Customary Opinions in Corporate Transactions

Transcription

1 DOUGLAS A. BEIMFOHR, ESQ. Windels Marx Lane & Mittendorf, LLP 120 Albany Street Plaza, 6 th Floor New Brunswick, New Jersey Telephone No. (732) Fax No. (732) dbeimfohr@windelsmarx.com Roundtable Discussion on Opinion Letters 2003 Legal Forum Customary Opinions in Corporate Transactions 1. corporation 2. duly organized 3. [validly] existing 4. in good standing 5. corporate power and authority 6. duly qualified to transact business 7. all corporate action necessary for the authorization, execution, delivery and performance 8. no consents 9. due execution and delivery 10. valid and binding 11. non-contravention (a) organizational documents (b) federal or applicable state law (c) order, writ, injunction or decree of which we have knowledge (d) any agreement or instrument of which we have knowledge/scheduled agreement 12. provisions of Security Agreement are sufficient to create a security interest 13. Financing Statements duly executed [not Transaction Document ]. When presented for filing, such filings are sufficient to perfect the security interest in those items and types of collateral described in which a security interest may be perfected solely by filing of financing statements [pledge] [mortgage]

2 14. No knowledge of litigation against (i) any Transaction Party or any of its property or assets or (ii) any Transaction Party in respect of the Transaction Documents to which it is a party 15. No Transaction Party is an investment company or a public utility holding company 16. No violation of Regulation T, U or X 2

3 ANNOTATIONS RELATING TO CORPORATE OPINION 1. This opinion means that a corporation has complied in all material respects with the requirements in effect for incorporation of a corporation for its specified purposes under an applicable corporation statute and that it has not subsequently ceased to exist. The language in the model opinion generally may be supported solely by a certified copy of the certificate or articles of incorporation and a good standing certificate from the state of incorporation. [Note, however, that some authorities suggest that the language is a corporation is the same as has been duly incorporated and that both require more than a Secretary of State s certificate.] 2. This opinion covers organizational matters occurring after incorporation, including election of directors, holding of initial meeting of directors, adoption of by-laws, election of officers, authorization and issuance of stock, and any other matters required to commence business. If WMLM was not responsible for organizing the corporation, this opinion is best avoided. If the opinion is required, a review of the corporate minute books and comparison with the statutory requirements at the time of organization is required. Commonly encountered problems are (1) failure to elect sufficient directors, if the minimum number is required; (2) failure to elect all required officers; (3) failure to adopt by-laws; and (4) failure to issue stock. In some jurisdictions, a minimum amount of capital must be paid to the corporation in order to commence business. 3. Existing is an affirmative opinion that the corporation has not dissolved or ceased to exist. Validly or duly before existing does not change the meaning and is not recommended. In many states, a good standing certificate would suffice to establish the existence of the corporation, but the articles and bylaws should also be checked to determine whether the corporation s existence is limited. 4. Good standing in many jurisdictions means simply that the corporation has filed its annual report and paid its franchise taxes. It does not mean that the corporation is in compliance with all the laws of a state or even all its corporation and tax laws. Note that most good standing certificates received from the Secretary of State s office do not refer to a corporation s good standing. Florida s for example only certifies that a particular company is a corporation organized on a certain date and that it has paid all fees due to the Department of State and that its status is active. In New York, good standing certificates as such are not available. A certificate as to subsistence is obtained from the Secretary of State and a tax status certificate is obtained from the State Tax Commission. In Delaware, the long form good standing certificate refers to tax status and is obtained from the Secretary of State. 5.&6. This is an affirmative opinion that the corporation has the capacity or power under the Business Corporation laws of its state of incorporation and the authority under the Business Corporation laws of the states in which it is qualified to own its properties and conduct its business. It does not mean the

4 corporation has good title to its assets, has obtained necessary governmental licenses or approvals, or has obtained shareholder or director authorization to conduct its business. The opinion requires a thorough investigation of the principal business activities and properties of the corporation as well as the jurisdictions in which those activities and properties are located. The purpose clause of the Articles of Incorporation must be checked to make sure it is broad enough to cover the activities of the corporation. The Business Corporation laws of the relevant jurisdiction should also be checked to determine if there are any limitations on the activities of the corporation, particularly if the corporation operates in a regulated environment. A specific listing of jurisdictions is desirable; the opinion that the corporation is qualified wherever qualification is required should be avoided. Likewise the opinion that the corporation has not failed to qualify in any jurisdiction where such failure would have a material adverse effect on its business is likewise to be avoided since it leaves the opinion giver in the position of determining what is material to the company. 7. The word corporate should be used to distinguish this opinion from the more restricted opinion given with respect to approvals from government bodies. The attorney must determine if shareholder approval is required; whether consents in writing, if permitted by applicable law are proper; and whether the officers authorized to execute and deliver a document are the ones who do so. 8. This opinion may require a back-up certificate from the client concerning the lines of business the corporation is engaged in to determine what approvals are required. 9. With respect to due execution, care must be taken to assure that the corporate officers who will sign the document are properly authorized. As to delivery, physical delivery may not be required if the client has authorized delivery. 10. This opinion means that the agreement is a contract under contract law, and that all elements of the contract such as assent and consideration are present. It also means that a court would recognize the company s obligations under the Agreement as lawful and would allow damages or some other remedy in the event of a violation. The opinion should always be coupled with the bankruptcy and equitable remedies exception, as well as other exceptions for particular provisions that may not be enforceable (for example, agreements to agree, etc.). 11. This opinion will require a back-up certificate regarding agreements and judgments, decrees and orders. With respect to agreements, the preferred method is to list those viewed. Shareholder agreements, voting trust agreements, loan agreements, agreements or laws restricting alienation of corporate assets, settlement agreements, injunctions, orders and regulated industry laws should be checked. Note it is generally inappropriate to opine that the client is in compliance with all (or even substantially all) federal, state and local laws. Such an opinion is not only too broad, but any exceptions revealed to the opposing party may impinge upon the validity of the client s attorney-client privilege. 12.&13.The principal opinion matters under Article IX of the UCC as to security interests are creation/attachment and perfection. Priority is occasionally included. The 2

5 creation of a security interest is covered by contract law principles outside of Article IX. UCC deals with the attachment and enforceability of the security interest as between the secured party and the debtor. Under 9-110, the language of the security agreement must reasonably identify the property which is securing the obligations. The language must also describe the obligations secured. This is not a UCC requirement, but is a requirement of general contract principles which limit the enforceability of contracts because of vagueness of the terms. This opinion deals only with the creation of an Article IX interest. The requirements for the creation, attachment and enforceability of an Article IX security interest are set forth in 9-203(a) and (b). This opinion confirms that those requirements have been satisfied. In giving this opinion, the use of is sufficient to create recognizes that value must be given as required under 9-203(b)(1). 14. Generally, no opinion is given as to the likely outcome of litigation. If the other side objects to the we are not aware language, you may add after due inquiry. In that case, the opinion must be qualified by reference to a back-up certificate of officers of the company as well as a specific search of court records to indicate the limits of due diligence. 15. You may have a situation where a company is an investment company but nevertheless exempt from its registration requirements (See, e.g, Section 3(a)(7) exemption for companies who are owned by less than 100 shareholders). In such case, the opinion should be styled as not required to register as an investment company. 3