HSE Securities and Capital Markets Newsletter – Summer 2022

Editor’s Message 

I hope you are having a good summer and enjoying time with family and friends. Although the weather has been beautiful in Western New York, the picture from the U.S. capital markets was bleak during the second quarter. Deal volume slowed dramatically during the second quarter. Getting deals done in this environment is much more difficult and valuations and deal terms are tough. According to FactSet data, 1,073 companies completed IPOs in 2021, raising $317 billion; in the first half of 2022, the total was just 92 companies, raising just under $9 billion. That is the lowest IPO activity since 2009. While we are still seeing deals getting done, companies now have to be ready to accept lower valuations and creative deals terms to successfully raise capital. We are also seeing a rise in at-the-market offerings as companies sell small amounts of common stock in the open market and forego raising capital in structured offerings. Feel free to reach out to us for advice on navigating these choppy capital markets.

The second quarter also saw a continuation of aggressive SEC rulemaking. As discussed in greater detail in this newsletter, the SEC proposed expansive ESG disclosure rules. These rules, if adopted, would require extensive ESG reporting, which would require companies to drastically increase their capabilities to record and report their carbon footprint. The lack of reduced or scaled reporting for smaller reporting companies is troubling, as many smaller public companies do not have the resources to comply with the SEC-proposed rules—absent a drastic allocation of capital to comply with these reporting requirements. We continue to monitor rulemaking in this area and will keep you informed of any updates. Also, in the never-ending game of regulatory ping-pong between Democratic and Republican administrations, the SEC revoked Trump-era amendments to its shareholder proposal rules. The best guess is that these rules will be put back into place if a Republican administration comes into power at the SEC. It can be dizzying for companies to try to keep current and comply with the shareholder proposal rules when they are constantly changing.

In case you didn’t think I had anything positive to say about the SEC—well, you are correct. The SEC, in its current enforcement action related to Coinbase, continued its efforts to bring enforcement actions against companies in the digital asset space without the benefit of regulatory action by the SEC. Until the SEC adopts regulations designed to regulate digital assets as securities or cedes regulatory authority to another agency, innovators will continue to be challenged by nebulous guidance from the SEC as to when a digital asset constitutes a security. Even if the creators of a digital asset wanted to comply with federal securities laws, there are no securities regulations designed to provide investors with information about digital assets. Here’s hoping at some point that Congress or the Courts puts the onus back on the SEC to adopt regulations designed for digital assets if they want to continue regulating the space.

With that, I hope you enjoy our summer newsletter and it provides you with some valuable beach or pool reading!

Alex McClean
Practice Group Leader, Securities and Capital Markets Group 

Recent Deal

Harter Secrest & Emery Advises Edible Garden AG Incorporated on Initial Public Offering and Nasdaq Listing
We represented Edible Garden AG Inc., a controlled environment agriculture company, in an initial public offering of shares of common stock and warrants, and its listing on the Nasdaq Capital Market. The IPO raised gross proceeds of approximately $14.7 million to help support their existing business and increase growing capacity to meet the needs of their customers. View the deal press release here.

HSE Institute

HSE Launches Online Training Platform Featuring Sexual Harassment Prevention Training
This spring we launched a new online training platform to assist employers in delivering and monitoring effective, impactful programs on a range of issues. The platform’s initial offering features a Preventing Discrimination and Harassment in the Workplace program. This on-demand curriculum is a subscription-based program that provides unlimited annual access to employers in a convenient format and is a cost-effective way to comply with New York State requirements on sexual harassment prevention training.

SCM Team in Action 

When we are not working on quarterly reports, proxy statements, and deals, our team has been busy over the last few months celebrating, volunteering, and enjoying some outdoor recreation.

• Maggie Rhoda and Alex McClean recently visited the Edible Garden AG Inc. facilities in Belvidere, New Jersey to celebrate the IPO with the team. (see Recent Deal above).
• Alex McClean was one of 17 runners and walkers from HSE who participated in the 3.5-mile JP Morgan Chase Corporate Challenge in downtown Rochester.
• HSE’s People of Color Resource Group, which our own Chris Murillo co-chairs with Sheldon Smith, (pictured with Lenny, from Buffalo F.A.T.H.E.R.S, part of the Back to Basics Ministries and PeaceMakers), recently held a food and funds drive to support those in need who live in and near the East Side of Buffalo where the horrific shooting at a Buffalo Tops store occurred on May 14th. The firm delivered boxes of food items, hygiene/other products, and funds to the Back to Basics Outreach Ministries, who has been gathering and providing critically-needed groceries and supplies to our neighbors in need.

In the News 

As leaders in the legal and business communities, our attorneys regularly provide thought leadership to inform the public on a variety of topics. Over the past quarter our team was featured in media outlets and at events listed below:

• Sid Bahl served as a moderator of the Monroe County Bar Association (MCBA) event “Diversity and Inclusion Inside the NFL.” The featured speaker was Jonathan Beane, Esq., Senior Vice President and Chief Diversity and Inclusion Officer for the National Football League.
• Alex McClean participated in a panel at the Planet MicroCap Showcase 2022 on “Hot Topics in Law: Board Diversity Initiatives, Cross Border Transactions, Uplisting, and more!” 
• Chris Potash presented at Global Equity Organization’s 23rd Annual Conference in April His presentation was titled, “Is it Time to Widen the Scope of ‘Employee’ Equity Plans?“
• Alex McClean was featured in a Rochester Business Journal article on the growing importance of ESG considerations in mergers. 

Legal Insights 

We regularly provide insight on a range of important securities and regulatory developments through our LEGALcurrents. Below are links to some of our recent articles:

• SEC Adopts Rules Requiring EDGAR-Filed Electronic Form 144 Notices and “Glossy” Annual Reports 

• SEC Proposes ESG-Related Disclosure Requirements for Funds and Investment Advisers

• New Focus on Disclosure Related to Russian Invasion of Ukraine by SEC

• SEC Rescinds Certain Proxy Voting Advice Rules and Proposes Amendments to Shareholder Proposal Rules

HSE Views

Redacting Information from Exhibits Required by the SEC
As part of raising capital or submitting periodic reports, public companies must publicly file exhibits to their registration statements and periodic reports on EDGAR. At times, those exhibits include information that the company would prefer not appear on a publicly available government database. This article summarizes the redactions allowed to certain exhibits to help maintain confidentiality. Read article here.

Upcoming Events

Accessing Capital Markets: Planning Today to Prepare for Tomorrow

September 27, 2022
Rochester, NY

September 28, 2022
Buffalo, NY

We will once again be teaming up with Deloitte, Maxim Group, and Kei Advisors for a discussion on the latest trends and insights in accessing the capital markets. Our panelists will provide actionable insights and perspectives for public and private companies looking to gain access to the capital markets to cost-effectively fund growth. An essential element to any business’s strategy, learning the ins and outs of raising capital and the key players are key to your company’s success and future opportunities. Whether your requirement for capital is in the near term, or further out on the horizon, our panel’s experience will ensure you are better informed as they share challenges, opportunities, and potential pitfalls of raising capital, attracting, and managing investors, corporate governance considerations, financial reporting and internal controls, as well as how technology has revolutionized the markets and the process. More details and registration information to follow. We hope you will join us at one of these in-person events!

LD Micro Main Event XV

October 25, 2022
Los Angeles, CA

The SCM team will be participating on a panel at the LD Micro Main Event XV, one of the world’s leading industry conferences in the investment community today. In its 15th year, the Main Event showcases over 200 notable companies and brings together C-level executives, MicroCap investors, financial professionals, and industry leaders for three days of presentations, one-on-one meetings, and networking in Los Angeles.