Annotated Form Fund Formation Opinion for Delaware Limited Liability Company. (Prepared by Louis G. Hering) [Date]

Transcription

1 Annotated Form Fund Formation Opinion for Delaware Limited Liability Company (Prepared by Louis G. Hering) TO: Re: [Fund Name] LLC Ladies and Gentlemen: We have acted as special [Delaware] counsel to [Fund Managing Member Name] LLC (the Managing Member ), a Delaware limited liability company and the managing member of [Fund Name] LLC, a Delaware limited liability company (the Company ), in connection with certain matters of Delaware law set forth below. Capitalized terms used herein and not otherwise herein defined are used as defined in the Amended and Restated Limited Liability Company Operating Agreement of the Company dated as of (the Company Agreement ). In rendering this opinion, we have examined and relied on copies of the following documents in the forms provided to us: the form of subscription agreement to be entered into between the Company and each Non-Managing Member (each a Subscription Agreement and collectively the Subscription Agreements ); the Company Agreement; the Limited Liability Company Operating Agreement of the Company dated as of (the Original Company Agreement ); 1 the Certificate of Formation of the Company as filed in the Office of the 1 Under the Delaware Limited Liability Company Act, 6 Del. C et seq. (the Delaware Act ), a limited liability company is formed upon the filing of a certificate of formation in the office of the Secretary of State of the State of Delaware which satisfies the requirements of Section (a) of the Delaware Act and the effectiveness of a limited liability company agreement as provided in Section (d) of the Delaware Act. It is often the case that an initial short-form limited liability company agreement will be entered into to form a fund as a limited liability company in accordance with the Delaware Act prior to the admission of investor members. This enables the limited liability company to take certain organizational actions prior to the admission of investor members, such as obtaining an employer identification number (EIN), opening bank accounts and entering into organizational agreements. This initial limited liability Copyright 2018, Morris, Nichols, Arsht & Tunnell LLP All rights reserved.

2 Page 2 Secretary of State of the State of Delaware (the State Office ) on ; the Limited Liability Company Operating Agreement of the Managing Member dated as of (the Managing Member Agreement ); the Certificate of Formation of the Managing Member as filed in the State Office on ; a Unanimous Written Consent of the Managers of the Managing Member dated ; 2 and certificates of good standing of the Company and the Managing Member obtained as of a recent date from the State Office. In such examinations, we have assumed the genuineness of all signatures, the authenticity of all documents submitted to us as originals, the conformity to original documents of all documents submitted to us as copies of documents to be executed and the legal capacity of natural persons to complete the execution of documents. We have further assumed for the purposes of this opinion: (i) except to the extent addressed by our opinions in paragraphs 1 and 2, the due formation or organization, valid existence and good standing of each entity that is a party to any of the documents reviewed by us under the laws of the jurisdiction of its formation or organization; (ii) except to the extent addressed by our opinions in paragraphs 7 and 8 below, the due authorization, adoption, 3 execution and, as (... continued) company agreement would then be amended and restated in connection with the admission of investor members. 2 The second sentence of opinion paragraph 4 and opinion paragraphs 7 and 8 include authorization opinions. An opinion giver needs to establish the basis for giving due authorization opinions. In the corporate context, authorization may be based on resolutions adopted by the board of directors of the corporation in writing or at a meeting. In the limited liability company context, authorization may be similarly based on resolutions adopted by managers for a manager-managed limited liability company or by members for a member-managed limited liability company. For a limited liability company, authorization can also be expressly provided in a limited liability company agreement. This form assumes that the Managing Member is managed by managers as defined in Section (10) of the Delaware Act and that a unanimous written consent of the managers of the Managing Member provides the requisite authorization to give these opinions. 3 It may be appropriate to assume due adoption of the documents reviewed by an opinion giver, which presumably includes the due adoption of the amended and restated limited liability company agreement, because the opinion giver is not expected to perform the due diligence required to confirm that the required consents and authorizations were obtained to amend the prior limited liability company agreement. This assumption may be more important in subsequent closings if substantive amendments are made to a limited liability company agreement that could implicate consent requirements of the investor members under the amendment provision of the limited liability company agreement. In this regard, some opinion givers specifically assume that an amended agreement was amended in conformity with all applicable requirements including any required consents.

3 Page 3 applicable, delivery by, or on behalf of, each of the parties thereto of the documents reviewed by us and all documents required to be executed by any Member as a condition to its admission to the Company (including, without limitation, the due authorization, execution and delivery of the Company Agreement and the Subscription Agreements by each addressee identified in Annex A hereto); (iii) the acceptance by the Managing Member of a subscription from each of the addressees identified on Annex A hereto as provided in the Original Company Agreement or the Company Agreement, as applicable, and the Subscription Agreements and the satisfaction of, or compliance with, all of the terms, conditions and restrictions set forth in the Original Company Agreement or the Company Agreement, as applicable, and the Subscription Agreements in connection with the admission of Members to the Company and the issuance of limited liability company interests in the Company (the Interests ); 4 (iv) the satisfaction of, or compliance with, all of the terms, conditions and restrictions set forth in the Managing Member Agreement in connection with the admission of members to the Managing Member and the issuance of limited liability company interests in the Managing Member; (v) that no event or circumstance has occurred that would cause the dissolution of the Company under Section of the Delaware Limited Liability Company Act, 6 Del. C et seq. (the Delaware Act ); 5 (vi) that no event or circumstance has occurred that would cause the dissolution of the Managing Member under Section of the Delaware Act; (vii) that Schedule [A] to the Company Agreement accurately sets forth all required information, including, without limitation, the name, address and Commitment of each of the Members; 6 and (viii) that the documents examined by us are in full force and effect, set forth the entire understanding of the parties thereto with respect to the subject matter thereof and have not been supplemented, amended or otherwise modified, except 4 This assumption, and the conforming assumption in clause (iv), support the due formation opinions set forth in opinion paragraphs 1 and 2. This assumption also supports the due admission opinion in paragraph 4. 5 This assumption supports the power and authority opinion set forth in opinion paragraph 3 and the authorization opinions set forth in the second sentence of opinion paragraph 4 and in opinion paragraphs 7 and 8. In the event that a limited liability company has dissolved under Section of the Delaware Act, its activities would be limited to those activities that are consistent with winding up the limited liability company. In the event of dissolution, it may not be clear whether, for example, issuing additional limited liability company interests or entering into a limited liability company agreement would be consistent with winding up. 6 This assumption contemplates that the Company Agreement includes a provision that provides that the name, address and Commitment of each of the Members is set forth on Schedule [A] thereto. The opinion giver will rely on that Schedule for purposes of listing the Members being admitted in connection with the adoption of the Company Agreement as set forth on Annex A to the opinion and in connection with the due admission opinion in paragraph 4.

4 Page 4 as herein referenced. 7 No opinion is expressed herein with respect to the requirements of, or compliance with, federal or state securities or blue sky laws. We have not reviewed any documents other than those identified above in connection with this opinion, and we have assumed that there are no other documents, facts or circumstances that are contrary to or inconsistent with the opinions expressed herein. Further, we have not participated in the preparation of any offering of materials relating to the Managing Member or the Company and assume no responsibility for the content of such materials. As to any fact material to our opinion, other than those assumed, we have relied without independent investigation on the above-referenced documents and on the accuracy, as of the date hereof, of the matters therein contained. In rendering this opinion, we have not acted as counsel to, or in any other capacity represented, any Non-Managing Member of the Company. 8 Based on and subject to the foregoing and to the further exceptions and qualifications set forth below, and limited in all respects to matters of Delaware law, it is our opinion that: 9 1. The Company is a duly formed and validly existing limited liability company in good standing under the laws of the State of Delaware. 2. The Managing Member is a duly formed and validly existing limited liability company in good standing under the laws of the State of Delaware. 3. The Managing Member has requisite limited liability company power and authority under the Delaware Act and the Managing Member Agreement to act as the managing member of the Company and to execute and deliver, and perform its obligations under, the Company Agreement. 7 Assumptions (iii), (iv), (v), (vi) and (vii) could alternatively be addressed in a certificate executed by a person the opinion giver believes to be appropriate and reliable. 8 Although the first sentence of the form opinion identifies the opinion giver as counsel to the Managing Member, since the opinion is being delivered to the Non-Managing Members and since, in contrast to most third party legal opinions, the Non-Managing Members are owners of the entity i.e. the Company, that is subject to most of the opinions, opinion givers will frequently specifically disavow any attorney-client relationship with any Non-Managing Member. 9 For a general discussion on giving certain of these opinions, their meaning and the support needed to give them, see Third-Party Closing Opinions: Limited Liability Companies, 61 Bus. Law. 679 (2006); Supplemental TriBar LLC Opinion Report: Opinions on LLC Membership Interests, 66 Bus. Law (Aug. 2011).

5 Page 5 4. Each of the addressees identified on Annex A hereto has been duly admitted as a Non-Managing Member of the Company. The Interests sold to each of the addressees identified on Annex A hereto represent duly authorized and validly issued Interests. 5. The liability of each Non-Managing Member under the Delaware Act, in such Person s capacity as a Non-Managing Member, will be limited to the amount of the Capital Commitment of such Non-Managing Member (as such Capital Commitment may be increased pursuant to the terms of the Company Agreement), together with any undistributed Membership income, profits, or property to which the Non-Managing Member may be entitled on account of its Interest, plus the amount of the other payments provided to be paid by such Non-Managing Member under the terms of the Company Agreement, such Non-Managing Member s Subscription Agreement and all applicable subscription documents (including returns of distributions pursuant to Article [X] of the Company Agreement); 10 provided, however, that a Member may have liability to return to or for the account of the Company a distribution made to such Member under the circumstances and to the extent provided in Section or of the Delaware Act. 6. Except as provided in paragraph 5 above, under the Delaware Act and the Company Agreement, a Member, in its capacity as a member of the Company, will not be obligated personally for the debts, obligations or liabilities of the Company, whether arising in contract, tort or otherwise, solely by reason of being a Member Each of the Subscription Agreements has been duly authorized and executed by the Company Although it may technically not be necessary to reference specifically provisions of a limited liability company agreement that require a member to make payments to the limited liability company, an opinion giver may wish to specifically reference certain provisions to highlight nuanced payment requirements for the opinion recipient. This opinion specifically addresses returns of distributions, which may be required in a limited liability company agreement if, for example, members are required to return distributions to the extent the limited liability company has insufficient funds to satisfy indemnification obligations. 11 This opinion is consistent with the provisions of Section of the Delaware Act, although as provided in Section (b) of the Delaware Act, a member could agree to be obligated personally for any or all of the debts, obligations and liabilities of the limited liability company if the limited liability company agreement so provides. 12 Opinions 7 and 8 will sometimes include a delivery opinion. However, since delivery is a mixed question of law and fact and may implicate the law of the place where the delivery takes place as well as the law of the domicile of the subject entities, the opinion giver may not choose to include a delivery opinion.

6 Page 6 8. The Company Agreement has been duly authorized and executed by the Managing Member. 9. The Company Agreement constitutes a legal, valid and binding obligation of the Managing Member, enforceable against the Managing Member in accordance with its terms, except as such enforceability may be limited by (A) bankruptcy, insolvency, reorganization, receivership, fraudulent conveyance, moratorium or other laws of general application relating to or affecting the enforcement of creditors rights and remedies, as from time to time in effect, (B) application of equitable principles (regardless of whether such enforceability is considered in a proceeding in equity or at law), (C) considerations of public policy or the effect of applicable law relating to fiduciary duties, (D) the implied covenant of good faith and fair dealing and (E) principles of course of dealing or course of performance and standards of good faith, fair dealing, materiality and reasonableness that may be applied by a court to the exercise of rights and remedies and the possible unavailability of the remedy of injunctive or other equitable relief; provided that we express no opinion with respect to the enforceability of (i) any document referenced or incorporated by reference in the Company Agreement (other than the Subscription Agreements to the extent addressed by our opinion in paragraph 10 below), (ii) any purported waiver or consent granted by the Managing Member pursuant to the Company Agreement except to the extent the Managing Member may so waive or consent and has effectively so waived or consented in accordance with applicable law and (iii) the Company Agreement against or with respect to any Person not a party thereto; and provided, further, that (y) the obligation of the Managing Member to cause the Company to make distributions to the Members will be subject to the provisions of Sections and of the Delaware Act 13 and (z) any restrictions on the transfer of Interests as set forth in the (... continued) If the opinion giver decides to address delivery, it will need to establish the necessary factual predicates through an assumption or certification. An example of such an assumption is as follows: We have assumed that [name of signatory], acting in his or her capacity as a manager of the Managing Member and for and on behalf of the Managing Member, has caused the Managing Member, the Managing Member acting in its capacity as the managing member of the Company and for and on behalf of the Company, to voluntarily and unconditionally transfer possession of executed counterparts of the Subscription Agreements to each of the other parties thereto with the intent of bringing the Subscription Agreements into effect. 13 Given the contractual flexibility of Delaware limited liability companies, as reflected by the Delaware Act generally and Section (b) specifically ( It is the policy of this chapter to give the maximum effect to the principle of freedom of contract and to the enforceability of limited liability company agreements. ), there are few limitations on what a Delaware limited liability company may do, excluding public policy matters such as criminal acts or intentional misconduct. One of the few limitations relates to

7 Page 7 Company Agreement will be subject to the provisions of Sections and of the Delaware Act Each Subscription Agreement constitutes a legal, valid and binding obligation of the Company enforceable against the Company in accordance with its terms, except as such enforceability may be limited by (A) bankruptcy, insolvency, reorganization, receivership, fraudulent conveyance, moratorium or other laws of general application relating to or affecting the enforcement of creditors rights and remedies, as from time to time in effect, (B) application of equitable principles (regardless of whether such enforceability is considered in a proceeding in equity or at law), (C) considerations of public policy or the effect of applicable law relating to fiduciary duties, (D) the implied covenant of good faith and fair dealing and (E) principles of course of dealing or course of performance and standards of good faith, fair dealing, materiality and reasonableness that may be applied by a court to the exercise of rights and remedies and the possible unavailability of the remedy of injunctive or other equitable relief; provided that we express no opinion with respect to the enforceability of (i) any document referenced or incorporated by reference in the Subscription Agreements (other than the Company Agreement to the extent addressed by our opinion in paragraph 9 above), (ii) any purported waiver or consent granted by the Company pursuant to the Subscription Agreements except to the extent the Company may so waive or consent and has effectively so waived or consented in accordance with applicable law and (iii) the Subscription Agreements against or with respect to any Person not a party thereto. This opinion speaks only as of the date hereof and is based on our understandings and assumptions as to present facts and on our review of the above-referenced documents and (... continued) distributions. Section of the Delaware Act essentially prohibits distributions if, after giving effect to such distributions, the liabilities of the limited liability company would exceed the fair value of the assets of such limited liability company. Section of the Delaware Act provides for an order of distribution upon the winding up of a limited liability company, essentially requiring distributions to creditors and establishment of reserves for actual and potential claims and obligations before making distributions to members. Thus, to the extent there are mandatory distribution provisions in a limited liability company agreement, they could violate Section or Section To the extent a limited liability company agreement includes provisions that broadly prohibit transfers by members, particularly if they expressly prohibit transfers of any interests in the limited liability company by operation of law or otherwise, these provisions would be subject to the provisions of Sections and of the Delaware Act, which generally relate to charging orders with respect to limited liability company interests and settling the rights of a member upon the death or judicially determined incompetence of an individual or dissolution or termination of an entity.

8 Page 8 the application of Delaware law as the same exist on the date hereof, and we undertake no obligation to update or supplement this opinion after the date hereof for the benefit of any Person with respect to any facts or circumstances that may hereafter come to our attention or any changes in facts or law that may hereafter occur or take effect. The opinions herein expressed are intended solely for the benefit of the addressees hereof in connection with the matters contemplated hereby and may not be relied upon by any other Person or for any other purpose without our prior written consent. Very truly yours,

9 ANNEX A Identification of Addressees of [Fund Name] LLC Opinion Dated