Bellatrix Exploration Ltd (Canada) BXEFF

Righty..righty..know your rights

[blue_eagle]

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Legal rights in a public offering.....

1. Every investor, whether retail or institutional, has an absolute legal right to change their mind after telling their broker that they want to buy securities in a bought deal. This right extends in all Canadian provinces until a minimum of two business days after the final prospectus is filed. This right is one of the most basic tenets on which the Canadian securities system is based, and the Canadian regulators would never have considered allowing bought deals to be done without this right being in place and being disclosed in every prospectus.

2. A bought deal is a binding agreement only between the issuer or other seller of securities and the underwriters. However, the parties to a binding agreement have the right to subsequently renegotiate it. It's an abnormal occurrence in this context, but in other areas it happens all the happen. Excerpt from another press release this afternoon from a public company that lost money on a construction contract: "Macro has entered into discussions with the pipeline operator requesting additional compensation."

3. While it doesn't apply in this particular case, a bought deal (or other underwriting) is not an absolute commitment by the underwriters. In fact, the securities regulators impose on underwriters a huge capital requirement if they sign an underwriting agreement that doesn't give them an out in the case of a big drop in the market. The regulators want to avoid a situation such as happened in 1987 when Gundy, as one of Canada's biggest dealers, came close to going under due to its underwriting commitment in one of the British privatizations (I think it was British Gas).

4. Pulling out of a bought deal may not be great in terms of a retail investor's relations with their broker, but I hardly think this situation is any better in terms of Canaccord's relations with BXE. At least when a retail investor exercises the legal right to pull out, it might be known to just the investor and their broker, and you can always go to another broker. This situation is a huge public embarrassment to both Canaccord and BXE.