Bought deal underwriting agreement

A block trade also called a bought deal refers to an offering of a block of securities where the underwriters agree to purchase the securities without prior marketing. There were an increasing number of block trades toward the end of November and even December as the market hit all-time highs. Issuers and selling stockholders constantly watch the markets as they try to decide the appropriate time to sell securities.

Bought deal underwriting agreement

Stifel Nicolaus Canada Inc. Stifel argued that the bid letter between Stifel and Stetson was not a binding agreement, but merely an agreement to agree and that, in any event, it could rely on the termination provisions that would have been included in the underwriting agreement contemplated by the bid letter to terminate its obligations.

The court found that the bid letter was a binding agreement and that Stifel could not rely on the termination provisions to be contained in the underwriting agreement as a basis for backing out of its commitment in the bid letter.

A Primer On Executing Block Trades - Law

This bought deal underwriting agreement confirms the binding nature of a bid letter for a bought deal financing, and also underscores the importance of including specific termination rights in bid letters to ensure that underwriters in capital markets transactions have the flexibility to terminate a financing commitment upon the occurrence of certain events prior to the execution of a definitive underwriting agreement.

Each subscription receipt was exchangeable into one common share of Stetson upon the approval of a lease arrangement. The proceeds from the financing were to be used by Stetson to meet certain commitments under land leases in the oil-rich Bakken Formation of North Dakota. On July 28, Stifel's lawyers communicated with Stetson's lawyers that Stifel did not intend to close the financing on July 31, as contemplated by the bid letter No reason was provided.

Stifel took no steps to close the financing, including the negotiation and execution of a definitive underwriting agreement.

On August 1, Stetson granted Stifel an unsolicited extension of the July 31 closing date, in hopes that an extension would give Stetson and Stifel time to renegotiate the terms of the financing. Stetson rebuffed the offer a few days later, informing Stifel that it would "take action" against Stifel if it did not fulfil its commitments under the bid letter and close the financing.

In early August, with lease payments looming, Stetson began to consider alternatives to the Stifel financing. Stetson also agreed to issue new preferred shares to existing shareholders of Stetson, entitling them to the proceeds of any final judgement or settlement paid to Stetson in connection with its claim against Stifel.

The Canaccord financing closed in mid-September, but the net proceeds fell well short of the funds needed for Stetson to undertake its development in the Bakken. In the end, Stetson was unable to raise additional funds to develop the lands and, after a failed strategic partnering, the project was terminated and the leases lost.

At trial, Stifel argued that the bid letter was not a binding agreement, but only an agreement to agree, and that a binding agreement would only arise on signing of the underwriting agreement.

In a “bought deal” underwriting, the underwriters commit to purchase the securities at an agreed price before the transaction is announced publicly. By contrast, in a “marketed” underwritten offering, the company files a preliminary prospectus that does not include the price and the number of securities to be sold. A block trade (also called a bought deal) refers to an offering of a block of securities where the underwriters agree to purchase the securities without prior marketing. a bought deal. In Annex A, we have included a sample timeline for a • Are there any underwriting agreement issues to be negotiated? • What lock-ups will be required from In this Client Alert, when we refer to a “bought deal,” we mean a securities.

The court, however, found that the language of the bid letter indicated that there was an intention to be bound, and that there were a number of provisions in the bid letter that suggested it was a binding agreement, such as an arbitration provision and indemnity provision.

The court pointed to internal Stifel correspondence exchanged after the bid letter was executed - and after Stifel experienced difficulties selling the shares - as evidence that Stifel clearly understood it had bought deal liability and that it wanted to sell the shares before it was required to close the financing.

On the issue of whether an underwriting agreement had to be signed by the parties before a binding agreement could be recognized, the court held that executing a formal underwriting agreement was not a condition of the bargain between Stetson and Stifel, but rather an expression of the desire of parties as to the manner in which the transaction already agreed to would proceed.

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The Underwriting Agreement will be negotiated in good faith between the Company and Thomas Weisel, and behalf of the Underwriters, and will contain The court held that, because Stifel had never attempted to negotiate and execute a definitive underwriting agreement before failing to close the financing, there was no agreement containing the "material adverse change-out" and "disaster-out" provisions that Stifel could rely on as a basis for terminating its obligations.

The court went on to note that, even if the termination provisions referenced in the bid letter could be relied on by Stifel as a basis for not closing, in order for Stifel to rely on the provisions, it would have had to form the opinion that there had been a "material adverse change" or a "disaster" and then provide Stetson with notice to that effect prior to the closing date, neither of which Stifel did.

TAKE-AWAYS The decision reinforces the notion that bid letters are binding agreements, despite that they contemplate that a formal underwriting agreement will be entered into prior to closing.A bought deal is a securities offering in which an investment bank commits to buy the entire offering from the client company.

In a “bought deal” underwriting, the underwriters commit to purchase the securities at an agreed price before the transaction is announced publicly.

By contrast, in a “marketed” underwritten offering, the company files a preliminary prospectus that does not include the price and the number of securities to be sold.

This precedent is a sample underwriting agreement for a bought deal short form prospectus offering of common shares for a company listed on the Toronto Stock Exchange — Robert Mason and Ahmed Shehata, Norton Rose Fulbright Canada LLP.

Additionally, the underwriting commitment in the bought deal agreement is usually subject to the subsequent condition that the issuer and the underwriters execute a mutually satisfactory form of definitive or formal underwriting agreement. All underwriting firms would be wise to read this decision as it confirms the underwriter's obligation in a bought deal and forewarns of the liability underwriters may face if they do not anticipate or adequately define out clauses.

bought deal underwriting agreement

Apr 08,  · The decision reinforces the notion that bid letters are binding agreements, despite that they contemplate that a formal underwriting agreement will be entered into prior to closing.

Canada Corporate/Commercial Law Borden Ladner Gervais LLP 8 Apr

Underwriting Agreement - Bought Deal Short Form Prospectus Offering -