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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 !ee the NVCA we"site for a list of Working Group mem"ers This document is intended to serve as a starting point only, and should "e tailored to meet the specific re#uirements of the !tate in which you practice, as well as the opinion practices and procedures of your law firm This document should not "e construed as legal advice, nor should the participation of lawyers in the Working Group "e construed as an indication of their willingness to give or advise the acceptance of this form of opinion

FORM OF LEGAL OPINION

Last updated June 2013

Below is an example of the legal opinions that might be given in a typical venture-backed preferred stock 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. NO !" he following assumes a #elaware corporation head$uartered in %alifornia. Based upon the foregoing and subject to the additional qualifications set forth below, we are of the opinion that: 1. he !o"pan# is $alidl# e%isting as a corporation1 and in good standing under &elaware law and is qualified as a foreign corporation and in good standing in '!alifornia(. 2. he !o"pan# has the corporate power to e%ecute and deli$er the ransaction &ocu"ents2 in which it is na"ed as a part# and to perfor" its obligations thereunder.3 3. he !o"pan# has dul# authori)ed, e%ecuted and deli$ered the ransaction &ocu"ents in which it is na"ed as a part#, and such ransaction &ocu"ents constitute its $alid and binding obligations* enforceable against it in accordance with their ter"s. +
,pinion recipients so"eti"es request an opinion that the !o"pan# is -dul# incorporated.. his opinion requires the opinion preparers to conduct a "ore e%tensi$e inquir# into the past than an opinion that the -!o"pan# is $alidl# e%isting as a corporation,. and at least in the $enture financing conte%t, often is not cost justified. /ee hird-&arty '%losing( Opinions" A )eport of he riBar Opinion %ommittee , +3 Bus. Law +01, 1+121+2 310045. ,rdinaril#, an opinion that a !o"pan# has been -dul# organi)ed. should be a$oided because of uncertaint# as to what additional "atters, if an#, it co$ers. 2 ,pinion preparers should ta6e care that the !o"pan#7s certificate of incorporation is not included in the definition of - ransaction &ocu"ents.. 8nclusion of the certificate of incorporation would be both illogical 3 e.g., in the case of the due e%ecution and deli$er# opinion5 and troubleso"e 3e.g., in the case of the enforceabilit# opinion5. 3 ,pinion recipients so"eti"es as6 that this opinion be broadened, for e%a"ple to co$er the !o"pan#7s corporate power to conduct its business. 8f gi$en, this broader opinion t#picall# is based on a description in a disclosure docu"ent or an officer7s certificate. * 9ote that this opinion co$ers onl# obligations of the !o"pan# and, therefore, does not co$er obligations of other parties to the ransaction &ocu"ents, such as in$estors and other stoc6holders. /o"eti"es, an opinion recipient requests that the enforceabilit# opinion be e%panded to co$er those parties to gi$e the recipient co"fort that i"portant obligations, such as pro"ises b# those parties to $ote stoc6 in fa$or of the election of directors designated b# the recipient, also are enforceable. /ince the law of "an# states per"its the enforce"ent of pro"ises to $ote stoc6, in appropriate circu"stances, counsel to the !o"pan# "ight be able to gi$e that opinion based on an assu"ption as to status and due authori)ation, e%ecution and deli$er# in the case of parties that are entities, and legal capacit#, due e%ecution and deli$er# in the case of parties who are natural persons. /uch an opinion, howe$er, "a# be of li"ited $alue to an opinion recipient whose principal concern is the a$ailabilit# of specific perfor"ance as a re"ed#, since equitable re"edies are e%cluded fro" the opinion7s co$erage b# the equitable principles li"itation. + ,ften, the law co$ered b# the opinion letter is the sa"e as the law chosen as the go$erning law in the ransaction &ocu"ents. :hen that is not the case, apart fro" obtaining an opinion of counsel in the state whose law is chosen as the go$erning law, se$eral alternati$es are a$ailable. hese include gi$ing an opinion on whether the law chosen as the go$erning law will be gi$en effect under the law co$ered b# the opinion or, alone or in co"bination with the choice;of;law opinion, gi$ing an opinion on the enforceabilit# of the ransaction &ocu"ents as though the law co$ered b# the opinion go$erned the ransaction &ocu"ents. 8f the !o"pan# is incorporated in &elaware rather than the state whose law is generall# co$ered b# the opinion letter, the opinion letter t#picall# will state that it also co$ers the &<!L. =nless otherwise e%pressl# stated, the enforceabilit# opinion will co$er the &<!L to the e%tent the internal affairs doctrine of the state whose law is generall# co$ered b# the enforceabilit#
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Last updated June 2013

*. he e%ecution and deli$er# b# the !o"pan# of the ransaction &ocu"ents and the perfor"ance b# the !o"pan# of its obligations under the ransaction &ocu"ents, including its issuance and sale of the >referred /hares and issuance of shares of !o""on /toc6 upon con$ersion of the >referred /hares in accordance with the !o"pan#7s certificate of incorporation 3the -Conversion Shares.5, do not and will not 3i5 $iolate the &elaware <eneral !orporation Law 3-DGCL.5, the law of 'indicate state whose law is generall# co$ered b# the opinion letter( or =nited /tates federal law,1 3ii5 $iolate an# court order, judg"ent or decree, if an#, listed in '/chedule ?? to this opinion letter( '/chedule ?? to the >urchase @gree"ent(, 3iii5 result in a breach of, or constitute a default under, an# of the agree"ents or instru"ents listed in /chedule ?? to this opinion letterA, or 3i$5 $iolate the !o"pan#7s certificate of incorporation or b#laws. +. he !o"pan# is not required to obtain an# consent, appro$al, license or e%e"ption b#, or order or authori)ation of, or to "a6e an# filing, recording or registration with, an# go$ern"ental authorit# pursuant to the &<!L, the law of 'indicate state whose law is generally covered by the opinion letter( or =nited /tates federal law in connection with the e%ecution and deli$er# b# the !o"pan# of the ransaction &ocu"ents in which it is na"ed as a part# or the perfor"ance b# it of its obligations other than those that ha$e been obtained or "ade.4 1. he authori)ed capital stoc6 of the !o"pan# consists of 3i5 ??????????? shares of !o""on /toc6, B0.01 par $alue, of which ???????????? shares are issued and outstanding, and 3ii5 ???????? shares of >referred /toc6, B0.01 par $alue, of which ???????? shares ha$e been designated /eries @ >referred /toc6, ???????? shares of which are issued and outstanding, and ?????????? shares ha$e been designated /eries B >referred /toc6, none of which are issued and outstanding. 0 @ll such issued and outstanding shares ha$e been dul# authori)ed and $alidl# issued and are full# paid and nonassessable.10
opinion dee"s the &<!L applicable to the agree"ent. @"ong the pro$isions of the agree"ent to which the &<!L is li6el# to be dee"ed applicable are pro$isions relating to the go$ernance of the !o"pan#. 1 Cor the law co$ered, see part 88 of the @B@ Legal ,pinion >rinciples, +3 Bus. Law. 431 310045. ,pinion recipients and preparers should agree on whether this opinion should be drafted to co$er industr#;specific laws that are applicable to the business of the !o"pan# and could ha$e applicabilit# to the transaction but are not generall# re$iewed in connection with the t#pes of transactions co$ered b# the ransaction &ocu"ents, such as laws applicable to co"panies in the financial ser$ices industr#. A !onsideration should be gi$en to which contracts should be co$ered in light of the cost constraints of "an# $enture financings. 4 /ecurities law appro$als and filings are understood as a "atter of custo"ar# practice not to be co$ered b# this opinion unless referred to specificall#. /o"e law#ers, howe$er, choose to "a6e this e%plicit b# including an e%ception 3such as: -, e%cept 'the filing of a Cor" & pursuant to Degulation & of the /ecurities @ct( and the notice filing required b# '/ection 2+1023f5 or 2+102.1 of the !alifornia !orporate /ecurities Law of 1014, as a"ended(.5 or a state"ent indicating that the onl# opinion co$ering securities laws is in nu"bered paragraph 4. /uch an e%clusion does not "ean that other laws custo"aril# understood to be e%cluded are co$ered. 0 Because of its factual nature, so"e law fir"s are unwilling to gi$e an opinion on the nu"ber of outstanding shares. o a$oid an# "isunderstanding that an opinion on the nu"ber of outstanding shares is in essence an#thing "ore than a factual confir"ation, law fir"s that are willing to gi$e that opinion often do so onl# if the# also are gi$ing an opinion on the $alid issuance of the !o"pan#7s outstanding shares 3see note 105. 10 Because the opinion on the $alid issuance of the outstanding shares will require a re$iew of each issuance of shares, in "an# situations it will not be cost justified. Cor a description of the wor6 custo"aril# required to be perfor"ed to gi$e this opinion, see *pecial )eport of the riBar Opinion %ommittee" #uly Authori+ed Opinions on &referred *tock, 13 Bus. Law. 021 320045.

Last updated June 2013

A. he >referred /hares ha$e been dul# authori)ed, and when issued, deli$ered and paid for in accordance with the >urchase @gree"ent, will be $alidl# issued, full# paid and nonassessable.11 he !on$ersion /hares ha$e been dul# authori)ed and, when issued in accordance with the !o"pan#Es certificate of incorporation upon con$ersion of the >referred /hares, will be $alidl# issued, full# paid and nonassessable.12 9either the issuance or sale of the >referred /hares nor the issuance of the !on$ersion /hares is subject to an# pree"pti$e rights under the &<!L or the !o"pan#7s certificate of incorporation or b#laws.13 4. Based on, and assu"ing the accurac# of, the representations of each of the >urchasers in the >urchase @gree"ent, the sale of the >referred /hares pursuant to the >urchase @gree"ent does not, and the issuance of the !on$ersion /hares upon con$ersion of the >referred /hares in accordance with the !o"pan#7s certificate of incorporation will not 3assu"ing no co""ission or other re"uneration is paid or gi$en directl# or indirectl# for soliciting the con$ersion5,1* require registration under the /ecurities @ct.1+, 11
,pinion recipients so"eti"es as6 an opinion gi$er to state that, to the opinion gi$er7s 6nowledge, the !o"pan# has no outstanding options, warrants or other rights to acquire !o"pan# stoc6 other than as disclosed in the ransaction &ocu"ents. Fan# law fir"s are unwilling to gi$e this opinion because it constitutes negati$e assurance on a factual "atter the# rarel# are in a position to confir". :hen, howe$er, the opinion is gi$en, the opinion letter should describe what the opinion preparers ha$e done to support it. 11 @lthough understood as a "atter of custo"ar# practice to be co$ered b# the -dul# authori)ed. opinion, so"e opinion recipients as6 opinion gi$ers to state e%pressl# that the rights, powers, and preferences of the >referred /hares set forth in the certificate of incorporation do not $iolate the &<!L or the !o"pan#7s certificate of incorporation. 9ote that the -dul# authori)ed. opinion, whether or not it includes that additional state"ent, is not an opinion on the enforceabilit# of the ter"s of the >referred /hares. /ee *pecial )eport of the riBar Opinion %ommittee" #uly Authori+ed Opinions on &referred *tock, 13 Bus. Law. 021 320045. 12 Because shares "a# be issued in the future under antidilution clauses or otherwise, as a "atter of custo"ar# practice this opinion is understood to "ean that sufficient authori)ed shares are a$ailable on the date of the opinion letter, not that sufficient authori)ed shares necessaril# will be a$ailable on the con$ersion date. o "a6e the li"ited nature of the opinion clear, so"e opinion preparers include an e%press assu"ption regarding the a$ailabilit# of sufficient authori)ed shares in the future. ,pinion recipients so"eti"es as6 for an opinion that a specified nu"ber of shares 3at least sufficient to co$er issuance of the !on$ersion /hares5 has been reser$ed for issuance. Fan# fir"s will not gi$e this opinion because the concept of reser$ation, at least in &elaware and !alifornia, has no statutor# "eaning and the issue of the nu"ber of shares the !o"pan# has co""itted to issue is essentiall# factual 3see note 05. /o"e fir"s will, howe$er, gi$e what is often an acceptable alternati$e, na"el#, an opinion that the board of directors has dul# adopted a resolution reser$ing a specified nu"ber of shares for issuance on con$ersion of the >referred /hares and that the resolution re"ains in full force and effect. 13 G$en though a $alid issuance opinion could not be gi$en on shares issued in $iolation of pree"pti$e rights granted b# statute or the !o"pan#7s certificate of incorporation or b#laws, opinion recipients so"eti"es request an opinion that e%pressl# addresses the absence of those rights. /uch an opinion does not co$er contractual rights 3which "a# be co$ered b# the no breach or default opinion in nu"bered opinion *3iii5 abo$e5. 1* ,rdinaril#, no registration opinions co$ering the future issuance of the !on$ersion /hares are based on an assu"ption that the conditions for a$ailabilit# of the e%e"ption pro$ided b# /ection 33a5305 fro" the registration require"ents of the /ecurities @ct of 1033 will be satisfied at the ti"e of con$ersion. 8n the factual situation co$ered b# this for", the onl# condition that needs to be assu"ed is that no co""ission or other re"uneration will ha$e been paid when the shares are con$erted. @s in this for", so"e opinion gi$ers state this assu"ption e%pressl#. ,ther opinion gi$ers do not for $arious reasons, including their belief that satisfaction of the "atters assu"ed is so well understood that it does not ha$e to be stated. 9o registration opinions are discussed in /ubco""ittee on /ecurities Law ,pinions, !o""ittee on Cederal Degulation of /ecurities, @B@ /ection of Business Law, No )egistration Opinions, 13 Bus. Law. 14A 3200A5.

Last updated June 2013

G%cept as disclosed in /chedule ?? to the >urchase @gree"ent, we are not representing the !o"pan# in an# pending litigation in which it is a na"ed defendant that challenges the $alidit# or enforceabilit# of, or see6s to enjoin the perfor"ance of, the ransaction &ocu"ents.1A

@s pro$ided in this for", the no registration opinion is usuall# gi$en in reliance on appropriate representations and warranties set forth in the >urchase @gree"ent 3or infor"ation obtained in other wa#s, such as bac6;up certificates fro" the !o"pan#5 relating to the absence of -general solicitation. and -general ad$ertising. and prior sales of si"ilar securities that could be integrated with the offering co$ered b# the opinion. 38f a place"ent agent is in$ol$ed, the opinion also is usuall# based on representations and warranties of, or a certificate fro", the place"ent agent.5 /o"e opinion gi$ers e%pressl# e%clude co$erage of the no -general solicitation. and -general ad$ertising. require"ent fro" the opinion 3that require"ent is contained in Dule +023c5 of Degulation & and is understood to be a condition of co"pliance with the e%e"ption pro$ided b# /ection *325 of the /ecurities @ct5. /ee /ubco""ittee on /ecurities Law ,pinions, !o""ittee on Cederal Degulation of /ecurities, @B@ /ection of Business Law, No )egistration Opinions, 13 Bus. Law. 14A 3200A5. 11 :hen warrants, options or other rights to acquire !o"pan# stoc6 are e%ercisable upon the pa#"ent of cash, the no registration opinion can raise difficult issues because the e%e"ption under /ection 33a5305 of the /ecurities @ct would not be a$ailable 3other than possibl# if the warrants, options or other rights are e%ercised on a net e%ercise basis5 and the a$ailabilit# of another e%e"ption, such as under /ection *325 of the /ecurities @ct, would depend on the facts at the ti"e of e%ercise. @ccordingl#, "an# fir"s will not gi$e a no registration opinion on the issuance of shares upon the future e%ercise of warrants, options or other rights. /o"e fir"s, howe$er, will gi$e the opinion based on an e%press assu"ption that the warrants, options or other rights were e%ercised and the underl#ing shares issued at the closing of the sale of the >referred /hares. 1A his $ersion of the Hno;litigationH confir"ation is narrower than the $ersion that historicall# has been gi$en, which co$ered litigation against the co"pan# generall#. Because of its factual nature and in light of recent cases brought against law fir"s b# recipients of no;litigation confir"ations, "an# law fir"s no longer are willing to gi$e the broader no;litigation confir"ation, and so"e fir"s are unwilling to gi$e an# confir"ation relating to litigation. @lthough this for" ob$iates the need for the phrase -to our 6nowledge. or a $ariant of it, other for"s include that phrase. :hen the# do, a definition of -6nowledge. nor"all# should be included to a$oid "isunderstanding as to the "eaning of the ter". @n e%a"ple of a definition that is deri$ed fro" the @B@ Legal ,pinion >rinciples 3see note +5 3and that would appl# if no definition were included5 is: :hen the phrase -to our 6nowledge. or an equi$alent phrase is used in this opinion, its purpose is to li"it the state"ents it qualifies to the actual 6nowledge of the law#ers in this fir" responsible for preparing this opinion letter after such inquir# as the# dee"ed appropriate. /o"e opinions preparers include in the definition in place of -this opinion letter. the phrase -the particular opinion or confir"ation containing that reference.. @lso, so"e opinion preparers refer to -conscious awareness. instead of -actual 6nowledge.. 8n preparing the confir"ation, the opinion preparers nor"all# would conduct an inquir# of those law#ers in their fir" who the opinion preparers belie$e are reasonabl# li6el# to ha$e infor"ation not otherwise 6nown to the" that is called for b# the confir"ation. @s a "atter of custo"ar# practice, the confir"ation is understood not to co$er infor"ation 6nown to other law#ers in the fir" but not 6nown to the opinion preparers after such inquir#. &epending on the circu"stances and the wording of the confir"ation, the opinion preparers also "ight "a6e inquir# of appropriate officials of the !o"pan#. 8n preparing a no litigation confir"ation, the opinion preparers are not required as a "atter of custo"ar# diligence to chec6 court or other public records. @lthough not necessar#, so"e opinion preparers choose to "a6e this clear, for e%a"ple, b# stating e%pressl# that the# did not e%a"ine court or other public records.

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8f the opinion preparers are aware that, un6nown to the opinion recipient, a "aterial legal proceeding is being handled b# another fir", the# should consider whether pro$iding a confir"ation 3howe$er worded5 regarding litigation without noting the e%istence of that legal proceeding would be "isleading to the opinion recipient.

Last updated June 2013