A great deal of attention has been focused recently on
challenges faced by issuers in the resource sector, particularly in
connection with short form prospectus distributions and the ability
to respond to comments on technical disclosure within the
timeframes of the deal.
In December of 2011, we saw the first of a series of short form
prospectus offerings being withdrawn. Karnalyte Resources filed a
preliminary short form prospectus on December 5 for its $115
million offering of common shares, with an expected closing date of
December 19, 2011. On December 13, the company issued a press
release indicating it was no longer proceeding
with the offering as the final short form prospectus could not be
filed within the required timeframe "as a result of the
delay" caused by comments raised by regulators on its
technical report. (The Company subsequently filed an amended and restated technical
report effective March 30, 2012, announcing via
press release on the same day that it had responded to the
regulators' comments over the past few months and, as a result,
was filing the amended and restated report.)
A similar situation arose in January of this year involving the
$50 million short form offering by Extorre Gold Mines. The company
issued a press release announcing its
offering on January 30, 2012, indicating that the
proceeds would be used for exploration and development of its
mineral projects in Argentina. The preliminary prospectus was filed
on February 3 with closing expected to occur on February 22. By press release dated February 16, the
company announced that the offering was being
withdrawn as it had received comments from
securities regulators on its technical report, in particular
relating its preliminary economic assessment and certain aspects of
its public record relating to the technical report. The release
went on to note that while the company had held discussions with
regulators to resolve these comments, the final short form
prospectus could not be filed in the required time "as a
result of the delay". The company followed-up with a further press release the next
day, clarifying that the comments raised by
securities regulators did not relate to the mineral resource
estimate as stated in the technical report, but were in connection
with the portions of the preliminary economic
assessment announced by the company in August of
2011, that were incorporated into the report.
Issues raised during the comment period can be particularly
challenging in the bought deal or short form offering context given
the tight timelines that apply to these transactions. Where it
appears that comments cannot be resolved in time, the parties will
inevitably need to look to the underwriting agreement to examine
their recourse. While underwriters do have limited termination
rights in the context of bought deals, it is not common for them to
exercise such rights unilaterally. In the limited situations where
bought deals have been terminated a more typical scenario involves
mutual termination and withdrawal of the offering. Typically, the
underwriters have the ability to terminate for a variety of
reasons, including material breach by the issuer of its obligations
under the agreement. Depending on the how the agreement is drafted,
the company's obligation to file a final prospectus within the
allotted timeframe may lead to an exercise in interpretation.
These recent challenges highlight the need to consider
termination provisions carefully in order to avoid challenges
caused by ambiguous provisions. From an underwriters'
perspective, the agreement should clearly provide full flexibility
to terminate if the final prospectus is not filed within the
prescribed time. An express termination right in favour of the
underwriters for failure to meet filing deadlines for the
preliminary and final prospectus may also be appropriate in some
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
To print this article, all you need is to be registered on Mondaq.com.
Click to Login as an existing user or Register so you can print this article.
The British Columbia Court of Appeal has recently considered whether the doctrine of unconscionability can be invoked to set aside a contractual clause providing for the payment by one party to the other...
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).