Bought Deal Failure — Lessons Learned From The Stetson / Weisel Decision

Background

In mid-2008, Stetson Oil & Gas Ltd., a Calgary-based junior oil and gas exploration company that trades on the TSX Venture Exchange, hired underwriter Thomas Weisel Partners Canada Inc. (later acquired by Stifel Nicolaus Canada Inc.) to raise equity proceeds of $25 million via a bought deal private placement. The terms of the bought deal called for Weisel to purchase for resale 45.455 million subscription receipts (each to be exchanged for one common share) at a price of $0.55 per subscription receipt. The engagement letter expressly provided that the deal was not subject to syndication.   

The engagement letter was finalized late on July 13, 2008, a Sunday night, with a requirement that the deal be reconfirmed by 5 am (Calgary time) the next morning. On Monday morning, as expected, the deal was reconfirmed, a press release announcing the deal and its terms was issued by Weisel, and Weisel's staff immediately proceeded with efforts to sell the now "live"