Commercial Real Estate Financing 2017

Transcription

1 REAL ESTATE LAW AND PRACTICE Course Handbook Series Number N-652 Commercial Real Estate Financing 2017 Co-Chairs Steven R. Davidson Joshua Stein Everett S. Ward To order this book, call (800) 260-4PLI or fax us at (800) Ask our Customer Service Department for PLI Order Number , Dept. BAV5. Practising Law Institute 1177 Avenue of the Americas New York, New York 10036

2 10 Form Opinion for Real Estate Finance Transaction Gregory P. Pressman Schulte Roth & Zabel LLP If you find this article helpful, you can learn more about the subject by going to to view the on demand program or segment for which it was written. 265

3 266 Practising Law Institute

4 REAL ESTATE FINANCE OPINION PRECEDENT [Letterhead of Law Firm Giving Opinion] 1 [Closing Date] [Name of Recipient] 2 [Address] Re: [Identifying Information] Ladies and Gentlemen: We have acted as special 3 New York counsel to (i), a ( Borrower ), (ii), a ( X Guarantor ) and (iii), a ( Y Guarantor ) (Borrower, X Guarantor and Y Guarantor are hereinafter referred to collectively as the Borrower Parties 4 )] in connection with the [identify transaction] pursuant to the Agreement, dated as of, 200_ (the Loan Agreement ), [between] [among] the Borrower [, ] and you. Any capitalized term used herein and not defined shall have the meaning assigned to it in the Loan Agreement. In connection with the opinions and statements expressed below, we have examined 5 originals or copies, certified or otherwise identified to our satisfaction, of each of the following: (a) Loan Agreement; (b) Note (the Note ) made by Borrower to the order of Lender in the principal amount of $ ; (c) Mortgage, Assignment of Leases and Rents and Security Agreement (the Mortgage ) made by Borrower in favor of Lender secured by that certain real property (the Real Property ) located at and more particularly described in the granting clauses of the Mortgage and certain personal property (including fixtures and other rights) located thereon or used in connection therewith (the Personal Property ); (d) Assignment of Leases and Rents made by Borrower in favor of Lender (the ALR ); 3 267

5 [Name of Recipient] [Date] Page 4 (e) Guaranty of Recourse Obligations made by X Guarantor in favor of Lender; (f) Guaranty of Recourse Obligations made by Y Guarantor in favor of Lender; (g) Deposit Account Agreement among Borrower, Lender and [Deposit Bank] (the Deposit Account Agreement ); (h) Assignment of Agreements, Permits and Contracts made by Borrower in favor of Lender; (i) Clearing Account Agreement among Borrower, Lender and [Clearing Account Bank] (the Clearing Account Agreement ); and (j) Two (2) UCC financing statements, naming Borrower, as debtor, in favor of Lender, as secured party (the Financing Statements ). The documents listed as (a) through (i) above are sometimes collectively referred to herein as the Loan Documents. We have also reviewed, as to Borrower [, X Guarantor and Y Guarantor], the certificate of formation and limited liability company agreement [conform to entity type] (each such set of organizational documents being referred to below as the Organizational Documents of the applicable party), such other agreements, certificates and documents of public officials, officers and other representatives of the Borrower Parties and others as we have deemed necessary as a basis for our opinions set forth below. We have relied, without independent investigation, 6 as to factual matters on the representations and warranties contained in the Loan Documents and on certificates of public officials and of officers and other representatives of the Borrower Parties. We have assumed (i) the legal capacity of all natural persons executing the Loan Documents and such other agreements, certificates and documents, (ii) the genuineness of all signatures thereon, (iii) the authority of all persons signing the Loan Documents and such other agreements, certificates and documents on behalf of the parties thereto other than officers and other representatives of the Borrower Parties, (iv) the authenticity of all documents submitted to us as originals, (v) the conformity to the original of all copies submitted to us as telecopies, photocopies or conformed copies, (vi) the Loan Documents have been entered into by the parties thereto in good faith, and the conduct of all such parties has conformed and will conform with all applicable express and implied covenants of good faith and fair dealing and the requirements of conscionability, (vii) there exists no fraud, duress or undue influence with respect to any of the Loan 4 268

6 [Name of Recipient] [Date] Page 5 Documents or any of the obligations contained therein, (viii) the Mortgage and the ALR will be duly recorded and indexed in the Office of the City Register, County of New York, State of New York, and all applicable mortgage recording taxes and other recording fees and charges imposed hereon will be paid, (ix) the Financing Statements will be filed in the appropriate filing offices and all applicable filing fees and charges imposed thereon will be paid and (x) all of the proceeds of the Loan will be advanced on the date hereof. In rendering the opinions set forth below, we have also assumed that, except to the extent expressly set forth in the opinions below: (a) each Loan Document has been duly authorized by the parties thereto; (b) each Loan Document has been duly executed and delivered by each party thereto; (c) each party to a Loan Document has the requisite power and authority (corporate, company, partnership or other) to execute, deliver and perform its obligations under each Loan Document to which it is a party; and (d) each party to a Loan Document will perform its obligations thereunder in accordance with the terms of such Loan Document. We have also assumed that (A) each Loan Document constitutes a legal, valid and binding agreement of the parties to the Loan Documents other than the Borrower Parties, enforceable against such parties in accordance with their respective terms, and (B) each Loan Document constitutes a legal, valid and binding agreement of the parties to the Loan Documents, enforceable against such parties in accordance with their respective terms, to the extent that laws other than New York law are relevant thereto. Any reference in any opinion herein to our knowledge, and any similar phrase, means the actual knowledge of the attorneys at this Firm with primary responsibility [for the preparation, review and negotiation of the Loan Documents on behalf of the Borrower Parties]. 7 We express no opinion with respect to (i) the title to or the rights or interests of Borrower in the Collateral, (ii) the adequacy of the description of the Collateral, or (iii), except as otherwise specifically set forth below, the creation, attachment, perfection or priority of any liens thereon or security interests therein. We understand that with respect to title to the Real Property and priority of the lien created by the Mortgage, you will be relying on the title policy issued to you by, [as agent for,] dated as of the date hereof. The law covered by this opinion is limited to the federal law of the United States, the law of the State of New York, the [Limited Liability Company Act of the State of Delaware] (without regard to case law decided thereunder) and the Uniform Commercial Code currently in effect in the 5 269

7 [Name of Recipient] [Date] Page 6 State of Delaware (the Delaware UCC ) (without regard to case law decided thereunder). In addition, (i) the opinions expressed in paragraph 8 below are limited to Article 9 of the Uniform Commercial Code as currently in effect in the State of New York (the New York UCC ); and (ii) the opinions expressed in paragraph 10 below are limited to Articles 8 and 9 of the Delaware UCC and are based solely on our review of Article 8 and Sections through of the Delaware UCC, respectively, as published in The Uniform Commercial Code Filing Guide, without regard to case law decided thereunder or any other provisions of the Uniform Commercial Code, or any other statutory provisions, in effect in the State of Delaware. We express no opinion with respect to the law of any other jurisdiction and no opinion with respect to the statutes, administrative decisions, rules, regulations or requirements of any county, municipality, subdivision or local authority of any jurisdiction. Based upon the foregoing and such other investigations as we have deemed necessary and subject to the qualifications included in this letter, we are of the opinion that: 1. Each Borrower Party: (i) is a [corporation] validly existing 8 and in good standing [in the case of a New York corporation, substitute subsisting for validly existing and in good standing ] under the laws of the jurisdiction of its incorporation [or formation, as the case may be]; and [(ii) is duly qualified 9 as a foreign corporation and in good standing under the laws of ] The execution and delivery by each Borrower Party of each Loan Document to which it is a party, and the performance by each Borrower Party of its respective obligations thereunder, have been duly authorized by all necessary [corporate, company, partnership] action. 3. The execution and delivery by each Borrower Party of each Loan Document to which it is a party, and the performance by such Borrower Party of its respective obligations thereunder, do not (a) contravene 11 its Organizational Documents, (b) contravene any applicable provision of (i) any presently existing statute, rule or regulation 12 of the State of New York or of the United States applicable to such Borrower Party, 13 or (ii) the [Delaware Limited Liability Company Act], (c) breach, result in a default under or accelerate or terminate, or give any party the right to accelerate or terminate, any of the obligations of such Borrower Party under any agreement listed in Exhibit 6 270

8 [Name of Recipient] [Date] Page 7 hereto (each a Material Contract )] 14, and (d) contravene, to our knowledge, any judgment, writ, injunction, decree, order or ruling of any court that names such Borrower Party and is specifically directed to it or its property ]. 4. No authorization or approval or other action by, and no notice to or filing with, any governmental authority or other regulatory body is required to be obtained or made by any Borrower Party in connection with the due execution and delivery by such Borrower Party of any Loan Document to which it is a party and the consummation 17 by such Borrower Party of the transactions contemplated under such Loan Documents 18 [, except for, all of which have been duly obtained or made and are in full force and effect] Each Loan Document has been duly executed and delivered by each Borrower Party which is a party thereto. 6. Each Loan Document constitutes a valid and binding obligation of each Borrower Party that is a party thereto, enforceable against such Borrower Party in accordance with its terms To our knowledge, 21 there is no pending action, suit or proceeding, nor has any litigation been overtly threatened in writing, 22 against any Borrower Party before any court or other governmental authority or any arbitrator which questions the validity or legality of the Loan Documents or of the transactions contemplated thereby or which seeks to prevent the consummation of the transactions contemplated thereby, except as described on Schedule to the Loan Agreement The Mortgage is effective to create in favor of Lender, as security for the [Obligations], a security interest 24 (the Article 9 Security Interest ) in such portion of the Real Property and the Personal Property described in the Mortgage in which a security interest may be created under Article 9 of the Uniform Commercial Code ( Article 9 Collateral ) The Mortgage is in a form sufficient to create a valid mortgage lien on the Real Property under New York law. Each of the Mortgage and the ALR is in form satisfactory for recording in the Office of the City Register, County of New York, State of New York. 10. Lender will have, upon the filing of the Financing Statements in the Office of the Delaware Secretary of State, a perfected security interest 7 271

9 [Name of Recipient] [Date] Page 8 in that portion of the Article 9 Collateral in which a security interest is perfected by the filing of financing statements under Article 9 of the Delaware UCC. In addition, with respect to that portion of the Article 9 Collateral that constitutes goods that are or about to become fixtures, Lender will have a perfected security interest in such portion of the Article 9 Collateral upon the filing of the Financing Statements as a fixture filing in the Office of the City Register, New York County. The Financing Statements are in proper form for filing The Loan, as made pursuant to the terms of the Loan Agreement and Note, complies with or is exempt from applicable New York laws pertaining to usury. The opinions set forth above are subject to the following qualifications and limitations: (A) The opinions expressed in paragraph 6 above are subject to: (i) the effect of bankruptcy, insolvency, receivership, fraudulent transfer or conveyance, reorganization, moratorium, arrangement or other similar laws affecting enforcement of creditors rights generally; 27 (ii) the application of general principles of equity, whether considered in a case or proceeding at law or in equity, including concepts of materiality, reasonableness, good faith and fair dealing; (iii) the qualification that indemnification and contribution provisions in the Loan Documents may be unenforceable to the extent that such indemnification or contribution relates to claims made under any federal or state securities laws or is otherwise limited by public policy; (iv) the limitations imposed under applicable law on the availability and extent of equitable remedies and relief, ex parte remedies and other self-help or non-judicial relief; and (v) certain provisions of the Loan Documents28 may be unenforceable in whole or in part, but the inclusion of such provisions does not affect the validity of the Loan Documents, taken as a whole, and the Loan Documents, taken as a whole, contain, in our judgment, adequate 8 272

10 [Name of Recipient] [Date] Page 9 remedies for realization of the principal benefits intended to be provided by the Loan Documents, subject to [clauses (i) and (ii) above and to] the economic consequences of any delay which may result from applicable law, rules or judicial decisions].29 (B) For the purposes of our opinion in paragraph 3 with respect to Material Contracts, (i) we have assumed that such agreements will be enforced in accordance with their plain meaning, (ii) to the extent that any Material Contract is not governed by the law of the State of New York, we have assumed for the purposes of this opinion that notwithstanding such governing law that such Material Contract would be governed by, and construed in accordance with, the laws of the State of New York, (iii) our opinion does not address compliance by any party thereto with any financial ratio, limitation expressed as a dollar limit, restricted payments test or any financial or accounting determination, and (iv) we express no opinion about any discretionary action or inaction by any Borrower Party under a Material Contract that may result in a breach or default under any Material Contract. (C) Our opinions in paragraphs [2, 3 and 4] above as they relate to laws, statutes, rules or regulations are based upon those laws, statutes, rules or regulations which, in our experience, are normally applicable to transactions of the type contemplated in the Loan Documents or entities engaged in the type of business engaged in by the Borrower Parties as described in the Loan Documents. 30 (D) We express no opinion as to the legality, validity, binding effect or enforceability (whether according to its terms or otherwise) of the following: (i) the subject matter jurisdiction of a Federal court to consider any dispute arising out of the Loan Documents; (ii) choice of governing law to the extent that such validity, binding effect or enforceability is to be determined by any court other than a court of the State of New York; (iii) any provision of the Loan Documents to the extent such provision waives any objection by any party to the laying 9 273

11 [Name of Recipient] [Date] Page 10 of venue of any action or proceeding brought in any court or any claim that any action or proceeding has been brought in an inconvenient forum; (iv) any provision of any Loan Document that provides, in substance, that rights or remedies are not exclusive, that every right or remedy is cumulative and may be exercised in addition to any other right or remedy, that the election of some particular remedy does not preclude recourse to one or more other remedies or that a failure to exercise or a delay in exercising rights or remedies will not operate as a waiver of any such right or remedy; (v) waivers of any rights to trial by jury; (vi) any waiver or consent relating to the rights of any Borrower Party under any Loan Document or applicable law or the duties owing to such party existing as a matter of law, to the extent such waivers or consents are found by a court to be against public policy or are ineffective pursuant to applicable law; [or the following: any provision of any Loan Document that purports to waive, vary or release any right or remedy of any Borrower Party against you relating to (A) a secured party s good faith, diligence, reasonableness and care, (B) a secured party s commercial reasonableness, (C) a secured party s reasonable care, (D) the obligation of a secured party to account for any surplus arising from the sale, lease or other disposition of collateral and the application of the proceeds thereof to the satisfaction of the indebtedness secured thereby, (E) a secured party s retention or disposition of collateral and such Borrower Party s equity of redemption, (F) acceptance by a secured party of collateral as discharge of any obligation, (G) the marshalling of any collateral, (H) a secured party s liability for failure to comply with Part 6 of Article 9 of the New York UCC or (I) to the extent not covered by clauses (A) through (H) above, any rights and remedies (and corresponding duties) prohibited, pursuant to Section of the New York UCC, from being waived, varied or released;]

12 [Name of Recipient] [Date] Page 11 (vii) any provision prohibiting, restricting, or requiring consent to assignment or transfer or any right or property; (viii) any provision in any Loan Document that provides, in substance, that oral or other modifications, amendments or waivers cannot effectively be agreed upon by the parties or that the doctrine of promissory estoppel may not apply; (ix) any right of set off with respect to any obligations of a Person to any other Person against any obligations other than the obligations of such other Person to such Person; and (x) any obligations of any Borrower Party as a guarantor or indemnitor under any of the Loan Documents where the obligations guaranteed are invalid or unenforceable as against the primary obligor or where the nature of the indemnity is against public policy or contrary to law. (E) The opinions expressed in paragraphs 8 and 10 above are subject to the following qualifications: (i) we express no opinion with respect to any Article 9 Collateral of a type described in Section 9-501(a)(1)(A), (B) or (C) of the New York UCC or the Delaware UCC represented by a certificate of title; (ii) in the case of property of a type as to which the federal laws of the United States have preempted the Uniform Commercial Code in any applicable jurisdiction with respect to the validity or perfection of the security interest in such property, the security interest may not be perfected without compliance with applicable federal law; (iii) we have assumed that none of the Article 9 Collateral in which a security interest is granted consists or will consist of any real property (including a lease or rents thereunder), any interest in or claim in or under any policy of insurance, cooperative interests, commodity contracts, commodity accounts, uncertificated securities, consumer goods, farm products, crops, timber and as-extracted collateral (including oil, gas and other minerals) or accounts

13 [Name of Recipient] [Date] Page 12 resulting from the sale thereof, beneficial interests in a trust or a decedent s estate, letters of credit, or items that are subject to (A) a statute or treaty of the United States that provides for a national or international registration or international certificate of title for the perfection of a security interest therein or which specifies a place of filing different from that specified in the applicable Uniform Commercial Code for filing to perfect such security interest, or (B) a certificate of title statute of any jurisdiction; (iv) we have assumed that Lender will not voluntarily waive, subordinate or modify the perfection of the security interests referenced in such paragraphs or act in any way inconsistent with the maintenance or perfection of such security interests; (v) we express no opinion with respect to proceeds except to the extent that the proceeds constitute Collateral in which a security interest may be perfected by the filing of a financing statement as described in paragraph 10 above; (vi) we express no opinion as to (A) any security interest in any Collateral, or any transactions, excluded from Article 9 of the New York UCC or the Delaware UCC by Section (c) or (d) thereof; (B) any security interest in any commingled goods under Section of the Uniform Commercial Code as in effect in the applicable jurisdiction, to the extent that such security interest is limited by such Section; (C) the perfection of any security interest in goods that consist of timber to be cut or as-extracted collateral (as defined in Section 9-102(a)(6) of the Delaware UCC); or (D) Collateral that constitutes commercial tort claims (as defined in Section 9-102(a)(13) of the Uniform Commercial Code as in effect in the applicable jurisdiction); (vii) we express no opinion regarding any security interest in any Collateral that is subject to a statute, regulation or treaty of the United States of America whose requirements for a security interest s obtaining priority over the rights of a lien creditor with respect to such Collateral preempt

14 [Name of Recipient] [Date] Page 13 Section 9-310(a) of the Uniform Commercial Code as in effect in the applicable jurisdiction; (viii) in the case of Collateral in which the security interests of Lender have been perfected by the filing of UCC financing statements, (A) Article 9 of the Uniform Commercial Code in the applicable jurisdiction requires the filing of continuation statements within the period of six (6) months prior to the expiration of five (5) years from the date of the original filings, in order to maintain the effectiveness of the filings referred to in this paragraph, (B) if the debtor referred to in a financing statement changes its name, identity or organizational structure so as to make an original financing statement inaccurate, incomplete or misleading, new appropriate financing statements indicating the new name, identity or organizational structure of such party must be filed and (C) if the location (within the meaning of Section of the Uniform Commercial Code) of the debtor changes, additional financing statements may need to be filed in other offices; (ix) we express no opinion as to any security interest in any letter-of-credit rights or cash; (x) we express no opinion as to the enforceability of any security interest created by the Loan Agreement insofar as such security interest purports to secure obligations other than for the payment of money; (xi) Lender s security interest in Collateral or proceeds of any personal property is limited to the extent set forth in Section of the Uniform Commercial Code as in effect in the applicable jurisdiction; (xii) insofar as the Loan Agreement or the Mortgage purports to create a security interest in after-acquired property, such security interest will be subject to Section 547 and Section 552 of the Bankruptcy Code; (xiii) the security interests created by the Loan Agreement will not be enforceable against (A) any party, and will not attach to Collateral, until such party has rights therein or (B) the competing interests of those third parties who

15 [Name of Recipient] [Date] Page 14 would, in accordance with the provisions of the New York UCC or the Delaware UCC, take free of such security interests notwithstanding their perfection; (xiv) enforcement of any security interest may be subject to the rights of account debtors and other Persons party to any agreement subject to such security interest and any claims or defenses of such account debtors or other Persons arising under or outside any such agreement between the parties thereto; and (xv) [for deposit account opinions] we have assumed that (A) the deposit account referred to in the Deposit Account Agreement (the Deposit Account ) is a deposit account as defined in Section 9-102(a)(29) of the Uniform Commercial Code, (B) the bank referred to in the Deposit Account Agreement is the bank with which the Deposit Account is maintained and is acting as such with respect to the Deposit Account pursuant to the Deposit Account Agreement, and (C) the bank referred to in the Deposit Account Agreement is a bank as defined in Section 9-102(a)(8) of the Uniform Commercial Code. [In rendering the opinions set forth in paragraphs hereof, we have relied as to matters of law on the opinion, dated the date hereof, of, a copy of which is attached hereto.] 31 [For the purposes of our opinion, we have assumed, with your consent and without independent investigation, the correctness and accuracy of the opinion, dated the date hereof, of, special counsel to the Borrower Parties.] 32 [To our knowledge, 33 there is no pending action, suit or proceeding, nor has any litigation been overtly threatened in writing, 34 against any Borrower Party before any court or other governmental authority or any arbitrator which questions the validity or legality of the Loan Documents or of the transactions contemplated thereby or which seeks to prevent the consummation of the transactions contemplated thereby, except as described on Schedule to the Loan Agreement. 35 ] [include only if paragraph 7 not included] The opinions expressed herein have been rendered at your request, are solely for your benefit in connection with the transactions contemplated by the Loan Documents, may not be relied upon by you in any other manner

16 [Name of Recipient] [Date] Page 15 or by any other Person 36 in any manner or for any purpose and may not be communicated or published by you to any other Person for any purpose without our prior written approval in each instance. 37 We shall have no obligation to revise or reissue this opinion with respect to any change in law or any event, fact, circumstance or transaction that occurs after the date hereof. 38 Very truly yours,

17 ENDNOTES 1. See, generally, S. FitzGibbon and D. Glazer, FitzGibbon and Glazer on Legal Opinions (1992) ( F and G ); Jonathan R. Macey, Third Party Legal Opinions: Evaluation and Analysis (1992); Third-Party Closing Opinions, The Business Lawyer, Vol. 53, Feb. 1998, at 592 et. seq. (the 1998 TriBar Report ); Legal Opinions to Third Parties: An Easier Path, The Business Lawyer, Vol. 34, July, 1979, at 1892 et seq. (the TriBar Report ); A. Field & R. Ryan, Legal Opinions in Corporate Transactions, Matthew Bender Business Law Monograph No. 26, 1988 ( Monograph ), in connection with using this form. See also the Accord (the Accord ) set forth in the Third-Party Legal Opinion Report of the Section of Business Law of the American Bar Association, The Business Lawyer, Vol. 47, November 1991 (the Report ). But, note that the Accord is intended for prospective use only. Neither the full Report nor the Accord itself is to be used as a frame of reference for evaluating or interpreting opinions rendered in the past or, indeed, opinions delivered in the future that do not adopt the Accord. See Report, p. (iv). The issues involved in rendering an opinion are various and complex. This form contains representative opinions typically requested in a mortgage loan transaction; it is not appropriate for legal opinions regarding, for example, tax or regulatory matters. Each opinion paragraph, and each clause within each opinion paragraph, should be reviewed carefully and retained, modified or deleted, as appropriate, in developing an opinion that properly reflects the character and structure of the transaction, the identities and character of the parties, the states whose laws may be applicable, the state of admission of opining counsel, etc. In addition, to render several of the opinions, certain additional assumptions and exceptions may be necessary or appropriate. This form generally does not include them, leaving opining counsel to insert what he or she feels is required. 2. Unless otherwise noted in the opinion, only the addressee should be entitled to rely on it. 3. We would only indicate general counsel in extremely rare circumstances. Even when we are designated by the client as its general counsel, unless we have day-today knowledge of events at the client we should avoid the general designation. The word special is used as a disclaimer of general or broad representation. In certain circumstances, such as when the Firm acts as local counsel, additional language may be appropriate. The following are examples of such additional language: [We have represented the Borrower Parties only as special New York counsel with respect to the transactions contemplated by the Loan Documents and have not acted as general counsel with respect thereto.] [We have represented the [Borrower Parties] only with respect to the transactions contemplated by the Loan Documents. There may be matters which generally affect Borrower, the other Borrower Parties or the transactions contemplated by the Loan Documents of which we have no knowledge. We are not generally familiar with the affairs of Borrower or of the other Borrower Parties. In any event, note the words of the TriBar Report, at 1898: While it is possible that a court would hold a lawyer who is generally familiar with the affairs of a party to a higher level of responsibility

18 than one who is not, the facts rather than a recitation as to general or special status would normally seem to govern. 4. Borrower Parties refers collectively to all entities covered by the opinions to be given. 5. A list of documents reviewed may be useful for definitional purposes; a description of procedures considered may provide helpful information. However, the use of such lists and descriptions does not necessarily limit the opining lawyer s responsibility for reviewing and considering such matters as he or she deems appropriate as a basis for the opinions expressed. Generally, if the intention is to limit the opining lawyer s responsibility to reviewing and considering particular documents, matters or procedures, that limitation must be stated explicitly. See, generally, TriBar Report, at 1900 and 1901; Accord, Section 2; Monograph, Section 5.08 ( it would ordinarily make no sense to give an opinion limited to listed documents ). 6. The TriBar Report notes that an opining lawyer has an implicit duty to make a reasonable inquiry as a basis of any opinion the lawyer gives. However, it also states that the lawyer s responsibility to make an investigation may be limited through the description of an investigation (or a statement disclaiming any investigation). See TriBar Report, at In any event, the opining lawyer must establish the underlying facts and do so in a methodical way. It is not enough to know something in some informal sense. The lawyer needs documentary evidence of the facts. Monograph, Section Such documentary evidence typically consists of corporate officers certificates, certificates of public officials, documents furnished by the clients and others, and representations in the Loan Documents. 7. See notes 14 and 21 below. Cf., Accord, Sections 6-A and 6-B; Special Joint Committee of the Maryland State Bar Association, Inc., and the Bar Association of Baltimore City, Special Joint Committee on Lawyers Opinions in Commercial Transactions, The Business Lawyer, Vol. 45, February 1990, at 150, 151 ( Because the term our knowledge is vague, it is recommended that the term be defined in the opinion to refer only to actual knowledge and only to information which has come to the attention of lawyers in the firm rendering the opinion who have recently worked on matters on behalf of the borrower. ). Knowledge limitations are intended to limit the due diligence responsibility of the opining lawyer. However, the various phrases used to specify knowledge limitations are often imprecise and, therefore, the meaning of the limitation is often unclear. In addition, it is not entirely clear what constitutes the knowledge of a law firm rendering an opinion. As the TriBar Report, at 1919 and 1920, indicates, the general rule is that, with certain exceptions, the knowledge of every lawyer within a firm is attributed to the firm, and facts contained in written material in the firm s files could be deemed to be part of the firm s knowledge. Therefore, it would be helpful, when including a knowledge limitation, to specify, for example, that such knowledge is limited to the actual knowledge of a limited group of attorneys responsible for the matter. For example, an opinion could be rendered to the knowledge of the attorneys with primary responsibility for the regulatory affairs of the Transactions Parties. Alternatively, the opining lawyer s knowledge could be limited to knowledge of documents prepared by the Firm. Although the Accord supports the formulation about knowledge set forth in the form, this formulation is not yet customary, and may be aggressive. In any event, the opinion should always be limited to actual knowledge

19 In addition, the view of the TriBar Report, at 1919, is that phrases such as To the best of our knowledge, We do not know of, We have no knowledge and To our knowledge are not distinguishable. 8. The 1998 TriBar Report indicates that there is a growing acceptance of an opinion with respect to existence, as a substitute for an opinion about due organization or due incorporation. See 1998 TriBar Report, at 644. An opinion that a Transaction Party is duly organized is expansive, since it is an opinion as to due organization covers both incorporation and organizational matters occurring thereafter. TriBar Report, at Thus, an opinion as to due organization requires that the Firm investigate organizational matters with respect to the Transaction Party, such as the election of directors, the first meeting of the board of directors, adoption of by-laws, election of officers, etc. Moreover, a due organization opinion addresses applicable law at the time relevant events occurred. An opinion about due incorporation is not as broad, but still should be avoided. 9. A certificate of the appropriate governmental official will be necessary to establish qualification within each specified foreign jurisdiction. See TriBar Report, at ; Monograph, Section 6.02(1)(b). 10. The Accord characterizes as questionable a request for an opinion verifying a corporation s qualification and good standing as a foreign corporation qualified to do business in a particular jurisdiction. Such an opinion involves neither issues of law or questions of legal judgment. Verification is best left to corporation service companies that perform the mechanical task of collecting relevant public documents, that then may be included in the closing documents delivered to the opinion recipient. See Accord, Certain Guidelines for the Negotiation and Preparation of Third-Party Legal Opinions, Part I.C, Item (2). Accordingly, this Firm should avoid giving such opinions (except with respect to such qualification and good standing in New York). Opinions with respect to foreign qualification to do business and good standing generally are requested in one of four forms. Generally, such an opinion will provide that the Transaction Party is duly qualified as a foreign corporation and is in good standing in each jurisdiction: (i) in which it owns or leases property or conducts its business; (ii) in which the nature of its business or properties requires it to be qualified; (iii) which requires such qualification and good standing, except to the extent that failure to so qualify and be in good standing would not have a material adverse effect on such Transaction Party; or (iv) listed on a specified schedule to the opinion. When a qualification opinion is required, the Firm should follow the fourth option (and should try to limit the jurisdictions covered to New York), in order to avoid opinions on the law of another State and to avoid the factual investigation necessary to determine the scope of the Transaction Party s business in such other State. For New York qualification where the qualification process is not yet complete (e.g., satisfaction of publishing requirements), the following is more appropriate: It should be noted that Borrower is pursuing qualification to do business in the State of New York, having filed an Application for Authority in the State of New York on and Borrower has obtained a certificate of existence in the State of New York which states that Borrower is authorized to do business in the State of New York. 11. Contravene, breach or default are preferable to conflict, which is less precise. See 1998 TriBar Report 6.5.2, at The word law should not be included in the no-conflicts opinion, because its inclusion will cause the no-conflicts opinion to cover common law doctrines, as

20 well as statutes, rules and regulations. As noted in the Accord, Paragraph 16.4, common law doctrines, unlike statutes, are not ordinarily thought of as capable of being violated. See also 1998 TriBar Report 6.6, at A transaction may violate a law, or conflict with the provisions of another transaction, yet still be valid and binding, and enforceable in accordance with its terms. See TriBar Report, at 1922; Monograph, Section 6.03[1]. Therefore, an opining lawyer may be able to state that the Loan Documents are valid and binding, even though they violate a law or conflict with other agreements. The non-contravention, or no-conflicts opinion is intended to go beyond the remedies opinion to state, in effect, that the execution and delivery by each Transaction Party of each Loan Document to which it is a party, and the performance by each Transaction Party of its respective obligations thereunder, will not, with the giving of notice or the passage of time (or both), constitute an event of default or breach empowering another person, or a court, to take remedial or other action under: (i) a contract, other than a Loan Document, to which a Transaction Party is a party or by which it or its property is bound; or (ii) a court or administrative order, judgment or decree relating to a Transaction Party. See, generally, Accord, Paragraph 15.2; Monograph, Section Either the opinion must identify (by reference to an Exhibit) the contracts to be examined or an officer s certificate must be obtained to establish the agreements to which Borrower Parties are parties. The list of contracts in the Exhibit to the opinion or in the certificate may be limited, for example, to contracts for borrowed money in amounts in excess of a specified dollar amount. In any event, it is inappropriate to render an opinion with respect to any material contract and to rely on an officer s certificate that does not identify the contracts to which the Borrower Parties are parties, but merely states that execution, delivery and performance of the Loan Documents will not violate any material contract. See, generally, Monograph, Section 2.16(1). Cf., note 12 above. The contracts must be reviewed to determine, inter alia, whether they limit the amount of debt a Transaction Party may incur (either through an express prohibition, by a debt to net worth restriction or otherwise) or whether they restrict the transactions contemplated by the Loan Documents (e.g., a merger or acquisition). 15. It is often requested that the no-conflicts opinion cover judgments, writs, injunctions, decrees, orders and rulings of any court to which the Borrower Parties are subject. The request can usually be honored, with appropriate limiting language. An example of such language is contained in item (d) of the text. As an alternative, item (d) may be modified to read: (d) do not contravene any judgment, writ, injunction, decree, order or ruling known to us (based solely on certificates provided by officers of the Borrower Parties furnished to you concurrently herewith) of any court and to which such Transaction Party is subject. If the quoted language is not included, the relevant judgments, writs, etc. should be determined and investigated through officers certificates, searches for governmental filings and representations and warranties in the Loan Documents. The Report states that the judgments, writs, decrees, etc. covered by an Accord opinion are limited to those that name the Borrower Parties and are specifically directed to them or their properties. See Accord, Paragraph This limitation should be incorporated into opinions of the Firm

21 16. Sometimes the following opinion is requested: [based on our review of the contracts listed in Exhibit hereto,] [to our actual knowledge,] the execution and delivery by each Transaction Party of each Loan Document to which it is a party, and the performance by each Transaction Party of its respective obligations thereunder, do not and will not result in or require the creation of any lien, security interest or other charge or encumbrance (other than pursuant to the Loan Documents) upon or with respect to any of its properties. This opinion is essentially an opinion that the execution, delivery and performance of the Loan Documents will not result in a lien becoming effective. The opinion requires a review of the contracts to which the Borrower Parties are parties and, therefore, should be subject to the same qualification as the opinion on contracts set forth in paragraph 2(iii). Thus, the contracts addressed should be those listed in the Exhibit. 17. The phrase consummation of the transactions contemplated refers only to approvals and authorizations required at or prior to the closing. The word performance is sometimes requested as an alternative to consummation of the transactions contemplated. However, it is the consensus of the TriBar Committee that the word performance means that post-closing authorizations are intended to be covered by the opinion. Therefore, unless post-closing authorizations are intended to be covered, the phrase the consummation of the transactions contemplated should be used instead of the word performance. TriBar Report, at Note, too, that in Glazer and FitzGibbon on Legal Opinions, the authors believe that an opinion that refers to performance goes much further than an opinion that is limited to consummation of the transaction. See Section 15.5 at 482. Also, it may be appropriate to obtain an officer s certificate as to the facts supporting the opinion. See Monograph, Section The following clause is sometimes requested to be included in the Firm s opinions: or for the exercise by any party to the Loan Documents (other than the Borrower Parties) of any of their rights and remedies under any Loan Document. 19. Additional exceptions may be necessary. The following are examples of additional exceptions common in secured financings: except: (i) for the filing of the Financing Statements in the appropriate public offices; (ii) as may be required by the Securities Exchange Act of 1934, as amended, the Investment Advisers Act of 1940, as amended, and the Investment Company Act of 1940, as amended, in connection with your exercise of any remedies under the [Pledge Agreement] in respect of any Pledged Stock (as defined therein) and under the [Security Agreement] in respect of any Accounts (as defined therein); and (iii) as may be required in connection with your exercise of any remedies under the [Pledge Agreement] in respect of any [Pledged Stock] (as defined therein) by laws affecting the offering and sale of securities generally. 20. A remedies opinion, i.e., an opinion that the Loan Documents are legal, valid, binding and enforceable in accordance with their terms, does not mean that a court will specifically enforce every provision of the contract exactly as it is written; however, the remedies opinion does mean that a court will provide a breach of

22 contract remedy for the breach of a provision. In the words of the TriBar Report, at 1914: [A remedies opinion] means that if there is a default in performance of an obligation (1) if a failure to pay or other damage can be shown and (2) if the defaulting party can be brought into a court which will hear the case and apply the governing law, then, subject to the availability of defenses and the exceptions stated in the opinion, the court will provide a money damage (or perhaps injunctive relief or specific performance) remedy. Before giving a remedies opinion, the opining lawyer should first test the enforceability of the provisions of the Loan Documents in light of the law existing on the date of the opinion (including statutory laws not yet effective, but which, as of the date of the opinion, are scheduled to become effective). To test the enforceability of a provision, the opining attorney should assume that: (i) a breach of such provision has occurred (and that there is no factual dispute with respect to such breach); and (ii) the breaching party is pleading that the breached provision is invalid generally or in the circumstances under which the breach occurred. The opining lawyer should then act as a hypothetical court and consider whether to grant a remedy for the breach, in light of the defenses and applicable law. See, generally, Monograph, Sections 1.02 and 2.03; Accord, at According to the TriBar Report, at 1920, the duty to make a reasonable inquiry as a basis of any opinion is implicit, and this duty is not disclaimed by the mere inclusion of a knowledge limitation. However, the opining lawyer s responsibility may be limited by the use of a description of an investigation (or a statement disclaiming any investigation). If only a limited investigation (or no investigation) has been made, then rather than risk responsibility for a broader investigation, it is advisable to describe, if practicable, the actual investigation. See also notes 14 and 15 above. 22. Cf., Accord, Section The Third-Party Closing Opinions, The Business Lawyer, Vol. 53, Feb. 1998, at , indicates that the no litigation opinion is largely factual and suggests that no real loss to opinion recipients would result if recipients relied on representations from the client. In any event, a number of firms are reluctant to give, and recent authorities have questioned the propriety of requests for, opinions as to the likely outcome of any litigation or as to whether an unfavorable outcome would have an adverse effect on the Borrower Parties financial condition. Generally, such opinions are considered beyond the ability and knowledge of the opining lawyer. Also, instead of questions the validity or legality of, the Accord uses the language, seek[s] to enjoin or otherwise interfere with and seek[s] to affect the enforceability of. See Accord, Section 17 and the Illustrative Opinion Letter attached to the Accord. 24. See Section of the UCC for requirements. Sometimes, law firms are requested to provide that the Security Agreement is effective to create... a valid security interest (or valid and enforceable security interest).... The Firm should resist this. The concern is that the security interest opinion is NOT an enforceability opinion. The security interest opinion does not include bankruptcy or equitable remedies exceptions because the security interest opinion addresses whether the requirements of the UCC have been satisfied. The August 2003 TriBar Report addresses this point. Note 44, at page 1461, states: An opinion recipient occa

23 sionally will request an opinion stating that a valid and enforceable security interest was created or perfected. This language blurs the distinction between a remedies opinion on a contract that includes a security agreement and a security interest opinion, and the Committee recommends that the words valid and enforceable not be used. The same reasoning should apply when the opinion recipient requests an opinion that a valid security interest was created. 25. Section provides the basic requirements for the creation of a security interest: value has been given, the debtor has rights in the collateral, and the debtor has authenticated a security agreement that provides a description of the collateral. Section 9-108(a) sets forth what a sufficient description is: a description of personal or real property is sufficient, whether or not it is specific, if it reasonably identifies what is described. Broad descriptions such as all assets are not sufficient: A description of collateral as all the debtor s assets or all the debtor s personal property or using words of similar import does not reasonably identify the collateral. 26. See generally TriBar Opinion Committee, Special Report of the TriBar Opinion Committee: U.C.C. Security Interest Opinions, 58 Business Lawyer 1453 (2003); TriBar Opinion Committee, Special Report by the TriBar Opinion Committee, U.C.C. Security Interest Opinions, 49 Business Lawyer 359 (1993). Sometimes, the Firm is requested to include the following: The UCC Financing Statements are in proper form for filing in the State of New York. This is acceptable. 27. If a fraudulent transfer opinion is to be rendered elsewhere in the opinion, delete the words fraudulent conveyance, appearing in the text and add here the following language: ; provided, however, that none of the foregoing exceptions shall be deemed to refer to the possible unenforceability of any of the Loan Documents by reason of any state or federal law relating to fraudulent conveyances [, except that we express no opinion as to the enforceability of any Guaranty included in the Loan Documents or any Loan Document securing any such Guaranty to the extent that value within the meaning of Section 548(c) of the Federal Bankruptcy Code has not been given in exchange therefor]. The above proviso, with or without the exception that follows, is very unusual. In the words of the Second Addendum: the application of fraudulent transfer laws is a complex and uncertain fact-sensitive process. It can rarely be determined by legal analysis alone and could not reasonably be expected to be addressed as a matter of course in the standard remedies opinion. Second Addendum, at ; see also Accord, Sections 12 and 19. Please speak with a member of the Firm s Opinion Committee before offering such an opinion. 28. We are sometimes asked to restrict this to security documents and guaranties (and omit the loan agreement and promissory notes). This is an acceptable request, and is in fact consistent with the 1998 TriBar Report: The Committee believes that its continued use should be confined to its historical context of lease and secured financing transactions. See page The Firm sometimes includes a practical realization qualification, as a limitation on the qualifications of the remedies opinion, particularly when opining on security documents or trust indentures. Such language is intended to serve as an alternative to an itemized list of all the provisions that might not be enforceable or otherwise