This sample document is the product of a Working Group of lawyers who specialize in venture capital financings, acting under the auspices of the NVCA. See the NVCA website for a list of Working Group members. This document is intended to serve as a starting point only, and should be tailored to meet the specific requirements of the State in which you practice, as well as the opinion practices and procedures of your law firm. This document should not be construed as legal advice, nor should the participation of lawyers in the Working Group be construed as an indication of their willingness to give or advise the acceptance of this form of opinion.
FORM OF LEGAL OPINION
This document is based on the NVCA document of the same name. The CVCA gratefully acknowledges the NVCA for granting permission to use this document in Canada.
A blackline of this document to the NVCA document and a Conversion Guide describing the general drafting changes that have been made are also available from the CVCA website.
The Canadian version of this document was created by the CVCA Model Documents Working Group comprised of Gary Solway and Jesslyn Maurier of Bennett Jones LLP, Mireille Fontaine of Gowlings, Ed Vandenberg of Osler, Hoskin & Harcourt LLP, Pascal de Guise of Borden Lardner Gervais LLP, and Brian Lenihan of Choate Hall & Stewart LLP. The lead author on this document is Pascal de Guise () with the collaboration of Jennifer Archer.
Canadian Version
Last updated June 2013update: December, 2015 1
Below is an example of the legal opinions that might be given in a typical venture-backed preferred stockshare financing. As most law firms have their own forms and the opinions given depend on the specific circumstances, this is meant only as a starting point for reference purposes. This opinion does not include the usual factual background, scope limitations, assumptions and qualifications that a law firm will add to its opinion.
NOTE: The following assumes a DelawareCanadian corporation headquartered in Californiaincorporated under the Canada Business Corporations Act.
Based upon the foregoing and subject to the additional qualifications set forth below, we are of the opinion that:
1.The Company is validly existing as a corporation[1] and in good standing under Delaware law and is qualified as a foreign corporation and in good standing in [California].Corporation is incorporated and exists[1] under the Canada Business Corporations Act.[2]
2.The CompanyCorporation has the corporate power and capacity to execute and deliver the Transaction Documents[2] in which it is named as a party and to perform its obligations thereunder.[3]
3.The Company has duly authorized, executed and deliveredexecution and delivery by the Corporation of the Transaction Documents in which it is named as a party, and such Transaction Documents constitute its valid and binding and the performance by it of its obligations thereunder have been duly authorized by all necessary corporate action on the Corporation’s part.[4]
4.The Corporation has duly executed[5] and delivered[6] each of the Transaction Documents in which it is named a party, and those Transaction Documents are enforceable against it in accordance with their terms.5[7]
4. 5. The execution and delivery by the CompanyCorporation of the Transaction Documents in which it is named a party and the performance by the Companyit of its obligations under the Transaction Documentsthereunder, including itsthe issuance and sale of the Preferred Shares and issuance of shares of Common StockShares upon conversion of the Preferred Shares in accordance with the Company’s certificate of incorporation (the “Conversion Shares”), do not and will not (i) violate the Delaware General Corporation Law (“DGCL”), the law of [indicate state whose law is generally covered by the opinion letter] or United States federal law,[6] (ii) violate any court order, judgment or decree, if any, listed in [Schedule __ to this opinion letter] [Schedule __ to the Purchase Agreement], (iii) result in a does not breach any provisions of, or constitute a default under, any of the agreements or instruments listed in Schedule __ to this opinion letter[7], or (iv) violate the Company’s certificate of incorporation or bylaws.:[8]
(a)its articles of [select: incorporation/amalgamation/continuance];
(b)its by-laws [add if requested: or the resolutions of its directors or shareholders];
(c)any laws of the Province of [insert home province] to which the Corporation is subject;[9]
(d)any judgment, order, decree of any court, agency, board, tribunal, arbitrator or other authority listed in Schedule ___ to this opinion letter; or
(e)any of the terms, provisions or conditions of any agreement, indenture, instrument or other document listed in Schedule ___ to this opinion letter.
5. 6. The CompanyCorporation is not required to obtain any consent, approval, licensce or exemption by, or order or authorization of, or to make any filing, recording or registration with, any governmental authority pursuant to the DGCL,under the law of [indicate stateprovince whose law is generally covered by the opinion letter] or United StatesCanadian federal law in connection with the execution and delivery by the CompanyCorporation of the Transaction Documents in which it is named as a party or the performance by it of its obligations other than those that have been obtained or made.81[0]
6.7.The authorized capital stock of the CompanyCorporation consists of (i) ______shares of Common Stock, $0.01 par valueShares, of which ______shares are issued and outstanding, and (ii) ______shares of Preferred Stock, $0.01 par valueShares, of which ______shares have been designated SeriesClass A Preferred StockShares, ______shares of which are issued and outstanding, and ______shares have been designated SeriesClass B Preferred StockShares, none of which are issued and outstanding.91[1] All such issued and outstanding shares have been duly authorized and validly issued and are fully paid and nonassessable.101[2]1[3]
7.8.The Preferred Shares have been duly authorized, and when issued, delivered and paid for in accordance with the Purchase Agreement, will be validly issued, fully paid and nonassessable.1[1] The Conversion Shares have been duly authorized and, when issued in accordance with the Company's certificate of incorporation upon conversion of the Preferred Shares, will be validly issued, fully paid and nonassessable.1[2] Neither the issuance or sale of the Preferred Shares nor the issuance of the Conversion Shares is subject to any preemptive rights under the DGCLCanada Business Corporations Act or the Company’s certificateCorporation’s articles of incorporation or bylaws.13by-laws.1[4]
8.Based on, and assuming the accuracy of, the representations of each of the Purchasers in the Purchase Agreement, the sale
9.The issue and delivery of the Preferred Shares pursuant to the Purchase Agreement does not, and the issuance of the Conversion Shares upon conversion of the Preferred Shares in accordance with the Company’s certificate of incorporation will not (assuming no commission or other remuneration is paid or given directly or indirectly for soliciting the conversion),1[4] require registration under the Securities Act.1[5], 1[6]by the Corporation to the Purchasers resident in the Province of [insert relevant province] in accordance with the terms of the Purchase Agreement are exempt, either by statute, regulation, rule or order, from the prospectus requirements of the Securities Act [defined elsewhere] and no prospectus is required nor are other documents required to be filed, proceedings taken, and no approval or consent of, or registration or filing with, any regulatory authority in the Province of [insert relevant province] is required to permit the issue and delivery of the Preferred Shares by the Corporation to the Purchasers [other than the filing form 45-106F1 and payment of the associated fee].1[5]
10.No prospectus or registration under the dealer registration requirements of the securities laws of the Province of [insert relevant province] is required, nor are other documents required to be filed, proceedings taken or approvals, permits, consents or authorizations of regulatory authorities obtained under the securities laws of the Province of [insert relevant province] to permit the issue and delivery by the Corporation of the Conversion Shares upon the conversion of the Preferred Shares in accordance with their terms to a Purchaser resident in the Province of [insert relevant province], provided that no commission or other remuneration is paid or given to others in respect of the issue and delivery of the Conversion Shares except for administrative or professional services or for services performed by a registered dealer.
Except as disclosed in Schedule __ to the Purchase Agreement, we are not representing the Company in any pending litigation in which it is a named defendant that challenges the validity or enforceability of, or seeks to enjoin the performance of, the Transaction Documents.1711. To our knowledge, there is not pending or threatened, any action, suit, proceeding, inquiry or investigation, to which the Corporation is a party, or to which the property of the Corporation is subject, before or brought by any court or governmental agency or body, that, if determined adversely to the Corporation would prohibit the Corporation from executing, delivering or performing its obligations under the Transactions Documents to which it is a party.1[6]
The opinions expressed above are provided solely for the benefit of the addressees in connection with the transactions contemplated by the Transaction Documents and may not be used or relied on by or disclosed to any other person or for any other purpose without our express prior written consent. We have no responsibility or obligation to update this opinion, to consider its applicability or correctness to any person other than the addressees, or to take into account changes in law, facts or any other developments of which we may later become aware.
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[1] Opinion recipients sometimes request an opinion that the Company is “duly incorporated.” This opinion requires the opinion preparers to conduct a more extensive inquiry into the past than an opinion that the “Company is validly existing as a corporation,” and at least in the venture financing context, often is not cost justified. See Third-Party “Closing” Opinions: A Report of The TriBar Opinion Committee, 53 Bus. Law 591, 651–652 (1998). Ordinarily, an opinion that a Company has been “duly organized” should be avoided because of uncertainty as to what additional matters, if any, it covers.
[1] Opinion recipients sometimes request an opinion that the Corporation is “duly incorporated.” This is no longer common practice, due to concerns about the meaning of “duly” in those jurisdictions where the statutory presumption regarding the consequences of incorporation is either weak or rebuttable (Wilfred M. Estey, “Legal Opinions in Commercial Transactions”, 3rd ed. (Markham: Lexis Nexis) at para 3.5).
[2] Depending on the jurisdiction of incorporation of a Corporation, alternative wording may track the wording of the applicable certificate of incorporation. Accordingly, for example, in British Columbia a typical iteration is: “The Corporation is a valid and existing Corporation under the laws of the Province of British Columbia and is, with respect to the filing of annual reports, in good standing as of this date”.
[2] Opinion preparers should take care that the Company’s certificate of incorporation is not included in the definition of “Transaction Documents.” Inclusion of the certificate of incorporation would be both illogical (e.g., in the case of the due execution and delivery opinion) and troublesome (e.g., in the case of the enforceability opinion).
[3] Opinion recipients sometimes ask that this opinion be broadened, for example to cover the CompanyCorporation’s corporate power to conduct its business. If given, this broader opinion typically is based on a description in a disclosure document or an officer’s certificate.There has been some concern regarding what kind of due diligence is necessary to provide an opinion on a corporation’s ability “to carry on its business”. Though unclear in Canada, as a practical matter opinion givers appear likely to rely on their general familiarity with their client’s business, operations and activities rather than having to review and rely upon a description of the corporation’s business (Wilfred M. Estey, “Legal Opinions in Commercial Transactions”, 3rd ed. (Markham: Lexis Nexis) at para 3.37).
[4]Note that this opinion covers only obligations of the Company and, therefore, does not cover obligations of other parties to the Transaction Documents, such as investors and other stockholders. Sometimes, an opinion recipient requests that the enforceability opinion be expanded to cover those parties to give the recipient comfort that important obligations, such as promises by those parties to vote stock in favor of the election of directors designated by the recipient, also are enforceable. Since the law of many states permits the enforcement of promises to vote stock, in appropriate circumstances, counsel to the Company might be able to give that opinion based on an assumption as to status and due authorization, execution and delivery in the case of parties that are entities, and legal capacity, due execution and delivery in the case of parties who are natural persons. Such an opinion, however, may be of limited value to an opinion recipient whose principal concern is the availability of specific performance as a remedy, since equitable remedies are excluded from the opinion’s coverage by the equitable principles limitation.The corporate authorization opinion should refer to all necessary “corporate” action, because it is only intended to address authorizations required by the applicable provisions of corporate law. It does not address authorization that may be required by third parties, or compliance with applicable law other than corporate law, judgments, orders or contracts to which the Corporation is a party (Wilfred M. Estey, “Legal Opinions in Commercial Transactions”, 3rd ed. (Markham: Lexis Nexis) at para 3.51).
[5]An opinion that a document has been “duly executed” means that the persons who signed it on behalf of the Corporation had the authority to do so, their signatures are genuine, they currently hold the offices or positions they purport to hold and their signatures bind the Corporation (Wilfred M. Estey, “Legal Opinions in Commercial Transactions”, 3rd ed. (Markham: Lexis Nexis) at para 3.66).
[6]An opinion that a document has been “duly delivered” means that the document has been unconditionally delivered to the other party or parties in order to create a binding agreement between them (Wilfred M. Estey, “Legal Opinions in Commercial Transactions”, 3rd ed. (Markham: Lexis Nexis) at para 3.70).
[7]5Often, the law covered by the opinion letter is the same as the law chosen as the governing law in7 This opinion covers only obligations of the Corporation and, therefore, does not cover obligations of other parties to the Transaction Documents. When that is not the case, apart from obtaining an opinion of counsel in the state whose law is chosen as the governing law, several alternatives are available. These include giving an opinion on whether the law chosen as the governing law will be given effect under the law covered by the opinion or, alone or in combination with the choice-of-law opinion, giving an opinion on the enforceability of the Transaction Documents as though the law covered by the opinion governed the Transaction Documents. If the Company is incorporated in Delaware rather than the state whose law is generally covered by the opinion letter, the opinion letter typically will state that it also covers the DGCL. Unless otherwise expressly stated, the enforceability opinion will cover the DGCL to the extent the internal affairs doctrine of the state whose law is generally covered by the enforceability opinion deems the DGCL applicable to the agreement. Among the provisions of the agreement to which the DGCL is likely to be deemed applicable are provisions relating to the governance of the Company., such as investors and other shareholders. Sometimes, an opinion recipient requests that the enforceability opinion be expanded to cover those parties to give the recipient comfort that important obligations, such as promises by those parties to vote shares in favour of the election of directors designated by the recipient, also are enforceable. Such an opinion, however, may be of limited value to an opinion recipient whose principal concern is the availability of specific performance as a remedy, since equitable remedies are excluded from the opinion’s coverage by the equitable principles limitation.
[6] For the law covered, see part II of the ABA Legal Opinion Principles, 53 Bus. Law. 831 (1998). Opinion recipients and preparers should agree on whether this opinion should be drafted to cover industry-specific laws that are applicable to the business of the Company and could have applicability to the transaction but are not generally reviewed in connection with the types of transactions covered by the Transaction Documents, such as laws applicable to companies in the financial services industry.
[7] Consideration should be given to which contracts should be covered in light of the cost constraints of many venture financings.
[8] The no breach or default opinion should avoid use of the phrase “conflict with” as it is imprecise and could broaden the scope of the opinion beyond what was intended (Wilfred M. Estey, “Legal Opinions in Commercial Transactions”, 3rd ed. (Markham: Lexis Nexis) at para 3.134). Each of the subparagraphs other than (a) and (b) are subject to negotiation.
[9] Reference to “material laws” or laws that may have a “material adverse effect” should be avoided due to their imprecision. It is inappropriate to limit this portion of the no breach or default opinion by references to knowledge, because all lawyers are presumed to know the laws, rules and regulations in the jurisdiction in which they are licensed to practice (Wilfred M. Estey, “Legal Opinions in Commercial Transactions”, 3rd ed. (Markham: Lexis Nexis) at paras 3.119-3.120).
[0]8 Securities law approvals and filings are10 The regulatory approval opinion should refer only to the particular transaction or to the entering into of a particular agreement. The regulatory approval opinion is understood as a matter of customary practice not to be covered by this opinion unless referred to specifically. Some lawyers, however, choose to make this explicit by including an exception (such as: “, except [the filing of a Form D pursuant to Regulation D of the Securities Act] and the notice filing required by [Section 25102(f) or 25102.1 of the California Corporate Securities Law of 1968, as amended]”) or a statement indicating that the only opinion covering securities laws is in numbered paragraph 8. Such an exclusion does not mean that other laws customarily understood to be excluded are covered.not to extend to municipal or local, tax, competition, insolvency and securities laws unless it specifically addresses those laws (Wilfred M. Estey, “Legal Opinions in Commercial Transactions”, 3rd ed. (Markham: Lexis Nexis) at para 3.146; 3.149).