ________________________________________________________________________________ ________________________________________________________________________________ __________________________________________________________________ Common Shares represented by the within Certificate, and do hereby irrevocably constitute and appoint _______________________________________________________________________ Attorney to transfer the said shares on the books of the within named Corporation with full power of substitution in the premises. Dated _______________________________________________________ X _______________________________________________________ X _______________________________________________________ NOTICE: THE SIGNATURE(S) TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME(S) AS WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR, WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATEVER.
Signature(s) Guaranteed By __________________________________________ THE SIGNATURE MUST BE GUARANTEED BY A BANK OR BY A TRUST COMPANY OR BY A MEMBER OF A NORTH AMERICAN STOCK EXCHANGE WHOSE SIGNATURE IS KNOWN TO THE TRANSFER AGENT. EX-5 6 OPINION OF MCCARTHY TETRAULT 1 EXHIBIT 5 McCarthy Tetrault BARRISTERS & SOLICITORS - PATENT & TRADE MARK AGENTS P.O. BOX 10424, PACIFIC CENTRE SUITE 1300, 777 DUNSMUIR STREET VANCOUVER, B.C., CANADA V7Y 1K2 FACSIMILE (604) 643-7900 TELEPHONE (604) 643-7100 September 25, 1997 Ritchie Bros. Auctioneers Incorporated 9200 Bridgeport Road Richmond, British Columbia Canada V6X 1S1 Dear Sirs: Re: Registration Statement on Form F-1 We have acted as Canadian counsel to Ritchie Bros. Auctioneers Incorporated, a corporation incorporated under the laws of Canada (the "Company"), in connection with the Registration Statement on Form F-1 (the "Registration Statement") filed by the Company (of which the prospectus forms a part (the "Prospectus")) under the Securities Act of 1933, as amended (the "Securities Act"), and the rules and regulations promulgated thereunder (the "Rules") with the Securities and Exchange Commission on September 26, 1997 in connection with a proposed underwritten public offering of up to 3,335,000 Common Shares of the Company (the "Shares"). You have asked us to render our opinion as to matters hereinafter set forth. Capitalized terms used but not defined herein shall have the same meaning as in the Registration Statement. In this connection, we have examined the Registration Statement and such certificates, agreements, records, and other documents as we have deemed relevant and necessary as a basis for this opinion. We have assumed, with your permission and without independent investigation, (i) the genuineness of all signatures, the authenticity of all documents submitted to us as originals, the conformity to original documents of all documents submitted to us as photostatic or facsimile copies, and the authenticity of the originals of such copies, (ii) the accuracy of the factual representations made to us by officers and other representatives of the Company, whether evidenced by certificates or otherwise, (iii) the identity and capacity of all individuals acting or purporting to act as public officials, and (iv) that all actions contemplated by the Registration Statement have been and will be carried out only in the manner described therein. Based upon the foregoing, we are of the opinion that: 1. Upon the happening of the following events: 2 (a) the filing of the Registration Statement and any amendments thereto and the Registration Statement becoming effective; and (b) the sale of the Shares and the receipt by the Company of an amount equal to the full consideration for the Shares as contemplated by the Registration Statement; and (c) the due issuance by the Company and registration by its registrar of the Shares; the Shares will be duly authorized, validly issued, fully paid and non-assessable. In rendering the opinion expressed in paragraph 1 herein, we express no opinion as to the laws of any jurisdiction other than the laws of Canada and the laws of the Province of British Columbia. 2. Based and relying upon the qualifications and assumptions set out in this letter, we are of the opinion that, subject to the qualifications set out therein, the summary (the "Summary") set out in the Prospectus under the heading "Canadian Federal Income Tax Consequences" in the form attached hereto as Schedule "A" fairly describes the principal Canadian federal income tax consequences, as at the date hereof, of the acquisition, ownership and disposition of Common Shares generally applicable to holders of Common Shares ("U.S. Residents") who (i) are residents of the United States for the purposes of the Canada-United States Income Tax Convention (1980), as amended as at the date hereof (the "Convention"), (ii) are not residents of Canada for the purposes of the Income Tax Act (Canada), as amended, and the regulations enacted thereunder, as at the date hereof (collectively, the "Canadian Tax Act"), (iii) hold their Common Shares as capital property, (iv) deal at arm's length with the Company for the purposes of the Canadian Tax Act and (v) do not use or hold, and are not deemed under the Canadian Tax Act to use or hold, such Common Shares in carrying on a business in Canada. The opinion rendered in paragraph 2 herein is based upon the current provisions of the Canadian Tax Act, our understanding as at the date hereof of the current published administrative and assessing policies of Revenue Canada, Customs, Excise and Taxation, all specific proposals to amend the Canadian Tax Act (collectively, the "Proposed Amendments") publicly announced by the Minister of Finance before the date hereof, and the current provisions of the Convention. Our opinion does not take into account provincial, territorial or foreign income tax considerations, and does not take into account or anticipate any changes in law whether by judicial, governmental or legislative action except to the extent of the Proposed Amendments. No assurance can be given that any of the Proposed Amendments will be enacted into law or that legislation will implement the Proposed Amendments in the manner now proposed. Our advice is of a general nature only, is not exhaustive of all possible income tax considerations and is not intended to be, nor should it be construed to be, legal or tax advice to any particular U.S. Resident. Accordingly, U.S. Residents should consult their own independent tax advisors for advice with respect to their particular circumstances. - 2 - 3 In rendering the opinions expressed herein, we have assumed the accuracy and completeness of the facts, assumptions, representations and other statements set out in the Prospectus. We have not attempted to verify the accuracy or completeness of any such facts, assumptions, representations or statements and have not undertaken any independent investigation to determine the existence or absence of any such fact, assumption, representation or statement. No inference as to our knowledge of the existence of any fact, assumption, representation or statement should be drawn from our involvement as Canadian counsel to the Company or otherwise. If any additional information pertaining to this matter becomes known to you, kindly contact us as soon as possible so that we can review our advice at that time. The opinions expressed herein are provided exclusively for the benefit of Ritchie Bros. Auctioneers Incorporated and may not be relied on by any other persons without our express written consent. We consent to the filing of this opinion as an exhibit to the Registration Statement and to the references to our firm in the Prospectus made part of the Registration Statement under the captions "Tax Consequences - Canadian Federal Income Tax Consequences" and "Legal Matters". In giving such consent, we do not hereby admit that we are in the category of persons whose consent is required under Section 7 of the Securities Act or related Rules. This Consent may be incorporated by reference in any amendment to the Registration Statement filed pursuant to Rule 462(b) of Regulation C under the Securities Act. Yours truly, /s/ McCarthy Tetrault - 3 - 4 SCHEDULE "A" CANADIAN FEDERAL INCOME TAX CONSEQUENCES In the opinion of McCarthy Tetrault, Canadian counsel to the Company, the following summary fairly describes the principal Canadian federal income tax consequences of the acquisition, ownership and disposition of Common Shares generally applicable to holders of Common Shares ("U.S. Residents") who (i) are residents of the United States for the purposes of the Convention, (ii) are not residents of Canada for the purposes of the Canadian Tax Act, (iii) hold their Common Shares as capital property, (iv) deal at arm's length with the Company for the purposes of the Canadian Tax Act and (v) do not use or hold, and are not deemed under the Canadian Tax Act to use or hold, such Common Shares in carrying on a business in Canada. Common Shares will generally be considered to be capital property to a U.S. Resident unless they are held as inventory in the course of carrying on a business or were acquired in a transaction considered to be an adventure or concern in the nature of trade. This summary is based upon the current provisions of the Income Tax Act (Canada) and the regulations enacted thereunder as at the date hereof (collectively, the "Canadian Tax Act"), counsel's undertaking of the current published administrative and assessing policies of Revenue Canada, Customs, Excise and Taxation ("Revenue Canada") and all specific proposals to amend the Canadian Tax Act (collectively, the "Proposed Amendments") publicly announced by the Minister of Finance before the date hereof, and the provisions of the Convention as at the date hereof. This summary does not take into account provincial, territorial or foreign income tax considerations, and does not take into account or anticipate any changes in law, whether by judicial, governmental or legislative action except to the extent of the Proposed Amendments. No assurance can be given that any of the Proposed Amendments will be enacted into law or that legislation will implement the Proposed Amendments in the manner now proposed. THIS SUMMARY IS OF A GENERAL NATURE ONLY, IS NOT EXHAUSTIVE OF ALL POSSIBLE INCOME TAX CONSIDERATIONS AND IS NOT INTENDED TO BE, NOR SHOULD IT BE CONSTRUED TO BE, LEGAL OR TAX ADVICE TO ANY PARTICULAR U.S. RESIDENT. ACCORDINGLY, U.S. RESIDENTS SHOULD CONSULT THEIR OWN INDEPENDENT TAX ADVISORS FOR ADVISE WITH RESPECT TO THEIR PARTICULAR CIRCUMSTANCES. THE DISCUSSION BELOW IS QUALIFIED ACCORDINGLY. A U.S. Resident will generally not be subject to tax under the Canadian Tax Act in respect of any capital gain realized on the disposition of Common Shares unless such Common Shares are "taxable Canadian property" to the U.S. Resident. The Common Shares will not generally constitute taxable Canadian property to a U.S. Resident unless either (i) at any time during the five year period immediately preceding the disposition of the Common Shares by such U.S. Resident, 25% or more of the issued shares (and in the view of Revenue Canada, taking into account any rights to acquire shares) of any class or series of the capital stock of the Company were owned by such U.S. Resident, persons with whom the U.S. Resident did not deal at arm's length or such U.S. Resident together with those 5 persons, or (ii) the U.S. Resident's Common Shares are otherwise deemed to be taxable Canadian property to him or her. Dividends which are paid or credited, or are deemed to be paid or credited, to a U.S. Resident in respect of the Common Shares will generally be subject to Canadian withholding tax on the gross amount of such dividends. Currently under the Convention, the rate of Canadian withholding tax applicable to dividends paid or credited by the Company to a U.S. Resident is (i) 5% of the gross amount of the dividends if the beneficial owner of the dividends is a corporation which owns at least 10% of the voting stock of the Company and (ii) 15% of the gross amount of the dividends if the beneficial owner of such dividends is any other resident of the United States. PROSPECTIVE INVESTORS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS TO THE FEDERAL, STATE AND OTHER TAX CONSEQUENCES OF INVESTING IN THE COMPANY. THE STATEMENTS OF UNITED STATES AND CANADIAN LAW SET OUT ABOVE ARE BASED UPON THE LAWS IN FORCE AS OF THE DATE OF THIS PROSPECTUS, AND ARE SUBJECT TO ANY CHANGES IN SUCH LAWS OCCURRING AFTER SUCH DATE. EX-8.2 7 OPINION OF PERKINS COIE 1 EXHIBIT 8.2 PERKINS COIE A LAW PARTNERSHIP INCLUDING PROFESSIONAL CORPORATIONS 1211 SOUTHWEST FIFTH AVENUE, SUITE 1500 - PORTLAND, OREGON 97204-3715 TELEPHONE: 503 727-2000 - FACSIMILE: 503 727-2222 September 25, 1997 Ritchie Bros. Auctioneers Incorporated 9200 Bridgeport Road Richmond, British Columbia V6X 1S1 Canada RE: REGISTRATION STATEMENT ON FORM F-1 Dear Sirs: We have acted as special tax counsel to Ritchie Bros. Auctioneers Incorporated, a corporation incorporated under the federal laws of Canada (the "Company"), in connection with the Registration Statement on Form F-1 (the "Registration Statement") filed as of the date hereof by the Company under the Securities Act of 1933, as amended (the "Securities Act"), and the rules and regulations promulgated thereunder (the "Rules") with the Securities and Exchange Commission in connection with a proposed underwritten public offering of up to 3,335,000 Common Shares of the Company. You have asked us to render our opinion as to matters hereinafter set forth. Capitalized terms used but not defined herein shall have the same meaning as in the Registration Statement. In this connection, we have examined such certificates, agreements, records, and other documents as we have deemed relevant and necessary as a basis for this opinion. We have assumed, with your permission and without independent investigation, (i) the genuineness of all signatures, the authenticity of all documents submitted to us as originals, the conformity to original documents of all documents submitted to us as photostatic or facsimile copies, and the authenticity of the originals of such copies, (ii) the accuracy of the factual representations made to us by officers and other representatives of the Company, whether evidenced by certificates or otherwise, and (iii) that all actions contemplated by the Registration Statement have been and will be carried out only in the manner described therein. Based on the foregoing, we are of the opinion that the summary set forth under the heading "Tax Consequences -- United States Federal Income Tax Consequences" in the Prospectus forming a part of the Registration Statement is accurate and describes the material United States federal income tax consequences expected to be relevant to prospective U.S. Holders of the Common Shares who hold the Common Shares as a capital asset and are not among certain investors subject to special treatment under certain United States federal income tax laws, such as U.S. Holders who each own, directly or indirectly, 10% or more of the total combined voting power of all classes of shares of the Company, dealers in securities, tax-exempt entities, banks, insurance companies and non-U.S. Holders. This opinion is based on provisions of the United States Internal Revenue Code of 1986, as amended, applicable United States Treasury Department Regulations, published administrative positions and judicial decisions, all existing as of the date hereof. In giving the opinion expressed herein, we express no opinion as to the laws of any jurisdiction other than the federal income tax laws of the United States. 2 We consent to the filing of this opinion as an exhibit to the Registration Statement and to the references to our firm in the Prospectus made part of the Registration Statement under the captions "Tax Consequences -- United States Federal Income Tax Consequences" and "Legal Matters." In giving such consent, we do not hereby admit that we are in the category of persons whose consent is required under Section 7 of the Securities Act or related Rules. This consent may be incorporated by reference in any amendment to the Registration Statement filed pursuant to Rule 462(b) of Regulation C under the Securities Act. Very truly yours, /s/ PERKINS COIE EX-10.1 8 1997 STOCK OPTION PLAN 1 EXHIBIT 10.1 STOCK OPTION PLAN RITCHIE BROS. AUCTIONEERS INCORPORATED ARTICLE 1 PURPOSE The purpose of this Stock Option Plan is to promote the interests of Ritchie Bros. Auctioneers Incorporated (the "Company") by: (a) furnishing certain directors, officers, employees of the Company and its subsidiaries or other persons as the Compensation Committee may approve with greater incentive to further develop and promote the business and financial success of the Company; (b) furthering the identity of interests of persons to whom options may be granted with those of the shareholders of the Company generally through share ownership in the Company; and (c) assisting the Company in attracting, retaining and motivating its directors, officers and employees. The Company believes that these purposes may best be effected by granting options to acquire common shares without par value in the capital of the Company. ARTICLE 2 INTERPRETATION In this Plan, unless there is something in the subject matter or context inconsistent therewith: (a) "Associate" has the meaning ascribed thereto under the Securities Act (British Columbia) as from time to time amended, supplemented or re-enacted; (b) "Common Shares" means the common shares without par value in the capital of the Company; (c) "Eligible Persons" means directors, officers or employees of the Company or of any of its subsidiaries or an individual employed by a person providing management services to the Company or any other persons as approved by the Compensation Committee and an "Eligible Person" shall have a corresponding meaning; (d) "Incentive Stock Option" means an Option to purchase Common Shares with the intention that it qualify as an "incentive stock option" as that term is defined in 2 Section 422 of the U.S. Internal Revenue Code, such intention being evidenced by the resolutions of the directors at the time of grant; (e) "Insider" of the Company means: (i) an insider as defined in the Securities Act (British Columbia), other than a person who falls within that definition solely by virtue of being a director or senior officer of a subsidiary of the Company, and (ii) an Associate of any person who is an Insider by virtue of (i); (f) "Options" means stock options granted hereunder to purchase Common Shares from treasury; (g) "Outstanding Common Shares" at the time of any share issuance or grant of Options means the number of Common Shares that are outstanding immediately prior to the share issuance or grant of Options in question, on a non-diluted basis, excluding Common Shares issued pursuant to share compensation arrangements over the preceding one-year period, or such other number as may be determined under the applicable rules and regulations of all regulatory authorities to which the Company is subject, including the Stock Exchanges; (h) "Nonqualified Stock Option" means an Option to purchase Common Shares other than an Incentive Stock Option; (i) "Plan" means this Stock Option Plan, as the same may from time to time be supplemented or amended and in effect; (j) "subsidiary" has the meaning assigned thereto under the Securities Act (British Columbia) as the same may from time to time be amended or re- enacted; (k) "Stock Exchanges" means such stock exchanges or other organized market on which the Common Shares are listed or posted for trading; and (l) "Trading Day", with respect to any Stock Exchange, means a day on which securities may be traded through the facilities of such Stock Exchange. Any question arising as to the interpretation of this Plan will be determined by the Compensation Committee (as hereinafter defined) and, absent manifest error, such determination will be conclusive and binding on the Company and all Optionees. - 2 - 3 ARTICLE 3 EFFECTIVE DATE OF PLAN The effective date (the "Effective Date") of this Plan is July 30, 1997, the date on which the Plan was deemed to be adopted by the board of directors (the "Board of Directors") of the Company. ARTICLE 4 ADMINISTRATION OF PLAN This Plan will be administered by a committee (the "Compensation Committee") of the Board of Directors, consisting of two or more directors, as constituted from time to time charged with, among other things, the administration of this Plan (provided that if at any such time such a committee has not been appointed by the Board of Directors, this Plan will be administered by the Board of Directors, and in such event references herein to the Compensation Committee shall be construed to be a reference to the Board of Directors). The Board of Directors will take such steps which in its opinion are required to ensure that the Compensation Committee has the necessary authority to fulfil its functions under this Plan. ARTICLE 5 REGULATIONS The Compensation Committee may from time to time establish such regulations, make such determinations and interpretations and take such steps in connection with this Plan which, in its opinion, are necessary or desirable for the administration of this Plan. ARTICLE 6 COMPLIANCE WITH LAWS The Compensation Committee may from time to time take such steps and require such documentation from Eligible Persons which in its opinion are necessary or desirable to ensure compliance with all applicable laws, the bylaws, rules and regulations of any Stock Exchanges. The Compensation Committee may also from time to time take such steps which in its opinion are necessary or desirable to restrict the transferability of any Common Shares acquired on the exercise of any Option in order to ensure such compliance, including, where applicable, the endorsement of a legend on any certificate representing Common Shares acquired on the exercise of any Option to the effect that such Common Shares may not be offered, sold or delivered except in compliance with the applicable securities laws and regulations of Canada or the United States. - 3 - 4 ARTICLE 7 COMMON SHARES SUBJECT TO PLAN The number of common shares subject to the Plan (upon the exercise of the Options) shall be subject to the following restrictions the maximum number of Common Shares reserved for issuance pursuant to the Plan may not exceed 1,500,000 Common Shares. The Board of Directors will reserve for allotment from time to time out of the authorized but unissued Common Shares sufficient Common Shares to provide for issuance of all Common Shares which are issuable under all outstanding Options. Upon the expiry or termination of an Option which has not been exercised in full, the number of Common Shares reserved for issuance under that Option but which have not been issued shall become available for issue for the purpose of additional Options which may be granted under this Plan. Nothing herein or otherwise shall be construed so as to confer on any Optionee any rights as a shareholder of the Company with respect to any Common Shares reserved for the purpose of any Option. ARTICLE 8 GRANT OF OPTIONS Subject to the rules set out below, the Compensation Committee (or in the case of any proposed grantee who is a member of the Compensation Committee, the Board of Directors) may from time to time grant to any Eligible Person one or more Options as the Compensation Committee deems appropriate: (a) Date Option Granted. The date on which an Option will be deemed to have been granted under this Plan will be the date on which the Compensation Committee authorizes the grant of such Option or such other date as may be specified by the Compensation Committee at the time of such authorization. (b) Number of Common Shares. The number of Common Shares that may be purchased under any Option will be determined by the Compensation Committee, provided that such number may not be greater than the maximum number permitted under the applicable rules and regulations of all regulatory authorities to which the Company is subject, including the Stock Exchanges. An Optionee, at the time of granting an Option, may hold more than one Option. (c) Exercise Price. The exercise price (the "Exercise Price") per Common Share under each Option will be determined by the Compensation Committee, provided - 4 - 5 that such price may not be less than the lowest price permitted under the applicable rules and regulations of all regulatory authorities to which the Company is subject, including the Stock Exchanges. (d) Option Agreements. Each Option will be evidenced by an agreement (the "Option Agreement") which incorporates such terms and conditions as the Compensation Committee in its discretion deems appropriate and consistent with the provisions of this Plan. Each Option Agreement will be executed by the Eligible Person to whom the Option is granted (the "Optionee") and on behalf of the Company by any member of the Compensation Committee or the President of the Company or such other person as the Compensation Committee may designate for such purpose. (e) Expiry of Options. Each Option will expire on the earlier of: (i) the date determined by the Compensation Committee and specified in the Option Agreement pursuant to which such Option is granted, provided that such date may not be later than the earlier of (A) the date which is the tenth anniversary of the date on which such Option is granted and (B) the latest date permitted under the applicable rules and regulations of all regulatory authorities to which the Company is subject, including the Stock Exchanges; (ii) in the event the Optionee ceases to be an Eligible Person for any reason, other than death of the Optionee, such period of time after the date on which the Optionee ceases to be an Eligible Person as may be specified by the Compensation Committee, and which period will be specified in the Stock Option Agreement with respect to such Option; (iii) in the case of the death of an Optionee prior to: (A) the Optionee ceasing to be an Eligible Person; or (B) the date which is the number of days specified by the Compensation Committee pursuant to subparagraph (ii) above from the date on which the Optionee ceased to be an Eligible Person; the date which is the 180th day after the date of death of such Optionee or such other date as may be specified by the Compensation Committee and which period will be specified in the Option Agreement with respect to such Option; and (iv) notwithstanding the foregoing provisions of subparagraphs (ii) and (iii) of this paragraph 8(e), the Compensation Committee may, subject to regulatory approval, at any time prior to expiry of an Option extend the period of time within which an Option held by a deceased Optionee may be exercised or within which an Option may be exercised by an Optionee who has ceased to be an Eligible Person, but such an extension shall not be granted beyond the original expiry date of the option as provided for - 5 - 6 in subparagraph (i) above. (f) Non-Transferability of Options. Each Option Agreement will provide that the Option granted thereunder is not transferable or assignable and may be exercised only by the Optionee or, in the event of the death of the Optionee or the appointment of a committee or duly appointed attorney of the Optionee or of the estate of the Optionee on the grounds that the Optionee is incapable, by reason of physical or mental infirmity, of managing their affairs, the Optionee's legal representative or such committee or attorney, as the case may be (the "Legal Representative"). (g) Exercise of Options. Subject to the provisions of paragraph (h) below, the Compensation Committee may impose such limitations or conditions on the exercise or vesting of any Option as the Compensation Committee in its discretion deems appropriate. Each Option Agreement will provide that the Option granted thereunder may be exercised only by notice signed by the Optionee or the Legal Representative of the Optionee and accompanied by full payment for the Common Shares being purchased. Such consideration must be paid in cash or by check unless the Compensation Committee in its sole discretion permits, either at the time the Option is granted or at any time before it is exercised, a combination of cash and check or any other form of consideration. In the event of the exercise of any Option by the Legal Representative of the Optionee, the Legal Representative shall also deliver to the Company evidence satisfactory to the Company of the Legal Representative's authority to do so. The Compensation Committee may in its discretion incorporate into any Option Agreement terms which will, notwithstanding the time or times specified in such Option Agreement for the exercise of the Option granted thereunder, allow the Optionee to elect to purchase all or any of the Common Shares then subject to such Option if the Compensation Committee in its discretion determines to permit the Optionee to exercise the Option in respect of such Common Shares. (h) Formal Bids and Extraordinary Distributions. Each Option Agreement will provide that in the event of: (i) a formal bid (as defined in Part 13 of the Securities Act (British Columbia) in force on the Effective Date) being made for any Common Shares; or (ii) a distribution referred to in paragraph 1(3) of Schedule "A" attached to this Plan being proposed which would result in the fraction calculated pursuant to clause (f) thereof being a negative number, the Optionee may, notwithstanding the time or times specified in such Option Agreement for the exercise of the Option granted thereunder, elect to purchase - 6 - 7 all or any of the Common Shares then subject to such Option for the purpose of tendering such Common Shares under such formal bid or participating in such distribution, provided that the Compensation Committee may take such steps and require such documentation from the Optionee which in its opinion are necessary to ensure that such Common Shares are purchased for such purpose. (i) Going Private Transactions. Each Option Agreement will provide that in the event that an amalgamation, arrangement, consolidation or other transaction is proposed to be carried out as a consequence of which the interest of some or all of the holders of Common Shares may be terminated, whether pursuant to a statutory right of acquisition or otherwise, without the consent of such holders and without the substitution therefor of an interest of equivalent value in a security of the Company, a successor to the Company or an affiliate (as defined in the Securities Act (British Columbia) in force on the Effective Date) of the Company that carries the right to participate in earnings to an unlimited degree or that by its terms is convertible into or exchangeable for or carries the right to purchase such a security, the Company may terminate the Option granted under such Option Agreement at the time of and subject to the completion of such amalgamation, arrangement, consolidation or other transaction by giving at least 10 days prior written notice of such termination to the Optionee and paying to the Optionee at the time of completion of such amalgamation, arrangement, consolidation or other transaction an amount equal to the fair value of such Option as determined by a recognized investment dealer in Canada (for such purpose the Optionee will be deemed to be entitled to exercise their rights as to the purchase of all of the Common Shares then covered by such Option notwithstanding any restrictions which may be specified in the Option Agreement for the exercise of the Option pursuant to the provisions of paragraph (g) above) and, absent manifest error, the determination of such investment dealer will be conclusive and binding on the Optionee and the Company. (j) Representations and Covenants of Optionees. Each Option Agreement will contain representations and covenants of the Optionee that: (i) the Optionee is or was a director, officer or employee of the Company or of a subsidiary of the Company or an individual employed by a person providing management services to the Company or a person otherwise approved as an "Eligible Person" under this Plan by the Compensation Committee; (ii) the Optionee has not been induced to enter into such Option Agreement by the expectation of employment or continued employment with the Company or any person who provides management services to the Company; - 7 - 8 (iii) the Optionee is aware that the grant of the Option and the issuance by the Company of Common Shares thereunder are exempt from the obligation under applicable securities laws to file a prospectus or other registration document qualifying the distribution of the Options or the Common Shares to be distributed thereunder under any applicable securities laws; (iv) upon each exercise of an Option, the Optionee, or the Legal Representative of the Optionee, as the case may be, will, if requested by the Company, represent and agree in writing that the person is, or the Optionee was, a director, officer or employee of the Company or of a subsidiary of the Company or an individual employed by a person which is providing management services to the Company or a person otherwise approved as an "Eligible Person" under this Plan by the Compensation Committee and has not been induced to purchase the Common Shares by expectation of employment or continued employment with the Company or any person who provides management services to the Company, and that such person is not aware of any commission or other remuneration having been paid or given to others in respect of the trade in the Common Shares; and (v) if the Optionee or the Legal Representative of the Optionee exercises the Option, the Optionee or the Legal Representative, as the case may be, will prior to and upon any sale or disposition of any Common Shares purchased pursuant to the exercise of the Option, comply with all applicable securities laws and all applicable rules and regulations of all regulatory authorities to which the Company is subject, including the Stock Exchanges, and will not offer, sell or deliver any of such Common Shares, directly or indirectly, in the United States or to any citizen or resident of, or any company, partnership or other entity created or organized in or under the laws of, the United States, or any estate or trust the income of which is subject to United States federal income taxation regardless of its source, except in compliance with the securities laws of the United States. (k) Provisions Relating to Share Issuances. Each Option Agreement will contain such provisions as in the opinion of the Compensation Committee are required to ensure that no Common Shares are issued on the exercise of an Option unless the Compensation Committee is satisfied that the issuance of such Common Shares will be exempt from all registration or qualification requirements of applicable securities laws and will be permitted under the applicable rules and regulations of all regulatory authorities to which the Company is subject, including the Stock Exchanges. In particular, if required by any regulatory authority to which the Company is subject, including the Stock Exchanges, an Option Agreement may provide that shareholder approval to the grant of an - 8 - 9 Option must be obtained prior to the exercise of the Option or to the amendment of the Option Agreement. (l) Restrictions on Transfer. If the Company is not a reporting issuer (as defined under the Securities Act (British Columbia), all Common Shares issued pursuant to any Options granted under this Plan shall not be transferred unless such transfer is approved, in the absolute discretion, by the board of directors and such approval may be granted on such terms and conditions as the directors may deem fit. ARTICLE 9 SUSPENSION, AMENDMENT OR TERMINATION OF PLAN This Plan will terminate on the 10th anniversary of the Effective Date or on such earlier date as the Compensation Committee may determine (without prejudice to Options granted prior to the termination of this Plan). The Compensation Committee will have the right at any time to suspend, amend or terminate this Plan in any manner including, without limitation, to reflect any requirements of any regulatory authorities to which the Company is subject, including the Stock Exchanges, and on behalf of the Company agree to any amendment to any Option Agreement provided that the Compensation Committee in its discretion deems such amendment consistent with the terms of this Plan and all procedures and necessary approvals required under the applicable rules and regulations of all regulatory authorities to which the Company is subject are complied with and obtained, but the Compensation Committee will not have the right to: (a) affect in a manner that is adverse or prejudicial to, or that impairs, the benefits and rights of any Optionee under any Option previously granted under this Plan except for the purpose of complying with applicable securities laws or the bylaws, rules and regulations of any regulatory authority to which the Company is subject, including the Stock Exchanges; (b) decrease the number of Common Shares which may be purchased pursuant to any Option (except as an adjustment as provided for in Article 10); (c) increase the Exercise Price at which Common Shares may be purchased pursuant to any Option (except as an adjustment as provided for in Article 10); (d) extend the term of any Option beyond a period of ten years or the latest date permitted under the applicable rules and regulations of all regulatory authorities to which the Company is subject; (e) grant any Option if this Plan is suspended or has been terminated; or (f) change or adjust any outstanding Incentive Stock Option without the consent of - 9 - 10 the Optionee if such change or adjustment would constitute a "modification" that would cause such Incentive Stock Option to fail to continue to qualify as an Incentive Stock Option. The full powers of the Compensation Committee as provided for in this Plan will survive the termination of this Plan until all Options have been exercised in full or have otherwise expired. ARTICLE 10 ADJUSTMENTS If, but only if, an event described in Schedule "A" attached to this Plan occurs, each Option Agreement under which Options are outstanding at such time will be amended upon the occurrence of such event so that the rights of the Optionee under such Option Agreement, including the number and type of securities that may be purchased on the exercise of the Option granted under such Option Agreement and the Exercise Price at which such securities may be purchased thereunder, will be adjusted in accordance with the provisions set forth in Schedule "A" attached to this Plan from and after, but not before, the occurrence of such event. Successive adjustments will be made in the case of the occurrence of more than one such event as provided for therein, but, in the case of each such event, only from and after the occurrence of such event. Until the occurrence of such event, the rights of the Optionee under each Option Agreement under which Options are outstanding, including the number of Common Shares that may be purchased on the exercise of the Option granted under such Option Agreement and the Exercise Price at which such Common Shares may be purchased thereunder, will remain unamended as set out in such Option Agreement. ARTICLE 11 INCENTIVE STOCK OPTION LIMITATIONS To the extent required by Section 422 of the U.S. Internal Revenue Code, Incentive Stock Options shall be subject to the following additional terms and conditions and if there is any conflict between the terms of this Article and other provisions under the Plan, the provisions under this Article shall prevail: (a) Dollar Limitation. To the extent the aggregate fair market value (determined as of the grant date) of Common Shares with respect to which Incentive Stock Options are exercisable for the first time during any calendar year (under the Plan and all other stock option plans of the Company) exceeds U.S. $100,000, such portion in excess of U.S. $100,000 shall be treated as a Nonqualified Stock Option. In the event the Optionee holds two or more such Options that become exercisable for the first time in the same calendar year, such limitation shall be applied on the basis of the order in which such Options are granted. (b) 10% Shareholders. If an Optionee owns 10% or more of the total voting power - 10 - 11 of all classes of the Company's stock, then the exercise price per share of an Incentive Stock Option shall not be less than 110% of the fair market value of the Common Shares on the grant date and the Option term shall not exceed five years. The determination of 10% ownership shall be made in accordance with Section 422 of the U.S. Internal Revenue Code. (c) Eligible Employees. Individuals who are not employees of the Company or one of its parent corporations or subsidiary corporations may not be granted Incentive Stock Options. For purposes of this paragraph (c), "parent corporation" and "subsidiary corporation" shall have the meanings attributed to those terms for purposes of Section 422 of the U.S. Internal Revenue Code. (d) Term. The term of an Incentive Stock Option shall not exceed 10 years. (e) Exercisability. To qualify for Incentive Stock Option tax treatment, an Option designated as an Incentive Stock Option must be exercised within three months after termination of employment for reasons other than death, except that, in the case of termination of employment due to total disability, such Option must be exercised within one year after such termination. Employment shall not be deemed to continue beyond the first 90 days of a leave of absence unless the Optionee's reemployment rights are guaranteed by statute or contract. For purposes of this paragraph (e), "total disability" shall mean a mental or physical impairment of the Optionee which is expected to result in death or which has lasted or is expected to last for a continuous period of 12 months or more and which causes the Optionee to be unable, in the opinion of the Company and two independent physicians, to perform his or her duties for the Company and to be engaged in any substantial gainful activity. Total disability shall be deemed to have occurred on the first day after the Company and the two independent physicians have furnished their opinion of total disability to the Compensation Committee. (f) Taxation of Incentive Stock Options. In order to obtain certain tax benefits afforded to Incentive Stock Options under Section 422 of the U.S. Internal Revenue Code, the Optionee must hold the shares issued upon the exercise of an Incentive Stock Option for two years after the date of grant of the Incentive Stock Option and one year from the date of exercise. An Optionee may be subject to U.S. alternative minimum tax at the time of exercise of an Incentive Stock Option. The Compensation Committee may require an Optionee to give the Company prompt notice of any disposition of shares acquired by the exercise of an Incentive Stock Option prior to the expiration of such holding periods. (g) Assignability. No Incentive Stock Option granted under the Plan may be assigned or transferred by the Optionee other than by will or by the laws of descent and distribution, and during the Optionee's lifetime, such Incentive - 11 - 12 Stock Option may be exercised only by the Optionee. ARTICLE 12 APPLICABLE LAW The laws of the Province of British Columbia shall apply to the Plan and any Option Agreements granted hereunder and will be interpreted and construed in accordance with the laws of the Province of British Columbia. - 12 - 13 SCHEDULE "A" TO THE STOCK OPTION PLAN OF 3396631 CANADA INC. (TO CHANGE ITS NAME TO "RITCHIE BROS. AUCTIONEERS INCORPORATED) Unless otherwise defined in this Schedule "A", the terms and expressions used herein have the same meaning as the corresponding terms and expressions used in the Plan. 1. ADJUSTMENT (1) If and whenever at any time prior to the expiry or termination of any Option the Company: (a) issues any Common Shares to all or substantially all of the holders of Common Shares by way of a stock dividend or other distribution (other than the issue of Common Shares to holders of Common Shares as dividends by way of stock dividend in lieu of a cash Dividend Paid in the Ordinary Course or pursuant to any dividend reinvestment plan in force from time to time); (b) subdivides or redivides the outstanding Common Shares into a greater number of Common Shares; or (c) combines, reduces or consolidates the outstanding Common Shares into a lesser number of Common Shares; then, in each such event, the Exercise Price of such Option will, on the effective date of or record date for such event, be adjusted to a price which is equal to the product of: (d) the Exercise Price of such Option in effect immediately prior to such event; and (e) the fraction of which: (i) the numerator is equal to the total number of Common Shares that are outstanding on such date before giving effect to such event; and (ii) the denominator is equal to the total number of Common Shares that are outstanding on such date after giving effect to such event. Any such issue of Common Shares by way of a stock dividend or other distribution will be deemed to have been made on the record date for such stock dividend or other distribution for the purpose of calculating the number of outstanding Common Shares under paragraphs 1(2) and (3). (2) If and whenever at any time prior to the expiry or termination of any Option the Company fixes a record date for the issuance of rights, options or warrants to all or substantially all of the holders of Common Shares entitling the holders thereof, within a period expiring not more than 45 days after the date of issue thereof, to subscribe for or purchase Common Shares (or securities convertible into or exchangeable for 14 Common Shares) at a price per share (or having a conversion or exercise price per share) of less than 95% of the Current Market Price of the Common Shares on the earlier of such record date and the date on which the Company announces its intention to make such issuance, then, in each such event, the Exercise Price of such Option will be adjusted immediately after such record date to a price which is equal to the product of: (a) the Exercise Price of such Option in effect on such record date; and (b) the fraction of which: (i) the numerator is equal to the aggregate of: (A) the total number of Common Shares that are outstanding on such record date; and (B) the number determined by dividing the aggregate price of the total number of additional Common Shares so offered for subscription or purchase (or the aggregate conversion or exchange price of the convertible or exchangeable securities so offered) by the Current Market Price of the Common Shares on the earlier of such record date and the date on which the Company announces its intention to make such issuance; and (ii) the denominator is equal to the aggregate of: (A) the total number of Common Shares that are outstanding on such record date; and (B) the total number of additional Common Shares so offered for subscription or purchase (or into or for which the convertible or exchangeable securities so offered are convertible or exchangeable). Such adjustment will be made successively whenever such a record date is fixed, provided that if two or more such record dates or record dates referred to in paragraph 1(3) are fixed within a period of 25 trading days, such adjustment will be made successively as if each of such record dates occurred on the earliest of such record dates. To the extent that any such rights, options or warrants are not so issued or any such rights, options or warrants are not exercised prior to the expiration thereof, the Exercise Price will then be readjusted to the Exercise Price which would then be in effect if such record date had not been fixed or to the Exercise Price which would then be in effect based upon the number of Common Shares (or securities convertible into or exchangeable for Common Shares) actually issued upon the exercise of such rights, options or warrants, as the case may be. (3) If and whenever at any time prior to the expiry or termination of any Option the - 2 - 15 Company fixes a record date for the making of a distribution to all or substantially all of the holders of Common shares of: (a) shares of any class other than Common Shares whether of the Company or any other corporation (other than shares distributed to holders of Common Shares as Dividends Paid in the Ordinary Course as stock dividends); (b) rights, options or warrants (other than rights, options or warrants exercisable by the holders thereof not more than 45 days after the date of issue thereof); (c) evidences of indebtedness; and (d) cash, securities or other property or assets (other than cash Dividends Paid in the Ordinary Course); then, in each case, the Exercise Price of such Option will be adjusted immediately after such record date to a price which is equal to the product of: (e) the Exercise Price of such Option in effect on such record date; and (f) the fraction of which: (i) the numerator is equal to the amount by which: (A) the product of (x) the total number of Common Shares that are outstanding on such record date and (y) the Current Market Price of the Common Shares on the earlier of such record date and the date on which the Company announces its intention to make such distribution; exceeds (B) the aggregate fair market value (as determined by the Board of Directors at the time such distribution is authorized) of such shares rights, options or warrants or evidences of indebtedness or cash, securities or other property or assets so distributed; and (ii) the denominator is equal to the product determined under clause (A) above. Such adjustment will be made successively whenever such a record date is fixed, provided that if two or more such record dates or record dates referred to in paragraph 1(2) are fixed within a period of 25 trading days, such adjustment will be made successively as if each of such record dates occurred on the earliest of such record dates. To the extent that such distribution is not so made, the Exercise Price of such Option will then be readjusted to - 3 - 16 the Exercise Price which would then be in effect if such record date had not been fixed or to the Exercise Price of such Option which would then be in effect based upon such shares or rights, options or warrants or evidences of indebtedness or cash, securities or other property or assets actually distributed. (4) In the event that any adjustment of the Exercise Price of any Option is made pursuant to paragraphs 1(1) or (2), including any readjustment, the number of Common Shares that may be purchased upon the exercise of such Option will, be purchased upon the exercise of such Option will, contemporaneously with such adjustment of such Exercise Price, be adjusted to a number which is equal to the product of: (a) the total number of Common Shares so purchaseable immediately before such adjustment of such Exercise Price; and (b) the fraction which is the reciprocal of the fraction used in such adjustment of such Exercise Price. (5) If and whenever at any time prior to the expiry or termination of any Option there is: (a) any reclassification of the Common Shares at any time outstanding, any change of the Common Shares into other shares or any other capital reorganization of the Company other than as described in paragraph 1(1), (2) and (3); (b) any consolidation, amalgamation, merger or other form of business combination of the Company with or into any other corporation resulting in a reclassification of the outstanding Common Shares, any change of the Common Shares into other shares or any other capital reorganization of the Company; or (c) any sale, lease, exchange or transfer of the undertaking or assets of the Company as an entirety or substantially as an entirety to another corporation or entity; then the Optionee who thereafter exercises such Option will be entitled to receive, and will accept, for the Exercise Price of such Option then in effect, in lieu of the number of Common Shares to which he would otherwise have been entitled , the kind and number or amount of shares or other securities or property (including cash) that he would have been entitled to receive as a result of such event if, on the effective date thereof, he had been the registered holder of the number of Common Shares which he would have received had he so exercised such Option immediately before such effective date. If necessary as a result of any such event, appropriate adjustments will be made in application of the provisions set forth in this Schedule "A" with respect to the rights and interests of Optionees so that the provisions set forth in this Schedule A will thereafter correspondingly be made applicable, as nearly as may reasonably be, in relation to any shares or other securities or property thereafter deliverable on the exercise of any Option. Any such adjustment will be made by and set forth in amendment - 4 - 17 hereto approved by the Compensation Committee and will for all purposes be conclusively deemed to be an appropriate adjustment. (6) As a condition precedent to taking any action that would require an adjustment pursuant to this paragraph 1, the Company will take all action which may, in the opinion of counsel to the Company, be necessary in order that the Company, or any successor to the Company or successor to the undertaking and assets of the Company, will be obligated to and may validly and legally issue as fully paid and non-assessable all the Common Shares or other shares or securities or property to which Optionees would be entitled to receive thereafter on the exercise thereof in accordance with the provisions hereof. (7) The Company will give notice to each Optionee under each outstanding Option of its intention to make a distribution referred to in paragraph 1(3) which results in the fraction calculated pursuant to clause (f) thereof being a negative number at least 10 days prior to the record date for the making of such distribution. 2. ADJUSTMENT RULES (1) The following rules and procedures will be applicable to adjustments made pursuant to paragraph 1, including any readjustments: (a) the adjustments provided for in paragraph 1 are cumulative, will, in the case of any adjustment to the Exercise Price of any Option, be computed to the nearest one-tenth of one cent and, subject to clause (b) below, will apply (without duplication) to successive subdivisions, consolidations, distributions, issuances or other events that require such an adjustment; (b) no such adjustment in the Exercise Price of any Option will be made unless the price adjustment would result in an increase or decrease of at least 1% in such Exercise Price, provided that any such adjustment which, except for the provisions of this clause (b), would otherwise have been required to be made, will be carried forward and taken into account in any subsequent adjustment; (c) for the purposes of paragraphs 1(1), (2) and (3) there will be deemed not to be outstanding: (i) any Common Share owned by or held for the account of the Company; (ii) any Common Share owned or held for the account of any subsidiary of the Company that is a wholly owned subsidiary; and (iii) that percentage of the Common Shares owned by or held for the account of any subsidiary of the Company that is not a wholly-owned subsidiary, that is equal to the direct and indirect percentage interest of the Company in the outstanding shares of such subsidiary that carry a residual right to - 5 - 18 participate to an unlimited degree in its earnings and in its assets on liquidation or winding-up; (d) no such adjustment will be made in respect of an event described in clause (a) of paragraph 1(1) or paragraph 1(2) or (3) if, subject to the prior written consent of the Exchanges, the Optionees are entitled to participate in such event, or are entitled to participate within 45 days in a comparable event, on the same terms, mutatis mutandis, as if they had exercised their Options immediately before the record date for or effective date of such event; (e) in the absence of a resolution of the Board of Directors fixing a record date at which holders of Common Shares are determined for purposes of any event referred to in paragraph 1, the Company will be deemed to have fixed as the record date therefor the date on which the event is effected or such other date as may be required by law; and (f) no fractional Common Share shall be issued upon the exercise of any Option and accordingly if as a result of any such adjustment an Optionee becomes entitled to purchase a fractional Common Share such Optionee shall have the right to purchase only the next lowest whole number of Common Shares and no payment or other adjustment will be made with respect to the fractional Common Share so disregarded. (2) In any case in which paragraph 1 requires an adjustment to take effect on or immediately after the record date for an event referred to therein, the Company may postpone, until the occurrence and consummation of such event, issuing to any Optionee who holds an option exercised after such record date and before the occurrence and consummation of such event the additional Common Shares or other securities or property issuable upon such exercise by reason of the adjustment required by such event, provided, however, that the Company will deliver to such Optionee an appropriate instrument evidencing such Optionee's right to receive such additional Common Shares or other securities or property upon the occurrence and consummation of such event and the right to receive any dividend or other distribution in respect of such additional Common Shares or other securities or property declared in favour of the holders of record of Common Shares or of such other securities or property on or after the date of exercise of such Option or such later date as such Optionee would, but for the provisions of this paragraph 2(2), have become the holder of record of such additional Common Shares or of such other securities or property. (3) If and whenever at any time prior to the expiry or termination of any Option the Company takes any action affecting or relating to the Common Shares, other than any action described in paragraph 1, which in the opinion of the Compensation Committee would prejudicially affect the rights of any Optionee, the number of Common Shares that may be purchased by such Optionee upon the exercise of his Option and the Exercise Price of such Option will be adjusted by the Compensation Committee, subject to the prior written consent of the Exchanges, in such manner, if any, and at such time, as the Compensation Committee - 6 - 19 may in its sole discretion determine to be equitable in the circumstances to such Optionee. Failure of the Compensation Committee to take any action so as to provide for any such adjustment on or before the effective date of any such action by the Company affecting or relating to the Common Shares will be conclusive evidence that the Compensation Committee has determined that it is equitable to make no such adjustment in the circumstances. 3. DEFINITIONS In this Schedule "A", unless there is something in the subject matter or context inconsistent therewith: (a) "Current Market Price", on any date, means the average, during the period of 20 consecutive trading days ending on the fifth trading day before such date, of the average closing price per share at which the Common Shares have traded on the New York Stock Exchange (or, if the Common Shares are not listed on the New York Stock Exchange, then on such stock exchange on which the Common Shares are listed as may be selected for that purpose by the Compensation Committee or, if the Common Shares are not listed on any stock exchange, then in the over-the-counter market) as reported by the New York Stock Exchange (or such other stock exchange or as quoted by the most commonly quoted or carried source of quotations for Common Shares traded in the over-the-counter market), provided that if, on any such trading day, there are no such reported or quoted high and low prices, the average of the closing bid and asked prices per share for board lots of the Common Shares reported by the New York Stock Exchange (or such other stock exchange or as quoted by the most commonly quoted or carried source of quotations for shares traded in the over-the-counter market) for such trading day will be utilized in computing such average, and provided further that if the Common Shares are not listed on any stock exchange or traded in any over-the-counter market, then the Current Market Price of the Common Shares will be determined by the Compensation Committee. (b) "Dividend Paid in the Ordinary Course" means any dividend paid by the Company on the Common Shares in any fiscal year of the Company (whether in cash, securities, property or other assets), provided that the amount of such dividend paid in cash and the value of such dividend paid otherwise than in cash (any securities, property or other assets so distributed as a dividend to be valued at an amount equal to the fair market value thereof as determined by the Board of Directors at the times such dividend is declared), plus the aggregate amount or value (as so determined) of all other dividends previously paid by the Company on the Common Shares (or on any other shares in the capital of the Company ranking with respect to the payment of dividends on a parity with the Common Shares) in such fiscal year, does not exceed the greatest of: (i) the amount or value (as so determined) which results in the amount or value (as so determined) of dividends per Common Share paid by the - 7 - 20 Company on the Common Shares (or on any other shares in the capital of the Company ranking with respect to the payment of dividends on a parity with the Common Shares) during such fiscal year not exceeding 200% of the amount or value (as so determined) per Common Share of all dividends paid by the Company on the Common Shares (or on any other shares in the capital of the Company ranking with respect to the payment of dividends on a parity with the Common Shares) during the fiscal year of the Company ended immediately prior to the commencement of such fiscal year; (ii) the amount or value (as so determined) which results in the amount or value (as so determined) of dividends per Common Share of all dividends paid by the Company on the Common Shares or on any other shares in the capital of the Company ranking with respect to the payment of dividends on a parity with the Common Shares) during such fiscal year not exceeding 100% of the amount or value (as so determined) per Common Share of all dividends paid by the Company on the Common Shares (or on any other shares in the capital of the Company ranking with respect to the payment of dividends on a parity with the Common Shares) during the three successive fiscal years of the Company ended immediately prior to the commencement of such fiscal year; and (iii) 150% of the consolidated net income of the Company before extraordinary items for (but after dividends payable on all shares in the capital of the Company ranking with respect to the payment of dividends prior to the Common Shares in respect of) the fiscal year of the Company ended immediately prior to the commencement of such fiscal year (such consolidated net income, extraordinary items and dividends to be as shown in the audited consolidated financial statements of the Company for such fiscal year or, if there are no audited consolidated financial statements for such fiscal year, computed in accordance with generally accepted accounting principles); provided that if any fiscal year which is relevant for purposes of the foregoing provisions of this definition is less than 365 days any amount or value determined in respect of such fiscal year pursuant to such provisions will be adjusted by multiplying such amount or value by the number obtained by dividing 365 by the number of days in such fiscal year; (c) "trading day", with respect to any stock exchange or over-the-counter market, means a day on which shares may be traded through the facilities on such stock exchange or in such over-the-counter market. - 8 - EX-10.2 9 FORM OF INDEMNITY AGREEMENT 1 EXHIBIT 10.2 INDEMNITY AGREEMENT THIS AGREEMENT made as of the _______ day of _________________, 1997. BETWEEN: RITCHIE BROS. AUCTIONEERS INCORPORATED, a corporation amalgamated under the laws of Canada and having an office at 9200 Bridgeport Road, Richmond, British Columbia, V6X 1S1 (the "Corporation") AND: _____________________, _______________, of ____________________________ (the "Indemnified Party") WHEREAS: A. The Indemnified Party is, has been or may become a director or officer of the Corporation or of a body corporate of which the Corporation is, was or may become a shareholder or creditor (an "Interested Corporation"), or at the request of the Corporation or an Interested Corporation a director or officer of (or is acting in a similar capacity for) a corporation, partnership, association, syndicate, joint venture, trust or other organization, whether incorporated or unincorporated (an "Other Entity"); B. The Corporation considers it desirable and in the best interests of the Corporation to enter into this Agreement to set out the circumstances and manner in which the Indemnified Party may be indemnified in respect of certain liabilities or expenses which the Indemnified Party may incur as a result of his acting as a director or officer of the Corporation, an Interested Corporation or Other Entity; C. The Indemnified Party has agreed to serve or to continue to serve as a director or officer of the Corporation, an Interested Corporation or Other Entity subject to the Corporation providing him with adequate insurance or an indemnity against certain liabilities and, in order to induce the Indemnified Party to serve and to continue to so serve, the Corporation has agreed to provide the indemnity herein; D. The Articles of Amalgamation and By-Laws of the Corporation contemplate that the Indemnified Party may be indemnified in certain circumstances. IN WITNESS THEREFORE that in consideration of the sum of ONE DOLLAR ($1.00) now paid by the Indemnified Party to the Corporation (the receipt and sufficiency of which is acknowledged 2 by the Corporation), and in consideration of the mutual promises and covenants contained herein, the parties agree as follows: 1. GENERAL INDEMNITY. The Corporation agrees: (a) Expanded Indemnity - except in respect of an action by or on behalf of the Corporation or an Interested Corporation to procure a judgment in its favour against the Indemnified Party, or as otherwise provided herein, to indemnify and save the Indemnified Party harmless, to the full extent permitted by law, including but not limited to that under the Canada Business Corporations Act, as the same exists on the date hereof or may hereafter be amended (but, in the case of such amendment, only to the extent that such amendment permits the Corporation to provide broader indemnification rights than the law permitted prior to such amendment) from and against any and all costs, charges, expenses, fees, loss, damages or liabilities (including legal or other professional fees), without limitation, and whether incurred alone or jointly with others, which the Indemnified Party may suffer, sustain, incur or be required to pay arising out of or incurred in respect of any action, suit, proceeding, investigation or claim which may be brought, commenced, made, prosecuted or threatened against the Indemnified Party or any of the other directors or officers of the Corporation, an Interested Corporation or Other Entity, for or in respect of any claim to which he is made a party by being or having been a director or officer of the Corporation, an Interested Corporation or Other Entity or which the Indemnified Party may be required to participate in or provide evidence in respect of (any of the same hereinafter being referred to as a "Claim") howsoever arising and whether arising in law, equity or under statute, regulation or governmental ordinance of any jurisdiction or any act, deed, matter or thing done, made, permitted or omitted by the Indemnified Party arising out of, or in connection with the affairs of the Corporation, the Interested Corporation or Other Entity or the exercise by the Indemnified Party of his powers or the performance of his duties as a director or officer of the Corporation, an Interested Corporation or Other Entity including, without limitation, any and all costs, charges, expenses, fees, loss, damages or liabilities which the Indemnified Party may suffer, sustain or incur or be required to pay in connection with investigating, initiating, defending, appealing, preparing for, providing evidence in, instructing and receiving the advice of his own or other counsel, or any amount paid to settle any claim or satisfy any judgment, fine or penalty, provided that the indemnity provided for in this Section 1(a) will only be available provided: (i) the Indemnified Party was acting honestly and in good faith with a view to the best interests of the Corporation, the Interested Corporation or Other Entity, as the case may be; (ii) in the case of a criminal or administrative action or proceeding that is enforced by monetary penalty, in so acting, the Indemnified Party had reasonable grounds for believing that his conduct was lawful; and - 2 - 3 (iii) in so acting, the Indemnified Party was not in breach of his obligations hereunder. (b) Indemnity as of Right - notwithstanding anything herein, an Indemnified Party is entitled to indemnity from the Corporation in respect of all costs, charges and expenses reasonably incurred by him in connection with the defence of any civil, criminal or administrative action or proceeding to which he is made a party by reason of his being or having been a director or officer of the Corporation or an Interested Corporation, if the Indemnified Party: (i) was substantially successful on the merits in his defence of the action or proceeding; and (ii) fulfils the conditions set out in Section 1(a)(i) and (ii) above. (c) Derivative Claims etc. - in respect of any action by or on behalf of the Corporation or an Interested Corporation to procure a judgment in its favour against the Indemnified Party, in respect of which the Indemnified Party is made a party by reason of his being or having been a director or officer of the Corporation or an Interested Corporation, the Corporation shall make application, at its expense, for the approval of a court of competent jurisdiction to indemnify and save harmless the Indemnified Party, his heirs and legal representatives against such costs, charges and expenses reasonably incurred by him in connection with such action provided the Indemnified Party fulfils the conditions set out in Section 1(a)(i) and (ii) above. (d) Incidental Expenses - except to the extent such costs, charges, expenses, fees or liabilities are paid by an Interested Corporation or Other Entity, the Corporation shall pay or reimburse the Indemnified Party for his reasonable travel, lodging or accommodation costs, charges or expenses paid or incurred by or on behalf of the Indemnified Party in carrying out his duties as a director or officer of the Corporation, an Interested Corporation or Other Entity, whether or not incurred in connection with any Claim. 2. SPECIFIC INDEMNITY FOR STATUTORY OBLIGATIONS. Without limiting the generality of Section 1 hereof, the Corporation agrees, to the extent permitted by law, to indemnify and save the Indemnified Party harmless from and against any and all costs, charges, expenses, fees, loss, damages or liabilities arising by operation of statute and incurred by or imposed upon the Indemnified Party in relation to the affairs of the Corporation, an Interested Corporation or Other Entity in the Indemnified Party's capacity as director or officer thereof, including but not limited to, all statutory obligations to creditors, employees, suppliers, contractors, subcontractors, and any government or any agency or division of any government, whether federal, provincial, state, regional or municipal. 3. TAXATION INDEMNITY. Without limiting the generality of Section 1 hereof, the - 3 - 4 Corporation agrees that the payment of any indemnity to or reimbursement of the Indemnified Party hereunder shall include any amount the Indemnified Party may be required to pay on account of applicable income or goods or services taxes or other taxes or levies of whatsoever description arising out of the payment of such indemnity or reimbursement such that the amount received by or on behalf of the Indemnified Party, after payment of any such taxes or levies, is equal to the amount required by the Indemnified Party to pay such costs, charges, expenses, fees, loss, damages or liabilities, provided however that any amount required to be paid with respect to such taxes or levies shall be payable by the Corporation only upon the Indemnified Party remitting or being required to remit any amount payable an account of such taxes or levies. Without limiting the foregoing, the Corporation shall indemnify and make whole the Indemnified Party for any taxes or levies payable by the Indemnified Party arising from or as result of any advancement or loans made by the Corporation to the Indemnified Party pursuant to this Agreement. 4. PARTIAL INDEMNIFICATION. If the Indemnified Party is determined to be entitled under any provisions of this Agreement to indemnification by the Corporation for some or a portion of the costs, charges, expenses, fees, loss, damages or liabilities incurred in respect of any Claim but not for the total amount thereof, the Corporation shall nevertheless indemnify the Indemnified Party for the portion thereof to which the Indemnified Party is determined by a court of competent jurisdiction to be so entitled. 5. NOTICES OF THE PROCEEDINGS. The Indemnified Party shall give notice, in writing, to the Corporation upon the Indemnified Party being served with any statement of claim, writ, notice of motion, indictment, subpoena, investigation order or other document commencing, threatening or continuing any Claim involving the Corporation, an Interested Corporation or Other Entity or the Indemnified Party which may result in a claim for indemnification under this Agreement, and the Corporation agrees to notify the Indemnified Party, in writing, forthwith upon it or any Interested Corporation being served with any statement of claim, writ, notice of motion, indictment, subpoena, investigation order or other document commencing or continuing any Claim involving the Indemnified Party. Failure by either party to so notify the other of any Claim shall not relieve the Corporation from liability hereunder except to the extent that the failure materially prejudices the Indemnified Party or the Corporation, as the case may be. 6. SUBROGATION. Promptly after receiving notice of any Claim or threatened Claim from the Indemnified Party, the Corporation may, and upon the written request of the Indemnified Party shall, promptly assume conduct of the defence thereof and retain counsel on behalf of the Indemnified Party who is reasonably satisfactory to the Indemnified Party, to represent the Indemnified Party in respect of the Claim. If the Corporation assumes conduct of the defence on behalf of the Indemnified Party, the Indemnified Party hereby consents to the conduct thereof and of any action taken by the Corporation, in good faith, in connection therewith and the Indemnified Party shall fully cooperate in such defence including, without limitation, the provision of documents, attending examinations for discovery, making affidavits, meeting with counsel, testifying and divulging to the Corporation all information reasonably required to defend or prosecute the Claim. 7. SEPARATE COUNSEL. In connection with any Claim the Indemnified Party shall have - 4 - 5 the right to employ separate counsel of the Indemnified Party's choosing and to participate in the defence thereof but the fees and disbursements of such counsel shall be at the Indemnified Party's expense unless: (a) the Indemnified Party reasonably determines that there are legal defences available to the Indemnified Party that are different from or in addition to those available to the Corporation, the Interested Corporation or Other Entity or that a conflict of interest exists which makes representation by counsel chosen by the Corporation not advisable; (b) the Corporation has not assumed the defence of the Claim and employed counsel therefor reasonably satisfactory to the Indemnified Party within a reasonable period of time after receiving notice thereof; or (c) employment of such other counsel has been authorized by the Corporation; in which event the fees and disbursements of such counsel shall be paid by the Corporation. 8. NO PRESUMPTION AS TO ABSENCE OF GOOD FAITH. Unless a court of competent jurisdiction otherwise has held or decided that the Indemnified Party is not entitled to be indemnified hereunder, in full or partially, the determination of any Claim by judgment, order, settlement or conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, create any presumption for the purposes of this Agreement that the Indemnified Party is not entitled to indemnity hereunder. 9. SETTLEMENT OF CLAIM. No admission of liability and no settlement of any Claim in a manner adverse to the Indemnified Party shall be made without the consent of the Indemnified Party, such consent not to be unreasonably withheld. No admission of liability shall be made by the Indemnified Party without the consent of the Corporation and the Corporation shall not be liable for any settlement of any Claim made without its consent, such consent not to be unreasonably withheld. 10. DETERMINATION OF RIGHT TO INDEMNIFICATION. If the payment of an indemnity hereunder requires the approval of a court, under the provisions of the Canada Business Corporations Act or otherwise, either of the Corporation or, failing the Corporation, the Indemnified Party may apply to a court of competent jurisdiction for an order approving such indemnity by the Corporation of the Indemnified Party pursuant to this Agreement. 11. ADVANCE OF EXPENSES. The Corporation shall, at the request of the Indemnified Party, advance to the Indemnified Party sufficient funds, or arrange to pay on behalf of or reimburse the Indemnified Party for any costs, charges, expenses, retainers or legal fees incurred or paid by the Indemnified Party in investigating, defending, appealing, preparing for, providing evidence in or instructing and receiving the advice of his counsel or other professional advisors in regard to any Claim or other matter for which the Indemnified Party may be entitled to an indemnity or reimbursement hereunder, and such amounts shall be treated as a non-interest bearing - 5 - 6 advance or loan to the Indemnified Party, pending approval of the Corporation and of the court (if required), to the payment thereof as an indemnity. In the event it is ultimately determined by a court of competent jurisdiction that the Indemnified Party is not entitled to be indemnified in respect of any amount for which a loan or advance was made, or that the Indemnified Party was not entitled to be fully so indemnified, such loan or advance, or the appropriate portion thereof shall be repayable on demand and shall bear interest from the date of such determination until repaid in full at the prime rate prescribed from time to time by The Royal Bank of Canada. 12. OTHER RIGHTS AND REMEDIES UNAFFECTED. The indemnification and payment provided in this Agreement shall not derogate from or exclude any other rights to which the Indemnified Party may be entitled under any provision of the Canada Business Corporations Act or otherwise at law, the Articles or By-Laws of the Corporation, the constating documents of any Interested Corporation or Other Entity, any applicable policy of insurance, guarantee or third-party indemnity, any vote of shareholders of the Corporation, or otherwise, both as to matters arising out of his capacity as a director or officer of the Corporation, an Interested Corporation or Other Entity, or as to matters arising out of any other capacity in which the Indemnified Party may act for or on behalf of the Corporation. 13. INSURANCE. The Corporation shall purchase and maintain, or cause to be purchased and maintained, for so long as the Indemnified Party remains a director or officer of the Corporation, an Interested Corporation or Other Entity, and for a period of six (6) years thereafter, insurance for the benefit of the Indemnified Party (or a rider, extension or modification of such policy to extend the time within which a Claim would be required to be reported by the Indemnified Party under such policy after the Indemnified Party has ceased to be a director or officer) on such terms as the Corporation then maintains in existence for its directors and officers, to the extent permitted by law and in either case, provided such insurance, rider, extension or modification is available on commercially acceptable terms and premiums therefor. 14. COMPANY AND INDEMNIFIED PARTY TO COOPERATE. The Corporation and the Indemnified Party shall, from time to time, provide such information and cooperate with the other, as the other may reasonably request, in respect of all matters hereunder. 15. EFFECTIVE TIME. This Agreement shall be deemed to have effect as and from the first date that the Indemnified Party became a director or officer of the Corporation, an Interested Corporation or Other Entity. 16. EXTENSIONS, MODIFICATIONS. This Agreement is absolute and unconditional and the obligations of the Corporation shall not be affected, discharged, impaired, mitigated or released by the extension of time, indulgence or modification which the Indemnified Party may extend or make with any person regarding any Claim against the Indemnified Party or in respect of any liability incurred by him in acting as a director or officer of the Corporation, an Interested Corporation or Other Entity. 17. INSOLVENCY. The liability of the Corporation under this Agreement shall not be affected, discharged, impaired, mitigated or released by reason of the discharge or release of the - 6 - 7 Indemnified Party in any bankruptcy, insolvency, receivership or other similar proceeding of creditors. 18. MULTIPLE PROCEEDINGS. No action or proceeding brought or instituted under this Agreement and no recovery pursuant thereto shall be a bar or defence to any further action or proceeding which may be brought under this Agreement. 19. MODIFICATION. No modification of this Agreement shall be valid unless the same is in writing and signed by the Corporation and the Indemnified Party. 20. TERMINATION. The obligations of the Corporation shall not terminate or be released upon the Indemnified Party ceasing to act as a director or officer of the Corporation, an Interested Corporation or Other Entity at any time or times. The Corporation's obligations hereunder may be terminated or released only by a written instrument executed by the Indemnified Party. 21. NOTICES. Any notice to be given by one party to the other shall be sufficient if delivered by hand, deposited in any post office in Canada, registered, postage prepaid, or sent by means of electronic transmission (in which case any message so transmitted shall be immediately confirmed in writing and mailed as provided above), addressed, as the case may be: (a) To the Corporation: 9200 Bridgeport Road Richmond, British Columbia, V6X 1S1 Attention: President Telecopier: (604) 273-6873 (b) To the Indemnified Party: _________________________ _________________________ _________________________ _________________________ Telecopier: _____________ or at such other address of which notice is given by the parties pursuant to the provisions of this section. Such notice shall be deemed to have been received when delivered, if delivered, and if mailed, on the fifth business day (exclusive of Saturdays, Sundays and statutory holidays) after the - 7 - 8 date of mailing. Any notice sent by means of electronic transmission shall be deemed to have been given and received on the day it is transmitted, provided that if such day is not a business day then the notice shall be deemed to have been given and received on the next business day following. In case of an interruption of the postal service, all notices or other communications shall be delivered or sent by means of electronic transmission as provided above, except that it shall not be necessary to confirm in writing and mail any notice electronically transmitted. 22. GOVERNING LAW. This Agreement shall be governed by and construed in accordance with the laws of the Province of British Columbia and all disputes arising under this Agreement shall be referred to and the parties hereto irrevocably attorn to the jurisdiction of the courts of British Columbia. 23. FURTHER ASSURANCES. The Corporation and the Indemnified Party agree that they shall do all such further acts, deeds or things and execute and deliver all such further documents as may be necessary or advisable for the purpose of assuring and conferring on the Indemnified Party the rights hereby created or intended, and of giving effect to and carrying out the intention or facilitating the performance of the terms of this Agreement or to evidence any loan or advance made pursuant to Section 11 hereof. 24. INTERPRETATION. Wherever the singular or masculine are used in this Agreement, the same shall be construed as meaning the plural or the feminine or body corporate and whenever the plural is used in this Agreement the same shall be construed as meaning the singular. 25. INVALID TERMS SEVERABLE. If any term, clause or provision of this Agreement shall be held to be invalid or contrary to law, the validity of any other term, clause or provision shall not be affected and such invalid term, clause or provision shall be considered severable and the remaining provisions of this Agreement valid and enforceable to the fullest extent permitted by law. 26. BINDING EFFECT. All of the agreements, conditions and terms of this Agreement shall extend to and be binding upon the Corporation and its successors and assigns and shall enure to the benefit of and may be enforced by the Indemnified Party and his heirs, executors, administrators and other legal representatives, successors and assigns. 27. INDEPENDENT LEGAL ADVICE. The Indemnified Party acknowledges that he has been advised to obtain independent legal advice with respect to entering into this Agreement, that he has obtained such independent legal advice or has expressly decided not to seek such advice, and that he is entering into this Agreement with full knowledge of the contents hereof, of his own free will and with full capacity and authority to do so. 28. DEEMING PROVISION. The Indemnified Party shall be deemed to have acted or be acting at the request of the Corporation upon his being appointed or elected as a director or officer of the Corporation or an Interested Corporation. - 8 - 9 IN WITNESS WHEREOF the Corporation and the Indemnified Party have hereunto set their hands and seals as of the day and year first above written. THE COMMON SEAL OF RITCHIE BROS. ) AUCTIONEERS INCORPORATED was hereunto ) affixed in the presence of: ) ) ) ___________________________________ ) C/S Title:_____________________________ ) (Authorized Signatory) ) ) ___________________________________ ) Title:_____________________________ ) (Authorized Signatory) SIGNED, SEALED AND DELIVERED by ______ ) ________ in the presence of: ) ) ) __________________________________ ) Name ) ) ________________________ (seal) ___________________________________ ) Address ) ) ___________________________________ ) ) ) ___________________________________ ) Occupation ) - 9 - EX-11 10 STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS 1 EXHIBIT 11 RITCHIE BROS. AUCTIONEERS INCORPORATED STATEMENT OF COMPUTATION OF PER SHARE EARNINGS (U.S. DOLLARS IN THOUSANDS, EXCEPT NUMBER OF SHARES AND PER SHARE DATA)
THREE MONTHS ENDED YEAR ENDED ------------ -------------- JULY 31, APRIL 30, 1997 1997 -------------- ------------ Pro Forma Net Income (Loss)........................................ $ 15,401 $ (4,261) Weighted Average Number of Shares of Common Stock Outstanding...... 13,213,666 13,213,666 -- fully diluted(1).............................................. 14,472,799 14,472,799 Per share data: Net Income (Loss) per share...................................... $ 1.17 $ (0.32) -- fully diluted................................................. $ 1.06 (0.29)
- --------------- (1) Giving effect to the exercise of stock options that will be outstanding upon consummation of the Offering. EX-21 11 SUBSIDIARIES OF THE REGISTRANT 1 EXHIBIT 21 RITCHIE BROS. AUCTIONEERS INCORPORATED SUBSIDIARY CORPORATIONS (DIRECT AND INDIRECT)
NAME JURISDICTION OF INCORPORATION - ------------------------------------------------------------------ ------------------------------ Ritchie Bros. Holdings Inc. Washington State Ritchie Bros. Auctioneers Inc. Washington State Ritchie Bros. Properties Inc. Washington State Ritchie Bros. Auctioneers de Mexico S de RL de CV Mexico Ritchie Bros. Auctioneers de Mexico Services S de RL de CV Mexico Ritchie Bros. Holdings Ltd. (formerly known as 85903 Holdings Ltd.) Canada Ritchie Bros. Auctioneers (Canada) Ltd. Canada Ritchie Bros. Properties Ltd. Canada Ritchie Bros. Auctioneers (Japan) Ltd. Province of British Columbia Ritchie Bros. Auctioneers (Overseas) Ltd. Province of British Columbia Ritchie Bros. Auctioneers Limited Cyprus Ritchie Bros. Holdings BV The Netherlands Ritchie Bros. Auctioneers BV The Netherlands Ritchie Bros. Properties BV The Netherlands Ritchie Bros. Auctioneers GmbH Germany Ritchie Bros. Auctioneers France SARL France Bridgeport Agencies Inc. Washington State Ritchie Bros. Auctioneers Ltd. Province of British Columbia Ritchie Bros. Mexico (#3) Ltd. Province of British Columbia Six Mile Lake Logging Ltd. Province of British Columbia E.H.B. Auctions Ltd. Province of British Columbia M.E.P. Auctions Ltd. Province of British Columbia M.G.R. Auctions Ltd. Province of British Columbia Bridgeport Agencies Ltd. Province of British Columbia Ritchie Bros. Auctioneers (International) Ltd. Province of British Columbia
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