Form of Opinion 1 for a Private Equity Fund Investment 2

Transcription

1 Form of Opinion 1 for a Private Equity Fund Investment 2 Due Formation of the General Partner; Authorization and Enforceability of Transaction Documents; 3 Etc. 1. The General Partner has been duly formed and is validly existing in good standing as a limited liability company under the Delaware Limited Liability Company Act. Limited liability companies are creatures of statute as well as agreement. The analogue to a corporate due incorporation/due organization opinion for a limited liability company is the due formation opinion. It refers to actions necessary for the formation of the limited liability company under applicable law having been taken. It is significant since legal consequences will turn on the type of legal entity that is the contracting party. Due diligence for the due formation opinion includes review of: the filed Certificate of Formation, certified as of a recent date by the Delaware Secretary of State; the Delaware Limited Liability Company Act in effect at the time of formation and, in particular, the provisions thereof relating to formation; and the limited liability company operating agreement, certified by an appropriate person (e.g., the manager(s)) on behalf of the limited liability company. Note that existence of the operating agreement may not be a technical requirement to due formation in some states, but may in others. The valid existence opinion is related to, but different than, the due formation opinion. It speaks to the current status of the limited liability company (as opposed to its past status at the time of formation). Some lawyers believe that the added work required for a due formation opinion may not be warranted as long as there is a valid existence opinion. Due diligence for the valid existence opinion includes review of: the filed Certificate of Formation, certified as of a recent date by the Delaware Secretary of State; and a Good Standing Certificate, dated as of a recent date, for the limited liability company from the Delaware Secretary of State. 1 This document has been prepared for purposes of general discussion at the ACIC 2007 Annual Meeting. It is not intended to be (and is not) a comprehensive list of all opinions that may necessary or appropriate (or due diligence items required to support such opinions). Conversely, this document includes opinions that may not be necessary or appropriate in every circumstance. No legal advice should be deemed to be provided hereby. 2 For sake of discussion, this form assumes that Delaware is the jurisdiction of the Fund s formation as well as that of its General Partner. For further information with respect to opinions relating to limited liability companies and limited partnerships, see the papers presented at the ABA Section of Business Law 2004 Spring Meeting (April 3, 2004) for the Panel entitled Third Party Opinions on Unincorporated Entities (Including Ethical Considerations) and for further information generally with respect to legal opinions see Glazer, FitzGibbon & Weise, Glazer and FitzGibbon on Legal Opinions (which treatise includes an extended bibliography of other resource materials as well as appendices with other resource materials included). 3 The Transaction Documents are likely to include (a) the limited partnership agreement of the Fund, (b) the subscription agreement evidencing the agreement to purchase limited partnership interests of the Fund and (c) on occasion, related agreements such as side letter(s), and other transaction specific agreements (e.g., a clawback guaranty).

2 Note that under Section of the Delaware Limited Liability Company Act a limited liability company is a separate legal entity the formation of which commences at the time of filing of its Certificate of Formation (or later date specified therein) if there has been substantial compliance with the other provisions of that section and the existence of which will continue until cancellation of its Certificate of Formation. As to cancellation, see, e.g., 6 Del. Code and 6 Del. Code and It is not uncommon for opinions on existence to be expressly based solely on review of a certified filed certificate of formation and a good standing certificate (closing conditions may require for due diligence purposes, if not opinion backup, delivery of a bring down certificate on behalf of the limited liability company that no actions have been taken since the date of the good standing certificate that could terminate its existence (e.g., certification that all franchises taxes have been paid and no dissolution, winding up, merger or filing of any certificate of cancellation has occurred)). 2. The General Partner has the requisite limited liability company power and authority to (a) execute and deliver, and to perform its obligations under, each Transaction Document to which it is a party and (b) act as the general partner of the Limited Partnership. The power and authority opinion refers to the power and authority of the limited liability company to execute, deliver and perform its obligations under the Transaction Documents to which the limited partnership is a party under the provisions of (a) its constitutive documents (e.g., its Certificate of Formation and operating agreement), (b) the provisions of the Delaware Limited Liability Company Act and (c) the provisions of the Delaware Partnership Act. This opinion interrelates with, but is technically different from, the due authorization opinion discussed below. Due diligence for this opinion includes review of: the certified Certificate of Formation and in particular the provisions thereof (if any) relating to power and authority; the certified operating agreement and in particular the provisions thereof relating to power and authority; the Delaware Limited Liability Company Act and, in particular, the provisions thereof relating to power and authority (see, e.g., 6 Del. Code ); the Delaware Partnership Act and, in particular, the provisions thereof relating to admission of a general partner (see, e.g., 6 Del. Code ); and the Transaction Documents to which the limited liability company is a party. Note that on occasion an expanded power and authority opinion will be requested to confirm that the General Partner has all limited liability company power and authority to conduct its business as currently conducted and as proposed to be conducted. The analysis in this context is similar, but attention will be needed to identifying what is meant to be covered when referring to the General Partner s business (e.g., it may be appropriate to refer to it as described in the offering materials (if any)). If the business of the General Partner is restricted to only acting as General Partner of the Limited Partnership then the expanded version of the opinion would be somewhat duplicative. 3. The execution and delivery by the General Partner of each Transaction Document to which it is a party, and the performance by the General Partner of its obligations thereunder, have been duly authorized by all requisite limited liability company action on the part of the General Partner. The General Partner has duly executed and delivered each Transaction Document to which it is a party. The due authorization opinion generally means that the execution, delivery and performance of the Transaction Documents have received all approvals required under, and in a manner consistent with, the constitutive documents of the limited liability company (e.g., the certificate of formation and operating agreement) and the enabling statute (e.g., the Delaware Limited Liability Company Act). This means, for example, that the manager(s) or member(s), as required, of the limited liability company have approved execution, delivery and performance by the necessary acts of governance (e.g., resolutions duly adopted at a meeting or, to the extent permitted, by written consent without a meeting). Note that if a committee or other delegated body, entity or person is taking action, then it is also necessary to obtain and review the underlying resolutions and/or other approvals evidencing such delegation and empowering such action. Note also that it is not uncommon for an opinion giver to assume that the resolutions were adopted without violation of any fiduciary duty requirements (see, e.g., Glazer & FitzGibbons On Legal Opinions at ). Due diligence for the due authorization opinion includes review of:

3 the certified Certificate of Formation and in particular the provisions thereof (if any) relating to management of the limited liability company; the certified operating agreement and in particular the provisions thereof relating to management of the limited liability company; a certified copy of all requisite governance actions (e.g., authorizing resolutions duly adopted by a board of directors or other governing body); an incumbency (and specimen signature) certificate covering each person signing any Transaction Document on behalf of the General Partner; the Delaware Limited Liability Company Act and, in particular, the provisions thereof relating to management of the limited liability company (see, e.g., 6 Del. Code et seq.); and the Transaction Documents to which the limited liability company is a party (and whether such Transaction Documents are in the form approved by the requisite governing body(ies)). Note that certain upstream issues can arise as to the due authority (as well as other due diligence and/or opinion matters) of entities signing on behalf of a limited liability company (or other unincorporated entity). Accordingly, thought will be need to be given as to what due diligence and/or opinions are necessary or appropriate if the entity signing on behalf of the General Partner is itself a limited liability company or other unincorporated entity. 4. The Limited Partnership Agreement, and each other Transaction Document to which the General Partner is a party, constitute a legal, valid and binding agreement of the General Partner, enforceable against the General Partner in accordance with their respective terms. Perhaps at the core of all opinion letters, the enforceability opinion confirms that an agreement has been formed under contract law and that the obligations undertaken (in this case by the General Partner in the Transaction Documents to which it is a party) will be given legal effect and applicable remedies for breach will be enforced. Note that given the broad reach of this opinion a number of customary exceptions have been developed. Due diligence for the enforceability opinion includes review of: the Transaction Documents to which the limited liability company is a party; and applicable law (to the extent covered by the opinion). Note further that the Limited Partnership Agreement is a contract as well as a constitutive document and as such is subject to Delaware contact law as well as the Partnership Act. Issues may arise where the opinion giver s opinion includes the Partnership Act, but excludes Delaware contract law. 5. The execution and delivery by the General Partner of each Transaction Document to which it is a party do not, and the performance by the General Partner of its obligations under such Transaction Documents will not, (i) violate the constitutive documents of the General Partner, (ii) violate any law applicable to the General Partner, (iii) violate any judgment, injunction, order or decree to which the General Partner, to our knowledge, is subject, or (iv) breach, or result in the creation of a lien under, any indenture, mortgage, instrument or agreement to which the General Partner, to our knowledge, is a party or otherwise subject. The no violation opinion addresses any violation or breach which would arise from the General Partner s execution, delivery or performance of the Transaction Documents to which it is a party. Rendering this opinion requires a review of the items listed in (i), (ii), (iii) and (iv) by a lawyer with knowledge of the contents of the Transaction Documents sufficient to verify that the execution and delivery by the General Partner of the Transaction Documents do not, and the performance by the General Partner under the Transaction Documents will not, result in any such violation or breach. Note that various approaches exist with respect to identifying the scope of items reviewed for purposes of clauses (iii) and (iv) and that the scope of clause (ii) will be confined to the laws stated in the opinion as those covered by the opinion. Issues can arise where there are gaps in the laws, agreements or other items covered by the opinion.

4 6. Neither the execution and delivery by the General Partner of any Transaction Document to which it is a party nor the performance by the General Partner of its obligations thereunder requires any consent or approval from, or filing with any governmental authority under, any applicable law. The no consents or approvals opinion overlaps to an extent with the no violation of law opinion in paragraph 5. It provides further comfort as to, for example, a law which imposes a fine or requires a filing but is not technically violated by execution, delivery or performance of the Transaction Documents. Due diligence for this opinion includes review of applicable law and the terms of the Transaction Documents. Due Formation of the Fund; Authorization and Enforceability of Transaction Documents; Issuance of Interests; Etc. 7. The Limited Partnership has been duly formed and is validly existing in good standing as a limited partnership under the Delaware Revised Uniform Limited Partnership Act (the Partnership Act ). Like limited liability companies, limited partnerships are creatures of statute as well as agreement. Due diligence for the due formation opinion of the Limited Partnership includes review of: the filed Certificate of Limited Partnership, certified as of a recent date by the Delaware Secretary of State; the Delaware Partnership Act in effect at the time of formation and, in particular, the provisions thereof relating to formation; and the limited partnership agreement, certified by an appropriate person (e.g., the General Partner) on behalf of the limited partnership. Due diligence for the valid existence opinion includes review of: the filed Certificate of Limited Partnership, certified as of a recent date by the Delaware Secretary of State; and a Good Standing Certificate, dated as of a recent date, for the Limited Partnership from the Delaware Secretary of State. 8. The Limited Partnership has the requisite limited partnership power and authority to (a) execute and deliver, and to perform its obligations under, each Transaction Document to which it is a party, and (b) own its properties and conduct its activities as described in the Limited Partnership Agreement. Due diligence for this opinion includes review of: the certified Certificate of Limited Partnership and in particular the provisions thereof (if any) relating to power and authority; the certified limited partnership agreement and in particular the provisions thereof relating to power and authority; the Delaware Limited Partnership Act and, in particular, the provisions thereof relating to power and authority (e.g., 6 Del. Code ); and the Transaction Documents to which the limited partnership is a party. Note that on occasion a related opinion will be appropriate that the Limited Partnership has all limited partnership power and authority to conduct its business as currently conducted and as proposed to be conducted. The analysis in this context is similar, but attention will be needed to identifying what is meant to be covered when referring to the Limited Partnership s business (e.g., it may be appropriate to refer to it as described in the offering materials (if any)). 9. The execution and delivery by the Limited Partnership of each Transaction Document to which it is a party, and the performance by the Limited Partnership of its obligations thereunder, have been duly authorized by all requisite limited partnership action on the part of the Limited

5 Partnership. The Limited Partnership has duly executed and delivered each Transaction Document to which it is a party. Due diligence for the due authorization opinion includes review of: the certified Certificate of Limited Partnership and in particular the provisions thereof (if any) relating to management of the limited partnership; the certified limited partnership agreement and in particular the provisions thereof relating to management of the limited partnership; a certified copy of all requisite governance actions (note that this may include governance documents on behalf of the General Partner in its capacity as general partner of the Limited Partnership and may overlap with the due diligence related to paragraph 3 above); an incumbency (and specimen signature) certificate covering each person signing any Transaction Document on behalf of the Limited Partnership (note that this may overlap with the due diligence related to paragraph 3 above); the Delaware Limited Partnership Act and, in particular, the provisions thereof relating to management of the limited liability company (e.g., 6 Del. Code ); and the Transaction Documents to which the limited partnership is a party (and whether such Transaction Documents are in the form approved by the requisite governing body(ies)). 10. Each Transaction Document to which the Limited Partnership is a party constitutes a legal, valid and binding agreement of the Limited Partnership, enforceable against the Limited Partnership in accordance with its respective terms. Due diligence for the enforceability opinion includes review of: the Transaction Documents to which the limited partnership is a party; and applicable law (to the extent covered by the opinion). 11. The execution and delivery by the Limited Partnership of each Transaction Document to which it is a party do not, and the performance by the Limited Partnership of its obligations under such Transaction Documents will not, (i) violate the constitutive documents of the Limited Partnership, (ii) violate any law applicable to the Limited Partnership, (iii) violate any judgment, injunction, order or decree to which the Limited Partnership, to our knowledge, is subject, or (iv) breach, or result in the creation of a lien under, any indenture, mortgage, instrument or agreement to which the Limited Partnership, to our knowledge, is a party or otherwise subject. Due diligence for this opinion includes review of: the constitutive documents of the Limited Partnership (e.g., the Certificate of Limited Partnership and the Limited Partnership Agreement) certified as true and complete by an authorized person on behalf of the Limited Partnership; laws applicable to the Limited Partnership (to the extent covered by the opinion); any and all injunctions, orders or decrees to which the Limited Partnership is subject (as qualified by knowledge or some other means of identification); any and all indentures, mortgages, instruments or agreements to which the Limited Partnership is a party or otherwise subject (as qualified by knowledge or some other means of identification); and the Transaction Documents to which the limited partnership is a party. 12. Neither the execution and delivery by the Limited Partnership of any Transaction Document to which it is a party nor the performance by the Limited Partnership of its obligations thereunder requires any consent or approval from, or filing with any governmental authority under, any applicable law.

6 Due diligence for this opinion includes review of: the Transaction Documents to which the limited partnership is a party; and applicable law (to the extent covered by the opinion). 13. The limited partnership interests issued and sold by the Partnership to the Limited Partners (the Interests ) have been duly authorized under the Limited Partnership Agreement and validly issued. This opinion springs from the more traditional duly authorized/validly issued/fully paid/nonassessable opinion in a corporate securities setting. The fully paid and nonassessable opinions are generally thought to be limited to an issuance of corporate stock. Some lawyers also believe that a separate due authorization and valid issuance opinion here is unnecessary as subsumed in other opinions above. While there is clearly overlap with those general opinions, it sometimes felt that an express opinion as to the core issue of the transaction issuance of the investment securities is appropriate as specific comfort that the Interests are authorized from both a procedural and substantive perspective and validly issued in compliance with the Partnership Act and the Limited Partnership s constitutive documents. Due diligence for this opinion includes review of: the constitutive documents of the Limited Partnership (e.g., the Certificate of Limited Partnership and the Limited Partnership Agreement) certified as true and complete by an authorized person on behalf of the limited partnership; the certificates or other instruments evidencing the Interests (if any); evidence of consideration paid for the Interests (if not reasonably assumed); the Partnership Act; and all Transaction Documents evidencing or otherwise relating to the terms of the Interests. Limited Liability of Limited Partners 14. You have been duly admitted to the Limited Partnership as a Limited Partner with no personal liability in your capacity as a Limited Partner for the debts or obligations of the Limited Partnership other than to the extent of any unpaid capital contributions or other amounts which you have agreed to make or pay to the Limited Partnership, except that (a) any failure to comply with the limitations on activities of limited partners imposed by the provisions of the Partnership Act may result in such liability, (b) under the Partnership Act, if a limited partner receives a distribution in violation of Section (a) or (a) of the Partnership Act and the limited partner knew at the time such distribution was made that the distribution violated the Partnership Act, he, she or it will be liable to the Limited Partnership for the amount of such distribution to the extent provided in Sections and , respectively, and (c) Limited Partners may be liable for the return of distributions made to them by the Limited Partnership under Section (b) of the Partnership Act or under applicable federal bankruptcy statutes, state fraudulent conveyance statutes or other similar laws. For purposes of clause (a) of the preceding sentence, the exercise by the Limited Partners of the rights granted to them in the Limited Partnership Agreement, including without limitation, designating and/or serving as members of the Advisory Committee, will not cause the Limited Partners, as limited partners of the Partnership, to fail to comply with the limitations on activities of limited partners imposed by the Partnership Act. Another core aspect of a private equity investment is the investor s status as limited partner in the limited partnership (that is, therefore, entitled to the rights as such under applicable law and the Partnership Agreement, including limited liability). Due diligence for this opinion includes review of: the constitutive documents of the Limited Partnership (e.g., the Certificate of Limited Partnership and the Limited Partnership Agreement) certified as true and complete by an authorized person on behalf of the limited partnership, including in particular provisions relating to admission as a limited partner and liability as such; and

7 the Partnership Act, including in particular provisions relating to admission as a limited partner and liability as such (see, e.g., 6 Del. Code (regarding admission), 6 Del. Code (regarding liability to third parties) and the sections specifically cited in paragraph 14 above). Exemption from Registration under the Securities Act and the Investment Company Act 15. The offer and sale of the Interests under the circumstances contemplated by the Subscription Agreement and the Limited Partnership Agreement do not require registration under the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder. This opinion confirms the expectation that the Interests have been offered and sold in compliance with the 33 Act in an exempt transaction. Due diligence for this opinion includes review, by a lawyer thoroughly familiar with the applicable requirements of the 33 Act in this regard, of: the Transaction Documents including in particular representations of both the issuer and investors relating to the elements needed to qualify for an exemption; and the 33 Act and applicable rules and regulations (including, if applicable, review of any needed Form D (unless such Form D is appropriately and expressly excluded with the opinion recipient s consent as a routine filing)). 16. The Limited Partnership is not required to register as an investment company under the Investment Company Act of 1940, as amended, and the rules and regulations promulgated thereunder. Status as an investment company triggers a myriad of issues and therefore comfort that these issues are not present may be sought (see, e.g., Glazer & FitzGibbon on Legal Opinions at 258, n.48 and ABA Legal Opinion Principles, TriBar 1998 Report at 628, n. 81. See also, R. Rosenbloom, Investment Company Determination under the 1940 Act). Due diligence for this opinion includes review, by a lawyer thoroughly familiar with the applicable requirements of the 40 Act in this regard, of: the Transaction Documents, and, if need be, separate certificates including in particular representations relating to 40 Act matters; and the 40 Act and applicable rules and regulations. Federal Tax Treatment 17. The Limited Partnership will be treated as a partnership under the Internal Revenue Code of 1986, as amended, and the rules and regulations promulgated thereunder (collectively, the Code ), and not as a publicly traded partnership taxed as a corporation under Section 7704 of the Code. Still another core aspect of an investment decision will be its tax attributes. This may include one or more specific opinions in this regard. Due diligence should include review and consultation with a tax specialist. ERISA Various ERISA opinions and related due diligence may be necessary or appropriate given the nature of the particular investment and the parties involved. Such opinion(s) may be needed at various times (which may or may not be the same time as delivery of the opinions described above). Due diligence should include review and consultation with a ERISA specialist. By way of illustration, an example of a limited partnership s affirmative covenant in this regard is as follows:

8 ERISA Partners and Governmental Plan Partners. The General Partner shall deliver to each ERISA Partner and Governmental Plan Partner on the date on which the Partnership makes its first Investment an opinion of counsel to the effect that as of such date and after giving effect to such Investment, (x) the Partnership should be considered to be a VCOC or (y) the Partnership assets should not be plan assets under ERISA of any ERISA Partner; provided, however, that if the Partnership intends to satisfy the investment limitation described in Section... by being a VCOC, then such opinion of counsel shall be delivered on the date on which the Partnership makes its first Qualifying Investment.