August 29, 2006
Mr. Steven Strasser
Welund Fund, Inc.
1940 Zinfandel Drive, Suite R
Rancho Cordova, CA 95670
Re: Engagement Letter
Dear Mr. Strasser:
Roth Capital Partners, LLC (“we” or “RCP”) is pleased to act as the exclusive financial advisor and placement agent for Welund Fund, Inc. (“you” or the “Company”) in connection with your proposed private placement. The terms of our engagement are set forth below. As discussed, a condition to our engagement is that Stephen Kircher be appointed Chairman of the Board of Directors of Welund Fund prior to the commencement of the Roadshow. We look forward to working with you.
1. The Offering.
(a) We currently anticipate raising approximately $10.0 million through a “PIPE” transaction involving the sale of securities to institutional investors. The actual terms of the offering will depend on market conditions, and will be subject to negotiation between the Company and RCP and prospective investors.
(b) Although we cannot guarantee you that we will be able to raise new capital, we will conduct the offering on a best efforts basis.
(c) In turn, during the term of our engagement, you agree not to use any other investment banking firm to raise capital (including debt) for you.
2. Fees and Expenses.
(a) Concurrently with the consummation of the offering, the Company will pay us in cash a fee equal to 6% of the gross proceeds received from the sale of securities.
(b) In addition, the Company agrees to reimburse RCP upon request for its out-of-pocket expenses, including the fees and disbursements of RCP’s legal counsel, up to $25,000.
(c) Upon the closing of the Offering, the Company will issue to RCP warrants for the purchase of an amount equal to 5% of the securities issued in the Offering. The Warrants will be exercisable into the same class of common stock as issued as part of the Offering, have a strike price equal to 115% of the Company’s common stock on the closing date of the Offering and have a term of five years. The Warrants will provide for cashless or “net” exercise. In the event Investor Warrants are issued as part of the Offering, the terms and conditions of the Warrants shall be the same as Investor Warrants. The shares issuable upon exercise of the RCP warrants will be entitled to the same registration rights as those granted to the Investors in connection with the Offering. To that end, you agree that RCP will be afforded the indemnification protections granted to the Investors as part of the agreement governing the registration of the Investor securities sold in the Offering, as a third party beneficiary to such provisions.
24 CORPORATE PLAZA, NEWPORT BEACH, CA 926600 800.678.9147 www.rothcp.com
Welund Fund, Inc.
August 29, 2006
3. Term of Engagement .
(a) The term of our engagement will be three months; however, either party may terminate our engagement at any time upon 10 days written notice to the other party. Upon termination, we will be entitled to collect all fees earned and expenses incurred through the date of termination.
(b) If the offering is not consummated during the term, for reasons other than termination of this engagement by us, and during the twelve months following termination of this Agreement, either (i) the Company completes an offering of its securities, or (ii) any person which we introduced to the Company or with which we have discussions or negotiations during the term on behalf of the Company, purchases securities from the Company (other than through a underwritten public offering), you agree to pay us upon the closing a cash fee in the amount that would otherwise have been payable to RCP had such transaction occurred during the term.
4. Offering Memorandum; Representations and Warranties .
(a) You hereby authorize RCP to transmit to the prospective purchasers of the securities a private placement memorandum prepared by the Company with such exhibits and supplements as may from time to time be required or appropriate or, alternatively, copies of the Company’s most recent filings with the Securities and Exchange Commission, together with summary materials prepared by the Company, if we deem them appropriate (as the case may be, the “Memorandum”). The Company represents and warrants that the Memorandum (i) will be prepared by the management of the Company and reviewed and approved by its Board of Directors; and (ii) will not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein or previously made, in light of the circumstances under which they were made, not misleading. The Company will advise RCP immediately of the occurrence of any event or any other change known to the Company which results in the Memorandum containing an untrue statement of a material fact or omitting to state a material fact required to be stated therein or necessary to make the statements therein or previously made, in light of the circumstances under which they were made, not misleading.
(b) You agree that you will enter into subscription, registration rights and other customary agreements, and that your counsel will supply an opinion letter on the transaction, all of which will be in form and substance reasonably acceptable to, and addressed to, us and the investors.
Welund Fund, Inc.
August 29, 2006
(c) You further agree that we may rely upon, and are a third party beneficiary of, the representations and warranties, and applicable covenants, set forth in any agreements with investors in the offering.
(d) In conjunction with the filing of the resale registration statement for investors pursuant to the Registration Rights Agreement, if the Company does not meet the requirements for S-3 eligibility that existed in October 1992 (essentially, that it have a non-affiliate float of $150 million, or a non-affiliate float of $100 million and $3 million share annual trading volume, within 60 days of filing, and that it have been subject to the reporting requirements of the Securities Exchange Act of 1934 for 3 years, and current in that reporting for one year), the Company will file with the NASD, via the COBRA desk filing system, for approval of underwriting compensation under Section 2710 of the rules and regulations of the NASD, obtain from the NASD a standard clearance letter, and coordinate with the placement agent on filings it will be required to make upon sales under the registration statement.
5 . Indemnification, Contribution, and Confidentiality. The Company agrees to indemnify RCP and its controlling persons, representatives and agents in accordance with the indemnification provisions set forth in Appendix I, and the parties agree to the confidentiality provisions of Appendix II, all of which are incorporated herein by this reference. These provisions will apply regardless of whether the proposed offering is consummated.
6. Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the state of California applicable to contracts executed and to be wholly performed therein without giving effect to its conflicts of laws principles or rules. The Company and RCP agree that any dispute concerning this Agreement this Agreement shall be resolved through binding arbitration before the NASD pursuant to its arbitration rules. Arbitration will be venued in Los Angeles County.
7 . Announcement of Offering. If the Offering is consummated, RCP may, at its expense, place an announcement in such newspapers and periodicals as RCP may desire.
8. Advice to the Board . The Company acknowledges that any advice given by us to you is solely for benefit and use of the Board of Directors of the Company and may not be used, reproduced, disseminated, quoted or referred to, without our prior written consent.
9. Entire Agreement. This Agreement constitutes the entire Agreement between the parties and supersedes and cancels any and all prior or contemporaneous arrangements, understandings and agreements, written or oral, between them relating to the s