Shareholder voting rules on Dilutive OfferingsThe latest prospectus dated Sept 18, 2013 says at the bottom of page 1: "Listing will be subject to Bioniche fulfilling all the listing requirements of the TSX on or before November 4, 2013,
including distribution of the Units to a minimum number of arm's length purchasers."
The latest prospectus includes many improvements since the preliminary prospectus, particularly in the description of the business plans going forward and the use of the proceeds. I recommend you read it. I used to think the OSC and TSX didn't do much to protect retail investors, but I have changed my mind. I suspect the regulators asked for more clarity in this area.
But what is the significance of the phrase on page 1 "minimum number of arm's length purchasers"? I did some research using Google and found the following:
- For public share offerings, there is no requirement in Ontario for a company to get shareholders' approval no matter how much the dilution (except for if the company is issuing the shares to do a takeover and the dilution exceeds 50%).
- For private placements, there is a requirement in Ontario for a company to get shareholder approval if dilution is 25% or more.
- I recall the TSX can deem a public offering to be a private placement if the shares are placed with only a small number of investors. Then the private placement rules apply, even though the company called it a public share offering.
My guess is Bioniche had good take-up from a small number of major investors for the $7.5m maximum as soon as the looming proxy battle was resolved by the Sept 11th agreement. But if they don't have enough names on the investor list, the TSX probably now wants them to put the dilution to a vote by existing shareholders because it looks too much like a private placement.
To avoid putting the dilution to a vote, I suspect Bioniche increased the size of the offering to $9m to make room for more investors. But they cannot allow existing names to buy more. They need new names on the investor list. If you don't believe me, if you have already subscribed to the 29 cent/unit offer, I predict you cannot buy any more shares.
Today's goofy trading down to 27.5 cents is likely existing shareholders selling their shares so they can subscribe to the 29 cent offering without increasing their investment exposure to Bioniche. Probably these are new names and the offering broker is calling in favours.
I will be glad when this is all over and the stock can trade based on its fundamentals, which I think is much higher. We have been under market stabilization activities for quite a while.
By the way, the Agency Agreement with the offering broker says the offer closes at 8am on Sept 26th. The full year financial statements are released at 5pm the day before. So nobody will be able to change their order from the share offering after learning of the 2013 final results. Gotcha!