The Toronto Stock Exchange (the "TSX") has always had
approval rights in respect of prospectus offerings by listed
issuers, but until recently this had not represented a meaningful
obstacle to financings. To the contrary, because the TSX imposes
detailed restrictions on private placements, prospectus offerings
were on occasion perceived as a path to completion of a financing
that could not practicably meet the requirements for a private
The TSX had recently signaled that it would more actively
consider using its approval rights in the context of prospectus
offerings, and its recent denial of a proposed prospectus offering
by OPTI Canada Inc. ("OPTI") is a clear indication that
the ground has shifted.
The TSX's Company Manual provides that the TSX has
discretion to apply the rules applicable to private placements,
including the rules as to the maximum discount to market price that
will be permitted without prior shareholder approval, to a
prospectus distribution. In exercising that discretion "the
TSX will consider factors such as: (i) the method of the
distribution; (ii) the participation of insiders; (iii) the number
of placees; (iv) the offering price; and (v) the economic
In late June, OPTI announced that it had reached an agreement
with a syndicate of underwriters for a public offering. The public
offering price was at a discount that exceeded the maximum
permissible under the private placement rules (absent shareholder
approval). OPTI announced that the TSX would not accept notice of
the financing without shareholder approval, which OPTI stated could
not be obtained in a practicable timeframe. There was no indication
from the TSX or OPTI as to whether any factors other than the
discount in the offering price influenced the TSX's
The end of the story for OPTI is that it will proceed with its
offering. A new agreement was reached, at a price that was accepted
by the TSX without any requirement for shareholder approval, in
part because the offering price is 5¢ higher than the initial
price, but largely because OPTI's share price had fallen
approximately 30% in reaction to the TSX's initial refusal.
Issuers should keep in mind the TSX's increased willingness
to use its discretion to actively scrutinize prospectus offerings,
and to apply elements of its private placement rules to prospectus
The content of this article does not constitute legal advice
and should not be relied on in that way. Specific advice should be
sought about your specific circumstances.
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