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Breaking California Law by Helping Companies Raise Money

Breaking California Law by Helping Companies Find/Raise Money
Hotel Sofitel, Redwood City

A new law, effective January 1, 2005, makes it virtually impossible for California companies to employ the services of what have been called 'finders.' This class of business professional, who is not licensed as a Securities Law Broker-Dealer, is generally believed to be involved in capital formation of the great majority of early stage companies when the amounts needed are between $500,000 and $5 to $10 Million. In addition, many very strong companies that have assisted in M&A transactions, with a 'fee upon closing' arrangement, will now be seriously at risk. If they do not have a NASD license to operate as a Broker-Dealer, these companies will probably find the financial risks imposed by the new law unacceptable for them to continue in this line of business.

The new law imposes two serious and deadly financial burdens on the Company and the unlicensed Broker. Each investor who purchases the securities (which appears to include a party to a merger involving any sale, purchase or exchange of securities) now will have a five-year rescission right. Thus, a Company thinking it is selling $2,000,000 in equity, in fact is effectively 'borrowing' the money, jeopardizing its future credit worthiness, and its ability to raise subsequent rounds of capital. The investor (merger party) also has the right to sue the unlicensed Broker for 'damages;' in fact treble damages and attorneys' fees. Thus, the unlicensed Broker becomes a guarantor of the financial success of the investment!

A panel of experts in Angel and other forms of early stage company financings (brief biographies below) will explain:

- the new law
- its impact on the unlicensed Broker and on the Company receiving funds or participating in an M&A transaction arranged by such a person
- accounting and auditing issues presented

- and practical approaches to living with this draconian law.

Panelist Bios
Gerald V. Niesar
, Wh. 62, Penn Law '69, a partner in Niesar Curls Bartling, LLP in San Francisco. Mr. Niesar will explain the new law and the legal problems it presents, and will also describe the work of an American Bar Association Task Force that he has Co-Chaired which is working with the SEC, NASD and State Securities Administrators to develop a simplified and more user-friendly 'Private Placement Broker Dealer License.'
Richard Avril, of Burr Pilger & Mayer, LLP, CPAs, will review the accounting and auditing issues that arise when rescission rights exist or may exist.
Jeff Oscodar, CEO of HandHeld Entertainment, Inc., will discuss the practical problems this new law presents to him as a businessman who seeks to raise capital for a company, has received compensation for assisting companies raising capital, and has been involved in M&A transactions with unlicensed Broker-Dealers.

Osamu ('Sam') Tagaya, CEO of Angel Capital Network, and a Principal of its wholly-owned subsidiary, ACN Securities, Inc., a licensed Broker-Dealer specializing in early-stage company financings, will discuss the process of obtaining a Broker license, and what avenues may be available to companies and finders reacting to the new legislation.

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