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

Last Updated: April 8 2013
Article by Jarrod Isfeld, Scott Kugler and Michelle McBride

Most Read Contributor in Canada, October 2018


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" deal.

The court found that Weisel intended and expected to sell the bought deal prior to 9:15 am (Toronto time) on Monday, within two hours of announcing the deal and 15 minutes prior to the opening of trading on the exchange. Weisel approached two anticipated syndicate members, both of whom declined to participate in the deal. By end of day Monday, Weisel had not sold a single subscription receipt.

By week's end, Weisel had only placed approximately $2 million of the $25 million financing. Following these disappointing sales, senior management at Weisel significantly ramped up sales efforts, directed staff to prioritize "get[ting] off this liability" and prohibited vacations until the deal was sold.1

A few days prior to the closing date of July 31, 2008, Weisel's lawyers wrote to Stetson's lawyers to advise that Weisel did not intend to close the financing. No reasons were provided and no formal agreement to extend the closing date was reached.

In mid-August 2008, Weisel offered to make a debt investment of $8 million in exchange for a release of its obligations under the engagement letter. Stetson rejected this offer.

In late August 2008, Stetson entered into an alternate financing arrangement, this time on a "best-efforts" basis, with Canaccord Capital Corporation that successfully raised gross proceeds of $12 million.  

Stetson sued Weisel for the difference between the bought deal's anticipated proceeds of $25 million and the proceeds per share ultimately received from the Canaccord financing, in addition to interim financing costs, interest and legal costs.


On March 1, 2013, Stetson was awarded damages of $16.043 million (plus interest and costs) by Newbould J. of the Ontario Superior Court of Justice (Commercial List).

Binding Nature of Agreement

Weisel took the position at trial that the engagement letter was not a binding agreement, but only an agreement to agree, since the engagement letter provided that an underwriting agreement would be entered into prior to closing. The court rejected this argument, stating that the "genesis and aim" of the transaction was a "bought deal underwriting transaction that was intended to be acted upon within hours of the signing of the engagement letter."2  In finding that the engagement letter was binding, the court explained that:

  • While the engagement letter contemplated the negotiation of an underwriting agreement, it did not state that until there is such an underwriting agreement there is no binding agreement between the parties. The entering into of an underwriting agreement "was not a condition of the bargain but rather it was an expression of the desire of the parties as to the manner in which the transaction already agreed to was to go through."3
  • Weisel's conduct in reaching out to potential syndicate members, meeting with a number of its institutional clients to try to sell them a position, and otherwise acting on the basis that the engagement letter was a binding agreement "was consistent with what a reasonable observer would consider to have occurred, i.e. that a binding agreement had been made by the parties".4
  • Among other indications of the existence of a binding agreement, the inclusion of an arbitration clause5 and an indemnity provision within the engagement letter was a "clear indication" that a binding agreement had been made. 

"Out" Clauses

Weisel unsuccessfully argued that two of the "out" clauses referenced in the engagement letter – the "material adverse change out" and the "disaster out" – enabled Weisel to avoid the obligations in the engagement letter.

The engagement letter stated that certain types of "out" clauses would be contained in the underwriting agreement. The substance of the clauses was not included in the engagement letter itself. In ruling that Weisel was not entitled to rely on these clauses, the court found that at no time prior to the scheduled closing did Weisel seek to rely on these clauses. Of even more interest, the court held that, since Weisel failed to negotiate an underwriting agreement, "there was no agreement containing the out clauses that Weisel could rely on in refusing to close."6

Indemnity Clause / Limitation of Damages

The court also rejected Stetson's assertion that the engagement letter's indemnity clause prohibited Stetson from suing Weisel for any amount in excess of the fees received by Weisel under the agreement (which, in the circumstances, were nil). In refusing to interpret the provision in this manner, the court found that it "would be a commercial absurdity to conclude the parties intended that Weisel would have a free pass to break the contract by not closing it without any liability."7


The fundamental hallmark of a bought deal financing involves the transfer of the market risk from the issuer to the underwriter. This decision reinforces the general commercial understanding of the workings of a Canadian bought deal. It also serves to clarify some important points on engagement letters generally, most notably:

  • The mere fact that the parties contemplate the execution of a fulsome underwriting agreement does not derogate from the binding nature of the engagement letter. Provided that the engagement letter contains the key terms of the deal, and there are no clear indications otherwise, the engagement letter will typically be binding on its own.8
  • Mere reference to "out" clauses in the engagement letter (ie: that certain types of "out" clauses will be contained in the underwriting agreement) may not be sufficient to allow an underwriter to rely on these clauses. At a minimum, underwriters should ensure that the engagement letter clearly provides that the "out" clauses apply with immediate effect (ie: at the time that the engagement letter is entered into), and that the engagement letter contains sufficient clarity on the scope of the "outs".

We also note that the fact that the engagement letter was not subject to syndication meant that it was not open to Weisel to argue that it could back out of the deal on the basis that anticipated syndicate members had opted not to participate. 

What the Future Holds

In a press release dated March 4, 2013, Weisel indicated its intention to appeal this decision.


1 Stetson Oil & Gas Ltd. v. Stifel Nicolaus Canada Inc., 2013 ONSC 1300 at para 53.

2Stetson at para 48.

3 Stetson at para 60.

4 Stetson at paras 51-55.

5 The parties agreed to waive the arbitration clause and litigate this dispute.

6 Stetson at para 72.

7 Stetson at para 154.

8 If the parties are relying on the "bought deal" exemption from the pre-marketing restrictions in a public offering, they must have entered into an enforceable agreement (see Part 7 of National Instrument 44-101 Short Form Prospectus Distributions). The Stetson decision dealt with a private placement of securities.

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

Click to Login as an existing user or Register so you can print this article.

Similar Articles
Relevancy Powered by MondaqAI
In association with
Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
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).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions