An Update of the 2004 Special Report of the Task Force on Securities Law Opinions, ABA Business Law Section*
This updated report reflects developments in opinion practice since the 2004 Special Report, including the publication on October 14, 2011 of Staff Legal Bulletin No. 19 by the SEC Division of Corporation Finance.1
Section 7(a) of the Securities Act of 1933 (the “Securities Act”) requires a registration statement to contain the information specified in schedule A to the Act.2 Paragraph 29 of schedule A requires the filing of “a copy of the opinion or opinions of counsel in respect to the legality of the issue.”3 The Securities and Exchange Commission (the “SEC”) has addressed that requirement in item 601 of Regulation S-K.4 Under paragraph (b)(5) of item 601, a registration statement must include as an exhibit “[a]n opinion of counsel as to 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 of the registrant.”5 Counsel to the issuer—either inside counsel or outside counsel—gives the opinion. The opinion on legality appears as exhibit 5 to a registration statement and is thus often referred to as an “Exhibit 5 opinion.” This 2013 Update examines Exhibit 5 opinions.
II. PRELIMINARY MATTERS
A. ADDRESSEES, LIMITATIONS ON RELIANCE, AND TIMING OF FILING
The Securities Act and the SEC rules under it are silent with regard to whom an Exhibit 5 opinion should be addressed. In practice, the opinion typically is addressed to the issuer.
The SEC staff (the “Staff ”) does not permit the inclusion in an Exhibit 5 opinion of any limitations on who may rely on the opinion6 and has stated that purchasers of securities in any offering to which an Exhibit 5 opinion relates are entitled to rely on that opinion without limitation.7 The Staff views any limitations on reliance (e.g., stating that the opinion is “only” or “solely” for the issuer or its board of directors) as being inconsistent with the purpose of paragraph 29 of schedule A to the Securities Act.
An Exhibit 5 opinion need not be included as an exhibit to a registration statement as initially filed but must be filed as an exhibit in order for the registration statement to be declared or become effective. Thus, the opinion often is filed with an amendment to the registration statement.8 As discussed further below, when counsel needs to include otherwise impermissible assumptions or qualifications to give an initial opinion before a registration statement becomes effective (e.g., in the case of a shelf registration statement), the Staff requires that an updated, unqualified opinion be filed not later than the closing date of each offering of securities pursuant to the registration statement.9
The fact that the opinion must be filed before the securities are actually sold—and in the case of shelf registrations, often long before—gives rise to issues about the appropriateness of assumptions that are included in the opinion. Certain situations (e.g., the filing of shelf registration statements and the registration of rights under shareholder rights plans) require counsel to include broad and otherwise unacceptable assumptions that the Staff has deemed permissible in these limited circumstances. These are discussed in further detail below. In general, however, the …