SAM client Finny announced the completion of an initial funding round of $300k that includes participation from Spartan Ventures, Inc. (www.spartanventures.com) and several angel investors.  "We are very excited to be able to support Finny -- a socially responsible and quite frankly, necessary tool for the benefit of our most prized possessions -- our children,” said Reg Lapham, Spartan’s President. Finny's parental engagement platform is the first mobile solution that turns screen time into learning moments. An increasingly valuable need as research continues to prove that device addiction is causing serious academic, social, and medical issues that are affecting today’s youth.

Targeted to 7-14 year olds, Finny monitors unproductive device usage and interrupts by triggering a custom quiz. Whether reinforcing traditional academic subjects or introducing new topics, the content library contains over 15,000 questions across a range of categories (Math, Science, Current Events, etc.). Through a comprehensive dashboard, parents can customize settings, receive real-time report cards, and gain visibility into their child’s device usage.

"This is the perfect tool to engage with your child and improve mobile habits.”
– Professor Eric Curcio, MD UCLA Pediatrics

The company, based in Santa Monica, California, intends to use the funds for continued product enhancements while igniting marketing efforts. They are focused on building out a powerful influencer network to drive awareness and legitimize messaging. Currently available for download on Google Play and with iOS scheduled for early 2016, Finny is ready to begin driving change by making device usage productive.

Follow along and join the movement, as everyone’s participation is important to combat the magnitude of the problem.

SAM Partner Louis Wharton represented Finny in this transaction.  For more information about our Venture Capital & Emerging Growth practice, contact Louis at

SA&M client Iris.tv has raised $5.3 million in Series A funding for technology that makes personalized video recommendations to viewers who watch short clips online.  The startup’s customers are lifestyle, entertainment, sports and news organizations that own and publish a lot of short videos online, and who want to drive audiences to watch more videos through their own apps or websites rather than on YouTube or Facebook.

Publishers or networks can generate more revenue from videos viewed through their own apps, potentially, said Iris.tv CEO Field Garthwaite, in part because there are fewer distractions there than on social media platforms.

If users do fast-forward past one clip to see another using Iris.tv, the next recommended clip will be a video from the same content company that is tailored around their interests.

Investors in Iris.tv’s funding round included Sierra Wasatch, BDMI, Progress Ventures and individual backers including Machinima founder Allen DeBevoise, Lions Gate CFO James Barge as well as executives from Nielsen and AEG.

SAM Partner Louis Wharton represented Iris.tv in this transaction.

To view the full press release in the Wall Street Journal, click here.

For more information on our Venture Capital & Emerging Growth practice, contact Louis at .

Stubbs Alderton & Markiles, LLP announced that it advised client Equipois in its acquisition by Granite State Manufacturing,  a leading contract manufacturer of specialized equipment for the defense, medical, semiconductor, and industrial market segments.  Equipois is the award-winning developer of zeroG and X-Ar exoskeletal arm technologies.

Equipois' patented technology enables workers to maneuver tools and other objects as if weightless, boosting productivity and eliminating workplace injuries for a wide range of industrial applications. The technology has won recognition for its innovation, including a 2011 Wall Street Journal Technology Innovation Award. Naval Sea Systems Command (NAVSEA) has utilized Equipois technology in their efforts to create a modern-day "iron man", providing sailors with the ability to minimize the time and effort required for labor-intensive maintenance such as preservation work on a ship's hull. Many of the world's largest companies in aerospace, defense, automotive, heavy machinery, and other manufacturing industries are implementing the technology as a significant enhancement to human performance and safety.

Eric Golden, CEO of Equipois Inc., said "Granite State Manufacturing enjoys deep expertise serving the industries where our technology adds the most value. I am delighted that Equipois has found an owner that will invest in the capabilities of the technology and bring the products to the next level."

SAM Partner Louis Wharton advised Equipois in this transaction.

Louis Wharton is a Partner of the Firm. Louis' practice focuses on advising startup, emerging growth and middle market companies across a spectrum of industries in securities compliance, corporate finance, mergers and acquisitions and general corporate matters.  He counsels clients in the technology, internet/e-commerce, pharmaceutical, apparel and entertainment industries, among others.

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Q.  I’m considering engaging a finder to help me complete my capital raise.  What issues should I bear in mind when discussing the engagement?

 A.  The staff of the Securities and Exchange Commission (SEC) has stated that a proposed arrangement whereby a finder provides to an issuer services related to raising funds to finance its operations and development, including making introductions to individuals and entities interested in providing such financing, where the finder’s compensation is based on a percentage of the capital raised from such investors, requires the finder to register as a broker-dealer.  The Securities Exchange Act of 1934, as amended (Exchange Act), provides that any broker effecting transactions in securities, or inducing or attempting to induce the purchase or sale of securities, must be registered with the SEC, and defines a broker as any person engaged in the business of effecting transactions in securities for the account of others.  The staff has indicated that a person may be ‘engaged in the business’ by receiving transaction-related compensation or by holding itself out as a broker-dealer.  A person may ‘effect transactions’ by assisting an issuer to structure prospective securities transactions, by helping an issuer to identify potential purchasers of securities, or by soliciting securities transactions.

       The staff also noted that a finder’s intention to introduce only those persons with potential interest in investing in the issuer’s securities implies that the finder anticipates both pre-screening potential investors to determine their eligibility to purchase the issuer’s securities, and pre-selling the issuer’s securities to gauge the investor’s interest.  Moreover, the staff has indicated that the receipt of compensation directly tied to successful investments in the issuer’s securities by investors introduced by the finder (i.e. transaction-based compensation), would give the finder a “salesman’s stake” in the proposed transactions and would create heightened incentive for the finder to engage in sales efforts.  Pre-screening and pre-selling activities, along with the receipt of securities commissions or other transaction-based compensation, are hallmarks of broker-dealer activity, requiring registration.

       Accordingly, any person receiving transaction-based compensation in connection with another person’s purchase or sale of securities typically must register as a broker-dealer or be an associated person of a registered broker-dealer.

 Q.  What are the consequences of engaging an unregistered broker as a finder?

 A.  Engaging an unregistered broker-dealer may create a rescission right under federal and state law in favor of the purchasers of the issuer’s securities, potentially requiring the issuer to return the money it received in its capital raise.

      Section 29(b) of the Exchange Act provides that every contract made in violation of the Exchange Act and every contract the performance of which involves the violation of, or the continuance of any relationship or practice in violation of, any provision of the Exchange Act, shall be void, as to any persons who, in violation of any such provision, rule or regulation, shall have made or engaged in the performance of any such contract, provided that that no contract shall be deemed to be void by reason of this section in any action maintained in reliance upon this section, by any person to or for whom any broker or dealer sells a security in violation of the Exchange Act’s requirements regarding registration, unless such action is brought within one year after the discovery that such sale or purchase involves such violation and within three years after such violation.

      While Section 29(b) directly applies to the finder, with the possibility of voiding the finder’s engagement agreement, the language also refers to claims maintained by investors to whom the finder sold securities in violation of the Exchange Act’s broker-dealer registration requirements, creating the possibility that an investor could assert a claim for rescission of their investment within 3 years after the date the securities are purchased by the investor and one year after discovery of the violation.

       California Corporations Code Section 25501.5 also provides that a person who purchases a security from or sells a security to an unlicensed broker-dealer may bring an action for rescission of the sale or purchase or, if the plaintiff or the defendant no longer owns the security, for damages, providing a direct right of rescission to investors.

       The use of an unregistered broker-dealer could also result in difficulties subsequently registering the issued securities for public sale.  Most registration statements require the issuance of a legal opinion indicating whether the securities being registered will, when sold, be legally issued, fully paid and non-assessable.  The issuer’s use of an unregistered broker-dealer and issuance of securities in transactions that violated the requirements of the Exchange Act will prevent the issuer’s counsel from issuing the required opinion.  In addition, the unregistered broker-dealer’s contact with unaccredited investors in violation of available federal and state securities laws could result in the loss of exemptions from registration.

       Accordingly, given the risks of rescission rights, the inability to subsequently register the issued securities and the potential loss of available securities exemptions, issuers should refrain from engaging finders for transaction-based compensation unless such finders are registered broker-dealers.

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For more information on this or other related topics, contact Louis Wharton at (818) 444-4509 or . 

 Do you have a question for one of our attorneys?  Send your questions to to be featured in future Questions columns.

Stubbs Alderton is featured in the November 12th LA Business Journal story: "Catching the Wave - Service providers flock to Westside to shore up Silicon Beach clients."  The article specifically features SAM PartnersLouis Wharton, Greg Akselrud and Kevin DeBré, as they discuss our launch of a Santa Monica office and commitment to the LA startup scene.  See more here.

Prudent investors often request some protection against the risks associated with a decrease in the value of companies in which they invest (referred to herein as the issuer).  Investors typically obtain this protection by including in the issuer’s charter provisions facilitating a reduction, in certain circumstances, of the price at which they will convert the preferred stock they purchase into shares of the issuer’s common stock.  Anti-dilution protection ensures that in the event of a down round (i.e. a subsequent financing in which the issuer sells shares at a price below the price the investor paid) the investor will suffer a more limited amount of dilution (i.e. a smaller reduction in the percentage of the issuer’s stock that the investor owns).

The typical provisions relate to weighted-average anti-dilution protection.  Broad-based weighted-average anti-dilution protection takes into account all securities that are convertible into, exercisable for or exchangeable for shares of the issuer’s common stock.  The typical formula adjusts the conversion price for the issuer’s outstanding preferred stock (i.e. the shares purchased by the investor) by reducing that price by an amount based on the ratio of the number of shares of the issuer’s common stock that would be issued in the down round at the then existing conversion price, compared to the number of shares of the issuer’s common stock that are issued in the down round at the lower offering price.

Narrow-based weighted-average anti-dilution protection takes into account only certain of the securities convertible into shares of the issuer’s common stock.  These typically include outstanding preferred securities, but typically exclude options, warrants and shares issuable pursuant to stock incentive pools or reserves.  Like broad-based weighted-average anti-dilution protection, narrow-based weighted-average anti-dilution protection reduces the then current conversion price by an amount based on the ratio of the number of shares of the issuer’s common stock that would be issued in the down round at the then existing conversion price, compared to the number of shares of the issuer’s common stock that that are issued in the down round at the lower offering price, however, the investor obtains greater protection from dilution (through a lower resulting conversion price) since the shares of the issuer’s common stock that are issued at the lower offering price are more heavily weighted in the calculation.

Less typical is full-ratchet anti-dilution protection, which adjusts the conversion price of the issuer’s outstanding preferred stock to the lower price at which the issuer sells new shares.  This form of anti-dilution protection is rarely granted to investors for typical angel and/or VC investments, but may be negotiated in later transactions when valuations have significantly increased between financing rounds.

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Louis Wharton, Partner with Stubbs Alderton & Markiles, LLP gives a brief primer on anti-dilution protection. Louis’s practice focuses on advising startup, emerging growth and middle market companies across a spectrum of industries in securities compliance, corporate finance, mergers and acquisitions and general corporate matters.

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For more information regarding Anti-Dilution Protection or similar inquiries, please contact Louis Wharton at   or (818) 444-4509.

October 1, 2012 – Sherman Oaks, California - Louis Wharton, Partner at Stubbs Alderton & Markiles, LLP, has been appointed to the Board of Trustees of the San Fernando Valley Bar Association, one of the premier local bar associations in California and the nation.

Louis commented, “I am privileged and honored to be working with the leaders of the legal community in the Valley.  I look forward to advocating for, and advancing, the interests of the SFVBA’s diverse group of members.”

Louis’ practice focuses on advising startup, emerging growth and middle market companies across a spectrum of industries in securities compliance, corporate finance, mergers and acquisitions and general corporate matters.   He counsels clients in the technology, internet/e-commerce, pharmaceutical, apparel and entertainment industries, among others. Louis is on the Board of Directors of the Los Angeles Venture Association (LAVA), and is actively involved on the Executive Committee of the ProVisors Technology Industry Group.

About the San Fernando Valley Bar Association

For eighty-four years and with more than 2,000 members, the San Fernando Valley Bar Association has served members and the public with distinction, and has been a strong voice for the San Fernando Valley legal community.  The SFVBA helps attorneys develop and improve their practice of law by providing networking and referral opportunities, continuing legal education, and discounted services. Sole practitioners as well as large law firms find value in membership.

About Stubbs Alderton & Markiles, LLP

Stubbs Alderton & Markiles, LLP is a business law firm with robust corporate, public securities, mergers and acquisitions and intellectual property practice groups focusing on the representation of venture backed emerging growth companies, middle market public companies, large technology companies, entertainment and digital media companies, investors, venture capital funds, investment bankers and underwriters. The firm’s clients represent the full spectrum of Southern California business with a concentration in the technology, entertainment, videogame, apparel and medical device sectors. Their mission is to provide technically excellent legal services in a consistent, highly-responsive and service-oriented manner with an entrepreneurial and practical business perspective. These principles are the hallmarks of the Firm.

Stubbs Alderton & Markiles, LLP announced that it advised stealth startup Linqia in its first round of funding, pulling in $3.4 million. Javelin Venture Partners' managing director, Jed Katz led the round.  To view the full VentureBeat article about the funding, click here.

Linqia which has been in stealth mode since 2011, is a marketing platform that makes it easy for community leaders to earn money from trusted brands for sharing authentic stories. They review every campaign to ensure the brand’s story is built on relevant and quality content. When a brand partner thinks your community is a good fit, you make the choice to run the campaign and decide how and where you’ll share the story with your community.

Linqia’s cofounders are Australian entrepreneur Maria Sipka, formerly the COO for XING, the European social network for businesses; and Nader Alizadeh, the former cofounder and SVP of Sales for Lithium Technology.

The Stubbs Alderton & Markiles, LLP counsel advising Linqia in the transaction were Kevin DeBré, partner and chair of the Intellectual Property Practice Group, Louis Wharton, partner and Sean Greaney, associate.

SAM Partner Louis Wharton was recently elected to the Los Angeles Venture Association's (LAVA) Board of Directors at its annual meeting.  The term for each BOD member is 2 years.  Founded in 1984, LAVA is Southern California's premier forum for entrepreneurs, venture capitalists, angel investors and professional advisors.

Regarding his new position on the board, Louis states "I’m both proud and excited to serve on the Board of Directors of LAVA, an organization that continues to play an integral role in Southern California’s venture financing eco system.  I look forward to advancing LAVA’s focus on more closely integrating the communities it serves over the next two years."

In addition to his role on the board of directors of LAVA, Louis is actively involved as a member of the Executive Committee of ProVisor's TECH Group.  The ProVisors Technology Industry Group's mission is to provide a networking, educational, and referral driven forum to one another through personal knowledge and expertise in the Technology sector. The group's intent is to be purposeful and accountable, in forming relationships and driving business to other group members who are trusted professional advisors working primarily with companies in the technology sector.

Louis’ practice focuses on advising startup, emerging growth and middle market companies across a spectrum of industries in securities compliance, corporate finance, mergers and acquisitions and general corporate matters. To view Louis' full bio, click here.

SA&M client, Xinergy Corp., a subsidiary of Xinergy Ltd., a company listed on the Toronto Stock Exchange (TSX:XRG) has just announced the closing of its Rule 144A sale of $200 million in aggregate principal amount of 9.25% Senior Secured Notes due 2019.  The initial Purchaser Representative for the transaction was UBS Securities LLC.  Xinergy Corp. is a U.S. Central Appalachian producer of high-quality coal.  SAM Attorneys involved in the transaction included:  John McIlvery, Louis Wharton and Sean Greaney.

To learn more about Xinergy Corp., visit their website at http://www.xinergycorp.com

Stubbs Alderton & Markiles Partners Louis Wharton and Gregory Akselrud assisted Phototron, Inc., a hydroponic mini-greenhouse manufacturer, in negotiating and concluding a private placement round followed by a reverse merger with Catalyst Lighting Group, Inc., a public shell.  Moving forward, Phototron plans to expand its business through a network of independent direct selling distributers, a unique marketing and distribution strategy for its sector.

To view the press release regarding this transaction click here.

To view Greg Akselrud's attorney bio, click here.

To view Louis Wharton's attorney bio, click here.