In other installments, we look generally at exhibits to SEC filings, exhibits to exhibits, and personal information in exhibits and at exhibit-only filings. In this installment, we delve into one species of exhibits – legal opinions. Let’s run through a few key points on how to stare into the yellow eyes of the Wild Things,¹ as well as getting your opinions filed in the right form and at the right time.
Exhibit 5 opinions

Item 601 of Regulation S-K requires that a filing under the Securities Act include certain legal opinions. The transactions we work on will typically be covered by Item 601(b)(5)(i), which calls for an opinion on the legality of the securities being registered, “indicating whether they will, when sold, be legally issued, fully paid and non-assessable, and, if debt securities, whether they will be binding obligations.” For a helpful overview of Exhibit 5 opinions generally by the ABA Section of Business Law, Task Force on Securities Law Opinions, click here.
How does this work for shelf offerings?

Remember that shelf offerings can cover a wide range of securities, and takedowns off the shelf may not happen for quite some time into the future. So how do you make the Exhibit 5 opinion work in this context?

The SEC Staff takes the position that an Exhibit 5 opinion must be filed before a shelf registration statement will be declared effective. But the SEC Staff will let you file a qualified opinion of counsel, subject to the understanding that an unqualified opinion will be filed no later than the closing date of the offering. See C&DI 212.05.

“How qualified is too qualified?” we hear you ask. Bright-line rules are hard to come by in many areas of opinion-giving, and, alas, this is no exception. The ABA Task Force on Securities Law Opinions we mention above suggests (at 1507) that assumptions in the opinion should be limited to matters that “structurally cannot be completed” before effectiveness of the registration statement (e.g., issuance of the notes under the indenture and authentication by the trustee). If in doubt, let’s talk.

In the shelf context, this opinion can be filed via a Form 8-K – it does not have to be filed on a post-effective amendment (if it is, it should be filed pursuant to Rule 462(d), which provides for the immediate effectiveness of a post-effective amendment filed solely to add exhibits to a registration statement).

What if an issuer registers several classes of securities on an automatic shelf registration statement but then adds another class to the registration statement?The SEC Staff takes the position that an Exhibit 5 opinion needs to be filed at the time the class of securities is first included in the automatic shelf – in this case, at the time of the post-effective amendment. See C&DI 118.02. An updated opinion would then typically be filed in connection with a specific shelf takedown (not later than closing).
Exhibit 8 opinions

Exhibit 5 opinions are not the only ones called for by Regulation S-K. In particular, Item 601 requires an opinion on tax matters (a/k/a an Exhibit 8 opinion). Under Item 601(b)(8), those opinions are needed in connection with:

• Filings on Form S-11 (i.e., registration statements for REITs or certain other real estate companies);
• Filings as to which Securities Act Industry Guide 5 applies (i.e., registration statements related to interests in real estate limited partnerships); and
• Registered offerings with material tax consequences to investors where a representation about tax consequences is in the filing.
  

Tax opinions can be provided by counsel (in-house or outside) or by certain accountants (an IRS revenue ruling will also suffice, as long as all material tax consequences are addressed).
What are “material” tax consequences?

Although there is no all-purpose answer, certain scenarios typically do not involve “material” tax consequences. For example, the SEC Staff typically does not consider the tax consequences of owning common stock to be material. As a result, even though most common stock offerings contain a discussion of some tax considerations (e.g., “US Federal Income Tax Consequences to Non-US Holders of Our Common Stock”), a plain-vanilla common stock deal typically would not include an Exhibit 8 opinion.

You may have material tax consequences in connection with transactions structured to be tax-free (such as spin-offs) or other transactions in which tax benefits or tax consequences are a key feature (such as limited partnership offerings). Bottom line: if in doubt, let’s talk.

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