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As filed with the Securities and Exchange Commission on September 5, 2007

Registration No. 333-            

 


UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM S-1

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

Rubicon Technology, Inc.

(Exact name of registrant as specified in its charter)

 

Delaware   3674   36-4419301

(State or Other Jurisdiction of

Incorporation)

 

(Primary Standard Industrial

Classification Number)

 

(I.R.S. Employer

Identification Number)

9931 Franklin Avenue

Franklin Park, Illinois 60131

(847) 295-7000

(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)

Raja M. Parvez

President and Chief Executive Officer

9931 Franklin Avenue

Franklin Park, Illinois 60131

(847) 295-7000

(Name, address, including zip code, and telephone number, including area code, of agent for service)

 


Copy to:

 

Scott L. Glickson, Esq.

David N. Oakey, Esq.

McGuireWoods LLP

77 West Wacker Drive

Chicago, Illinois 60601

Telephone: (312) 321-7652

Facsimile: (312) 698-4585

 

Robert P. Latta, Esq.

J. Robert Suffoletta, Esq.

Wilson Sonsini Goodrich & Rosati,

Professional Corporation

650 Page Mill Road

Palo Alto, California 94304

Telephone: (650) 493-9300

Facsimile: (650) 493-6811

Approximate date of commencement of proposed sale to the public: As soon as practicable after this Registration Statement becomes effective.

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box.   ¨

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.   ¨                       

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.   ¨                     

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.   ¨                     

CALCULATION OF REGISTRATION FEE

 

 

Title of Each Class of

Securities to be Registered

 

Proposed

Maximum

Aggregate

Offering Price(1)(2)

 

Amount of

Registration Fee

Common Stock, $0.001 par value per share

  $100,000,000.00   $3,070.00
 
 
(1) Estimated solely for the purpose of calculating the registration fee pursuant to Rule 457(o) of the Securities Act of 1933, as amended (the “Securities Act”).
(2) Calculated pursuant to Rule 457(o) based on an estimate of the proposed maximum aggregate offering price and includes the offering price of shares that the underwriters have the option to purchase to cover overallotments, if any.

The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act or until the registration statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.

 



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The information in this preliminary prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell these securities and we are not soliciting offers to buy these securities in any state where the offer or sale is not permitted.

 

PRELIMINARY PROSPECTUS   Subject To Completion   September 5, 2007

             Shares

LOGO

Common Stock

 


This is the initial public offering of our common stock. No public market currently exists for our common stock. We are selling              shares of our common stock and the selling stockholders are selling              shares of our common stock. We will not receive any proceeds from the shares sold by the selling stockholders. We expect the public offering price to be between $             and $             per share.

We have applied to have our common stock included for quotation on the NASDAQ Global Market under the symbol “RBCN.”

Investing in our common stock involves a high degree of risk. Before buying any shares, you should carefully read the discussion of material risks of investing in our common stock in “ Risk factors ” beginning on page 7 of this prospectus.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

 

       Per share    Total
Public offering price    $                        $                    
Underwriting discount and commissions    $                        $                    
Proceeds, before expenses, to us    $                        $                    
Proceeds, before expenses, to selling stockholders    $                        $                    

The underwriters may also purchase up to an additional              shares of our common stock from us at the public offering price, less the underwriting discounts and commissions payable by us, to cover overallotments, if any, within 30 days from the date of this prospectus. If the underwriters exercise this option in full, the total underwriting discounts and commissions will be $             and our total proceeds, before expenses, will be $            .

The underwriters are offering the common stock as set forth under “Underwriting.” Delivery of the shares will be made on or about                     , 2007.

UBS Investment Bank

 


 

Canaccord Adams

CIBC World Markets

Janney Montgomery Scott LLC


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LOGO


Table of Contents

  


 

You should rely only on the information contained in this prospectus. We have not, and the selling stockholders and the underwriters have not, authorized anyone to provide you with additional information or information different from that contained in this prospectus. We are offering to sell, and seeking offers to buy, shares of our common stock only in jurisdictions where offers and sales are permitted. The information contained in this prospectus is accurate only as of the date of this prospectus, regardless of the time of delivery of this prospectus or of any sale of shares of our common stock.

TABLE OF CONTENTS


 

Prospectus summary

   1

Risk factors

   7

Special note regarding forward-looking statements

   22

Use of proceeds

   23

Dividend policy

   24

Capitalization

   25

Dilution

   27

Selected financial data

   29

Management’s discussion and analysis of financial condition and results of operations

   31

Business

   48

Management

   61

Executive compensation

   67

Certain relationships and related party transactions

   84

Principal and selling stockholders

   88

Description of capital stock

   92

Shares eligible for future sale

   99

Certain material US federal tax considerations for non-US holders

   102

Underwriting

   105

Notice to investors

   109

Legal matters

   113

Experts

   113

Where you can find additional information

   113

Index to financial statements

   F-1

 

Through and including              (the twenty-fifth day after the date of this prospectus), federal securities laws may require all dealers that effect transactions in these securities, whether or not participating in this offering, to deliver a prospectus. This requirement is in addition to the dealers’ obligation to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions.

“ES2” is a service mark of Rubicon Technology, Inc. This prospectus also includes other registered and unregistered service marks and trademarks of Rubicon Technology, Inc. and other persons.



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Prospectus summary

This summary highlights selected information appearing elsewhere in this prospectus. While this summary highlights what we consider to be important information about us, you should carefully read this prospectus and the registration statement of which this prospectus is a part in their entirety before investing in our common stock, especially the risks of investing in our common stock, which we discuss under “Risk factors”, and our financial statements and related notes beginning on page F-1.

Unless the context requires otherwise, all references herein to “Rubicon”, “we”, “us” and “our” refer to Rubicon Technology, Inc.

OUR BUSINESS

We are an advanced electronic materials provider that is a leader in developing, manufacturing and selling monocrystalline sapphire and other innovative crystalline products for Light-Emitting Diodes (“LEDs”), radio frequency integrated circuits (“RFICs”), blue laser diodes, optoelectronics and other optical applications. The emergence of sapphire in commercial volumes at competitive prices has enabled the development of new technologies such as high brightness (“HB”) white, blue and green LEDs and highly-integrated RFICs. We apply our proprietary crystal growth technology to produce high-quality sapphire products efficiently to supply a large and growing end-market demand, and we work closely with our customers to meet their quality and delivery needs. We believe we are the leading supplier of sapphire products to the LED industry.

Advancements in solid state lighting utilizing HB white, blue and green LEDs over the past decade represent a disruptive technology in the lighting industry, providing significant performance, environmental and economic improvements compared to traditional incandescent or fluorescent lighting. These factors, along with LEDs’ durability, small form factor, excellent color performance and decreasing costs, have led to a rapidly growing demand for LEDs in consumer electronic and general and specialty lighting applications. Applications using LEDs have unit volumes in the billions and are expected to grow significantly. For instance, high brightness LEDs are expected to generate $4.7 billion in revenues in 2007, increasing to $9.4 billion by 2011, according to Strategies Unlimited, an independent market research firm, based in Mountain View, California.

We are a vertically-integrated manufacturer of high-quality sapphire substrates and optical windows that are used in a variety of high-growth, high-volume end-market applications. Our largest product line is two inch to four inch sapphire wafers for use in LEDs and blue laser diodes for solid state lighting and electronic applications. In addition, we have developed six inch sapphire wafers that are used for Silicon-on-Sapphire (“SOS”) RFICs, as well as products for military, aerospace, sensor and other applications. We are also extending our technology to manufacture eight inch and larger diameter products to support next-generation LED, RFIC and optical window applications.

As a leading producer of sapphire and other crystals, we believe that the following are our principal competitive advantages:

 

Ø  

Proprietary technology for crystal growth .    Due to our understanding of sapphire crystal growth seeding and crystal growth furnace operational parameters, we have developed a full in-house capability to design, build and maintain crystal growth furnaces with proprietary features. We believe that our enhanced methodology significantly outperforms other methods of sapphire production with respect to capital costs, operating costs, throughput, quality and diameter size.

 

 

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Ø  

High quality sapphire products .    Through our operational expertise in crystal growth, post-growth processing and in-process manufacturing controls of sapphire wafer production, we are able to meet or exceed our customers’ key product specifications, such as crystalline quality, dimensional tolerances and crystal orientation, while maintaining high production yields.

 

Ø  

Vertical integration .    We grow sapphire crystals and have extensive capabilities to process sapphire into products that meet our customers’ needs from cores to wafer and window blanks to large diameter epi-polished wafers. By vertically integrating, we are able to achieve significant operating efficiencies and produce high-quality, high-precision products that offer cost and quality benefits to our customers.

 

Ø  

High volume and flexible manufacturing capability .    We have developed automated manufacturing and metrology platforms at each stage of our production process that allow us to increase capacity rapidly and to switch products in manufacturing easily so that we can meet our customers’ specific product demands.

 

Ø  

Lowest total cost for customers .    We believe our high sustained yields, our dedication to consistent production and performance and our commitment to lasting customer relationships help assure our customers of a reliable source of high-quality sapphire products at stable prices. Our in-process quality control practices lead to predictable customer process yields, reduced inspection costs and overall high customer satisfaction.

OUR STRATEGY

Our goal is to be the leading global provider of advanced monocrystalline substrate and window materials to the solid state lighting, SOS RFIC, aerospace and optical markets. Our strategy includes the following key elements:

 

Ø  

Extend our technology and manufacturing leadership position .    We intend to continue to develop advanced technology platforms to further increase crystal boule size and offer market-leading product specifications, while maintaining product quality and manufacturing efficiencies.

 

Ø  

Capitalize on opportunities in high-growth markets .    We intend to continue to expand our opportunities by adding new categories and sizes of products with the goal of providing our customers in multiple high-growth end markets with a robust set of sapphire solutions.

 

Ø  

Enhance operational excellence .    We plan to further refine our proprietary ES2 crystal growth techniques, sapphire processing platforms and process controls to produce even higher throughput capabilities. Our objective is to continue to achieve operational excellence through lowering cycle times, raising yields and reducing overhead costs.

 

Ø  

Expand our sales and marketing efforts .    We intend to increase the scale and geographical coverage of our sales efforts globally. In addition, we plan to enhance our brand recognition by increasing our marketing and communications programs and resources.

 

Ø  

Penetrate new market segments .    We intend to use our proprietary manufacturing technology to produce additional single-crystal materials that can be used in optical applications as well as alternative substrates for certain electronic materials applications.

 

 

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RISKS RELATED TO OUR BUSINESS

Our business is subject to a number of risks that you should be aware of before making an investment decision. These risks are discussed more fully in the section entitled “Risk factors” immediately following this prospectus summary. These risks could prevent us from successfully implementing our strategy and growing our business. Some of these risks include:

 

Ø  

Our results of operations, financial condition and business will be harmed if we are unable to manage the expansion of our capacity effectively to meet customer demand.

 

Ø  

If LED lighting does not achieve greater market acceptance, or if alternative technologies are developed and gain market traction, prospects for our growth and profitability would be limited.

 

Ø  

If the development and acceptance of our products for the SOS RFIC market do not meet our expectations, our future operating results may be harmed.

 

Ø  

The average selling prices of sapphire products have historically decreased over their life-cycles and continuing price decreases could adversely affect our results of operations.

 

Ø  

We may not be able to effectively manage our growth, which could adversely affect our business, financial condition and operating results.

OUR CORPORATE INFORMATION

We were incorporated under the laws of the State of Delaware in 2001. Our principal executive offices are located at 9931 Franklin Avenue, Franklin Park, Illinois 60131. The telephone number at our principal executive offices is (847) 295-7000. Our website address is www.rubicon-es2.com . Information contained on our website is not incorporated by reference into this prospectus, and you should not consider information contained on our website to form any part of this prospectus.

 

 

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The offering

 

Common stock we are offering

            shares

 

Common stock offered by the selling stockholders

            shares

 

Total common stock offered

            shares

 

Common stock to be outstanding after this offering

            shares

 

NASDAQ Global Market symbol

“RBCN”

 

Use of proceeds after expenses

We estimate that the net proceeds from this offering will be approximately $            , or approximately $            , if the underwriters exercise their overallotment option in full. We expect to use the net proceeds from this offering to repay existing indebtedness and for working capital and other general corporate purposes.

The number of shares of common stock to be outstanding after this offering is based on 13,438,571 shares outstanding as of June 30, 2007, and excludes:

 

Ø  

910,865 shares of common stock issuable upon exercise of warrants outstanding as of June 30, 2007, with a weighted average exercise price of $4.33 per share;

 

Ø  

1,250,562 shares of common stock subject to outstanding options as of June 30, 2007, with a weighted average exercise price of $2.86 per share;

 

Ø  

205,235 shares of common stock reserved for future issuance under our 2001 Equity Plan as of June 30, 2007; and

 

Ø  

2,307,692 shares of common stock reserved for future issuance under our 2007 Stock Incentive Plan, which was adopted in August 2007.

In addition, the above information excludes 198,041 shares of common stock issuable upon the exercise of stock options granted subsequent to June 30, 2007, with a weighted average exercise price of $8.45 per share.

Unless otherwise noted, all information in this prospectus assumes:

 

Ø  

no exercise by the underwriters of their overallotment option;

 

Ø  

a 1 for 13 reverse stock split on our common stock that was effected on August 30, 2007;

 

Ø  

the conversion of all outstanding shares of our preferred stock into shares of common stock immediately prior to the closing of this offering;

 

Ø  

the issuance of 3,187,733 shares of common stock to the holders of preferred stock in satisfaction of dividends that have accrued on the outstanding preferred stock through June 30, 2007;

 

Ø  

the conversion of outstanding preferred stock warrants into common stock warrants; and

 

Ø  

the filing of our amended and restated certificate of incorporation and the adoption of our amended and restated bylaws immediately prior to the closing of this offering.

 

 

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Summary financial data

The following tables summarize our financial data. The summary statements of operations data for the years ended December 31, 2004, 2005 and 2006 have been derived from our audited financial statements included elsewhere in this prospectus. The summary financial data as of June 30, 2007 and for the six-month periods ended June 30, 2006 and 2007 have been derived from our unaudited financial statements included elsewhere in this prospectus. The unaudited financial statements as of June 30, 2007 and for the six-month periods ended June 30, 2006 and 2007 have been prepared on the same basis as the annual financial statements, and include, in the opinion of management, all adjustments, consisting of only normal recurring adjustments, necessary for the fair presentation of the financial information set forth in those financial statements. You should read this data together with our financial statements and the notes to those statements included elsewhere in this prospectus and the information under “Selected financial data” and “Management’s discussion and analysis of financial condition and results of operations.” Our historical results are not necessarily indicative of the results to be expected in any future period.

 

    Year ended December 31,    

Six months ended

June 30,

 
Statements of operations data:   2004     2005     2006    

2006

    2007  
                      (unaudited)  
    (in thousands, other than share and per share data)  

Revenue

  $ 16,043     $ 16,315     $ 20,752     $ 8,950     $ 15,448  

Cost of goods sold

    14,815       18,508       18,885       8,938       10,467  
                                       

Gross profit (loss)

    1,228       (2,193 )     1,867       12       4,981  
                                       

Operating expenses:

         

General and administrative

    3,029       4,688       3,298       1,838       2,352  

Sales and marketing

    1,586       1,266       1,062       648       335  

Research and development

    922       861       679       357       376  

Asset impairment

                933              

Loss on disposal of assets

          383       42       18       52  
                                       

Total operating expenses

    5,537       7,198       6,014       2,861       3,115  
                                       

Profit (loss) from operations

    (4,309 )     (9,391 )     (4,147 )     (2,849 )     1,866  

Other income (expense)

    (1,052 )     (2,735 )     (3,272 )     (1,233 )     (1,351 )
                                       

Profit (loss) before cumulative effect of change in accounting principle

    (5,361 )     (12,126 )     (7,419 )     (4,082 )     515  

Cumulative effect of change in accounting principle

                (221 )     (221 )      
                                       

Net profit (loss)

    (5,361 )     (12,126 )     (7,640 )     (4,303 )     515  

Dividends on preferred stock

    (2,631 )     (3,924 )     (5,563 )     (2,736 )     (3,169 )

Accretion of redeemable preferred stock

    (2,681 )     4,404       (23,416 )     (3,611 )     (20,338 )
                                       

Net loss attributable to common stockholders

  $ (10,673 )   $ (11,646 )   $ (36,619 )   $ (10,650 )   $ (22,992 )
                                       

Net loss per common share attributable to common stockholders, basic and diluted (1)

  $ (46.79 )   $ (47.52 )   $ (146.57 )   $ (42.72 )   $ (90.70 )

Weighted shares used in computing net loss per share attributable to common stockholders, basic and diluted (1)

    228,124       245,073       249,843       249,298       253,507  

Pro forma net loss per common share attributable to common stockholders (unaudited), basic and diluted (2)

      $ (2.85 )     $ (1.71 )

Shares used in computing pro forma net loss per common share attributable to common stockholders (unaudited), basic and diluted (2)

        12,846,643         13,437,248  

(1)   Basic and diluted net loss per common share attributable to common stockholders gives effect to the 1 for 13 reverse stock split on our common stock that was effected on August 30, 2007.

 

(2)   Unaudited pro forma basic and diluted net loss per common share attributable to common stockholders gives effect to the 1 for 13 reverse stock split on our common stock that was effected on August 30, 2007, the conversion of all outstanding shares of our preferred stock into shares of common stock and the issuance of shares of common stock to the holders of preferred stock in satisfaction of dividends that have accrued on the outstanding preferred stock through December 31, 2006 and June 30, 2007.

 

 

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The summary balance sheet data as of June 30, 2007 is presented:

 

Ø  

on an actual basis;

 

Ø  

on a pro forma basis, giving effect to the conversion of all outstanding shares of our preferred stock into shares of common stock, the issuance of 3,187,733 shares of common stock to the holders of preferred stock in satisfaction of dividends that have accrued on the outstanding preferred stock through June 30, 2007, the conversion of outstanding preferred stock warrants into common stock warrants and the reclassification of the preferred stock warrant liability to additional paid-in capital upon the completion of this offering; and

 

Ø  

on a pro forma as adjusted basis, giving effect to our receipt of the net proceeds from the sale of              shares of common stock offered by us in this offering at an assumed initial public offering price of $             per share, the midpoint of the initial public offering price range set forth on the cover page of this prospectus, after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us and the automatic net exercise of those warrants that expire on the closing of this offering into              shares of common stock based on an assumed fair market value of one share of our common stock at the time of exercise equal to $            , which is the midpoint of the initial public offering price range listed on the cover page of this prospectus and further assuming that those warrants have not been exercised prior to the closing of this offering.

 

     As of June 30, 2007
Balance sheet data:    Actual     Pro forma
   Pro forma as
adjusted
     (unaudited)
     (in thousands)

Cash and cash equivalents

   $ 3,618     $ 3,618    $             

Working capital

     (1,326 )     3,764   

Total assets

     33,602       33,602   

Long-term debt and capital lease obligations, less current maturities

     4,240       4,240   

Redeemable convertible preferred stock

     117,086         

Total stockholders’ equity (deficit)

     (99,971 )     21,734   

 

 

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Risk factors

Investing in our common stock involves a high degree of risk. You should carefully consider the risks described below together with all of the other information contained in this prospectus, including the financial statements and the related notes appearing at the end of this prospectus, before making an investment decision. If any of the following risks or uncertainties actually occurs, our business, financial condition or operating results could materially suffer. In that event, the trading price of our common stock could decline and you may lose all or part of your investment.

RISKS RELATED TO OUR BUSINESS

Our results of operations, financial condition and business will be harmed if we are unable to manage the expansion of our capacity effectively to meet customer demand.

We are in the process of significantly expanding our manufacturing capacity in order to meet current and anticipated customer demand. We are expanding by adding new equipment to our facilities in Franklin Park, Illinois, and we are opening a new facility in Bensenville, Illinois. Our capacity expansion involves significant risks, including the availability of capital equipment and the timing of its installation, availability and timing of required electric power, management of expansion costs, timing of production ramp, qualification of our new equipment and demands on management’s time. If our business does not grow fast enough to utilize this new capacity effectively, our business and financial results could be adversely affected. Conversely, delays in expanding our manufacturing capacity could impact our ability to meet future demand for our products. As a result, we might not be able to fulfill customer orders in a timely manner, which could adversely affect our customer relationships and operating results. Moreover, our efforts to increase our production capacity may not succeed in enabling us to manufacture the required quantities of our products in a timely manner or at the gross margins that we achieved in the past. There can be no assurance that we will be able to successfully reach our production, timing and cost goals for our expansion.

If LED lighting does not achieve greater market acceptance, or if alternative technologies are developed and gain market traction, prospects for our growth and profitability would be limited.

Our future success depends on increased market acceptance of LED lighting. Approximately 81% and 76% of our revenue was from sales of our products for use in the manufacture of LED products during 2006 and the first six months of 2007, respectively. Potential customers for LED lighting systems may be reluctant to adopt LED lighting as an alternative to traditional lighting technology because of its higher initial cost and relatively low light output per unit in comparison with the most powerful traditional lighting devices. In addition, our potential customers may have substantial investments and know-how related to their existing lighting technologies, and may perceive risks relating to the novelty, complexity, reliability, quality, usefulness and cost-effectiveness of LED products when compared to other lighting sources available in the market. If acceptance of LED lighting does not increase significantly, then opportunities to increase our revenues and operate profitably would be limited. Moreover, if effective new sources of light other than LED devices are developed, our current products and technologies could become less competitive or obsolete. Any of these factors could have a material and adverse impact on our growth and profitability.


 

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Risk factors


 

The technology used in the LED industry continues to change rapidly and if we are unable to modify our products to adapt to future changes in the LED industry, we will be unable to attract or retain customers.

We do not design or manufacture LEDs. Our ability to expand into new applications in the LED market depends on continued advancement in the design and manufacture of LEDs by others. The LED industry has been characterized by a rapid rate of development of new technologies and manufacturing processes, rapid changes in customer requirements, frequent product introductions and ongoing demands for greater functionality. Our future success will likely depend on our ability to develop new products for use in LED applications and to adjust our product specifications, such as our previous development of larger diameter wafers, in response to these developments in a timely manner. If our development efforts are not successful or are delayed, or if our newly developed products do not achieve market acceptance, we may be unable to attract or retain customers and our operating results could be harmed. In addition, although sapphire is currently the preferred substrate material for HB white, blue and green LED applications, we cannot assure you that the LED market will continue to demand the performance attributes of sapphire. Silicon carbide is another substrate material currently used for certain LED applications, including some that also use sapphire substrates. Other substrates being investigated and used in research and development for certain LED applications are aluminum nitride, zinc oxide and bulk gallium nitride. Research is also ongoing for the use of silicon substrates in LED applications. If sapphire is displaced as the substrate of choice for certain LED applications, our financial condition and results of operations would be materially and adversely affected unless we were able to successfully offer the competing substrate material.

Our continuing efforts to enhance our current products and to develop new products involve several risks, including:

 

Ø  

our ability to anticipate and respond in a timely manner to changes in customer requirements;

 

Ø  

the possibility that sapphire may in the future be replaced as a preferred substrate in certain LED applications;

 

Ø  

the significant research and development investment that we may be required to make before market acceptance of a particular new or enhanced product;

 

Ø  

the possibility that the LED industry may not accept our new or enhanced products after we have invested a significant amount of resources in development; and

 

Ø  

competition from new technologies, processes and products introduced by our current or future competitors.

If the development and acceptance of our products for the SOS RFIC market do not meet our expectations, our future operating results may be harmed.

The level of market acceptance of our SOS RFIC products will impact our future operating results. Our success in the SOS RFIC market depends on a number of factors, including:

 

Ø  

the success of our customers’ products in current applications;

 

Ø  

the acceptance of SOS RFIC products for newly targeted applications; and

 

Ø  

our timely completion of larger diameter sapphire product development and introduction of volume production for such products.

In addition, it is possible that other solutions, such as silicon-on-insulator, may become preferred over SOS. We cannot assure you that the RFIC market will continue to require the performance attributes of SOS solutions. If our products are not accepted more broadly in the RFIC market, our results of operations and business may be harmed.


 

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Risk factors


 

The average selling prices of sapphire products have historically decreased over their life-cycles and continuing price decreases could adversely affect our results of operations.

Historically, our industry has experienced price decreases for a particular product over the life of that product. We anticipate that the average selling prices of our products may decrease in the future in response to competitive pricing pressures, increased sales discounts and new product introductions by our competitors. To lessen the effect of price decreases, we attempt to introduce new products as well as reduce manufacturing costs in order to maintain or improve our margins. However, if we are not able to successfully introduce new products or achieve these cost reductions in a timely manner, there could be a material adverse effect on our operating results and loss of market share.

We depend on a few customers for a major portion of our sales and our results of operations would be adversely impacted if they reduced their order volumes.

Historically, we have earned, and believe that in the future we will continue to earn, a substantial portion of our revenue from a small number of customers. In 2006, three customers accounted for 10% or more of our revenues and in the first six months of 2007, two customers accounted for 10% or more of our revenues. In 2006 and the first six months of 2007, our 10% customers collectively represented 57% and 48% of our revenues, respectively. If we were to lose one of our major customers or have a major customer significantly reduce its volume of business with us, our revenues and profitability would be materially reduced unless we are able to replace such demand with other orders promptly. We expect to continue to be dependent on our significant customers, the number and identity of which may change from period to period.

We generally sell our products on the basis of purchase orders. We have agreements for longer-term purchase commitments from a few of our major customers; these commitments range from 12 months to 18 months. Those customers with whom we do not have longer-term purchase commitments could cease purchasing our products with little or no notice and without significant penalties. A number of factors could cause our customers to cancel or defer orders, including interruptions to their operations due to a downturn in their industries, natural disasters, delays in manufacturing their own product offerings into which our products are incorporated, securing other sources for the products that we manufacture or developing such products internally.

Our manufacturing processes may be interrupted or our production may be delayed if we cannot maintain sufficient electrical supply, which could adversely affect our business, financial condition and operating results.

Our manufacturing process requires a stable source of electricity. From time to time, we have experienced limited disruptions in our supply of electricity. Such disruptions, depending upon their duration, could result in a significant drop in throughput and yield of in-process crystal boules and create delays in our production. Although we use generators and other back-up sources of electricity, these replacement sources of electricity are only capable of providing effective back-up for limited periods of time. We cannot assure you that we will be successful in avoiding future disruptions in power or in mitigating the effects of such disruptions. Any material disruption in electrical supply could delay our production and could adversely affect our business, financial condition and operating results.

Our gross margins and profitability may be adversely affected by rising energy costs.

The average cost of electricity increased significantly at the end of 2006 largely due to the deregulation of energy in the State of Illinois. Electricity prices could also increase due to overall changes to the price of


 

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energy due to conditions in the Middle East, natural gas shortages in the United States and other economic conditions and uncertainties regarding the outcome and implications of such events. If electricity prices continue to increase significantly, we may not be able to pass these price increases through to our customers on a timely basis, if at all, which could adversely affect our gross margins and results of operations.

We may not be able to effectively manage our growth, which could adversely affect our business, financial condition and operating results.

We have been experiencing a period of significant growth that has challenged, and will continue to challenge, our management and other resources. Our recent and anticipated growth has placed, and is expected to continue to place, significant strain on our research and development, sales and marketing, and operational and administrative resources. To manage our growth effectively, we must continue to:

 

Ø  

implement new, and improve our existing, manufacturing systems, such as inventory control management and process control systems;

 

Ø  

enhance and maintain internal controls and accounting systems;

 

Ø  

maintain adequate manufacturing facilities and equipment to meet customer demand; and

 

Ø  

attract, retain and train qualified technical, managerial, manufacturing, sales and marketing, and administrative employees.

We plan to spend substantial amounts of money to support our growth and may have additional unexpected costs. If we cannot attract a sufficient number of qualified people or manage growth effectively, our actual growth may be slower and could adversely affect our business, financial condition and operating results.

Our auditors have identified material weaknesses in our internal control over financial reporting. Our business and stock price may be adversely affected if we do not remediate these material weaknesses or if we have other material weaknesses in our internal controls. In addition, once we become subject to Section 404 of the Sarbanes-Oxley Act of 2002, investor confidence and our stock price could decline if we or our independent registered public accountants conclude that our internal control over financial reporting is ineffective.

Our independent registered public accounting firm issued a letter to our board of directors and management in which it identified certain matters that it considers to constitute material weaknesses in the design and operation of our internal control over financial reporting as of December 31, 2006. A “control deficiency” exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent or detect misstatements on a timely basis. A “significant deficiency” is a control deficiency, or combination of control deficiencies, that adversely affects the entity’s ability to initiate, authorize, record, process or report financial data reliably in accordance with accounting principles generally accepted in the US (“GAAP”) such that there is more than a remote likelihood that a misstatement of the entity’s financial statements that is more than inconsequential will not be prevented or detected by the entity’s internal control. Our auditors defined a “material weakness” as a significant deficiency, or combination of significant deficiencies, that results in more than a remote likelihood that a material misstatement of the financial statements will not be prevented or detected by the entity’s internal control.


 

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The material weaknesses identified by our auditors for the financial reporting period ending December 31, 2006 relate to the following:

 

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Financial reporting and complex accounting transactions.     We do not maintain formal, comprehensive policies and procedures related to our recording of standard, non-standard and recurring journal entries. Furthermore, we do not have adequate processes for identifying and recording properly various complex accounting transactions such as warrants, stock options and financing transactions.

 

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Segregation of duties.     Primarily due to the size of our accounting department, we have not been able to maintain an adequate segregation of duties in key accounting processes. In addition, we have no documented formal accounting policies and procedures that require timely reconciliation and thorough reviews of reconciliations.

 

Ø  

Inventory.     We do not maintain perpetual inventory records and do not have a formal inventory system. In addition, we do not have formal production tracking nor do we maintain an inventory master file.

 

Ø  

Information technology.     Our auditors identified four areas where improvements are needed in our information technology (“IT”) controls:

 

   

The duties of some of our employees overlap into conflicting areas. We also do not monitor or review the structure of our IT department relative to the rights and responsibilities of current users of our IT systems.

 

   

We do not have a formal approval process in place to define the objectives of our IT department nor do we conduct any periodic evaluation on the control structure of the department. We do not have formally documented policies or processes in place to assess the risk within our IT organization as well as external threats and risks, for conducting back up procedures to protect critical systems or for dealing with IT access by terminated employees.

 

   

We have no procedures in place for detecting, and testing for, external intrusion into our IT systems.

 

   

We do not periodically review and evaluate our system events logs, activity reports or firewall upgrades or configuration.

In addition, our auditors noted several control deficiencies, which are of a lesser magnitude than the material weaknesses described above. These control deficiencies relate to our historical lack of a code of business conduct, our failure to have a process in place to receive, evaluate and retain complaints from our employees regarding questionable practices and our failure to document the process for reconciling our stock records with third party records. Our management and auditors were not required to, and did not, perform an evaluation of our internal control over financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act of 2002. Had we and our auditors performed such an evaluation, additional material weaknesses and other control deficiencies may have been identified.

Because of these material weaknesses and control deficiencies, there is heightened risk that a material misstatement of our annual or quarterly financial statements will not be prevented or detected. While we have completed a number of our remediation efforts to address these material weaknesses, we cannot assure you that these remediation efforts have been entirely successful or that similar material weaknesses will not occur. Further, if we fail to take additional remediation efforts, we may fail to meet our future SEC reporting obligations, our financial statements may contain material misstatements and our operational results may be harmed.


 

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In addition, in connection with preparing the registration statement of which this prospectus is a part, we identified an error in our prior year financial statements. This error related to accounting for convertible debt with detachable warrants containing a beneficial conversion feature that was accounted for incorrectly. These errors resulted in the restatement of our previously issued 2004 and 2005 financial statements.

Once we become a public company, we will be required to comply with the requirements of Section 404 of the Sarbanes-Oxley Act of 2002. In this regard, beginning with our annual report on Form 10-K for the year ending December 31, 2008, we will be required on an annual basis to assess the effectiveness of our internal control over financial reporting and include a statement as to whether or not our internal control over financial reporting is effective. In addition, beginning with our year ending December 31, 2009, we will be required to have our independent registered public accounting firm issue an attestation report on our assessment of our internal control over financial reporting. In conducting our assessment, we will not be able to conclude that our internal control over financial reporting is effective if we have one or more material weaknesses. If we or our independent registered public accountants conclude that our internal control is not effective, our investors could lose confidence in our financial reports and our stock price could decline. An ineffective internal control environment could also adversely effect our ability to report our financial results in a timely manner and could materially adversely affect our business.

Our future operating results are expected to fluctuate significantly, which makes our future results difficult to predict and could cause our operating results for particular periods to fall below expectations.

Our revenues and operating results have fluctuated in the past and are likely to fluctuate in the future. These fluctuations are due to a number of factors, many of which are beyond our control. These factors include, among others:

 

Ø  

timing of orders from and shipments to major customers;

 

Ø  

the gain or loss of significant customers;

 

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fluctuations in gross margins as a result of changes in product mix or other factors;

 

Ø  

market acceptance of our products and our customers’ products;

 

Ø  

our ability to develop, introduce and market new products and technologies on a timely basis;

 

Ø  

the need to pay higher labor costs as we continue to grow;

 

Ø  

announcements of technological innovations, new products or upgrades to existing products by us or our competitors;

 

Ø  

competitive market conditions, including pricing actions by our competitors and our customers’ competitors;

 

Ø  

developments in trade secrets, patent or other proprietary rights by us or our competitors;

 

Ø  

announcements by us or our competitors of significant acquisitions, strategic partnerships or divestitures;

 

Ø  

interruption of operations at our manufacturing facilities or the facilities of our suppliers;

 

Ø  

the level and timing of capital spending of our customers;

 

Ø  

additions or departures of key personnel;


 

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potential seasonal fluctuations in our customers’ business activities; and

 

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natural disasters, such as floods, hurricanes and earthquakes, as well as interruptions in power supply resulting from such events or due to other causes.

The foregoing factors are difficult to forecast, and these, as well as other factors, could materially adversely affect our quarterly or annual operating results. If our revenues or operating results fall below the expectations of investors or any securities analysts that may publish research on our company, the price of our common stock would likely decline.

Our gross margins could decline as a result of changes in our product mix and other factors, which may adversely impact our operating results.

We anticipate that our gross margins will fluctuate from period to period as a result of the mix of products that we sell in any given period, with our larger diameter sapphire products generally yielding higher gross margins than our smaller diameter products. If our sales mix shifts to lower margin products in future periods, our overall gross margin levels and operating results would be adversely impacted. Increased competition and the adoption of alternatives to our products, more complex engineering requirements, lower demand and other factors may lead to a further downward shift in our product margins, leading to price erosion and lower revenues for us in the future.

We have incurred significant losses in prior periods and may incur losses in the future.

We have incurred significant losses in prior periods. In 2005 and 2006, we incurred net losses of $12.1 million and $7.6 million. As of June 30, 2007, we had an accumulated deficit of $129.1 million. In addition, we expect our operating expenses to increase as we expand our business and become a public company. There can be no assurance that we will have sufficient revenue growth to offset increased expenses or to achieve profitability in future periods.

Our proprietary intellectual property rights may not adequately protect our products and technologies, and the failure to protect such rights could harm our competitive position and adversely affect our operating results.

To protect our technology, we have chosen to rely primarily on trade secrets rather than seeking protection through publicly filed patents. Trade secrets are inherently difficult to protect. While we believe we use reasonable efforts to protect our trade secrets, our directors, employees, consultants or contractors may unintentionally or willfully disclose our information to competitors, whether during or after the termination of their services to our company. If we were to seek to enforce a claim that a third-party had illegally obtained and was using our trade secrets, it would be expensive and time consuming, and the outcome would be unpredictable. In addition, courts outside the United States are sometimes less willing to protect trade secrets than US courts. Moreover, if our competitors independently develop equivalent knowledge, methods and know-how, it will be more difficult for us to protect our intellectual property and our business could be harmed.

We have no issued patents covering our products and technologies. Although we have filed applications for three patents, there can be no assurance that these patents will be issued or that any patents issued will be of significant value to our business. Our commercial success will depend on obtaining and maintaining trade secret, patent and other intellectual property protection of our products and technologies. We will only be able to protect products and technologies from unauthorized use by third parties to the extent that valid, protectable and enforceable trade secrets, patents or other intellectual property rights cover them.


 

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If we are not able to defend the trade secret or patent protection positions of our products and technologies, then we may not be able to successfully compete with competitors developing or marketing competing products, and we may not generate enough revenue from product sales to justify the cost of development of our products and to achieve or maintain profitability.

The protection of our intellectual property rights and the defense of claims of infringement against us by third parties may subject us to costly litigation.

Other companies might allege that we are infringing certain of their patents or other rights. If we are unable to resolve these matters satisfactorily, or to obtain licenses on acceptable terms, we may face litigation. Any litigation to enforce patents issued to us, to protect trade secrets or know-how possessed by us or to defend us or indemnify others against claimed infringement of the rights of others could have a material adverse effect on our financial condition and operating results. For example, one company has filed lawsuits against us and one of our executive officers alleging, among other things, misappropriation of trade secrets in connection with our employment of the executive officer, who was previously employed by the plaintiff. See “Business—Legal proceedings” for additional discussion of these lawsuits. Regardless of the validity or successful outcome of any such intellectual property claims, we may need to expend significant time and expense to protect our intellectual property rights or to defend against claims of infringement by third parties, which could have a material adverse effect on us. If we lose any such litigation where we are alleged to infringe the rights of others, we may be required to: pay substantial damages; seek licenses from others; or change, or stop manufacturing or selling, some or all of our products. Any of these outcomes could have an adverse effect on our business, results of operations or financial condition.

The markets in which we operate are very competitive, and many of our competitors and potential competitors are larger, more established and better capitalized than we are.

The markets for selling high-quality sapphire products are very competitive and have been characterized by rapid technological change. This competition could result in increased pricing pressure, reduced profit margins, increased sales and marketing expenses, and failure to increase, or the loss of, market share or expected market share, any of which would likely seriously harm our business, operating results and financial condition.

Some of our competitors and potential competitors are substantially larger and have greater financial, technical, marketing and other resources than we do. Given their capital resources, the large companies with whom we compete or may compete in the future, are in a better position to substantially increase their manufacturing capacity, research and development efforts or to withstand any significant reduction in orders by customers in our markets. Such larger companies typically have broader product lines and market focus and thus are not as susceptible to downturns in a particular market. In addition, some of our competitors have been in operation much longer than we have and therefore may have more long-standing and established relationships with our current and potential domestic and foreign customers.

We would be at a competitive disadvantage if our competitors bring their products to market earlier, if their products are more technologically capable than ours, or if any of our competitors’ products or technologies were to become preferred in the industry. Moreover, we cannot assure you that existing or potential customers will not develop their own products, or acquire companies with products, that are competitive with our products. Any of these competitive threats could have a material adverse effect on our business, operating results or financial condition.


 

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We are subject to risks from international sales that may harm our operating results.

In 2006 and the first six months of 2007, revenues from international sales were approximately 89% and 81% of our total revenue. We expect that revenue from international sales will continue to constitute a significant portion of our total revenue for the foreseeable future. Our international sales are subject to a variety of risks, including risks arising from:

 

Ø  

trading restrictions, tariffs, trade barriers and taxes;

 

Ø  

economic and political risks, wars, acts of terrorism, political unrest, pandemics, such as a recurrence of the SARS outbreak or avian flu, boycotts, curtailments of trade and other business restrictions;

 

Ø  

the difficulty of enforcing contracts and collecting receivables through some foreign legal systems;

 

Ø  

unexpected changes in regulatory requirements and other governmental approvals, permits and licenses;

 

Ø  

sales variability as a result of transacting our foreign sales in US dollars as prices for our products become less competitive in countries with currencies that are low or are declining in value against the US dollar and more competitive in countries with currencies that are high or increasing in value against the US dollar; and

 

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periodic foreign economic downturns.

Our future success will depend on our ability to anticipate and effectively manage these and other risks associated with our international sales. Our failure to manage any of these risks could harm our operating results.

We are dependent on the continued services and performance of our senior management, the loss of any of whom could adversely affect our business, operating results and financial condition.

Our future success is dependent on the continued services and continuing contributions of our senior management who must work together effectively in order to design our products, expand our business, increase our revenues and improve our operating results. The loss of services of senior management, particularly Raja M Parvez, our president and chief executive officer, and Hap Hewes, our senior vice president sales and marketing, could significantly delay or prevent the achievement of our development and strategic objectives. In addition, key personnel may be distracted by activities unrelated to our business. We and Mr. Hewes are currently defendants in a lawsuit in which the plaintiff, a former employer of Mr. Hewes, is seeking a one-year prohibition on Mr. Hewes from competing with the plaintiff. See “Business—Legal proceedings” for additional discussion of this lawsuit. The loss of the services, or distraction, of our senior management for any reason could adversely affect our business, operating results and financial condition.

If we are unable to attract or retain qualified personnel, our business and product development efforts could be harmed.

Our success depends on our continued ability to identify, attract, hire, train, retain and motivate highly skilled technical, managerial, manufacturing, administrative and sales and marketing personnel. Competition for these individuals is intense, and we may not be able to successfully recruit, assimilate or retain sufficiently qualified personnel. In particular, we may encounter difficulties in recruiting and retaining a sufficient number of qualified technical personnel, which could harm our ability to develop new products and adversely impact our relationships with existing and future customers. The inability to


 

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attract and retain necessary technical, managerial, manufacturing, administrative and sales and marketing personnel could harm our ability to obtain new customers and develop new products and could adversely affect our business and operating results.

We rely on a limited number of suppliers for raw materials and key components.

We depend on a small number of suppliers for certain raw materials, components, services and equipment used in manufacturing our products, including key materials such as aluminum oxide and certain furnace components. We generally purchase these items with purchase orders, and we have no guaranteed supply arrangements with such suppliers. We are subject to variations in the cost of raw materials and consumables from period to period. We do not control the time and resources that these suppliers devote to our business, and we cannot be sure that these suppliers will perform their obligations to us or do so on a timely basis. In addition, some of these suppliers are located in regions of the world that may experience periods of political or economic instability.

Any significant delay in product delivery or other interruption or variation in supply from our key suppliers could prevent us from meeting demand for our products and from obtaining future business. If we were to lose key suppliers or our key suppliers were unable to support our demand, our manufacturing operations could be interrupted and we could be required to attempt to establish supply arrangements with other suppliers. In addition, the inability of our suppliers to support our demand could be indicative of a marketwide scarcity of the materials, which could result in even longer interruptions. Any such delay or interruption would impair our ability to meet our customers’ needs and therefore, could damage our customer relationships, and have a material adverse effect on our business and operating results.

Our products must meet exacting specifications, and undetected defects may occur, which may cause customers to return or stop buying our products.

Our customers establish demanding specifications for quality, performance, and reliability that our products must meet. While we inspect our products before shipment, they still may contain undetected defects. If defects occur in our products, we could experience lost revenue, increased costs, delays in, cancellations or rescheduling of orders or shipments, product returns or discounts or damage to our reputation, any of which would harm our operating results and our business. We have from time to time in the past experienced product quality, performance or reliability problems. For example, in 2005, before establishing our current manufacturing and quality control processes, we experienced a higher than expected rate of defects in our since discontinued two inch polished wafer product line, which led to an increase in the number and frequency of returns.

We may need to raise additional funding, which may not be available on favorable terms, if at all, or without substantial ownership dilution to our stockholders. If we do not raise any necessary funds, we may need to reduce certain aspects of our operations which could materially adversely affect our business prospects.

For the remainder of 2007, we expect to spend approximately $7.0 million for capital expenditures, primarily to increase our manufacturing infrastructure and capacity. We expect to spend between $12.0 million to $17.0 million per year for each of the next two years on capital expenditures to support our expected sales growth. We believe that the net proceeds from this offering, together with our existing cash, cash equivalents and investment balances, and interest income we earn on these balances, will be sufficient to meet our anticipated cash requirements for at least the next 12 months. However, we may need additional financing thereafter to execute on our current or future business strategies. We expect


 

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capital outlays and operating expenditures to increase over the next several years as we expand our infrastructure, manufacturing and research and development activities. The amount of additional capital we may need to raise depends on many factors, including:

 

Ø  

the level of capital expenditures required to expand our operations;

 

Ø  

the amount and growth rate of our revenues;

 

Ø  

the number and size of any acquisitions we may make;

 

Ø  

the costs of defending and enforcing intellectual property rights; and

 

Ø  

competing technological and market developments.

We cannot be certain that additional capital will be available when and as needed or that our actual cash requirements will not be greater than anticipated. If we raise additional funds through the issuance of equity or convertible debt securities, the percentage ownership of our stockholders could be significantly diluted, and these newly-issued securities may have rights, preferences or privileges senior to those of existing stockholders. If we obtain additional debt financing, a substantial portion of our operating cash flow may be dedicated to the payment of principal and interest on such indebtedness, and the terms of the debt securities issued could impose significant restrictions on our operations. If we are unable to obtain financing on terms favorable to us, we may be unable to successfully execute our business plan.

We are subject to numerous environmental laws and regulations, which could expose us to environmental liabilities, increase our manufacturing and related compliance costs or otherwise adversely affect our business and operating results.

In our manufacturing process, we use water, oils, slurries, acids, adhesives and other industrial chemicals. We are subject to a variety of foreign, federal, state and local laws and regulations governing the protection of the environment. These environmental laws and regulations include those relating to the use, storage, handling, discharge, emission, disposal and reporting of toxic, volatile or otherwise hazardous materials used in our manufacturing processes. These materials may have been or could be released into the environment at properties currently or previously operated by us, at other locations during the transport of the materials, or at properties to which we send substances for treatment or disposal. If we were to violate or become liable under environmental laws and regulations or become non-compliant with permits required at some of our facilities, we could be held financially responsible and incur substantial costs, including investigation and cleanup costs, fines and civil or criminal sanctions, third-party property damage or personal injury claims. In addition, new laws and regulations or stricter enforcement of existing laws and regulations could give rise to additional compliance costs and liabilities.

Our operations are concentrated in a small number of nearby facilities, and the unavailability of one or more of these facilities could harm our business.

Our manufacturing, research and development, sales and marketing, and administrative activities are concentrated in our facilities in the Chicago metropolitan area. If, for any reason, including as a result of natural disaster, act of terrorism, war, outbreak of disease or other similar event, any of these facilities should be damaged or destroyed or become inaccessible or inoperable, our ability to conduct our business could be adversely affected or interrupted entirely.


 

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We may acquire other businesses, products or technologies; if we do, we may be unable to integrate them with our business effectively or at all, which may adversely affect our business, financial condition and operating results.

If we find appropriate opportunities, we may acquire complementary businesses, product lines or technologies. However, if we acquire a business, product line or technology, the process of integration may produce unforeseen operating difficulties and expenditures and may absorb significant attention of our management that would otherwise be available for the ongoing development of our business. Further, the acquisition of a business may result in the assumption of unknown liabilities or create risks with respect to our existing relationships with suppliers and customers. If we make acquisitions, we may issue shares of stock that dilute other stockholders, expend cash, incur debt, assume contingent liabilities or create additional expenses related to amortizing intangible assets, any of which may adversely affect our business, financial condition or operating results.

Changes in accounting standards issued by the Financial Accounting Standards Board or other standard setting bodies may adversely affect our financial condition and operating results.

Our financial statements are subject to the application of GAAP. From time to time, new accounting standards are issued or existing ones are revised by recognized authorities, including the Financial Accounting Standards Board. We may be required to adopt these new or revised accounting standards. It is possible that future accounting standards could change the current accounting treatment that we apply to our financial statements and such changes may adversely affect our financial condition and operating results.

RISKS RELATED TO OWNERSHIP OF OUR COMMON STOCK AND THIS OFFERING

Our common stock has not been publicly traded, and the price of our common stock may fluctuate substantially.

There has been no public market for our common stock before this offering. The initial public offering price of our common stock will be negotiated with the lead underwriters and the market price at which our common stock will trade following this offering will be determined by market forces. The investors who trade in our common stock may give different weight to factors or valuation methodologies or consider new factors or valuation methodologies other than those relied upon in determining our initial public offering price. Moreover, the price negotiated with the lead underwriters and the market price at which our common stock will trade following this offering may be lower than the historical per share value of our common stock. In addition, we cannot predict the extent to which a trading market will develop for our common stock or how liquid that market might become.

Factors related to our company and our business, as well as broad market and industry factors, may adversely affect the market price of our common stock, regardless of our actual operating performance. Factors that could cause fluctuations in our stock price include, among other things:

 

Ø  

changes in market valuations of other companies in our industry;

 

Ø  

changes in financial guidance or estimates by us, by investors or by any financial analysts who might cover our stock or our industry;

 

Ø  

our ability to meet the performance expectations of financial analysts or investors;

 

Ø  

announcements by us or our competitors of significant products, contracts, acquisitions or strategic partnerships;


 

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general market and economic conditions; and

 

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the size of the public float of our stock.

Fluctuations caused by factors such as these may negatively affect the market price of our common stock. In addition, the other risks described elsewhere in this prospectus could adversely affect our stock price.

Management will have broad discretion for the use of proceeds from this offering, including the ability to apply the proceeds to uses that do not increase our operating results or market value.

We estimate that we will receive net proceeds of approximately $             million from this offering. Assuming the underwriters exercise their overallotment option in full, we will receive net proceeds of approximately $             million from this offering. Approximately $             million of such net proceeds will be used to repay existing indebtedness. Our management will have broad discretion in the use of the remaining net proceeds and may use these remaining net proceeds in ways that do not improve our operating results or market value or to which certain stockholders object. You will not have the opportunity, as part of your investment decision, to assess whether these remaining net proceeds are being used appropriately.

Future sales of substantial amounts of our common stock could adversely affect the price of our common stock.

If our stockholders sell substantial amounts of our common stock following this offering, the prevailing market price for our common stock could be adversely affected. Such sales by our stockholders might make it more difficult for us to issue new equity or equity-related securities in the future at a time and place we deem appropriate. Upon completion of this offering, we will have                      shares of common stock outstanding. The                      shares of common stock offered in this offering will be eligible for immediate resale in the public market without restrictions. The remaining                      shares of common stock, which are currently held by our existing stockholders, may be sold in the public market in the future subject to the restrictions contained in Rule 144 under the Securities Act of 1933, as amended (the “Securities Act”). However, our stockholders, officers and directors, as well as each of the persons who will serve as our officers and directors upon the consummation of this offering, holding in the aggregate approximately                 % of our outstanding shares before giving effect to the offering have agreed with the underwriters that, without the prior written consent of the underwriters, they will not for a period of approximately six months from the closing of this offering, offer, sell, contract to sell, encumber, grant any option for the sale of or otherwise dispose of any of our securities. There are no agreements between the underwriters and any of our stockholders or affiliates releasing them from these lock-up agreements as of the date hereof. When the lock-up agreements expire or are terminated, approximately                      shares of our common stock will be eligible for sale under Rule 144, Rule 144(d) or Rule 701 under the Securities Act. After the completion of this offering, the holders of an aggregate of approximately                      shares of common stock will have registration rights. Following this offering, we intend to register all shares of common stock that we may issue under our stock option plans. Once we register these shares, they may be freely sold in the public market, subject to the lock-up restrictions described above, and subject, in the case of any awards under our stock-based compensation plans, to applicable vesting requirements.

You will experience immediate dilution in the book value of common stock purchased.

The initial public offering price per share is substantially higher than the net tangible book value per share of our outstanding common stock prior to the offering. Accordingly, if you purchase our common stock in this offering, you will incur immediate dilution of approximately $             in the net tangible


 

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book value per share from the price you pay for our common stock, representing the difference between (i) the assumed initial public offering price of $             per share (the midpoint of the estimated initial public offering price range set forth on the front cover of this prospectus) and (ii) the pro forma net tangible book value per share of $             at             , 2007 after giving effect to this offering, which takes into account the $             per share purchase price paid by our existing stockholders for their              shares of common stock. See “Dilution” in this prospectus for additional information.

Our board of directors does not intend to declare or pay any dividends to our stockholders in the foreseeable future.

The declaration, payment and amount of any future dividends will be made at the discretion of our board of directors, and will depend upon, among other things, the results of our operations, cash flows and financial condition, operating and capital requirements, and other factors the board of directors considers relevant. There is no plan to pay dividends in the foreseeable future, and if dividends are paid, there can be no assurance with respect to the amount of any such dividend.

We will incur increased costs and demands upon management as a result of complying with the laws and regulations affecting public companies, which could adversely affect our operating results.

We will be subject to the reporting requirements of the Securities and Exchange Commission (“SEC”) following the completion of this offering. As a public company we will incur significant legal, accounting and other expenses that we did not incur as a private company, including costs associated with public company reporting requirements. We also have incurred and will incur costs associated with corporate governance requirements, including requirements under the Sarbanes-Oxley Act, as well as rules implemented by the SEC and the NASDAQ Global Market. In addition, our management team will have to adapt to the requirements of being a public company. The expenses incurred by public companies generally for reporting and corporate governance purposes have been significant. We expect these rules and regulations to substantially increase our legal and financial compliance costs and to make some activities more time-consuming and costly. We are unable to currently estimate these costs with any degree of certainty. We also expect that these rules and regulations may make it more difficult and more expensive for us to obtain director and officer liability insurance, and we may be required to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage than used to be available. As a result, it may be more difficult for us to attract and retain qualified individuals to serve on our board of directors or as our executive officers.

The concentration of our capital stock ownership with our directors and executive officers and their affiliates will limit your ability to influence corporate matters.

We anticipate that after the completion of this offering, our executive officers and directors and their affiliates will together own more than             % of our outstanding capital stock and voting power. For the foreseeable future, they will have influence over our management and affairs and over all matters requiring stockholder approval, including the election of directors and significant corporate transactions, such as a merger or other sale of our company or our assets. Their ownership may limit your ability to influence corporate matters and, as a result, the market price of our common stock could be adversely affected.

We could be the subject of securities class action litigation due to future stock price volatility.

The stock market in general, and market prices for the securities of companies like ours, recently have experienced extreme volatility that often has been unrelated to the operating performance of the


 

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Risk factors


 

underlying companies. These broad market and industry fluctuations may adversely affect the market price of our common stock, regardless of our operating performance. When the market price of a stock declines significantly, holders of that stock have sometimes instituted securities class action litigation against the company that issued the stock. If any of our stockholders brought a lawsuit against us, our defense of the lawsuit could be costly and divert the time and attention of our management.

Our certificate of incorporation, bylaws and Delaware law may discourage takeovers and business combinations that our stockholders might consider in their best interests.

A number of provisions in our certificate of incorporation and bylaws, as well as anti-takeover provisions of Delaware law, may have the effect of delaying, deterring, preventing or rendering more difficult a change in control of Rubicon that our stockholders might consider in their best interests. These provisions include:

 

Ø  

establishment of a classified board of directors;

 

Ø  

granting to the board of directors sole power to set the number of directors and to fill any vacancy on the board of directors, whether such vacancy occurs as a result of an increase in the number of directors or otherwise;

 

Ø  

limitations on the ability of stockholders to remove directors;

 

Ø  

the ability of our board of directors to designate and issue one or more series of preferred stock without stockholder approval, the terms of which may be determined at the sole discretion of the board of directors;

 

Ø  

prohibition on stockholders from calling special meetings of stockholders;

 

Ø  

prohibition on stockholders from acting by written consent; and

 

Ø  

establishment of advance notice requirements for stockholder proposals and nominations for election to the board of directors at stockholder meetings.

These provisions may prevent our stockholders from receiving the benefit from any premium to the market price of our common stock offered by a bidder in a takeover context. Even in the absence of a takeover attempt, the existence of these provisions may adversely affect the prevailing market price of our common stock if they are viewed as discouraging takeover attempts in the future.

The foregoing provisions of our certificate of incorporation and bylaws may also make it difficult for stockholders to replace or remove our management. These provisions may facilitate management entrenchment that may delay, deter, render more difficult or prevent a change in our control, which may not be in the best interests of our stockholders. See “Description of capital stock” for additional information on the anti-takeover measures applicable to us.


 

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Special note regarding forward-looking statements

This prospectus contains forward-looking statements that involve substantial risks and uncertainties. All statements, other than statements of historical facts, included in this prospectus regarding our future strategy, results of operations, financial position, net sales, projected costs, projected expenses, prospects and plans and objectives of management for future operations are forward-looking statements. We have based these forward-looking statements on our current expectations and projections about future events and financial trends that we believe may affect our financial condition, results of operations, business strategy, short-term and long-term business operations and objectives and financial needs. These forward looking statements can be identified by the use of terms and phrases such as “believe”, “plan”, “intend”, “anticipate”, “target”, “estimate”, “expect”, and the like, and/or future-tense or conditional constructions (“will”, “may”, “could”, “should”, etc.). Items contemplating or making assumptions about actual or potential future sales, market size and trends or operating results also constitute forward-looking statements.

Moreover, we operate in a very competitive and rapidly changing environment. New risks emerge from time to time. It is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. Before investing in our common stock, investors should be aware that the occurrence of the risks, uncertainties and events described in the section entitled “Risk factors” and elsewhere in this prospectus could have a material adverse effect on our business, results of operations and financial condition.

Although we believe that the expectations reflected in the forward-looking statements are reasonable, forward-looking statements are inherently subject to known and unknown risks, business, economic and other risks and uncertainties that may cause actual results to be materially different from those discussed in these forward-looking statements. Readers are urged not to place undue reliance on these forward-looking statements, which speak only as of the date of this prospectus. We assume no obligation to update any forward-looking statements in order to reflect any event or circumstance that may arise after the date of this prospectus, other than as may be required by applicable law or regulation. If one or more of these risks or uncertainties materialize, or if the underlying assumptions prove incorrect, our actual results may vary materially from those expected or projected.

This prospectus also contains statistical data and estimates, including those relating to market size and growth rates of the markets in which we participate, that we obtained from industry publications and reports generated by market research firms. These publications typically indicate that they have obtained their information from sources they believe to be reliable, but do not guarantee the accuracy and completeness of their information. Although we have assessed the information in the publications and found it to be reasonable and believe the publications are reliable, we have not independently verified their data.

You should read this prospectus and the documents that we reference in this prospectus and have filed with the SEC as exhibits to the registration statement, of which this prospectus is a part, with the understanding that our actual future results, levels of activity, performance and events and circumstances may be materially different from what we expect.


 

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Use of proceeds

We estimate that our net proceeds from the sale of the common stock we are offering hereby will be approximately $             million, assuming an initial public offering price of $             per share, which is the midpoint of the price range set forth on the cover of this prospectus, and after deducting underwriting discounts and commissions and estimated offering expenses that we must pay. If the underwriters exercise their overallotment option in full, our proceeds from this offering will be approximately $             million. We will not receive any proceeds from the sale of shares of common stock by the selling stockholders. If the underwriters exercise their overallotment option in full, we estimate that our net proceeds would be approximately $             million, after deducting estimated underwriting discounts and commissions. Each $1.00 increase (decrease) in the assumed initial public offering price of $             per share would increase (decrease) the net proceeds to us from this offering by approximately $             million after deducting estimated underwriting discounts and commissions, assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same. Depending on market conditions at the time of pricing of this offering and other considerations, we may sell fewer or more shares than the number set forth on the cover page of this prospectus.

The principal purposes of this offering are to obtain additional capital and to create a public market for our common stock. We intend to use a portion of the net proceeds of this offering to pay in full the principal and accrued interest outstanding under our loan and security agreement with Hercules Technology Growth Capital, Inc., dated as of April 9, 2007, which was approximately $8.1 million as of June 30, 2007. The loan and security agreement provides for a term loan in an aggregate principal amount of $12 million and a revolving credit facility in an aggregate principal amount of up to $4 million. The term loan bears interest at the prime rate (which was 8.25% as of June 30, 2007) plus 3.375%, and the revolving credit facility bears interest at the prime rate plus 0.25%. The term loan has a maturity date of December 31, 2010 and the revolving credit facility has a maturity date of April 1, 2008. There is no penalty for prepayment of the term loan. We used the proceeds of this loan for working capital, capital expenditures and other general corporate purposes. We expect to use the remaining net proceeds from this offering for working capital, capital expenditures and other general corporate purposes.

Until we use the net proceeds from this offering for the above purposes, we intend to invest the proceeds in short-term, investment-grade, interest-bearing securities.


 

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Dividend policy

We have never declared or paid cash dividends on our capital stock. We do not expect to pay any cash dividends in the foreseeable future. Any future determination to pay cash dividends will be made at the discretion of our board of directors, subject to applicable laws and compliance with contractual restrictions, and will depend on our results of operations, financial condition, future prospects and other factors our board of directors may deem relevant. Our amended and restated certificate of incorporation in effect immediately prior to this offering requires that all accrued but unpaid dividends on the outstanding shares of our preferred stock be fully paid prior to any payment of dividends to the holders of our common stock, unless otherwise approved by the holders of a majority of that series of preferred stock. In addition, it requires that any dividend declared on the shares of our common stock also be declared on the shares of our outstanding preferred stock on an as-converted to common stock basis. Upon the closing of this offering, all accrued but unpaid dividends on our outstanding preferred stock will convert into shares of our common stock.


 

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Capitalization

The following table sets forth our capitalization as of June 30, 2007:

 

Ø  

on an actual basis, after giving effect to a 1 for 13 reverse stock split on our common stock that was effected August 30, 2007;

 

Ø  

on a pro forma basis, after giving effect to the conversion of all outstanding shares of our preferred stock into shares of common stock, the issuance of 3,187,733 shares of common stock to the holders of preferred stock in satisfaction of dividends that have accrued on the outstanding preferred stock through June 30, 2007, the conversion of outstanding preferred stock warrants into common stock warrants and the reclassification of the preferred stock warrant liability to additional paid-in capital upon the completion of this offering; and

 

Ø  

on a pro forma as adjusted basis, after giving effect to our receipt of the net proceeds from the sale of shares of common stock offered by us in this offering, at an assumed initial public offering price of $             per share, which is the midpoint of the initial public offering price range listed on the cover page of this prospectus, after deducting underwriting discounts and commissions and estimated offering expenses payable by us, and the repayment of approximately $             million of outstanding indebtedness and the automatic net exercise of those warrants that expire on the closing of this offering into              shares of common stock based on an assumed fair market value of one share of our common stock at the time of exercise equal to $            , which is the midpoint of the initial public offering price range listed on the cover page of this prospectus and further assuming that those warrants have not been exercised prior to the closing of this offering.

You should read this table together with our financial statements and related notes, “Use of proceeds”, “Selected financial data” and “Management’s discussion and analysis of financial condition and results of operations” appearing elsewhere in this prospectus.

 

    

As of June 30, 2007

       Actual     Pro forma    

Pro forma

as adjusted (1)

    

(unaudited)

(in thousands, other than share and per
share data)

Long-term debt and capital lease obligations (less current maturities of $387)

   $ 4,240     $ 4,240     $             
                      

Redeemable equity

      

Redeemable preferred stock: $0.001 par value per share; 140,285,871 shares authorized and 96,270,146 shares issued and outstanding on an actual basis; liquidation amount: $95,992; no shares authorized and no shares issued or outstanding on a pro forma and pro forma as adjusted basis

     117,086       —      
                      

Stockholders’ equity (deficit)

      

Preferred stock: $0.001 par value per share, 5,000,000 shares authorized and no shares issued and outstanding on an actual, pro forma and pro forma as adjusted basis

      

Common stock: $0.001 par value per share; 85,000,000 shares authorized, 254,830 shares issued and outstanding on an actual basis; 75,000,000 shares authorized, 13,438,571 shares issued and outstanding on a pro forma basis; 75,000,000 shares authorized,      shares issued and outstanding on a pro forma as adjusted basis

     3       11    

Additional paid-in capital

     29,123       150,820    

Accumulated deficit

     (129,097 )     (129,097 )  
                      

Total stockholders’ equity (deficit)

     (99,971 )     21,734    
                      

Total capitalization

   $ 21,355     $ 25,974    
                      

(footnotes on following page)


 

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Capitalization


 


(1)   Each $1.00 increase (decrease) in the assumed initial public offering price of $             per share would increase (decrease) the amount of additional paid-in capital, total stockholders’ equity (deficit) and total capitalization by approximately $             million, assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting estimated underwriting discounts and commissions payable by us.

The above table excludes the following:

 

Ø  

for purposes of pro forma amounts, 910,865 shares of common stock issuable upon exercise of warrants outstanding as of June 30, 2007, with a weighted average exercise price of $4.33 per share;

 

Ø  

for purposes of pro forma as adjusted amounts, 818,178 shares of common stock issuable upon exercise of warrants outstanding as of June 30, 2007, with a weighted average exercise price of $3.96 per share, but includes the shares of common stock that will be issued pursuant to the automatic net exercise provisions of those warrants that expire upon the closing of this offering;

 

Ø  

1,250,562 shares of common stock subject to outstanding options as of June 30, 2007, with a weighted average exercise price of $2.86 per share;

 

Ø  

205,235 shares of common stock reserved for future issuance under our 2001 Equity Plan as of June 30, 2007; and

 

Ø  

2,307,692 shares of common stock reserved for future issuance under our 2007 Stock Incentive Plan, which was adopted on August 29, 2007.


 

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Dilution

If you invest in our common stock, your interest will be diluted to the extent of the difference between the initial public offering price per share of our common stock and the pro forma net tangible book value per share of our common stock immediately after this offering.

Our pro forma net tangible book value as of June 30, 2007 was approximately $             million, or $             per share of common stock. Pro forma net tangible book value per share represents the amount of our total tangible assets less our total liabilities, divided by the number of shares of common stock outstanding, as of June 30, 2007, after giving effect to the conversion of all of our preferred stock into shares of our common stock, the issuance of 3,187,733 shares of common stock in payment of accrued dividends on our outstanding preferred stock as of June 30, 2007, and the automatic net exercise of those warrants that expire on the closing of this offering based on an assumed fair market value of one share of our common stock at the time of exercise equal to $            , which is the midpoint of the initial public offering price range listed on the cover page of this prospectus and further assuming that those warrants have not been exercised prior to the closing of this offering.

After giving effect to our sale of shares of common stock in this offering at an assumed initial public offering price of $             per share, which is the midpoint of the initial public offering price range listed on the cover page of this prospectus, and after deducting underwriting discounts and commissions and estimated offering expenses payable by us, our adjusted pro forma net tangible book value as of June 30, 2007 would have been approximately $             million, or approximately $             per share. This amount represents an immediate increase in pro forma net tangible book value of $             per share to our existing stockholders and an immediate dilution in pro forma net tangible book value of approximately $             per share to new investors purchasing shares of common stock in this offering as illustrated in the table below. Net tangible book value dilution per share to new investors represents the difference between the amount per share paid by purchasers of shares of common stock in this offering and the pro forma net tangible book value per share of common stock immediately after giving effect to this offering.

 

Assumed initial public offering price per share

      $             

Pro forma net tangible book value per share as of June 30, 2007, before giving effect to this offering

   $                

Increase in pro forma net tangible book value per share attributable to investors purchasing shares in this offering

     

Adjusted pro forma net tangible book value per share after giving effect to this offering

     
         

Dilution per share to new investors in this offering

      $             
         

A $1.00 increase (decrease) in the assumed initial public offering price of $             per share would increase (decrease) our adjusted pro forma net tangible book value per share after giving effect to this offering by $             and the dilution in adjusted pro forma net tangible book value to new investors in this offering by $             per share, assuming the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us.

If the underwriters’ overallotment option is exercised in full, the pro forma net tangible book value per share after giving effect to this offering would be approximately $             per share, and the dilution in adjusted pro forma net tangible book value per share to investors in this offering would be approximately $             per share.


 

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Dilution


 

The following table presents on a pro forma basis, as of June 30, 2007, after giving effect to the sale by us of              shares of common stock, conversion of all of our preferred stock, the issuance of shares of common stock in payment of accrued dividends on our outstanding preferred stock, the automatic net exercise of those warrants that expire on the closing of this offering based on an assumed fair market value of one share of our common stock at the time of exercise equal to $            , which is the midpoint of the initial public offering price range listed on the cover page of this prospectus and further assuming that those warrants have not been exercised prior to the closing of this offering, the differences between the number of shares purchased from us and the total consideration paid to us and the average price per share that existing stockholders and new investors paid. The calculation below is based on an assumed initial public offering price of $             per share, which is the midpoint of the initial public offering price range listed on the cover page of this prospectus, and after deducting underwriting discounts and commissions and estimated offering expenses that we must pay.

 

     Shares purchased     Total consideration      
       Number    Percent     Amount    Percent    

Average price

per share

     (in thousands, other than per share data and percentages)

Existing stockholders

                   %   $                              %   $             

New investors

            
                              

Total

                   %   $                   %   $  
                          

A $1.00 increase (decrease) in the assumed initial public offering price of $             per share would increase (decrease) total consideration paid to us by investors participating in this offering by approximately $             million, assuming the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us.

If the underwriters’ overallotment option is exercised in full, our existing stockholders would own approximately             % and our new investors would own approximately             % of the total number of shares of common stock outstanding after this offering.

The above discussion and table exclude the following:

 

Ø  

818,178 shares of common stock issuable upon exercise of warrants outstanding as of June 30, 2007, with a weighted average exercise price of $3.96 per share, but includes the shares of common stock that will be issued pursuant to the automatic net exercise of those warrants that expire upon the closing of this offering;

 

Ø  

1,250,562 shares of common stock subject to outstanding options as of June 30, 2007, with a weighted average exercise price of $2.86 per share;

 

Ø  

205,235 shares of common stock reserved for issuance under our 2001 Equity Plan as of June 30, 2007; and

 

Ø  

2,307,692 shares of common stock reserved for future issuance under our 2007 Stock Incentive Plan, which was adopted in August 2007.

If all of these options and warrants were exercised, there would be further dilution to new investors.


 

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Selected financial data

The following statements of operations data for the years ended December 31, 2004, 2005 and 2006 and the balance sheet data as of December 31, 2005 and 2006 have been derived from our audited financial statements and related notes, which are included elsewhere in this prospectus. The statement of operations data for the years ended December 31, 2002 and 2003 and the balance sheet data as of December 31, 2002, 2003 and 2004 have been derived from audited financial statements not included in this prospectus. The statements of operation data for the six months ended June 30, 2006 and 2007 and the balance sheet data as of June 30, 2007 have been derived from our unaudited financial statements, which are included elsewhere in this prospectus. The following selected financial data should be read in conjunction with our “Management’s discussion and analysis of financial condition and results of operations” and our financial statements and related notes, included elsewhere in this prospectus.

Our unaudited financial statements include, in the opinion of management, all adjustments, consisting of only normal recurring adjustments, necessary for the fair presentation of this data. The results for any interim period are not necessarily indicative of the results of operations to be expected for a full fiscal year. Additionally, our historical results are not necessarily indicative of the results that should be expected in the future.


 

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Selected financial data


 

SELECTED FINANCIAL DATA

 

    Year ended December 31,     Six months ended
June 30,
 
Statements of operations data:   2002     2003     2004     2005     2006     2006     2007  
                                  (unaudited)  
    (in thousands other than share and per share data)  

Revenue

  $ 4,023     $ 8,560     $ 16,043     $ 16,315     $ 20,752     $ 8,950     $ 15,448  

Cost of goods sold

    5,537       5,834       14,815       18,508       18,885       8,938       10,467  
                                                       

Gross profit (loss)

    (1,514 )     2,726       1,228       (2,193 )     1,867       12       4,981  
                                                       

Operating expenses:

             

General and administrative

    2,965       2,981       3,029       4,688       3,298       1,838       2,352  

Sales and marketing

    774       975       1,586       1,266       1,062       648       335  

Research and development

    630       1,797       922       861       679       357       376  

Asset impairment

                            933              

Loss on disposal of assets

                      383       42       18       52  
                                                       

Total operating expenses

    4,369       5,753       5,537       7,198       6,014       2,861       3,115  
                                                       

Profit (loss) from operations

    (5,883 )     (3,027 )     (4,309 )     (9,391 )     (4,147 )     (2,849 )     1,866  

Other income (expense)

    (169 )     (700 )     (1,052 )     (2,735 )     (3,272 )     (1,233 )     (1,351 )
                                                       

Profit (loss) before cumulative effect of change in accounting principle

    (6,052 )     (3,727 )     (5,361 )     (12,126 )     (7,419 )     (4,082 )     515  

Cumulative effect of change in accounting principle

                            (221 )     (221 )      
                                                       

Net profit (loss)

    (6,052 )     (3,727 )     (5,361 )     (12,126 )     (7,640 )     (4,303 )     515  

Dividends on preferred stock

    (889 )     (1,781 )     (2,631 )     (3,924 )     (5,563 )     (2,736 )     (3,169 )

Accretion of redeemable preferred stock

    (887 )     (2,553 )     (2,681 )     4,404       (23,416 )     (3,611 )     (20,338 )
                                                       

Net loss attributable to common stockholders

  $ (7,828 )   $ (8,061 )   $ (10,673 )   $ (11,646 )   $ (36,619 )   $ (10,650 )   $ (22,992 )
                                                       

Net loss per common share attributable to common stockholders, basic and diluted

  $ (39.43 )   $ (35.34 )   $ (46.79 )   $ (47.52 )   $ (146.57 )   $ (42.72 )   $ (90.70 )
                                                       

Weighted shares used in computing net loss per share attributable to common stockholders, basic and diluted

    198,523       228,077       228,124       245,073       249,283       249,298       253,507  

 

     As of December 31,    

As of June 30,
2007

 

 
Balance sheet data:      2002       2003       2004       2005       2006    
                                   (unaudited)  
     (in thousands)  

Cash and cash equivalents

   $ 3,123     $ 2,208     $ 3,948     $ 1,466     $ 3,638     $ 3,618  

Working capital

     3,257       2,047       1,969       3,600       (388 )     (1,326 )

Total assets

     14,128       19,952       29,082       28,885       29,020       33,602  

Long-term debt and capital lease obligations, less current maturities

     1,417       3,115       2,241       4,741       2,628       4,240  

Redeemable convertible preferred stock

     10,362       29,973       47,427       59,365       93,897       117,086  

Total stockholders’ equity (deficit)

     (646 )     (19,204 )     (29,877 )     (39,573 )     (77,593 )     (99,971 )

 

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Management’s discussion and analysis of financial condition and results of operations

The following discussion and analysis of our financial condition and results of operations should be read together with our financial statements and related notes appearing elsewhere in this prospectus. This discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. You should review the “Risk factors” section of this prospectus for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements described in the following discussion and analysis.

OVERVIEW

We are an advanced electronic materials provider that develops, manufactures and sells monocrystalline sapphire and other innovative crystalline products for LEDs, RFICs, blue laser diodes, optoelectronics and other optical applications.

We are a vertically integrated manufacturer of high-quality sapphire substrates and optical windows that are used in a variety of high-growth, high-volume end-market applications. We provide our products to the solid state lighting, semiconductor, consumer electronics, aerospace, sensor and other end markets. We sell sapphire products as cores and wafers in two inch to six inch diameters, and we sell sapphire and optical windows in sizes from one inch to nine inch diameters. We derive the majority of our revenue from sales of two inch to four inch sapphire cores and wafers for use in LEDs for solid state lighting applications and LEDs and blue laser diodes for consumer electronic applications. In addition, we have developed six inch sapphire wafers that are used for Silicon-on-Sapphire RFICs, and we supply large diameter sapphire and optical windows for military, aerospace, sensor and other applications.

Since our inception, our revenue has increased each year. Our revenue was $16.0 million in 2004, $16.3 million in 2005, $20.8 million in 2006 and $15.4 million for the six months ended June 30, 2007. Our net loss was $5.4 million in 2004, $12.1 million in 2005 and $7.6 million in 2006, and we earned a net profit of $515,000 for the six months ended June 30, 2007. Our results in 2005 were adversely impacted by significant decreases in two inch polished sapphire substrate prices and, in 2006 we made the strategic decision to exit the two inch polished sapphire substrate market. By exiting this market and not competing with our polishing customers, we were able to expand our product offerings to these customers to include higher margin products, which improved our overall gross margins. Moreover, in 2006, we introduced cost control and engineering improvements, which further contributed to our improved gross margins.

We sell our products on a global basis. The Asian, North American and European markets accounted for 87%, 11% and 2%, respectively, of our revenue for the year ended December 31, 2006 and 79%, 19% and 2%, respectively, for the six months ended June 30, 2007.

We provide direct sales from our Franklin Park, Illinois offices. Additionally, we use independent sales representatives, working on commission, in South Korea and China to assist in supporting our customers in these countries. Customers in South Korea and China place orders directly with us. Substantially all of our revenue is generated by our direct sales force and we expect this to continue as we expand our sales organization in the future.


 

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We manufacture and ship our products from our facilities in the Chicago metropolitan area. We have approximately 102,600 square feet of manufacturing and office space, which includes a 30,000 square foot facility that we leased in July 2007 to expand our manufacturing capacity.

Financial operations

Revenue.     Revenue consists of sales of sapphire materials sold in core, as-cut, as-ground and polished forms in two, four and six inch diameters as well as optical materials sold as blanks or polished windows. Products are made to varying specifications, such as crystal planar orientations and thicknesses. The variation in the mix of sales of product types and diameters can impact revenue. For instance, a mix shift to larger diameter products and higher value-added wafers may increase our revenue. Revenue is subject to both quarterly and annual fluctuations as a result of product mix considerations.

Historically, a significant portion of our revenue in each quarter has been derived from sales to relatively few customers. For the year ended December 31, 2006, we had three customers that accounted for 26%, 17%, and 14% of our revenue and for the six months ended June 30, 2007, we had two customers that accounted for 28% and 20% of our revenue. Other than as discussed above, none of our customers accounted for more than 10% of our revenue for such periods. Although we are attempting to diversify and expand our customer base, we expect our revenue to continue to be concentrated among a small number of customers. We expect that our significant customers may change from period to period.

We sell to all customers pursuant to purchase orders and have longer-term (12-18 month) supply agreements with several key customers. We recognize revenue upon shipment to our customers. Delays in product orders or changes to the timing of shipments under our supply agreements could cause our quarterly revenue to vary significantly. We derive a significant portion of our revenue from customers outside of the United States. The majority of our sales are to the Asian market and we expect that region to continue to be a major source of revenue for us. All of our revenue is denominated in US dollars.

Cost of goods sold.     Cost of goods sold consists primarily of manufacturing materials, labor, manufacturing-related overhead such as utilities, depreciation and rent, provisions for excess and obsolete inventory reserves, freight and warranties. We manufacture our products based on customer orders. We purchase materials and supplies to support such demand. We are subject to variations in the cost of raw materials and consumables from period to period because we do not have long-term fixed-price agreements with our suppliers. Since the usage of electricity in our manufacturing processes is significant, any fluctuations in the cost of electricity will have an impact on our cost of manufacturing.

Gross profit.     Our gross profit has increased significantly over the past twelve months due to improved manufacturing and purchasing efficiencies, economies of scale related to higher unit volumes, product mix shift to larger diameters and our decision in 2006 to discontinue sales of two inch polished wafers. Our gross profit has been and will continue to be affected by a variety of factors, including average sales prices of our products, product mix, our ability to reduce manufacturing costs and fluctuations in the cost of electricity, raw materials and other supplies.

General and administrative expenses.     General and administrative expenses (“G&A”) consist primarily of salaries and associated costs for employees in finance, human resources, information technology and administrative activities, and charges for accounting, legal, and insurance fees, and, beginning in 2006, stock-based compensation under Statement of Financial Accounting Standards No. 123(R), “Share-Based Payment”, (“SFAS 123R”). After this offering, we will incur significant additional accounting, legal, insurance, investor relations and other costs associated with being a public company.


 

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Sales and marketing expenses.     Sales and marketing expenses consist primarily of salaries and associated costs for employees engaged in sales activities, commissions paid to third party representatives, product samples, charges for trade shows and travel. We expect these expenses to increase in future periods based on planned increases in personnel to meet expected growth, although they may decrease as a percentage of revenue.

Research and development expenses.     Research and development (“R&D”) expenses include costs related to engineering personnel, materials and other product development related costs. R&D is expensed as incurred. We believe our R&D expenses will generally increase as we continue to develop new products, although they may decrease as a percentage of revenue.

Other expense (net).     Other expense (net) consists of interest expense and change in carrying value of preferred stock warrants, which is offset in part by interest income. Interest expense consists of interest on debt and amortization of the fair value of our preferred stock warrants issued as part of debt financing transactions. For the year ended December 31, 2006 and for the six months ended June 30, 2007, interest expense was $1.3 million and $632,000, respectively. We intend to repay our outstanding indebtedness with a portion of the proceeds of this offering. The remaining unamortized debt discount associated with the preferred stock warrants issued as part of debt financing transactions will be expensed on the repayment of the debt. Consequently, we do not expect to incur significant amounts of interest expense after the closing of this offering.

The change in carrying value of preferred stock warrants is associated with the value of warrants classified as liabilities. These warrants will be converted into common stock warrants in connection with this offering. We will no longer incur this non-cash gain or loss following the conversion of these warrants to common stock warrants. Additional information on our accounting for change in carrying value of preferred stock warrants is provided in “—Critical accounting policies and estimates.”

Provision for income tax.     We account for income taxes under the asset and liability method whereby the expected future tax consequences of temporary differences between the book value and the tax basis of assets and liabilities are recognized as deferred tax assets and liabilities, using enacted tax rates in effect for the year in which the differences are expected to be recognized. A full valuation allowance is provided as management cannot conclude that it is more likely than not that our deferred tax assets will be realized. At December 31, 2006, we had $38.8 million in net operating loss carryforwards (“NOLs”). We believe there may be limitations on the use of a certain portion of such NOLs.

Stock-based compensation.     Because the majority of our stock-based compensation relates to administrative personnel, we account for our stock-based compensation as a general and administrative expense. For the year ended December 31, 2006 and for the six months ended June 30, 2007, our stock-based compensation expense was $62,000 and $191,000, respectively. We expect stock-based compensation to increase as a result of recent additions to our senior management team.


 

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RESULTS OF OPERATIONS

The following table sets forth our statements of operations for the periods indicated:

 

    

Year ended

December 31,

    Six months ended
June 30,
 
       2004     2005     2006     2006     2007  
                       (unaudited)  
     (in millions)  
                          

Revenue

   $16.0     $16.3     $20.8     $8.9     $15.5  

Cost of goods sold

   14.8     18.5     18.9     8.9     10.5  
                              

Gross profit (loss)

   1.2     (2.2 )   1.9         5.0  
                              

Operating expenses:

          

General and administrative

   3.0     4.7     3.3     1.8     2.3  

Sales and marketing

   1.6     1.2     1.1     0.7     0.3  

Research and development

   0.9     0.9     0.7     0.4     0.4  

Asset impairment

           0.9          

Loss on disposal of assets

       0.4             0.1  
                              

Total operating expenses

   5.5     7.2     6.0     2.9     3.1  
                              

Profit (loss) from operations

   (4.3 )   (9.4 )   (4.1 )   (2.9 )   1.9  

Other income (expense)

   (1.1 )   (2.7 )   (3.3 )   (1.2 )   (1.4 )
                              

Profit (loss) before cumulative effect of change in accounting principle

  

(5.4


)

 

(12.1


)

  (7.4
)
  (4.1
)
  0.5
 

Cumulative effect of change in accounting principle

           (.2 )   (.2 )    
                              

Net profit (loss)

   ($5.4 )   ($12.1 )   ($7.6 )   ($4.3 )   $0.5  
                              
The following table sets forth our statements of operations as a percentage of revenues for the periods indicated:   
     Year ended
December 31,
    Six months ended
June 30,
 
       2004     2005     2006     2006     2007  
                       (unaudited)  
     (percentage of total)  
                          

Revenue

   100 %   100 %   100 %   100 %   100 %

Cost of goods sold

   92     113     91     100     68  
                              

Gross profit (loss)

   8     (13 )   9         32  
                              

Operating expenses:

          

General and administrative

   19     29     16     20     14  

Sales and marketing

   10     7     5     8     2  

Research and development

   6     6     4     5     3  

Asset impairment

           4          

Loss on disposal of assets

       2              
                              

Total operating expenses

   35     44     29     33     19  
                              

Profit (loss) from operations

   (27 )   (57 )   (20 )   (33 )   13  

Other income (expense)

   (7 )   (17 )   (16 )   (13 )   (10 )
                              

Profit (loss) before cumulative effect of change in accounting principle

  

(34


)

  (74
)
  (36
)
  (46
)
 

3


 

Cumulative effect of change in accounting principle

           (1 )   (2 )    
                              

Net profit (loss)

   (34 )%   (74 )%   (37 )%   (48 )%   3 %
                              

 

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Comparison of six months ended June 30, 2006 to six months ended June 30, 2007

Revenue.     Revenue was $8.9 million for the six months ended June 30, 2006 and $15.5 million for the six months ended June 30, 2007, an increase of $6.6 million, or 74%. Revenue increased across all product lines. Our revenue increase was attributable to a 76% increase in units shipped, particularly for LED market applications, initial volume deliveries for four inch diameter sapphire products, price increases for two inch products beginning in the first quarter of 2007 and a significant increase in sales of six inch products to the SOS RFIC market. We also achieved higher revenue from optical products due to increased sales of sapphire and fluorides for military, aerospace, sensor and other applications.

Gross profit.     Gross profit was $12,000 for the six months ended June 30, 2006 and $5.0 million for the six months ended June 30, 2007, an increase of approximately $5.0 million. This increase in gross profit represented an improvement of gross margins from 0% to 32%. The increase in gross profit in 2007 compared to 2006 was primarily due to a shift to higher margin products including sapphire cores and larger diameter sapphire products, our exit from the two inch polished wafer business on which we realized a negative gross margin, improved operating leverage from higher throughput, increased production yields and lower scrap costs.

General and administrative expenses.     G&A expenses were $1.8 million for the six months ended June 30, 2006 and $2.3 million for the six months ended June 30, 2007, an increase of $514,000. The increase was primarily due to $317,000 from higher bonus costs, $136,000 of additional stock based compensation, $88,000 from higher recruiting costs associated with a search for our chief financial officer, $79,000 from higher financing fees associated with debt refinancing, $73,000 from higher legal costs and $43,000 from higher board expenses. These costs were partially offset by lower finance and human resource staff expenses of $197,000 and lower bad debt expense of $74,000.

Sales and marketing expenses.     Sales and marketing expenses were $648,000 for the six months ended June 30, 2006 and $335,000 for the six months ended June 30, 2007, a decrease of $313,000. The decrease in selling expenses, even as revenue increased, is attributable to the elimination in 2006 of our Japan sales office, shipment of fewer samples and tighter control of other selling expenses.

Research and development expenses.     R&D expenses were $357,000 for the six months ended June 30, 2006 and $376,000 for the six months ended June 30, 2007. In both years, similar amounts of R&D resources were focused on several R&D projects, especially developing larger diameter products.

Other income (expense).     Other income (expense) was $(1.2) million for the six months ended June 30, 2006 and $(1.4) million for the six months ended June 30, 2007, an increase of approximately $200,000. The increase was primarily due to the change in carrying value of preferred stock warrants. Interest expense was slightly lower during the six month period ended June 30, 2007 as a result of the refinancing of our debt facility at a lower interest rate, which was partially offset by a higher loss on disposal of assets.

Comparison of years ended December 31, 2005 and 2006

Revenue.     Revenue was $16.3 million for the year ended December 31, 2005 and $20.8 million for the year ended December 31, 2006, an increase of $4.5 million, or 28%. Revenue increased across all product lines except for polished wafers. Our revenue increase was attributable to increased sales volumes, particularly for LED market applications, which offset price decreases that began in 2005 and continued through the third quarter of 2006 due to increased market competition. In 2006, our polishing revenue declined due to our strategic decision to exit the two inch polished wafer business in the second quarter of 2006. As we exited this business, we realized much higher sales volumes of non-polished


 

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products in the second half of 2006 as we stopped competing with our LED polishing customers. Revenue also increased in 2006 compared to 2005 as we began to provide large diameter (six inch) as-ground wafers to the SOS RFIC market and we achieved higher revenue from optical products due to continuing acceptance of sapphire and fluorides for military, aerospace, sensor and other applications.

Gross profit (loss).     Gross profit (loss) was $(2.2) million for the year ended December 31, 2005 and $1.9 million for the year ended December 31, 2006, an increase of $4.1 million. This increase in gross profit represented an improvement of gross margins from (13%) to 9%. The increase in gross profit in 2006 compared to 2005 was primarily due to an increase in units sold and a shift to higher margin products including sapphire cores and larger diameter sapphire products, our exit from the two inch polished wafer business on which we realized a negative gross margin, improved operating leverage from higher throughput, increased production yields and lower scrap costs.

General and administrative expenses.     G&A expenses were $4.7 million for the year ended December 31, 2005 and $3.3 million for the year ended December 31, 2006, a decrease of $1.4 million. The decrease was primarily due to cost savings of $293,000 from lower information technology and human resource headcount, $235,000 from lower bad debt expense and $160,000 from lower business insurance and legal costs, as well as the absence of restructuring costs of $627,000, information technology and executive consulting costs of $322,000 and recruiting expenses of $222,000 incurred in 2005 but not in 2006. These factors were partially offset by higher bonus expenses of $602,000.

Sales and marketing expenses.     Sales and marketing expenses were $1.3 million for the year ended December 31, 2005 and $1.1 million for the year ended December 31, 2006, a decrease of $204,000. The decrease in sales and marketing expenses, even as revenue increased, is attributable to the elimination of our Japan sales office and tighter control of other selling expenses.

Research and development expenses.     R&D expenses were $861,000 for the year ended December 31, 2005 and $679,000 for the year ended December 31, 2006, a decrease of $182,000. The decrease was primarily attributable to a decrease in materials used for product development and for qualification of polished products for the LED market.

Asset impairment.     We recorded an asset impairment charge of $933,000 in 2006 associated with our exit from the two inch polished wafer business during the second quarter of 2006.

Other income (expense).     Other income (expense) was $(2.7) million for the year ended December 31, 2005 and $(3.3) million for the year ended December 31, 2006, an increase of $537,000. The increase was primarily due to a change in carrying value of preferred stock warrants of $(2.0) million, offset in part by lower interest expense of $1.4 million in 2006, compared to $2.7 million in 2005, on lower average debt and capital lease balances.

Comparison of years ended December 31, 2004 and 2005

Revenue.     Revenue was $16.0 million for the year ended December 31, 2004 and $16.3 million for the year ended December 31, 2005, an increase of $272,000, or 2%. From 2004 to 2005, we had a significant increase in revenue from two inch polished products which offset the decrease in revenue for as-cut and as-ground wafers. Although the volume of our polishing product sales increased, the pricing of such products dropped throughout 2005, resulting in an overall price decrease of approximately 30%. Revenue from optical products increased in 2005 compared to 2004 due to increased market acceptance of sapphire and fluorides in optical applications.

Gross profit (loss).     Gross profit was $1.2 million for the year ended December 31, 2004, compared to a gross loss of $(2.2) million for the year ended December 31, 2005, a decrease of $3.4 million. This


 

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decrease in gross profit represented a decline in gross margin from 8% to (13%). The decrease in gross profit was primarily due to higher volumes and lower prices on two inch polished wafers on which we realized a negative gross margin and higher fixed costs for equipment depreciation and rent.

General and administrative expenses.     G&A expenses were $3.0 million for the year ended December 31, 2004 and $4.7 million for the year ended December 31, 2005, an increase of $1.7 million. The increase was primarily due to $650,000 from higher severance payments, $335,000 from higher information technology and executive consulting costs, $235,000 from higher recruiting expenses, $202,000 from higher bad debt expense, $187,000 from higher business insurance and legal fees, as well as the payment of $161,000 in retention bonuses in 2005. A significant portion of these increased costs were related to building our administrative infrastructure in anticipation of higher revenue growth.

Sales and marketing expenses.     Sales and marketing expenses were $1.6 million for the year ended December 31, 2004 and $1.3 million for the year ended December 31, 2005, a decrease of $320,000. This decrease was due primarily to a decrease in salary and related sales offices expenses from a reduction of our sales force in Japan.

Research and development expenses.     R&D expenses were $922,000 for the year ended December 31, 2004 and $861,000 for the year ended December 31, 2005. In both years, similar amounts of R&D resources were focused on developing polishing processes as well as fulfilling other R&D projects.

Other income (expense).     Other income (expense) was $(1.1) million for the year ended December 31, 2004 and $(2.7) million for the year ended December 31, 2005, an increase of $1.6 million. The increase was primarily due to an increase in average debt balances leading to an interest expense increase of $1.6 million in 2005.

Quarterly results of operations

The following table sets forth our selected unaudited quarterly statement of operations data for each of the last six fiscal quarters. The financial statements for each of these quarters have been prepared on the same basis as the audited financial statements included elsewhere in this prospectus and, in the opinion of management, include all adjustments necessary for the fair presentation of the results of operations for these periods. You should read this information together with our financial statements and related notes included elsewhere in this prospectus. These quarterly operating results are not necessarily indicative of the results of any future period.

 

         Three months ended  
         March 31,
2006
    June 30,
2006
    September 30,
2006
    December 31,
2006
    March 31,
2007
    June 30,
2007
 
        
         (in thousands)  

Revenue

     $4,428     $4,522     $5,748     $6,054     $7,202     $8,246  

Cost of goods sold

     4,715     4,223     4,973     4,974     5,056     5,411  
                                      

Gross profit (loss)

     ($287 )   $299     $775     $1,080     $2,146     $2,835  
                                      

Gross profit (loss) as a percentage of revenue

     (6.5 )%   6.6 %   13.5 %   17.8 %   29.8 %   34.4 %

Profit (loss) from operations

     ($1,832 )   ($1,017 )   ($426 )   ($872 )   $915     $951  

Profit (loss) from operations as a percentage of revenue

     (41.4 )%   (22.5 )%   (7.4 )%   (14.4 )%   12.7 %   11.5 %

Net profit (loss)

     ($2,403 )   ($1,900 )   ($1,091 )   ($2,246 )   $283     $232  

Net profit (loss) as a percentage of revenue

     (54.3 )%   (42.0 )%   (19.0 )%   (37.1 )%   3.9 %   2.8 %

 

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Our revenue has increased sequentially over the past six quarters as the market demand for our products has increased. In addition, in 2006 we made the strategic decision to exit the two inch polished wafer business. By exiting this market, we were able to expand our product offerings to our customers. Demand for our products increased significantly in the quarter ended September 30, 2006, when we realized a 27% sequential increase in revenue. Sequential revenue growth slowed during the quarter ended December 31, 2006 to 5%, largely due to our low inventory levels resulting from the strong third quarter demand. Sequential revenue growth in the quarters ended March 31, 2007 and June 30, 2007 was 19% and 14%, respectively.

Over the past six quarters, our gross margin has also improved, growing from (6.5)% in the quarter ended March 31, 2006 to 34.4% in the quarter ended June 30, 2007. This improvement in gross margin is due to improved manufacturing and purchasing efficiencies, economies of scale related to higher unit volumes, a shift in product mix to larger diameters and the exit from the lower margin two inch polished wafer business.

Revenue growth, along with the operating efficiencies and management of operating expenses, has resulted in improvement in operating margin, which has increased from (41.4)% in the quarter ended March 31, 2006 to 11.5% in the quarter ended June 30, 2007.

Our quarterly results of operations have varied in the past and are likely to do so again in the future. As such, we believe that period-to-period comparisons of our operating results should not be relied upon as an indication of future performance. In future periods, the market price of our common stock could decline if our revenue and results of operations are below the expectations of analysts or investors.

LIQUIDITY AND CAPITAL RESOURCES

We have funded our operations using a combination of issuances of common stock and preferred stock, a working capital line of credit and term loans and cash generated from our operations. Since our inception, we have raised approximately $56.0 million of equity from the issuance of common and preferred stock.

As of June 30, 2007, we had cash of $3.6 million held in deposits at a major bank, $5.1 million outstanding under our term loan and $3.0 million outstanding under our line of credit. As of June 30, 2007, we had $1.0 million available on our line of credit and $6.9 million available on our term facility.

Cash flows from operating activities

Cash used by operating activities was $1.2 million for the six months ended June 30, 2006. During such period, we generated a net loss of $4.3 million and had non-cash charges of $2.6 million, including depreciation expense of $1.6 million, change in carrying value of preferred stock warrants of $753,000 and interest expense related to debt accretion of $182,000. We also experienced a decrease in inventory of $577,000 as in-stock inventory and spare parts were used to meet customer demand.

Cash provided by operating activities was $2.3 million for the six months ended June 30, 2007. During such period, our net profit was $515,000 and we incurred non-cash charges of $2.8 million, including depreciation expense of $1.6 million, change in carrying value of preferred stock warrant expense of $721,000 and interest expense related to debt accretion of $273,000. We experienced an increase in accounts receivable of $901,000 on increased sales, and an increase in accounts payable of $678,000 and an increase in inventory and spare parts of $660,000, due to increased production. The $3.5 million


 

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increase in cash provided by operating activities for the six months ended June 30, 2007, compared to the six months ended June 30, 2006, is primarily attributable to a net profit of $515,000 for the six months ended June 30, 2007, compared to a net loss of $4.3 million for the six months ended June 30, 2006, as sales volume and pricing increased and our production costs declined.

Cash provided by operating activities was $659,000 for the year ended December 31, 2006. During such period, we generated a net loss of $(7.6) million, offset primarily by non-cash charges of $6.7 million, including depreciation expense of $3.1 million, change in carrying value of preferred stock warrant of $2.2 million, interest expense related to debt accretion of $352,000 and asset impairment of $933,000. With our exit from the two inch polished wafer business during the second quarter of 2006, we recorded an asset impairment charge to write-down to estimated fair market value certain polishing fixed assets that will no longer be used. Inventory decreased by $1.4 million as inventory added in 2005 was used to meet demand.

Cash used in operating activities was $9.4 million for the year ended December 31, 2005. During such period, we generated a net loss of $12.1 million, experienced an increase in inventory of $1.6 million and a decrease in accounts payable of $1.2 million. This was partially offset by non-cash charges of $5.2 million, including depreciation expense of $3.1 million, loss on disposal of assets of $383,000, amortization of financing costs of $225,000 and non-cash interest expense related to warrants issued with debt of $1.5 million. Inventory levels increased by $1.6 million as fourth quarter sales slowed. In addition, accounts payable decreased by $1.2 million as capital expenditures projects slowed and production consumables purchases slowed. The $10.1 million increase in cash provided by operating activities for the year ended December 31, 2006 compared to the year ended December 31, 2005 is primarily due to a decrease in net loss as we exited the two inch polished wafer business in 2006. Further, 2006 sales included inventory that was added in 2005, and our accounts payable decreased in 2005 as production slowed and capital expenditures were significantly reduced.

Cash used in operating activities was $2.1 million for the year ended December 31, 2004. During such period, we generated a net loss of $5.4 million which was primarily offset by non-cash charges of $2.4 million, including depreciation charges of $2.0 million and amortization of financing costs of $371,000. We experienced an increase of accounts payable of $881,000 primarily due to timing of receipts of goods and services and payments. The $7.3 million decrease in cash provided by operating activities for the year ended December 31, 2005 compared to the year ended December 31, 2004 is primarily due to an increase in net loss primarily due to higher volumes and lower prices on two inch polished wafers, on which we earned a negative gross margin, and higher fixed costs for equipment depreciation and rent. Also, in 2005, accounts payable for consumable and capital expenditures were significantly reduced and inventory increased.

Cash flows used in investing activities

Net cash used in investing activities during the six months ending June 30, 2006 and 2007 was $72,000 and $4.5 million, respectively. Capital expenditures were limited in the first six months of 2006, while during the first six months of 2007 we purchased components used to construct our crystal growth furnaces and to purchase various equipment used to expand our production capacity in support of our sales growth.

Net cash used in investing activities was $8.7 million, $4.1 million and $2.3 million for the years ended December 31, 2004, 2005, and 2006, respectively. In 2004, we used approximately $5.3 million to expand our crystal growth infrastructure and the number of crystal growth furnaces. Also, during 2004, approximately $2.1 million was used for infrastructure and additional equipment needed to expand our


 

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polishing capacity. In 2005, we used approximately $1.7 million to construct crystal growth furnaces and approximately $2.4 million to increase polishing and slicing capacity. In 2006, we used approximately $1.2 million to add crystal growth furnaces and approximately $1.1 million to upgrade existing capacity in other areas.

For the remainder of 2007, we expect to spend approximately $7.0 million for capital expenditures, primarily to increase our manufacturing infrastructure and capacity. We expect to spend between $12.0 million to $17.0 million per year for each of the next two years on capital expenditures to support our expected sales growth.

Cash flows from financing activities

Net cash from financing activities was $2.1 million and $2.2 million for the six month periods ended June 30, 2006 and 2007, respectively. Net cash provided from financing activities for the six months ended June 30, 2006 reflects the net proceeds of $3.1 million received from the sale of our Series E preferred stock, which was offset partially by the net repayment of borrowings of $1.0 million. Net cash provided from financing activities for the six months ended June 30, 2007 reflects net proceeds from debt refinancing of $2.2 million.

Net cash provided from financing activities was $12.5 million, $11.1 million and $3.8 million for the years ended December 31, 2004, 2005, and 2006, respectively. Net cash provided from financing activities for 2004 reflects proceeds of $12.1 million received from the sale of shares of our Series C preferred stock and net borrowings of $287,000. Net cash provided from financing activities for 2005 reflects proceeds of $4.9 million received from the sale of shares of our Series D preferred stock and Series E preferred stock, as well as short-term borrowings from investors of $7.5 million, which were converted into additional shares of our Series D preferred stock and Series E preferred stock. These amounts were partially offset by the net repayment of borrowings of $1.4 million. Net cash provided from financing activities for 2006 reflects proceeds received from the sale of our Series E preferred stock of $5.6 million, offset by the net repayment of borrowings of $1.6 million.

Future liquidity requirements

We believe that our existing cash and cash equivalents, anticipated cash flows from operating activities and the net proceeds from this offering will be sufficient to meet our anticipated cash needs for at least the next 12 months. These cash needs include cash required to fund our operations, taking into account anticipated increases in operating expenses and our planned capital expenditures to support our continued growth. If the assumptions underlying our business plan regarding future revenues and expenses change, or if unexpected opportunities or needs arise, we may seek to raise additional cash by selling equity or convertible debt securities. If we raise additional funds through the issuance of equity or convertible debt securities, the percentage ownership of our stockholders could be significantly diluted, and these newly-issued securities may have rights, preferences or privileges senior to those of existing stockholders. If we obtain additional debt financing, a substantial portion of our operating cash flow may be dedicated to the payment of principal and interest on such indebtedness, and the terms of the debt securities issued could impose significant restrictions on our operations. If we are unable to obtain financing on terms favorable to us, we may be unable to successfully execute our business plan.

Credit facilities

In April 2007, we entered into a three-year, $12.0 million term loan and a one-year, $4.0 million accounts receivable and inventory revolving line of credit financing agreement with Hercules Technology Growth Capital, Inc. These loans are collateralized by all of our assets. The term loan is available for


 

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draw through October 31, 2007, subject to extension based on agreed financial metrics. The term loan interest rate is equal to the prime rate plus 3.375% and the line of credit rate is equal to the prime rate plus 0.25%. We intend to repay these facilities in full with a portion of the proceeds of this offering.

Contractual obligations

The contractual obligations presented in the table below represent our estimates of future payments under fixed contractual obligations and commitments at December 31, 2006. Changes in our business needs or interest rates, as well as actions by third parties and other factors, may cause these estimates to change. Because these estimates are complex and necessarily subjective, our actual payments in future periods are likely to vary from those presented in the table. The following table sets forth information relating to our contractual obligations at December 31, 2006:

 

     Payments due in
      

Less than

1 year

   1-3
years
   3-5
years
   More than
5 years
   Total
     (in millions)

Operating lease obligations

   $ 1.0    $ 1.7    $ 1.4    $ 2.2    $ 6.3

Capital lease obligations

     0.3                     0.3

Principal payments on term loan obligations

     2.0      2.6                4.6

Principal payments on line of credit obligations

     1.0                     1.0

Interest payments on term loan obligations (1)

     0.5      0.2                0.7

Interest payments on line of credit obligation (2)

     0.1                     0.1
                                  

Total contractual obligations

   $ 4.9    $ 4.5    $ 1.4    $ 2.2    $ 13.0
                                  

(1)   Interest rates on term loans range from 8.56% to 12.14%.
(2)   Represents estimated interest payments at December 31, 2006, equal to the then-prime rate (8.25%) plus 2.0%.

OFF-BALANCE SHEET ARRANGEMENTS

During 2004, 2005, 2006 and the six months ended June 30, 2007, we did not engage in any off-balance sheet arrangements. We do not have any interest in entities referred to as variable interest entities, which includes special purpose entities and other structured finance entities.

QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

Market risk is the risk of loss related to changes in market prices, including interest rates, of financial instruments that may adversely impact our financial position, results of operations or cash flows.

Foreign currency exchange risk.     To date, substantially all of our international sales have been transacted in US dollars. Accordingly, we have limited exposure to foreign currency exchange rates and do not enter into foreign currency hedging transactions.

Interest rate risk.     At June 30, 2007, we had $3.0 million of borrowings outstanding under our revolving line of credit, which bore interest at a rate of prime plus 0.25%. We also had $5.1 million of borrowings outstanding under our term loan line of credit, which bore interest at a rate of prime plus 3.375%. We do not use interest rate derivatives to limit our interest rate market risk. Increases in the prime interest rate, however, will reduce future earnings. If overall interest rates increased by 10% in 2006, our interest expense would have increased by approximately $17,000.


 

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Inflation.     Our operations have not been, and we do not expect them to be, materially affected by inflation. However, historically, the prices we charge our customers are market driven, and therefore we may not be able to increase our prices to offset any increase in our material or labor costs. Our inability or failure to do so could harm our business, financial condition and results of operations.

INTERNAL CONTROL OVER FINANCIAL REPORTING

In connection with the audit of our financial statements for the year ended December 31, 2006, our independent registered public accounting firm identified certain material weaknesses and other control deficiencies in our internal control over financial reporting. A “control deficiency” exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent or detect misstatements on a timely basis. A “significant deficiency” is a control deficiency, or combination of control deficiencies, that adversely affects the entity’s ability to initiate, authorize, record, process or report financial data reliably in accordance with generally accepted accounting principles such that there is more than a remote likelihood that a misstatement of the entity’s financial statements that is more than inconsequential will not be prevented or detected by the entity’s internal control. Our auditors defined a “material weakness” as a significant deficiency, or combination of significant deficiencies, that results in more than a remote likelihood that a material misstatement of the financial statements will not be prevented or detected by the entity’s internal control.

The material weaknesses identified by our auditors relate to the following:

 

Ø  

Financial reporting and complex accounting transactions.     We do not maintain formal, comprehensive policies and procedures related to our recording of standard, non-standard and recurring journal entries. Furthermore, we do not have adequate processes for properly identifying and recording properly various complex accounting transactions such as warrants, stock options and financing transactions.

 

Ø  

Segregation of duties.     Primarily due to the size of our accounting department, we have not been able to maintain an adequate segregation of duties in key accounting processes. In addition, we have no documented formal accounting policies and procedures that require timely reconciliation and thorough reviews of reconciliations.

 

Ø  

Inventory.     We do not maintain perpetual inventory records and do not have a formal inventory system. In addition, we do not have formal production tracking nor do we maintain an inventory master file.

 

Ø  

Information technology.     Our auditors identified four areas where improvements are needed in our IT controls:

 

   

The duties of some of our employees overlap into conflicting areas. We also do not monitor or review the structure of our IT department relative to the rights and responsibilities of current users of our IT systems.

 

   

We do not have a formal approval process in place to define the objectives of our IT department nor do we conduct any periodic evaluation on the control structure of the department. We do not have formally documented policies or processes in place to assess the risk within our IT organization as well as external threats and risks, for conducting back up procedures to protect critical systems or for dealing with IT access by terminated employees.

 

   

We have no procedures in place for detecting, and testing for, external intrusion into our IT systems.

 

   

We do not periodically review and evaluate our system events logs, activity reports or firewall upgrades or configuration.


 

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In addition, our auditors noted several control deficiencies, which are of a lesser magnitude than the material weaknesses described above. These control deficiencies relate to our historical lack of a code of business conduct, our failure to have a process in place to receive, evaluate and retain complaints from our employees regarding questionable practices and our failure to document the process for reconciling our stock records with third-party records. Our management and auditors were not required to, and did not, perform an evaluation of our internal control over financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act of 2002. Had we and our auditors performed such an evaluation, additional material weaknesses and other control deficiencies may have been identified.

We are involved in an ongoing process of planning and implementing changes to strengthen our internal controls and to address the material weaknesses and other control deficiencies identified by our auditors. Specific plans and actions include:

 

Ø  

We hired a chief financial officer on July 31, 2007 and we intend to hire additional financial and accounting personnel. We believe these additions will facilitate an improved segregation of duties as well as allow for additional levels of review and approval of accounting transactions.

 

Ø  

We have identified an automated inventory system that we believe will significantly improve our inventory records and production tracking. We plan to have the new system in place by the end of the first quarter of 2008.

 

Ø  

We have adopted a code of business conduct and ethics covering a wide range of business practices and procedures. The code, which applies to all of our directors, officers and other employees, is designed to communicate and enforce our ethical standards throughout our company.

 

Ø  

We are implementing procedures whereby employees may submit, on an anonymous basis, complaints regarding questionable business or accounting practices within our company.

 

Ø  

We are taking steps to codify and otherwise formalize various policies and procedures under which we currently operate, as well as to put in place more comprehensive formalized policies and procedures.

 

Ø  

We plan to retain an independent accounting firm to begin the formal process of preparing for our implementation of Section 404 of the Sarbanes-Oxley Act of 2002.

We will need to take additional remediation measures as well. These additional measures, as well as the measures that we have taken or plan to take, as described above, may be insufficient to address the material weaknesses and other control deficiencies identified by our auditors. In addition, other material weaknesses and control deficiencies may be identified in the future. If we fail to remediate these deficiencies, we may fail to meet our future reporting obligations, our financial statements may contain material misstatements and our operating results may be harmed.

Once we become a public company, we will be required to comply with the requirements of Section 404 of the Sarbanes-Oxley Act of 2002. In this regard, beginning with our annual report on Form 10-K for the year ending December 31, 2008, we will be required on an annual basis to assess the effectiveness of our internal control over financial reporting and include a statement as to whether or not our internal control over financial reporting is effective. In addition, beginning with our year ending December 31, 2009, we will be required to have our independent registered public accounting firm issue an attestation report on our assessment of our internal control over financial reporting. In conducting our assessment, we will not be able to conclude that our internal control over financial reporting is effective if we have one or more material weaknesses. If we or our independent registered public accountants conclude that our internal control is not effective, our investors could lose confidence in our financial reports and our stock price could decline. An ineffective internal control environment could also adversely effect our ability to report our financial results in a timely manner and could materially adversely affect our business.


 

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CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The preparation of financial statements in accordance with accounting principles generally accepted in the United States requires us to make estimates, assumptions and judgments that affect the amounts reported in our financial statements and the accompanying notes. We base our estimates on historical experience and various other assumptions that we believe to be reasonable. Although these estimates are based on our present best knowledge of the future impact on the company of current events and actions, actual results may differ from these estimates, assumptions and judgments.

We consider to be critical those accounting policies that require our most subjective or complex judgments, which often result from a need to make estimates about the effect of matters that are inherently uncertain, and that are among the most important of our accounting policies in the portrayal of our financial condition and results of operations. We believe the following to be our critical accounting policies, including the more significant estimates and assumptions used in preparation of our financial statements.

Revenue recognition.     We recognize revenue from sales of products when:

 

Ø  

Persuasive evidence of an arrangement exists.     We require evidence of a purchase order with the customer specifying the terms and specifications of the product to be delivered, typically in the form of a signed quotation or purchase order from the customer.

 

Ø  

Title has passed and the product has been delivered.     Title passage and product delivery generally occurs when the product is delivered to a common carrier.

 

Ø  

The price is fixed or determinable.     All terms are fixed in the signed quotation or purchase order received from the customer. The purchase orders do not contain rights of cancellation, return, exchanges or refunds.

 

Ø  

Collection of the resulting receivable is reasonably assured.     Our standard arrangement with customers includes 30 day terms. Customers are subject to a credit review process that evaluates each customer’s financial position and its ability to pay. We determine collectibility by considering the length of time the customer has been in business and our history of collections with that customer. If it is determined that collection is not probable, no product is shipped and no revenue is recognized unless cash is received in advance.

R&D revenue is recognized as services are performed. We execute agreements with our customers that clearly describe the scope of the project, the services we will provide, ownership of any tangible or intangible assets generated as part of the project, and the amount of consideration we will receive.

All of our revenue is denominated in United States dollars.

Inventory valuation.     We value our inventory at the lower of cost or market. Market is determined based on net realizable value. Cost is determined for raw materials on a first-in, first-out basis and work in process and finished goods are based on actual costs. We establish inventory reserves when conditions exist that suggest inventory may be in excess of anticipated demand or is obsolete based on customer required specifications. We evaluate the ability to realize the value of our inventory based on a combination of factors, including forecasted sales, estimated current and future market value and changes in customer’s product specifications. Recoveries of previously written-down inventory are recognized only when the related inventory is sold and revenue has been recognized.

Allowance for doubtful accounts.     We estimate the allowance for doubtful accounts based on an assessment of the collectibility of specific customer accounts. The determination of risk for collection is


 

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assessed on a customer-by-customer basis considering our historical experience and future orders with the customer, changes in payment patterns, and recent information we have about the current status of our accounts receivable balances. If we determine that a specific customer is a risk for collection, we provide a specific allowance for credit losses to reduce the net recognized receivable to the amount we reasonably believe will be collected.

Stock-based compensation.     Effective January 1, 2006 we adopted SFAS 123R which amends SFAS 123 “Accounting for Stock-Based Compensation” (“SFAS 123”), and requires us to expense stock options based upon the fair market value on the date of grant. We adopted SFAS 123R using the prospective method. Under this transition method, the provisions of SFAS 123R are applied to new awards and to awards modified, repurchased, or cancelled after January 1, 2006. We selected the Black-Scholes option pricing model to determine the fair value of stock options. The determination of the fair value of stock-based payment awards on the date of grant using an option-pricing model will be affected by assumptions regarding a number of complex and subjective variables. These variables include our expected stock volatility over the term of the awards, actual and projected employee stock option exercise behaviors, risk-free interest rates, forfeitures and expected dividends.

The expected term represents the weighted-average period that our stock options are expected to be outstanding and is based upon the vesting term of our options, a review of a peer group of companies, and expected exercise behavior. As we have been operating as a private company since inception, we are unable to use our actual price volatility data. Therefore, we estimate the volatility of our common stock based on volatility of similar entities over the expected term of our stock options. We base the risk-free interest rate that we use in the option pricing model on US Treasury zero-coupon issues with remaining terms similar to the expected term on the options. We do not anticipate paying any cash dividends in the foreseeable future and, therefore, use an expected dividend yield of zero in the option pricing model. We are required to estimate forfeitures at the time of grant and revise those estimates in subsequent periods if actual forfeitures differ from those estimates. The current forfeiture rate of 25% was based on our past history of pre-vesting forfeitures.

We had a choice of two attribution methods for allocating compensation costs under SFAS 123R, the “straight-line method,” which allocates expense on a straight-line basis over the requisite service period of the last separately vesting portion of an award, or the “graded vesting attribution method,” which allocates expense on a straight-line basis over the requisite service period for each separately vesting portion of the award as if the award was, in substance, multiple awards. We chose the former method and amortized the fair value of each option on a straight-line basis over the service period.

Based on the variables affecting the valuation of our common stock and the method used for allocating compensation costs, we recognized $62,000 in stock compensation expense during the year ended December 31, 2006.

With respect to each option grant date for the years ended December 31, 2004, 2005 and 2006, we determined the deemed fair value of our common stock. As there was no public market for our common stock during these periods, this determination was necessarily subjective. In making this determination, we considered a number of factors, including:

 

Ø  

the issuance price of our series of preferred shares to third parties;

 

Ø  

the liquidation preference and other rights of the preferred shares;

 

Ø  

the fact that the option grants involved illiquid securities of a private company; and

 

Ø  

valuations performed by independent valuation firms.


 

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For options granted in 2006, the board of directors set the exercise price for options granted based upon estimates of fair value. Upon completion of our valuation reports in 2007, for financial reporting purposes, we determined that it was appropriate to use $0.39 per share for options granted between January and July 2006 and $0.26 per share for options granted between August and October 2006 as the fair value within the Black-Scholes option pricing model. These fair values were prepared by an independent valuation firm using the option pricing method developed for two scenarios (initial public offering and remaining private) weighted according to the probability of occurrence. This methodology is in accordance with the AICPA’s Practice Aid “Valuation of Privately-Held-Company Equity Securities Issued as Compensation”, which we refer to as the practice aid.

The following table sets forth option grants made during 2006, with the intrinsic value calculated based on grant date fair value.

 

Date of Grant    Number of
options
granted
   Exercise
price
   Fair value
estimate
per share
   Intrinsic
value
per share

January 2006

   471,022    $ 0.91    $ 0.39   

February 2006

   47,102      0.78      0.39   

April 2006

   23,551      0.78      0.39   

July 2006

   365,090      0.78      0.39   

August 2006

   1,538      0.78      0.26   

September 2006

   1,538      0.78      0.26   

October 2006

   1,923      0.78      0.26   

Convertible preferred stock warrant liability.     Beginning January 1, 2006, we began accounting for warrants to purchase our preferred stock issued in connection with financing agreements in accordance with FASB Staff Position (FSP) 150-5, “Accounting Under SFAS 150 for Freestanding Warrants and Other Similar Instruments on Redeemable Shares” (“FSP 150-5”). Pursuant to FSP 150-5, we evaluate certain specifically identified conditions to determine whether the fair value of these warrants is required to be classified as a liability. The fair value of the warrants that are classified as liabilities are adjusted for changes in fair value at each reporting period, and the corresponding non-cash gain or loss is recorded in current period earnings. We estimated the fair market value of these warrants at the respective balance sheet dates using a Black-Scholes option-pricing model, based on the estimated market value of the underlying preferred stock at the measurement date, the remaining contractual term of the warrant, risk-free interest rates and expected dividends on and expected volatility of the price of the underlying preferred stock. These estimates, especially the market value of the underlying preferred stock and the expected volatility, are highly judgmental. The assumptions used in our Black-Scholes option pricing model for Series E, C, B, B-2 and A warrants at January 1, 2006 upon the adoption of FSP 150-5 were: (i) remaining contractual terms of 2.1 to 9.9 years; (ii) risk-free interest rate of 4.82% to 4.86%; (iii) expected volatility of 50% to 79%, and (iv) no expected dividend yield. The assumptions used in our Black-Scholes option pricing model for Series E, C, B, B-2 and A warrants at December 31, 2006 were: (i) remaining contractual terms of 1.3 to 9.1 years; (ii) risk-free interest rates of 4.70% to 5%; (iii) expected volatility of 47% to 76% and (iv) no expected dividend yield. In each case, the fair value of the underlying preferred stock was assessed primarily by an independent valuation performed by a third-party using the practice aid.

Upon the closing of this offering, outstanding warrants to purchase our preferred stock will become warrants to purchase shares of our common stock and certain of these warrants to purchase our preferred stock are expected to be net exercised. As a result, will no longer be subject to FSP 150-5. The then-current aggregate fair value of these warrants will be reclassified from liabilities to additional paid-in-capital, a component of stockholders’ equity, and we will cease to record any related periodic fair value adjustments.


 

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Redeemable convertible preferred stock.     We have issued various classes of preferred stock. The holders of Series A, B, B-2, C, C-2, D, D-2 and E preferred stock have the option to sell their shares back to us at the greater of the original purchase price plus accrued and unpaid dividends or the current fair market value of the shares plus accrued and unpaid dividends. As a result, the carrying value of the preferred stock has been increased by an accretion amount each period so that the carrying amounts will equal the greater of fair value plus accrued and unpaid dividends or original purchase price plus accrued and unpaid dividends. The accreted amounts are recorded to accumulated deficit. The option to sell and the related accretion of the preferred shares terminate upon the closing of this offering.

The fair value of our preferred stock was determined based upon the sales price of our preferred stock to third-party investors, and in 2006 and 2007, when transactions in our preferred stock were not available, based upon independent valuations using the methodology set forth in the practice aid. This methodology considered the probability and fair value of the sale of stock in an initial public offering.

RECENT ACCOUNTING PRONOUNCEMENTS

In July 2006, the FASB issued Financial Accounting Standards Interpretation No. 48, “Accounting for Uncertainty in Income Taxes” (“FIN 48”). FIN 48 clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with SFAS 109, “Accounting for Income Taxes” (“SFAS 109”). FIN 48 prescribes a recognition and measurement method for a tax position taken or expected to be taken in a tax return. FIN 48 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosures and transitions. FIN 48 is effective for fiscal years beginning after December 15, 2006. We adopted this interpretation on January 1, 2007 and it did not have a material impact on our financial statements.

In September 2006, the FASB issued SFAS 157, “Fair Value Measurements” (“SFAS 157”), which defines fair value, establishes a framework for measuring fair value in accordance with generally accepted accounting principles, and expands disclosures about fair value measurements. SFAS 157 is effective in fiscal years beginning after November 15, 2007. We have not yet determined the effect that the adoption of SFAS 157 will have on our results of operations or financial position.

In February 2007, the FASB issued SFAS 159, “The Fair Value Option for Financial Assets and Financial Liabilities” (“SFAS 159”). SFAS 159 permits entities to measure at fair value many financial instruments and certain other items on an instrument-by-instrument basis that are not currently required to be measured at fair value. SFAS 159 is effective for fiscal years beginning after November 15, 2007. We have not yet determined the effect that the adoption of SFAS 159 will have on our results of operations or financial position.


 

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Business

OVERVIEW

We are an advanced electronic materials provider that is a leader in developing, manufacturing and selling monocrystalline sapphire and other innovative crystalline products for LEDs, RFICs, blue laser diodes, optoelectronics and other optical applications. The emergence of sapphire in commercial volumes at competitive prices has enabled the development of new technologies such as high brightness (“HB”) white, blue and green LEDs and highly-integrated RFICs. We apply our proprietary crystal growth technology to produce high-quality sapphire products efficiently to supply a large and growing end-market demand, and we work closely with our customers to meet their quality and delivery needs. We believe we are the leading supplier of sapphire products to the LED industry.

We are a vertically integrated manufacturer of high-quality sapphire substrates and optical windows that are used in a variety of high-growth, high-volume end-market applications. Our largest product line is two to four inch sapphire wafers for use in LEDs and blue laser diodes for solid state lighting and electronic applications. In addition, we have developed six inch sapphire wafers that are used for SOS RFICs, as well as products for military, aerospace, sensor and other applications. We are also extending our technology to manufacture eight inch and larger diameter products to support next-generation LED, RFIC and optical window applications.

Our fully integrated in-house capabilities enable us to design, assemble and maintain proprietary crystal growth furnaces to grow high purity, low-stress, ultra low defect density sapphire crystals. In addition, we possess leading capabilities in high precision core drilling, wafer slicing, surface lapping, edge bevel grinding and wafer cleaning processes. We foster a strong sense of innovation and agility in our product development teams in an attempt to develop new products more effectively and to rapidly capture market growth.

The strong and increasing demand for our products has led us to expand our production capabilities. We plan to leverage our technological advantage in efficiently producing high-quality, large-diameter sapphire products to maintain our leadership position and capitalize on future growth opportunities. To attain this goal, we are accelerating our research and development activities, continuing to enhance our operational capabilities, increasing our brand recognition and diversifying into new market segments.

INDUSTRY OVERVIEW

Integrated circuits and other semiconductor devices have traditionally been fabricated on silicon substrates. However, for certain advanced applications, new electronic materials have emerged as the substrates of choice due to evolving integration and performance considerations. For example, sapphire is the preferred substrate material for HB white, blue and green LED applications due to its crystal lattice compatibility with the aluminum gallium nitride (“AlGaN”) epitaxial layers, thermal expansion properties, commercial availability and cost efficiency. Other sapphire applications include Silicon-on-Sapphire integrated circuits, optical lenses and windows, and substrates for blue laser diodes.


 

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LOGO

Figure 1: Typical LED structure

LED applications

Advancements in solid state lighting utilizing HB white, blue and green LEDs over the past decade represent a disruptive technology in the lighting industry, providing significant performance, environmental and economic improvements compared to traditional incandescent or fluorescent lighting. For example, traditional incandescent lamps are inefficient and costly, emitting over 90% of consumed power as heat and lasting only 1,500 to 2,000 hours. Fluorescent lamps produce light by passing electricity through toxic mercury vapor, which creates an environmental disposal problem. LEDs do not contain any toxic materials and use only 20% of the energy of traditional incandescent lighting per lumens produced, while providing 50,000 to 100,000 hours of light and emitting much less heat. These factors, along with their durability, small form factor, excellent color performance, and decreasing costs, have led to a rapidly growing demand for LEDs in applications such as small displays for mobile devices, flashes for digital cameras, backlighting units (“BLUs”) for displays used in notebook computers, desktop monitors, LCD televisions, public display signs, automotive lights, traffic signals, and general and specialty lighting. Applications using LEDs have unit volumes in the billions and are expected to grow significantly. For instance, HB LEDs are expected to generate $4.7 billion in revenues in 2007, increasing to $9.4 billion by 2011, according to Strategies Unlimited, an independent market research firm based in Mountain View, California.

Mobile devices.     LEDs are used in color displays for mobile phones and other portable electronics such as GPS systems, MP3 players and digital camera flashes. According to Strategies Unlimited, the full color display penetration in mobile phones was 84% in 2005 and is expected to approach 100% over the next several years. According to a March 2007 report published by Gartner, in 2006, the number of manufactured mobile phones was approximately 997 million worldwide. LEDs are well-suited for mobile devices due to their low current drain which extend battery life and durability while generating less heat.

LED backlighting units for large displays.     LED BLUs are beginning to replace conventional fluorescent BLUs in notebook computers, desktop monitors and LCD flat panel televisions. Benefits of LED BLUs in these applications are extended battery life, thinner displays, quicker response time and better color rendition. Displays made with LED BLUs also have no toxic materials, which help electronics manufacturers to comply with environmental regulations. DisplayBank, an independent market research firm, estimates an increase in LED penetration in larger (greater than 10 inch) BLUs from 1% in 2007 to 14% by 2010. The backlight market for large-size LCD screens is estimated to grow by greater than 20% per year, approaching 500 million units by 2010, as forecasted by DisplayBank.


 

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Automotive lighting.     Automobile manufacturers are increasingly using LEDs in car and truck headlights, turning and tail light functions as well as interior lighting. Benefits include near-instant response time, reduced power usage and more stylish and effective designs. Uses for LEDs in all automotive applications (exterior and interior) are expected to grow at a compound annual growth rate (“CAGR”) of approximately 14% from 2005 to 2010, according to a report published in June 2006 by market research firm Strategies Unlimited. Increased LED usage in other transportation vehicles such as motorcycles and commercial jets offers additional growth potential.

Commercial signage.     LEDs are becoming more widely used as light sources on large signs and outdoor displays, such as jumbo screens used in sporting arenas and electronic billboard displays. The LED commercial sign/display market will grow at an estimated CAGR of approximately 42% from 2005 to 2010, according to a report published in June 2006 by market research firm Strategies Unlimited.

SOS RFIC and optical applications

SOS integrated circuits consist of a thin layer of silicon grown on a sapphire substrate and are primarily used in advanced wireless and military applications, such as RFICs. In particular, SOS RFICs are currently used in high volumes for mobile phones, broadband television set-top boxes, satellites and radiation-hardened applications for the defense industry. We believe SOS devices also represent a large potential market opportunity for sapphire due to sapphire’s outstanding properties as an insulating substrate material with outstanding thermal conductivity and crystal lattice compatibility with silicon, which, among other things, enables monolithic integration in RFICs.

Sapphire and various fluoride materials are utilized for windows and optics for aerospace, sensor, medical and laser applications. Sapphire is used in these applications due to its wide-band transmission, superior strength, scratch resistance and high strength-to-weight ratio. Sapphire’s physical properties makes it very well suited for jet fighter targeting pod windows, forward-looking infrared (“FLIR”) windows for commercial and business jets as well as unmanned air vehicles or drones, rocket domes and transparent armor for military vehicles.

Sapphire substrates are also used in the production of blue laser diodes. Blue laser diode technology allows much higher data storage for HD-DVD applications. Blue laser diodes are just beginning to penetrate potentially high volume applications, such as the Blu-ray Disc DVD players and leading-edge video game systems.

Sapphire substrate industry supply chain

The following diagram illustrates the supply chain from the sapphire material to the end application. Sapphire is the base material that “feeds” the entire value chain.

LOGO

Figure 2: Sapphire substrate industry supply chain


 

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The production process for sapphire substrates is substantially similar to that of silicon wafers. A typical process flow consists of crystal growth, fabrication, slicing, lapping and polishing steps. Output quality is measured in flatness, desired crystal planar orientation, etch pitch density and crystalline structure uniformity. A great emphasis is placed on continuously improving yields and increasing production capacity to drive costs lower to take advantage of emerging high-volume opportunities. Device manufacturers are seeking larger diameter sapphire wafers to allow them to develop higher performance applications and achieve economies of scale. Historical methods of sapphire crystal growth, which rely on lower-volume batch processes, are less able to meet the needs of leading end-market customers for high quality crystals, demanding dimensional tolerances, high production volumes, cost efficiency and on-time delivery.

THE RUBICON SOLUTION

We are an advanced electronic materials provider that is a leader in developing, manufacturing and selling monocrystalline sapphire and other innovative crystalline products for LEDs, RFICs, blue laser diodes, optoelectronics and other optical applications. As a leading producer of sapphire and provider of other crystals, we believe that the following are our principal competitive advantages:

Proprietary technology for crystal growth

We refer to the proprietary technology, equipment and processes we use in the production of our sapphire crystals as “ES2”, which stands for “evolving science, evolving solutions.” Due to our understanding of sapphire crystal growth seeding and crystal growth furnace operational parameters, we have developed a full in-house capability to design, build and maintain ES2 crystal growth furnaces with proprietary features. Our ES2 technology enables us to maintain a highly scaleable, efficient operation and to produce large diameter sapphire wafers that we believe exceed the quality of any other sapphire producer today. Our competitors employ the Kyropoulos, Czochralski (“CZ”), or Edge-defined Film-fed Growth (“EFG”) method to grow sapphire crystals. We believe that our ES2 technology, which employs an enhanced Kyropoulos methodology, significantly outperforms other methods of sapphire production with respect to capital costs, operating costs, throughput, quality and diameter size. Using our ES2 technology, we can currently produce sapphire products with diameters of up to seven inches in production volumes and we are developing the capability to produce eight inch and larger diameter sapphire products.

High quality sapphire products

We believe our sapphire crystal wafers are best-in-class in terms of quality. Our quality advantage is exhibited by our ability to produce crystals with an etch pitch density (“EPD”) of fewer than 100 defects per square centimeter, which is significantly better than the industry standard range (10,000 to 100,000 defects per square centimeter) for sapphire grown using other methods. Our sapphire also has ultra high (99.999%) purity levels. Our high purity sapphire helps our customers realize high yields in their processing. In addition, because of the high purity of our products, our customers have the ability to utilize our sapphire for optical applications requiring high transmission in the ultraviolet through mid-infrared spectral ranges. Through our operational expertise in crystal growth, post-growth processing and in-process manufacturing controls of sapphire wafer production, we are able to meet or exceed our customers’ key product specifications, such as crystalline quality, dimensional tolerances and crystal orientation, while maintaining high production yields.

Vertical integration

We possess critical know-how and proprietary processes and metrology for crystal growth and sapphire processing. We grow sapphire crystals and have extensive capabilities to process sapphire into products


 

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that meet our customers’ needs from cores to wafer and window blanks to large diameter epi-polished wafers. In the areas of fabrication and slicing, we employ high volume manufacturing techniques and utilize customized tooling and metrology to hold very tight dimensional and orientation tolerances for sapphire cores and wafers. We also have high precision lapping, edge bevel grinding and annealing capabilities for as ground wafers and window blanks. We have proprietary six and eight inch polishing and ultra-cleaning equipment and processes for SOS RFIC and other applications that demand larger-diameter epi-polished wafers. By vertically integrating our processes, we are able to achieve significant operating efficiencies and produce high-quality, high-precision products that offer cost and quality benefits to our customers. This vertical integration also helps enable us to expand our range of products and helps to protect our technology and manufacturing trade secrets.

High volume and flexible manufacturing capability

We provide a high volume and stable US-based supply of products for our customers. We offer reliable, consistent on-time delivery to our customers through our flexible and scalable production operations. We have developed automated manufacturing and metrology platforms at each stage of our production process that allow us to increase capacity rapidly and to switch products in manufacturing easily so that we can meet our customers’ specific product demands. We continue to expand our production capacity aggressively to meet the large and growing demand for our high-quality sapphire products.

Lowest total cost for customers

We compete on the quality of our products and our service levels to supplement our competitive pricing. We believe our high sustained yields, our dedication to consistent production and performance and our commitment to lasting customer relationships help assure our customers of a reliable source of high-quality sapphire products at stable prices. Our in-process quality control practices lead to predictable customer process yields, reduced inspection costs and overall high customer satisfaction. In addition, we work closely with our customers to understand their product specifications and then align our operations to meet their needs. Through close collaboration with our customers, we help them develop new applications for our advanced sapphire products and establish ourselves as a preferred supplier. As such, we believe our solution offers the lowest total cost for our customers.

STRATEGY

Our goal is to be the leading global provider of advanced monocrystalline substrate and window materials to the solid state lighting, SOS RFIC, aerospace and optical markets. We currently occupy a leading position among sapphire producers worldwide in market volume for two through four inch sapphire products for LEDs. A key element of our strategy is to increase the proportion of our shipments of four and six inch diameter products. The time elapsed from our beginning product development to shipping commercial volumes in the six inch sapphire substrate market was less than one year. As a result, we now have significant market share in the six inch SOS RFIC sapphire substrate market.

Our strategy includes the following key elements:

Extend our technology and manufacturing leadership position

We believe our specialized manufacturing processes and proprietary technology and trade secrets provide us with significant competitive advantages. We have designed and developed product, equipment and process technology platforms from which we can rapidly increase capacity and stay flexible to meet our customers’ needs. At each phase of our manufacturing process, we have developed and standardized


 

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automated equipment that employs similar processes to produce a full range of products. For example, all of our furnaces can grow sapphire crystals of the same size in various orientations to produce two through six inch wafers and cores. This reduces our operating costs and significantly improves our product development cycles. We intend to continue to develop advanced technology platforms to further increase crystal boule size and offer market-leading product specifications, while maintaining product quality and manufacturing efficiencies.

Capitalize on opportunities in high-growth markets

Our sapphire products are used in multiple applications in the high-growth LED and SOS RFIC markets. We also participate in optical market segments where sapphire and fluoride materials are being adopted rapidly in new applications. We intend to continue to expand our opportunities by adding new categories and sizes of products with the goal of providing our customers in multiple high-growth end markets with a robust set of sapphire solutions. For example, one of the largest market segment opportunities is likely to come from the solid state lighting market, which will require higher brightness, lower-cost white LEDs that require larger-size LED chips. Larger LED chips are increasingly being manufactured in volume on four inch sapphire wafers. Our process to manufacture large diameter, high quality sapphire wafers is well-suited to this market and we believe our processes will help enable its growth. We already produce high volumes of four and six inch sapphire products and we continue to add large diameter sapphire production capacity in anticipation of market growth. We expect that next-generation LEDs and SOS RFICs will be produced on six inch and larger sapphire wafers to further drive cost efficiencies. We already have development programs underway to provide eight inch and larger diameter sapphire as we hope to enable the more rapid conversion of LED and SOS production to these larger sapphire substrates.

Enhance operational excellence

Our unique expertise in producing high-quality sapphire products in many sizes gives us a significant edge in process and product technology. We plan to further refine our proprietary ES2 crystal growth techniques, sapphire processing platforms and process controls to produce even higher quality crystals at greater yields. Our engineering efforts focus on the capability to design, build and maintain ES2 crystal growth furnaces with new proprietary features. We seek to continuously improve our sapphire processing and material inspection capabilities. For example, we have recently added customized metrology tools in our coring and slicing production lines to tighten orientation tolerances and to increase throughput of large diameter sapphire products. We also promote operational excellence through lowering cycle times, raising yields, and reducing overhead costs. Our ability to understand our customers’ design and manufacturing processes enhances our ability to reach these goals. We employ Six Sigma methodologies to continuously improve our operations platforms and we provide extensive training to current and new employees.

Expand our sales and marketing efforts

We plan to enhance our brand recognition worldwide by increasing our marketing and communications programs and resources. For example, we have sponsored several LED conferences and we plan to extend our sponsorships into other markets, such as SOS RFICs and aerospace. We also plan to enhance our website, extend our public relations campaigns and increase our brand visibility in trade publications and with technical organizations. We rely on direct sales for the majority of our business and we use multiple distribution channels to extend the reach of our sales and support teams. Although we have already entered multiple markets globally, we plan to increase the scale and geographical coverage of our sales efforts.


 

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Penetrate new market segments

We target high growth market segments where we believe we can gain a leadership position. Although production of sapphire cores and wafers is our focus today, we intend to leverage our crystal growth and processing know-how to develop high-quality crystal products for new substrate and window applications. Sapphire is becoming increasingly popular and is replacing quartz and glass in high-performance and harsh environment applications in the aerospace, petroleum and laser industries. For example, the US military uses sapphire optical windows to construct targeting mechanisms for its jet fighters and drones and transparent armor for land vehicles. We intend to use our proprietary manufacturing technology to produce additional single crystal materials that can be used in optical applications as well as alternative substrates for certain electronic materials applications. As the electronics and optical industries continue to develop new applications that take advantage of the unique properties of both sapphire and other single crystal products, we aim to be the provider of choice for these applications.

TECHNOLOGY

Our proprietary ES2 crystal growth technique produces high-quality sapphire crystals for use in our sapphire products. ES2 is derived from the standard Kyropoulos method of crystal growth. We developed this technique with the goal of establishing greater control over the crystal growth process while maintaining minimal temperature variations. Unlike other techniques, during the ES2 technique, the growing sapphire crystal exists in an unconstrained, low stress environment inside a closed growth chamber. The closed system allows for enhanced control of the melt, resulting in higher quality crystals. The temperature gradient between the melt and the crystal in the ES2 technique is significantly lower than in other crystal growth techniques. These aspects of the ES2 technique enable us to grow crystals that have a significantly lower dislocation density, higher crystal purity and higher uniformity than sapphire crystals grown using other techniques. The ES2 technique provides an inherent annealing process once the crystal is fully grown. This thermal annealing is an integral means of relieving stress in the crystal during the ES2 process. We believe we can readily scale our ES2 technology in a production environment while maintaining high crystal quality even as crystal boule size is increased. As a result of our proprietary ES2 technology, we believe that we currently offer the most efficient method for manufacturing large form factor high quality sapphire in the market today.

We have automated the crystal growth process of our proprietary ES2 technique. Our furnace environments are controlled by closed-loop control systems and the overall crystal growth process is run with minimal operator intervention, which reduces the potential for human error. In addition, a single operator can supervise the control of multiple ES2 furnaces simultaneously, which reduces cost.

We believe our proprietary ES2 process provides significant advantages over other crystal growth methods such as Czochralski and Edge-defined Film-fed Growth. Unlike the ES2 technique, the CZ and EFG methods grow crystals with much higher levels of stress. This stress can decrease the overall quality of the sapphire crystal and requires increased processing time to relieve this stress, which increases production costs and decreases throughput, especially in larger diameter crystals. During the EFG process, the crystal is grown in a sheet form by pulling it through a die directly from the melt; while in the CZ process, the crystal must be rotated and pulled as the aluminum oxide melt is consumed. These constrained growth environments with higher thermal gradients increase stress and decrease crystal quality.

 


 

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Our R&D activity plays a vital role in supporting our technology, product and revenue roadmaps. For the first six months of 2007, our R&D expenses totaled $376,000. For 2006, our R&D expenses totaled $680,000. For each of 2005 and 2004, our R&D expenses were $900,000. Our R&D is focused on three key areas: large diameter sapphire growth and fabrication; higher precision sapphire processing; and new crystal development. Our technical staff possesses deep and broad expertise in materials science and engineering. We also develop and utilize sophisticated metrology equipment to perform material and process characterization. In addition, we have access to other advanced materials characterization equipment at Northwestern University through cooperative arrangements.

PRODUCTS

We offer a wide variety of sapphire products designed to meet the stringent specifications of our customers. Using our proprietary ES2 technology, we grow high-quality sapphire boules. We fabricate our products from the boules and sell them in four general categories: core, as-cut, as-ground and polished. We currently offer two inch, three inch, four inch and six inch diameter wafers, in C, R, A, and M planar orientations. A sapphire crystal has multiple orientation planes resulting from its crystalline structure symmetry. The following diagram illustrates the various planar orientations of a sapphire crystal.

LOGO

Figure 3: Sapphire crystal planar orientations

Each orientation of the crystal structure is represented by a letter and differs in lattice structure. These variations result in different chemical, electrical, and physical properties depending on the respective orientation plane. As a result, customers require different orientation planes depending on the intended application. For example, LED manufacturers typically request C plane crystals while SOS manufacturers typically request R plane crystals.


 

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The following table illustrates our principal sapphire products and applications:

 

Product    Size    Orientation      Applications

Core

   2”, 3”, 4”, 6”    C, R, A, M     

Ø  LED

Ø  Optical windows

Ø  Blue laser diode

As-Cut

   2”, 3”, 4”, 6”    C, R, A, M     

Ø  Wafers for LED

Ø  Wafers for blue laser diodes

Ø  Wafers for SOS RFICs

As-Ground

   2”, 3”, 4”, 6”    C, R, A, M     

Ø  Wafers for LED

Ø  Wafers for SOS RFICs

Ø  Blanks for optical windows

Ø  Wafer carriers

Polished

   6”    C, R, A     

Ø  Epi-polished wafers for SOS RFICs

Ø  Polished optical windows

Ø  Double-side polished wafer carriers

Core

Our core product line consists of our sapphire cores drilled from sapphire boules with high-precision, and is available in two, three, four and six inch diameters and in various lengths and orientations.

As-cut

Our as-cut product line consists of sapphire cores sliced using a wire saw machine. We believe we are able to offer our customers one of the highest-precision cut sapphire wafers in the market. This is especially important to customers who require precise orientation planes for applications such as LEDs, SOS, RFICs and blue laser diodes.

As-ground

Our as-ground product line consists of cut sapphire wafers that undergo a double-sided lapping and edge grinding process. The lapping process ensures that the surface of the wafer is flat, smooth, and has a high degree of parallelism. The grinding process bevels the edges of the wafers, making them more durable and less susceptible to chipping and cracking.

Polished

Our polished product line consists of finely polished, ultra-clean, six inch sapphire wafers. Our polished wafers undergo two polishing phases including both a mechanical and a chemical mechanical planarization phase. We believe we are currently one of very few firms offering six inch, high-quality R-plane polished wafers.

Other

We also offer optically-polished windows and ground window blanks of sapphire and various fluoride compounds, such as calcium, barium and magnesium fluoride. We provide sapphire and other crystal products in many sizes, shapes and product formats for specialty applications.


 

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MANUFACTURING

The sapphire wafer manufacturing process is outlined in the following diagram:

LOGO

Figure 4: Sapphire wafer manufacturing process

The process of growing the crystal begins by heating the raw material, aluminum oxide, until it reaches an ideal temperature above its melting point. This ideal temperature is essential for our process because it allows us to produce high-purity crystals with very low defect rates. Following the heating, a seed rod is inserted in the melted material as the material is being cooled to crystallize into a boule. Following the growth process, each boule is rigorously inspected by using polarized lighting and magnification to find imperfections, such as bubbles, dislocations and granular deposits within the crystal.

We then drill the resulting boules into cores using our custom high-precision crystal orientation equipment and proprietary processes. We use wire saws to slice each substrate to be of precise size and shape. These substrates are then pre-polished using precision lapping and edge-grinding equipment and then are ready to be polished into epitaxial wafers. All of these processes are performed in clean environments to reduce the chance of crystal contamination. Epi-polishing and wafer cleaning are performed in Class 10,000 and Class 100 clean-room environments, respectively.

We are dedicated to quality assurance throughout our entire operation. We employ detailed material traceability from raw material to finished product. Our quality system is certified as ISO9001:2000 and we have in-house expertise at the Six Sigma Black Belt level.

All of our long-lived assets are located in the US.

SALES AND MARKETING

We market and sell our products through our direct sales force to customers in Asia, North America and Europe. Our direct sales force includes experienced and technically sophisticated sales professionals and engineers who are knowledgeable in the development, manufacturing and use of sapphire substrates, windows and other optical materials. Our sales staff works with customers during all stages of the substrate manufacturing process, from developing the precise composition of the substrate through manufacturing and processing the substrate to the customer’s specifications.

A key component of our marketing strategy is developing and maintaining strong relationships with our customers, especially at the senior management level. We achieve this through working closely with our customers to optimize our products for their production processes. In addition, we are able to develop long-term relationships with key customers through offering product specification assistance, providing direct access to enable them to evaluate and audit our operations, delivering high quality products and


 

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providing superior customer service. We believe that maintaining close relationships with senior management and providing technical support improves customer satisfaction and provides us with a competitive advantage when selling our products.

In order to increase brand recognition of our products and of Rubicon in general, we publish technical articles, advertise in trade journals, distribute promotional materials and participate in industry trade shows and conferences.

CUSTOMERS

Our principal customers are wafer polishing companies and semiconductor device manufacturers. A significant portion of our sales have been to relatively few customers. In the first six months of 2007, our top three customers accounted for 56% of our revenue. In 2006, 2005 and 2004, sales to our top three customers collectively accounted for 57%, 57% and 64% of our total revenue, respectively. Although we are attempting to diversify and expand our customer base, we expect our sales to continue to be concentrated among a small number of customers. However, we also expect that our significant customers may change from time to time. In the first six months of 2007, sales to Crystalwise Technology, Inc. and Shinkosha Co., Ltd. each represented 10% or more of our net revenues. In 2006, sales to Crystalwise Technology, Inc., Shinkosha Co., Ltd. and Tera Xtal Technology Corporation each represented 10% or more of our net revenues. No other customer accounted for 10% or more of our net revenues during those periods.

In the first six months of 2007, 79% of our sales were made to customers in Asia, 19% of our sales were made to customers in North America and 2% of sales were made to customers in Europe. In 2005 and 2006, 87% of our sales were made to customers in Asia, 11% of our sales were made to customers in North America and 2% of our sales were made to customers in Europe. In 2004, 89% of sales were made to customers in Asia, 10% were made to customers in North America, and 1% of our sales were made to customers in Europe.

BACKLOG

Our backlog at July 31, 2007 was approximately $41.7 million, compared to approximately $4.8 million at July 31, 2006. We expect that approximately 70% of our backlog as of July 31, 2007 will be filled after December 31, 2007. We include in our backlog only those customer orders for which we have signed contracts or accepted purchase orders. We consider backlog to be a reasonable management tool to indicate future customer purchases. However, a portion of our order backlog is subject to cancellations with little or no penalties as well as changes and delays and does not provide an assurance of future sales or profitability.

INTELLECTUAL PROPERTY

Our ability to compete successfully depends upon our ability to protect our proprietary technologies and other confidential information. We rely primarily upon a combination of trade secret laws and non-disclosure agreements with employees, customers and potential customers to protect our intellectual property. We have three pending patent applications with the United States Patent and Trademark Office covering aspects of our core production, wafer grinding and lapping technologies. However, we believe that factors such as the technological and innovative abilities of our personnel, the success of our ongoing product development efforts and our efforts to maintain trade secret protection are more important than patents in maintaining our competitive position. We pursue the registration of certain of our trademarks in the United States and currently have six registered trademarks and one trademark pending.


 

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COMPETITION

We participate in an innovative, specialized and competitive industry. The products we produce must meet certain demanding requirements to succeed in the marketplace. Although we account for a significant percentage of the total market volume today, we face significant competition from other established providers of similar products as well as from potential new entrants into our markets.

We have a few competitors that compete directly with us that are of similar size or smaller than us. These companies tend to focus on providing core and as-cut products rather than offering polished products. There are a limited number of companies that are substantially larger than us that compete with us in a relatively small segment of their overall business. These larger companies tend to focus on providing polished products to customers rather than providing core, as-cut and as-ground products.

We believe that the key competitive factors in our markets are:

 

Ø  

consistently producing high-quality products in the desired size, orientation and finish;

 

Ø  

driving innovation through focused research and development efforts;

 

Ø  

possessing sufficient supply capacity to meet end-market customer demands;

 

Ø  

offering solutions through collaborative efforts with customers;

 

Ø  

pricing; and

 

Ø  

providing a low total cost-of-ownership for customers.

Although we face significant competition, we believe that our proprietary ES2 crystal growth technology and business practices allow us to compete effectively on all of the above factors.

ENVIRONMENTAL REGULATION

In our manufacturing process, we use water, oils, slurries, acids, adhesives and other industrial chemicals. We are subject to a variety of federal, state and local laws regulating the discharge of these materials into the environment or otherwise relating to the protection of the environment. These include statutory and regulatory provisions under which we are responsible for the management of hazardous materials we use and the disposition of hazardous wastes resulting from our manufacturing processes. Failure to comply with such provisions, whether intentional or inadvertent, could result in fines and other liabilities to the government or third parties, injunctions requiring us to suspend or curtail operations or other remedies, and could have a material adverse effect on our business.

EMPLOYEES

As of July 31, 2007, we had 122 full-time employees. Of these 122 employees, 110 work in technology and operations. None of our employees is represented by a labor union. We consider our employee relations to be good. We believe that our future success will depend on our continued ability to attract, hire and retain qualified personnel.

FACILITIES

Our executive, research and development and manufacturing functions are located in property that we lease in Franklin Park and Bensenville, Illinois. These facilities total approximately 102,600 square feet in seven buildings. The leases for these facilities terminate from July 2010 through August 2015. We believe these facilities are adequate to meet our current and anticipated manufacturing needs and additional space would be available on commercially reasonable terms.


 

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LEGAL PROCEEDINGS

From time to time we may be named in claims arising in the ordinary course of business. Except as discussed below, there are no legal proceedings or claims pending against us or involving us that, in the opinion of our management, could reasonably be expected to have a material adverse effect on our business or financial condition.

On November 2, 2005, Saint-Gobain Ceramics & Plastics, Inc. (“Saint-Gobain”) filed a complaint against Rubicon and Happy R Hewes, Rubicon’s Senior Vice President-Sales and Marketing, in the Worcester County Superior Court, Massachusetts, alleging breach of contract, trade secret misappropriation, tortious interference and unfair competition, all related to Rubicon’s employment of Mr. Hewes, which plaintiff alleges is in violation of a non-compete agreement between Mr. Hewes and Saint-Gobain. The plaintiff sought compensatory and punitive damages as well as injunctive relief, including an injunction against use and/or dissemination of plaintiff’s trade secrets and other confidential information and specific performance by Mr. Hewes of the terms of the non-compete agreement, including a one-year prohibition from competing with Saint-Gobain. Saint-Gobain filed a substantially identical complaint against Rubicon and Mr. Hewes in the Hillsborough County Superior Court, New Hampshire on January 5, 2007. On August 2, 2007, the Massachusetts action was dismissed by the Worcester County Superior Court. We believe that Saint-Gobain’s claims are without merit and we intend to continue our vigorous defense against these claims. However, due to uncertainty regarding the litigation process, the outcome of this matter is unpredictable and the result of the claims could be unfavorable to Rubicon. In accordance with the provisions of our amended and restated bylaws (as currently in effect) and Delaware law, we are advancing payment of legal fees and expenses incurred on behalf of Mr. Hewes in the defense of these claims. Under those provisions, any officer who receives advanced payments for legal expenses is required to reimburse us for such amounts in the event it is ultimately determined that the officer is not entitled to indemnification under those provisions.


 

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Management

EXECUTIVE OFFICERS AND DIRECTORS

The following table sets forth information regarding our directors and executive officers, as of August 31, 2007, including their names, ages and positions:

 

Name    Age    Position
Don N Aquilano (1)(3)    40    Chairman of the Board
Raja M Parvez    49    President, Chief Executive Officer and Director
William F Weissman    49    Chief Financial Officer, Treasurer and Secretary
Happy (Hap) R Hewes    43    Senior Vice President—Sales and Marketing and Assistant Secretary
Donald R Caldwell (2) (3)    61    Director
Gordon Hunter (1)(2)(3)   

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   Director
Michael E Mikolajczyk (1)(2)    55    Director

(1)   Member of the audit committee.
(2)   Member of compensation committee.
(3)   Member of the nominating and governance committee.

Don N Aquilano has served as a member of our board of directors since May 2002 and as the chairman of our board of directors and a member of the audit committee since May 2005. He joined our nominating and governance committee in August 2007. Since 2000, Mr. Aquilano has served as managing director and president of Gazelle TechVentures, a venture capital fund. Mr. Aquilano holds a BS from the University of Arizona and an MBA from Harvard Business School.

Raja M Parvez has served as our president and chief executive officer since January 2006 and as a member of our board of directors since August 2006. Prior to joining us, Mr. Parvez served as chief operating officer, chief manufacturing officer and vice president at CyOptics, Inc., a designer, developer and marketer of indium phosphide optical chips and components for access, metro and long-haul communications systems from July 2001 through December 2005. From July 2000 to July 2001, Mr. Parvez was president and vice president of manufacturing at Optigain, Inc. a subsidiary of FiTel Technologies, a designer and manufacturer of amplifiers for communications systems . From 1984 to 2000, he was at Lucent Technologies, where he served as distinguished and consulting member of the technical staff. His focus was on operational excellence for Lucent-Optoelectronics products, including indium phosphide and lithium niobate components. Mr. Parvez holds a BS in mechanical engineering from the University of Peshawar, an MS in industrial engineering and an MS in management, each from Polytechnic University in New York.

William F Weissman joined us in July 2007 as our chief financial officer, treasurer and secretary. From 1995 to 2007, Mr. Weissman served in various capacities at Kanbay International, Inc., an information technology services firm, including chief financial officer, vice president, executive vice president and secretary. Additionally, Mr. Weissman served as a manager of Kanbay LLC, Kanbay International, Inc.’s immediate predecessor company, from December 1997 to August 2000. Mr. Weissman holds a BA in business administration from Seton Hall University.

Hap R Hewes has served as our senior vice president—sales and marketing since January 2006. He has served as assistant secretary since August 2007. Mr. Hewes also served as a vice president with responsibilities in operations, supply chain and new business development from March 2004 to January 2006. Prior to joining us, Mr. Hewes served in various business management and product development


 

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roles from 1997 to 2004 in both the photonics group of Saint-Gobain Crystals Division USA, and with Saphikon, Inc., a producer of sapphire products. Mr. Hewes holds a BS in biology from Cornell University and an MBA from the University of Michigan Business School.

Donald R Caldwell joined us in February 2001 as a member of our board of directors and has served on the compensation committee since June 2002. He joined our audit committee in August 2007. In March 1999, Mr. Caldwell founded Cross Atlantic Capital Partners, Inc., a venture capital fund manager, and he presently serves as its chairman and chief executive officer. Prior to founding Cross Atlantic Capital Partners, Mr. Caldwell was president and chief operating officer and a director of Safeguard Scientifics, Inc., a holding company which provides management resources and capital, from 1996 to 1999. In addition, since June 1994, Mr. Caldwell has served as a director of Diamond Management & Technology Consultants, Inc., a management and technology consulting firm, and he also serves as a director and a member of the compensation committees of Quaker Chemical Corporation, a provider of process chemicals and chemical specialties, and Voxware, Inc., a supplier of voice driven solutions. Mr. Caldwell is a CPA in the State of New York and holds a BS in accounting from Babson College and an MBA from the Harvard Business School.

Gordon Hunter joined us in August 2007 as a member of our board of directors, the compensation committee and the nominating and governance committee. Since June 2002, Mr. Hunter has served as a director, and since January 2005, he has served as the chairman of the board, president and chief executive officer of Littelfuse, Inc., an international supplier of fuse and other circuit protection products for the electronics industry. Mr. Hunter served as the chief operating officer of Littelfuse from November 2003 through December 2004. Prior to joining Littelfuse, Mr. Hunter was vice president, Intel Communications Group, and general manager, Optical Products Group for Intel Corporation. Mr. Hunter was responsible for managing Intel’s access and optical communications business segments within the Intel Communications Group after joining Intel in February 2002. Mr. Hunter currently serves on the Council of Advisors of Shure Incorporated. Mr. Hunter holds a BS in electrical engineering from the University of Liverpool, England, and an MBA from London Business School.

Michael E Mikolajczyk served as a member of our board from June 2001 until May 2002 and rejoined our board of directors in March 2004. Additionally, Mr. Mikolajczyk has served as a member of our audit committee and compensation committee since March 2004. Since September 2003, Mr. Mikolajczyk has served as managing director of Catalyst Capital Management, LLC, a private equity firm. From 2001 through 2003, Mr. Mikolajczyk worked as an independent consultant providing business and financial advisory services to early stage and mid-cap companies. Mr. Mikolajczyk also served as vice chairman of Diamond Management & Technology Consultants, Inc., a management and technology consulting firm, from 2000 to 2001, president from 1998 to 2000 and chief financial officer from 1994 to 1998. Mr. Mikolajczyk served as chief financial officer of Technology Solutions Company, a business solutions provider, from 1992 to 1994. Mr. Mikolajczyk currently serves as a director of Diamond Management & Technology Consultants, Inc. Mr. Mikolajczyk is a CPA in the State of Michigan and holds a BS in business from Wayne State University and an MBA from Harvard Business School.

Our executive officers are appointed by our board of directors to serve until their successors have been duly elected and qualified. There are no family relationships among any of our directors or executive officers.

CODE OF ETHICS

We have adopted a code of business conduct and ethics that applies to all of our employees, officers and directors, including those officers responsible for financial reporting. The code of business conduct and


 

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ethics will be available on our website at www.rubicon-es2.com . We expect that any amendments to the code, or any waivers of its requirements, will be disclosed on our website.

BOARD OF DIRECTORS

We currently have five directors. Our bylaws permit our board of directors to establish by resolution the authorized number of directors, and seven directors are currently authorized. We are currently undertaking a search to identify additional director candidates. As of the completion of this offering, our board of directors will be divided into three classes of directors, each serving staggered three-year terms as follows:

 

Ø  

Class I will consist of Mr. Parvez, whose term will expire at the annual meeting of stockholders to be held in 2008;

 

Ø  

Class II will consist of Mr. Hunter and Mr. Mikolajczyk, whose terms will expire at the annual meeting of stockholders to be held in 2009; and

 

Ø  

Class III will consist of Mr. Caldwell and Mr. Aquilano, whose terms will expire at the annual meeting of stockholders held in 2010.

Upon expiration of the term of a class of directors, directors for that class will be eligible to be elected for a three-year term at the annual meeting of stockholders in the year in which that term expires. Each director’s term continues until the election and qualification of his successor, or his earlier death, resignation or removal. The authorized number of directors may be changed by resolution duly adopted by at least a majority of our entire board of directors, although no decrease in the authorized number of directors will have the effect of removing an incumbent director from the board of directors until the incumbent director’s term expires. Any increase or decrease in the number of directors will be distributed among the three classes so that, as nearly as possible, each class will consist of one-third of the directors. Accordingly, our classified board could have the effect of delaying or preventing changes in control of our company.

Pursuant to stockholders agreements entered into in June 2005 and November 2005 by and among us and certain of our stockholders, Messrs. Aquilano, Caldwell, Mikolajczyk and Parvez were each elected to serve as members of our board of directors, and, as of the date of this prospectus, continue to serve in those capacities. Pursuant to the stockholders agreements, Mr. Caldwell was selected as a representative of the holders of a majority of our Series A preferred stock, Mr. Aquilano was selected as a representative of the holders of a majority of the Series B preferred stock, Mr. Parvez was selected as a representative of the holders of a majority of the Series C and Series D preferred stock, voting together as a class, and Mr. Mikolajczyk was selected as a director by the holders of the majority of the preferred stock, voting together as a class. The stockholders agreements will terminate upon completion of this offering, but members previously elected to our board of directors pursuant to these agreements will continue to serve as directors until their resignation or until their successors are duly elected by our stockholders.

Director independence

In August 2007, our board of directors undertook a review of the independence of each director and considered whether any director has a material relationship with us that could compromise his ability to exercise independent judgment in carrying out his responsibilities. As a result of this review, our board of directors determined that Messrs. Aquilano, Caldwell, Hunter and Mikolajczyk, representing four of our five directors, are “independent directors” as defined under the rules of the NASDAQ, constituting a majority of independent directors of our board of directors as required by the rules of the NASDAQ.


 

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BOARD COMMITTEES

Our board of directors has established an audit committee, a compensation committee and a nominating and governance committee, each of which will have the composition and responsibilities described below.

Audit committee

Don N Aquilano, Gordon Hunter and Michael E Mikolajczyk, each of whom is a non-employee member of our board of directors, serve on our audit committee. Mr. Mikolajczyk is the chairman of our audit committee. Our board of directors has determined that each member of our audit committee meets the requirements for financial sophistication, and that Messrs. Hunter and Mikolajczyk meet the audit committee requirements for independence, under the current requirements of the NASDAQ Global Market and the SEC rules and regulations. NASDAQ Marketplace Rules permit a company, such as us, listing on the NASDAQ Global Market in connection with its initial public offering, to have a minority of the members of its audit committee not comply with the independence requirements on the date of listing, provided that all of the members satisfy the requirements within one year after listing. If necessary, we will seek another independent director to join the audit committee prior to the end of the one-year phase-in period referenced above. Our board of directors has also determined that Mr. Mikolajczyk is an “audit committee financial expert” as defined in the SEC rules. The audit committee’s responsibilities include, but are not limited to:

 

Ø  

selecting and hiring our independent auditors, and approving the audit and permitted non-audit services to be performed by our independent auditors;

 

Ø  

evaluating the qualifications, experience, performance and independence of our independent auditors;

 

Ø  

monitoring the integrity of our financial statements and our compliance with legal and regulatory requirements as they relate to financial statements or accounting matters;

 

Ø  

reviewing the adequacy, effectiveness and integrity of our internal control policies and procedures;

 

Ø  

discussing the scope and results of the audit with the independent auditors and reviewing with management and the independent auditors our interim and year-end operating results; and

 

Ø  

preparing the audit committee report required by the SEC in our annual proxy statement.

Compensation committee

Donald R Caldwell, Gordon Hunter and Michael E Mikolajczyk, each of whom is a non-employee member of our board of directors, serve on the compensation committee. Mr. Caldwell is the chairman of our compensation committee. Our board of directors has determined that each member of our compensation committee meets the requirements for independence under the current requirements of the NASDAQ Global Market. The compensation committee’s responsibilities include, but are not limited to:

 

Ø  

reviewing and approving our chief executive officer’s and other executive officers’ annual base salaries and annual bonuses;

 

Ø  

evaluating and recommending to the board incentive compensation plans;

 

Ø  

overseeing an evaluation of the performance of our executive officers;

 

Ø  

administering, reviewing and making recommendations with respect to our equity compensation plans;

 

Ø  

reviewing and making recommendations to the board of directors with respect to director compensation; and

 

Ø  

preparing the compensation committee report required by the SEC in our annual proxy statement.


 

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Nominating and governance committee

Don N Aquilano, Gordon Hunter and Donald R Caldwell, each of whom is a non-employee member of our board of directors, serve on the nominating and governance committee. Mr. Hunter is the chairman of our nominating and governance committee. Our board of directors has determined that each member of our nominating and governance committee meets the requirements for independence under the current requirements of the NASDAQ Global Market. The nominating and governance committee’s responsibilities will include, but not be limited to:

 

Ø  

developing and recommending to the board criteria for board and committee membership;

 

Ø  

assisting our board in identifying prospective director nominees and recommending to the board director nominees for each annual meeting of stockholders;

 

Ø  

recommending members for each board committee to our board of directors;

 

Ø  

reviewing developments in corporate governance practices and developing and recommending governance principles applicable to our board of directors; and

 

Ø  

overseeing the evaluation of the board of directors.

DIRECTOR COMPENSATION

Most of our directors do not currently receive any compensation for their services as members of our board of directors or any committee of our board of directors because they are representatives of principal stockholders of our company and, as a privately-held company, we believed such compensation to be unnecessary. However, we paid Mr. Aquilano $50,000 in June 2007 and $50,000 in August, 2007 for his past service as the chairman of our board of directors. We awarded to Messrs. Hunter and Mikolajczyk participation rights in our Management Incentive Bonus Plan (the “MIB Plan”), which will terminate upon completion of this offering, that provide for the payment of bonuses in the event that we are sold. We also awarded to Mr. Mikolajczyk, in June 2007, an option to purchase 23,653 shares of our common stock. The awards to Mr. Mikolajczyk were made in recognition of his past service as a member of our board of directors and audit and compensation committees. The award to Mr. Hunter of the right to participate in the MIB Plan was made in recognition of his past service as a board advisor. Neither Mr. Hunter nor Mr. Mikolajczyk is affiliated with any of our principal stockholders. In addition, we have a policy of reimbursing directors for travel, lodging and other reasonable expenses incurred in connection with their attendance at board or committee meetings.

Effective upon the completion of the offering, our board of directors adopted a compensation policy that will be applicable to all of our non-employee directors. This compensation policy provides that each such non-employee director will receive an annual fee of $50,000, plus $5,000 per year for service on the audit committee, $2,500 per year for service on the compensation committee and $1,000 per year for service on the nominating and governance committee. The chairmen of the audit, compensation and nominating and governance committees will receive, per year, $10,000, $5,000 and $3,000, respectively, in each case in lieu of committee service compensation. No additional payment will be made for meeting attendance. All fees will be paid in quarterly installments and will be payable 50% in cash and 50% in restricted stock. We also will reimburse our directors for reasonable expenses incurred in the course of attending meetings or conducting company business.


 

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DIRECTOR COMPENSATION TABLE

The following table sets forth information regarding the aggregate compensation we paid to the members of our board of directors for the year ended December 31, 2006:

 

Name   Fees
earned
or paid
in cash
  Stock
awards
  Option
awards
  Non-equity
incentive
plan
compensation
  Change in
pension value
and
nonqualified
deferred
compensation
earnings
  All other
compensation
  Total

Don N Aquilano

  $ 100,000   $   $   $   $   $   $ 100,000

Raja M Parvez

                           

Brian Adamsky (1)

                           

Donald R Caldwell

                           

Byron Denenberg (1)

                           

Michael E Mikolajczyk (2)

                           

 

 


(1)   Messrs. Adamsky and Denenberg resigned from our board of directors effective August 29, 2007.
(2)   In June 2007, we awarded Mr. Mikolajczyk an option to purchase 23,653 shares of common stock at an exercise price of $8.45 per share, with a one-year vesting period. The stock based compensation expense in year 2007 for Mr. Mikolajczyk’s stock option under SFAS 123R is expected to be approximately $28,230.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

None of the members of our compensation committee is or previously served as one of our officers or employees. None of our named executive officers serves, or in the past year has served, as a member of the board of directors or compensation committee of any entity that has one or more executive officers serving on our board of directors or compensation committee.

Two members of our compensation committee, Messrs. Aquilano and Caldwell, are affiliated with entities that have purchased shares in one or more of our private placements of securities. See “Certain relationships and related party transactions.”


 

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Executive compensation

COMPENSATION DISCUSSION AND ANALYSIS

The following discussion and analysis of compensation arrangements of our named executive officers for 2006 should be read together with the compensation tables and related disclosures set forth below. This discussion contains forward-looking statements that are based on our current plans, considerations, expectations and determinations regarding future compensation programs. Actual compensation programs that we adopt may differ materially from currently planned programs as summarized in this discussion. All references below to common stock share numbers or prices have been adjusted to give effect to the 1 for 13 reverse stock split on our common stock effective August 30, 2007.

We believe that the compensation of our executive officers should facilitate the achievement of short-term corporate goals as well as the performance of long-term business objectives. It is the responsibility of the compensation committee of our board of directors to administer our compensation practices to ensure that they are competitive and include incentives which are designed to appropriately drive corporate performance. Our compensation committee reviews and approves all of our compensation policies, including executive officer salaries, bonuses and equity incentive compensation.

Objectives of our executive compensation programs

Our compensation programs for our named executive officers are designed to achieve the following objectives:

 

Ø  

attract and retain talented and experienced executives in our industry;

 

Ø  

motivate and reward executives whose knowledge, skills and performance are critical to our success;

 

Ø  

align the interests of our executives and stockholders, by encouraging executives to increase stockholder value and rewarding executives when stockholder value increases; and

 

Ø  

motivate our executives to manage our business to meet our short-term and long-term corporate goals and business objectives, and reward them for meeting these objectives.

We use a mix of short-term compensation in the form of base salaries and cash incentive bonuses and long-term compensation in the form of equity incentive compensation to provide a total compensation structure that is designed to encourage our executives to achieve these objectives.

Determining executive compensation

The compensation committee is responsible for developing, administering and interpreting the compensation program for executive officers and other key employees. Our compensation committee was appointed by our board of directors, and consists entirely of directors who are “outside directors”, for purposes of Section 162(m) of the Code, and “non-employee directors” for purposes of Rule 16b-3 under the Exchange Act.

The compensation committee may delegate some or all of its responsibilities to one or more subcommittees whenever necessary to comply with any statutory or regulatory requirements or otherwise deemed appropriate by the committee. The compensation committee has the authority to retain consultants and other advisors to assist with its duties and has sole authority to approve the fees and other retention terms of such consultants and advisors. For 2007, the compensation committee engaged the consulting firm of Hewitt Associates, LLC to assist the committee in analyzing its compensation structure and to make suggestions for our future compensation structure.


 

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Historically, our chief executive officer makes recommendations to the compensation committee regarding the salaries, bonus arrangements and option grants, if any, for key employees, including all executive officers. Following the completion of the offering, our chief executive officer will continue making such recommendations for all key employees other than himself. For executive officers whose bonus awards are based partly on individual performance, the CEO’s evaluation of such performance is provided to and reviewed by the compensation committee. Based on the foregoing, the compensation committee uses its judgment in making compensation decisions that will best carry out our philosophy and objectives for executive compensation.

Elements of our executive compensation programs

Our executive compensation primarily consists of base salary, cash incentive bonuses, equity-based incentives and benefit programs. We believe it is important that the interests of our executives are aligned with those of our stockholders; therefore, equity incentive compensation constitutes a significant portion of our total executive compensation.

Within the context of the overall objectives of our compensation programs, we determined the specific amounts of compensation to be paid to each of our executives in 2006 based on a number of factors including:

 

Ø  

the roles and responsibilities of our executives;

 

Ø  

the individual experience and skills of our executives;

 

Ø  

the amounts of compensation being paid to our other executives;

 

Ø  

our executives’ historical compensation at our company; and

 

Ø  

our understanding of the amount of compensation generally paid by similarly situated companies to their executives with similar roles and responsibilities.

We discuss each of the primary elements of our executive compensation in detail below. While we have identified particular compensation objectives that each element of executive compensation serves, our compensation programs are designed to complement each other and collectively serve all of our executive compensation objectives described above.

Annual cash compensation

Base salary

Base salaries are intended to provide a level of compensation sufficient to attract and retain an effective management team when considered in combination with the performance-based and other components of our compensation program. The base salary of each executive officer is reviewed annually to determine if it is equitably aligned with our other executive officers and is at a sufficient level to attract and retain top talent. Salaries are adjusted to reflect individual roles and performance and may be increased at other times if a change in the scope of the officer’s responsibilities justifies such consideration or in order to maintain salary equity among executive officers. We believe that a competitive base salary is a necessary element of any compensation program designed to attract and retain talented and experienced executives. We also believe that attractive base salaries can serve as an effective reward for the executives’ overall performance.

In 2006, the base salaries for Messrs. Parvez and Hewes remained unchanged as compared to 2005 while the base salary for Ms. Graffy increased by approximately 3%. Our executives’ base salaries reflect the


 

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initial base salaries that we negotiated with each of them at the time of his or her initial employment and our subsequent adjustments to these amounts to reflect market increases, the growth and stage of development of our company, any changes in our executives’ roles and responsibilities and other factors. In the future, formal evaluations of executive performance will be made on an annual basis, and these evaluations will be one of several factors considered in making future adjustments to base salaries.

Cash incentive bonuses

The primary objectives of our incentive bonus plan are to provide an incentive for superior work, to motivate our executives toward even higher achievement and business results, to tie our executives’ goals and interests to ours and our stockholders’ and to enable us to attract and retain highly qualified individuals. Under the plan, each executive is entitled to receive a bonus based on our attainment of corporate performance targets set by the compensation committee. These targets are typically set in the first four months of the year. For 2006, these targets were based on gross revenues and EBITDA which the compensation committee believed were the most appropriate criteria for a company at our stage of development. The compensation committee establishes the corporate targets at what it believes are aggressive levels to maintain high business performance and require substantial effort and commitment by our executives that will significantly contribute towards increasing stockholder value. Incentive bonuses are set at a percentage of salary, typically ranging from 15% to 30% for our named executive officers. The compensation committee may also, in its discretion, award bonuses to executives based upon such other terms and conditions as the compensation committee may determine. For 2006, the compensation committee awarded additional bonuses to the executive officers in recognition of their roles in exceeding our threshold targets for 2006.

Equity incentive compensation

We grant equity incentive awards in the form of stock options to align the interests of our executives with our stockholders by providing our executives with strong incentives to increase stockholder value. These awards represent a significant portion of total executive compensation. In most cases, stock options vest at the rate of 25% of the total option shares on each of the first four anniversaries of the date of grant, thus providing added incentive for the executive to continue his or her employment with us. The 2006 stock option awarded to our chief executive officer vested immediately pursuant to the terms of his employment agreement. The compensation committee believed this exception to the general vesting policy was appropriate in order to provide our chief executive officer with an immediate stake in the future performance of our company. The board of directors has approved the grant of an option to purchase 107,692 shares of our common stock to Mr. Parvez, upon the closing of this offering, at an exercise price equal to the initial public offering price. One-half of these option shares will vest upon the closing of this offering with the remainder vesting ratably on each of the first four anniversaries of the date of grant. The compensation committee chose to have one-half of this award vest concurrently upon the closing of this offering in recognition of Mr. Parvez’s extraordinary efforts over the past 18 months and our financial performance during that period.

Historically, the board has granted stock options at various times during the year based on recommendations from the compensation committee. Effective upon the completion of this offering, the board adopted a policy generally to grant stock options to executives and current employees once per year. As such, in the future such grants normally will be made at a meeting of the board of directors held within a prescribed period following our release of year-end financial results. This period runs from the third until the 12 th business day following the release. With respect to newly hired employees, our practice is typically to make stock option grants at the first meeting of the board of directors following such employee’s hire date. Otherwise, we do not have any program, plan or practice to time stock option grants in coordination with the release of material non-public information.


 

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In 2006, we granted options to purchase a total of 911,764 shares of common stock, of which options to purchase a total of 588,329 shares were granted to our named executive officers, representing 65% of all options granted in 2006. Our board of directors does not apply a rigid formula in allocating stock options to executives as a group or to any particular executive. Instead, our board of directors exercises its judgment and discretion and considers, among other things, the role and responsibility of the executive, competitive factors, the amount of stock-based equity compensation already held by the executive, the non-equity compensation received by the executive and the total number of options to be granted to all participants during the year. The number of stock options granted to each executive is set forth in the “2006 Grants of plan-based awards” table. The value of such grants, as determined in accordance with SFAS 123R, for each individual named executive officer is set forth in the column “Option awards” in the “Summary compensation table.”

The exercise price of each stock option granted under our 2001 Equity Plan is based on the fair market value of our common stock on the grant date. The fair market value of our common stock for purposes of determining the exercise price of stock options has been determined by our board of directors based on a number of factors applicable to common stock of privately-held companies including:

 

Ø  

our stock option grants involved illiquid securities in a private company;

 

Ø  

prices of our preferred stock issued to investors in arms-length transactions, and the rights, preferences and privileges of our preferred stock relative to those of our common stock;

 

Ø  

our results of operations and financial status;

 

Ø  

our stage of development and business strategy;

 

Ø  

the composition of and changes to our management team; and

 

Ø  

the likelihood of achieving a liquidity event for the shares of our common stock underlying stock options, such as an initial public offering of our common stock or our sale to a third party, given prevailing market conditions.

In connection with this offering, our board of directors and stockholders have adopted the 2007 Stock Incentive Plan, or 2007 Plan, which will take effect upon the consummation of this offering. The 2007 Plan permits the grant of stock options, stock appreciation rights, restricted stock, restricted stock units, performance awards and bonus shares. The 2007 Plan will replace our existing 2001 Equity Plan following this offering. For a further description, please see “Employee benefit plans—2007 Stock Incentive Plan” below.

Management incentive bonus plan

We currently have a Management Incentive Bonus Plan (the “MIB Plan”), which will terminate upon completion of this offering, that provides for the payment of bonuses to certain of our employees, including each of our named executive officers, in the event that we are sold. The purpose of the MIB Plan is to provide those employees with an opportunity to participate financially in the proceeds of such a transaction that is in our and our stockholders’ best interests, but which may otherwise create personal uncertainties for them. Pursuant to the MIB Plan, upon the closing of a sale transaction of Rubicon, each participant in the MIB Plan would receive a bonus in an amount equal to the sales proceeds multiplied by a specified percentage for that participant. Each participant’s specified percentage is approved by resolution of the board of directors at the time that employee was designated a participant under the MIB Plan and may be increased by the board of directors from time to time. These bonuses would be paid in cash or, at our option, in the same form of consideration as payable in the sale transaction.


 

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Benefits

All of our executive officers are eligible for benefits offered to employees generally, including life, health, disability and dental insurance and our 401(k) plan. Consistent with our compensation philosophy, we intend to continue to maintain our current benefits for our executive officers. The compensation committee, in its discretion, may revise the executive officers’ benefits if it deems it advisable.

Severance and change in control arrangements

Our named executive officers have employment and/or other agreements that provide various benefits triggered by such employment-related actions as termination without cause, resignation with good reason and/or termination without cause following a change in control. Such benefits may include salary continuation, guaranteed bonuses, lump sum severance and/or the acceleration of stock option vesting. See “—Employment and severance arrangements” below for a description of the severance and change in control arrangements for our named executive officers. In addition, each of our equity incentive plans provides for a potential acceleration of vesting of outstanding awards in the event that we undergo a change in control, as defined in such plans. See “—Employee benefit plans” below for a description of the change in control provisions contained in our equity incentive plans.

In setting the terms of and determining whether to approve these severance and change in control arrangements, our compensation committee or board of directors, as applicable, recognized that executives often face challenges securing new employment following a termination of their existing employment and that distractions created by uncertain job security may have a detrimental impact on their performance. With the exception of the acceleration of stock option vesting, none of these benefits are triggered by a change in control unless the named executive officer’s employment is terminated without cause following such change in control. The acceleration of stock option vesting upon a change in control occurs only if the option is not assumed, or an equivalent right substituted, by the successor corporation. We believe the acceleration of option vesting under such circumstances is appropriate to preserve the benefit intended to be provided to the executive while avoiding the acceleration of benefits where the executive is enjoying a continuation of the same or comparable benefit following the change in control.

Effect of accounting and tax treatment on compensation decisions

In the review and establishment of our compensation programs, we consider the anticipated accounting and tax implications to us and our executives. In this regard, following the completion of this offering, we may begin utilizing restricted stock and/or restricted stock units as additional forms of equity compensation incentives in response to changes in the accounting treatment of equity awards under SFAS 123R. While we consider the applicable accounting and tax treatment, these factors alone are not dispositive, and we also consider the cash and non-cash impact of the programs and whether a program is consistent with our overall compensation philosophy and objectives.

Section 162(m) of the Code imposes a limit on the amount of compensation that we may deduct in any one year with respect to our chief executive officer and each of our next four most highly compensated executive officers, unless certain specific and detailed criteria are satisfied. Performance-based compensation, as defined in the Code, is fully deductible if the programs are approved by stockholders and meet other requirements. In addition, stock options granted under our 2001 Equity Plan as well as equity and cash awards granted under our 2007 Stock Incentive Plan are exempt from Section 162(m) of the Code pursuant to an exemption available for plans adopted prior to the time a company becomes a public company. This exemption for a pre-IPO compensation plan will no longer be available to us after the date of our annual meeting that occurs after the third calendar year following the year of our initial


 

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public offering, or if we materially modify the plan. Assuming that we consummate this offering in 2007, the pre-IPO exemption will expire on the date of our 2011 annual meeting. Subsequent to the expiration of this pre-IPO exemption, we intend to assess the impact of Section 162(m) on our compensation practices and determine whether to qualify equity and cash awards as performance-based compensation.

SUMMARY COMPENSATION TABLE

The table below sets forth, for the 2006 calendar year, the compensation earned by our president and chief executive officer, our principal financial officer, and our only other executive officer serving during 2006. Such persons are referred to herein as our “named executive officers.”

 

Name and principal position   Salary   Bonus     Option
awards (1)
  All other
compensation
    Total

Raja M Parvez

President and Chief Executive Officer

  $ 275,000   $ 165,000 (2)   $ 53,876   $ 60,767 (3)   $ 554,643

Mardel A Graffy

Director of Finance (4)

  $ 118,491   $ 21,774     $ 35         $ 140,300

Hap R Hewes

Senior Vice President Sales & Marketing

  $ 180,000   $ 46,000     $ 2,764         $ 228,764

(1)   Amounts represent stock-based compensation expense for year 2006 for stock options granted in 2006 under SFAS 123R as discussed in Note 6 to our financial statements for the year ended December 31, 2006, included elsewhere in this prospectus.
(2)   Consists of a $25,000 signing bonus and a $25,000 incentive bonus paid in accordance with Mr. Parvez’s employment agreement, a $55,000 bonus paid pursuant to our incentive bonus plan (and which is also reflected in the “2006 Grants of plan-based awards” table) and a $60,000 discretionary bonus.
(3)   Reflects the reimbursement of commuting expenses prior to Mr. Parvez’s relocation from Pennsylvania to Illinois.
(4)   During 2006, Ms. Graffy acted as our principal financial officer, although not formally an executive officer.

2006 GRANTS OF PLAN-BASED AWARDS

The following table lists grants of plan-based awards made to our named executive officers in 2006 and related fair value compensation for 2006:

 

Name   Grant date   Date grant
approved
by board
  Estimated future payouts under
Non-equity incentive plan awards
  All other
option
awards:
number of
securities
underlying
options
  Exercise
or base
price of
option
awards
($/Sh)
  Grant
date fair
value of
stock and
option
awards (1)
      Threshold($)     Target($)   Maximum($)      

Raja M Parvez

  July 1, 2006   July 24, 2006           471,021   $ 0.91   $ 53,876
      55,000 (2)   68,750   82,500          

Mardel A Graffy

  July 1, 2006   July 24, 2006           1,923     0.78     256
      17,774 (2)   23,698   29,623          

Hap R Hewes

  July 1, 2006   July 24, 2006           115,384     0.78     15,371
      36,000 (2)   45,000   54,000          

(1)   Amounts represent total fair value of stock options granted in 2006 under SFAS 123R as discussed in Note 6 to our financial statements for the year ended December 31, 2006, included elsewhere in this prospectus.
(2)   Bonus awards were earned and paid at the threshold level for 2006 and are included in the “Bonus” column of the Summary compensation table.

 

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Discussion of summary compensation and grants of plan-based awards tables

Our executive compensation policies and practices, pursuant to which the compensation set forth in the “Summary compensation table” and the “2006 Grants of plan-based awards” table was paid or awarded, are described above under “—Compensation discussion and analysis.” See also “—Employment and severance arrangements.” For 2006, our executives earned bonuses under the incentive bonus plan at the threshold level. These bonuses are shown in the “Threshold” column of the “2006 Grants of plan-based awards” table and are included in the “Bonus” column of the “Summary compensation table.”

OUTSTANDING EQUITY AWARDS AT FISCAL YEAR END

The following table sets forth information regarding grants of plan based option awards held by our named executive officers as of December 31, 2006:

 

      Option Awards   Stock Awards
Name   Number of
securities
underlying
unexercised
options
exercisable (1)
  Number of
securities
underlying
unexercised
options
unexercisable
  Option
exercise
price
($/Sh)
  Option
expiration
date
  Number
of
shares
of stock
that
have
not
vested
  Market
value of
shares
of stock
that
have
not
vested
  Equity
plan
awards:
number
of
unearned
shares or
other
rights
that have
not
vested
  Equity
plan
awards:
market
or
payout
value of
unearned
shares or
other
rights
that have
not
vested

Raja M Parvez

  471,021     $ 0.91   July 1, 2016        

Mardel A Graffy

    1,923   $ 0.78   July 1, 2016        
  1,442   4,326   $ 4.94   January 31, 2015        

Hap R Hewes

    115,384   $ 0.78   July 1, 2016        
  8,846   8,846   $ 4.94   December 31, 2014        
  7,307   7,307   $ 4.94   March, 29 2014        

(1)   The options granted to Ms. Graffy and Mr. Hewes vest at the rate of 25% of the total option shares on each of the first four anniversaries of the date of grant. Mr. Parvez’s options were immediately vested upon grant.

OPTION EXERCISES AND STOCK VESTED

None of our named executive officers exercised stock options or had any restricted stock vest in 2006.

PENSION BENEFITS

None of our named executive officers participates in or has account balances in qualified or non-qualified defined benefit plans sponsored by us.

NONQUALIFIED DEFERRED COMPENSATION

None of our named executive officers participates in or have account balances in non-qualified defined contribution plans or other deferred compensation plans maintained by us.


 

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EMPLOYMENT AND SEVERANCE ARRANGEMENTS

All references below to common stock numbers or exercise prices have been adjusted to give effect to the 1 for 13 reverse stock split on our common stock effective August 30, 2007.

Raja M Parvez

We entered into an employment agreement with Raja Parvez, our president and chief executive officer, dated November 17, 2005, as amended July 25, 2007.

Term.     The term of the agreement commenced on January 2, 2006 and expires on January 2, 2008 subject to automatic one-year extensions unless either party provides the other with written notice of non-renewal at least 60 days prior to the end of the then-current term.

Compensation.     Under the terms of his agreement, Mr. Parvez is entitled to a 2006 annual base salary of $275,000, a one-time signing bonus of $25,000, a one-time incentive bonus of $25,000 and an annual discretionary bonus of up to $75,000 based upon the achievement of certain business objectives. Mr. Parvez’ actual bonuses for 2006 included a $55,000 award under the 2006 Incentive Bonus Plan and two additional discretionary bonuses aggregating $60,000. In addition, Mr. Parvez was granted in 2006 an immediately vested option to purchase 471,021 shares of our common stock at an exercise price of $0.91 per share and a participation right in the MIB Plan. The MIB Plan terminates upon completion of this offering. We have also agreed to reimburse Mr. Parvez for all reasonable commuting expenses (including travel and lodging costs and meal expenses) associated with his maintaining a presence in Illinois prior to his relocation from Pennsylvania.

Severance.     In the event that Mr. Parvez’s employment is terminated by us without “cause” or if he resigns for “good reason”, he will receive a severance payment equal to his annual base salary in effect at that time and health and welfare benefits for a period of 12 months or six months, respectively, after his termination date. For purposes of the agreement, (i) “cause” is defined as willful misconduct materially and adversely affecting us; theft, fraud, embezzlement or similar behavior; indictment or conviction of a felony; or willfully failing to substantially perform the material duties of his position, other than a failure resulting from incapacity due to physical or mental illness, following a demand for performance delivered by the board of directors and a specified cure period of not less than 30 days; and (ii) “good reason” is defined as a reduction in base salary or a diminution in benefits; substantial diminution in Mr. Parvez’s duties, responsibilities or title, if uncured 30 days after written notice of the diminution was delivered to us by Mr. Parvez; or relocation for a period of greater than six consecutive months greater than 100 miles from the Chicago metropolitan area.

Restrictive Covenants.     The agreement contains customary non-competition and non-solicitation covenants on the part of Mr. Parvez. These restrictions survive for a period of 12 months after Mr. Parvez’s resignation or termination, and in the event of a breach of his employment agreement, the period is automatically extended by the period of the breach.

William F Weissman

We entered into an employment agreement with Mr. Weissman, our chief financial officer, effective as of July 30, 2007. The key terms of the agreement are summarized below.

Term.     The term of the agreement commenced on July 30, 2007 and expires on June 30, 2008, subject to automatic one-year extensions unless either party provides the other with written notice of non-renewal at least 60 days prior to the end of the then-current term.


 

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Compensation.     Under the terms of his agreement, Mr. Weissman is entitled to a 2007 annual base salary of $200,000 and an annual discretionary bonus targeted at 25% of his annual base salary. In addition, Mr. Weissman was granted in 2007 an option to purchase 190,348 shares of our common stock at an exercise price of $8.45 per share. The option vests at the rate of 25% of the total option shares on each of the first four anniversaries of the date of grant. Mr. Weissman was also granted a participation right in the MIB Plan. The MIB Plan terminates upon completion of this offering. Prior to his employment as our chief financial officer, Mr. Weissman was granted an option to purchase 15,384 shares of our common stock at an exercise price of $8.45 per share in recognition of his services as our interim chief financial officer. This option vests in full upon the closing of the initial public offering or a sale of our company.

Severance terms.     In the event that Mr. Weissman’s employment agreement is terminated by us without “cause” or if he resigns for “good reason”, he will receive a continuation of his annual base salary for six months thereafter and acceleration of the vesting of options provided that Mr. Weissman delivers a release of claims. If we, at any time after completion of this offering, and within one year after a change in control, terminate Mr. Weissman without cause, he will be entitled to a lump sum payment equal to six months of his annual base salary in lieu of the salary continuation described above.

For purposes of the agreement (i) “cause” is defined as willful misconduct materially and adversely affecting us; theft, fraud, embezzlement or similar behavior; indictment or conviction of a felony; or willfully failing to substantially perform the material duties of his position, other than failure resulting from incapacity due to physical or mental illness, following a demand for performance delivered by the board of directors and a specified cure period of not less than 10 days; and (ii) “good reason” is defined as a reduction in base salary; substantial diminution in Mr. Weissman’s duties, responsibilities or title, if uncured by us within 30 days of receipt of notice from Mr. Weissman; or relocation for a period of greater than six consecutive months greater than 100 miles from the Chicago metropolitan area.

Restrictive covenants.     The agreement contains customary non-competition and non-solicitation covenants on the part of Mr. Weissman. These restrictions survive for a period of 12 months after Mr. Weissman’s resignation or termination, and in the event of a breach of his employment agreement, the period is automatically extended by the period of the breach.

Mardel A Graffy

We entered into a change in control severance agreement as of August 30, 2007 with Ms. Graffy. This agreement provides that if we, at any time after completion of this offering, and within one year after a change in control, terminate Ms. Graffy without cause, she will be entitled to a lump sum payment equal to six months of her annual base salary provided that Ms. Graffy delivers a release of claims. For purposes of the agreement, “cause” is defined as willful misconduct materially and adversely affecting us; theft, fraud, embezzlement or similar behavior; indictment or conviction of a felony; or willfully failing to substantially perform the material duties of her position, other than failure resulting from incapacity due to physical or mental illness, following a demand for performance delivered by the board of directors and a specified cure period of not less than 10 days.

Hap R Hewes

We entered into an employment agreement as of March 29, 2004, a non-competition agreement as of April 6, 2005 and a severance agreement as of September 8, 2005 with Mr. Hewes, our senior vice president of sales and marketing. The key terms of these agreements are summarized below.


 

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Term.     Mr. Hewes is considered an “employee at will” and either party may terminate the agreement on 30 days’ advance written notice.

Compensation.     Under the terms of his agreement, Mr. Hewes is entitled to a minimum annual base salary of $140,000 and an annual discretionary bonus of up to 40% of his base salary. In addition, Mr. Hewes was entitled to receive an option to purchase 11,335 shares of our common stock at an exercise price of $4.94 per share; however, our board of directors decided at the time of grant in March 2004 to increase the size of the award to 14,615 option shares. Mr. Hewes’ option vests at the rate of 25% of the total option shares on each of the first four anniversaries of the date of grant.

Severance terms.     Under the terms of the severance agreement, if Mr. Hewes is terminated by us without “cause” or if he resigns for “good reason”, he will receive, provided that Mr. Hewes delivers a release of claims, (i) a continuation of his annual base salary for six months thereafter, (ii) a bonus equal to two times the minimum bonus specified in our 2005 performance bonus plan, (iii) a continuation of his medical and welfare benefits for a period of 12 months thereafter, (iv) if the termination occurs within the second half of a vesting year, accelerated vesting of the options that would have vested at the end of such period, and (v) an extension of the exercise period of his options until the later of (a) two years after his termination and (b) the expiration date of the options.

For purposes of the severance agreement, (i) “cause” is defined as commission of a willful or grossly negligent act or the willful or grossly negligent omission to act, which is intended to cause or causes or is reasonably likely to cause material harm to us; commission or conviction of, or a plea of no contest to, any felony, crime or offense involving dishonesty or fraud or that is significantly injurious to us; breach of any material term of any agreement with us that remains uncured for 30 days following written notice; willful neglect of or continued failure to substantially perform, in any material respect, his duties or obligations to us, which neglect or failure continues for 30 days following written notice; or use or abuse of illegal drugs at any time or Mr. Hewes’ being under the influence of alcohol during any time in which he is required to perform his duties and obligations to us; and (ii) “good reason” is defined as the assignment to Mr. Hewes of duties materially inconsistent with his level of authority or responsibilities, or any other action by us that results in material diminution of his position, compensation, authority, duties or responsibilities; a breach by us of any material term of any agreement with Mr. Hewes that remains uncured for 30 days following written notice; a requirement that the primary business location of Mr. Hewes move more than 75 miles from his principal office location; or failure of a successor to substantially all of our business or assets to assume expressly, and agree to perform under the terms of, the severance agreement.

Restrictive covenants.     The non-competition agreement contains customary non-competition and non-solicitation covenants on the part of Mr. Hewes. These restrictions survive for a period of 36 months after Mr. Hewes’ resignation or termination; provided, however, that the restrictions will remain in effect after the termination of his employment only for so long as we are paying Mr. Hewes an amount equal to 50% of his annual base salary on a monthly basis.


 

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Potential payments upon termination of employment

The table below shows the estimated amount of payments and benefits that we would provide to the named executive officers assuming that their employment was terminated as of December 31, 2006 by us without cause, including following a change in control, or by the officer with good reason. The table also shows the estimated amount of benefits that we would provide upon the occurrence of a change in control, as defined in the 2001 Equity Plan, as of December 31, 2006, if the named executive officer’s options were not assumed, or an equivalent right substituted, by the successor corporation.

 

    Cash severance     Continuation
of medical
welfare
benefits
  Accelerated
vesting of
stock
options (1)
  Total
termination
benefits
      Salary
continuation
  Bonus   Lump
sum
       
    (in dollars)

Raja M Parvez

           

Termination without cause

  $   $   $ 275,000 (2)   $8,442   $                $             

Termination for good reason

            275,000 (2)   4,221    

Termination following a change in control

            275,000 (2)   8,442    

Change in control (3)

                   

Mardel Graffy

           

Termination without cause

                       

Termination for good reason

                       

Termination following a change in control

            59,246             59,246

Change in control (3)

                   

William F Weissman

           

Termination without cause

    100,000                

Termination for good reason

    100,000                

Termination following a change in control

            100,000        

Change in control (3)

                   

Hap R Hewes

           

Termination without cause

    90,000     36,000         8,442    

Termination for good reason

    90,000     36,000         8,442    

Termination following a change in control

    90,000     36,000         8,442    

Change in control (3)

                   

(1)   The value of option vesting acceleration shown in the table above was calculated by multiplying the number of shares subject to each accelerated option by the difference between the fair market value of our common stock as of December 31, 2006 and the exercise price of the option. We assumed that the fair market value of our common stock as of December 31, 2006 was $            , which represents the mid-point of the range of the initial public offering price set forth on the cover page of this prospectus.
(2)   Mr. Parvez’s severance payment is payable 50% on the date of termination and 50% on the date that is six months later.
(3)   Assumes stock options are not assumed, or equivalent rights substituted, by the successor corporation.

 

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Employee benefits plans

2007 Stock Incentive Plan

Our 2007 Stock Incentive Plan, or 2007 Plan, was adopted by our board of directors and approved by our stockholders in August 2007.

The 2007 Plan permits us to make grants of incentive stock options, within the meaning of Section 422 of the Code, to our employees and any parent and subsidiary corporation’s employees, non-qualified stock options, stock appreciation rights, restricted stock, restricted stock units, performance awards and bonus shares to our employees, directors and consultants and our parent and subsidiary corporation’s employees and consultants. These are referred to in the 2007 Plan as “awards.”

We reserved 2,307,692 shares of our common stock for the issuance of awards under the 2007 Plan. This number is subject to adjustment in the event of a stock split, stock dividend or other change in our capitalization. Under certain circumstances, shares that are the subject of a previously-issued award can become available again for future grants under the 2007 Plan. As of August 30, 2007, no awards were outstanding under the 2007 Plan. The board of directors has approved the grant of an option to purchase 107,692 shares of our common stock to Raja Parvez upon the closing of this offering, at an exercise price equal to the initial public offering price. One-half of the total option shares will vest upon the closing of this offering with the remainder vesting ratably on each of the first four anniversaries of the date of grant.

Plan administration.      The 2007 Plan is administered by a committee appointed by the board of directors. The board of directors may appoint different committees to administer the 2007 Plan for different groups of persons eligible to receive awards. The board of directors may also delegate all or part of the committee’s duties to our chief executive officer, including the granting of awards, for awards to individuals other than (i) officers covered by Section 16 of the Exchange Act, (relating to certain reporting requirements and short-swing profits disgorgement provisions of the US securities laws), or (ii) our officers who are “covered employees” for purposes of Section 162(m) of the Code (relating to certain limitations on our federal income tax deduction for compensation paid to “covered employees”) (discussed below).

If the committee desires that the awards granted to our officers who are “covered employees” qualify as “performance-based compensation” for purposes of Section 162(m) of the Code (Code Section 162(m) generally limits a company’s deduction for compensation paid to any covered employee to $1,000,000 annually, subject to certain exceptions, including an exception for “performance-based compensation”), the committee must be comprised of two or more directors who qualify as “outside directors” for purposes of Section 162(m) of the Code. If the committee desires that the grants of awards to our officers who are subject to Section 16 of the Exchange Act be exempt under Rule 16b-3 of the Exchange Act from application of the short-swing profits liability provisions of Section 16, the committee must be comprised of two or more directors who qualify as “non-employee directors” for purposes of Rule 16b-3 of the Exchange Act. If required by the rule of any stock exchange, the 2007 Plan will be administered by “independent directors”, as defined by any applicable rule.

The committee has full power and authority to select the eligible persons to whom awards will be granted, to make any combination of awards to the persons selected, to accelerate the exercisability or vesting of any award and to determine the specific terms and conditions of each award, subject to the provisions of the 2007 Plan.


 

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Eligibility.     The committee may grant awards to our officers, employees, non-employee directors and consultants. However, incentive stock options may be granted only to employees. There are certain annual limits on the number or amount of awards that may be granted under the 2007 Plan. No awards covering more than 200,000 shares of common stock may be granted to any one individual during any single calendar year (including awards that are denominated with reference to our common stock that may be payable in cash). In addition, the maximum amount of awards denominated in cash (including awards that are denominated in cash that may be payable in shares of common stock) that may be granted to any one individual in any single year is $2,400,000.

Options.     Options to purchase our common stock may be granted under our 2007 Plan. The exercise price of options awarded under the 2007 Plan may not be less than the fair market value of our common stock on the date of the option grant. The term of each option may not exceed ten years from the date of grant. The committee will specify in the option agreement at what time or times each option may be exercised, including the period of time after disability, death, or other termination of employment during which options that have become exercisable may be exercised.

To qualify as incentive options, options must meet additional federal tax requirements, including a $100,000 limit on the value of shares subject to incentive options which first become exercisable in any one calendar year, and a shorter term and higher minimum exercise price in the case of certain large stockholders.

Stock appreciation rights.     Stock appreciation rights may be granted under our 2007 Plan. Stock appreciation rights allow the recipient to receive the appreciation in the fair market value of our common stock between the exercise date and the date of grant. The committee determines the terms of the stock appreciation rights granted, including when such rights become exercisable and whether to pay the increased appreciation in cash or with shares of our common stock, or a combination thereof.

Restricted stock.     Restricted stock may be granted under our 2007 Plan. Restricted stock awards are shares of our common stock issued to an employee or other service provider that vest in accordance with terms and conditions established by the committee. The committee will determine the number of shares of restricted stock granted to any employee or other service provider. The committee may impose whatever conditions to vesting it determines to be appropriate and may grant restricted stock without requiring the payment of any purchase price. For example, the committee may set restrictions based on continuous employment and (or) the achievement of specific performance goals. Shares of restricted stock that do not vest are forfeited. Except as otherwise provided in the applicable restricted stock agreement, the recipient of a restricted stock award has all the rights of a stockholder of our common stock, including the right to vote shares and the right to receive any cash dividends.

Restricted stock units.     Our 2007 Plan also permits us to grant restricted stock units. A restricted stock unit is a contingent right to receive a share of our common stock in the future in accordance with terms and conditions established by the committee. The committee will determine the number of shares of restricted stock granted to any employee or other service provider and the conditions under which the restricted stock units will vest. The committee may impose vesting conditions based on continuous employment and (or) the achievement of specific performance goals. Restricted stock units that do not vest are forfeited.

Dividend equivalents may be granted with respect to restricted stock units under our 2007 Plan. A dividend equivalent entitles the recipient to an amount equal to the dividend payable on the shares underlying a grant of restricted stock units. Dividend equivalents are credited as additional restricted stock units as of the date on which a dividend on our common stock is paid and are subject to the same terms and conditions and to the same payment provisions as the restricted stock units to which they relate.


 

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Performance awards.     Our 2007 Plan also permits us to grant performance awards. A performance award is a right to receive a payment that is contingent upon the attainment of one or more performance objectives established by the committee for a performance period. A performance award may be denominated in cash or in shares of our common stock. The committee will determine the number of performance awards granted to any employee or other service provider, the length of the performance period, the performance objectives, the formula for determining the amount earned under the performance award, any related forfeiture conditions, and any other terms and conditions that it determines to establish.

Bonus shares.     Our 2007 Plan also permits us to grant bonus shares to employees, directors and consultants. A bonus share is a grant of common stock to an employee, director or consultant without any payment from the recipient and without any restrictions, in recognition of past performance or as an incentive to become an employee or to provide services to us or any of our subsidiaries.

Non-transferability.     Our 2007 Plan does not allow for the transfer of restricted stock units and performance awards. Only the recipient of an option or stock appreciation right may exercise the option or stock appreciation right during his or her lifetime. A recipient of restricted stock may not transfer the restricted stock until the restrictions established by the committee in connection with the grant have lapsed. A recipient of bonus shares may not transfer the bonus shares until they have actually been delivered. The committee may impose any additional restrictions on the transfer of common shares delivered in payment of an award that it deems appropriate. The committee may approve exceptions to the transfer restrictions for restricted stock, option and stock appreciation right awards.

Designation of awards as performance-based compensation.     The committee may designate awards of restricted stock, restricted stock units or performance awards as intended to qualify as performance-based compensation for purposes of Section 162(m) of the Code. Awards so qualified are not subject to the $1,000,000 federal annual deduction limit that applies to compensation paid by a company to each of its “covered employees” (generally, a company’s chief executive officer and its four highest compensated executive officers). If the committee intends an award to qualify an award as performance-based compensation for purposes of Section 162(m) of the Code, additional requirements apply to such awards, including a requirement that only one or more of the performance factors set forth in the plan may constitute the performance objectives for the award. Additionally, the committee can have no discretion to increase the award above the amount payable under the award for any given level of performance. Stock options and stock appreciation rights will generally by their terms qualify as performance-based compensation for purposes of Section 162(m) of the Code.

Cancellation and rescission.     The 2007 Plan also provides that unless the applicable award agreement provides otherwise, the committee may cancel any unvested, unexercised or unpaid award if the recipient is not in compliance with the terms of the award agreement and the 2007 Plan, or if the award recipient has engaged in any adverse conduct. In addition, the 2007 Plan provides that unless the applicable award agreement provides otherwise, for a period of two years following the exercise, payment or delivery of an award, the committee may rescind the award upon its determination that the recipient has engaged in adverse conduct prior to the delivery of the award or during the two-year rescission period.

Change in control.     Our 2007 Plan provides that in the event of our change in control, as defined in the 2007 Plan, each outstanding award will be treated as the committee determines, including that the successor corporation or its parent or subsidiary will assume or substitute an equivalent award for each outstanding award. The committee is not required to treat all awards similarly. If there is no assumption or substitution of outstanding awards, the award recipient will fully vest in and have the right to exercise all of his or her outstanding options and stock appreciation rights, all restrictions on restricted stock and restricted stock units will lapse and all performance goals or other vesting requirements for performance


 

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awards will be deemed achieved at 100% of target levels and all other terms and conditions will be deemed met. If an option or stock appreciation right is not assumed or substituted, the committee will provide notice to the award recipient that the option or stock appreciation right will be fully vested and exercisable for a period of time determined by the committee in its discretion, and the option or stock appreciation right will terminate upon the expiration of such period.

Prior to the issuance of any shares of common stock in settlement of an award under the 2007 Plan, the committee may require an award holder to satisfy conditions relating to the issuance of shares that the committee deems necessary.

Our 2007 Plan will automatically terminate in 2017, unless we terminate it sooner. In addition, our board of directors has the authority to amend, suspend or terminate the 2007 Plan, provided such action does not impair the rights of any participant.

The 2007 Plan is unfunded; any obligations relating to the 2007 Plan constitute unfunded, unsecured obligations of Rubicon.

2001 Equity Plan

Our 2001 Equity Plan, or 2001 Plan, was adopted by our board of directors on July 30, 2001 and approved by our stockholders on August 2, 2001. Our board of directors has determined not to grant any additional awards under the 2001 Plan after the completion of this offering. However, the 2001 Plan will continue to govern the terms and conditions of the outstanding awards granted under it. The 2001 Plan permits us to make grants of incentive stock options, non-qualified stock options, and stock purchase rights.

Shares authorized.     We have reserved a total of 1,449,666 shares of our common stock for the issuance of awards under the 2001 Plan. This number is subject to adjustment in the event of a stock split, stock dividend or other change in our capitalization.

If an option or stock purchase right expires or becomes unexercisable without having been exercised in full or is surrendered pursuant to an option exchange program, the unpurchased shares will again become available for future grant or sale under the 2001 Plan. Shares that have actually been issued under the 2001 Plan are not available for reissuance under the 2001 Plan unless such shares are repurchased by us. As of August 30, 2007, after giving effect to the cancellation of certain options, there remains 55,540 shares available under the 2001 Plan for future awards. However, the board of directors has determined not to grant any additional options to purchase common stock under the 2001 Plan.

Administrative committee.     The administrator of our 2001 Plan is either the board of directors or any of its committees or any delegate of the board or of the committee appointed by the board of directors. The 2001 Plan may be administered by different committees for different groups of person eligible to receive awards.

If the administrator determines it to be desirable that the awards granted to our officers who are “covered employees” qualify as “performance-based compensation” for purposes of Section 162(m) of the Code (Code Section 162(m) generally limits a company’s deduction for compensation paid to any “covered employee” to $1,000,000 annually, subject to certain exceptions, including an exception for “performance-based compensation”), the committee must be comprised of two or more directors who qualify as “outside directors” for purposes of Section 162(m) of the Code. If the administrator desires that the grants of awards to our officers who are subject to Section 16 of the Exchange Act be exempt under Rule 16b-3 of the Exchange Act from application of the short-swing profits liability provisions of Section 16, the administrator must be a committee comprised of two or more directors who qualify as “non-employee directors” for purposes of Rule 16b-3 of the Exchange Act.


 

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The administrator has full power and authority to select the persons to whom awards will be granted, to make any combination of awards to the persons selected, to accelerate the exercisability or vesting of any award and to determine the specific terms and conditions of each award, subject to the provisions of the 2001 Plan.

Eligibility.     The administrator may grant non-qualified options and stock purchase rights to our officers, employees, non-employee directors and consultants. However, incentive stock options may be granted only to employees.

Options.     Options may be granted under our 2001 Plan. The exercise price of incentive stock options awarded under the 2001 Plan may not be less than the fair market value of our common stock on the date of the option grant. The term of each option may not exceed ten years from the date of grant. The Committee will specify in the option agreement at what time or times each option may be exercised, including the period of time after disability, death, or other termination of employment during which options that have become exercisable may be exercised.

To qualify as incentive options, stock options must meet additional federal tax requirements, including a $100,000 limit on the value of shares subject to incentive options which first become exercisable in any one calendar year, and a shorter term and higher minimum exercise price in the case of certain large stockholders.

Stock purchase rights.     Our 2001 Plan also provides for stock purchase rights. The grant of a stock purchase right represents an offer to an employee, director or consultant of ours to acquire our common stock on the terms and conditions established by the administrator, subject to the 2001 Plan. The administrator may offer stock purchase rights without a requirement that the recipient tender any purchase price for the shares offered. Unless the administrator determines otherwise, the restricted stock purchase agreement that memorializes a stock purchase right will grant us a repurchase option for the common stock that is exercisable upon the termination of the stock purchase right recipient’s employment or service with us. Once a stock purchase right is exercised, the purchaser has the rights of a stockholder of our common stock.

Non-transferability.     Unless the administrator provides otherwise, our 2001 Plan does not allow for the transfer of stock purchase rights and only the recipient of an option or stock purchase right may exercise the option or stock purchase right during his or her lifetime.

Dissolution, liquidation, merger, reorganization or sale.     Our 2001 Plan provides for the following in the event of a dissolution, merger, reorganization or sale:

 

Ø  

In the event of any proposed dissolution or liquidation, the administrator may provide holders of outstanding options with a 10-day period in which to exercise all outstanding options and may provide for the lapse of any Company repurchase option right.

 

Ø  

In the event of any merger, consolidation or similar reorganization in which the outstanding options and stock purchase rights will not be assumed or an equivalent option or right is not substituted by the successor entity, the options and stock purchase rights will fully vest and become exercisable for a period of 15 days, after which, the unexercised options and stock purchase rights will terminate.

Prior to the issuance of any shares of common stock in settlement of an award under the 2001 Plan, the committee may require an award holder to satisfy conditions relating to the issuance of shares that the committee deems necessary.


 

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Executive compensation


 

Our 2001 Plan will automatically terminate in 2011, unless we terminate it sooner. In addition, our board of directors has the authority to amend, suspend, or terminate the 2001 Plan, provided such action does not impair the rights of any participant.

The 2001 Plan is unfunded; any obligations relating to the 2001 Plan constitute unfunded, unsecured obligations of Rubicon.

Limitation on liability and indemnity

Our amended and restated certificate of incorporation, which will be in effect upon the completion of this offering, contains provisions that limit or eliminate the liability of our directors for monetary damages to the fullest extent permitted by Delaware law. Consequently, our directors will not be personally liable to us or our stockholders for monetary damages for any breach of fiduciary duties as a director, except liability for:

 

Ø  

any breach of the director’s duty of loyalty to us or our stockholders;

 

Ø  

any act or omission not in good faith or that involves intentional misconduct or a knowing violation of law;

 

Ø  

unlawful payments of dividends or unlawful stock repurchases, redemptions or other distributions as provided in Section 174 of the Delaware General Corporation Law; or

 

Ø  

any transaction from which the director derived an improper personal benefit.

Our amended and restated bylaws, which will be in effect upon the completion of this offering, provide that we are required to indemnify our directors and officers, in each case to the fullest extent permitted by Delaware law. Our amended and restated bylaws also provide that we are obligated to advance expenses incurred by a director or officer in advance of the final disposition of any action or proceeding and permit us to secure insurance on behalf of any officer, director, employee or other agent for any liability arising our of his or her actions in that capacity regardless of whether we would otherwise be permitted to indemnify him or her under the provisions of Delaware law. We have entered into agreements and intend to continue to enter into agreements to indemnify our executive officers and directors. With certain exceptions, these agreements provide for indemnification for related expenses including, among other things, attorneys’ fees, judgments, fines and settlement amounts incurred by any of these individuals in any action or proceeding for which indemnification is available. We believe these bylaw provisions and indemnification agreements are necessary to attract and retain qualified persons as directors and officers. We also maintain directors’ and officer’s insurance.

The limitation of liability provisions in our amended and restated certificate of incorporation and the indemnification provisions in our amended and restated bylaws may discourage stockholders from bringing a lawsuit against our directors and officers for breach of their fiduciary duty. These provisions may also reduce the likelihood of derivative litigation against our directors and officers, even though an action, if successful, might benefit us and our stockholders. Further, a stockholder’s investment may be adversely affected to the extent we pay the costs of settlement and damage awards against directors and officers as required by these indemnification provisions. Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers, or persons controlling us pursuant to the foregoing provisions, we have been informed that, in the opinion of the SEC, this indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable.

At present, other than as described in “Business-legal proceedings”, there is no pending litigation or proceeding involving any of our directors, officers or employees for which indemnification is sought, and we are not aware of any threatened litigation that may result in claims for indemnification.


 

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Certain relationships and related party transactions

POLICY AND PROCEDURES FOR REVIEW, APPROVAL OR RATIFICATION

We recognize that transactions between Rubicon and related persons present a potential for actual or perceived conflicts of interest. Our general policies with respect to such transactions are included in our Code of Business Conduct & Ethics (the “Code of Ethics”) which is administered by our audit committee. All employees and members of our board of directors agree to be bound by the Code of Ethics. As a supplement to the Code of Ethics, the audit committee adopted a policy setting out the procedures and standards to be followed for the identification and evaluation of “related party transactions.” For purposes of the policy, a related party transaction is any transaction or series of related transactions in excess of $120,000 in which we are a party and in which a “related person” has a material interest. Related persons include our directors, director nominees, executive officers, beneficial owners of 5% or more of any class of our voting securities and members of their immediate families. The audit committee has determined that certain transactions are deemed to be pre-approved under this policy. These include (i) transactions with another company in which the related person’s only interest is as a director or beneficial owner of less than 10% of the equity interests in that other company and (ii) certain compensation arrangements that have either been disclosed in our public filings with the SEC or approved by our compensation committee.

We collect information about potential related party transactions in our annual questionnaires completed by directors, executive officers and beneficial owners of 5% or more of any class of our voting securities. Potential related party transactions are first reviewed and assessed by our corporate secretary to consider the materiality of the transactions and then reported to the audit committee. If a related party transaction is identified during the year, it is reported promptly to the audit committee. The audit committee reviews and considers all relevant information available to it about each related party transaction. A related party transaction is approved or ratified only if the audit committee determines that it is in, or is not inconsistent with, our best interests and those of our stockholders and is in compliance with the Code of Ethics.

The following related party transactions have been ratified by the audit committee in accordance with the policy described above. We believe that we have executed all of the transactions set forth below on terms no less favorable to us than we could have obtained from unaffiliated third parties.

Private placements of securities

From January 2004 through December 2006, we issued certain series of preferred stock to investors and exchanged certain series of preferred stock for other series of preferred stock. Such transactions, including the original issuances of securities exchanged by the investors, are described as follows:

 

Ø  

From May 2002 to August 2003, we issued and sold an aggregate of 25,446,430 shares of our Series B preferred stock at a price per share of $0.56 and warrants to purchase 2,439,730 shares of Series B preferred stock, for an aggregate purchase price for the shares and warrants of $14,250,000.

 

Ø  

From May to December 2004, we issued and sold an aggregate of 16,049,570 shares of our Series C preferred stock at a price per share of approximately $0.76 and warrants to purchase 131,096 shares of Series C preferred stock, for an aggregate purchase price for the shares and warrants of approximately $12,242,612.

 

Ø  

In June 2005, we issued and sold an aggregate of 6,123,619 shares of our Series D preferred stock at a price per share of approximately $0.83, for an aggregate purchase price of $5,000,000.


 

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Ø  

From December 2005 through December 2006, we issued and sold an aggregate of 46,681,517 shares of our Series E preferred stock at a price per share of approximately $0.28 and warrants to purchase 8,501,422 shares of Series E preferred stock, for an aggregate purchase price for the shares and warrants of approximately $13,088,133.

 

Ø  

Simultaneously with the sale and issuance of the Series E preferred stock in December 2005, 14,001,191 shares of our Series B preferred stock were exchanged for 14,001,191 shares of Series B-2 preferred stock; 12,693,013 shares of our Series C preferred stock were exchanged for 12,693,013 shares of Series C-2 preferred stock, 5,258,432 shares of Series D preferred stock were exchanged for 5,258,432 shares of Series D-2 preferred stock and warrants to purchase 647,379 shares of Series B preferred stock were amended to provide for the purchase of 647,379 shares of Series B-2 preferred stock.

All of our outstanding shares of preferred stock will automatically convert into shares of common stock upon the closing of this offering.

The following table summarizes the above described issuances of our preferred stock and warrants to purchase preferred stock by our directors, executive officers, entities affiliated with such persons and holders of more than 5% of any class of our outstanding voting securities:

 

Purchaser         Series B and
Series B-2
preferred
stock and
warrants
    Series C and
Series C-2
preferred
stock
  Series D and
Series D-2
preferred
stock
  Series E
preferred
stock and
warrants
 
Funds affiliated with Cross Atlantic Capital Partners (1)(2)   Shares purchased     6,491,687 (3)     10,366,137     3,256,147     39,367,388 (4)
  Amount paid   $ 3,502,575     $ 7,907,289   $ 2,685,130   $ 10,069,503  
         
Funds affiliated Gazelle TechVentures (1)(5)   Shares purchased     6,650,187 (6)     1,731,213     438,347     6,656,352 (7)
  Amount paid   $ 3,588,092     $ 1,320,570   $ 364,355   $ 1,666,509  
Funds affiliated with KB Partners (8)   Shares purchased     7,315,197 (9)     2,244,199     507,205     1,958,995  
  Amount paid   $ 3,946,898     $ 1,711,875   $ 415,565   $ 549,694  
Michael E Mikolajczyk (1)(10)   Shares purchased           189,953     60,153     130,285  
  Amount paid   $     $ 144,896   $ 50,000   $ 36,556  

(1)   In December 2005, certain of the issued and outstanding Series B, Series C and Series D preferred stock were exchanged, on a one-for-one basis, into shares of Series B-2, Series C-2 and Series D-2 preferred stock, respectively.
(2)   Donald R Caldwell, a member of our board of directors, is a director of and owns 100% of Cross Atlantic Capital Partners, Inc., the appointed “investment manager” for Cross Atlantic Technology Fund, L.P., Cross Atlantic Technology Fund II, L.P. and the Co-Investment 2000 Fund, L.P., the purchasers of the securities shown in the table above. Mr. Caldwell and Brian Adamsky, a former member of our board of directors, are sometimes identified as managing directors of Cross Atlantic Technology Fund, L.P. Mr. Caldwell is also a limited partner of Cross Atlantic Technology Fund, L.P. and a limited partner of its general partner. Messrs. Caldwell and Adamsky are limited partners of the general partner of Cross Atlantic Technology Fund II, L.P. and are sometimes identified as managing directors of Cross Atlantic Technology Fund II, L.P. Mr. Caldwell is a limited partner of the general partner of the Co-Investment 2000 Fund, L.P. and Mr. Caldwell and Mr. Adamsky are sometimes identified as managing directors of the Co-Investment 2000 Fund, L.P.

(footnotes continued on following page)


 

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(3)   Includes warrants to purchase 237,088 shares of Series B-2 preferred stock.
(4)   Includes warrants to purchase 3,481,777 shares of Series E preferred stock.
(5)   Don N Aquilano, the chairman of our board of directors, is the managing director and president of Gazelle Tech Ventures, Inc., the manager of the general partner of Gazelle Tech Ventures, L.P. and the Gazelle Co-Investment Fund, L.P., the purchasers of the securities shown in the table above.
(6)   Includes warrants to purchase 242,880 shares of Series B-2 preferred stock.
(7)   Includes warrants to purchase 716,932 shares of Series E preferred stock.
(8)   Byron A Denenberg, a former member of our board of directors, is a partner of KB Partners Venture Fund II, L.P. and KB Partners Affiliates Fund II, L.P., the purchasers of the securities shown in the table above.
(9)   Includes warrants to purchase 267,164 shares of Series B preferred stock.
(10)   Mr. Mikolajczyk is a member of our board of directors.

Registration rights agreement

We have granted registration rights to holders of our preferred stock pursuant to an amended and restated registration rights agreement, dated November 2005. See “Description of capital stock—Registration rights.”

Stockholders agreements

We have entered into certain stockholders agreements dated June 2005 and November 2005. These agreements contain provisions concerning the composition of our board of directors, among other things. Pursuant to these agreements, the holders of a majority of: (1) our Series A preferred stock have the right to designate one member to our board of directors; (2) our Series B preferred stock have the right to designate two members to our board of directors; (3) our Series C and Series D preferred stock, voting together, have the right to designate one member to our board of directors; (4) all series of preferred stock, voting together, have the right to designate two members to our board of directors; and (5) our common stock have the right to designate one member to our board of directors. These stockholders agreements will automatically terminate on the closing of this offering.

Stock purchase agreements

In connection with our private placements of securities, we entered into various stock purchase agreements with our investors. Under the terms of the purchase agreements for the Series B, Series C, Series D and Series E preferred stock, any investor holding at least 250,000 shares of a series of preferred stock has the right to designate one representative to attend any meeting of our board of directors as an observer and that representative would be entitled to receive notices, proposed written consents of the board of directors and board meeting materials in the same manner as the members of our board of directors. These rights to designate observers will automatically terminate on the closing of this offering.

Voting agreements

As of August 29, 2007, certain of our stockholders entered into two voting agreements related to the rights to designate members of our board of directors. One voting agreement is among KB Partners Venture Fund II, L.P, (the “KB Fund”) and the other holders of our Series B preferred stock (the “KB Voting Agreement”). The other voting agreement is among Cross Atlantic Technology Fund, L.P., Cross Atlantic Technology Fund II, L.P., The Co-Investment 2000 Fund, L.P. and the other holders of each series of our preferred stock. Under the voting agreements, KB Fund and Cross Atlantic Funds will each


 

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have the right to designate a director of its choice if this offering is not consummated by June 30, 2008. In addition, the KB Voting Agreement provides that KB Fund will have the right to designate a representative to attend our board meetings as an observer prior to, and after completion of, this offering. Other than KB Fund’s right to designate a representative to attend our board meetings as an observer after completion of this offering, these voting agreements will automatically terminate on the closing of this offering.

Employment and severance arrangements with executive officers

We have entered into employment and severance arrangements with our executive officers as described under the caption “Executive compensation—Employment and severance arrangements.”

Indemnification agreements

We have entered and expect to continue to enter into agreements to indemnify our directors and executive officers. For a description of these agreements, see “Executive compensation—Limitation on liability and indemnity.”

Facility lease

We lease one of our manufacturing and office facilities from Radion Mogilevsky and his wife, Nanette Mogilevsky. The lease expires on July 31, 2010. The rent under the lease is currently $11,236 per month and is subject to annual increases of six percent on each August 1st during the lease term. We have a right of first refusal under the lease to purchase the facility if the Mogilevskys receive a purchase offer that they wish to accept from an unrelated third party. Mr. Mogilevsky currently holds greater than 5% of the outstanding shares of our common stock, which is less than 1% of our fully-diluted capitalization. Upon completion of this offering, Mr. Mogilevsky will no longer hold greater than 5% of the outstanding shares of our common stock.


 

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Principal and selling stockholders

The following table sets forth information with respect to the beneficial ownership of our common stock as of August 30, 2007, and as adjusted to reflect the sale of common stock offered by us in this offering, for:

 

Ø  

each beneficial owner of more than 5% of our outstanding common stock;

 

Ø  

each of our named executive officers;

 

Ø  

each of our directors;

 

Ø  

all of our executive officers and directors as a group; and

 

Ø  

all selling stockholders.

Beneficial ownership is determined in accordance with the rules of the SEC. In computing the number of shares beneficially owned by a person and the percentage ownership of that person, shares of common stock subject to options held by that person that are currently exercisable or exercisable within 60 days of August 30, 2007 are deemed outstanding but are not deemed outstanding for computing the percentage ownership of any other person. These rules generally attribute beneficial ownership of securities to persons who possess sole or shared voting power or investment power with respect to such securities. Except as otherwise indicated, all of the shares reflected in the table are shares of common stock and all persons listed below have sole voting and investment power with respect to the shares beneficially owned by them, subject to applicable community property laws. Ownership calculations are based on 13,732,233 shares outstanding as of August 30, 2007, after giving effect to the 1 for 13 reverse stock split on our common stock effected as of August 30, 2007, assuming the conversion of all outstanding shares of our preferred stock into an aggregate of 9,791,208 shares of common stock, the issuance of 3,326,548 shares of common stock in satisfaction of dividends that have accrued on the outstanding shares of our preferred stock through August 30, 2007, the conversion of outstanding preferred stock warrants into common stock warrants and the exercise of those warrants that expire on the closing of this offering.


 

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Unless otherwise indicated, the address for each of the beneficial owners in the table below is c/o Rubicon Technology, Inc., 9931 Franklin Avenue, Franklin Park, Illinois 60131.

 

    

Shares beneficially
owned prior to

the offering

   

Number of
shares
offered

  

Shares beneficially
owned after

the offering

Name of beneficial owner    Number   

Percent

      

Number

   Percent

5% stockholders and affiliates:

             

Cross Atlantic Technology Fund, L.P. (1)(2)

   973,956    7.09 %        

Cross Atlantic Technology Fund II, L.P. (1)(3)

   3,376,240    24.36 %        

The Co-Investment 2000 Fund, L.P. (1)(4)

   3,807,888    27.39 %        

Gazelle TechVentures, Inc. (5)

   2,504,841    18.12 %        

KB Partners Funds (6)

   1,351,051    9.82 %        

Executive officers and directors:

             

Raja M Parvez (7)

   551,790    3.86 %        

William F Weissman

      *          

Hap R Hewes (8)

   48,653    *          

Don N Aquilano (9)

   2,504,841    18.12 %        

Donald R Caldwell (10)

   8,158,084    58.12 %        

Gordon Hunter (11)

   5,586    *          

Michael E Mikolajczyk (12)

   68,889    *          

All executive officers and directors as a group (13)

   12,688,269    85.95 %        
                             

Other selling stockholders:

             
             
             
             

*   Represents less than 1% of the outstanding shares of common stock.

Notes:

 

(1)   Cross Atlantic Technology Fund, L.P. (“Cross Atlantic Technology Fund”), Cross Atlantic Technology Fund II, L.P. (“Cross Atlantic Technology Fund II”) and The Co-Investment 2000 Fund, L.P. (the “Co-Investment Fund”) are limited partnerships in the business of venture capital investing. Each of these funds has appointed Cross Atlantic Capital Partners, Inc. as its investment manager. Donald R Caldwell, a member of our board of directors, is a director of and owns 100% of Cross Atlantic Capital Partners, Inc. The address for each of these entities is Five Radnor Corporate Center, Suite 555, 100 Matsonford Road, Radnor, Pennsylvania 19087.
(2)   Represents 966,494 shares of common stock beneficially owned by Cross Atlantic Technology Fund and warrants to purchase 7,462 shares of our common stock, which are immediately exercisable. XATF Management, L.P. (“XATF Management”) is the general partner of Cross Atlantic Technology Fund. Cross Atlantic Capital Partners, Inc. is the general partner of XATF Management. Mr. Caldwell, Gerry McCrory, Brian Adamsky, Richard Fox, Frederick Tecce and Hazel Cameron are officers of Cross Atlantic Capital Partners, Inc., are sometimes identified as managing directors of Cross Atlantic Technology Fund and may be deemed to share voting and investment power with respect to all shares held by Cross Atlantic Technology Fund.

(footnotes continued on following page)


 

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(3)   Represents 3,248,237 shares of common stock beneficially owned by Cross Atlantic Technology Fund II and warrants to purchase 128,003 shares of common stock, which are immediately exercisable. XATF Management II, L.P. (“XATF Management II”) is the general partner of Cross Atlantic Technology Fund II. Cross Atlantic Capital Partners II, Inc. is the general partner of XATF Management II. Mr. Caldwell is a director, shareholder and officer of Cross Atlantic Capital Partners II. Gerry McCrory, Brian Adamsky, Richard Fox, Frederick Tecce and Hazel Cameron are officers of Cross Atlantic Capital Partners II, and together with Mr. Caldwell, are sometimes identified as managing directors of Cross Atlantic Technology Fund II and may be deemed to share voting and investment power with respect to all shares held by Cross Atlantic Technology Fund II.
(4)   Represents 3,639,133 shares of common stock beneficially owned by The Co-Investment Fund and warrants to purchase 168,755 shares of common stock, which are immediately exercisable. The general partner of The Co-Investment Fund is Co-Invest Management, L.P. (“Co-Invest Management”). Co-Invest Capital Partners, Inc. (“Co-Invest Capital”) is the general partner of Co-Invest Management. Donald R Caldwell is a shareholder, director and officer of Co-Invest Capital. Messrs. Adamsky, Fox, McCrory and Tecce and Ms. Cameron are officers of Co-Invest Capital and Messrs. Caldwell, Fox and Tecce are sometimes identified as managing directors of The Co-Investment Fund. Messrs. Caldwell, Adamsky, Fox, McCrory and Tecce and Ms. Cameron may be deemed to share voting and investment power with respect to all shares held by The Co-Investment Fund.
(5)   Includes 2,302,941 shares of common stock beneficially owned by Gazelle TechVentures Fund, L.P. and 109,472 shares of common stock beneficially owned by Gazelle Co-Investment Fund, L.P. (collectively, the “Gazelle Funds”). Includes warrants to purchase 88,237 shares of common stock, which are held by Gazelle TechVentures Fund, L.P. and are immediately exercisable and warrants to purchase 4,191 shares of common stock, which are held by Gazelle Co-Investment Fund, L.P. and are immediately exercisable. Don N Aquilano, the chairman of our board, is the managing director and president of Gazelle TechVentures, Inc., the manager of Monument Technology Partners, LLC, which is the general partner of the Gazelle Funds. Mr. Aquilano may be deemed to have sole voting and investment power as to the shares and warrants beneficially owned by the Gazelle Funds. The address for the Gazelle Funds is: Gazelle TechVentures, Inc., 11611 North Meridian Street, Suite 310, Carmel, Indiana 46032, Attention: Don N Aquilano.
(6)   Includes 1,290,641 shares of common stock beneficially owned by KB Partners Venture Fund II, L.P. and 39,860 shares of common stock beneficially owned by KB Partners Affiliates Fund II, L.P. (collectively the “KB Partners Funds”). Includes warrants to purchase 19,922 shares of common stock, which are held by KB Partners Venture Fund II, L.P. and are immediately exercisable and warrants to purchase 628 shares of common stock, which are held by KB Partners Affiliates Fund II, L.P. and are immediately exercisable. Voting and investment power over the shares and warrants beneficially owned by KB Partners Funds is shared equally among four partners, Byron A Denenberg, Keith D Bank, Robert A Garber and Robert M Zieserl. Messrs. Denenberg, Bank, Garber and Zieserl disclaim beneficial ownership of the shares held by the KB Partners Funds, except to the extent of their proportionate pecuniary interests therein. The address for the KB Partners Funds is: KB Partners, LLC, 1101 Skokie Blvd., Suite 260, Northbrook, Illinois 60062, Attention: Byron Denenberg.
(7)   Represents an option to purchase 551,790 shares of common stock, which is immediately exercisable.
(8)   Represents an option to purchase 48,653 shares of common stock, which is exercisable within 60 days of August 30, 2007.

(footnotes continued on following page)


 

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(9)   Represents shares held by the Gazelle Funds. See footnote (5) above for a description of Mr. Aquilano’s relationship with the Gazelle Funds.
(10)   Represents shares held by Cross Atlantic Technology Fund, L.P., Cross Atlantic Technology Fund II, L.P. and The Co-Investment Fund 2000 L.P. See footnotes (1) through (4) above for a description of the relationship among Mr. Caldwell and Cross Atlantic Technology Fund, L.P., Cross Atlantic Technology Fund II, L.P. and The Co-Investment Fund 2000 L.P.
(11)   Represents 1,476 shares of common stock and an option to purchase 4,110 shares of common stock, which is exercisable within 60 days of August 30, 2007.
(12)   Represents 60,043 shares of common stock. Includes an option to purchase 8,221 shares of common stock held by Michael Mikolajczyk and an option to purchase 625 shares of common stock held by his son, Mark Mikolajczyk, each of which are exercisable within 60 days of August 30, 2007. Michael Mikolajczyk disclaims beneficial ownership of the shares underlying the option held by Mark Mikolajczyk.
(13)   Includes 11,658,297 shares of common stock which are beneficially owned by our named executive officers and directors, warrants to purchase 417,198 shares of our common stock, which are exercisable within 60 days of August 30, 2007 and options to purchase 613,399 shares of our common stock, which are exercisable within 60 days of August 30, 2007.

 

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Description of capital stock

GENERAL

Upon completion of this offering, our authorized capital stock will consist of 75.0 million shares of common stock, par value $0.001 per share, and 5.0 million shares of undesignated preferred stock, par value $0.001 per share. The following description of our capital stock is intended as a summary only and is qualified in its entirety by reference to our amended and restated certificate of incorporation and amended and restated bylaws to be in effect at the closing of this offering, which are filed as exhibits to the registration statement, of which this prospectus is a part, and to the applicable provisions of the Delaware General Corporation Law. We refer in this section to our amended and restated certificate of incorporation as our certificate of incorporation, and we refer to our amended and restated bylaws as our bylaws.

As of August 30, 2007, after giving effect to the 1 for 13 reverse stock split on our common stock effected August 30, 2007, we had 521,814 shares of our common stock outstanding, 95,900,146 shares of our preferred stock outstanding, options to purchase 1,373,671 shares of our common stock under our 2001 Equity Plan, 717,226 of which were vested, 24,663 outstanding options to purchase common stock issued as compensation to former board members and board advisors, 16,442 of which were vested, and warrants to purchase 11,089,248 shares of preferred stock. Upon the completion of this offering, all shares of our currently outstanding preferred stock will be converted into an aggregate of 9,791,208 shares of common stock. Unless otherwise indicated, the shares of common stock, including any corresponding exercise prices, presented in this section have been adjusted to reflect the 1 for 13 reverse stock split on our common stock effected August 30, 2007.

COMMON STOCK

As of August 30, 2007, there were 13,639,546 shares of our common stock outstanding, assuming the conversion of all outstanding shares of our preferred stock into an aggregate of 9,791,208 shares of common stock and the issuance of 3,326,548 shares of common stock in satisfaction of dividends that have accrued on the outstanding shares of our preferred stock.

Holders of our common stock are entitled to one vote for each share of common stock held of record for the election of directors and on all matters submitted to a vote of stockholders. Holders of our common stock are entitled to receive dividends ratably, if any, as may be declared by our board of directors from time to time, subject to any preferential dividend rights of any preferred stock then outstanding. Upon our liquidation, dissolution, distribution of assets or winding up, holders of our common stock are entitled to share ratably in our remaining assets legally available after the payment of all our debts and other liabilities, subject to the preferential rights of any preferred stock then outstanding. Holders of our common stock have no preemptive, subscription, redemption or conversion rights. The rights, preferences and privileges of holders of common stock are subject to, and may be adversely affected by, the rights of the holders of shares of any series of preferred stock that we may designate and issue in the future. Except as described below in “—Anti-takeover effects of Delaware law and provisions of our certificate of incorporation and bylaws”, a majority vote of common stockholders is generally required to take action under our certificate of incorporation and bylaws.

All outstanding shares of common stock are, and all shares of common stock that will be outstanding upon completion of this offering, will be fully paid and nonassessable.


 

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PREFERRED STOCK

Upon completion of this offering, our board of directors will be authorized, without action by the stockholders, to designate and issue up to 5.0 million shares of preferred stock in one or more series. Our board of directors can fix the rights, preferences and privileges of the shares of each series and any of its qualifications, limitations or restrictions. The issuance of preferred stock with voting or conversion rights may adversely affect the voting power or other rights of the holders of common stock. The issuance of preferred stock, while providing flexibility in connection with possible future financings and acquisitions and other corporate purposes could, under certain circumstances, have the effect of delaying, deferring or preventing a change in control and could harm the market price of our common stock.

Our board of directors will make any determination to issue such shares based on its judgment as to our best interests and the best interests of our stockholders. We have no current plans to issue any shares of preferred stock.

OPTIONS

As of August 30, 2007, we had outstanding options to purchase 1,373,671 shares of common stock under our 2001 Equity Plan, 717,226 of which were vested. These options have an average exercise price of $3.64. The board of directors has approved the grant of an option to purchase 107,692 shares of common stock to Raja Parvez, upon the closing of this offering, under our 2007 Stock Incentive Plan at an exercise price equal to the initial public offering price. As of August 30, 2007, we had 24,663 outstanding options to purchase common stock, which were issued pursuant to stock option agreements, as compensation to board members and board advisors, 16,442 of which were vested. These options have an average exercise price of $4.94.

WARRANTS

As of August 30, 2007, the following warrants were outstanding:

 

Type of warrant    Number of
shares of
common
stock
issuable
upon
exercise of
warrant (1)(2)
   Exercise
price per
share of
common
stock (3)
   Expiration

Series A preferred stock

          9,410    $ 69.1470    May 9, 2008

Series B preferred stock

   31,756    $ 7.2800   

Ø  April 15, 2008 with respect to 206,444 shares of Series B preferred stock

 

Ø  June 10, 2008 with respect to 206,444 shares of Series B preferred stock

Series B preferred stock

   23,693    $ 7.2800   

The later of:

 

Ø  July 28, 2013 with respect to 107,142 shares of Series B preferred stock and July 10, 2012 with respect to 200,893 shares of Series B preferred stock; or

 

Ø  five years from the effective date of this offering.

(footnotes on following page)

 


 

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Type of warrant    Number of
shares of
common
stock
issuable
upon
exercise of
warrant (1)(2)
   Exercise
price per
share of
common
stock (3)
   Expiration

Series B preferred stock

   82,416    $ 7.2800   

The earlier of:

 

Ø  October 24, 2013; or

 

Ø  the effective date of this offering or a merger, consolidation or sale of our company.

Series B-2 preferred stock

   99,377    $ 7.2800   

Ø  April 15, 2008 with respect to 239,984 shares of Series B-2 preferred stock

 

Ø  June 10, 2008 with respect to 239,984 shares of Series B-2 preferred stock

 

Ø  June 19, 2008 with respect to 167,411 shares of Series B-2 preferred stock

Series C preferred stock

   10,271    $ 9.9164   

The earlier of:

 

Ø  March 31, 2015; or

 

Ø  the effective date of this offering or a merger, consolidation or sale of the company.

Series E preferred stock

   522,356    $ 3.6478   

Ø  December 15, 2015 with respect to 3,920,169 shares of Series E preferred stock

 

Ø  December 20, 2015 with respect to 2,459,016 shares of Series E preferred stock

 

Ø  January 27, 2016 with respect to 411,617 shares of Series E preferred stock

Series E preferred stock

   131,586    $ 3.6478   

The earliest of:

 

Ø  April 9, 2014;

 

Ø  three years from the effective date of this offering; or

 

Ø  upon written request of the acquiring company in a consolidation, merger, or sale, upon such terms as set forth in the warrant.

(footnotes on following page)

 


 

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(1)   Gives effect to the 1 for 13 reverse stock split on our common stock effected on August 30, 2007.
(2)   Assumes the warrants are exercisable for shares of our common stock following the conversion of our outstanding preferred stock upon the closing of this offering.
(3)   Assumes the adjustment of the per share exercise price as a result of the 1 for 13 reverse stock split on our common stock effected August 30, 2007.

REGISTRATION RIGHTS

After this offering, the holders of an aggregate of              shares of our common stock, after giving effect to our 1 for 13 reverse stock split, or approximately             % of our common stock outstanding, will be entitled to certain rights with respect to registration of such shares under the Securities Act. These shares are referred to as registrable securities. The holders of registrable securities possess registration rights pursuant to the terms of our fourth amended and restated registration rights agreement, as amended through November 30, 2005, entered into by us and such holders of registrable securities. The following description of the terms of the fourth amended and restated registration rights agreement is intended as a summary only and is qualified in its entirety by reference to the fourth amended and restated registration rights agreement, which is filed as an exhibit to the registration statement of which this prospectus is a part.

Demand registration rights.     At any time starting 180 days after the effective date of this offering, subject to certain exceptions, the holders of not less than 25% of the then outstanding registrable shares of common stock, have the right to demand that we file a registration statement covering the offering and sale of their shares of our common stock that are subject to the registration rights agreement. We are not obligated to file such a registration statement on more than two occasions; however, this offering will not count toward that limitation.

Form S-3 registration rights.     If we are eligible to file a registration statement on Form S-3, holders of registrable securities anticipated to have an aggregate offering price (net of underwriting discounts and commissions, if any) of less than $500,000 have the right, on one or more occasions, to request registration of such securities on Form S-3.

We have the ability to delay the filing of a registration statement for not more than 90 days under specified conditions, such as for a period of time following the effective date of a prior registration statement or if our board of directors deems it seriously detrimental to us and our stockholders to file a registration statement. Such postponements cannot occur more than once during any twelve month period.

Expenses of registration.     We will pay all registration expenses, other than underwriting discounts and commissions and stock transfer taxes of holders, related to any demand or piggyback registration.

Indemnification.     The registration rights agreement contains customary cross-indemnification provisions, under which we are obligated to indemnify the selling stockholders in the event of untrue statements or omissions of material facts in the registration statement or violations of securities laws attributable to us, and they are obligated to indemnify us for untrue statements, omissions of material facts or violations of securities laws attributable to them.

Termination of registration rights.     The registration rights terminate at such time as the earlier of (i) all registrable securities may be sold during any three month period with out registration under the


 

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Securities Act; (ii) no registrable securities remain outstanding; or (iii) the fifth anniversary of this offering.

ANTI-TAKEOVER EFFECTS OF DELAWARE LAW AND PROVISIONS OF OUR CERTIFICATE OF INCORPORATION AND BYLAWS

Certificate of incorporation and bylaw provisions

Upon completion of this offering, our certificate of incorporation and bylaws will include a number of provisions that may have the effect of delaying, deferring or preventing another party from acquiring control of us and encouraging persons considering unsolicited tender offers or other unilateral takeover proposals to negotiate with our board of directors rather than pursue non-negotiated takeover attempts. These provisions include the items described below.

Board composition and filling vacancies.     Our board is divided into three classes serving staggered three-year terms, with one class being elected each year. Directors may be removed only for cause and then only by the affirmative vote of the holders of 75% or more of the shares then entitled to vote at an election of directors. Furthermore, any vacancy on our board of directors, however occurring, including a vacancy resulting from an increase in the size of our board, may only be filled by the affirmative vote of a majority of our directors then in office even if less than a quorum. The classification of our board of directors and the limitations on the removal of directors and filling of vacancies could make it more difficult for a third party to acquire, or discourage a third party from seeking to acquire, control of our company.

No written consent of stockholders.     All stockholder actions must be taken by a vote of the stockholders at an annual or special meeting, and stockholders may not take any action by written consent in lieu of a meeting. This limit may lengthen the amount of time required to take stockholder actions and would prevent the amendment of our bylaws or removal of directors by our stockholders without holding a meeting of stockholders.

Meetings of stockholders.     Only a majority of the members of our board of directors then in office may call special meetings of stockholders and only those matters set forth in the notice of the special meeting may be considered or acted upon at a special meeting of stockholders. Our bylaws limit the business that may be conducted at an annual meeting of stockholders to those matters properly brought before the meeting.

Advance notice requirements.     Our bylaws establish advance notice procedures with regard to stockholder proposals relating to the nomination of candidates for election as directors or new business to be brought before meetings of our stockholders. These provisions may have the effect of precluding the conduct of certain business at a meeting if proper procedures are not followed.

Amendment to certificate of incorporation and bylaws.     As required by the Delaware General Corporation Law, any amendment of our certificate of incorporation must first be approved by a majority of our board of directors, and if required by law or our certificate of incorporation, must thereafter be approved by a majority of the outstanding shares entitled to vote on the amendment and a majority of the outstanding shares of each class entitled to vote thereon as a class, except that the amendment of the provisions relating to stockholder action, board composition and the filling of vacancies, limitation of liability and the amendment of our certificate of incorporation must be approved


 

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by not less than 75% of the outstanding shares entitled to vote on the amendment, and not less than 75% of the outstanding shares of each class entitled to vote thereon as a class. Our bylaws may be amended by the affirmative vote of a majority of the directors then in office, subject to any limitations set forth in the bylaws; and may also be amended by the affirmative vote of at least 75% of the outstanding shares entitled to vote on the amendment, or, if our board of directors recommends that the stockholders approve the amendment, by the affirmative vote of the majority of the outstanding shares entitled to vote on the amendment, in each case voting together as a single class.

Undesignated preferred stock.     Our certificate of incorporation provides for 5.0 million authorized shares of preferred stock. The existence of authorized but unissued shares of preferred stock may enable our board of directors to impede an attempt to obtain control of us by means of a merger, tender offer, proxy contest or otherwise. Our certificate of incorporation grants our board of directors broad power to establish the rights and preferences of authorized and unissued shares of preferred stock. The issuance of shares of preferred stock could decrease the amount of earnings and assets available for distribution to holders of shares of common stock. The issuance may also adversely affect the rights and powers, including voting rights, of these holders and may have the effect of delaying, deterring or preventing a change in control of us.

Delaware law

We are subject to Section 203 of the Delaware General Corporation Law, an anti-takeover provision. In general, the provision prohibits a publicly-held Delaware corporation from engaging in a business combination with an “interested stockholder” for a period of three years after the date of the transaction in which the person became an interested stockholder. A “business combination” includes a merger, sale of 10% or more of our assets and certain other transactions resulting in a financial benefit to the stockholder. For purposes of Section 203, an “interested stockholder” is defined to include any person that is:

 

Ø  

the owner of 15% or more of the outstanding voting stock of the corporation;

 

Ø  

an affiliate or associate of the corporation and was the owner of 15% or more of the voting stock outstanding of the corporation, at any time within three years immediately prior to the relevant date; or

 

Ø  

an affiliate or associate of the persons described above.

However, the above provisions of Section 203 do not apply if:

 

Ø  

our board of directors approves the transaction that made the stockholder an interested stockholder before to the date of that transaction; or

 

Ø  

after the completion of the transaction that resulted in the stockholder becoming an interested stockholder, that stockholder owned at least 85% of our voting stock outstanding at the time the transaction commenced, excluding shares owned by our officers and directors; or

 

Ø  

on or subsequent to the date of the transaction, the business combination is approved by our board of directors and authorized at a meeting of our stockholders by an affirmative vote of at least two-thirds of the outstanding voting stock not owned by the interested stockholder.

Stockholders may, by adopting an amendment to the corporation’s certificate of incorporation or bylaws, elect for the corporation not to be governed by Section 203, effective 12 months after adoption. Neither our certificate of incorporation nor our bylaws exempt us from the restrictions imposed under


 

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Section 203. It is anticipated that the provisions of Section 203 may encourage companies interested in acquiring us to negotiate in advance with our board of directors.

NASDAQ GLOBAL MARKET LISTING

We have applied for our common stock to be quoted on the NASDAQ Global Market under the trading symbol “RBCN.”

TRANSFER AGENT AND REGISTRAR

The transfer agent and registrar for our common stock is American Stock Transfer & Trust Company.


 

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Shares eligible for future sale

Prior to this offering, there was no public market for our common stock. Future sales of substantial amounts of common stock in the public market, or the perception that such sales may occur, could adversely affect the market price of our common stock. Although our common stock has been approved for quotation on the NASDAQ Global Market, we cannot assure you that there will be an active public market for our common stock.

Based on the number of shares outstanding as of August 30, 2007, upon completion of this offering, we will have outstanding an aggregate of              shares of common stock, after giving effect to the 1 for 13 reverse stock split on our common stock effected August 30, 2007, assuming the conversion of all outstanding shares of our preferred stock into an aggregate of 9,791,208 shares of common stock, the issuance of 3,326,548 shares of common stock in payment of accrued dividends on our outstanding preferred stock, the conversion of outstanding preferred stock warrants into common stock warrants and the automatic net exercise of those warrants that expire on the closing of this offering based on an assumed fair market value of one share of our common stock at the time of exercise equal to $            , which is the midpoint of the initial public offering price range listed on the cover page of this prospectus and further assuming that those warrants have not been exercised prior to the closing of this offering. Of these shares, the shares sold in this offering will be freely tradable without restriction or further registration under the Securities Act, except for participants purchasing at least $100,000 of shares reserved for our directed share program and our “affiliates”, as that term is defined in Rule 144 under the Securities Act, each of whose shares would be subject to certain limitations and restrictions described below. See “—Lock-up agreements” below.

The remaining             shares of common stock held by existing stockholders were issued and sold by us in reliance on exemptions from the registration requirements of the Securities Act. Substantially all of those shares will be subject to “lock-up” agreements described below on the effective date of this offering. Upon expiration of the lock-up agreements approximately 180 days after the effective date of this offering,             shares will become eligible for sale, subject in most cases to the limitations of Rule 144. In addition, holders of warrants and stock options could exercise such warrants and/or options and sell certain of the shares issued upon exercise as described below. See “—Lock-up agreements” below.

 

Days after date of

this prospectus

  

Shares
eligible

for sale

     Comment
Upon effectiveness         Shares sold in the offering
Upon effectiveness         Freely tradable shares saleable under Rule 144(k) that are not subject to the lock-up
90 days         Shares saleable under Rules 144 and 701 that are not subject to a lock-up
180 days         Lock-up agreements released; shares salable under Rules 144 and 701
Thereafter         Restricted securities held for one year or less

 

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LOCK-UP AGREEMENTS

We, all of our directors and executive officers and their affiliates, and holders of substantially all of our outstanding stock have agreed that, subject to certain exceptions, we and they will not, without prior written consent of UBS Securities LLC:

 

Ø  

directly or indirectly, sell, offer, contract or grant any option to sell (including without limitation any short sale), pledge, transfer, establish or increase a “put equivalent position” or liquidate or decrease a “call equivalent position” or otherwise dispose of or transfer (or enter into any transaction which is designed to, or might reasonably be expected to, result in the disposition of), including the filing (or participation in the filing) of a registration statement with the SEC in respect of, any shares of common stock, options or warrants to acquire shares of common stock, or securities exchangeable or exercisable for or convertible into shares of common stock currently or hereafter owned either of record or beneficially by such persons (except for the S-8 filing referred to below);

 

Ø  

enter into any swap or other arrangement that transfers to another any of the economic consequences of ownership of such securities; or

 

Ø  

publicly announce an intention to do any of the foregoing,

for a period commencing on the date hereof and continuing through the close of trading on the date 180 days after the date of this prospectus, other than certain permitted transfers.

In addition, we and they agree that, without the prior written consent of UBS Securities LLC, we and they will not, during such period, make any demand for or exercise any right with respect to, the registration of any shares of common stock or any security convertible into or exercisable or exchangeable for common stock.

The 180-day restricted period described in the preceding two paragraphs will be extended if:

 

Ø  

during the period that begins on the date that is 15 calendar days plus three business days before the last day of the restricted period and ends on the last day of the restricted period we issue an earnings release or announce material news or a material event relating to us occurs; or

 

Ø  

prior to the expiration of the 180-day restricted period, we announce that we will release earnings results during the 16-day period beginning on the last day of the 180-day period,

in which case the restrictions described in the preceding two paragraphs will continue to apply until the expiration of the date that is 15 calendar days plus three business days after the date of the issuance of the earnings release, the announcement of material news or the occurrence of a material event.

UBS Securities LLC, in its sole discretion, may release the common stock and other securities subject to the lock-up agreements described above in whole or in part at any time with or without notice.

STOCK OPTIONS

As of August 30, 2007, after giving effect to the 1 for 13 reverse stock split on our common stock, there were a total of 1,373,671 shares of common stock subject to outstanding options under our 2001 Equity Plan, approximately 717,226 of which were vested and exercisable. The board of directors has approved the grant of an option to purchase 107,692 shares of common stock to Raja Parvez, upon the closing of this offering, under our 2007 Stock Incentive Plan. As of August 30, 2007, we had 24,663 outstanding options to purchase common stock, which were issued pursuant to stock option agreements as compensation to board members and board advisors, 16,442 of which were vested. Immediately after the completion of this offering, we intend to file registration statements on Form S-8 under the Securities Act


 

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to register all of the shares of common stock reserved for future issuance under the 2001 Equity Plan, the 2007 Stock Incentive Plan and the options to purchase shares of common stock issued to board members and board advisors pursuant to stock option agreements. On the date which is 180 days after the effective date of this offering, a total of approximately              shares of common stock subject to outstanding options will be vested and exercisable. After the effective date of the registration statements on Form S-8, shares purchased under the 2001 Equity Plan and the 2007 Stock Incentive Plan and shares issued pursuant to option agreements to board members and board advisors generally will be available for resale in the public market.

RULE 144

In general, under Rule 144 as currently in effect, beginning 90 days after the date of this prospectus, a person who has beneficially owned shares of our common stock for at least one year, including an affiliate, would be entitled to sell in “broker’s transactions” or to market makers, within any three-month period, a number of shares that does not exceed the greater of:

 

Ø  

1% of the number of shares of our common stock then outstanding, which will equal approximately              shares immediately after this offering; or

 

Ø  

the average weekly trading volume in our common stock on the NASDAQ Global Market during the four calendar weeks preceding the filing of a notice on Form 144 with respect to such sale.

Sales under Rule 144 are generally subject to the availability of current public information about us.

RULE 144(k)

Under Rule 144(k), a person who is not deemed to have been an affiliate of ours at any time during the 90 days preceding a sale, and who has beneficially owned the shares proposed to be sold for at least two years, including the holding period of any prior owner other than our affiliates, is entitled to sell such shares without having to comply with the manner of sale, public information, volume limitation or notice filing provisions of Rule 144. Therefore, unless otherwise restricted, “144(k) shares” may be sold immediately upon the completion of this offering.

RULE 701

In general, under Rule 701, any of our employees, directors, officers, consultants or advisors who purchase shares from us in connection with a compensatory stock or option plan or other written agreement before the effective date of this offering is entitled to sell such shares 90 days after the effective date of this offering in reliance on Rule 144, without having to comply with the holding period and notice filing requirements of Rule 144 and, in the case of non-affiliates, without having to comply with the public information and volume limitation provisions of Rule 144.

The SEC has indicated that Rule 701 will apply to typical stock options granted by an issuer before it becomes subject to the reporting requirements of the Securities Exchange Act of 1934, as amended, along with the shares acquired upon exercise of such options, including exercises after the date of this prospectus.

REGISTRATION RIGHTS

Upon completion of this offering, the holders of at least              shares of our common stock have certain rights with respect to the registration of such shares under the Securities Act. See “Description of capital stock—Registration rights.” Upon the effectiveness of a registration statement covering these shares, the shares would become freely tradable.


 

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Certain material US federal tax considerations for non-US holders

The following discussion is a general summary of certain material US federal income and estate tax consequences of the ownership and disposition of our common stock applicable to “Non-US Holders.” As used herein, a Non-US Holder means a beneficial owner of our common stock that will hold shares of our common stock as capital assets (ie, generally, for investment), and, for US federal income tax purposes, is not a partnership or any of the following:

 

Ø  

an individual who is a citizen or resident of the United States;

 

Ø  

a corporation (or other business entity treated as a corporation for such purposes) created or organized in or under the laws of the United States, any state thereof or the District of Columbia;

 

Ø  

an estate the income of which is includible in gross income for US federal income tax purposes regardless of source; or

 

Ø  

a trust that (i) is subject to the primary supervision of a court within the United States and the control of one or more US persons, or (ii) otherwise has elected to be treated as a US domestic trust.

If a partnership or other pass-through entity holds shares of our common stock, the US federal income tax treatment of a partner in the partnership or owner of the pass-through entity generally will depend on the status of the partner and the activities of the partnership or other pass-through entity. Accordingly, partnerships and pass-through entities that hold our common stock and partners or owners of such partnerships or pass-through entities, as applicable, should consult their own tax advisors.

This summary does not consider specific facts and circumstances that may be relevant to a particular Non-US Holder’s tax position and does not consider US state, local or non-US tax consequences. It also does not consider Non-US Holders subject to special tax treatment under the US federal income tax laws (including partnerships or other pass-through entities and their beneficial owners, banks, financial institutions and insurance companies, dealers and traders in securities, persons that hold our common stock as part of a “straddle”, “hedge”, “conversion transaction” or other integrated or risk-reduction transaction, controlled foreign corporations, passive foreign investment companies, companies that accumulate earnings to avoid US federal income tax, foreign tax-exempt organizations, former US citizens or residents and persons who hold or receive common stock as compensation). This summary is based on provisions of the US Internal Revenue Code of 1986, as amended (the “Code”), applicable Treasury regulations, administrative pronouncements of the US Internal Revenue Service (“IRS”) and judicial decisions, all as in effect on the date hereof, and all of which are subject to change, possibly on a retroactive basis, and different interpretations.

This summary is included herein as general information only. Accordingly, each prospective Non-US Holder should consult its own tax advisors with respect to the US federal, state, local and non-US income, estate and other tax consequences of holding and disposing of our common stock.

US trade or business income

For purposes of this discussion, dividend income and gain on the sale or other taxable disposition of our common stock will be considered to be “US trade or business income” if such income or gain is (i) effectively connected with the conduct by a Non-US Holder of a trade or business within the United States and (ii) in the case of a Non-US Holder that is eligible for the benefits of an income tax treaty with the United States, if required by the income tax treaty, attributable to a permanent establishment (or, for


 

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an individual, a fixed base) maintained by the Non-US Holder in the United States. Generally, US trade or business income is not subject to US federal withholding tax (provided the Non-US Holder complies with applicable certification and disclosure requirements); instead, US trade or business income is subject to US federal income tax on a net income basis at regular US federal income tax rates in the same manner as is applicable to a US person. Any US trade or business income derived by a Non-US Holder that is a corporation also may be subject to an additional “branch profits tax” at a 30% rate, or at a lower rate prescribed by an applicable income tax treaty, under specific circumstances.

Dividends

Distributions of cash or property that we pay will constitute dividends for US federal income tax purposes to the extent paid from our current or accumulated earnings and profits (as determined under US federal income tax principles). A Non-US Holder generally will be subject to US federal withholding tax at a 30% rate, or at a reduced rate prescribed by an applicable income tax treaty, on the gross amount of any dividends received in respect of our common stock. If the amount of a distribution exceeds our current and accumulated earnings and profits, such excess first will be treated as a tax-free return of capital to the extent of the Non-US Holder’s tax basis in our common stock, and thereafter will be treated as capital gain. In order to obtain a reduced rate of US federal withholding tax under an applicable income tax treaty, a Non-US Holder will be required to provide a properly completed and executed IRS Form W-8BEN certifying its entitlement to benefits under the treaty. A Non-US Holder of our common stock that is eligible for a reduced rate of US federal withholding tax under an income tax treaty may obtain a refund or credit of any excess amounts withheld by timely filing an appropriate claim for a refund with the IRS. A Non-US Holder should consult its own tax advisor regarding its possible entitlement to benefits under an income tax treaty. The US federal withholding tax does not apply to dividends that are US trade or business income, as defined above, of a Non-US Holder who provides a properly completed and executed IRS Form W-8ECI, certifying that the dividends are effectively connected with the Non-US Holder’s conduct of a trade or business within the United States.

Dispositions of our common stock

A Non-US Holder generally will not be subject to US federal income or withholding tax in respect of any gain on a sale or other disposition of our common stock unless:

 

Ø  

the gain is US trade or business income, as defined above;

 

Ø  

the Non-US Holder is an individual who is present in the United States for 183 or more days in the taxable year of the disposition and meets other conditions (in which case, except as otherwise provided by an applicable income tax treaty, the gain, which may be offset by US source capital losses, generally will be subject to a flat 30% US federal income tax); or

 

Ø  

are or have been a “US real property holding corporation” (a “USRPHC”) under section 897 of the Code at any time during the shorter of the five-year period ending on the date of disposition and the Non-US Holder’s holding period for our common stock.

We do not believe that we currently are a USRPHC, and we do not anticipate becoming a USRPHC in the future. However, no assurances can be provided in this regard.

US federal estate taxes

Shares of our common stock owned or treated as owned by an individual who is not a US person (as defined for US federal estate tax purposes) at the time of death will be included in the individual’s gross estate for US federal estate tax purposes, and may be subject to US federal estate tax, unless an applicable estate tax treaty provides otherwise.


 

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Information reporting and backup withholding requirements

We must annually report to the IRS any dividend income that is subject to US federal withholding tax, or that is exempt from such withholding tax pursuant to an income tax treaty. Copies of these information returns also may be made available under the provisions of a specific treaty or agreement to the tax authorities of the country in which the Non-US Holder resides. Under certain circumstances, the Code imposes a backup withholding obligation (currently at a rate of 28%) on certain reportable payments. Dividends paid to a Non-US Holder of our common stock generally will be exempt from backup withholding if the Non-US Holder provides a properly-executed IRS Form W-8BEN or otherwise establishes an exemption. The payment of the proceeds from the disposition of our common stock to or through the US office of any broker, US or foreign, will be subject to information reporting and possible backup withholding unless the owner certifies as to its non-US status under penalties of perjury or otherwise establishes an exemption, provided that the broker does not have actual knowledge or reason to know that the holder is a US person or that the conditions of any other exemption are not, in fact, satisfied. The payment of the proceeds from the disposition of common stock to or through a non-US office of a non-US broker generally will not be subject to information reporting or backup withholding unless the non-US broker has certain types of relationships with the United States (a “US related person”). In the case of the payment of the proceeds from the disposition of our common stock to or through a non-US office of a broker that is either a US person or a US related person, the Treasury regulations require information reporting (but not the backup withholding) on the payment unless the broker has documentary evidence in its files that the owner is a Non-US Holder and the broker has no knowledge to the contrary. Non-US Holders should consult their own tax advisors on the application of information reporting and backup withholding to them in their particular circumstances (including upon their disposition of our common stock). Backup withholding is not an additional tax. Any amounts withheld under the backup withholding rules from a payment to a Non-US Holder will be refunded or credited against the Non-US Holder’s US federal income tax liability, if any, if the Non-US Holder timely provides the required information to the IRS.

The preceding discussion of certain material US federal tax considerations is for general information only. It is not tax advice. Each prospective investor should consult its own tax advisors regarding the particular US federal, state, local and foreign tax consequences of purchasing, holding and disposing of our common stock, including the consequences of any proposed changes in applicable laws.


 

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Underwriting

We and the selling stockholders are offering the shares of our common stock described in this prospectus through the underwriters named below. UBS Securities LLC is the representative of the underwriters and the sole book-running manager of this offering. We and the selling stockholders have entered into an underwriting agreement with the representative. Subject to the terms and conditions of the underwriting agreement, each of the underwriters has severally agreed to purchase the number of shares of common stock listed next to its name in the following table:

 

Underwriters   

Number of

shares

UBS Securities LLC

  

Canaccord Adams Inc.

  

CIBC World Markets Corp.

  

Janney Montgomery Scott LLC

  
    

Total

  
    

The underwriting agreement provides that the underwriters must buy all of the shares if they buy any of them. However, the underwriters are not required to take or pay for the shares covered by the underwriters’ overallotment option described below.

Our common stock and the common stock of the selling stockholders are offered subject to a number of conditions, including:

 

Ø  

receipt and acceptance of our common stock by the underwriters; and

 

Ø  

the underwriters’ right to reject orders in whole or in part.

We have been advised by the representative that the underwriters intend to make a market in our common stock, but they are not obligated to do so and may discontinue making a market at any time without notice.

In connection with this offering, certain of the underwriters or securities dealers may distribute prospectuses electronically.

Sales of shares made outside of the United States may be made by affiliates of the underwriters.

OVERALLOTMENT OPTION

We have granted the underwriters an option to buy up to              additional shares of our common stock. The underwriters may exercise this option solely for the purpose of covering overallotments, if any, made in connection with this offering. The underwriters have 30 days from the date of this prospectus to exercise this option. If the underwriters exercise this option, they will each purchase additional shares approximately in proportion to the amounts specified in the table above.

COMMISSIONS AND DISCOUNTS

Shares sold by the underwriters to the public will initially be offered at the offering price set forth on the cover of this prospectus. Any shares sold by the underwriters to securities dealers may be sold at a


 

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discount of up to $             per share from the initial public offering price. Any of these securities dealers may resell any shares purchased from the underwriters to other brokers or dealers at a discount of up to $             per share from the initial public offering price. If all the shares are not sold at the initial public offering price, the representative may change the offering price and the other selling terms. Upon execution of the underwriting agreement, the underwriters will be obligated to purchase the shares at the prices and upon the terms stated therein, and, as a result, will bear any risk associated with changing the offering price to the public or other selling terms. The representative of the underwriters has informed us that it does not expect discretionary sales to exceed             % of the shares of common stock to be offered.

The following table shows the per share and total underwriting discounts and commissions we and the selling stockholders will pay to the underwriters, assuming both no exercise and full exercise of the underwriters’ option to purchase up to an additional              shares from us:

 

     Paid by us    Paid by selling
stockholders
   Total
       No exercise    Full exercise    No exercise    Full exercise    No exercise    Full exercise

Per share

   $             $             $             $             $             $         

Total

   $             $             $             $             $             $         

We estimate that the total expenses of this offering payable by us, not including the underwriting discounts and commissions, will be approximately $             million.

NO SALES OF SIMILAR SECURITIES

We, our executive officers and directors, and substantially all of our existing security holders have entered into lock-up agreements with the underwriters. Under these agreements, we and each of these persons may not, without the prior written approval of UBS Securities LLC, offer, sell, offer to sell, contract or agree to sell, hypothecate, hedge, pledge, grant any option to purchase or otherwise dispose of or agree to dispose of, directly or indirectly, any of our common stock or any securities convertible into or exercisable or exchangeable for our common stock, or warrants or other rights to purchase our common stock. These restrictions will be in effect for a period of 180 days after the date of this prospectus. At any time and without public notice, UBS Securities LLC may, in its sole discretion, release some or all of the securities from these lock-up agreements.

If, during the period that begins on the date that is 15 calendar days plus three business days before the last day of the 180-day lock-up period and ends on the last day of the 180-day lock-up period:

 

Ø  

we issue an earnings release;

 

Ø  

material news or a material event relating to us occurs; or

 

Ø  

prior to the expiration of the 180-day lock-up period, we announce that we will release earnings results during the 16-day period beginning on the last day of the 180-day lock-up period,

then the 180-day lock-up period will be extended until the expiration of the date that is 15 calendar days plus three business days after the date on which the issuance of the earnings release or the material news or material event occurs.

Pursuant to NASD Rule 2710(g)(1), The Co-Investment 2000 Fund, L.P. has agreed that it will not sell in the offering any shares of our common stock that are attributable to Janney Montgomery Scott LLC by


 

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virtue of its interest in The Co-Investment 2000 Fund, L.P. and that for a period of 180 days, none of such shares will be sold, transferred, pledged or hypothecated or be the subject of any hedging, short sale, derivative, put or call transaction that would result in the effective economic disposition of such shares by any person.

INDEMNIFICATION AND CONTRIBUTION

We and the selling stockholders have agreed to indemnify the underwriters and their controlling persons against certain liabilities, including liabilities under the Securities Act. If we or the selling stockholders are unable to provide this indemnification, we and the selling stockholders will contribute to payments the underwriters and their controlling persons may be required to make in respect of those liabilities.

NASDAQ GLOBAL MARKET QUOTATION

We have applied to have our common stock approved for listing on the NASDAQ Global Market under the trading symbol “RBCN.”

PRICE STABILIZATION, SHORT POSITIONS

In connection with this offering, the underwriters may engage in activities that stabilize, maintain or otherwise affect the price of our common stock, including:

 

Ø  

stabilizing transactions;

 

Ø  

short sales;

 

Ø  

purchases to cover positions created by short sales;

 

Ø  

imposition of penalty bids; and

 

Ø  

syndicate covering transactions.

Stabilizing transactions consist of bids or purchases made for the purpose of preventing or retarding a decline in the market price of our common stock while this offering is in progress. These transactions may also include making short sales of our common stock, which involve the sale by the underwriters of a greater number of shares of common stock than they are required to purchase in this offering. Short sales may be “covered short sales”, which are short positions in an amount not greater than the underwriters’ overallotment option referred to above, or may be “naked short sales”, which are short positions in excess of that amount.

The underwriters may close out any covered short position either by exercising their overallotment option, in whole or in part, or by purchasing shares in the open market. In making this determination, the underwriters will consider, among other things, the price of shares available for purchase in the open market compared to the price at which they may purchase shares through the overallotment option.

Naked short sales are sales in excess of the overallotment option. The underwriters must close out any naked short position by purchasing shares in the open market. A naked short position is more likely to be created if the underwriters are concerned that there may be downward pressure on the price of the common stock in the open market that could adversely affect investors who purchased in this offering.


 

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The underwriters also may impose a penalty bid. This occurs when a particular underwriter repays to the underwriters a portion of the underwriting discount received by it because the representative has repurchased shares sold by or for the account of that underwriter in stabilizing or short covering transactions.

As a result of these activities, the price of our common stock may be higher than the price that otherwise might exist in the open market. If these activities are commenced, they may be discontinued by the underwriters at any time. The underwriters may carry out these transactions on the NASDAQ Global Market, in the over-the-counter market or otherwise.

DETERMINATION OF OFFERING PRICE

Prior to this offering, there was no public market for our common stock. The initial public offering price will be determined by negotiation by us and the representative of the underwriters. The principal factors to be considered in determining the initial public offering price include:

 

Ø  

the information set forth in this prospectus and otherwise available to the representative;

 

Ø  

our history and prospects and the history of, and prospectus for, the industry in which we compete;

 

Ø  

our past and present financial performance and an assessment of our management;

 

Ø  

our prospects for future earnings and the present state of our development;

 

Ø  

the general condition of the securities markets at the time of this offering;

 

Ø  

the recent market prices of, and the demand for, publicly traded common stock of generally comparable companies; and

 

Ø  

other factors deemed relevant by the underwriters and us.

DIRECTED SHARE PROGRAM

At our request, certain of the underwriters have reserved up to 5% of the common stock being offered by this prospectus for sale at the initial offering price to our officers, directors, employees and consultants and other persons having a relationship with us, as designated by us. The sales will be made by UBS Financial Services Inc., an affiliate of UBS Securities LLC, through a directed share program. We do not know whether these persons will choose to purchase all or any portion of these reserved shares, but any purchases they do make will reduce the number of shares available to the general public. Any directed share participants purchasing at least $100,000 of these reserved shares will be subject to the restrictions described in “—No sales of similar securities” above.

AFFILIATIONS

Certain of the underwriters and their affiliates have in the past provided and may from time to time provide certain commercial banking, financial advisory, investment banking and other services for us for which they were and will be entitled to receive separate fees. In addition, Janney Montgomery Scott LLC owns one-third of the limited partnership interests of Co-Invest Management L.P., which is the general partner of one of our principal stockholders, The Co-Investment 2000 Fund, L.P.

The underwriters and their affiliates may from time to time in the future engage in transactions with us and perform services for us in the ordinary course of their business.


 

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Notice to investors

CANADA

The underwriters have not offered or sold, and will not offer or sell, any of our common stock, directly or indirectly, in any province or territory of Canada or to, or for the benefit of, any resident of any province or territory of Canada in contravention of the securities laws thereof. The underwriters will ensure that any offer or sale of our common stock in Canada will be made only (a) in accordance with an exemption from the requirement to file a prospectus in the province or territory of Canada in which such offer or sale is made, and (b) by a dealer duly registered under the applicable securities laws of that province or territory or in circumstances where an exemption from the applicable registered dealer requirements is available and will send to any dealer who purchases from it any of our common stock a notice stating in substance that, by purchasing such common stock, such dealer represents and agrees that it has not offered or sold, and will not offer or sell, directly or indirectly, any of such common stock in any province or territory of Canada or to, or for the benefit of, any resident of any province or territory of Canada in contravention of the securities laws thereof and that any offer or sale of our common stock in Canada will be made only (a) in accordance with an exemption from the requirement to file a prospectus in the province or territory of Canada in which such offer or sale is made, and (b) by a dealer duly registered under the applicable securities laws of that province or territory or in circumstances where an exemption from the applicable registered dealer requirements is available, and that such dealer will deliver to any other dealer to whom it sells any of such common stock a notice containing substantially the same statement as is contained in this sentence. The underwriters have also agreed to comply with all applicable laws and regulations, and make or obtain all necessary filings, consents or approvals, in each Canadian jurisdiction in which they purchase, offer, sell or deliver our common stock (including, without limitation, any applicable requirements relating to the delivery of this prospectus), in each case, at their own expense. In connection with sales of and offers to sell our common stock made by them, the underwriters will either furnish to each Canadian Person to whom any such sale or offer is made a copy of the then current prospectus, or inform such person that such prospectus will be made available upon request, and will keep an accurate record of the names and addresses of all persons to whom they give copies of this prospectus, or any amendment or supplement to this prospectus; and when furnished with any subsequent amendment to this prospectus, any subsequent prospectus or any medium outlining changes in this prospectus, the underwriters will promptly forward copies thereof to such persons or inform such persons that such amendment, subsequent prospectus or other medium will be made available upon request.

“Canadian Person” means any national or resident of Canada (other than an individual resident in a Canadian province or territory where such individual is prohibited from purchasing securities under local provincial and territorial securities laws), or any corporation, person, profit-sharing or other trust or other entity organized under the laws of Canada or of any political subdivision thereof (other than a branch located outside Canada of any or Canadian Person), and includes any Canadian branch of a person who is otherwise not a Canadian Person.

EUROPEAN ECONOMIC AREA

In relation to each Member State of the European Economic Area, or EEA, which has implemented the Prospectus Directive (each, a Relevant Member State), with effect from and including the date on which the Prospectus Directive is implemented in that Relevant Member State, or the Relevant Implementation Date, our common stock will not be offered to the public in that Relevant Member State prior to the publication of a prospectus in relation to our common stock that has been approved by the competent authority in that Relevant Member State or, where appropriate, approved in another Relevant Member


 

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State and notified to the competent authority in that Relevant Member State, all in accordance with the Prospectus Directive, except that, with effect from and including the Relevant Implementation Date, our common stock may be offered to the public in that Relevant Member State at any time:

 

Ø  

to legal entities which are authorized or regulated to operate in the financial markets or, if not so authorized or regulated, whose corporate purpose is solely to invest in securities;

 

Ø  

to any legal entity which has two or more of (1) an average of at least 250 employees during the last financial year; (2) a total balance sheet of more than €43 million and (3) an annual net turnover of more than €50 million, as shown in its last annual or consolidated accounts; or

 

Ø  

in any other circumstances which do not require the publication by us of a prospectus pursuant to Article 3 of the Prospectus Directive.

As used above, the expression “offered to the public” in relation to any of our common stock in any Relevant Member State means the communication in any form and by any means of sufficient information on the terms of the offer and our common stock to be offered so as to enable an investor to decide to purchase or subscribe for our common stock, as the same may be varied in that Relevant Member State by any measure implementing the Prospectus Directive in that Relevant Member State and the expression “Prospectus Directive” means Directive 2003/71/EC and includes any relevant implementing measure in each Relevant Member State.

The EEA selling restriction is in addition to any other selling restrictions set out below.

UNITED KINGDOM

Our common stock may not be offered or sold and will not be offered or sold to any persons in the United Kingdom other than to persons whose ordinary activities involve them in acquiring, holding, managing or disposing of investments (as principal or as agent) for the purposes of their businesses and in compliance with all applicable provisions of the Financial Services and Markets Act 2000, or the FSMA, with respect to anything done in relation to our common stock in, from or otherwise involving the United Kingdom. In addition, each underwriter has only communicated or caused to be communicated and will only communicate or cause to be communicated any invitation or inducement to engage in investment activity (within the meaning of Section 21 of the FSMA) received by it in connection with the issue or sale of our common stock in circumstances in which Section 21(1) of the FSMA does not apply to us. Without limiting the other restrictions referred to herein, this prospectus is directed only at (i) persons outside the United Kingdom, (ii) persons having professional experience in matters relating to investments who fall within the definition of “investment professionals” in Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005; or (iii) high net worth bodies corporate, unincorporated associations and partnerships and trustees of high value trusts as described in Article 49(2) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005. Without limiting the other restrictions referred to herein, investments or investment activity to which this prospectus relates is available only to, and will be engaged in only with, such persons. Persons within the United Kingdom who receive this communication (other than persons who fall within (ii) or (iii) above) should not rely or act upon this communication.

FRANCE

No prospectus (including any amendment, supplement or replacement thereto) has been prepared in connection with the offering of our common stock that has been approved by the Autorité des marchés financiers or by the competent authority of another State that is a contracting party to the Agreement on


 

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the European Economic Area and notified to the Autorité des marchés financiers; no common stock has been offered or sold or will be offered or sold, directly or indirectly, to the public in France except to permitted investors, consisting of persons licensed to provide the investment service of portfolio management for the account of third parties, qualified investors (investisseurs qualifiés) acting for their own account and/or corporate investors meeting one of the four criteria provided in Article 1 of Decree N7 2004-1019 of September 28, 2004 and belonging to a limited circle of investors (cercle restreint d’investisseurs) acting for their own account, with “qualified investors” and “limited circle of investors” having the meaning ascribed to them in Article L. 411-2 of the French Code Monétaire et Financier and applicable regulations thereunder; none of this prospectus or any other materials related to the offering or information contained therein relating to our common stock has been released, issued or distributed to the public in France except to Permitted Investors; and the direct or indirect resale to the public in France of any common stock acquired by any Permitted Investors may be made only as provided by articles L. 412-1 and L. 621-8 of the French Code Monétaire et Financier and applicable regulations thereunder.

ITALY

The offering of shares of our common stock has not been cleared by the Italian Securities Exchange Commission (Commissione Nazionale per le Società e la Borsa, or the CONSOB) pursuant to Italian securities legislation and, accordingly, shares of our common stock may not and will not be offered, sold or delivered, nor may or will copies of this prospectus or any other documents relating to shares of our common stock or the offering be distributed in Italy other than to professional investors (operatori qualificati), as defined in Article 31, paragraph 2 of CONSOB Regulation No. 11522 of July 1, 1998, as amended, or Regulation No. 11522.

Any offer, sale or delivery of shares of our common stock or distribution of copies of this prospectus or any other document relating to shares of our common stock or the offering in Italy may and will be effected in accordance with all Italian securities, tax, exchange control and other applicable laws and regulations, and, in particular, will be: (i) made by an investment firm, bank or financial intermediary permitted to conduct such activities in Italy in accordance with the Legislative Decree No. 385 of September 1, 1993, as amended, or the Italian Banking Law, Legislative Decree No. 58 of February 24, 1998, as amended, Regulation No. 11522, and any other applicable laws and regulations; (ii) in compliance with Article 129 of the Italian Banking Law and the implementing guidelines of the Bank of Italy; and (iii) in compliance with any other applicable notification requirements or limitations which may be imposed by CONSOB or the Bank of Italy.

Any investor purchasing shares of our common stock in the offering is solely responsible for ensuring that any offer or resale of shares of common stock that it purchased in the offering complies with applicable laws and regulations.

This prospectus and the information contained herein are intended only for the use of its recipient and are not to be distributed to any third party residing or located in Italy for any reason. No person residing or located in Italy other than the original recipients of this document may rely on it or its content.

In addition to the above (which shall continue to apply to the extent not inconsistent with the implementing measures of the Prospective Directive in Italy), after the implementation of the Prospectus Directive in Italy, the restrictions, warranties and representations set out under the heading “European Economic Area” above shall apply to Italy.


 

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GERMANY

Shares of our common stock may not be offered, sold, publicly promoted, or advertised by any underwriter in the Federal Republic of Germany other than in compliance with the provisions of the German Securities Prospectus Act (Wertpapierprospektgesetz—WpPG) of June 22, 2005, as amended, and with any other laws applicable in the Federal Republic of Germany governing the issue, offering and sale of securities.

SPAIN

Neither the common stock nor this prospectus have been approved or registered in the administrative registries of the Spanish National Securities Exchange Commission (Comisión Nacional del Mercado de Valores). Accordingly, our common stock may not be offered in Spain except in circumstances which do not constitute a public offer of securities in Spain within the meaning of articles 30bis of the Spanish Securities Markets Law of 28 July 1988 (Ley 24/1988, de 28 de Julio, del Mercado de Valores), as amended and restated, and supplemental rules enacted thereunder.

SWEDEN

This is not a prospectus under and has not been prepared in accordance with the prospectus requirements provided in the Swedish Financial Instruments Trading Act [lagen (1991:980) om handel med finasiella instrument] or any other Swedish enactment. Neither the Swedish Financial Supervisory Authority nor any other Swedish public body has examined, approved or registered this document.

SWITZERLAND

The common stock may not and will not be publicly offered, distributed or re-distributed on a professional basis in or from Switzerland and neither this prospectus nor any other solicitation for investments in our common stock may be communicated or distributed in Switzerland in any way that could constitute a public offering within the meaning of Articles 1156 or 652a of the Swiss Code of Obligations or of Article 2 of the Federal Act on Investment Funds of March 18, 1994. This prospectus may not be copied, reproduced, distributed or passed on to others without the underwriters’ prior written consent. This prospectus is not a prospectus within the meaning of Articles 1156 and 652a of the Swiss Code of Obligations or a listing prospectus according to article 32 of the Listing Rules of the Swiss Exchange and may not comply with the information standards required thereunder. We will not apply for a listing of our common stock on any Swiss stock exchange or other Swiss regulated market and this prospectus may not comply with the information required under the relevant listing rules. The common stock offered hereby has not and will not be registered with the Swiss Federal Banking Commission and has not and will not be authorized under the Federal Act on Investment Funds of March 18, 1994. The investor protection afforded to acquirers of investment fund certificates by the Federal Act on Investment Funds of March 18, 1994 does not extend to acquirers of our common stock.


 

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Legal matters

The validity of the shares of common stock offered by this prospectus will be passed upon for us by McGuireWoods LLP, Chicago, Illinois. Wilson Sonsini Goodrich & Rosati, Professional Corporation, Austin, Texas and Palo Alto, California, is representing the underwriters in this offering.

Experts

The financial statements as of December 31, 2005 and 2006 and for each of the three years in the period ended December 31, 2006 included in this prospectus have been so included in reliance on the report of Grant Thornton LLP, an independent registered public accounting firm, given on the authority of said firm as experts in auditing and accounting.

Where you can find additional information

We have filed with the SEC a registration statement on Form S-1 (File Number             ) under the Securities Act with respect to the shares of common stock we are offering by this prospectus. This prospectus does not contain all of the information included in the registration statement. For further information pertaining to us and our common stock, you should refer to the registration statement and to its exhibits. Whenever we make reference in this prospectus to any of our contracts, agreements or other documents, the references are not necessarily complete, and you should refer to the exhibits attached to the registration statement for copies of the actual contract, agreement or other document.

Upon the closing of the offering, we will be subject to the informational requirements of the Securities Exchange Act of 1934 and will file annual, quarterly and current reports, proxy statements and other information with the SEC. You can read our SEC filings, including the registration statement, over the Internet at the SEC’s website at www.sec.gov . You may also read and copy any document we file with the SEC at its public reference facility at 100 F Street, N.E., Washington, District of Columbia, 20549.

You may also obtain copies of the documents at prescribed rates by writing to the Public Reference Section of the SEC at 100 F Street, N.E., Washington, District of Columbia, 20549. Please call the SEC at 1-800-SEC-0330 for further information on the operation of the public reference facility.


 

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Rubicon Technology, Inc.

INDEX TO FINANCIAL STATEMENTS

 

   Page

Report of Independent Registered Public Accounting Firm

   F-2

Balance sheets as of December 31, 2005 and 2006

   F-3

Statements of operations for each of the three years in the period ended December 31, 2006

   F-4

Statements of redeemable equity and stockholders’ equity (deficit) for each of the three years in the period ended December 31, 2006

   F-5

Statements of cash flows for each of the three years in the period ended December 31, 2006

   F-6

Notes to financial statements

   F-7

Unaudited balance sheets as of December 31, 2006 and June 30, 2007

   F-32

Unaudited statements of operations for the six months ended June 30, 2006 and 2007

   F-33

Unaudited statements of cash flows for the six months ended June 30, 2006 and 2007

   F-34

Notes to unaudited financial statements

   F-35

 


 

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REPORT OF INDEPENDENT

REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors and Stockholders

Rubicon Technology, Inc.

We have audited the accompanying balance sheets of Rubicon Technology, Inc. (the Company) as of December 31, 2005 and 2006, and the related statements of operations, redeemable equity and stockholders’ equity (deficit), and cash flows for each of the three years in the period ended December 31, 2006. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2005 and 2006, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2006 in conformity with accounting principles generally accepted in the United States of America.

As discussed in Note 1, effective January 1, 2006, the Company adopted Statement of Financial Accounting Standards No. 123R, “Share-Based Payment.” In addition, as discussed in Note 1, effective January 1, 2006, the Company adopted Financial Accounting Standards Board Staff Position 150-5, “Issuer’s Accounting Under FASB Statement No. 150 for Freestanding Warrants and Other Similar Instruments on Shares that are Redeemable.”

/s/ Grant Thornton LLP

Chicago, Illinois

September 4, 2007


 

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Rubicon Technology, Inc.


 

Balance sheets

 

     As of December 31,    

Pro forma
stockholders’
equity at
December 31,
2006

(Note 1)

 
       2005     2006    
           (unaudited)  
     (in thousands, other than share data)  

Assets

      

Cash and cash equivalents

   $ 1,466     $ 3,638    

Restricted cash

     5       19    

Accounts receivable, net

     2,096       2,925    

Inventories, net

     3,033       1,631    

Spare parts

     753       806    

Prepaid expenses and other current assets

     576       681    
                  

Total current assets

     7,929       9,700    

Property and equipment, net

     20,878       19,263    

Other assets

     78       57    
                  

Total assets

   $ 28,885     $ 29,020    
                  

Liabilities, redeemable equity and stockholders’ equity (deficit)

      

Accounts payable

   $ 820     $ 1,481    

Current maturities of long-term debt

     1,055       1,972    

Current maturities of capital lease obligations

     201       251    

Lines of credit, net of unamortized discount

     1,128       973    

Accrued payroll

     338       756    

Accrued and other current liabilities

     787       882    

Convertible preferred stock warrant liability

           3,773    
                  

Total current liabilities

     4,329       10,088    

Long-term debt and capital lease obligations, less current maturities

     4,741       2,628    

Other liabilities

     23          
                  

Total liabilities

     9,093       12,716    
                  
Commitments and contingencies (Note 9)       

Redeemable equity

      

Redeemable convertible preferred stock, $0.001 par value, 129,894,744 and 139,785,871 shares authorized at December 31, 2005 and 2006; 76,351,521 and 96,270,146 shares issued and outstanding at December 31, 2005 and 2006; liquidation amount: $78,875 and $92,823 at December 31, 2005 and 2006; pro forma: preferred stock, $0.001 par value; no shares authorized, issued or outstanding

     59,365       93,897      
                      

Stockholders’ equity (deficit)

      

Preferred stock, pro forma $0.001 par value, 5,000,000 undesignated shares authorized, no shares issued or outstanding

      

Common stock, $0.001 par value, 85,000,000 shares authorized and 249,298 and 252,183 shares issued and outstanding at December 31, 2005 and 2006; pro forma $0.001 par value, 75,000,000 shares authorized, 12,848,983 shares issued and outstanding

     3       3     11  

Additional paid-in capital

     27,416       26,015     122,659  

Accumulated deficit

     (66,992 )     (103,611 )   (103,611 )
                      

Total stockholders’ equity (deficit)

     (39,573 )     (77,593 )   19,059  
                      

Total liabilities, redeemable equity and stockholders’ equity (deficit)

   $ 28,885     $ 29,020    
                  

The accompanying notes are an integral part of these statements.

 


 

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Rubicon Technology, Inc.


 

Statements of operations

 

     Year ended December 31,  
       2004     2005     2006  
     (in thousands, other than share and per share data)  

Revenue

   $ 16,043     $ 16,315     $ 20,752  

Cost of goods sold

     14,815       18,508       18,885  
                        

Gross profit (loss)

     1,228       (2,193 )     1,867  

Operating expenses:

      

General and administrative

     3,029       4,688       3,298  

Sales and marketing

     1,586       1,266       1,062  

Research and development

     922       861       679  

Asset impairment

                 933  

Loss on disposal of assets

           383       42  
                        

Loss from operations

     (4,309 )     (9,391 )     (4,147 )
                        

Other income (expense):

      

Change in carrying value of convertible preferred stock warrants

                 (1,962 )

Interest income

     6       14       5  

Interest expense

     (1,058 )     (2,749 )     (1,315 )
                        

Total other income (expense)

     (1,052 )     (2,735 )     (3,272 )
                        
      

Loss before cumulative effect of change in accounting principle

     (5,361 )     (12,126 )     (7,419 )

Cumulative effect of change in accounting principle

                 (221 )
                        

Net loss

     (5,361 )     (12,126 )     (7,640 )

Dividends on preferred stock

     (2,631 )     (3,924 )     (5,563 )

Accretion of redeemable preferred stock

     (2,681 )     4,404       (23,416 )
                        

Net loss attributable to common stockholders

   $ (10,673 )   $ (11,646 )   $ (36,619 )
                        

Net loss per common share attributable to common stockholders,

      

basic and diluted

   $ (46.79 )   $ (47.52 )   $ (146.57 )
                        

Weighted average common shares outstanding used in computing net loss per share attributable to common stockholders,

      

basic and diluted

     228,124       245,073       249,843  

Pro forma:

      

Pro forma basic and diluted net loss per share attributable to common stockholders

       $ (2.85 )

Shares used to compute pro forma basic and diluted net loss per share attributable to common stockholders

         12,846,643  

The accompanying notes are an integral part of these statements.


 

F-4


Table of Contents

Rubicon Technology, Inc.


 

Statements of redeemable equity and stockholders’ equity (deficit)

 

    Redeemable equity     Stockholders’ equity (deficit)  
    Redeemable convertible
preferred stock (Note 5)
    Common stock   Additional
paid-in
capital
    Accumulated
deficit
    Total
stockholders’
equity (deficit)
 
      Shares   Amount     Shares   Amount      
              (in thousands other than share data)  

Balance at December 31, 2003

  27,415,440   $ 29,973     228,077           $ 3   $ 25,466     $ (44,673 )   $ (19,204 )

Sale of Series C preferred stock

  16,049,570     12,142                          

Exercise of stock options

          58                      

Accretion of preferred stock to redemption value

      5,312                   (5,312 )     (5,312 )

Net loss

                        (5,361 )     (5,361 )
                                             

Balance at December 31, 2004

  43,465,010     47,427     228,135     3     25,466       (55,346 )     (29,877 )

Sale of Series D preferred stock

  6,123,619     4,982                          

Sale of Series E preferred stock

  26,762,892     7,436                          

Exercise of stock options

          21,163         39             39  

Issuance of warrants in conjunction with the procurement of loans

                  1,233             1,233  

Beneficial conversion feature

                  678             678  

Accretion of preferred stock to redemption value

      (480 )                 480       480  

Net loss

                        (12,126 )     (12,126 )
                                             

Balance at December 31, 2005

  76,351,521     59,365     249,298     3     27,416       (66,992 )     (39,573 )

Sale of Series E preferred stock

  19,918,625     5,553                          

Exercise of stock options

          2,885         14             14  

Reclassification of warrants to liability

                  (1,477 )           (1,477 )

Stock-based compensation

                  62             62  

Accretion of preferred stock to redemption value

      28,979                   (28,979 )     (28,979 )

Net loss

                        (7,640 )     (7,640 )
                                             

Balance at December 31, 2006

  96,270,146   $ 93,897     252,183   $ 3   $ 26,015     $ (103,611 )   $ (77,593 )
                                             

The accompanying notes are an integral part of these statements.


 

F-5


Table of Contents

Rubicon Technology, Inc.


 

Statements of cash flows

 

     Year ended December 31,  
       2004     2005     2006  
     (in thousands)  

Cash flows from operating activities

      

Net loss

   $ (5,361 )   $ (12,126 )   $ (7,640 )

Adjustments to reconcile net loss to net cash provided by (used in) operating activities

      

Depreciation and amortization

     1,996       3,068       3,091  

Amortization of financing costs

     371       225       17  

Net loss on disposal of equipment

           383       42  

Asset impairment

                 933  

Change in carrying value of convertible stock warrants

                 2,183  

Stock-based compensation

                 62  

Warrants issued for services

                 32  

Interest expense related to accretion

     16       1,494       352  

Changes in operating assets and liabilities:

      

Accounts receivable

     (835 )     466       (829 )

Inventories

     827       (1,572 )     1,402  

Spare parts

     (263 )     (293 )     (53 )

Prepaid expenses and other current assets

     335       167       (84 )

Accounts payable

     881       (1,233 )     661  

Accrued payroll

     77       85       418  

Accrued and other current liabilities

     (112 )     75       72  
                        

Net cash provided (used in) operating activities

     (2,068 )     (9,411 )     659  
                        

Cash flows from investing activities

      

Purchases of property and equipment

     (8,664 )     (4,141 )     (2,373 )

Proceeds from disposal of assets

                 45  
                        

Net cash used in investing activities

     (8,664 )     (4,141 )     (2,328 )
                        

Cash flows from financing activities

      

Proceeds from sale of preferred stock

     12,142       4,918       5,553  

Proceeds from exercise of options

           39       14  

Restricted cash

     43             (14 )

Proceeds from line of credit

     3,890       3,120       1,430  

Payments on line of credit

     (2,435 )     (4,036 )     (1,596 )

Payments on capital lease

     (848 )     (826 )     (225 )

Borrowings from preferred stockholders

           7,500        

Proceeds from issuance of long-term debt

     2,510       4,000        

Payments on long-term debt

     (2,830 )     (3,645 )     (1,321 )
                        

Net cash provided by financing activities

     12,472       11,070       3,841  
                        

Net (decrease) increase in cash and cash equivalents

     1,740       (2,482 )     2,172  

Cash and cash equivalents, beginning of year

     2,208       3,948       1,466  
                        

Cash and cash equivalents, end of year

   $ 3,948     $ 1,466     $ 3,638  
                        

Supplemental disclosure of cash flow information

      

Cash paid during the year for interest

   $ 1,067     $ 1,178     $ 867  

Supplemental disclosures of non-cash transactions

      

Capital assets acquired for capital lease obligations

     829       400       123  

Warrants issued with debt instruments

           1,233        

Conversion of debt to preferred stock

           7,500        

Reclassification of preferred stock warrants to liability

                 1,477  

The accompanying notes are an integral part of these statements.


 

F-6


Table of Contents

Rubicon Technology, Inc.


Notes to financial statements

 

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Description of business

Rubicon Technology, Inc., a Delaware corporation (the “Company”), is an electronic materials provider that develops, manufactures and sells monocrystalline sapphire and other innovative crystalline products for LEDs, RFICs, blue laser diodes, optoelectronics and other optical applications. The Company maintains its operating facilities in the Chicago metropolitan area.

A summary of the Company’s significant accounting policies applied in the preparation of the accompanying financial statements follows.

Pro forma stockholders’ equity (deficit)

Holders of more than 50% of the outstanding shares of each series of preferred stock can require mandatory conversion of such series of preferred stock into common stock at any time. In addition, upon the closing of an initial public offering (“IPO”), all of the outstanding shares of Series A, B, B-2, C, C-2, D, D-2, and E preferred stock shall automatically be converted into shares of common stock, if the aggregate proceeds of the IPO are $25 million or greater (prior to deduction of any underwriting discount or other expenses and including proceeds received by the Company upon exercise of any overallotment by the underwriters) and if the common stock price is not less than $65.00 per share (as ratably adjusted to reflect any stock splits, subdivisions or combinations affecting the common stock). The December 31, 2006 pro forma stockholders’ equity (deficit) has been prepared assuming the conversion of Series A, B, B-2, C, C-2, D, D-2 and E preferred stock outstanding and related dividends into approximately 10,571,713 common shares as of December 31, 2006. Preferred stock warrants that do not net exercise on the closing of an initial public offering will convert into warrants to purchase shares of common stock at the applicable conversion rate of the related series of preferred stock. The convertible preferred stock warrant liability recorded at the closing of the IPO will be reclassified to additional paid-in capital.

Reverse stock split

All prior period common stock amounts have been retroactively adjusted to reflect a 1 for 13 reverse stock split effective August 30, 2007. As a result of this common stock split there was an automatic change in the conversion prices of all series of preferred stock and their related dividend conversion rates at the same 1 for 13 ratio.

Cash and cash equivalents

The Company considers all unrestricted highly liquid investments with original maturities of three months or less to be cash equivalents. Cash equivalents primarily consist of time deposits with banks.

Restricted cash

At December 31, 2005 and 2006, in connection with certain credit agreements, the Company is required to maintain $5,000 and $15,781 of restricted certificates of deposit. At December 31, 2006, the Company held $3,654 of employee funds as part of a flexible spending program.


 

F-7


Table of Contents

Rubicon Technology, Inc.


Notes to financial statements — (Continued)

 

Accounts receivable

The majority of the Company’s accounts receivable are due from manufacturers, primarily in the sapphire substrate polishing business, serving the LED industry. Credit is extended based on an evaluation of the customers’ financial condition. Accounts receivable are due based on contract terms and at stated amounts due from customers, net of an allowance for doubtful accounts. Accounts outstanding longer than the contractual payment terms are considered past due. The Company determines its allowance by considering a number of factors, including the length of time past due, the customer’s current ability to pay and the condition of the general economy and industry as a whole. The Company writes off accounts receivable when they become uncollectible, and payments subsequently received on such receivables are credited to the allowance for doubtful accounts.

The following table shows the activity of the allowance for doubtful accounts:

 

     Year ended December 31,  
       2005     2006  

Beginning balance

   $ 11,523     $ 212,983  

Charges (credits) to costs and expenses

     201,547       (44,702 )

Accounts charged off, less recoveries

     (87 )     (21,821 )
                

Ending balance

   $ 212,983     $ 146,460  
                

Inventories

Inventories are valued at the lower of cost or market. Cost is determined using the first-in, first-out method, and includes materials, labor and overhead. The Company reduces the carrying value of its inventories for differences between the cost and the estimated net realizable value, taking into account usage, expected demand, technological obsolescence and other information. Inventories are composed of the following:

 

     As of December 31,  
       2005     2006  

Raw materials

   $ 223,048     $ 461,257  

Work in progress

     2,881,500       1,638,742  

Finished goods

     88,490       111,550  
                
     3,193,038       2,211,549  

Reserve for obsolescence and realization

     (159,770 )     (580,244 )
                
   $ 3,033,268     $ 1,631,305  
                

The following table shows the activity of the obsolescence and realization reserve:

     Year ended December 31,
       2005    2006

Beginning balance

   $ 40,000    $ 159,770

Charges to costs and expenses

     119,770      420,474
             

Ending balance

   $ 159,770    $ 580,244
             

 


 

F-8


Table of Contents

Rubicon Technology, Inc.


Notes to financial statements — (Continued)

 

Property and equipment

Property and equipment consisted of the following:

 

     As of December 31,  
       2005     2006  

Machinery, equipment and tooling

   $ 22,600,844     $ 23,161,219  

Leasehold improvements

     3,064,967       3,045,089  

Furniture and fixtures

     748,376       707,813  

Information systems

     541,827       545,983  

Construction in progress

     1,198,621       1,923,475  
                

Total cost

     28,154,635       29,383,579  

Accumulated depreciation and amortization

     (7,276,261 )     (10,120,621 )
                

Property and equipment, net

   $ 20,878,374     $ 19,262,958  
                

Property and equipment are carried at cost and depreciated over their estimated useful lives using the straight-line method. The cost of maintenance and repairs is charged to expense as incurred. Significant renewals and improvements are capitalized. Depreciation and amortization expense associated with property and equipment was $1,995,708, $3,067,730 and $3,091,043 for the years ended December 31, 2004, 2005 and 2006.

Construction in progress includes costs associated with the construction of furnaces and deposits made on equipment purchases. Interest costs capitalized were not significant for the years ended December 31, 2004, 2005 and 2006.

The estimated useful lives are as follows:

 

Asset description    Life

Machinery, equipment and tooling

   5-10 years

Leasehold improvements

   Lesser of life of lease or economic life

Furniture and fixtures

   7 years

Information systems

   3 years

The cost of property and equipment included above subject to capital leases was $838,827 and $536,724 at December 31, 2005 and 2006. Accumulated depreciation on these assets was $88,140 and $70,447 at December 31, 2005 and 2006.

Asset impairment

In accordance with the provisions of Statement of Financial Accounting Standards (“SFAS”) No. 144, “Accounting for the Impairment on Disposal of Long-lived Assets”, property and equipment are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. If the sum of the expected undiscounted cash flows is less than the carrying value of the related asset or group of assets, a loss is recognized for the difference between the fair value and carrying value of the asset or group of assets. An impairment loss of $933,000 was recorded on long-lived assets removed from service during the year ended December 31, 2006. There were no impairment losses on long-lived assets for the years ended December 31, 2004 and 2005.


 

F-9


Table of Contents

Rubicon Technology, Inc.


Notes to financial statements — (Continued)

 

Warranty cost

The Company’s sales terms include a warranty that its products will meet certain specifications and is based on terms that are generally accepted in the marketplace. The Company records a current liability for the expected cost of warranty-related claims at the time of sale. Prior to 2005, warranty costs were immaterial and were not accrued for. The following table presents changes in the Company’s product warranty liability for the years ended December 31:

 

       2005     2006  
     (in thousands)  

Balance, beginning of period

   $     $ 50  

Charged to cost of sales

     420       352  

Actual product warranty expenditures

     (370 )     (332 )
                

Balance, end of period

   $ 50     $ 70  
                

Fair value of financial instruments

The Company’s financial instruments consist primarily of cash and cash equivalents, accounts receivable, accounts payable and debt. The carrying values of these assets and liabilities approximate their fair values due to the short-term nature of these instruments at December 31, 2005 and 2006.

Concentration of credit risks and other risks and uncertainties

Financial instruments that could potentially subject the Company to concentrations of credit risk consist principally of cash and cash equivalents and trade receivables. At December 31, 2005 and 2006, the Company had $1,371,206 and $3,557,394 on deposit at a financial institution in excess of amounts insured by the Federal Deposit Insurance Corporation. The Company performs periodic evaluation of this institution for relative credit standing. The Company has not experienced any losses in such accounts and management believes it is not exposed to any significant risk of loss on these balances.

The Company currently depends on a small number of suppliers for certain raw materials, components, services and equipment, including key materials such as aluminum oxide and certain furnace components. If the supply of these components were to be disrupted or terminated, or if these suppliers were unable to supply the quantities of raw materials required, the Company may have difficulty in finding or may be unable to find alternative sources for these items. As a result, the Company may be unable to meet the demand for its products, which could have a material adverse impact on the Company.

Concentration of credit risk related to revenue and trade receivables is discussed in Note 3 below.

Revenue recognition

The Company recognizes revenue from product sales when earned in accordance with Staff Accounting Bulletin, (“SAB”), No. 104, “Revenue Recognition . ” Revenue is recognized when, and if, evidence of an arrangement is obtained and the other criteria to support revenue recognition are met, including:

 

Ø  

Persuasive evidence of an arrangement exists .    The Company requires evidence of a purchase order with the customer specifying the terms and specifications of the product to be delivered, typically in the form of a signed quotation or purchase order from the customer.


 

F-10


Table of Contents

Rubicon Technology, Inc.


Notes to financial statements — (Continued)

 

Ø  

Title has passed and the product has been delivered .    Title passage and product delivery generally occur when the product is delivered to a common carrier.

 

Ø  

The price is fixed or determinable .    All terms are fixed in the signed quotation or purchase order received from the customer. The purchase orders do not contain rights of cancellation, return, exchange or refund.

 

Ø  

Collection of the resulting receivable is reasonably assured.     The Company’s standard arrangement with customers includes 30 day terms. Customers are subject to a credit review process that evaluates the customers’ financial position and their ability to pay. Collectibility is determined by considering the length of time the customer has been in business and history of collections. If it is determined that collection is not probable, no product is shipped and no revenue is recognized unless cash is received in advance.

The Company does not provide maintenance or other services and we do not have sales that involve multiple elements or deliverables as defined under Emerging Issues Task Force Issue (“EITF”) No. 00-21, “Revenue Arrangements with Multiple Deliverables.

Shipping and handling costs

In accordance with EITF 00-10, “Accounting for Shipping and Handling Fees and Costs”, the Company records costs incurred in connection with shipping and handling products as cost of goods sold. Amounts billed to customers in connection with these costs are included in revenue and are not material for any of the periods presented in the accompanying financial statements.

Stock-based compensation

Prior to January 1, 2006, the Company accounted for stock-based compensation arrangements in accordance with the provisions of Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees” (“APB 25”), Financial Accounting Standards Board’s (“FASB”) Interpretation No. 44, “Accounting for Certain Transactions Involving Stock Compensation, an Interpretation of APB Opinion No. 25” (“FIN 44”) and FIN 28, “Accounting for Stock Appreciation Rights and Other Variable Stock Option or Award Plans,” and had adopted the disclosure provisions of SFAS No. 123, “Accounting for Stock-Based Compensation” (“SFAS 123”) and SFAS No. 148, “Accounting for Stock-Based Compensation—Transition and Disclosure” (“SFAS 148”).

Effective January 1, 2006, the Company adopted SFAS 123(R), “Share-Based Payment” (“SFAS 123R”), which revised SFAS 123, and supersedes APB 25. SFAS 123R requires all share-based payments to employees, including grants of employee stock options, to be measured at fair value and expensed in the statements of operations over the service period (generally the vesting period) of the grant. Upon adoption, the Company transitioned to SFAS 123R using the prospective transition method, under which only new awards (or awards modified, repurchased, or cancelled after the effective date) are accounted for under the provisions of SFAS 123R and expense is only recognized in the consolidated statements of operations beginning with the first period that SFAS 123R is effective and continuing to be expensed thereafter. See Note 6 for further disclosure related to SFAS 123R.

Research and development

Research and development costs are expensed as incurred. Research and development expense was $921,814, $860,629 and $679,379 in 2004, 2005 and 2006.


 

F-11


Table of Contents

Rubicon Technology, Inc.


Notes to financial statements — (Continued)

 

Accounting for uncertainty in income taxes

In July 2006, the FASB issued FASB Interpretation No. (“FIN”) 48, “Accounting for Uncertainty in Income Taxes—an Interpretation of FASB Statement No. 109,” which became effective for the Company on January 1, 2007. FIN 48 clarifies the accounting for uncertainty in income taxes recognized in an entity’s financial statements in accordance with SFAS No. 109, “Accounting for Income Taxes”, and prescribes a recognition threshold and a measurement attribute for the financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more-likely-than-not to be sustained upon examination by taxing authorities. Additionally, FIN 48 provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. The Company adopted the provisions of FIN 48 on January 1, 2007. The total amount of unrecognized tax benefits as of the date of adoption was not significant. As such, there are no unrecognized tax benefits included in the balance sheet that would, if recognized, affect the effective tax rate.

The Company’s practice is to recognize interest and/or penalties related to income tax matters in income tax expense. The Company had no accruals for interest and penalties as of December 31, 2005 and 2006, and has not recognized any interest or penalties in expense for the years ended December 31, 2005 and 2006. The Company is subject to taxation in the US and various state jurisdictions. Due to the existence of net operating loss carryforwards, all tax years are open to examination by tax authorities.

Use of estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“US GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Income taxes

Deferred tax assets and liabilities are provided for temporary differences between financial reporting and income tax bases of assets and liabilities, and are measured using the enacted tax rates and laws expected to be in effect when the differences will reverse. Deferred income taxes also arise from the future benefits of net operating loss carryforwards. Valuation allowances are established when necessary to reduce deferred tax assets to the amounts expected to be realized. A valuation allowance equal to 100% of the net deferred tax assets has been recognized due to uncertainty regarding the future realization of these assets.

Other comprehensive income

Other comprehensive income refers to revenue, expenses, gains and losses that, under US GAAP, are included in other comprehensive income (loss), but are excluded from net income (loss), as these amounts are recorded directly as an adjustment to stockholders’ equity, net of tax. The Company’s net income (loss) is the same as other comprehensive income (loss) for the years ended December 31, 2004, 2005 and 2006.


 

F-12


Table of Contents

Rubicon Technology, Inc.


Notes to financial statements — (Continued)

 

Convertible preferred stock warrant liability

Effective January 1, 2006, the Company adopted FASB Staff Position (“FSP”) 150-5, “Issuer’s Accounting under FASB Statement No. 150 for Freestanding Warrants and Other Similar Instruments on Shares that are Redeemable.” FSP 150-5 requires the Company to classify its outstanding preferred stock warrants as liabilities as the warrants are exercisable into redeemable preferred shares. The fair value of warrants classified as liabilities is adjusted for changes in fair value at each reporting period, and the corresponding non-cash gain or loss is recorded in current period earnings. The Company had an independent valuation prepared to determine the fair value of the preferred stock warrants at January 1, 2006 and at each subsequent reporting date. The methodology used to value the warrants was a Black-Scholes option-pricing model. The determination of the fair value using this model will be affected by assumptions regarding a number of complex and subjective variables. These variables include expected stock volatility over the contractual term of the warrants, risk-free interest rates, and the estimated fair value of the underlying preferred stock. The contractual term used was equal to the remaining contractual term of the warrants. The volatility was based on an analysis of a peer group of public companies. Historical price volatilities of these companies were evaluated over a period of time equal to the contractual term of the warrants. The risk-free interest rates were based on US Treasury zero-coupon rates in effect at each reporting period with terms consistent with the remaining contractual term of the warrants. The fair value of the underlying preferred stock at January 1, 2006 and at each subsequent reporting date was determined based upon an independent valuation prepared utilizing the option pricing method developed for two scenarios (initial public offering and remaining private) weighted according to the probability of occurrence as prescribed by the AICPA Practice Aid “Valuation of Privately-Held-Company Equity Securities Issued as Compensation.” The valuation amounts determined under each scenario were then probability weighted based upon management’s best estimates of the occurrence of each scenario. The resulting value was then allocated to common and each series of preferred stock based upon the economic impact of the conversion rights and liquidation preferences of the preferred stock.

Redeemable convertible preferred stock

The Company has issued various series of preferred stock. The holders of Series A, B, B-2, C, C-2, D, D-2, and E preferred stock have the option to sell their shares back to the Company at the greater of the original purchase price plus accrued and unpaid dividends, or the current fair market value of the shares plus accrued and unpaid dividends. As a result, the carrying value of the preferred stock has been increased by an accretion amount each period so that the carrying amounts will equal the greater of fair value plus accrued and unpaid dividends or the original cost plus accrued and unpaid dividends value for the Series A, B, B-2, C, C-2, D, D-2, and E preferred stock. The accreted amounts are recorded to accumulated deficit. The option to sell and the related accretion of the preferred shares terminate upon the occurrence of a qualified public offering.


 

F-13


Table of Contents

Rubicon Technology, Inc.


Notes to financial statements — (Continued)

 

Net loss per common share attributable to common stockholders

Net loss per share of common stock is as follows for the years ended December 31, 2004, 2005 and 2006:

 

     Year Ended December 31,  
       2004     2005     2006  

Net loss per common share:

      

Basic and diluted:

      

Loss before cumulative effect of change in accounting principle

   $ (23.50 )   $ (49.48 )   $ (29.69 )

Cumulative effect of change in accounting principle

                 (0.89 )
                        

Net loss

   $ (23.50 )   $ (49.48 )   $ (30.58 )
                        

Net loss attributable to common stockholders

   $ (46.79 )   $ (47.52 )   $ (146.57 )
                        

Weighted average common shares outstanding used in:

      

Basic and diluted

     228,124       245,073       249,843  

Basic net loss per share is computed by dividing net loss by the weighted-average number of common shares outstanding during the period. Diluted net loss per share is computed by dividing net loss by the weighted-average number of dilutive common shares outstanding during the period. Dilutive shares outstanding are calculated by adding to the weighted shares outstanding any common stock equivalents from redeemable preferred stock, outstanding stock options and warrants based on the treasury stock method.

Diluted net loss and net loss attributable to common stockholders per share is the same as basic net loss attributable to common stockholders per share in the years ended December 31, 2004, 2005 and 2006, since the effects of potentially dilutive securities are anti-dilutive.

The number of anti-dilutive shares excluded from the calculation of diluted net loss per share is as follows as of December 31:

 

    

As of December 31,

       2004    2005    2006

Preferred stock

   43,465,010    76,351,521    96,270,146

Warrants

   2,466,131    8,818,479    9,378,629

Stock options

   637,164    557,597    1,095,533
              
   46,568,305    85,727,597    106,744,308
              

 

F-14


Table of Contents

Rubicon Technology, Inc.


Notes to financial statements — (Continued)

 

Pro forma net loss per share assuming conversion of preferred stock and outstanding stock options and warrants for the year ended December 31, 2006 were as follows (in thousands, except share and per share amounts):

 

       Year ended
December 31,
2006
 
     (unaudited)  

Historical earnings per share

  

Numerator:

  

Net loss attributable to common stockholders

   $ (36,619 )
        

Denominator:

  

Weighted-average shares of common stock outstanding

     249,843  
        

Net loss attributable to common stockholders per share—basic and diluted

   $ (146.57 )
        

Pro forma earnings per share

  

Numerator:

  

Net loss attributable to common stockholders

   $ (36,619 )

Pro forma adjustment to add back preferred stock accretion and dividends

     28,979  
        

Pro forma net loss

   $ (7,640 )
        

Denominator for pro forma basic net loss per share:

  

Weighted-average shares of common stock outstanding

     249,843  

Pro forma adjustments to reflect assumed conversion of preferred stock (as if converted)

     12,596,800  
        

Shares used to compute pro forma basic net loss per common share

     12,846,643  
        

Pro forma basic net loss

   $ (0.59 )
        

Recent accounting pronouncements

In September 2006, the FASB issued SFAS 157, “Fair Value Measurements” (“SFAS 157”), which defines fair value, establishes a framework for measuring fair value in accordance with generally accepted accounting principles, and expands disclosures about fair value measurements. SFAS 157 is effective in fiscal years beginning after November 15, 2007. The Company has not yet determined the effect that the adoption of SFAS 157 will have on its results of operations or financial position.

In February 2007, the FASB issued SFAS 159, “The Fair Value Option for Financial Assets and Financial Liabilities” (“SFAS 159”). SFAS 159 permits entities to measure at fair value many financial instruments and certain other items on an instrument-by-instrument basis that are not currently required to be measured at fair value. SFAS 159 is effective for fiscal years beginning after November 15, 2007. The Company has not yet determined the effect that the adoption of SFAS 159 will have on its results of operations or financial position.

2. SEGMENT INFORMATION

The Company has determined that it operates in only one segment in accordance with SFAS No. 131, “Disclosures About Segments of an Enterprise and Related Information”, as it only reports profit and loss information on an aggregate basis to its chief operating decision maker.


 

F-15


Table of Contents

Rubicon Technology, Inc.


Notes to financial statements — (Continued)

 

Revenue is attributed by geographic region based on ship-to location of the Company’s customers. The following table summarizes revenue by geographic region:

 

     Year Ended December 31,
       2004    2005    2006
     (in thousands)

Asia

   $ 14,332    $ 14,106    $ 18,111

North America

     1,620      1,845      2,211

Europe

     91      364      430
                    

Revenue

   $ 16,043    $ 16,315    $ 20,752
                    

3. SIGNIFICANT CUSTOMERS

For the year ended December 31, 2004, we had two customers that accounted for 46% and 12% of our revenue. For the year ended December 31, 2005, we had two customers that accounted for 36% and 12% of our revenue. For the year ended December 31, 2006, we had three customers that accounted for 26%, 17% and 14% of our revenue.

Customers individually representing more than 10% of trade receivables accounted for approximately 51% and 66% of accounts receivable as of December 31, 2005 and 2006. The Company grants credit to customers based on an evaluation of their financial condition. Losses from credit sales are provided for in the financial statements.

4. CREDIT ARRANGEMENTS

Long-term debt

The Company entered into a 2-1/2-year term loan in October 2003 with a lending institution used as general and equipment financing. The initial commitment under the agreement was $8,000,000. Draws were made on this financing from October 2003 to June 2004. Each loan is for a 30-month term with equal monthly payments of principal and interest payable over the life of the loan. Each loan included an additional interest charge ranging from 0.5682% to 0.5696% due as a terminal payment paid in the last month of the loan. On March 31, 2005, the Company amended its agreement to obtain an additional $4,000,000 general financing term loan. Payments of principal and interest commenced May 2005, with an initial payment of $140,831. The loan includes 35 equal payments of $97,399 and a final balloon payment of $1,497,399, due May 1, 2008. Under the terms of the agreement, warrants to purchase 131,096 Series C preferred shares at $0.7628 per share were issued (Note 5). The warrants are immediately exercisable and expire 10 years from the date of issuance.

In December 2005, the Company entered into a restructuring agreement with the lender to suspend monthly principal payments until December 2006. All terminal payments were extended for 12 months, with the exception of the balloon payment, which remains due on May 1, 2008. The remaining principal balance on the $4,000,000 extension loan was restructured as 17 equal payments of principal and interest of $112,700 commencing December 1, 2006 with a final principal balloon payment of $2,263,402 due on May 1, 2008. In addition, warrants to purchase 2,298,645 Series E preferred shares at $0.2806 per share were issued (Note 5). The warrants are immediately exercisable and expire 10 years


 

F-16


Table of Contents

Rubicon Technology, Inc.


Notes to financial statements — (Continued)

 

from the date of issuance. Interest rates were increased by 300 basis points. The interest rate would decrease by 300 basis points in December 2006, if the Company achieved positive earnings before interest, taxes, depreciation and amortization (“EBITDA”) for fiscal quarter ending on December 31, 2006. At December 31, 2006 the Company achieved the required positive EBITDA. The agreement includes monthly operating EBITDA, revenue and capital expenditure covenants measured on a rolling two-month basis. At December 31, 2005 and 2006, the Company was in compliance with the covenants of the agreement.

Long-term debt consists of:

 

     As of December 31,  
       2005     2006  

Term loan at 11.56% effective interest rate, including $418,792 and $0 at 2005 and 2006 of accreted terminal payments, matures May 1, 2006

   $ 1,142,795     $  

Term loans at effective interest rates of 8.56% to 9.25%, including $232,674 and $243,985 at 2005 and 2006 of accreted terminal payments, maturing at various dates from May 1, 2007 through December 1, 2007

     1,346,445       1,255,018  

Term loan at 12.14% effective interest rate, including $2,263,402 at 2005 and 2006 balloon payment, matures May 1, 2008

     3,544,469       3,475,027  

Capital lease obligations

     396,159       293,760  

Less unamortized warrants

     (432,975 )     (172,810 )
                

Total long-term debt and capital lease obligations

   $ 5,996,893     $ 4,850,995  

Less current maturities

     (1,256,329 )     (2,222,957 )
                

Long-term debt and capital lease obligations, less current maturities

   $ 4,740,564     $ 2,628,038  
                

The loans are collateralized by a blanket security agreement, which includes all the assets of the Company.

Future maturities of long-term debt, excluding capital lease obligations, at December 31, 2006, are as follows:

 

Year ending December 31,       
2007    $ 1,972,395
2008      2,584,840
      
   $ 4,557,235
      

Letter of credit

At December 31, 2006, the Company had a $10,781 letter of credit with a bank for the purpose of securing a lease on office space the Company has sublet. The letter of credit is secured by a restricted certificate of deposit.


 

F-17


Table of Contents

Rubicon Technology, Inc.


Notes to financial statements — (Continued)

 

Lines of credit

The Company had borrowings of $1,138,687, net of unamortized discounts of $10,668 at December 31, 2005 and borrowings of $241,006 at December 31, 2006 from a lending institution under the terms of a secured accounts receivable revolving line of credit agreement. All remaining discounts were fully amortized during 2006. The agreement also includes an option to finance up to $8,000,000 for the acquisition of equipment. On March 31, 2005, the amount of borrowings available under this line of credit was established at $3,000,000. At December 31, 2005 interest was at the US prime rate (7.25% at December 31, 2005) plus 5.5%. At December 31, 2006, borrowings bore interest at the US prime rate (8.25% at December 31, 2006) plus 2.0%.

As part of the December 2005 restructuring, a line of credit was added to the loan agreement for up to 50% of eligible inventory, not to exceed $1,500,000. Borrowings under this line bear interest at the US prime rate (8.25% at December 31, 2006) plus 2.0%. At December 31, 2006, $731,665 was outstanding on this line of credit. The accounts receivable and inventory lines of credit expire on October 24, 2007.

Capital lease obligations

The Company leases certain machinery and equipment for use in the business. On March 6, 2005, the Company entered into a $400,000, 36 month capital lease agreement to purchase machinery. The lease bears an interest rate of 21.57% and is payable in monthly payments of principal and interest of $14,920. On April 4, 2006, the Company entered into a $17,485 capital lease agreement to purchase equipment. The lease is payable in 12 monthly payments of $1,457. On September 25, 2006, the Company entered into a $101,958 capital lease agreement to purchase equipment. A down payment of $10,545 was made on signing. The remainder of the lease is payable in three equal installments of $31,583 commencing on January 25, 2007. The lease bears an interest rate of 5.86%.

Future maturities of capital lease obligations are as follows:

 

Year ending December 31,

        

2007

   $ 278,160  

2008

     44,761  
        

Total minimum lease payments

     322,921  

Amount representing interest

     (29,161 )
        

Present value of minimum lease payments, including current portion

   $ 293,760  
        

5. REDEEMABLE EQUITY AND STOCKHOLDERS’ EQUITY (DEFICIT)

Restricted common stock

The Company has outstanding restricted common stock held by certain employees pursuant to restricted common stock agreements. The restrictions are removed based on certain vesting criteria. Restricted shares outstanding at December 31, 2005 were 256. There was no restricted common stock outstanding at December 31, 2006.


 

F-18


Table of Contents

Rubicon Technology, Inc.


Notes to financial statements — (Continued)

 

Redeemable convertible preferred stock

As of December 31, 2005 and 2006, the Company had redeemable convertible preferred stock, as follows:

 

       As of December 31,
       2005    2006
     (in thousands)

Authorized shares

     129,895      139,786
             

Outstanding shares:

     

Series A

     1,969      1,969

Series B

     11,445      11,445

Series B-2

     14,001      14,001

Series C

     3,357      3,357

Series C-2

     12,693      12,693

Series D

     865      865

Series D-2

     5,258      5,258

Series E

     26,764      46,682
             

Total outstanding shares

     76,352      96,270
             

Liquidation amounts:

     

Series A

   $ 17,733    $ 18,358

Series B and B-2

     30,521      32,464

Series C and C-2

     13,971      15,368

Series D and D-2

     5,350      5,884

Series E

     11,300      20,749
             

Total liquidation amounts

   $ 78,875    $ 92,823
             

Cumulative proceeds, net of issuance costs:

     

Series A

   $ 10,473    $ 10,473

Series B and B-2

     14,204      14,204

Series C and C-2

     12,142      12,142

Series D and D-2

     4,982      4,982

Series E

     7,436      12,989
             

Total cumulative proceeds, net of issuance costs

   $ 49,237    $ 54,790
             

The Company has issued various series of preferred stock. At anytime after December 15, 2008, the holders of Series E, D, D-2, C, C-2, B, B-2 and A preferred stock have the option to sell their shares back to the Company at the greater of original purchase price plus accrued and unpaid dividends, or the current fair market value of the shares plus accrued and unpaid dividends. As a result, the carrying value of the preferred stock has been increased by an accretion each period so that the carrying amounts will equal the greater of original purchase price plus accrued and unpaid dividends, or the current fair market value of the shares plus accrued and unpaid dividends for the Series E, D, D-2, C, C-2, B, B-2 and A preferred stock. The accreted amounts are recorded to accumulated deficit. The option to redeem and the related accretion of the preferred shares will terminate upon the closing of a qualified public offering.


 

F-19


Table of Contents

Rubicon Technology, Inc.


Notes to financial statements — (Continued)

 

Dividend conversion feature

The Company’s redeemable convertible preferred stock provides that the holder, at their discretion, can require the conversion of accumulated dividends into either cash or common stock based upon stated conversion rates. Accordingly, in accordance with EITF 00-27, “Application of Issue No. 98-5 to Certain Convertible Instruments”, any excess of the fair value of common stock the holder would receive over the accumulated dividends is recorded as the dividends are accrued. At December 31, 2006, the accumulated dividends were greater than the value of the shares the holder would receive upon conversion.

Series E redeemable convertible preferred stock

During 2005, the Company sold 26,762,892 shares of its Series E preferred stock at $0.2806 per share. In November 2005, 19,601,160 of those shares were issued simultaneously with the first sale of the Series E stock, as a result of the automatic conversion of $5,500,000 of principal under certain promissory notes issued by the Company from August 2005 through October 2005. In connection with the promissory notes, the Company issued detachable warrants, the number and exercise price of which were not known until the completion of the subsequent financing in November 2005. The Company recorded the fair value of the warrants of $773,621 and beneficial interest upon conversion of $678,000. The remaining 7,161,732 shares were sold in November and December 2005. In early 2006, the Company sold 19,918,625 shares of its Series E preferred stock at $0.2806 per share.

Each share of Series E preferred stock has a $0.001 par value. Each share of Series E preferred stock is entitled to a liquidation preference equal to $0.4210 per share plus any accrued but unpaid dividends on such share. The liquidation preference on the Series E is payable in preference to the payment of all liquidation preferences on all other series of preferred stock of the Company and participates pro rata with the common stock and the other series of preferred stock in any remaining assets of the Company after payment of all the liquidation preferences on outstanding preferred stock.

Each share of Series E preferred stock accrues cumulative dividends at a rate of $0.02806 per annum, compounded annually. At December 31, 2006, accumulated and undeclared dividends were $1,096,021. Each outstanding share of the Series E stock is convertible into 0.0769 share of the Company’s common stock and, at the option of the holder, accrued dividends on such share are convertible into shares of common stock at the rate of $3.6478 per share. The rate at which the Series E stock converts into common stock is subject to adjustment in certain events. The holders of Series E preferred stock are entitled to vote on all matters on which holders of the Company’s common stock are entitled to vote, voting on an as-converted basis, except as the holders of common stock are entitled to vote as a separate class of stock as provided by law or the Company’s certificate of incorporation.

Series D redeemable convertible preferred stock

During 2005, the Company sold 6,123,619 shares of its Series D preferred stock at $0.8312 per share. Of those shares, 2,514,388 were issued simultaneously with the first sale of the Series D stock, as a result of the automatic conversion of $2,000,000 of principal under certain promissory notes issued by the Company in March 2005.

In connection with the sales of Series E preferred stock of the Company, certain holders participating in the Series E offering were entitled to and exchanged 5,258,432 shares of Series D stock for 5,258,432 shares of a newly authorized series of preferred stock called Series D-2 preferred stock. The terms, rights


 

F-20


Table of Contents

Rubicon Technology, Inc.


Notes to financial statements — (Continued)

 

and preferences of the Series D stock and the Series D-2 stock are identical except for the rate by which such stock and related dividends are convertible into common stock of the Company. More specifically, the Series D stock is not entitled to any anti-dilution adjustment to the rate by which the Series D stock is convertible into common stock by reason of the issuance of the Series E stock.

Each share of Series D and D-2 preferred stock has a $0.001 par value. In liquidation, each share of Series D and D-2 preferred stock is entitled to a liquidation preference equal to $0.8312 per share plus any accrued but unpaid dividends on such share. The liquidation preference on the Series D and D-2 stock is payable only after payment in full of the liquidation preference payable with respect to the Series E stock, but in preference to the payment of all liquidation preferences on all other series of Company’s preferred stock. After payment of all the liquidation preferences attributable to the preferred stock, the holders of the outstanding Series D and D-2 stock participate pro rata with the common stock and each other series of preferred stock in the distribution of any remaining assets of the Company.

Each share of Series D and D-2 preferred stock accrues cumulative dividends at a rate of $0.08312 per annum, compounded annually. At December 31, 2006, accumulated and undeclared Series D-2 and D dividends were $682,086 and $112,226, respectively. Each outstanding share of the Series D stock is convertible into 0.0995 shares of the Company’s common stock and, at the option of the holder; accrued dividends on such share are convertible into shares of common stock at the rate of $8.3499 per share. Each outstanding share of the Series D-2 stock is convertible into 0.1246 shares of the Company’s common stock and, at the option of the holder, accrued dividends on such share are convertible into shares of common stock at the rate of $6.669 per share. The rate at which the Series D and D-2 stock converts into common stock is subject to future adjustment in certain events. The holders of Series D and D-2 preferred stock are entitled to vote on all matters on which holders of the Company’s common stock are entitled to vote, voting on an as-converted basis, except as the holders of common stock are entitled to vote as a separate class of stock as provided by law or the Company’s certificate of incorporation.

Series C redeemable convertible preferred stock

In 2005, in connection with the sales of Series E preferred stock of the Company, certain holders participating in the Series E offering were entitled to and exchanged 12,693,013 outstanding shares of Series C preferred stock for 12,693,013 shares of a newly authorized series of preferred stock called Series C-2 preferred stock. The terms, rights and preferences of the Series C stock and the Series C-2 stock are identical except for the rate by which such stock and related dividends are convertible into common stock of the Company. More specifically, the Series C stock is not entitled to any anti-dilution adjustment to the rate by which the Series C stock is convertible into common stock by reason of the issuance of the Series E stock.

Each share of Series C and C-2 preferred stock has a $0.001 par value. In liquidation, each share of Series C and C-2 preferred stock is entitled to a liquidation preference equal to $0.7628 per share plus any accrued but unpaid dividends on such share. The liquidation preference on the Series C and C-2 stock is payable only after payment in full of the liquidation preference payable with respect to the Series E, D and D-2 stock but in preference to the payment of all liquidation preferences on all other series of the Company’s preferred stock. After payment of all the liquidation preferences attributable to the preferred stock, the holders of the outstanding Series C and C-2 stock participate pro rata with the common stock and each of the other series of preferred stock in the distribution of any remaining assets of the Company.


 

F-21


Table of Contents

Rubicon Technology, Inc.


Notes to financial statements — (Continued)

 

Each share of Series C and C-2 preferred stock accrues cumulative dividends at a rate of $0.07628 per annum, compounded annually. At December 31, 2006, accumulated and undeclared Series C-2 and C dividends were $2,471,861 and $653,662, respectively. Each outstanding share of the Series C stock is convertible into 0.0784 shares of the Company’s common stock and, at the option of the holder, accrued dividends on such share are convertible into shares of common stock at the rate of $9.7357 per share. Each outstanding share of the Series C-2 stock is convertible into 0.1009 shares of the Company’s common stock and, at the option of the holder, accrued dividends on such share are convertible into shares of common stock at the rate of $7.5595 per share. The rate at which the Series C and C-2 stock converts into common stock is subject to future adjustment in certain events. The holders of Series C and C-2 preferred stock are entitled to vote on all matters on which holders of the Company’s common stock are entitled to vote, voting on an as-converted basis, except as the holders of common stock are entitled to vote as a separate class of stock as provided by law or the Company’s certificate of incorporation.

Series B redeemable convertible preferred stock

In 2005, in connection with the sales of Series E preferred stock of the Company, certain holders participating in the Series E offering were entitled to and exchanged 14,001,191 outstanding shares of Series B stock for 14,001,191 shares of a newly authorized series of preferred stock called Series B-2 stock. The terms, rights and preferences of the Series B stock and the Series B-2 stock are identical except for the amount of the liquidation preference and the rate by which such stock and related dividends are convertible into common stock of the Company. The Series B stock is not entitled to any anti-dilution adjustment to the rate by which the Series B stock is convertible into common stock by reason of the issuance of the Series E stock.

Each share of Series B and B-2 preferred stock has a $0.001 par value. In liquidation, each share of Series B preferred stock is entitled to a liquidation preference equal to $0.8415 per share and each share of Series B-2 preferred stock is entitled to a liquidation preference equal to $1.122 per share, in each case plus any accrued but unpaid dividends on such share. The liquidation preference on the Series B and B-2 stock is payable only after payment in full of the liquidation preference payable with respect to the Series E, D, D-2, C and C-2 stock but in preference to the payment of all liquidation preferences on shares of the Company’s Series A preferred stock. After payment of all the liquidation preferences attributable to the preferred stock, the holders of the outstanding Series B and B-2 stock participate pro rata with the common stock and each of the other series of preferred stock in the distribution of any remaining assets of the Company.

Each share of Series B and B-2 preferred stock accrues cumulative dividends at a rate of $0.056 per annum, compounded annually. At December 31, 2006, accumulated and undeclared Series B-2 and B dividends were $3,919,698 and $3,204,148, respectively. Each outstanding share of the Series B stock is convertible into 0.0769 share of the Company’s common stock and, at the option of the holder; accrued dividends on such share are convertible into shares of common stock at the rate of $7.28 per share. Each outstanding share of the Series B-2 stock is convertible into 0.1535 shares of the Company’s common stock and, at the option of the holder, accrued dividends on such share are convertible into shares of common stock at the rate of $3.6478 per share. The rate at which the Series B and B-2 stock converts into common stock is subject to future adjustment in certain events. The holders of Series B and B-2 preferred stock are entitled to vote on all matters on which holders of the Company’s common stock are entitled to vote, voting on an as-converted basis, except as the holders of common stock are entitled to vote as a separate class of stock as provided by law or the Company’s certificate of incorporation.


 

F-22


Table of Contents

Rubicon Technology, Inc.


Notes to financial statements — (Continued)

 

Series A redeemable convertible preferred stock

Each share of Series A stock has a $0.001 par value. In liquidation, each share of Series A stock is entitled to a liquidation preference equal to $7.9785 per share plus any accrued but unpaid dividends on such share. The liquidation preference on the Series A stock is payable only after payment in full of the liquidation preference payable with respect to all of the other outstanding series of preferred stock. After payment of all the liquidation preferences attributable to the preferred stock, the holders of the outstanding Series A stock participate pro rata with the common stock and each of the other series of preferred stock in the distribution of any remaining assets of the Company, except that the holders of Series A are limited in their further distribution pursuant to a formula set forth in the Company’s certificate of incorporation.

Each share of Series A preferred stock accrues cumulative dividends at a rate of $0.26595 per annum, compounded annually. At December 31, 2006, accumulated and undeclared Series A dividends were $2,647,658. Each outstanding share of the Series A stock is convertible into 0.5536 shares of the Company’s common stock and, at the option of the holder, accrued dividends on such share are convertible into shares of common stock at the rate of $9.6083 per share. The rate at which the Series A stock converts into common stock is subject to future adjustment in certain events. The holders of Series A preferred stock are entitled to vote on all matters on which holders of the Company’s common stock are entitled to vote, voting on an as-converted basis, except as the holders of common stock are entitled to vote as a separate class of stock as provided by law or the Company’s certificate of incorporation.

Warrants

At December 31, 2006, the Company had 6,790,802, 131,096, 647,379, 1,792,351 and 17,000 warrants outstanding for the purchase of the Company’s Series E, C, B-2, B and A preferred stock at a price per share of $0.2806, $0.7628, $0.56, $0.56 and $5.319. The warrants are immediately exercisable. The warrants will be net exercised or exercisable for common stock upon the closing of an initial public offering. All warrant holders have the option to convert the warrants into a number of shares determined by dividing (a) the aggregate fair market value of the shares issuable upon exercise of the warrant less the aggregate warrant price of such shares by (b) the fair value of one share. In addition, certain warrants contain an automatic exercise provision whereby the warrants shall be deemed automatically exercised immediately before the expiration or termination of the warrant if the fair value of one share of either (a) the preferred stock subject to the warrant or (b) the Company’s common stock issuable upon conversion, is greater than the warrant price.

As discussed in Note 1, in 2006, the Company adopted FSP 150-5 resulting in the reclassification of the carrying value of the preferred stock warrants as a liability and began recording the warrants at fair value at each reporting period with any increase or decrease in fair value reported in other income (expense). For the year ended December 31, 2006, $221,000 was recorded as the cumulative effect of change in accounting principle and $1,962,000 was recorded in other income (expense) as the change in value for the year. The assumptions used in the Company’s Black-Scholes option pricing model for Series E, C, B-2, B and A warrants at January 1, 2006 upon the adoption of FSP 150-5 were: (i) remaining contractual term of 2.1 to 9.9 years; (ii) risk-free interest rates of 4.82% to 4.86%; (iii) expected volatility from 50% to 79%; and (iv) no expected dividend yield. The assumptions used in the Company’s Black-Scholes option pricing model for Series E, C, B, B-2 and A warrants at December 31, 2006 were : (i) remaining contractual term of 1.3 to 9.1 years; (ii) risk-free interest rates of 4.70% to 5%; (iii) expected volatility of 47% to 76%; and (iv) no expected dividend yield.


 

F-23


Table of Contents

Rubicon Technology, Inc.


Notes to financial statements — (Continued)

 

During 2006, the Company issued warrants to purchase 571,988 of its Series E preferred stock in conjunction with a loan guarantee and an executive search. The warrants have an exercise price of $0.2806, are immediately exercisable, and expire 10 years from the date of issuance. The fair value of the warrants of $81,230 and $31,648 was recorded as interest and recruiting expense.

During 2005, the Company issued warrants to purchase 3,920,169 shares of its Series E preferred stock in conjunction with the issuance of $5,500,000 of convertible promissory notes issued by the Company to investors from August 2005 through October 2005. The warrants have an exercise price of $0.2806, are immediately exercisable, and expire 10 years from the date of issuance. The fair value of the warrants of $773,621 and the value of the beneficial conversion feature contained in the notes of $678,000 were recorded as a debt discount at the time the warrants were granted. Interest expense in the amount of $1,451,621 was recorded in 2005 to reflect accretion of the loan.

During 2005, the Company issued warrants to purchase 2,298,645 shares of its Series E preferred stock in conjunction with the restructuring of loans. The warrants have an exercise price of $0.2806, are immediately exercisable, and expire 10 years from the date of issuance. The fair value of the warrants, $454,575 , was recorded as a reduction in the amount of the loan at the time the warrants were granted. Interest expense in the amount of $21,600 and $260,165 was recorded in 2005 and 2006 to reflect accretion of the loan.

During 2005, the Company issued warrants to purchase 131,096 shares of its Series C preferred stock in conjunction with the procurement of loans. The warrants have an exercise price of $0.7628, are immediately exercisable, and expire 10 years from the date of issuance. The fair value of the warrants, approximately $5,565 , was recorded as a reduction in the amount of the loan at the time the warrants were granted. Interest expense in the amount of $5,565 was recorded in 2005 to reflect accretion of the loan.

During 2003, the Company issued warrants to purchase a total of 2,238,837 shares of its Series B preferred stock in conjunction with the procurement of loans. The warrants have an exercise price of $0.56 and expire as follows:

 

Number
of shares underlying

warrants

  Term

1,060,270

    5 years from date of issuance

1,071,421

    10 years from date of issuance or upon IPO

107,146

    10 years from date of issuance or 5 years after an IPO

The fair value of the warrants, approximately $47,000, was recorded as a debt discount at the time the warrants were granted. Interest expense in the amount of $15,647 was recorded in 2005 and 2004 to reflect the accretion of the loan. In 2005, in connection with the Company’s Series E preferred stock financing, holders of 647,379 of the 5 year term warrants to purchase Series B preferred stock converted their warrants to warrants to purchase shares of Series B-2 preferred stock.

During 2002, the Company issued warrants to purchase 200,893 shares of its Series B preferred stock in conjunction with the procurement of loans. The warrants have an exercise price of $0.56, are immediately exercisable, and expire 10 years from the date of issuance or 5 years after an IPO. The fair value of the warrants, approximately $78,000, was recorded as a reduction in the amount of the loan at the time the warrants were granted. The loans were repaid during 2003 and approximately $56,000 of unamortized warrants was recorded as interest expense.


 

F-24


Table of Contents

Rubicon Technology, Inc.


Notes to financial statements — (Continued)

 

During 2001, the Company issued warrants to purchase 894,367 shares of its Series A preferred stock in conjunction with the procurement of loans. During 2002, the Company canceled 867,966 of the warrants for no value. The warrants have an exercise price of $5.319 subject to adjustment for an initial public offering, merger, consolidation or sale of the Company. The warrants are immediately exercisable, and 9,401 warrants expired in 2006 and 17,000 warrants will expire in 2008.

The fair value of warrants issued in 2005 and 2006 were estimated on the date of grant using the Black-Scholes option-pricing model with the following assumptions: risk-free interest rate of 4.39%, zero dividend yield, expected lives through the expiration dates, and volatility of 84%. The fair value of warrants issued from 2001 to 2003 was estimated on the date of grant using the Black-Scholes option pricing model with the following assumptions: risk-free interest rate of 2.8%, no dividend yield, expected lives through the expiration dates, and volatility of 65%.

6. STOCK OPTIONS

The Company sponsors a stock option plan, the 2001 Equity Plan (the “Plan”), which allows for the grant of incentive and nonqualified stock options for the purchase of common stock. Each option entitles the holder to purchase one share of common stock at the specified option exercise price. The exercise price of each incentive stock option granted must not be less than the fair market value on the grant date. At the discretion of management and with the approval of the Board of Directors, the Company may grant options under the Plan. Management and the Board of Directors determine vesting periods and expiration dates at the time of the grant.


 

F-25


Table of Contents

Rubicon Technology, Inc.


Notes to financial statements — (Continued)

 

The following table summarizes the activity of the stock options:

 

      

Shares
available
for grant

    Number of
options
outstanding
    Weighted-
average
exercise
price

Outstanding at December 31, 2003

   10,144     329,039     $ 1.56

Authorized

   328,701      

Granted

   (359,635 )   359,635       4.94

Exercised

       (58 )     1.56

Canceled/forfeited

   51,452     (51,452 )     1.56
              

Outstanding at December 31, 2004

   30,662     637,164       3.51

Authorized

   665,615      

Granted

   (31,058 )   31,058       4.94

Exercised

       (21,163 )     1.82

Canceled/forfeited

   89,462     (89,462 )     3.64
              

Outstanding at December 31, 2005

   754,681     557,597       3.51

Authorized

   149,052      

Granted

   (911,764 )   911,764       0.85

Exercised

       (2,885 )     4.94

Canceled/forfeited

   370,943     (370,943 )     3.25
              

Outstanding at December 31, 2006

   362,912     1,095,533     $ 1.30
              

The following table sets forth option grants made during 2006 with intrinsic value calculated based on grant date fair value.

 

Date of Grant    Number of
options
granted
   Exercise
price
   Fair value
estimate
per share
   Intrinsic
value
per share

January 2006

   471,022    $ 0.91    $ 0.39   

February 2006

   47,102      0.78      0.39   

April 2006

   23,551      0.78      0.39   

July 2006

   365,090      0.78      0.39   

August 2006

   1,538      0.78      0.26   

September 2006

   1,538      0.78      0.26   

October 2006

   1,923      0.78      0.26   
At December 31, 2006, the exercise prices of outstanding options was as follows:
Exercise Price   

Number of

options
outstanding

  

Average

remaining

contractual life

(years)

  

Number of

options

exercisable

$0.78

   426,050    9.51   

  0.91

   471,022    9.01    471,022

  1.56

   57,240    6.37    56,846

  4.94

   141,221    7.98    67,553
            
   1,095,533    8.22    595,421
            

 

F-26


Table of Contents

Rubicon Technology, Inc.


Notes to financial statements — (Continued)

 

The Company’s aggregate intrinsic value, calculated as the difference between the exercise price of the underlying stock options and the fair value of the Company’s common stock, was zero for options outstanding and exercisable at December 31, 2006. The intrinsic value of options exercised was zero for the three years ended 2004, 2005 and 2006.

During the years ended December 31, 2004, 2005 and 2006, the Company granted stock options to employees at exercise prices deemed by the Board of Directors to be at least equal to the fair value of the common stock at the time of grant. The fair value of the common stock at the original grant date was based on a variety of factors including:

 

Ø  

prices of the Company’s preferred stock issued to investors in arms-length transactions, and the rights, preferences and privileges of the Company’s preferred stock relative to those of the Company’s common stock;

 

Ø  

the Company’s results of operations and financial status;

 

Ø  

the Company’s stage of development and business strategy;

 

Ø  

the composition of and changes to the Company’s management team; and

 

Ø  

the likelihood of achieving a liquidity event for the shares of the Company’s common stock underlying stock options, such as an initial public offering of the Company’s common stock or the Company’s sale to a third party, given prevailing market conditions.

Upon the completion of the Company’s valuation reports in 2007, for financial reporting purposes, the Company determined that it was appropriate to use $0.39 per share for options granted between January and July 2006, and $0.26 per share for options granted between August and October 2006 as the fair value within the Black-Scholes option-pricing model.

Upon the adoption of SFAS 123R, the Company uses the Black-Scholes option pricing model to value stock options. The Company uses historical stock prices of companies which it considers as a peer group as the basis for its volatility assumptions. The assumed risk-free rates were based on US Treasury rates in effect at the time of grant with a term consistent with the expected option lives. The expected term is based upon the vesting term of the Company’s options, a review of a peer group of companies, and expected exercise behavior. The forfeiture rate is based on past history of forfeited options. The expense is being allocated using the straight-line method. For the year ended December 31, 2006, the Company recorded $61,958 of stock compensation expense related to the adoption of SFAS 123R. As of December 31, 2006, the Company has $48,391 of total unrecognized compensation cost related to nonvested awards granted under the Company’s stock-based plans that it expects to recognize over a weighted-average period of 3.45 years. Under the prospective method of adoption of SFAS 123R, the Company continues to account for options issued prior to January 1, 2006 under the intrinsic value method of APB 25.

The weighted average fair value per share of options granted for the fiscal year ended December 31, 2006 was $0.12 and the fair value of each option grant was estimated at the date of grant using the Black-Scholes option-pricing model using an expected term of 4.8 years, risk-free interest rate of $4.52%, expected volatility of 60% and no dividend yield. The Company used an expected forfeiture rate of 25% in 2006.


 

F-27


Table of Contents

Rubicon Technology, Inc.


Notes to financial statements — (Continued)

 

7. INCOME TAXES

There was no income tax provision (benefit) recorded for 2004, 2005 and 2006.

The reconciliation of income tax computed at the federal statutory rate to loss before taxes is as follows:

 

         Year ended December 31,  
        

2004

    2005    

2006

 

Federal statutory rate

     (34.00 )%   (34.00 )%   (34.00 )%

State taxes

     (4.80 )%   (4.80 )%   (4.82 )%

Permanent differences

     0.11  %   0.09  %   1.07  %

Valuation allowance

     38.69  %   38.71  %   37.75  %
                    
     0.00  %   0.00  %   0.00  %
                    

Deferred income taxes reflect the net tax effects of the temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes.

Significant components of the Company’s net deferred income taxes are as follows at December 31:

 

       2005     2006  

Deferred tax assets:

    

Allowance for doubtful accounts

   $ 82,676     $ 56,853  

Inventory adjustments

     133,005       276,055  

Accrued liabilities

     141,390       126,699  

Warrant interest expense

     322,997       459,660  

Net operating loss carryforward

     13,114,372       15,058,601  
                

Total deferred tax assets

     13,794,440       15,977,868  

Less valuation allowance

     (12,202,819 )     (14,349,639 )
                

Net deferred tax assets

     1,591,621       1,628,229  

Deferred tax liability:

    

Depreciation

     (1,591,621 )     (1,628,229 )
                

Net deferred taxes

   $     $  
                

SFAS 109 requires a valuation allowance to reduce the deferred tax assets reported if, based on the weight of the evidence, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Management has determined that a $12,202,819 and $14,349,639 valuation allowance at December 31, 2005 and 2006 is necessary to reduce the tax assets to the amount that is more likely than not to be realized. The change in valuation allowance for the current year is $2,146,820. At December 31, 2006, the Company had separate federal and Illinois net operating loss carryforwards of $38,792,831 which begin to expire in 2021 and 2013. The utilization of these net operating loss carryforwards may be subject to limitations based upon certain ownership changes. As of December 31, 2006, no tax benefit has been recognized for these loss carryforwards.

8. TRANSACTIONS WITH RELATED PARTIES

In July 2000, the Company entered into an operating lease with a former officer and director for an office and manufacturing building. The lease term was seven years, requiring monthly payments of $3,000, and the Company’s proportionate share of operating expenses and real estate taxes.


 

F-28


Table of Contents

Rubicon Technology, Inc.


Notes to financial statements — (Continued)

 

In August 2005, the Company renegotiated the operating lease with the related party. The lease term is five years, requiring monthly payments of $10,000 with an annual increase of 6%, and the Company’s proportionate share of operating expenses and real estate taxes. The rent expense under the lease was $36,000, $71,000 and $123,000 for 2004, 2005 and 2006.

9. COMMITMENTS AND CONTINGENCIES

Operating Leases

The Company has an office lease with a term of seven years, which commenced on November 1, 2000. Among other items, the lease requires monthly base payments of $12,855 and the Company’s proportionate share of operating expenses and real estate taxes. During 2002, the Company vacated this facility and subleased the facility to a third party, and recorded the present value of the expected net expense of the lease and sublease in the amount of $252,000.

The Company has a lease with a related party, a former officer and director, for a building that contains manufacturing and office space. The lease term is five years commencing on August 1, 2005. Among other items, the lease requires monthly payments of $10,000 and the Company’s proportionate share of operating expenses and real estate taxes. In addition, the Company leases other buildings used for manufacturing and offices. The leases provide for payment of the Company’s proportionate share of operating expenses and real estate taxes.

In addition to its facility leases, the Company has an operating lease for office equipment. Net rent expense under operating leases in 2004, 2005 and 2006 amounted to $542,561, $922,744, and $1,047,818.

Future minimum payments under all leases are as follows:

 

Year ending December 31,    Operating
leases
   Sublease
income
    Total

2007

   $ 1,135,667    $ (171,120 )   $ 964,547

2008

     822,298      —         822,298

2009

     836,373      —         836,373

2010

     738,643      —         738,643

2011

     633,577      —         633,577

2012 and thereafter

     2,163,000      —         2,163,000

Litigation

From time to time, the Company experiences routine litigation in the normal course of its business. The management of the Company does not believe any pending litigation will have a material adverse effect on the financial condition or results of operations of the Company.

10. BENEFIT PLAN

The Company sponsors a 401(k) savings plan (the “Plan”). Employees are eligible to participate in the Plan upon reaching 21 years of age. Employees make contributions to the Plan through payroll deferrals and employer matching contributions are discretionary. Employer matching contributions were $3,176, $11,282 and $9,003 for the years ended December 31, 2004, 2005 and 2006.


 

F-29


Table of Contents

Rubicon Technology, Inc.


Notes to financial statements — (Continued)

 

11. SUBSEQUENT EVENTS

On April 9, 2007, the Company entered into a three year $12,000,000 term loan and one year $4,000,000 accounts receivable and inventory revolving line of credit financing agreement. An initial draw of $8,100,000 was made on that date and $5,093,674 was used to retire all outstanding term debt, line of credit debt, terminal payments and debt fees. The term loan is available for draw through October 31, 2007 with an extension to March 31, 2008 if the Company achieves a fiscal year 2007 EBITDA of $1,200,000. The term loan has an interest only period through October 31, 2007. The Company can earn two additional quarters of interest-only if the trailing quarterly EBITDA is in excess of $500,000. Once the interest only period ends, equal monthly principal payments are made through December 2010. The term loan interest rate is prime plus 3.375% and the line of credit rate is prime plus .25%. Proceeds of the loan will be used for general working capital purposes and to finance capital expansion. The line of credit expires on April 1, 2008. Series E warrants to purchase 1,710,620 shares of Series E preferred stock were issued as part of this transaction. These warrants had an estimated fair market value of $596,151 at issuance.

On April 10, 2007, the Company dissolved a wholly-owned subsidiary that had no operations, assets, liabilities or equity.

On August 29, 2007, the board of directors approved the 2007 Stock Incentive Plan (“2007 Plan”) under which both unqualified and incentive stock options, stock appreciation rights, restricted stock, restricted stock units, performance awards and bonus shares may be granted to employees, directors and consultants. The 2007 Plan will be administered by a committee of the board of directors and the maximum number of shares that may be issued under the 2007 Plan is 2,307,692 common shares. On August 30, 2007, the stockholders approved the 2007 Plan.

On August 29, 2007, the board of directors approved a 1 for 13 reverse split of the common stock which became effective August 30, 2007. Accordingly, all prior period common stock amounts have been retroactively adjusted to reflect the 1 for 13 reverse stock split. This split of the common stock resulted in an automatic change in the conversion price of all series of preferred stock and their related dividend conversion rate at the same 1 for 13 ratio. The adjustments to the preferred stock conversion rates on a per share basis and the rate for converting accrued dividends into common stock are set forth in the table below:

 

     Stock conversion rate    Dividend conversion rate
Preferred stock series    Pre-split    Post-split    Pre-split    Post-split

Series A

   7.1966    0.5536    0.7391    9.6083

Series B

   1.0000    0.0769    0.5600    7.2800

Series B-2

   1.9957    0.1535    0.2806    3.6478

Series C

   1.0186    0.0784    0.7489    9.7357

Series C-2

   1.3118    0.1009    0.5815    7.5595

Series D

   1.2941    0.0995    0.6423   

8.3499

Series D-2

   1.6203    0.1246    0.5130    6.6690

Series E

   1.0000   

0.0769

   0.2806    3.6478

As disclosed in Note 1, upon the closing of an IPO, all of the outstanding shares of Series A, B, B-2, C, C-2, D, D-2 and E preferred stock shall automatically be converted into shares of common stock, if the aggregate proceeds of the IPO are $25 million or greater and if the common stock price is not less than


 

F-30


Table of Contents

Rubicon Technology, Inc.


Notes to financial statements — (Continued)

 

$65.00 per share. On August 30, 2007, the Company filed an amendment to its Certificate of Incorporation to amend the definition of an IPO to state that all of the outstanding shares Series A, B, B-2, C, C-2, D, D-2 and E preferred stock shall automatically be converted into shares of common stock, if the aggregate proceeds of the IPO are $25 million or greater (prior to deduction of any underwriting discount or other expenses and including proceeds received by the Company upon exercise of any overallotment by the underwriters).

On August 30, 2007, the board of directors and stockholders approved an amendment and restatement of the Company’s Certificate of Incorporation which would take effect upon closing of the Company’s anticipated initial public offering and which Certificate of Incorporation would authorize the issuance of 75,000,000 shares of common stock and 5,000,000 shares of preferred stock.


 

F-31


Table of Contents

Rubicon Technology, Inc.


 

Balance sheets

 

       December 31,
2006
   

June 30,

2007

   

Pro forma
stockholders’
equity

(deficit) at

June 30,

2007

 
           (unaudited)  
    

(in thousands, other than share data)

 

Assets

      

Cash and cash equivalents

   $ 3,638     $ 3,618    

Restricted cash

     19       22    

Accounts receivable, net

     2,925       3,826    

Inventories, net

     1,631       2,019    

Spare parts

     806       1,077    

Prepaid expenses and other current assets

     681       359    
                  

Total current assets

     9,700       10,921    

Property and equipment, net

     19,263       22,164    

Other assets

     57       517    
                  

Total assets

   $ 29,020     $ 33,602    
                  

Liabilities, redeemable equity and stockholders’ equity (deficit)

      

Accounts payable

   $ 1,481     $ 2,159    

Current maturities of long-term debt

     1,972       264    

Current maturities of capital lease obligations

     251       123    

Lines of credit

     973       3,000    

Accrued payroll

     756       570    

Accrued and other current liabilities

     882       1,041    

Convertible preferred stock warrant liability

     3,773       5,090    
                  

Total current liabilities

     10,088       12,247    

Long-term debt and capital lease obligations, less current maturities

     2,628       4,240    
                  

Total liabilities

     12,716       16,487    
                  

Commitments and contingencies

      

Redeemable equity

      

Redeemable convertible preferred stock, $0.001 par value, 139,785,871 shares authorized at December 31, 2006, and 140,285,871 authorized at June 30, 2007; 96,270,146 shares issued and outstanding at December 31, 2006 and June 30, 2007; liquidation amount: $92,823 and $95,992 at December 31, 2006 and June 30, 2007; pro forma: $0.001 par value, no shares authorized, issued or outstanding

     93,897       117,086    
                      

Stockholders’ equity (deficit)

      

Preferred stock, pro forma $0.001 par value, 5,000,000 shares authorized, no shares issued or outstanding

      

Common stock, $0.001 par value, 85,000,000 shares authorized and 252,183 and 254,830 shares issued and outstanding at December 31, 2006 and June 30, 2007; pro forma: $0.001 par value, 75,000,000 shares authorized, 13,438,571 shares issued or outstanding

     3       3     11  

Additional paid-in capital

     26,015       29,123     150,820  

Accumulated deficit

     (103,611 )     (129,097 )   (129,097 )
                      

Total stockholders’ equity (deficit)

     (77,593 )     (99,971 )   21,734  
                      

Total liabilities, redeemable equity and stockholders’
equity (deficit)

   $ 29,020     $ 33,602    
                  

The accompanying notes are an integral part of these statements.


 

F-32


Table of Contents

Rubicon Technology, Inc.


 

Statements of operations

 

     Six months ended June 30,  
       2006      2007  
     (unaudited)  
     (in thousands, other than share
and per share data)
 

Revenue

   $ 8,950      $ 15,448  

Cost of goods sold

     8,938        10,467  
                 

Gross profit

     12        4,981  
                 

Operating expenses:

     

General and administrative

     1,838        2,352  

Sales and marketing

     648        335  

Research and development

     357        376  

Loss on disposal of assets

     18        52  
                 

Profit (loss) from operations

     (2,849 )      1,866  
                 

Other income (expense):

     

Change in carrying value of convertible preferred stock warrants

     (532 )      (721 )

Interest income

     4        2  

Interest expense

     (705 )      (632 )
                 

Total other income (expense)

     (1,233 )      (1,351 )
                 

Profit (loss) before cumulative effect of change in accounting principle

     (4,082 )      515  

Cumulative effect of change in accounting principle

     (221 )       
                 

Net profit (loss)

     (4,303 )      515  

Dividends on preferred stock

     (2,736 )      (3,169 )

Accretion of redeemable preferred stock

     (3,611 )      (20,338 )
                 

Net loss attributable to common stockholders

   $ (10,650 )    $ (22,992 )
                 

Net loss per common share attributable to common stockholders,

     

basic and diluted

   $ (42.72 )    $ (90.70 )

Weighted average common shares outstanding used in computing net loss per share attributable to common stockholders, basic and diluted

     249,298        253,507  

Pro forma:

     

Pro forma basic and diluted net loss per share attributable to common stockholders

      $ (1.71 )

Shares used to compute pro forma basic and diluted net loss per share attributable to common stockholders

        13,437,248  

 

The accompanying notes are an integral part of these statements.


 

F-33


Table of Contents

Rubicon Technology, Inc.


 

Statements of cash flows

 

     Six months ended
June 30,
 
       2006     2007  
     (unaudited)  
     (in thousands)  

Cash flows from operating activities

    

Net (loss) income

   $ (4,303 )   $ 515  

Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities

    

Depreciation and amortization

     1,552       1,571  

Amortization of financing costs

     10       11  

Net loss on disposal of equipment

     18       52  

Change in carrying value of convertible preferred stock warrants

     752       721  

Stock-based compensation

     56       191  

Warrants issued for services

     32        

Interest expense related to accretion

     182       273  

Changes in operating assets and liabilities:

    

Accounts receivable, net

     (89 )     (901 )

Inventories

     346       (388 )

Spare parts

     231       (271 )

Prepaid expenses and other current assets

     (24 )     (138 )

Accounts payable

     124       678  

Accrued payroll

     70       (186 )

Accrued and other current liabilities

     (188 )     159  
                

Net cash provided by (used in) operating activities

     (1,231 )     2,287  
                

Cash flows from investing activities

    

Purchases of property and equipment

     (72 )     (4,554 )

Proceeds from disposal of assets

           30  
                

Net cash used in investing activities

     (72 )     (4,524 )
                

Cash flows from financing activities

    

Proceeds from sale of preferred stock

     3,075        

Proceeds from exercise of options

           5  

Restricted cash

     (3 )     (3 )

Proceeds from line of credit

     1,430       3,000  

Payments on line of credit

     (1,174 )     (973 )

Payments on capital lease

     (133 )     (171 )

Proceeds from issuance of long-term debt

           5,100  

Payments on long-term debt

     (1,149 )     (4,741 )
                

Net cash provided by financing activities

     2,046       2,217  
                

Net increase (decrease) in cash and cash equivalents

     743       (20 )

Cash and cash equivalents, beginning of period

     1,466       3,638  
                

Cash and cash equivalents, end of period

   $ 2,209     $ 3,618  
                

Supplemental disclosure of cash flow information

    

Cash paid during the year from interest

   $ 518     $ 351  

Supplemental disclosures of non-cash transactions

    

Warrants issued with debt instruments

           596  

Reclassification of preferred stock warrants to liability

     1,477        

Dividend conversion feature

           2,812  

The accompanying notes are an integral part of these statements.

 


 

F-34


Table of Contents

Rubicon Technology, Inc.


NOTES TO UNAUDITED FINANCIAL STATEMENTS

Six months ended June 30, 2006 and June 30, 2007

 

1. BASIS OF PRESENTATION

The unaudited financial statements of Rubicon Technology, Inc. (the “Company”) included herein have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted pursuant to such rules and regulations, although the Company believes the disclosures are adequate to make the information presented not misleading. These financial statements should be read in conjunction with the financial statements and the notes thereto included in the Company’s audited financial statements for the year ended December 31, 2006.

In the opinion of management, the aforementioned financial statements include all adjustments (consisting only of normal recurring adjustments) necessary for a fair presentation of the results for the interim periods. Results for the six months ended June 30, 2007 are not necessarily indicative of results that may be expected for the year ending December 31, 2007.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Inventories

Inventories are valued at the lower of cost or market. Cost is determined using the first-in, first-out method, and includes materials, labor and overhead. The Company reduces the carrying value of its inventories for the differences between the cost and the estimated net realizable value, taking into account usage, expected demand, technological obsolescence and other information. Inventories are composed of the following at:

 

      

December 31,

2006

   

June 30,

2007

 

Raw materials

   $ 461,257     $ 504,530  

Work in progress

     1,638,742       1,726,097  

Finished goods

     111,550       86,278  
                
     2,211,549       2,316,905  

Reserve for obsolescence and realization

     (580,244 )     (297,519 )
                
   $ 1,631,305     $ 2,019,386  
                

 


F-35


Table of Contents

Rubicon Technology, Inc.


NOTES TO UNAUDITED FINANCIAL STATEMENTS — (Continued)

Six months ended June 30, 2006 and June 30, 2007

 

Property and equipment

Property and equipment consisted of the following at:

 

      

December 31,

2006

   

June 30,

2007

 

Machinery, equipment and tooling

   $ 23,161,219     $ 26,326,028  

Leasehold improvements

     3,045,089       3,075,853  

Furniture and fixtures

     707,813       707,813  

Information systems

     545,983       545,983  

Construction in progress

     1,923,475       2,506,492  
                

Total cost

     29,383,579       33,162,169  

Accumulated depreciation and amortization

     (10,120,621 )     (10,998,485 )
                

Property and equipment, net

   $ 19,262,958     $ 22,163,684  
                

Accounting for uncertainty in income taxes

In July 2006, the FASB issued FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes – an Interpretation of FASB Statement No. 109,” (“FIN 48”), which became effective for the Company on January 1, 2007. FIN 48 clarifies the accounting for uncertainty in income taxes recognized in an entity’s financial statements in accordance with SFAS No. 109, “Accounting for Income Taxes,” and prescribes a recognition threshold and a measurement attribute for the financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more-likely-than-not to be sustained upon examination by taxing authorities. Additionally, FIN 48 provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. The Company adopted the provisions of FIN 48 on January 1, 2007. The total amount of unrecognized tax benefits as of the date of adoption and as of June 30, 2007 was not significant. As such, there are no unrecognized tax benefits included in the balance sheet that would, if recognized, affect the effective tax rate.

The Company’s practice is to recognize interest and/or penalties related to income tax matters in income tax expense. The Company has no accruals for interest and penalties as of December 31, 2006 and June 30, 2007, and has not recognized any interest or penalties in expense for the six months ended June 30, 2006 and 2007. The Company is subject to taxation in the US and various state jurisdictions. Due to the existence of net operating loss carryforwards, all tax years are open to examination by tax authorities.

Convertible preferred stock warrant liability

At June 30, 2007, the Company had 8,501,422, 131,096, 647,397, 1,792,351 and 17,000 warrants outstanding for the purchase of the Company’s Series E, C, B-2, B and A preferred stock at a price per share of $0.2806, $0.7628, $0.56, $0.56 and $5.319. The warrants are immediately exercisable. The warrants will be net exercised or exercisable for common stock upon the closing of this offering.

The Company accounts for the carrying value of the preferred stock warrants as a liability pursuant to FSP 150-5 and adjusts the fair value at each reporting period with any increase or decrease in fair value

 


 

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Rubicon Technology, Inc.


NOTES TO UNAUDITED FINANCIAL STATEMENTS — (Continued)

Six months ended June 30, 2006 and June 30, 2007

 

reported in other income (expense). For the six months ended June 30, 2006, $221,000 was recorded as the cumulative effect of change in accounting principle and an expense of $532,000 was recorded as the change in value in other income (expense).

During 2007, the Company issued warrants to purchase 1,710,620 shares of its Series E preferred stock in conjunction with the issuance of long-term debt. The warrants have an exercise price of $0.2806 per share, are immediately exercisable, and expire 7 years from the date of issuance. The fair value of $596,151, was recorded as a reduction in the amount of the loan at the time the warrants were granted.

Redeemable convertible preferred stock

The Company has issued various classes of preferred stock. The holders of Series A, B, B-2, C, C-2, D, D-2, and E preferred stock have the option to sell their shares back to the Company at the greater of the original purchase price plus accrued and unpaid dividends, or the current fair market value of the shares plus accrued and unpaid dividends. As a result, the carrying value of the preferred stock has been increased by an accretion amount each period so that the carrying amounts will equal the greater of fair value plus accrued and unpaid dividends or the original cost plus accrued and unpaid dividends for the Series A, B, B-2, C, C-2, D, D-2, and E preferred stock. The accreted amounts are recorded to accumulated deficit. The option to sell and the related accretion of the preferred shares will terminate upon the occurrence of a qualified public offering.

Dividend conversion feature

The Company’s redeemable convertible preferred stock provides that the holder, at their discretion, can require the conversion of accumulated dividends into either cash or common stock based upon stated conversion rates. Accordingly, in accordance with EITF 00-27, “Application of Issue No. 98-5 to Certain Convertible Instruments,” any excess of the fair value of common stock the holder would receive over the accumulated dividends is recorded as the dividends are accrued. At June 30, 2007, the accumulated dividends were less than the value of the common shares the holder would receive upon conversion. Accordingly, the Company recorded the excess fair value of the common shares that could be received upon conversion over the amount of cash dividends in the amount of $2,812,000 to additional paid-in capital and accumulated deficit.

 


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Rubicon Technology, Inc.


NOTES TO UNAUDITED FINANCIAL STATEMENTS — (Continued)

Six months ended June 30, 2006 and June 30, 2007

 

3. NET LOSS PER COMMON SHARE ATTRIBUTABLE TO COMMON STOCKHOLDERS

Pro forma net loss per share assuming conversion of preferred stock and related dividends were as follows:

 

      

Six months
ended

June 30, 2007

 

Historical earnings per share

  

Numerator:

  

Net loss attributable to common stockholders

   $ (22,992 )

Denominator:

  

Weighted-average shares of common stock outstanding

     253,507  
        

Net loss attributable to common stockholders per share – basic and diluted

   $ (90.70 )
        

Pro forma earnings per share

  

Numerator:

  

Net loss attributable to common stockholders

   $ (22,992 )

Pro forma adjustment to add back preferred stock accretion and dividends

     23,507  
        

Pro forma net profit attributable to stockholders

   $ 515  
        

Denominator for pro forma basic net profit per share:

  

Weighted-average shares of common stock outstanding

     253,507  

Pro forma adjustments to reflect assumed conversion of preferred stock (as if converted)

     13,183,741  
        

Shares used to computed pro forma basic net profit per share

     13,437,248  
        

Pro forma basic net profit attributable to common stockholders

   $ 0.04  
        

4. STOCK OPTIONS

The Company sponsors a stock option plan, the 2001 Equity Plan (the “Plan”), which allows for the grant of incentive and nonqualified stock options for the purchase of common stock. Each option entitles the holder to purchase one share of common stock at the specified option exercise price. The exercise price of each incentive stock option granted must not be less than the fair market value on the grant date. At the discretion of management and with the approval of the Board of Directors, the Company may grant options under the Plan. Management and the Board of Directors determine vesting periods and expiration dates at the time of the grant.

Effective January 1, 2006, the Company adopted SFAS 123R, “Share-Based Payment” (“SFAS 123R”), which revised SFAS 123, and supersedes APB 25. SFAS 123R requires all share-based payments to employees, including grants of employee stock options, to be measured at fair value and expensed in the statement of operations over the service period (generally the vesting period) of the grant. The Company transitioned to SFAS 123R using the prospective transition method.

Upon the adoption of SFAS 123R, the Company uses the Black-Scholes option pricing model to value stock options. The Company uses historical stock prices of companies which it considers as a peer group as the basis for its volatility assumptions. The assumed risk-free rates were based on US Treasury rates in effect at the time of grant with a term consistent with the expected option lives. The expected term is

 


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Rubicon Technology, Inc.


NOTES TO UNAUDITED FINANCIAL STATEMENTS — (Continued)

Six months ended June 30, 2006 and June 30, 2007

 

based upon the vesting term of the Company’s options, a review of a peer group of companies, and expected exercise behaviors. The forfeiture rate is based on past history of forfeited options. The expense is being allocated using the straight-line method. For the six months ended June 30, 2006 and 2007, the Company recorded $54,712 and $190,903 of stock compensation expense. As of June 30, 2006 and 2007, the Company has $8,431 and $378,836 of total unrecognized compensation cost related to nonvested awards granted under the Company’s stock-based compensation plans that it expects to recognize over a weighted-average period of 3.64 and 3.81 years. Under the prospective method of adoption of SFAS 123R, the Company continues to account for options issued prior to January 1, 2006 under the intrinsic value method of APB 25.

The following table summarizes stock option activity for the six months ended June 30, 2007:

 

       Shares
available
for grant
    Number of
options
outstanding
    Weighted-
average
exercise
price

Outstanding at January 1, 2007

   362,912     1,095,533     $ 1.30

Authorized

   —       —      

Granted

   (251,250 )   251,250       8.45

Exercised

   —       (2,648 )     1.95

Canceled/forfeited

   93,573     (93,573 )     1.43
              

Outstanding at June 30, 2007

   205,235     1,250,562       2.86
              

Exercisable at June 30, 2007

     700,488     $ 2.27

The weighted average grant date fair value of options granted during the six months ended June 30, 2007 was $2.05 and the fair value of each option grant was estimated at the date of grant using the Black-Scholes option-pricing model using an expected term of 4.8 years, risk-free interest rate of 4.92%, expected volatility of 56%, and no dividend yield. The Company used an expected forfeiture rate of 25%.

5. SEGMENT INFORMATION AND SIGNIFICANT CUSTOMER

The Company operates one line of business – the manufacture of high-density crystal for industrial and technological use. The Company earns a significant portion of their revenue from a limited number of customers. During the six months ended June 30, 2006 and 2007, customers representing more than 10% of revenue accounted for approximately 61 % and 48% of sales.

Customers representing more than 10% of trade receivables accounted for approximately 66% and 55% of accounts receivable as of June 30, 2006 and 2007.

6. TRANSACTIONS WITH RELATED PARTIES

In July 2000, the Company entered into an operating lease with a related party for an office and manufacturing building. The lease term was seven years, requiring monthly payments of $3,000, and the Company’s proportionate share of operating expenses and real estate taxes.

In August 2005, the Company renegotiated the operating lease with the related party. The lease term is five years, requiring monthly payments of $10,000 with an annual increase of 6%, and the Company’s

 


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Rubicon Technology, Inc.


NOTES TO UNAUDITED FINANCIAL STATEMENTS — (Continued)

Six months ended June 30, 2006 and June 30, 2007

 

proportionate share of operating expenses and real estate. The rent expense under the lease was $60,000 and $63,600 for the six months ended June 30, 2006 and 2007.

7. LONG-TERM DEBT

On April 9, 2007, the Company entered into a three year $12,000,000 term loan and a one year $4,000,000 accounts receivable and inventory revolving line of credit financing agreement. An initial draw of $8,100,000 was made on that date and $5,093,674 was used to retire all outstanding term debt, line of credit debt, terminal payments and debt fees. The term loan is available for draw through October 31, 2007 with an extension to March 31, 2008 if the Company achieves a fiscal year 2007 EBITDA of $1,200,000. The term loan has an interest only period through October 31, 2007. The Company can earn two additional quarters of interest-only if the trailing quarterly EBITDA is in excess of $500,000. Once the interest only period ends, equal monthly principal payments are made through December 2010. The term loan interest rate is prime plus 3.375% and the line of credit is prime plus .25%. Proceeds of the loan will be used for general working capital purposes and to finance capital expansion. The line of credit expires on April 1, 2008. Series E warrants to purchase 1,710,620 shares of Series E Preferred Stock were issued as part of this transaction. These warrants had an estimated fair market value of $596,151 at issuance.

Long-term debt consists of:

 

     December 31,
2006
   

June 30,

2007

 

Term loan at prime plus 3.375% (effective rate of 11.625% at June 30, 2007), interest-only payments through October 31, 2007, matures December 2010

   $     $ 5,100,000  

Term loans at effective interest rates of 8.56% to 9.25%, including $232,674 and $243,985 at 2005 and 2006 of accreted terminal payments, maturing at various dates from May 1, 2007, through December 1, 2007

     1,255,018        

Term loan at 12.14% effective interest rate, including $2,263,402 at 2005 and 2006 balloon payment, matures May 1, 2008

     3,475,027        

Capital lease obligations

     293,760       122,961  

Less unamortized warrants

     (172,810 )     (596,151 )
                

Total long-term debt and capital lease obligations

     4,850,995       4,626,810  

Less current maturities

     (2,222,957 )     (387,213 )
                

Long-term debt and capital lease obligations, less current maturities

   $ 2,628,038     $ 4,239,597  
                

The loans are collateralized by a blanket security agreement, which includes all the assets of the Company.

 


 

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LOGO


Table of Contents

 

LOGO


Table of Contents

  


 

PART II

Information Not Required in Prospectus

ITEM 13.    OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION

The following table sets forth all expenses payable, other than estimated underwriting discounts and commissions, by the registrant in connection this offering. All of the amounts shown are estimated except the SEC registration fee.

 

     Amount

SEC registration fee

   $ 3,070.00

National Association of Securities Dealers Inc. fee

     10,500.00

NASDAQ Global Market listing fee

     *

Printing and mailing

     *

Legal fees and expenses

     *

Accounting fees and expenses

     *

Directors and officers insurance

     *

Transfer agent and registrar fees

     *

Miscellaneous

     *

*   To be completed by amendment.

ITEM 14.    INDEMNIFICATION OF DIRECTORS AND OFFICERS

Section 145 of the Delaware General Corporation Law authorizes a corporation’s board of directors to grant, and authorizes a court to award, indemnity to officers, directors and other corporate agents.

As permitted by Section 102(b)(7) of the Delaware General Corporation Law, the registrant’s amended and restated certificate of incorporation to be in effect upon completion of this offering includes provisions that eliminate the personal liability of its directors and officers for monetary damages for breach of their fiduciary duty, except for breaches of their duty of loyalty, as directors and officers.

In addition, as permitted by Section 145 of the Delaware General Corporation Law, the amended and restated bylaws of the registrant to be effective upon completion of this offering provide that:

 

Ø  

The registrant shall indemnify its directors and officers for serving the registrant in those capacities or for serving other business enterprises at the registrant’s request, to the fullest extent permitted by Delaware law. Delaware law provides that a corporation may indemnify such person if such person acted in good faith and in a manner such person reasonably believed to be in or not opposed to the best interests of the registrant and, with respect to any criminal proceeding, had no reasonable cause to believe such person’s conduct was unlawful.

 

Ø  

The registrant may, in its discretion, indemnify employees and agents in those circumstances where indemnification is permitted by applicable law.

 

Ø  

The registrant is required to advance expenses, as incurred, to its directors and officers in connection with defending a proceeding, except that such director or officer shall undertake to repay such advances if it is ultimately determined that such person is not entitled to indemnification.


 

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Ø  

The registrant will not be obligated pursuant to the amended and restated bylaws to indemnify a person with respect to proceedings initiated by that person, except with respect to proceedings authorized by the registrant’s board of directors.

 

Ø  

The registrant may not retroactively amend the bylaw provisions to reduce its indemnification obligations to directors, officers, employees and agents.

The registrant’s policy is to enter into separate indemnification agreements with each of its directors and officers that provide the maximum indemnity allowed to directors and executive officers by Section 145 of the Delaware General Corporation Law and also provide for certain additional procedural protections. The registrant may also, at the discretion of the board of directors, purchase and maintain directors and officers insurance to insure such persons against certain liabilities.

These indemnification provisions and the indemnification agreements entered into between the registrant and its officers and directors may be sufficiently broad to permit indemnification of the registrant’s officers and directors for liabilities (including reimbursement of expenses incurred) arising under the Securities Act.

The underwriting agreement filed as Exhibit 1.1 to this registration statement provides for indemnification by the underwriters of the registrant and its officers and directors for certain liabilities arising under the Securities Act and otherwise.

ITEM 15.    RECENT SALES OF UNREGISTERED SECURITIES

In November and December of 2004, we issued and sold an aggregate of 6,554,799 shares of our Series C preferred stock to 12 existing stockholders for an aggregate purchase price of $5,000,000.

In March, 2005, we borrowed an aggregate of $2,000,000 from nine existing stockholders in the form of convertible promissory notes, each with a maturity date of September 30, 2005. Pursuant to the terms of those notes, representing an aggregate principal balance of $850,000, the principal balance of each such note was converted into 4,670,136 shares of our Series D preferred stock at a rate of $0.8012 per share. In accordance with the terms of the note representing a principal balance of $1,150,000, the principal balance of such note was converted into 1,453,483 shares of our Series D preferred stock at a rate of $0.7912 per share.

On March 31, 2005, we issued warrants to purchase 131,096 shares of our Series C preferred stock at $0.7628 per share to Heller Financial Leasing, Inc. in connection with the debt financing extended to us.

On June 28, 2005, we issued and sold an aggregate of 6,123,619 shares of our Series D preferred stock to 12 existing stockholders and 15 new accredited investors for an aggregate purchase price of $5,000,000 (inclusive of $2,000,000, representing the conversion of the principal balance of the convertible promissory notes issued in March 2005).

In August, September and October of 2005, we borrowed an aggregate of $5,500,000 from eight existing stockholders in the form of convertible promissory notes, each with a maturity date of February 15, 2006. Pursuant to the terms of the notes, the aggregate principal balance of the notes was converted into 19,601,160 shares of our Series E preferred stock to the note holders at a rate of $0.2806 per share. In connection with the issuance of the notes, we issued warrants to purchase an aggregate of 3,920,169 shares of our Series E preferred stock at $0.2806 per share.


 

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During December 2005 through December 2006, we issued and sold an aggregate of 46,681,517 shares of our Series E preferred stock to 28 existing stockholders for an aggregate purchase price of $13,088,133 (inclusive of $5,500,000 of the principal balance of the convertible promissory notes issued in August, September and October of 2005). Simultaneously with the sale and issuance of the Series E preferred stock: (1) 14,001,191 shares of our Series B preferred stock were exchanged for 14,001,919 shares of Series B-2 preferred stock; (2) 12,693,013 shares of our Series C preferred stock were exchanged for 12,693,013 shares of Series C-2 preferred stock; (3) 5,258,432 shares of Series D preferred stock were exchanged for 5,258,432 shares of Series D-2 preferred stock; and (4) warrants to purchase 647,379 shares of Series B preferred stock were amended to provide for the right of the holder thereof to purchase 647,379 Series B-2 preferred stock in lieu of Series B preferred stock, On December 20, 2005, we issued warrants to purchase 317,696 and 1,980,949 shares of our Series E preferred stock at $0.2806 per share to Lighthouse Capital Partners IV, L.P. and Heller Financial Leasing, Inc., respectively, in connection with a restructuring of our debt facility.

On January 27, 2006, we issued warrants to purchase an aggregate of 411,617 shares of our Series E preferred stock at $0.2806 per share to four existing stockholders in consideration of such stockholders’ guarantees of certain of our debt.

On August 1, 2006, we issued warrants to purchase 160,371 shares of our Series E preferred stock at $0.2806 per share to Lonergan Richards, Inc., in partial consideration of its services to us as an executive recruiter.

On April 9, 2007, we issued warrants to purchase 1,710,620 shares of our Series E preferred stock at $0.2806 per share to Hercules Technology Growth Capital, Inc. pursuant to the credit facility it extended to us.

No underwriters were used in the foregoing transactions. All sales of securities described above were made in reliance upon the exemption from registration provided by Section 4(2) of the Securities Act (and/or Regulation D promulgated thereunder) for transactions by an issuer not involving a public offering. All of the foregoing securities are deemed restricted securities for the purposes of the Securities Act.

Since July 1, 2004, we have granted options to purchase 6,960,281 (net of options cancelled or exercised) to our employees, directors and consultants at exercise prices ranging from $0.06 to $0.065 per share. Since July 1, 2004 an aggregate of 372,047 shares of our common stock were issued upon the exercise of stock options. The issuances of common stock upon exercise of the options were exempt either pursuant to Rule 701, as a transaction pursuant to a compensatory benefit plan, or pursuant to Section 4(2), as a transaction by an issuer not involving a public offering. The common stock issued upon exercise of options is deemed to constitute restricted securities for the purposes of the Securities Act.


 

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ITEM 16.    EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.

 

Exhibit No.   

Description

1.1*       

Form of Underwriting Agreement

3.1*       

Amended and Restated Certificate of Incorporation of Rubicon Technology, Inc. (to be in effect upon the consummation of this offering)

3.2*       

Amended and Restated Bylaws of Rubicon Technology, Inc. (to be in effect upon the consummation of this offering)

4.1*       

Specimen Common Stock Certificate

4.2         

Fourth Amended and Restated Registration Rights Agreement, dated as of November 30, 2005

4.3         

Third Amended and Restated Stockholders’ Agreement, dated as of June 28, 2005, by and among Rubicon Technology, Inc. and the stockholders named therein

4.4         

Series E Stockholders’ Agreement, dated as of November 30, 2005, by and among Rubicon Technology, Inc. and the stockholders named therein

4.5         

Form of Warrant to Purchase Shares of Series A preferred stock

4.6         

Form of Investor Warrant to Purchase Shares of Series B preferred stock

4.7         

Warrant to Purchase Shares of Series B preferred stock between Rubicon Technology, Inc. and Silicon Valley Bank, dated July 10, 2002

4.8         

Warrant to Purchase Shares of Series B preferred stock between Rubicon Technology, Inc. and GATX Ventures, Inc., dated July 10, 2002 (1)

4.9         

Warrant to Purchase Shares of Series B preferred stock between Rubicon Technology, Inc. and GATX Ventures, Inc., dated July 10, 2002 (2)

4.10       

Warrant to Purchase Shares of Series B preferred stock between Rubicon Technology, Inc. and Atel Ventures, Inc., dated July 28, 2003

4.11       

Warrant to Purchase Shares of Series B preferred stock between Rubicon Technology, Inc. and Heller Financial Leasing, Inc., dated October 24, 2003

4.12       

Warrant to Purchase Shares of Series B preferred stock between Rubicon Technology, Inc. and Lighthouse Capital Partners IV, L.P., dated October 24, 2003

4.13       

Warrant to Purchase Shares of Series C preferred stock between Rubicon Technology Inc. and Heller Financial Leasing Inc., dated March 31, 2005

4.14       

Form of Investor Warrant to Purchase Shares of Series E preferred stock

4.15       

Warrant to Purchase Shares of Series E preferred stock between Rubicon Technology, Inc. and Lighthouse Capital Partners IV, L.P., dated December 20, 2005

4.16       

Warrant to Purchase Shares of Series E preferred stock between Rubicon Technology, Inc. and Heller Financial Leasing, Inc., dated December 20, 2005

4.17       

Warrant to Purchase Shares of Series E preferred stock between Rubicon Technology, Inc. and Hercules Technology Growth Capital, Inc., dated April 9, 2007

5.1*       

Opinion of McGuireWoods LLP

10.1         

Rubicon Technology, Inc. 2001 Equity Plan, dated as of August 2, 2001

10.1(a)     

Amendment No. 1 to the Rubicon Technology, Inc. 2001 Equity Plan, dated as of November 6, 2001

10.1(b)     

Amendment No. 2 to the Rubicon Technology, Inc. 2001 Equity Plan, dated as of May 21, 2002

10.1(c)     

Amendment No. 3 to the Rubicon Technology, Inc. 2001 Equity Plan, dated as of May 28, 2004

10.1(d)     

Amendment No. 4 to the Rubicon Technology, Inc. 2001 Equity Plan, dated as of December 6, 2004


 

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Exhibit No.   

Description

10.1(e)     

Amendment No. 5 to the Rubicon Technology, Inc. 2001 Equity Plan, dated as of June 28, 2005

10.1(f)     

Amendment No. 6 to the Rubicon Technology, Inc. 2001 Equity Plan, dated as of November 30, 2005

10.1(g)     

Amendment No. 7 to the Rubicon Technology, Inc. 2001 Equity Plan, dated as of July 26, 2006

10.1(h)     

Rubicon Technology, Inc. 2001 Equity Plan Form of Notice of Stock Option Grant and Stock Option Agreement

10.2         

Rubicon Technology, Inc. 2007 Stock Incentive Plan dated as of August 29, 2007

10.3         

Description of Rubicon Technology, Inc. 2006 Incentive Bonus Plan

10.4         

Rubicon Technology, Inc. Management Incentive Bonus Plan, dated as of February 28, 2007

10.4(a)     

Amendment No. 1 to Rubicon Technology, Inc. Management Incentive Bonus Plan, dated as of August 29, 2007

10.5         

Executive Employment Agreement, dated as of November 17, 2005, by and between Rubicon Technology, Inc. and Raja M. Parvez

10.5(a)     

Amendment, dated as of July 25, 2007, to Executive Employment Agreement by and between Rubicon Technology, Inc. and Raja M. Parvez

10.6         

Employment Agreement, dated as of March 29, 2004, by and between Rubicon Technology, Inc. and Hap Hewes

10.7         

Severance Agreement, dated as of September 8, 2005, by and between Rubicon Technology, Inc. and Hap R. Hewes

10.8         

Executive Employment Agreement, dated as of July 30, 2007, by and between Rubicon Technology, Inc. and William F. Weissman

10.9         

Loan and Security Agreement, dated as of April 9, 2007, by and between Rubicon Technology, Inc. and Hercules Technology Growth Capital, Inc.

10.10       

Form of Post-IPO Change of Control Severance Agreement

10.11       

Form of Indemnification Agreement

10.12       

Commercial Lease, dated as of December 23, 2004, by and between Rubicon Technology, Inc. and Bartmanns, Perales & Dolter, LLC

10.12(a)   

Amendment to Commercial Lease, dated as of May 6, 2005, by and between Rubicon Technology, Inc. and Bartmanns, Perales & Dolter, LLC

10.13       

Industrial Space Lease, dated as of July 29, 2005, by and among Rubicon Technology, Inc. and Radion Mogilevsky and Nanette Mogilevsky

10.14       

Industrial Building Lease, dated as of July 18, 2007, by and between Rubicon Technology, Inc. and Phillip J. Latoria, Jr.

23.1         

Consent of Grant Thornton LLP

23.2*       

Consent of McGuireWoods LLP (included in the opinion filed as Exhibit 5.1)

24.1         

Power of Attorney (included in signature page to the registration statement)


*   To be filed by amendment.

 

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Financial Statement Schedules

All financial statement schedules are omitted because (i) they are inapplicable, (ii) they are not required or (iii) the information is indicated elsewhere in our financial statements or the notes thereto.

ITEM 17.    UNDERTAKINGS

The undersigned registrant hereby undertakes to provide to the underwriter at the closing specified in the underwriting agreements, certificates in such denominations and registered in such names as required by the underwriter to permit prompt delivery to each purchaser.

Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act, and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by the controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.

The undersigned registrant hereby undertakes that:

 

(1)   For purposes of determining any liability under the Securities Act of 1933, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4), or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective.

 

(2)   For the purpose of determining any liability under the Securities Act of 1933, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.

 

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SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, as amended, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Franklin Park, State of Illinois, on September 5, 2007.

 

Rubicon Technology, Inc.
By:   /s/ Raja M. Parvez
  Name:   Raja M. Parvez
  Title:   Chief Executive Officer and President

We, the undersigned directors and/or officers of Rubicon Technology, Inc. (the “Company”), hereby severally constitute and appoint Raja M Parvez and William F Weissman and each of them singly, our true and lawful attorneys, with full power to any of them, and to each of them singly, to sign for us and in our names in the capacities indicated below the registration statement on Form S-1 filed herewith, and any and all pre-effective and post-effective amendments to said registration statement, and any registration statement filed pursuant to Rule 462(b) under the Securities Act, as amended, in connection with the registration under the Securities Act, as amended, of equity securities of the Company, and to file or cause to be filed the same, with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith, as fully to all intents and purposes as each of them might or could do in person, and hereby ratifying and confirming all that said attorneys, and each of them, or their substitute or substitutes, shall do or cause to be done by virtue of this power of attorney.

Pursuant to the requirements of the Securities Act, as amended, this registration statement has been signed by the following persons in the capacities and on the dates indicated.

 

Signature

  

Title

 

Date

/s/ Raja M. Parvez

Raja M. Parvez

  

Chief Executive Officer, President and Director
(Principal Executive Officer)

  September 5, 2007

/s/ William F. Weissman

William F. Weissman

  

Chief Financial Officer
(Principal Accounting and Finance Officer)

  September 5, 2007

/s/ Don N. Aquilano

Don N. Aquilano

  

Chairman of the Board

  September 5, 2007

/s/ Donald R. Caldwell

Donald R. Caldwell

  

Director

  September 5, 2007

/s/ Gordon Hunter

Gordon Hunter

  

Director

  September 5, 2007

/s/ Michael E. Mikolajczyk

Michael E. Mikolajczyk

  

Director

  September 5, 2007


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EXHIBIT INDEX

 

Exhibit No.   

Description

1.1*       

Form of Underwriting Agreement

3.1*       

Amended and Restated Certificate of Incorporation of Rubicon Technology, Inc. (to be in effect upon the consummation of this offering)

3.2*       

Amended and Restated Bylaws of Rubicon Technology, Inc. (to be in effect upon the consummation of this offering)

4.1*       

Specimen Common Stock Certificate

4.2         

Fourth Amended and Restated Registration Rights Agreement, dated as of November 30, 2005

4.3         

Third Amended and Restated Stockholders’ Agreement, dated as of June 28, 2005, by and among Rubicon Technology, Inc. and the stockholders named therein

4.4         

Series E Stockholders’ Agreement, dated as of November 30, 2005, by and among Rubicon Technology, Inc. and the stockholders named therein

4.5         

Form of Warrant to Purchase Shares of Series A preferred stock

4.6         

Form of Investor Warrant to Purchase Shares of Series B preferred stock

4.7         

Warrant to Purchase Shares of Series B preferred stock between Rubicon Technology, Inc. and Silicon Valley Bank, dated July 10, 2002

4.8         

Warrant to Purchase Shares of Series B preferred stock between Rubicon Technology, Inc. and GATX Ventures, Inc., dated July 10, 2002 (1)

4.9         

Warrant to Purchase Shares of Series B preferred stock between Rubicon Technology, Inc. and GATX Ventures, Inc., dated July 10, 2002 (2)

4.10       

Warrant to Purchase Shares of Series B preferred stock between Rubicon Technology, Inc. and Atel Ventures, Inc., dated July 28, 2003

4.11       

Warrant to Purchase Shares of Series B preferred stock between Rubicon Technology, Inc. and Heller Financial Leasing, Inc., dated October 24, 2003

4.12       

Warrant to Purchase Shares of Series B preferred stock between Rubicon Technology, Inc. and Lighthouse Capital Partners IV, L.P., dated October 24, 2003

4.13       

Warrant to Purchase Shares of Series C preferred stock between Rubicon Technology Inc. and Heller Financial Leasing Inc., dated March 31, 2005

4.14       

Form of Investor Warrant to Purchase Shares of Series E preferred stock

4.15       

Warrant to Purchase Shares of Series E preferred stock between Rubicon Technology, Inc. and Lighthouse Capital Partners IV, L.P., dated December 20, 2005

4.16       

Warrant to Purchase Shares of Series E preferred stock between Rubicon Technology, Inc. and Heller Financial Leasing, Inc., dated December 20, 2005

4.17       

Warrant to Purchase Shares of Series E preferred stock between Rubicon Technology, Inc. and Hercules Technology Growth Capital, Inc., dated April 9, 2007

5.1*       

Opinion of McGuireWoods LLP

10.1         

Rubicon Technology, Inc. 2001 Equity Plan, dated as of August 2, 2001

10.1(a)     

Amendment No. 1 to the Rubicon Technology, Inc. 2001 Equity Plan, dated as of November 6, 2001

10.1(b)     

Amendment No. 2 to the Rubicon Technology, Inc. 2001 Equity Plan, dated as of May 21, 2002

10.1(c)     

Amendment No. 3 to the Rubicon Technology, Inc. 2001 Equity Plan, dated as of May 28, 2004

10.1(d)     

Amendment No. 4 to the Rubicon Technology, Inc. 2001 Equity Plan, dated as of December 6, 2004



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Exhibit No.   

Description

10.1(e)     

Amendment No. 5 to the Rubicon Technology, Inc. 2001 Equity Plan, dated as of June 28, 2005

10.1(f)     

Amendment No. 6 to the Rubicon Technology, Inc. 2001 Equity Plan, dated as of November 30, 2005

10.1(g)     

Amendment No. 7 to the Rubicon Technology, Inc. 2001 Equity Plan, dated as of July 26, 2006

10.1(h)     

Rubicon Technology, Inc. 2001 Equity Plan Form of Notice of Stock Option Grant and Stock Option Agreement

10.2         

Rubicon Technology, Inc. 2007 Stock Incentive Plan dated as of August 29, 2007

10.3         

Description of Rubicon Technology, Inc. 2006 Incentive Bonus Plan

10.4         

Rubicon Technology, Inc. Management Incentive Bonus Plan, dated as of February 28, 2007

10.4(a)     

Amendment No. 1 to Rubicon Technology, Inc. Management Incentive Bonus Plan, dated as of August 29, 2007

10.5         

Executive Employment Agreement, dated as of November 17, 2005, by and between Rubicon Technology, Inc. and Raja M. Parvez

10.5(a)     

Amendment, dated as of July 25, 2007, to Executive Employment Agreement by and between Rubicon Technology, Inc. and Raja M. Parvez

10.6         

Employment Agreement, dated as of March 29, 2004, by and between Rubicon Technology, Inc. and Hap Hewes

10.7         

Severance Agreement, dated as of September 8, 2005, by and between Rubicon Technology, Inc. and Hap R. Hewes

10.8         

Executive Employment Agreement, dated as of July 30, 2007, by and between Rubicon Technology, Inc. and William F. Weissman

10.9         

Loan and Security Agreement, dated as of April 9, 2007, by and between Rubicon Technology, Inc. and Hercules Technology Growth Capital, Inc.

10.10       

Form of Post-IPO Change of Control Severance Agreement

10.11       

Form of Indemnification Agreement

10.12       

Commercial Lease, dated as of December 23, 2004, by and between Rubicon Technology, Inc. and Bartmanns, Perales & Dolter, LLC

10.12(a)   

Amendment to Commercial Lease, dated as of May 6, 2005, by and between Rubicon Technology, Inc. and Bartmanns, Perales & Dolter, LLC

10.13       

Industrial Space Lease, dated as of July 29, 2005, by and among Rubicon Technology, Inc. and Radion Mogilevsky and Nanette Mogilevsky

10.14       

Industrial Building Lease, dated as of July 18, 2007, by and between Rubicon Technology, Inc. and Phillip J. Latoria, Jr.

23.1         

Consent of Grant Thornton LLP

23.2*       

Consent of McGuireWoods LLP (included in the opinion filed as Exhibit 5.1)

24.1         

Power of Attorney (included in signature page to the registration statement)


*   To be filed by amendment.

Exhibit 4.2

FOURTH AMENDED AND RESTATED

REGISTRATION RIGHTS AGREEMENT

This Fourth Amended and Restated Registration Rights Agreement (this “ Agreement ”) is made as of November 30, 2005 (the “ Effective Date ”) by and among Rubicon Technology, Inc., a Delaware corporation (the “ Company ”), those persons listed on the signature pages hereto, and those persons listed on Schedule I attached hereto (the “ Investors ”).

WITNESSETH

WHEREAS, the Company and certain of the Investors entered into that certain Third Amended and Restated Registration Rights Agreement, dated June 28, 2005 (as the same may have been amended, modified or restated from time to time, the “ Prior Registration Agreement ”);

WHEREAS, the parties hereto desire to amend and restate the Prior Registration Agreement in its entirety upon the terms and conditions of this Agreement;

WHEREAS, simultaneously with the execution and delivery of this Agreement, the Corporation and certain of its stockholders are executing and delivering that certain Series E Offering Omnibus Amendment, Waiver and Authorization, dated of even date herewith, whereby such stockholders representing more than fifty percent (50%) of the issued and outstanding shares of each of the Series A Preferred Stock, the Series B Preferred Stock, the Series C Preferred Stock and the Series D Preferred Stock, each voting as a series, agreed to amend and restate the Prior Registration Agreement upon the terms and conditions set forth herein; and

WHEREAS, capitalized terms used herein shall have the meanings specified in Section 11 of this Agreement;

NOW, THEREFORE, in consideration of the mutual covenants, promises, representations and warranties set forth herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:

AGREEMENT

 

1. Demand Registration.

(a) Subject to Section 1(b) below, at any time after the first to occur of: (i) the first anniversary of the Effective Date; or (ii) the 180th day immediately succeeding the effective date under the Securities Act of a Registration Statement for a Qualified Public Offering, upon the written request to register Registrable Stock under the Securities Act by the Holders of not less than 25% of the Registrable Stock as of the Effective Date, the Company shall, within 10 days of the receipt thereof, give written notice of such request to all Holders of Registrable Stock. Thereafter, the Company shall use its reasonable commercial efforts to effect as soon as practicable the registration under the Securities Act of all Registrable Stock that the Holders thereof requested to be registered pursuant to the original request to the Company and from such other Holders of Registrable Stock as request inclusion in such offering within fifteen (15) days of the mailing of the Company’s notice to such other Holders.

 


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(b) If the Holders initiating the registration request hereunder intend to distribute the Registrable Stock covered by their request by means of an underwriting, such Holders shall so advise the Company as a part of their request made pursuant to Section 1(a) , and the Company shall include such information in the Company’s notice referred to in Section 1(a) . The Holders of a majority of the Registrable Stock to be covered by such Registration Statement shall have the right to select the investment banker or bankers who shall serve as the manager and/or co-managers for the offering of Securities covered by such Registration Statement; subject to the approval of the Company, which approval shall not be unreasonably withheld or delayed. The right of any Holder to include Registrable Stock in such registration shall be conditioned upon such Holder’s participation in such underwriting and the inclusion of such Holder’s Registrable Stock in the underwriting (unless otherwise mutually agreed by the Holders of a majority of the Registrable Stock and such Holder) to the extent provided herein. All Holders proposing to distribute Registrable Stock through such underwriting shall, together with the Company, enter into an underwriting agreement in customary form with the underwriter or underwriters selected for such underwriting. Notwithstanding any other provision of this Section 1 , if the underwriter advises the Company and participating Holders of Registrable Stock in writing that marketing factors require a limitation of the number of shares to be underwritten, then the Company shall so advise all Holders of Registrable Stock that would otherwise be underwritten pursuant hereto, and the number of shares of Registrable Stock that may be included in the underwriting shall be allocated among all Holders thereof in proportion to the amount of Registrable Stock requested to be registered by each Holder; provided , however , that the number of shares of Registrable Stock to be included in such underwriting shall not be reduced unless all other Securities are first entirely excluded from the underwriting.

(c) Notwithstanding the foregoing, if the Company shall furnish to Holders requesting a Registration Statement pursuant to this Section 1 a certificate signed by the Chief Executive Officer of the Company stating that in the good faith judgment of the Board, it would be seriously detrimental to the Company and its stockholders for such Registration Statement to be filed and it is therefore essential to defer the filing of such Registration Statement, the Company shall have the right to defer such filing for a period of not more than ninety (90) days after receipt of the request by the Holders of Registrable Stock; provided , however , that the Company may not utilize this right more than once in any twelve (12) month period.

(d) In addition, the Company shall not be obligated to effect, or to take any action to effect, any registration pursuant to this Section 1 :

(i) After the Company has effected two (2) registrations pursuant to this Section 1 and such registrations have been declared or ordered effective, and such registrations have not been withdrawn by the Company before the earlier of 120 days from the filing of the Registration Statement or the sale of all applicable Registrable Stock thereunder; provided , however , that if a registration is withdrawn at the request of the Holders of Registrable Stock who demanded such registration, such registration shall count as a registration for Holders of Registrable Stock pursuant to Section 1 ; provided , further , however , that if the Holders of Registrable Stock request the withdrawal of such registration and such Holders reimburse the Company for all reasonable expenses incurred by the Company in connection with such registration, such registration shall not count as a registration for Holders of Registrable Stock pursuant to Section 1 ;

 


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(ii) During the period beginning on the date the Company provides notice of a registration pursuant to Section 2 and ending on a date 90 days (or 180 days if such registration is an initial public offering) after the effective date of such registration;

(iii) If the Holders of Registrable Stock propose to dispose of shares of Registrable Stock that may be immediately registered on Form S-3 pursuant to a request made pursuant to Section 3 .

 

2. Company Registration.

If (but without any obligation to do so) and whenever the Company proposes to register (including for this purpose a registration effected by the Company for stockholders other than the Holders) any of its Securities under the Securities Act in connection with the public offering of such Securities solely for cash (other than under a Registration Statement relating either to the sale of Securities to employees of the Company pursuant to a stock option, stock purchase or similar plan or to a Rule 145 transaction), the Company shall, at such time, promptly give each Holder of Registrable Stock written notice of such registration. Upon the written request of each Holder of Registrable Stock given within 15 days after the receipt by the Holders of such notice by the Company, the Company shall, subject to the provisions of Section 7 , cause to be registered under the Securities Act all of the Registrable Stock that each such Holder has requested to be registered. The Company shall have the right to select the investment banker or bankers who shall serve as the manager and/or co-managers for all registrations of offerings pursuant to this Section 2 .

 

3. Form S-3 Registration.

In case the Company shall receive a written request from a Holder or Holders of Registrable Stock then outstanding that the Company effect a registration on Form S-3, or any successor form thereto under the Securities Act, and any related qualification or compliance with respect to all or a part of such Registrable Stock owned by such Holder or Holders, the Company will:

(a) promptly give written notice of the proposed registration, and any related qualification or compliance, to all other Holders of Registrable Stock; and

(b) as soon as practicable, effect such registration and all such qualifications and compliances as may be so requested and as would permit or facilitate the sale and distribution of all or such portion of such Holder’s or Holders’ Registrable Stock as are specified in such request, together with all or such portion of the Registrable Stock of any other Holder or Holders joining in such request as are specified in a written request given within fifteen (15) days after the mailing of such notice from the Company specified in Section 3(a) ; provided , however , that the Company shall not be obligated to effect any such registration, qualification or compliance, pursuant to this Section 3 , if (i) the Company has already effected three (3) registrations pursuant to this Section 3 during such calendar year; (ii) the Company has effected a registration pursuant to this Agreement within 90 days (or 180 days if such registration was an initial public offering) of the date of the request pursuant to this Section 3 ; (iii) Form S-3 is not available to the Company for such offering by the Holders; (iv) the Holders propose to sell Registrable Stock, the

 


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anticipated aggregate offering price of which, net of underwriting discounts and commissions, is less than $500,000; or (v) the Company shall furnish to the Holders a certificate signed by the Chief Executive Officer of the Company stating that in the good faith judgment of the Board, it would be seriously detrimental to the Company and its stockholders for such Form S-3 registration to be effected at such time, in which event the Company shall have the right to defer the filing of the Form S-3 Registration Statement for a period of not more than ninety (90) days after receipt of the request of the Holder or Holders under this Section 3 ; provided , however , that the Company may not utilize the right in item (v) above more than once in any twelve (12) month period.

(c) Registrations effected pursuant to this Section 3 shall not be counted as demands for registration or registrations effected pursuant to Sections 1 or 2 of this Agreement.

 

4. Obligations of the Company.

Whenever required under this Agreement to effect the registration of any Registrable Stock, the Company shall, as expeditiously as reasonably possible:

(a) Prepare and file with the Securities and Exchange Commission a Registration Statement with respect to such Registrable Stock and use all commercially reasonable efforts to cause such Registration Statement to become effective within thirty (30) days of filing, and, upon the request of the Holders of a majority of the Registrable Stock registered thereunder, to keep such Registration Statement effective for up to 180 days or until the Holders have completed the distribution described in the Registration Statement relating thereto, whichever is later. Notwithstanding anything herein to the contrary, the Company shall not be required to file, cause to become effective or maintain the effectiveness of any Registration Statement that contemplates a distribution of Securities on a delayed or continuous basis pursuant to Rule 415 under the Securities Act;

(b) Prepare and file with the Securities and Exchange Commission such amendments and supplements to such Registration Statement and the prospectus used in connection with such Registration Statement as may be necessary to comply with the provisions of the Securities Act with respect to the disposition of all Securities covered by such Registration Statement for up to 180 days;

(c) Furnish to the Holders of Registrable Stock seeking such registration such numbers of copies of such Registration Statement and a prospectus, including a preliminary prospectus as such Holders may reasonably request, in conformity with the requirements of the Securities Act, and such other documents as such Holders may reasonably request in order to facilitate the disposition of Registrable Stock owned by them.

(d) Use its commercially reasonable efforts to register or qualify the Securities covered by such Registration Statement under such other securities or blue sky laws of such U.S. jurisdictions as shall be reasonably requested by the Holders; provided , however , that the Company shall not be required to: (i) qualify to do business as a foreign corporation in any jurisdiction wherein it would not otherwise be required to qualify but for this Section 4(d) ; (ii) subject itself to taxation in any such jurisdiction; or (iii) consent to general service of process in any such jurisdiction;

 


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(e) In the event of any underwritten public offering, enter into and perform its obligations under an underwriting agreement, in usual and customary form, with the managing underwriter of such offering. Each Holder participating in such underwriting shall also enter into and perform its obligations under any such agreement;

(f) Notify each Holder of Registrable Stock covered by such Registration Statement, at any time when a prospectus relating thereto is required to be delivered under the Securities Act, of the happening of any event as a result of which the prospectus included in such Registration Statement, as then in effect, contains an untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances then existing, such obligation to continue for 180 days after the date of the prospectus;

(g) Cause all such Registrable Stock registered hereunder to be listed on each securities exchange on which similar Securities issued by the Company are then listed;

(h) Provide a transfer agent and registrar for all Registrable Stock registered hereunder not later than the effective date of such Registration Statement; and

(i) Obtain a cold comfort letter from the Company’s independent public accountants and/or a legal opinion letter from the Company’s counsel in customary form and covering such matters of the type customarily covered by cold comfort letters or legal opinion letters, as the case may be, as the underwriters or the Holders of at least a majority of the Registrable Stock included in such Registration Statement pursuant to the provisions of this Agreement reasonably request.

 

5. Furnish Information.

As a condition precedent to the obligations of the Company to take any action pursuant to this Agreement with respect to the Registrable Stock of any selling Holder, any such Holder shall furnish to the Company such information regarding itself, the Registrable Stock held by it, and the intended method of disposition of such Securities as shall be required by the Company to effect the registration of such Holder’s Registrable Stock.

 

6. Expenses of Registration.

(a) All expenses other than underwriting discounts and commissions and stock transfer taxes of Holders of Registrable Stock incurred in connection with registrations, filings or qualifications pursuant to this Agreement, including, but not limited to, all registration, filing and qualification fees, printers’ and Company accounting fees, and fees and disbursements of counsel for the Company, shall be borne by the Company.

(b) In connection with each registration pursuant to this Agreement, the Company will reimburse the Holders of Registrable Stock covered by such registration for the reasonable fees and disbursements of one (1) counsel chosen by the Holders of a majority of the Registrable Stock included in such registration.

 


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(c) To the extent registration expenses are not required to be paid by the Company, each Holder of Registrable Stock included in any registration hereunder will pay those registration expenses allocable to the registration of such Holder’s securities so included, and any registration expenses not so allocable will be borne by all sellers of securities included in such registration in proportion to the aggregate selling price of the securities to be so registered.

 

7. Underwriting Requirements.

(a) In connection with any offering involving an underwriting of shares of the Company’s Securities, the Company shall not be required under Section 2 to include any of the Holders’ Registrable Stock in such underwriting unless such Holders accept the terms of the underwriting as agreed upon between the Company and the underwriters selected by the Company, and then only in such quantity as the underwriters determine in their sole discretion will not jeopardize the success of the offering by the Company.

(b) If an underwritten offering is initiated by the Company and the total amount of Securities, including Registrable Stock, requested to be included in such offering exceeds the amount of Securities that the underwriters determine in their sole discretion is compatible with the success of the offering, then the Company shall be required to include in the offering only that number of such requested Securities, including Registrable Stock, that the underwriters determine in their sole discretion will not jeopardize the success of the offering, in the following order of priority: (1) first, all Securities the Company proposes to sell, (2) second, up to the full number of Registrable Stock requested to be included in the offering; and (3) third, any other Securities requested to be included, allocated among the Holders of the Securities in such proportions as the Company and those Holders agree. To the extent that the total number of Registrable Stock requested to be included in the offering exceeds the amount of Securities that the underwriters determine in their sole discretion is compatible with the success of the offering, then each Holder of Registrable Stock requested to be included in the offering shall be entitled to include in the offering that number of Registrable Stock equal to such Holder’s Allocation Percentage (as defined below) multiplied by the number of Registrable Stock to be registered in the offering.

(c) For purposes of this Agreement, the “ Allocation Percentage ” for each Holder of Registrable Stock requested to be included in the offering shall mean the percentage which is equal to (1) the sum of: (i) the number of shares of Common Stock that such Holder acquired upon conversion of Series E Preferred that the Holder requested be included in the offering multiplied by 4; (ii) the number of shares of Common Stock that such Holder acquired upon conversion of Series D Preferred (including the Series D-2 Preferred Stock) that the Holder requested be included in the offering multiplied by 4; (iii) the number of shares of Common Stock that such Holder acquired upon conversion of Series C Preferred (including the Series C-2 Preferred Stock) that the Holder requested be included in the offering multiplied by 4; (iv) the number of shares of Common Stock that such Holder acquired upon conversion of Series B Preferred (including the Series B-2 Preferred Stock) that the Holder requested be included in the offering multiplied by 4; (v) the number of shares of Common Stock that such Holder acquired

 


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upon conversion of Series A Preferred that the Holder requested be included in the offering, multiplied by 3; and (vi) the number of shares of Common Stock owned by such Holder that are not referenced in the preceding clauses (i), (ii), (iii), (iv) or (v) and that such Holder requested be included in the offering, multiplied by 2; divided by (2) the sum of: (i) the number of shares of Common Stock that all Holders acquired upon conversion of Series E Preferred multiplied by 4; (ii) the number of shares of Common Stock that all Holders acquired upon conversion of Series D Preferred multiplied by 4; (iii) the number of shares of Common Stock that all Holders acquired upon conversion of Series C Preferred multiplied by 4; (iv) the number of shares of Common Stock that all Holders acquired upon conversion of Series B Preferred that the Holders requested be included in the offering multiplied by 4; (v) the number of shares of Common Stock of all Holders acquired upon conversion of Series A Preferred that the Holders requested be included in the offering, multiplied by 3; and (vi) the number of shares of Common Stock owned by all Holders that are not referenced in the preceding clauses (i), (ii), (iii), (iv) or (v) and that the Holders requested be included in the offering, multiplied by 2; and multiplied by (3) 100.

(d) If an underwritten secondary offering is initiated by the Company on behalf of the Holders of Securities (other than Holders of Registrable Stock), and the total amount of Securities, including Registrable Stock, requested to be included in such offering exceeds the amount of Securities that the underwriters determine in their sole discretion is compatible with the success of the offering, then the Company shall be required to include in the offering only that number of such requested Securities, including Registrable Stock, that the underwriters determine in their sole discretion will not jeopardize the success of the offering, in the following order of priority: (1) to the extent of 50% of the number of Securities other than Registrable Stock that in the underwriter’s opinion can be sold, the Securities requested to be included in the registration, allocated among the Holders of those Securities in such proportions as the Company and those Holders may agree, and (2) to the extent of the balance, the Registrable Stock requested to be included; and, if after including all of the Registrable Stock the underwriters determine that there are additional securities that can be sold, then Securities other than Registrable Stock may be added to the registration. To the extent that the total number of Registrable Stock requested to be included in the offering exceeds the amount of Securities that the underwriters determine in their sole discretion is compatible with the success of the offering, then each Holder of Registrable Stock requested to be included in the offering shall be entitled to include in the offering that number of Registrable Stock equal to such Holder’s Allocation Percentage multiplied by the number of Registrable Stock to be registered in the offering.

 

8. Delay of Registration.

No Holder shall have any right to obtain or seek an injunction restraining or otherwise delaying any such registration as the result of any controversy that might arise with respect to the interpretation or implementation of this Agreement.

 

9. Indemnification.

In the event any Registrable Stock is included in a Registration Statement under this Agreement:

 


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(a) To the extent permitted by law, the Company will indemnify and hold harmless each Holder, any underwriter (as defined in the Securities Act) for such Holder and each Person, if any, who controls, represents, manages, or is affiliated with such Holder or underwriter within the meaning of the Securities Act or the Securities Exchange Act (an “ Affiliated Person ”), against any losses, claims, damages, or liabilities (joint or several), to which they may become subject under the Securities Act, the Securities Exchange Act or other federal or state law, insofar as such losses, claims, damages, or liabilities (or actions in respect thereof) arise out of or are based upon any of the following statements, omissions or violations (collectively, a “ Violation ”): (i) any untrue statement or alleged untrue statement of a material fact contained in such Registration Statement, including any preliminary prospectus or final prospectus contained therein or any amendments or supplements thereto; (ii) the omission or alleged omission to state therein a material fact required to be stated therein, or necessary to make the statements therein not misleading; or (iii) any violation or alleged violation by the Company of the Securities Act, the Securities Exchange Act, any state securities law or any rule or regulation promulgated under the Securities Act, the Securities Exchange Act or any state securities law; and the Company will pay to each such Holder, underwriter or Affiliated Person, as incurred, any legal or other expenses reasonably incurred by them in connection with investigating or defending any such loss, claim, damage, liability, or action, provided , however , that the indemnity provided pursuant to this Section 9(a) shall not apply to amounts paid in settlement of any such loss, claim, damage, liability, or action, if such settlement is effected without the written consent of the Company (which consent shall not be unreasonably withheld or delayed). Notwithstanding anything herein to the contrary, the Company shall not be liable to: (i) any Holder, underwriter or Affiliated Person for any such loss, claim, damage, liability, or action to the extent that it arises out of or is based upon a Violation that occurs in reliance upon and in conformity with written information furnished expressly for use in connection with such registration by any such Holder, underwriter or Affiliated Person; or (ii) any Holder or Affiliated Person thereof, for any such loss, claim, damage, liability, or action to the extent that it arises out of the failure of any such Holder or Affiliated Person to deliver a copy of the registration statement or prospectus or any amendments or supplements thereto after the Company has furnished such seller with a sufficient number of copies of the same; or (iii) any underwriter or Affiliated Person thereof, for any such loss, claim, damage, liability, or action to the extent that is arises out of the failure of any such underwriter or Affiliated Person to deliver a copy of the registration statement or prospectus or any amendments or supplements thereto after the Company has furnished such seller with a sufficient number of copies of the same.

(b) To the extent permitted by law, each selling Holder will indemnify and hold harmless the Company, each of its directors, each of its officers who has signed the Registration Statement, each Person, if any, who controls the Company within the meaning of the Securities Act, any underwriter, any other Holder selling Securities in such Registration Statement and any Affiliated Person of any such underwriter or other Holder, against any losses, claims, damages, or liabilities (joint or several), to which any of the foregoing Persons may become subject, under the Securities Act, the Securities Exchange Act or other federal or state law, insofar as such losses, claims, damages, or liabilities (or actions in respect thereto) arise out of or are based upon any Violation, in each case to the extent that such Violation occurs in reliance upon and in conformity with written information furnished by such Holder expressly for use in connection with such registration; and each such Holder will pay, as incurred, any legal or other expenses reasonably incurred by any Person intended to be indemnified pursuant to this Section 9(b) , in

 


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connection with investigating or defending any such loss, claim, damage, liability, or action; provided , however , that the indemnity provided pursuant to this Section 9(b) shall not apply to amounts paid in settlement of any such loss, claim, damage, liability or action, if such settlement is effected without the written consent of such Holder, which consent shall not be unreasonably withheld; provided , further , however , that in no event shall any indemnity under this Section 9(b) exceed the net proceeds from the offering received by such Holder, except in the case of willful fraud or gross negligence by such Holder.

(c) Promptly after receipt by an indemnified party under this Section 9 of notice of the commencement of any action (including any governmental action), such indemnified party will, if a claim in respect thereof is to be made against any indemnifying party under this Section 9 , deliver to the indemnifying party a written notice of the commencement thereof and the indemnifying party shall have the right to participate in, and, to the extent the indemnifying party so desires, jointly with any other indemnifying party similarly noticed, to assume the defense thereof with counsel mutually satisfactory to the parties; provided , however , that an indemnified party (together with all other indemnified parties that may be represented without conflict by one counsel) shall have the right to retain one separate counsel, with the reasonable fees and expenses to be paid by the indemnifying party, if representation of such indemnified party by the counsel retained by the indemnifying party would be inappropriate due to actual or potential differing interests between such indemnified party and any other party represented by such counsel in such proceeding. The failure to deliver written notice to the indemnifying party within a reasonable time of the commencement of any such action, if prejudicial to its ability to defend such action, shall relieve such indemnifying party of any liability to the indemnified party pursuant to this Section 9 , but the failure of the indemnified party to deliver written notice to the indemnifying party will not relieve the indemnifying party of any liability that it may have to any indemnified party otherwise than under this Section 9 .

(d) If the indemnification provided for in this Section 9 is held by a court of competent jurisdiction to be unavailable to an indemnified party with respect to any loss, liability, claim, damage or expense referred to therein, then the indemnifying party, in lieu of indemnifying such indemnified party hereunder, shall contribute to the amount paid or payable by such indemnified party as a result of such loss, liability, claim, damage, or expense, in such proportion as is appropriate to reflect the relative fault of the indemnifying party on the one hand and of the indemnified party on the other in connection with the statements or omissions that resulted in such loss, liability, claim, damage or expense, as well as any other relevant equitable considerations; provided , however , that in no event shall any contribution by a Holder under this Section 9(d) exceed the net proceeds from the offering received by such Holder, except in the case of willful fraud or gross negligence by such Holder. The relative fault of the indemnifying party and of the indemnified party shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission to state a material fact relates to information supplied by the indemnifying party or by the indemnified party and the parties’ relative intent, knowledge, access to information, and opportunity to correct or prevent such statement or omission.

(e) Notwithstanding the foregoing, to the extent that the provisions on indemnification and contribution contained in the underwriting agreement entered into in connection with the underwritten public offering are in conflict with the foregoing provisions, the provisions in the underwriting agreement shall control.

 


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(f) The obligations of the Company and Holders under this Section 9 shall survive the completion of any offering of Registrable Stock in a Registration Statement under this Agreement.

 

10. Market Stand-Off.

(a) In connection with a Qualified Public Offering, each Holder of Registrable Stock hereby agrees that, during the period of duration (up to, but not exceeding, 180 days) specified by the Company and an underwriter of Common Stock or other Securities of the Company, following the effective date of the Registration Statement of the Company filed under the Securities Act, it shall not, to the extent requested by the Company and such underwriter, directly or indirectly sell, offer to sell, contract to sell (including, without limitation, any short sale), grant any option to purchase or otherwise transfer or dispose of (other than to donees who agree to be similarly bound) any Securities of the Company held by it at any time during such period except Common Stock included in such registration; provided , that all officers and directors of the Company, all five percent (5%) Holders of the Company’s Securities, and all other Persons with registration rights (whether or not pursuant to this Agreement) enter into similar agreements.

(b) In order to enforce the foregoing covenant, the Company may impose stop-transfer instructions with respect to the Securities of each Holder of Registrable Stock until the end of such period, and each Holder agrees that, if so requested, such Holder will execute an agreement in the form provided by the underwriter containing terms that are essentially consistent with the provisions of this Section 10 .

(c) Notwithstanding the foregoing, the obligations described in this Section 10 shall not apply to a registration relating solely to employee benefit plans on Form S-8 or similar forms that may be promulgated in the future, or a registration relating solely to an SEC Rule 145 transaction on Form S-4 or similar forms that may be promulgated in the future.

 

11. Definitions.

Affiliate ” shall mean, with respect to any Person, any other Person that, directly or indirectly, controls, is controlled by, or is under common control with such Person. The term “control,” as used in the immediately preceding sentence, means the right to exercise, directly or indirectly, more than ten percent (10%) of the voting rights of the controlled Entity or the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of the controlled Entity.

Beneficially own ” shall mean, with respect to any Securities, having “beneficial ownership” of such Securities (as determined pursuant to Rule 13d-3 under the Securities Exchange Act as in effect on the date hereof, except that a Person shall be deemed to beneficially own all such securities that such Person has the right to acquire whether such right is exercisable immediately or after the passage of time).

Board ” shall mean the Board of Directors of the Company.

 


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Common Stock ” shall mean the Company’s common stock, $0.001 par value per share.

Holders ” shall mean the Persons who own of record or Beneficially own any Security and who are parties to this Agreement. The term “ Holder ” shall mean any one of the Holders. The terms “ Hold ” and “ Held ” shall have correlative meanings.

Person ” shall mean an individual, a corporation, a company, a partnership, a trust, an unincorporated organization, or any other entity, or a governmental organization or any agency or political subdivision thereof.

Qualified Public Offering ” shall having the meaning set forth in the certificate of incorporation of the Company.

Registrable Stock ” shall mean: (i) the shares of Common Stock issuable or issued upon conversion of the Series A Preferred, the Series B Preferred, the Series C Preferred, the Series D Preferred or the Series E Preferred; (ii) any other shares of Common Stock of the Company issued as (or issuable upon the conversion or exercise of any warrant, right or other security that is issued as) a dividend or other distribution with respect to, or in exchange for or in replacement of, any such shares to the extent the original shares are Registrable Stock; and (iii) the shares of Common Stock issued upon the conversion or exercise of any Common Stock Equivalents (as defined in the Company’s Seventh Amended and Restated Certificate of Incorporation, as the same may be amended from time to time) issued to any equipment lessors or banks, in consideration of providing additional financing to the Company; provided , however , that the foregoing definition shall exclude in all cases any Securities sold by a Person in a transaction in which such Person’s rights under this Agreement are not assigned or are not assignable. Notwithstanding the foregoing, Common Stock or other Securities shall only be treated as Registrable Stock if and so long as they: (x) have not been sold to or through a broker or dealer or underwriter in a public distribution or a public securities transaction; (y) have not been sold in a transaction exempt from the registration and prospectus delivery requirements of the Securities Act under Section 4(1) thereof or pursuant to Rule 144 promulgated thereunder so that all transfer restrictions, and restrictive legends with respect thereto, if any, are removed upon the consummation of such sale; or (z) are not eligible to be sold without registration under the Securities Act in compliance with subsection (k) of Rule 144.

Registration Statement ” shall mean any registration statement filed with the Securities and Exchange Commission in accordance with the Securities Act, together with all amendments or supplements thereto; provided , however , that Registration Statement shall not mean any registration statement on Form S-8 or any successor form thereto.

Security ” shall mean any debt or equity security of the Company and any instrument convertible into or exchangeable for any debt or equity security of the Company, including, without limitation, the Series A Preferred, the Series B Preferred, the Series C Preferred, the Series D Preferred and the Common Stock.

Securities Act ” shall mean the Securities Act of 1933, as amended prior to or after the date of this Agreement, or any federal statute or statutes which shall be enacted to take the place of such Act, together with all rules and regulations promulgated thereunder.

 


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Securities and Exchange Commission ” shall mean the United States Securities and Exchange Commission or any successor to the functions of such agency.

Securities Exchange Act ” shall mean the Securities Exchange Act of 1934, as amended prior to or after the date of this Agreement, or any federal statute or statutes which shall be enacted to take the place of such Act, together with all rules and regulations promulgated thereunder.

Series A Preferred ” shall mean the Company’s Series A Preferred Stock, $0.001 par value per share.

Series B Preferred ” shall mean the Company’s Series B Convertible Preferred Stock, $0.001 par value per share, and the Series B-2 Convertible Preferred Stock, $0.001 par value per share.

Series C Preferred ” shall mean the Company’s Series C Convertible Preferred Stock, $0.001 par value per share, and the Series C-2 Convertible Preferred Stock, $0.001 par value per share.

Series D Preferred ” shall mean the Company’s Series D Convertible Preferred Stock, $0.001 par value per share, and the Series D-2 Convertible Preferred Stock, $0.001 par value per share.

Series E Preferred ” shall mean the Company’s Series E Convertible Preferred Stock, $0.001 par value per share.

 

12. Miscellaneous.

(a) Assignability of Registration Rights .

The registration rights set forth in this Agreement shall accrue to each subsequent Holder of Registrable Stock which acquires at least twenty-five percent (25%) of the Registrable Stock outstanding as of the Effective Date of this Agreement, and which consents in writing to be bound by the terms and conditions of this Agreement. Notwithstanding the foregoing, if an Investor transfers its Registrable Stock to an Affiliate or a limited or general partner of such Investor, the registration rights hereunder may be assigned to such Affiliate or limited or general partner without restriction as to a minimum ownership percentage to effectuate such assignment; provided that any such assignee consents in writing to be bound by the terms and conditions of this Agreement.

(b) Grant of Subsequent Registration Rights .

The Company may not grant registration rights to subsequent investors in the Company unless such rights are subordinate or pari pasu to the rights of the Holders of Registrable Stock or the grant of such rights is consented to by the Holders of not less than a majority of the outstanding shares of each of the Series B Preferred, the Series C Preferred, the Series D Preferred, and the Series E Preferred, each voting as a separate series. Notwithstanding the foregoing, so long as any shares of Registrable Stock remain outstanding, the Company shall

 


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not grant to any Person acquiring its Securities subsequent to the Effective Date, other than Registrable Stock, registration rights, without the consent of the Holders of not less than a majority of the outstanding shares of each of the Series B Preferred, the Series C Preferred, the Series D Preferred and the Series E Preferred, each voting as a separate series. Each party hereto acknowledges and accepts the rights (i) of Silicon Valley Bank, as provided in the Warrant held by it, dated May 9, 2001 and July 10, 2002; (ii) of GATX, as provided in the Warrants held by it, dated July 10, 2002; and (iii) of Atel, as provided in the Warrant held by it, dated July 28, 2003; to become a party hereto upon the exercise of those Warrants, and will execute and deliver such amendments hereto or other documents as are reasonably necessary to comply with those rights.

(c) Prohibited Sale Periods .

The Company agrees (i) not to effect any public sale or distribution of its Securities during the seven (7) days prior to, and during the 90-day period beginning on, the effective date of any underwritten registration made pursuant to Sections 1 and 2 hereunder (except as part of such underwritten registration or pursuant to registrations on Form S-4 or Form S-8 or any successor form), unless the underwriters managing the registered public offering otherwise agree, and (ii) to cause each Holder of at least two percent (2%) (on a fully diluted basis) of its Securities, purchased from the Company at any time after the date of this Agreement (other than in a registered public offering) to agree not to effect any public sale or distribution (including sales pursuant to Rule 144) of any Securities during such period (except as part of such underwritten registration, if otherwise permitted), unless the underwriters managing the public offering otherwise agree

(d) Current Public Information .

At all times after the Company has filed a Registration Statement with the Securities and Exchange Commission pursuant to the requirements of either the Securities Act or the Securities Exchange Act, the Company will file all reports required to be filed by it under the Securities Act and the Securities Exchange Act, and will take such further action as any Holder or Holders of Registrable Stock may reasonably request, all to the extent required to enable such Holders to sell Registrable Stock pursuant to Rule 144 or any similar rule or regulation hereafter adopted by the Securities and Exchange Commission.

(e) Termination .

All rights under this Agreement shall terminate as to any Holder of Registrable Stock at such time as such Holder is free to sell all shares of Registrable Stock held by such Holder pursuant to Rule 144(k) under the Securities Act or a comparable exemption from registration that enables such Holder to sell all shares of Registrable Stock held by such Holder without registration under the Securities Act and without restriction as to the manner of sale or otherwise. This Agreement shall terminate as to all Holders of Registrable Stock at such time as the earlier of (i) all shares of Registrable Stock may be sold during any three (3) month period without registration under the Securities Act; (ii) no shares of Registrable Stock remain outstanding; or (iii) the 5th anniversary of a Qualified Public Offering.

 


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(f) Amendment and Waiver .

Any term, covenant, agreement or condition contained in this Agreement may be amended, or compliance therewith may only be waived (either generally or in particular instances and either retroactively or prospectively) by written instrument signed by the Company and the Holders of an aggregate of not less than a majority of the Series A Preferred, the Series B Preferred, the Series C Preferred, the Series D Preferred, and the Series E Preferred or the shares of Common Stock issued upon the conversion of the Series A Preferred, the Series B Preferred, the Series C Preferred, the Series D Preferred or the Series E Preferred, each voting as a separate series. Any waiver of any term, covenant, agreement or condition contained in this Agreement shall not be deemed a waiver of any other term, covenant, agreement or condition, and any waiver of any default in any such term, covenant, agreement or condition shall not be deemed a waiver of any later default thereof or of any other term, covenant, agreement or condition. No delay on the part of any party in exercising any right, power or privilege hereunder shall operate as a waiver thereof.

(g) Severability .

In the event that any court or any governmental authority or agency declares all or any part of any Section of this Agreement to be unlawful or invalid, such unlawfulness or invalidity shall not serve to invalidate any other Section of this Agreement, and in the event that only a portion of any Section is so declared to be unlawful or invalid, such unlawfulness or invalidity shall not serve to invalidate the balance of such Section.

(h) Governing Law .

The validity, meaning and effect of this Agreement shall be determined in accordance with the laws of the State of Illinois, without regard to the conflicts of law provisions thereof, applicable to contracts made and to be performed in that state.

(i) Counterparts .

This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which shall together constitute one and the same document.

(j) Entire Agreement .

This Agreement and the Exhibits and Schedules hereto constitute and encompass the entire agreement and understanding of the parties hereto and thereto with regard to the transactions contemplated or provided for herein or therein. This Agreement supersedes, replaces and terminates any prior agreements between the Investors and the Company with respect to the subject matter hereof and neither the Company nor the Investors shall have any liability under any such prior agreement to the other for any reason whatsoever.

 


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(k) Additional Holders .

Holders of Registrable Stock may, from time to time, be added as parties to this Agreement without necessity of amending this Agreement by execution of an agreement by such Holder or Holders and the Company, whereby such Holder or Holders agrees to be bound hereby as a “Holder” or “Holders” hereunder.

(l) No Third Party Beneficiaries .

Except as expressly set forth in this Agreement, nothing in this Agreement is intended to, or shall be deemed to, confer any rights or remedies under or by reason of this Agreement on any Person other than the parties hereto and their respective successors and assigns.

[END OF AGREEMENT]

 


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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the Effective Date.

[Executed Pursuant To That Certain Series E Offering Omnibus Amendment, Waiver And Authorization, Dated As Of November 30, 2005 and the Adoption Agreement, dated as of January 27, 2006]

 

CROSS ATLANTIC TECHNOLOGY FUND, L.P.
By:   XATF Management, L.P., its General Partner
By:   Cross Atlantic Capital Partners, Inc., its General Partner
By:  

/s/    Donald R. Caldwell

Name:   Donald R. Caldwell
Title:   President
THE CO-INVESTMENT 2000 FUND, L.P.
By:   Co-Invest Management, L.P., its General Partner
By:   Co-Invest Capital Partners, Inc., its General Partner
By:  

/s/    Donald R. Caldwell

Name:   Donald R. Caldwell
Title:   President

CROSS ATLANTIC TECHNOLOGY FUND II, L.P.

By:   XATF Management, L.P., its General Partner
By:   Cross Atlantic Capital Partners, Inc., its General Partner
By:  

/s/    Donald R. Caldwell

Name:   Donald R. Caldwell
Title:   President
GAZELLE TECHVENTURES FUND, L.P.
By:   Monument Technology Partners, LLC, its General Partner
By:   Gazelle TechVentures, Inc., its Manager
By:  

/s/    Don N. Aquilano

Name:   Don N. Aquilano
Title:   President
GAZELLE CO-INVESTMENT FUND, L.P.
By:   Monument Technology Partners, LLC, its General Partner
By:   Gazelle TechVentures, Inc., its Manager
By:  

/s/    Don N. Aquilano

Name:   Don N. Aquilano
Title:   President
KBPARTNERS VENTURE FUND II, L.P.
By:   KB Partners Management II, L.L.C., its General Partner
By:  

/s/    Byron A. Denenberg

Name:   Byron A. Denenberg
Title:   Managing Director
KB PARTNERS AFFILIATES FUND II L.P.
By:   KB Partners Management II, L.L.C., its General Partner
By:  

/s/    Byron A. Denenberg

Name:   Byron A. Denenberg
Title:   Managing Director

 


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SCHEDULE I

 

I NVESTORS

Adams, Harkness & Hill Entrepreneur’s Fund, LP

Adams, Harkness & Hill Technology Ventures 1A, LP +

Adams, Harkness & Hill Technology Ventures, LP

Anthony Abbattista 2000 Declaration of Trust

Baker, Arthur

Baker, Robert

Bergstein, Melvyn E.

Brej, Julie

Brissenden, James

Charles Schwab & Co., FBO Edd H. Hyde IRA Account #4613-4119

Ciral, Shevlin J.

Connolly, Michael

Cross Atlantic Technology Fund II, LP

Cross Atlantic Technology Fund, L.P.

Davis, DeForest

DeCuyper, Michael

Gazelle Co-Investment Fund, L.P.

Gazelle TechVentures Fund, L.P.

Gleason, John S.

Gordon & Glickson LLC

Gutstein, Adam J.

Hunter, Gordon

KB Partners Affiliates Fund II, L.P.

KB Partners Venture Fund II, L.P.

Matsamura, Alan

Mikolajczyk, Michael E.

Mitchell, Stephen C.

Moffitt, Christopher J.

Mogilevsky, Radion

Nekich, Daniel

Pasquesi, L. Robert

River Cities Capital Fund II, Limited Partnership

River Cities SBIC III, L.P.

Rylance, Bruce

Siefertson, Mark E. and Debbie L.

The Co-Investment 2000 Fund, L.P.

Tyson, Mitch

VanErmen, Steven R.

Weakland, Thomas

Nicholas A Cameron

Mary Joan Doyle-Carson

Edd H. Hyde

Frederick W. Kyle

Charles T. Lee

Daniel J. Phelan

Dickinson M. Smith

James G. Stewart

 


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I NVESTORS

C. Ian Sym-Smith

Samuel J. Talucci

Wilson H. Taylor

Wilson Capital Partners LLC

Heller Financial Leasing, Inc.

Lighthouse Capital Partners IV, L.P.

Mark L. Gordon

Scott L. Glickson

Stephen Gold

Philip P. McGuigan

Stuart Smith

 


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Exhibit 4.3

THIRD AMENDED AND RESTATED

STOCKHOLDERS’ AGREEMENT

This Third Amended and Restated Stockholders’ Agreement (this “ Agreement ”) is made and entered into as of June 28, 2005 (the “ Effective Date ”), by and among Rubicon Technology, Inc., a Delaware corporation (the “ Corporation ”), those stockholders on the signature pages hereto, and those stockholders listed on Schedule I hereto (hereinafter sometimes referred to individually as “ Stockholder ” and collectively as the “ Stockholders ”).

RECITALS

A. The Stockholders are the owners of (i) all of the issued and outstanding shares of Series A Preferred Stock, par value $0.001 per share, of the Corporation (the “ Series A Preferred Stock ”); (ii) all of the issued and outstanding shares of Series B Convertible Preferred Stock, par value $0.001 per share, of the Corporation (the “ Series B Preferred Stock ”), (iii) all of the issued and outstanding shares of Series C Convertible Preferred Stock, par value $0.001 per share, of the Corporation (the “ Series C Preferred Stock ”); (iv) all of the issued and outstanding shares of Series D Convertible Preferred Stock, par value $0.001 per share, of the Corporation (the “ Series D Preferred Stock, ” and collectively with the Series A Preferred Stock, the Series B Preferred Stock, and the Series C Preferred Stock, the “ Preferred Stock ”); and (v) all of the issued and outstanding shares of Common Stock, par value $0.001 per share, of the Corporation (the “ Common Stock ”);

B. The Corporation and the Stockholders believe that it is in the best interests of each of them to make provisions for the future disposition of the Stock and other matters with respect to the governance of the Corporation;

C. The Corporation and certain of the Stockholders entered into that certain Amended and Restated Stockholders’ Agreement, dated May 28, 2004 (as the same may have been amended or modified from time to time, the “ Prior Stockholders’ Agreement ”);

D. Simultaneously with the execution and delivery of this Agreement, the Corporation and certain of the Stockholders are executing and delivering that certain Series D Offering Omnibus Amendment, Waiver and Authorization, dated of even date herewith, whereby such Stockholders representing more than fifty percent (50%) of the issued and outstanding shares of each of the Common Stock, Series A Preferred Stock, Series B Preferred Stock, and Series C Preferred Stock agreed to amend and restate the Prior Stockholders’ Agreement upon the terms and conditions set forth herein; and

E. The parties hereto desire to amend and restate the Prior Stockholders’ Agreement in its entirety pursuant to the terms and conditions of this Agreement.

AGREEMENTS

In consideration of the recitals and of the mutual covenants hereinafter set forth and other good and valuable consideration, the receipt, sufficiency and adequacy of which are hereby acknowledged, the parties hereto, for themselves and their respective successors and assigns, hereby covenant and agree as follows:


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1. DEFINITIONS

As used herein, the following capitalized terms shall have the meanings as set forth below:

1.1. Act shall mean the Delaware General Corporation Law, as amended.

1.2. Affiliate shall mean, with respect to any Person, any other Person that, directly or indirectly, controls, is controlled by, or is under common control with such Person. The term “control,” as used in the immediately preceding sentence, means the right to exercise, directly or indirectly, more than twenty percent (20%) of the voting rights of the controlled Entity or the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of the controlled Entity.

1.3. Agreement shall mean this Third Amended and Restated Stockholders’ Agreement, dated as of the date set forth in the preamble of this Agreement, as originally executed and as amended, modified or supplemented from time to time. Words such as “herein,” “hereafter,” “hereof,” “hereto,” “hereby,” and “hereunder,” when used with reference to this Agreement, refer to this Agreement as a whole unless the context otherwise requires.

1.4. Board of Directors shall mean the Board of Directors of the Corporation.

1.5. Certificate of Incorporation shall mean the Sixth Amended and Restated Certificate of Incorporation of Rubicon Technology, Inc. as filed with the Secretary of State of the State of Delaware, and as amended or restated from time to time.

1.6. Code shall mean the United States Internal Revenue Code of 1986, as amended and the rules and regulations promulgated thereunder.

1.7. Director shall mean any person who is elected a member of the Board of Directors.

1.8. Disability or Disabled ; a Stockholder that is an employee of the Corporation or any Affiliate of the Corporation, shall be considered “Disabled,” if, in the judgment of a licensed physician mutually acceptable to the Board of Directors and the Stockholder, the Stockholder is unable to perform his duties as an employee of the Corporation or such Affiliate by reason of a medically determinable physical or mental impairment which can be expected to be permanent, and which has lasted for a continuous period of not less than one hundred eighty (180) days.

1.9. Entity shall mean any general partnership, limited partnership, limited liability partnership, limited liability company, corporation, joint venture, trust, business trust, cooperative, association, foreign trust, foreign business organization or any other organization of Persons.

1.10. Investor shall mean each holder of Preferred Stock as identified on Schedule I hereto.


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1.11. Majority of Each Series shall mean the vote of or consent by a majority of the issued and outstanding shares the Series B Preferred Stock, the Series C Preferred Stock and the Series D Preferred Stock, each voting or consenting separately as a series.

1.12. Percentage Interest shall mean, for any Stockholder, the percentage interest of such Stockholder in the Corporation computed as one hundred (100) times a fraction, the numerator of which is the sum of the number of shares of Common Stock held by such Stockholder and the number of shares of Common Stock issuable upon conversion of the Preferred Stock held by such Stockholder, and the denominator of which is the sum of the number of shares of Common Stock then issued and outstanding and the number of shares of Common Stock issuable upon conversion of all of the Preferred Stock then issued and outstanding.

1.13. Person shall mean any individual or Entity, and the heirs, executors, administrators, legal representatives, successors, and assigns of such “Person” where the context so permits.

1.14. Proportionate Portion means the portion of the Stock available for purchase by an Investor under Section 2.3 which shall be determined by multiplying the total number of shares of Stock available for purchase by a fraction, the numerator of which is the number of shares of Stock owned by an Investor (or, in the case of Preferred Stock, the number of shares of Common Stock issuable upon conversion of such Preferred Stock) who exercises an option to purchase a portion of such shares of Stock and the denominator of which is the total number of shares of Stock (or, in the case of Preferred Stock, the number of shares of Common Stock issuable upon conversion of such Preferred Stock) owned by all Investors entitled to purchase such shares of Stock.

1.15. Stock shall mean the Common Stock, the Preferred Stock and any other securities into which or for which any of the Preferred Stock or the Common Stock may be converted or exchanged pursuant to a plan or recapitalization, reorganization, merger, sale of assets or otherwise.

1.16. Stockholder shall mean each of the parties who executes a counterpart of this Agreement as a Stockholder and each of the parties who may hereafter become Stockholders. If a Person is a Stockholder immediately prior to the purchase or other acquisition by such Person of Stock, such Person shall have all the rights and obligations of a Stockholder with respect to such purchased or otherwise acquired Stock, provided that such party or person has not disposed of his or its entire interest in the Corporation pursuant to Section 2 hereof.

1.17. Termination Event means, with respect to an employee of the Corporation or any Affiliate of the Corporation, the termination of such employee’s employment with the Corporation or any Affiliate of the Corporation, for cause as determined by the Board of Directors in its sole and absolute discretion (including the voluntary termination of such employee’s employment in anticipation of an involuntary termination for cause).


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1.18. Transfer shall mean any sale, exchange, assignment, transfer, mortgage, pledge, encumbrance, hypothecation, disposition, gift, devise, bequest, or other disposition or grant of rights or interests, whether voluntarily or involuntarily, by operation of law or otherwise.

 

2. TRANSFERABILITY

2.1. Transfer of Stock .

(a) General . Except for Permitted Transfers (as defined in Section 2.2(a) below), no Stockholder may Transfer any Stock without the prior written consent of the Board of Directors, which consent shall include the consent of at least the Preferred A Director (as defined herein), both Preferred B Directors (as defined herein) and the Series C Director (as defined herein). The Corporation will not cause or permit the Transfer of any Stock to be made on its books except in accordance with the terms hereof.

(b) Transfers to Competitors . Without limiting the generality of Section 2.1(a) above, no Stockholder may Transfer any Stock to any Person engaged in any business that is, in the sole and absolute opinion of the Board of Directors made at a meeting or by written consent including the Preferred A Director, both Preferred B Directors and the Preferred C Director, competitive with the business of the Corporation or any of its Affiliates.

(c) Compliance with Securities Laws . Notwithstanding anything in this Agreement to the contrary, no Stockholder shall Transfer any Stock or interests therein except pursuant to an effective registration statement filed under the Securities Act of 1933, as amended and the rules and regulations promulgated thereunder (the “ Securities Act ”), and any applicable state or foreign securities laws, or until the Corporation is satisfied that the registration of such Transfer is not required under the Securities Act and any applicable state and foreign securities laws because of available exemptions from such registration requirements and nothing herein shall be construed to require the Corporation to register such Stock pursuant to the Securities Exchange Act of 1934, as amended, or any other federal, state or foreign securities laws.

(d) Transfer Legend . Each certificate issued to a Stockholder shall have a legend, in substantially the following form, conspicuously written, printed, typed, or stamped on its face, or upon the reverse with a conspicuous reference to such legend on its face:

 

  

“The shares represented by this certificate are subject to the terms and conditions of the Third Amended and Restated Stockholders’ Agreement, dated as of June 28, 2005, as may be amended, restated or otherwise modified from time to time. The shares represented by this Certificate may not be sold, transferred, or otherwise disposed of except in accordance with said Amended and Restated Stockholders’ Agreement.”

  

Concurrently with the execution of this Agreement, each Stockholder shall deliver to the Corporation the certificates representing the Stockholder’s Stock in order to allow the Corporation to delete any legend referring to the Prior Stockholders’ Agreement and to include the legend prescribed above.


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2.2. Permitted Transfers .

(a) Permitted Transfers . For purposes of this Agreement, the following shall be considered “ Permitted Transfers ”:

(i) with respect to each Stockholder who is a natural person:

(1) any Transfer of Stock to an inter-vivos trust created by such Stockholder for the primary benefit of one or more of (i) such Stockholder, (ii) such Stockholder’s spouse, (iii) such Stockholder’s parents, siblings, descendants or the descendants of any of the foregoing, and (iv) such Stockholder’s spouse’s parents, siblings, descendants or the descendants of any of the foregoing, which pursuant to the governing instruments of such trust, cannot be distributed other than to said Stockholder during said Stockholder’s lifetime;

(2) any other Transfer of Stock for estate planning purposes approved by the Board of Directors, which pursuant to the governing instruments for such Transfer, cannot be distributed other than to said Stockholder during said Stockholder’s lifetime;

(3) any testamentary Transfer of Stock to or for the benefit of such Stockholder’s spouse, parent or descendants; or

(4) a Transfer to the Corporation (to the extent permitted under this Agreement).

(ii) with respect to the Investors:

(1) a Transfer to the general or limited partner(s) or an Affiliate of an Investor;

(2) a Transfer to the Corporation (to the extent permitted pursuant to this Agreement); or

(3) a Transfer to another Investor;

(iii) with respect to any Stockholder, a Transfer in compliance with Sections 2.3 and 2.4 or a Transfer to a charitable institution approved under Section 501(c)(3) of the Code.

(b) Status of Permitted Transferee . In connection with any Permitted Transfer, the transferee (the “ Permitted Transferee ”) shall be required to execute such documents as the Corporation shall reasonably request agreeing to be bound by this Agreement as a “Stockholder” hereunder (and, in the case of any holder of Preferred Stock, as an “Investor” hereunder).


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(c) Transfer of Certificates . With respect to any Permitted Transfer, certificates evidencing Stock may be transferred by a written instrument of transfer signed by the transferor and containing the name and address of the transferee, but in the absence of such written instrument of transfer, the Corporation may accept such evidence of a transfer of interest as they consider appropriate in its sole and absolute discretion.

2.3. Right of First Refusal for Transfer of Stock .

(a) Transfers Subject to First Refusal Rights .

(i) Transfer by Stockholders . In the event that any Stockholder wishes to Transfer any or all of such Stockholder’s Stock (other than a Permitted Transfer under Section 2.2(a)(i) or Section 2.2(a)(ii) and regardless of the class of such Stock), such Stockholder shall first offer to sell such Stock to the Investors and then to the Corporation upon the terms and conditions, and in the manner, herein provided.

(ii) Terminology . For purposes of this Section 2.3 , the Stockholder offering to sell the Stock shall be referred to as the “ Offeror ” and the Investors or the Corporation, as the case may be, receiving an offer pursuant to this Section 2.3 shall be referred to as the “ Offeree ” or “ Offerees ,” as applicable.

(b) Procedure for Right of First Refusal .

(i) Any Offeror desiring to Transfer Stock (other than pursuant to a Permitted Transfer) shall give notice in writing to the Offeree or Offerees in accordance with clause (ii) or (iii) of this Section 2.3(b) , as the case may be, stating his or its bona fide intention to Transfer such Stock, the name of the prospective transferee, the Stock to be sold or transferred (the “ Offered Stock ”), and the purchase price at or consideration for and the other material terms and conditions for which such Offered Stock is proposed to be transferred (for purposes of this Section 2.3(b) , the “ Notice ”).

(1) In the event that the proposed Transfer is for no consideration, the purchase price for purposes of this Section 2.3(b) shall be (x) the fair market value of the Offered Stock, as agreed upon by the Offeror and the Offerees; or (y) if the Offeror and the Offerees cannot agree within ten (10) days of receipt of the Notice, the fair market value of the Offered Stock, as determined by an independent valuation firm selected by the Majority of Each Series.

(2) To the extent that the proposed Transfer includes consideration other than cash or cash equivalents (including, but not limited to, promissory notes), the purchase price for purposes of this Section 2.3(b) shall include (x) the fair market value of the non-cash portion of the proposed consideration, as agreed upon by the Offeror and the Offerees; or (y) if the Offeror and the Offerees cannot agree within ten (10) days of receipt of the Notice, the fair market value of the non-cash portion of the proposed consideration, as determined by an independent valuation firm selected by the Majority of Each Series.


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(ii) Prior to any Transfer of Offered Stock by an Offeror, the Offeror shall deliver the Notice to the Investors and the Corporation. Upon receipt of the Notice, each of the Investors shall have the first right and option, exercisable for a period of thirty (30) calendar days from the date of receipt of the Notice, to purchase up to the number of shares of Offered Stock equal to such Investor’s Proportionate Portion at the price and on the same terms and conditions as set forth in the Notice. Each Investor wishing to exercise such right shall, within the notice period set forth above, notify the Offeror and the Corporation, in writing, of the number of shares of Offered Stock he or it wishes to purchase at the price set forth in the Notice. Failure by an Investor to respond to the Notice within the thirty (30) day period shall be deemed to constitute a notification to the Offeror of such Investor’s decision not to exercise his or its first right and option to purchase the Offered Stock. If the responding Investors have not elected to purchase, in the aggregate, all of the Offered Stock pursuant to this subsection (ii) or subsection (iii) below, the Corporation shall have the right and option, exercisable for a period of ten (10) calendar days following the expiration of the Option Period (as defined below), to purchase all, but not less than all, of the remaining Offered Stock at the price and on the same terms and conditions as set forth in the Notice.

(iii) If options to purchase all of such Offered Stock are effectively exercised hereunder, the Corporation shall notify the Offeror of that fact. Immediately upon receipt of notice that all the shares are to be purchased, the Offeror shall deliver to the purchasing Offeree or Offerees (or the stock transfer agent of the Corporation), as the case may be, a proper assignment in blank for such shares with signatures properly guaranteed and with such other documents as may be required by the Secretary of the Corporation to provide reasonable assurance that each necessary endorsement is genuine and effective, in exchange for payment by the purchasing Offeree or Offerees representing the total purchase price. Any of the Offered Stock acquired by the purchasing Offerees pursuant to this Section 2.3(b) (excluding the Corporation), shall be subject to the provisions and restrictions of this Agreement. If any Offeree (other than the Corporation) fails to exercise its or his first right or option to purchase its or his Proportionate Portion of the Offered Stock pursuant to the terms and conditions of this Section 2.3(b) (the “ Remaining Option ”), then the Corporation shall notify each Exercising Optionee (as defined below) of the number of shares of Stock which each Exercising Optionee has elected to purchase, and, for a period of ten (10) days commencing upon receipt of such notice by the Exercising Optionees (the “ Option Period ”), any remaining Offeree (excluding the Corporation) giving timely notice of his or its desire to purchase its or his Proportionate Portion of the Offered Stock in accordance with subsection (ii) above (an “ Exercising Optionee ”) shall have the option to purchase those shares of Offered Stock subject to the Remaining Option in an amount mutually agreed upon by the Exercising Optionees; provided , however , if they cannot so agree, each will be entitled to purchase a ratable portion of the Offered Stock subject to the Remaining Option.

(iv) Unless all (but not less than all) of the Offered Stock to which the Notice refers is purchased in accordance with this Section 2.3(b) , none of such Offered Stock shall be purchased by the Offeree or Offerees, as the case may be, any payment submitted by any Offeree shall be returned to it, and written notice shall be given to the


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Offeror that the options hereunder have not been exercised with respect to all of the Offered Stock. The Offeror shall thereafter be permitted to Transfer all, but not less than all, of the Offered Stock to the Person or Persons named as prospective transferees in the Notice, in the manner described therein; provided , however , that the Offeror shall not Transfer such Offered Stock on terms more favorable to the purchaser than those specified in said Notice; and provided further , that any Offered Stock disposed of and sold to such transferees shall remain subject to the provisions and restrictions of this Agreement. If the Offeror does not complete such Transfer in accordance with the Notice within a sixty (60) day period following the receipt of notice that the first refusal rights set forth in this Section 2.3 have not been exercised in full, he or it shall be required again to comply with the provisions of this Section 2.3 before he or it may Transfer any Stock.

(v) In connection with any Transfer of Stock pursuant to this Section 2.3 to a transferee who is not a party to this Agreement, the transferee shall be required to execute such documents as the Corporation shall reasonably request agreeing to be bound by this Agreement as a “Stockholder” hereunder (and, in the case of any holder of Preferred Stock, as an “Investor” hereunder).

2.4. Co-Sale Right .

(a) If at any time any Stockholder (a “ Selling Stockholder ”) desires to Transfer all or any part of the Stock owned by him or it to any Person other than any other Stockholder or the Corporation (the “ Buyer ”) or pursuant to a Permitted Transfer, and such Selling Stockholder has complied with the provisions of Section 2.3 hereof, such Selling Stockholder shall give notice in writing to each of the Investors (the “ Remaining Investors ”) of his or its intention to proceed with the transaction as permitted pursuant to Section 2.3 hereof (the “ Co-Sale Offer ”). Each Remaining Investor shall have the right to sell to the Buyer, as a condition to the sale by the Selling Stockholder, at the same price per share and on the same terms and conditions as involved in the sale by such Selling Stockholder, up to a number of shares of Stock equal to the product of (i) the quotient determined by dividing the Percentage Interest of such Remaining Investor, by the aggregate Percentage Interest owned by the Selling Stockholder and all Remaining Investors electing to participate in such Transfer and (ii) the number of shares of Stock to be sold in the contemplated Transfer. For purposes of the foregoing, unless the Selling Stockholder is selling Preferred Stock or the Buyer agrees to purchase Preferred Stock from the Remaining Investors, the Remaining Investors may only sell Common Stock. Furthermore, if the Selling Stockholder is selling shares of Preferred Stock of any given series, the Remaining Investors’ co-sale rights granted pursuant hereto shall be limited to participating in the sale of only that series proposed to be sold by the Selling Stockholder.

(b) Each Remaining Investor wishing to participate in any sale under this Section 2.4 shall notify the Selling Stockholder in writing of such intention as soon as practicable after such Remaining Investor’s receipt of the Co-Sale Offer made pursuant to Section 2.4(a) , and in any event not later than ten (10) days after the date the Co-Sale Offer was made.

(c) The Selling Stockholder and the participating Remaining Investors shall sell to the Buyer all, or at the option of the Buyer, any portion of the Stock proposed to be sold


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by them at the price and upon other terms and conditions not more favorable to the Buyer than those in the Co-Sale Offer provided by such Selling Stockholder pursuant to Section 2.4(a) above; provided , however , that any purchase of less than all of such Stock by the Buyer shall be made from any Remaining Investor and the Selling Stockholder pro rata based upon the relative number of shares of the Stock that such Selling Stockholder and each Remaining Investor is otherwise entitled to sell pursuant to Section 2.4(a) . The Selling Stockholder will not sell any shares of Stock to the Buyer if such Buyer refuses to allow the participation of the Remaining Investors.

(d) In connection with any Transfer of Stock to a Buyer, the Buyer shall be required to execute such documents as the Corporation shall reasonably request agreeing to be bound by this Agreement as a “Stockholder” hereunder (and, in the case of any holder of Preferred Stock, as an “Investor” hereunder).

2.5. Death, Disability or Termination .

(a) In the event of (i) the death of a Stockholder that is a natural person, (ii) the Disability of a Stockholder that is an employee of the Corporation or any Affiliate of the Corporation or (iii) the occurrence of a Termination Event (any of (i), (ii) or (iii), a “ Triggering Event ”), the Corporation shall have the option, but not the obligation, to purchase from such Stockholder or his estate, heirs, beneficiaries, legal representatives, or successors in interest (collectively, the “ Successors ”) any or all Stock held by such Stockholder, the Successors and the Permitted Transferees of such Stockholder at a purchase price equal to (x) in the case of a Triggering Event pursuant to clauses (i) or (ii) above, the fair market value of such Stock as of the purchase date as determined by the Board of Directors in its sole and absolute discretion to the extent permitted by this Agreement or (y) in the case of a Triggering Event pursuant to clause (iii) above, $0.01 per share for such shares of Stock (appropriately adjusted for any stock split, stock dividend, combination or other recapitalization). Notwithstanding the foregoing, with respect to any shares of Common Stock: (x) that are subject to any equity restriction agreement between a Stockholder and the Corporation in effect as of the date hereof, or (y) that were acquired by a Stockholder pursuant to the exercise of options granted pursuant to any option plan authorized by the Board of Directors (the “ Option Shares ”), to the extent anything in this Section 2.5 conflicts with the applicable option or equity restriction agreement between the Corporation and such Stockholder, such option or equity restriction agreement shall govern the terms and conditions of the treatment of such Common Stock. The following additional provisions shall apply to any repurchase pursuant to this Section 2.5 :

(i) The foregoing option shall be exercisable by the Corporation by written notice to the Stockholder, Successors or Permitted Transferees, as applicable, within one (1) year of the Triggering Event (in the case of Section 2.5 (i)  and (ii) ) and within One Hundred Eighty (180) days of the Triggering Event (in the case of Section 2.5 (iii) ).

(ii) If the purchase price to be paid to the Stockholder, the Successors or the Permitted Transferees, as applicable, is, in the aggregate, in excess of One Hundred Thousand Dollars ($100,000), the Corporation may, in its sole option, pay all or any portion of such purchase price by delivering to the Stockholder, the Successors or the


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Permitted Transferees, as applicable, one or more promissory notes which: (i) shall be payable in installments payable on the first three (3) anniversaries of the date of purchase, each installment consisting of one-third (1/3) of the principal amount of the note plus interest from the date of the note at a rate of interest equal to the “Applicable Federal Rate” (as defined in the Code) in effect at the time of purchase; (ii) shall permit pre-payment in whole or part at any time, without penalty; (iii) to the extent permitted by applicable law, shall be secured by a pledge of the purchased Stock; (iv) to the extent permitted by applicable law, shall provide for forgiveness of all outstanding principal and interest in the event of the dissolution or liquidation of the Corporation, in which event the Corporation will be deemed to have purchased only that portion of the Stock that is equal in proportion to the portion of the purchase price actually paid by the Corporation up to the date of such liquidation or dissolution; and (v) shall contain other details customary for promissory notes of this type.

(iii) If the purchase price to be paid to the Stockholder, the Successors or the Permitted Transferees, as applicable, is, in the aggregate, less than or equal to One Hundred Thousand Dollars ($100,000), the Corporation or the Investors, as applicable, shall pay such purchase price within sixty (60) calendar days of the exercise of the option set forth in this Section 2.5 .

(b) To the extent the Corporation elects not to exercise its option to purchase from the Successors or Permitted Transferees any or all Stock transferred upon a Triggering Event, the Corporation shall provide written notice to each of the Investors of such election (the “ Triggering Event Election Notice ”). Upon receipt of the Triggering Event Election Notice, each of the Investors shall have the option, but not the obligation, exercisable for a period of ninety (90) calendar days from the date of receipt of the Triggering Event Election Notice, to purchase up to the number of shares of Stock transferred upon the Triggering Event in proportion to such Investor’s Proportionate Portion (with any remaining Stock transferred upon the Triggering Event that is not purchased by the other Investors similarly allocated among the Investors desiring to purchase more than his or its Proportionate Portion) on substantially the same terms as set forth in this Section 2.5 for the Corporation.

2.6. Non-Permitted Transfers; Transfers by Operation of Law .

In the event that a Transfer of Stock is effected by operation of law (including, but not limited to, bankruptcy or insolvency, or divorce and dissolution of marriage) other than by reason of the death or dissolution of a Stockholder (a “ Non-Permitted Transfer ”), then, subject to this Agreement, the Corporation shall have the option, but not the obligation, to purchase from any recipient of a Non-Permitted Transfer all Stock transferred pursuant to the Non-Permitted Transfer, at a purchase price equal to the product of (i) the fair market value of the shares of Stock of the transferring Stockholder immediately prior to such Non-Permitted Transfer, as determined by the Board of Directors in its sole and absolute discretion, multiplied by (ii) a fraction, the numerator of which is the number of shares of Stock transferred pursuant to the Non-Permitted Transfer and the denominator of which is the total number of shares of Stock held by the transferring Stockholder immediately prior to such Non-Permitted Transfer.


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(a) The foregoing option shall be exercisable by written notice to the transferee of the Non-Permitted Transfer provided within one (1) year of the later of (i) the effective date of the Non-Permitted Transfer and (ii) the date upon which the Corporation acquires actual notice of the Non-Permitted Transfer.

(b) If the purchase price to be paid to the recipient of a Non-Permitted Transfer is in excess of One Hundred Thousand Dollars ($100,000), the Corporation may, at its sole option, pay all or any portion of such purchase price by delivering to the transferee a promissory note which: (i) shall be payable in installments payable on the first three (3) anniversaries of the date of purchase, each installment consisting of one-third (1/3) of the principal amount of the note plus interest from the date of the note at a rate of interest equal to the “Applicable Federal Rate” (as defined in the Code) in effect at the time of purchase; (ii) shall permit pre-payment in whole or part at any time, without penalty; (iii) to the extent permitted by applicable law, shall be secured by a pledge of the purchased Stock; (iv) to the extent permitted by applicable law, shall provide for forgiveness of all outstanding principal and interest in the event of the dissolution or liquidation of the Corporation, in which event the Corporation will be deemed to have purchased only that portion of the Stock that is equal in proportion to the portion of the purchase price actually paid by the Corporation up to the date of such liquidation or dissolution; and (e) shall contain other details customary for notes of this type.

(c) If the purchase price to be paid to the recipient of a Non-Permitted Transfer is less than or equal to One Hundred Thousand Dollars ($100,000), the Corporation shall pay such purchase price within sixty (60) calendar days of the exercise of the option set forth in this Section 2.6 .

(d) To the extent the Corporation elects not to exercise its option to purchase from any recipient of a Non-Permitted Transfer any or all Stock transferred pursuant to the Non-Permitted Transfer, the Corporation shall provide written notice to each of the Investors of such election (the “ Election Notice ”). Upon receipt of the Election Notice, each of the Investors shall have the option, but not the obligation, exercisable for a period of ninety (90) calendar days from the date of receipt of the Election Notice, to purchase up to the number of shares of Stock transferred pursuant to the Non-Permitted Transfer in proportion to such Investor’s Proportionate Portion (with any remaining Stock transferred pursuant to the Non-Permitted Transfer that is not purchased by the other Investors similarly allocated among the Investors desiring to purchase more than his or its Proportionate Portion) on substantially the same terms as set forth in this Section 2.6 for the Corporation.

 

3. PARTICIPATION RIGHTS ON SALE OF ADDITIONAL STOCK

(a) If, at any time and from time to time the Corporation should desire to issue any New Securities (as hereinafter defined), it shall give each Investor the first right to purchase such Investor’s Proportionate Portion (or any part thereof) of all of such offered New Securities on the same terms as the Corporation is willing to sell such New Securities to any other Person.

(b) Prior to any sale or issuance by the Corporation of any New Securities, the Corporation shall notify each Investor in writing of its intention to sell and issue such securities, setting forth the terms under which it proposes to make such sale (the “ Participation Notice ”).


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Within ten (10) business days after receipt of the Participation Notice (the “ Exercise Period ”), each Investor shall notify the Corporation whether such Investor desires to exercise the option to purchase such Investor’s Proportionate Portion (or any part thereof) of the New Securities so offered. Within two (2) business days after the expiration of the Exercise Period, the Corporation shall notify in writing each Investor who elected to purchase its Proportionate Portion of the New Securities (each, an “ Electing Investor ”) of the aggregate number of offered New Securities that the Investors chose not to purchase (the “ Over-Allotment Notice ”). Each Electing Investor shall have the option to purchase, on a pro rata basis, that portion of the New Securities which such other Investors elected not to purchase (the “ Over-Allotment Option ”). Each Electing Investor shall notify the Corporation within five (5) business days after receipt of the Over-Allotment Notice (the “ Over-Allotment Period ”) whether such Electing Investor desires to exercise its or his Over-Allotment Option. In the event that the Investors purchase all of the New Securities to be offered by the Corporation under the Participation Notice, then a closing of the sale and issuance of the New Securities to the Electing Investors shall occur no later than the date set forth in the Participation Notice.

(c) After the expiration of the Over-Allotment Period, the Corporation may, during a period of ninety (90) days immediately following the end of the Exercise Period, sell and issue such New Securities as to which the Investors did not indicate a desire to purchase to another Person, upon the same terms and conditions as those set forth in the Participation Notice. In the event the Corporation has not sold the New Securities within said ninety (90) day period, the Corporation shall not thereafter issue or sell any New Securities without first offering such securities to the Investors in the manner provided above.

(d) For purposes of this Section 3 , the term “ New Securities ” shall mean shares of Common Stock, shares of Preferred Stock of the Corporation or any other class of capital stock of the Corporation, whether or not now authorized, securities of any type that are convertible into shares of such capital stock and options, warrants, debt instruments or rights to acquire shares of such capital stock, other than the securities issued or issuable, as described in subsections (a) through (f), inclusive, of Section 4.2.5(E)(1)(iii) of the Certificate of Incorporation; provided, however, the approval required under subsection (f) of Section 4.2.5 of the Certificate of Incorporation shall specifically reference the waiver of the participation rights under this Section 3.

 

4. TERMINATION OF TRANSFER RESTRICTIONS

Sections 2 and 3 of this Agreement shall terminate upon the earliest to occur of any one of the following events:

(a) The liquidation, dissolution or indefinite cessation of business operations of the Corporation;

(b) The execution by the Corporation of a general assignment for the benefit of creditors or the appointment of a receiver or trustee to take possession of the property and assets of the Corporation;


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(c) The Corporation’s consummation of a Qualified Public Offering (as defined in the Certificate of Incorporation); or

(d) The sale, conveyance or other disposal of all or substantially all of the Corporation’s property or business or the merger into or consolidation with any other Entity (other than a wholly-owned subsidiary Entity) or other transaction or series of related transactions in which more than fifty percent (50%) of the voting power of the Corporation is disposed of, provided that this Section 4(d) shall not apply to a merger undertaken solely for the purpose of changing the domicile of the Corporation.

 

5. INTENTIONALLY OMITTED

 

6. DEFAULTS AND REMEDIES

6.1. Defaults .

If a Stockholder materially defaults in the performance of his or its obligations under this Agreement, and such default is not cured within ten (10) calendar days after written notice of such default is given by the Corporation or an Investor to the defaulting Stockholder for a default that can be cured by the payment of money, or within ten (10) calendar days after written notice of such default is given by the Corporation or an Investor to the defaulting Stockholder for any other default, then the non-defaulting Stockholders shall have the rights and remedies described in Section 6.2 hereunder in respect of the default.

6.2. Remedies .

If a Stockholder fails to perform his or its obligations under this Agreement, the Corporation and any other Stockholder shall have the right, in addition to all other rights and remedies provided herein, on behalf of himself or itself, the Corporation or the Stockholders, to bring the matter to arbitration as provided in Section 8.11 . The award of the arbitrator in such a proceeding may include an order for specific performance by the defaulting Stockholder of his or its obligations under this Agreement, or an award for damages for payment of sums due to the Corporation or to a Stockholder.

 

7. BOARD OF DIRECTORS

7.1. Nomination and Election of Directors .

(a) For so long as the holders of the Series A Preferred Stock are entitled separately as a series to elect directors pursuant to the terms of the Certificate of Incorporation, the holders of a majority of the Series A Preferred Stock shall have the right to designate one (1) nominee (the “ Preferred A Director ”) for election as a director of the Corporation. The Preferred A Director shall be elected solely by the holders of Series A Preferred Stock as provided in the Certificate of Incorporation. Each Stockholder who is a holder of Series A Preferred Stock hereby agrees that at each meeting of stockholders (or written consent in lieu thereof) at or by which directors are to be elected, such Stockholder shall vote all of its Series A Preferred Stock to elect, as a director of the Corporation, the Preferred A Director. Any vacancy caused by the death, resignation, removal or other cause of any Preferred A Director shall be filled by a


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replacement designated and elected in accordance with the provisions contained in this subsection (a) with a vote of the holders of a majority of the shares of Series A Preferred Stock, voting separately as a single class.

(b) For so long as the holders of the Series B Preferred Stock are entitled separately as a series to elect directors pursuant to the terms of the Certificate of Incorporation, (i) Gazelle TechVentures Fund, L.P. shall have the right to designate one (1) nominee and KB Partners Venture Fund II, L.P. shall have the right to designate one (1) nominee (each a “ Preferred B Director ” and collectively, the “ Preferred B Directors ”) for election as directors of the Corporation. Each of the Preferred B Directors shall be elected solely by the holders of the Series B Preferred Stock pursuant to the Certificate of Incorporation. Each Stockholder who is a holder of Series B Preferred Stock hereby agrees that at each meeting of stockholders (or written consent in lieu thereof) at or by which directors are to be elected, such Stockholder shall vote all of its Series B Preferred Stock to elect, as directors of the Corporation, the Preferred B Directors. Any vacancy caused by the death, resignation, removal or other cause of any Preferred B Director shall be filled by a replacement designated and elected in accordance with the provisions contained in this subsection (b) with a vote of the holders of a majority of the shares of Series B Preferred Stock, voting separately as a single class.

(c) For so long as the holders of the Series C Preferred Stock and the holders of the Series D Preferred Stock are entitled separately as a series to elect directors pursuant to the terms of the Certificate of Incorporation, the holders of a majority of the Series C Preferred Stock and the Series D Preferred Stock, voting together as if a single series or class, shall have the right to designate one (1) nominee (the “ Preferred C Director ”) for election as a director of the Corporation. The Preferred C Director shall be elected solely by the holders of Series C Preferred Stock and Series D Preferred Stock as provided in the Certificate of Incorporation. Each Stockholder who is a holder of Series C Preferred Stock or of Series D Preferred Stock hereby agrees that at each meeting of stockholders (or written consent in lieu thereof) at or by which directors are to be elected, such Stockholder shall vote all of its Preferred Stock to elect, as a director of the Corporation, the Preferred C Director. Any vacancy caused by the death, resignation, removal or other cause of any Preferred C Director shall be filled by a replacement designated and elected in accordance with the provisions contained in this subsection (c) with a vote of the holders of a majority of the shares of Series C Preferred Stock and Series D Preferred Stock, voting together as if a single series or class.

(d) For so long as a majority of the holders of the Common Stock are entitled separately as a class to elect directors pursuant to the terms of the Certificate of Incorporation, the holders of a majority of the Common Stock shall have the right to designate one (1) nominee (the “ Common Director ”) for election as a director of the Corporation. The Common Director shall be elected solely by the holders of a majority of the Common Stock pursuant to the Certificate of Incorporation. Each Stockholder who is a holder of Common Stock hereby agrees that at each meeting of Stockholders (or written consent in lieu thereof) at or by which directors are to be elected, such Stockholder shall vote all of its Stock to elect as, a director of the Corporation, the Common Director. Any vacancy caused by the death, resignation, removal or other cause of any Common Director shall be filled by a replacement designated and elected in accordance with the provisions contained in this subsection (d) with a vote of the holders of a majority of the Common Stock.


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(e) For so long as the holders of the Series A Preferred Stock, the holders of Series B Preferred Stock, the holders of the Series C Preferred Stock, and the holders of the Series D Preferred Stock are entitled together as a class to elect directors pursuant to the terms of the Certificate of Incorporation, a Majority of Each Series and the holders of a majority of the issued and outstanding shares of the Series A Preferred Stock shall have the right to designate two (2) nominees (each, an “ Outside Director ” and, collectively, the “ Outside Directors ”), who shall not be an employee or officer of the Corporation, for election as directors of the Corporation. Each Outside Director shall be elected solely by the holders of a Majority of Each Series and the holders of a majority of the issued and outstanding shares of the Series A Preferred Stock, voting separately as a series. Each Stockholder who is a holder of Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock or Series D Preferred Stock hereby agrees that at each meeting of stockholders (or written consent in lieu thereof) at or by which directors are to be elected, such Stockholder shall vote all of its Preferred Stock to elect the Outside Directors as directors of the Corporation. Any vacancy caused by the death, resignation, removal or other cause of an Outside Director shall be filled by a replacement designated and elected in accordance with the provisions contained in this subsection.

(f) The Corporation shall use its commercially reasonable efforts to cause the Stockholders to vote all of their Stock to elect, as directors of the Corporation, the Preferred A Director, the Preferred B Directors, the Preferred C Director, the Common Director and the Outside Directors in accordance with this Section 7 .

7.2. Initial Board of Directors .

In accordance with the Certificate of Incorporation in effect as of the date hereof, the number of members of the Board of Directors shall be fixed at seven (7), and the members of the Board of Directors shall be the following Directors: (a) Donald Caldwell shall be the Preferred A Director; (b) Don N. Aquilano and Byron Denenberg, shall be the Preferred B Directors; (c) Glenn T. Rieger shall be the Preferred C Director; (d) Christopher J. Moffitt shall be the Common Director; and (d) Michael Mikolajczyk and Mitch Tyson shall be the Outside Directors.

7.3. Event of Non-Compliance .

Each Stockholder who or which beneficially owns shares of Series B Preferred Stock or Series C Preferred Stock as to which such Stockholder is entitled to vote or direct the vote severally agrees, (i) to cause such shares to be voted, or to execute or cause to be executed a written consent (or other applicable written instrument) with respect to such shares, upon the occurrence of an Event of Non-Compliance in accordance with Section 4.2.7(B) of Article FOURTH of the Certificate of Incorporation, for the election to the Board of Directors of such person or persons as shall be designated by the holders of a majority of the Series B Preferred Stock and Series C Preferred Stock, voting together on an as-converted, cumulative basis (the “ Additional Directors ”), and (ii) upon the cure of the Event of Non-Compliance (as defined in Section 4.2.8 of Article FOURTH of the Certificate of Incorporation), if curable, which triggered the election of the Additional Directors to the Board of Directors, (A) to take all actions reasonably available to cause the resignation of any Additional Directors, and (B) if necessary, to cause such shares to be voted, or to execute or cause to be executed a written consent (or other applicable written instrument) with respect to such shares, for the removal of any Additional Directors from the Board of Directors.


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7.4. Compensation Committee .

The Corporation covenants and agrees that (i) the Board of Directors will continue to maintain a Compensation Committee (the “ Compensation Committee ”) to recommend for the Board of Directors’ approval compensation, the Corporation’s benefit plans, and general employee stock option plans; (ii) such Compensation Committee shall consist of three (3) Directors, of which one will be the Preferred A Director or the Preferred C Director (currently, as of the date of this Agreement, Don Caldwell), one will be a Preferred B Director (currently, as of the date of this Agreement, Byron Denenberg), and one will be one of the two Outside Directors (who shall initially be Mitch Tyson, subject to his formal nomination and appointment by the Board in accordance herewith); and (iii) decisions by the Compensation Committee shall be made by majority vote.

7.5. Audit Committee .

The Corporation covenants and agrees that promptly after the date hereof, the Board of Directors will establish an Audit Committee (the “ Audit Committee ”), which will be comprised of three Directors, of which one will be the Preferred A Director or the Preferred C Director, one will be a Preferred B Director; and one will be an Outside Director; provided that, notwithstanding the foregoing, each member shall be “disinterested” within the meaning of the Sarbanes-Oxley Act and, if any of the foregoing designated directors shall not meet such requirement, such director shall be disqualified to serve as a member of the Audit Committee and a replacement shall be designated by the Board of Directors.

7.6. Other Committees .

So long as there is a Preferred A Director or a Preferred C Director, a Preferred A Director or a Preferred C Director shall be a member of any Board committee established by the Corporation’s Board of Directors, other than the Management Committee. So long as there is a Preferred B Director, a Preferred B Director shall be a member of any Board committee established by the Corporation’s Board of Directors, other than the Management Committee.

 

8. MISCELLANEOUS PROVISIONS

8.1. Notices .

Any notice, demand, or communication required or permitted to be given by any provision of this Agreement shall be deemed to have been sufficiently given or served for all purposes if delivered personally to the party or to an executive officer of the party to whom the same is directed or, if sent by overnight courier or registered or certified mail, postage and charges prepaid, addressed to the Stockholder’s and/or Corporation’s address, as appropriate, which is set forth in the records of the Corporation. Except as otherwise provided herein, any such notice shall be deemed to be given two (2) business days after the date on which the same was deposited with an overnight courier service or in the United States mail, addressed and sent as aforesaid.


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8.2. Application of Delaware Law .

This Agreement and its interpretation shall be governed exclusively by its terms and by the laws of the State of Delaware, and specifically the Act.

8.3. Amendments .

Except as otherwise set forth herein, this Agreement may not be amended except in writing by the holders of: (a) greater than fifty percent (50%) of the shares of Common Stock then issued and outstanding; (b) greater than fifty percent (50%) of the shares of Series A Preferred Stock then issued and outstanding; (c) greater than fifty percent (50%) of the shares of Series B Preferred Stock then issued and outstanding (and the shares of Common Stock issuable upon conversion of the Series B Preferred Stock); (d) greater than fifty percent (50%) of the shares of Series C Preferred stock then issued and outstanding (and the shares of Common Stock issuable upon conversion of the Series C Preferred Stock); and (e) greater than fifty percent (50%) of the shares of Series D Preferred Stock then issued and outstanding (and the shares of Common Stock issuable upon conversion of the Series D Preferred Stock).

8.4. Construction .

Whenever the singular number is used in this Agreement and when required by the context, the same shall include the plural and vice versa, and the masculine gender shall include the feminine and neuter genders and vice versa.

8.5. Headings .

The headings in this Agreement are inserted for convenience only and are in no way intended to describe, interpret, define, or limit the scope, extent or intent of this Agreement or any provision hereof.

8.6. Severability .

If any provision of this Agreement or the application thereof to any Person or circumstances shall be invalid, illegal, or unenforceable to any extent, the remainder of this Agreement and the application thereof shall not be affected and shall be enforceable to the fullest extent permitted by law.

8.7. Heirs, Successors and Assigns .

Each and all of the covenants, terms, provisions, and agreements herein contained shall be binding upon and inure to the benefit of the parties hereto and, to the extent permitted by this Agreement, their respective heirs, legal representatives, successors and assigns.

8.8. Counterparts .

This Agreement may be executed in counterparts, each of which shall be deemed an original but all of which shall constitute one and the same instrument.


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8.9. Additional Holders .

The Corporation shall not issue any additional shares of Stock (including but not limited to upon exercise of options or other convertible securities) unless the recipient agrees to be a “Stockholder” hereunder (and in the case of any recipient of Preferred Stock, an “Investor” hereunder) and bound by the terms and provisions of this Agreement (to the extent not already a party to this Agreement). Such additional parties may be added hereunder by execution of an agreement to be bound hereby and without the necessity of amending this Agreement and upon execution thereof such additional parties shall receive all the rights and benefits of a Stockholder and, as the case may be, an Investor provided hereunder. The Corporation shall revise from time to time, as necessary, Schedule I hereto to reflect any additional parties and provide copies of such updated schedule to any Stockholder upon written request.

8.10. Legal Counsel .

The Corporation has engaged Gordon & Glickson LLC (“ G&G ”), as legal counsel to the Corporation. No legal counsel has been engaged by the Corporation to protect or otherwise represent the interests of the Stockholders. Each Stockholder: (a) approves G&G’s representation of the Corporation in the preparation of the Stockholders’ Agreement, which this Agreement amends and restates; (b) acknowledges that no legal counsel has been engaged by the Corporation to protect or otherwise represent the interests of the Stockholders, that G&G has not been engaged by any Stockholder to protect or represent the interests of such Stockholder vis-a-vis the Corporation or the preparation of the Stockholders’ Agreement or this Agreement, and that actual or potential conflicts of interest may exist among the Stockholders in connection with the preparation of the Stockholders’ Agreement or this Agreement (with the consequence that a Stockholder’s interests may not be vigorously represented unless such Stockholder engages its own legal counsel); and (c) acknowledges further that such Stockholder has been afforded the opportunity to engage and seek the advice of its own legal counsel before entering into the Stockholders’ Agreement or this Agreement, as applicable. In addition, each Stockholder: (i) acknowledges the possibility of a future conflict or dispute among Stockholders or between any Stockholder or Stockholders and the Corporation; (ii) agrees that G&G may represent the Corporation and/or any Stockholder, except that in the case of an Investor, only upon prior written approval of such Investor, in connection with any such conflict or dispute and, to the extent permitted under the Illinois Rules of Professional Conduct and any other applicable rules governing the professional conduct of attorneys (the “ Professional Rules ”), waives its right to object to such representation (including, without limitation, on the grounds of any actual or potential conflict of interests); and (iii) acknowledges the possibility that, pursuant to operation of the Professional Rules, G&G may be precluded from representing the Corporation and/or any Stockholder in connection with any such conflict or dispute (even if G&G has represented such Stockholder with regard to other matters). Nothing in this Section 8.10 shall preclude the Corporation from selecting different legal counsel to represent it at any time in the future.

8.11. Arbitration .

If the parties are unable to resolve any disagreement, dispute, controversy or claim that may arise out of the transactions contemplated by this Agreement, they shall resolve the disagreement or dispute as follows:


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(a) Any controversy or claim arising out of, or relating to, this Agreement, or the making, performance, or interpretation of it, shall be settled by arbitration in Chicago, Illinois, or such other location agreed to by the parties in accordance with the Commercial Rules of Arbitration of the American Arbitration Association (“ AAA ”) then existing, pursuant to a written award with the findings of fact and conclusions of law (which award shall be consistent with this Agreement and applicable governmental authority) and judgment on the arbitration award may be entered in any court having jurisdiction over the subject matter of the controversy; provided, that punitive damages may not be awarded in such arbitration. The arbitrator shall have the right to render equitable, as well as other awards and relief. Before submitting a list of potential arbitrators to the parties for their consideration, the AAA shall consult with each party to discuss the applicable qualifications of the proposed arbitrators. Unless the parties agree in writing otherwise, the AAA shall select a single arbitrator. Each arbitrator shall be a currently licensed lawyer in the United States of America with at least twenty years experience in practicing general corporate law in the United States.

(b) The provisions of this Section 8.11 shall not be construed to prevent any party hereto from instituting proceedings at law or in equity where a party makes a good faith determination that a temporary restraining order or other immediate and/or permanent injunctive relief is the only adequate remedy.

(c) The dispute resolution procedures set forth in this Section 8.11 shall survive the termination of this Agreement.

[END OF AGREEMENT]


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IN WITNESS WHEREOF, the parties hereto have caused their signatures, or the signatures of their duly authorized representatives, to be set forth below as of the Effective Date.

[I N ADDITION TO THOSE S IGNATURES BELOW , R EFER TO THAT CERTAIN S ERIES D O FFERING O MNIBUS A MENDMENT , W AIVER AND A UTHORIZATION , DATED AS OF J UNE  28, 2005 FOR C ERTAIN S IGNATURES OF THE P ARTIES TO THIS A GREEMENT ]

 

/s/ Nicholas A Cameron

Nicholas A Cameron

/s/ Mary Joan Doyle-Carson

Mary Joan Doyle-Carson

/s/ Edd H. Hyde

Edd H. Hyde

/s/ Frederick W. Kyle

Frederick W. Kyle

/s/ Charles T. Lee

Charles T. Lee

/s/ Daniel J. Phelan

Daniel J. Phelan

/s/ Dickinson M. Smith

Dickinson M. Smith

/s/ James G. Stewart

James G. Stewart

/s/ C. Ian Sym-Smith

C. Ian Sym-Smith

/s/ Samuel J. Talucci

Samuel J. Talucci

/s/ Wilson H. Taylor

Wilson H. Taylor

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IN WITNESS WHEREOF, the parties hereto have caused their signatures, or the signatures of their duly authorized representatives, to be set forth below as of the Effective Date.

 

Wilson Capital Partners LLC
By:  

/s/ Lawrence Wilson

Name:  

Lawrence Wilson

Title:  

Manager


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IN WITNESS WHEREOF, the parties hereto have caused their signatures, or the signatures of their duly authorized representatives, to be set forth below as of the Effective Date.

 

/s/ James Brissenden

James Brissenden

/s/ Gordon Hunter

Gordon Hunter

/s/ Mitch Tyson

Mitch Tyson

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SCHEDULE I

 

    

H OLDERS OF C OMMON S TOCK

   
   Filix Mogilevsky Irrevocable Trust  
   Gwendolyn C. Santos Irrevocable Trust  
   Hackett, Larry  
   Jane Mogilevsky Irrevocable Trust  
   Jeanine C. Almoro Irrevocable Trust  
   Kellyn S. Carlos Irrevocable Trust  
   Kenneth S. Carlos Irrevocable Trust  
   Kristine S. Carlos Irrevocable Trust  
   Langdon, Robert  
   Leonard Emil S. Ramos Irrevocable Trust  
   Marianne B. Sumagaysay Irrevocable Trust  
   Marte S. Constantino Irrevocable Trust  
   Merwin B. Sumagaysay Irrevocable Trust  
   Moffitt, Christopher J.  
   Mogilevsky, Radion  
   Nekich, Daniel  
   Northport Capital, LLC  
   Oizumi, Masao  
   Ornelas-Diaz, Fernando  
   Oudodova, Anna  
   Rachelle S. Pastor Irrevocable Trust  
  

Radion Mogilevsky as Custodian for Casey Mogilevsky under the Illinois Uniform Transfers to Minors Act

 
   Rylance, Bruce  
   Sliwa, Larry  
   Stamatova, Petranka  
    

H OLDERS OF P REFERRED S TOCK

   
   Adams, Harkness & Hill Entrepreneur’s Fund, LP  
   Adams, Harkness & Hill Technology Ventures 1A, LP +  
   Adams, Harkness & Hill Technology Ventures, LP  
   Anthony Abbattista 2000 Declaration of Trust  
   Baker, Arthur  
   Baker, Robert  
   Bergstein, Melvyn E.  
   Brej, Julie  
   Brissenden, James  
   Ciral, Shevlin J.  
   Connolly, Michael  
   Cross Atlantic Technology Fund II, LP  
   Cross Atlantic Technology Fund, L.P.  
   Davis, DeForest  
   DeCuyper, Michael  
   Gazelle Co-Investment Fund, L.P.  
   Gazelle TechVentures Fund, L.P.  
   Gleason, John S.  

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H OLDERS OF P REFERRED S TOCK

   
  Gordon & Glickson LLC  
  Gutstein, Adam J.  
  Hunter, Gordon  
  KB Partners Affiliates Fund II, L.P.  
  KB Partners Venture Fund II, L.P.  
  Matsamura, Alan  
  Mikolajczyk, Michael E.  
  Mitchell, Stephen C.  
  Moffitt, Christopher J.  
  Mogilevsky, Radion  
  Nekich, Daniel  
  Pasquesi, L. Robert  
  River Cities Capital Fund II, Limited Partnership  
  River Cities SBIC III, L.P.  
  Rylance, Bruce  
  Siefertson, Mark E. and Debbie L.  
  The Co-Investment 2000 Fund, L.P.  
  Tyson, Mitch  
  VanErmen, Steven R.  
  Weakland, Thomas  
  Nicholas A Cameron  
  Mary Joan Doyle-Carson  
  Edd H. Hyde  
  Frederick W. Kyle  
  Charles T. Lee  
  Daniel J. Phelan  
  Dickinson M. Smith  
  James G. Stewart  
  C. Ian Sym-Smith  
  Samuel J. Talucci  
  Wilson H. Taylor  
  Wilson Capital Partners LLC  

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Exhibit 4.4

SERIES E

STOCKHOLDERS’ AGREEMENT

This Series E Stockholders’ Agreement (this “ Agreement ”) is made and entered into as of November 30, 2005 (the “ Effective Date ”), by and among Rubicon Technology, Inc., a Delaware corporation (the “ Corporation ”) and those stockholders who are the purchasers of the Series E Convertible Preferred Stock, par value $0.001 per share, of the Corporation (the “ Series E Preferred Stock ”) pursuant to the Series E Purchase Agreement (defined below) (such stockholders hereinafter sometimes referred to individually as “ Stockholder ” and collectively as the “ Stockholders ”).

RECITALS

A. Simultaneously with the execution and delivery of this Agreement, the Corporation and the Stockholders are executing and delivering that certain Series E Convertible Preferred Stock Purchase Agreement (the “ Series E Purchase Agreement ”) pursuant to which the Stockholders are acquiring Series E Preferred Stock and, as of the date of this Agreement, the Stockholders are the owners of all of the issued and outstanding shares of Series E Preferred Stock;

B. The Stockholders, the Corporation and the other stockholders of the Corporation have entered that certain Third Amended and Restated Stockholders’ Agreement, dated June 28, 2004 (as the same may have been amended or modified from time to time, the “ Existing Stockholders’ Agreement ”);

C. While the Stockholders and certain other stockholders of the Corporation wish to amend and restate the Existing Stockholders’ Agreement in connection with the purchase and sale of the Series E Preferred Stock, in the form of that certain Fourth Amended and Restated Stockholders’ Agreement (the “ Restated Stockholders’ Agreement ”) attached as Exhibit D to that certain Series E Offering Omnibus Amendment, Waiver and Authorization, dated of even date herewith, the Corporation is currently unable to obtain the consent of the holders of greater than 50% of the shares of Common Stock, par value $0.001 per share, of the Corporation; and

D. The Corporation and the Stockholders believe that it is in the best interests of each of them to close the transactions contemplated by the Series E Purchase Agreement without effecting the Restated Stockholders’ Agreement and make provisions for the future disposition of the Series E Preferred Stock and other matters with respect to the governance of the Corporation, as provided herein.

AGREEMENTS

In consideration of the recitals and of the mutual covenants hereinafter set forth and other good and valuable consideration, the receipt, sufficiency and adequacy of which are hereby acknowledged, the parties hereto, for themselves and their respective successors and assigns, hereby covenant and agree as follows:

 


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1. DEFINITIONS

Defined terms used in this Agreement but not defined herein shall have the meanings ascribed to such terms in the Existing Stockholders’ Agreement.

 

2. TRANSFERABILITY

2.1. General . The Series E Preferred Stock shall be subject to the same restrictions on Transfer set forth in the Existing Stockholders’ Agreement as if the Series E Preferred Stock were included in the defined term “Stock” under the Existing Stockholders’ Agreement. By way of example and not of limitation, each of the Stockholders understand and agree that the Series E Preferred Stock shall be subject to the Transfer restrictions and terms set forth in the following sections of the Existing Stockholders’ Agreement: 2.1, 2.2, 2.3, 2.4, and 2.6.

2.2. Transfer Legend . Each certificate issued to a Stockholder representing the Series E Preferred Stock shall have a legend, in substantially the following form, conspicuously written, printed, typed, or stamped on its face, or upon the reverse with a conspicuous reference to such legend on its face:

“The shares represented by this certificate are subject to the terms and conditions of the Series E Stockholders’ Agreement, dated as of November 30 2005, as may be amended, restated or otherwise modified from time to time. The shares represented by this Certificate may not be sold, transferred, or otherwise disposed of except in accordance with said Stockholders’ Agreement.

 

3. PARTICIPATION RIGHTS ON SALE OF ADDITIONAL STOCK

The Stockholders understand and agree that if, at any time the Corporation should desire to issue any New Securities, the Stockholders’ first right to purchase a Proportionate Portion (or any part thereof) of all of such offered New Securities shall be as provided in the Existing Stockholders Agreement (to the extent that a Stockholder is a party to that agreement as an Investor thereunder) and the determination of Proportionate Portion shall be determined as provided in the Existing Stockholders’ Agreement without regard to the Series E Preferred Stock (which is not included in the defined term “Stock” under the Existing Stockholders’ Agreement).

 

4. DEFAULTS AND REMEDIES

4.1. Defaults .

If a Stockholder materially defaults in the performance of his or its obligations under this Agreement, and such default is not cured within ten (10) calendar days after written notice of such default is given by the Corporation or an Investor to the defaulting Stockholder for a default that can be cured by the payment of money, or within ten (10) calendar days after written notice of such default is given by the Corporation or an Investor to the defaulting Stockholder for any other default, then the Corporation and the non-defaulting Stockholders shall have the rights and remedies described in Section 4.2 hereunder in respect of the default.

 


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4.2. Remedies .

If a Stockholder fails to perform his or its obligations under this Agreement, the Corporation and any other Stockholder shall have the right, in addition to all other rights and remedies provided herein, on behalf of himself or itself, the Corporation or the Stockholders, to bring the matter to arbitration as provided in Section 7.11 . The award of the arbitrator in such a proceeding may include an order for specific performance by the defaulting Stockholder of his or its obligations under this Agreement, or an award for damages for payment of sums due to the Corporation or to a Stockholder.

 

5. VOTING

5.1. Nomination and Election of Directors .

(a) For so long as the holders of the Series C Preferred Stock, the holders of the Series D Preferred Stock, and the holders of the Series E Preferred Stock are entitled separately as a series to elect directors pursuant to the terms of the Seventh Amended and Restated Certificate of Incorporation of the Company (the “ Restated Certificate ”), the holders of a majority of the Series C Preferred Stock and the Series D Preferred Stock, voting together as if a single series or class, shall have the right to designate one (1) nominee (the “ Preferred C Director ”) for election as a director of the Corporation. The Preferred C Director shall be elected solely by the holders of Series C Preferred Stock, Series D Preferred Stock and Series E Preferred Stock as provided in the Restated Certificate. Each Stockholder who is a holder of Series E Preferred Stock hereby agrees that at each meeting of stockholders (or written consent in lieu thereof) at or by which directors are to be elected, such Stockholder shall vote all of its Series E Preferred Stock to elect, as a director of the Corporation, the Preferred C Director. Any vacancy caused by the death, resignation, removal or other cause of any Preferred C Director shall be filled by a replacement designated and elected in accordance with the provisions contained in this subsection (a) with a vote of the holders of the Series E Preferred Stock voting with the majority of the shares of Series C Preferred Stock and Series D Preferred Stock voting together as if a single series or class.

(b) For so long as the holders of the Preferred Stock and the Series E Preferred Stock are entitled together as a class to elect directors pursuant to the terms of the Restated Certificate, a majority of the issued and outstanding shares of the Preferred Stock (excluding the Series E Preferred Stock) shall have the right to designate two (2) nominees (each, an “ Outside Director ” and, collectively, the “ Outside Directors ”), who shall not be an employee or officer of the Corporation, for election as directors of the Corporation. Each Outside Director shall be elected solely by the holders of a majority of the shares of Preferred Stock and the Series E Preferred Stock, voting together as a single class. Each Stockholder who is a holder of Series E Preferred Stock hereby agrees that at each meeting of stockholders (or written consent in lieu thereof) at or by which directors are to be elected, such Stockholder shall vote all of its Series E Preferred Stock to elect the Outside Directors designated as provided above as directors of the Corporation. Any vacancy caused by the death, resignation, removal or other cause of an Outside Director shall be filled by a replacement designated and elected in accordance with the provisions contained in this subsection.

 


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5.2. Event of Non-Compliance .

Each Stockholder who or which beneficially owns shares of Series E Preferred Stock as to which such Stockholder is entitled to vote or direct the vote severally agrees, (i) to cause such shares to be voted, or to execute or cause to be executed a written consent (or other applicable written instrument) with respect to such shares, upon the occurrence of an Event of Non-Compliance in accordance with Section 4.2.7(B) of Article FOURTH of the Restated Certificate, for the election to the Board of Directors of such person or persons as shall be designated by the holders of a majority of the Series B Preferred Stock, Series C Preferred Stock and Series D Preferred Stock voting together on an as-converted, cumulative basis (the “ Additional Directors ”), and (ii) upon the cure of the Event of Non-Compliance (as defined in Section 4.2.8 of Article FOURTH of the Certificate of Incorporation), if curable, which triggered the election of the Additional Directors to the Board of Directors, (A) to take all actions reasonably available to cause the resignation of any Additional Directors, and (B) if necessary, to cause such shares to be voted, or to execute or cause to be executed a written consent (or other applicable written instrument) with respect to such shares, for the removal of any Additional Directors from the Board of Directors.

 

6. TERMINATION OF TRANSFER RESTRICTIONS .

This Agreement, including the Transfer restrictions imposed by this Agreement, shall terminate and be of no further force or effect upon the earliest to occur of any one of the following events:

(a) The Restated Stockholders’ Agreement becoming effective;

(b) The liquidation, dissolution or indefinite cessation of business operations of the Corporation;

(c) The execution by the Corporation of a general assignment for the benefit of creditors or the appointment of a receiver or trustee to take possession of the property and assets of the Corporation;

(d) The Corporation’s consummation of a Qualified Public Offering (as defined in the Restated Certificate; or

(e) The sale, conveyance or other disposal of all or substantially all of the Corporation’s property or business or the merger into or consolidation with any other Entity (other than a wholly-owned subsidiary Entity) or other transaction or series of related transactions in which more than fifty percent (50%) of the voting power of the Corporation is disposed of, provided that this sub clause (e) shall not apply to a merger undertaken solely for the purpose of changing the domicile of the Corporation.

 

7. MISCELLANEOUS PROVISIONS

7.1. Notices .

Any notice, demand, or communication required or permitted to be given by any provision of this Agreement shall be deemed to have been sufficiently given or served for all

 


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purposes if delivered personally to the party or to an executive officer of the party to whom the same is directed or, if sent by overnight courier or registered or certified mail, postage and charges prepaid, addressed to the Stockholder’s and/or Corporation’s address, as appropriate, which is set forth in the records of the Corporation. Except as otherwise provided herein, any such notice shall be deemed to be given two (2) business days after the date on which the same was deposited with an overnight courier service or in the United States mail, addressed and sent as aforesaid.

7.2. Application of Delaware Law .

This Agreement and its interpretation shall be governed exclusively by its terms and by the laws of the State of Delaware, and specifically the Act.

7.3. Amendments .

Except as otherwise set forth herein, this Agreement may not be amended except in writing by the Corporation and the holders of greater than fifty percent (50%) of the shares of Series E Preferred Stock then issued and outstanding (and the shares of Common Stock issuable upon conversion of the Series E Preferred Stock).

7.4. Construction .

Whenever the singular number is used in this Agreement and when required by the context, the same shall include the plural and vice versa, and the masculine gender shall include the feminine and neuter genders and vice versa.

7.5. Headings .

The headings in this Agreement are inserted for convenience only and are in no way intended to describe, interpret, define, or limit the scope, extent or intent of this Agreement or any provision hereof.

7.6. Severability .

If any provision of this Agreement or the application thereof to any Person or circumstances shall be invalid, illegal, or unenforceable to any extent, the remainder of this Agreement and the application thereof shall not be affected and shall be enforceable to the fullest extent permitted by law.

7.7. Heirs, Successors and Assigns .

Each and all of the covenants, terms, provisions, and agreements herein contained shall be binding upon and inure to the benefit of the parties hereto and, to the extent not otherwise prohibited by this Agreement, their respective heirs, legal representatives, successors and assigns.

 


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7.8. Counterparts .

This Agreement may be executed in counterparts, each of which shall be deemed an original but all of which shall constitute one and the same instrument.

7.9. Additional Holders .

The Corporation shall not issue any additional shares of Series E Preferred Stock (including but not limited to upon exercise of options or other convertible securities) unless the recipient agrees to be a “Stockholder” hereunder and bound by the terms and provisions of this Agreement (to the extent not already a party to this Agreement). Such additional parties may be added hereunder by execution of an agreement to be bound hereby and without the necessity of amending this Agreement and upon execution thereof such additional parties shall receive all the rights and benefits of a Stockholder.

7.10. Legal Counsel .

The Corporation has engaged Gordon & Glickson LLC (“ G&G ”), as legal counsel to the Corporation. No legal counsel has been engaged by the Corporation to protect or otherwise represent the interests of the Stockholders. Each Stockholder: (a) approves G&G’s representation of the Corporation in the preparation of this Agreement; (b) acknowledges that no legal counsel has been engaged by the Corporation to protect or otherwise represent the interests of the Stockholders, that G&G has not been engaged by any Stockholder to protect or represent the interests of such Stockholder vis-a-vis the Corporation or the preparation of this Agreement, and that actual or potential conflicts of interest may exist among the Stockholders in connection with the preparation of this Agreement (with the consequence that a Stockholder’s interests may not be vigorously represented unless such Stockholder engages its own legal counsel); and (c) acknowledges further that such Stockholder has been afforded the opportunity to engage and seek the advice of its own legal counsel before entering into this Agreement. In addition, each Stockholder: (i) acknowledges the possibility of a future conflict or dispute among Stockholders or between any Stockholder or Stockholders and the Corporation; (ii) agrees that G&G may represent the Corporation and/or any Stockholder, except that in the case of an Investor, only upon prior written approval of such Investor, in connection with any such conflict or dispute and, to the extent permitted under the Illinois Rules of Professional Conduct and any other applicable rules governing the professional conduct of attorneys (the “ Professional Rules ”), waives its right to object to such representation (including, without limitation, on the grounds of any actual or potential conflict of interests); and (iii) acknowledges the possibility that, pursuant to operation of the Professional Rules, G&G may be precluded from representing the Corporation and/or any Stockholder in connection with any such conflict or dispute (even if G&G has represented such Stockholder with regard to other matters). Nothing in this Section 6.10 shall preclude the Corporation from selecting different legal counsel to represent it at any time in the future.

7.11. Arbitration .

If the parties are unable to resolve any disagreement, dispute, controversy or claim that may arise out of the transactions contemplated by this Agreement, they shall resolve the disagreement or dispute as follows:

 


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(a) Any controversy or claim arising out of, or relating to, this Agreement, or the making, performance, or interpretation of it, shall be settled by arbitration in Chicago, Illinois, or such other location agreed to by the parties in accordance with the Commercial Rules of Arbitration of the American Arbitration Association (“ AAA ”) then existing, pursuant to a written award with the findings of fact and conclusions of law (which award shall be consistent with this Agreement and applicable governmental authority) and judgment on the arbitration award may be entered in any court having jurisdiction over the subject matter of the controversy; provided, that punitive damages may not be awarded in such arbitration. The arbitrator shall have the right to render equitable, as well as other awards and relief. Before submitting a list of potential arbitrators to the parties for their consideration, the AAA shall consult with each party to discuss the applicable qualifications of the proposed arbitrators. Unless the parties agree in writing otherwise, the AAA shall select a single arbitrator. Each arbitrator shall be a currently licensed lawyer in the United States of America with at least twenty years experience in practicing general corporate law in the United States.

(b) The provisions of this Section 7.11 shall not be construed to prevent any party hereto from instituting proceedings at law or in equity where a party makes a good faith determination that a temporary restraining order or other immediate and/or permanent injunctive relief is the only adequate remedy.

(c) The dispute resolution procedures set forth in this Section 7.11 shall survive the termination of this Agreement.

[END OF AGREEMENT]

 


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[Executed pursuant to that certain Series E Offering Omnibus Amendment, Waiver and Authorization, dated as of November 30, 2005 and the Adoption Agreement, dated as of January 27, 2006]

 

CROSS ATLANTIC TECHNOLOGY FUND, L.P.
By:   XATF Management, L.P., its General Partner
By:   Cross Atlantic Capital Partners, Inc., its General Partner
By:  

/s/    Donald R. Caldwell

Name:   Donald R. Caldwell
Title:   President
THE CO-INVESTMENT 2000 FUND, L.P.
By:   Co-Invest Management, L.P., its General Partner
By:   Co-Invest Capital Partners, Inc., its General Partner
By:  

/s/    Donald R. Caldwell

Name:   Donald R. Caldwell
Title:   President

CROSS ATLANTIC TECHNOLOGY FUND II, L.P.

By:   XATF Management, L.P., its General Partner
By:   Cross Atlantic Capital Partners, Inc., its General Partner
By:  

/s/    Donald R. Caldwell

Name:   Donald R. Caldwell
Title:   President
GAZELLE TECHVENTURES FUND, L.P.
By:   Monument Technology Partners, LLC, its General Partner
By:   Gazelle TechVentures, Inc., its Manager
By:  

/s/    Don N. Aquilano

Name:   Don N. Aquilano
Title:   President
GAZELLE CO-INVESTMENT FUND, L.P.
By:   Monument Technology Partners, LLC, its General Partner
By:   Gazelle TechVentures, Inc., its Manager
By:  

/s/    Don N. Aquilano

Name:   Don N. Aquilano
Title:   President
KBPARTNERS VENTURE FUND II, L.P.
By:   KB Partners Management II, L.L.C., its General Partner
By:  

/s/    Byron A. Denenberg

Name:   Byron A. Denenberg
Title:   Managing Director
KB PARTNERS AFFILIATES FUND II L.P.
By:   KB Partners Management II, L.L.C., its General Partner
By:  

/s/    Byron A. Denenberg

Name:   Byron A. Denenberg
Title:   Managing Director

 


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Exhibit 4.5

THIS WARRANT AND THE SHARES ISSUABLE HEREUNDER HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, PLEDGED, OR OTHERWISE TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION THEREOF UNDER SUCH ACT OR PURSUANT TO RULE 144 OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE CORPORATION AND ITS COUNSEL, THAT SUCH REGISTRATION IS NOT REQUIRED.

WARRANT TO PURCHASE STOCK

Corporation: Rubicon Technology, Inc., a Delaware corporation

Number of Shares:                     

Class of Stock: Series A Preferred Stock

Initial Exercise Price:                     

Issue Date:                     

Expiration Date:                     

THIS WARRANT CERTIFIES THAT, for the agreed upon value of                      and for other good and valuable consideration,                                               (“Holder”) is entitled to purchase the number of fully paid and nonassessable shares of Series A Preferred Stock (the “Shares”) of Rubicon Technology, Inc. (the “Company”) at the initial exercise price per Share of                      (the “Warrant Price”) all as set forth above and as adjusted pursuant to Article 2 of this Warrant, subject to the provisions and upon the terms and conditions set forth in this Warrant.

ARTICLE 1. EXERCISE OF WARRANT, DURATION AND WARRANT PRICE .

1.1 Method of Exercise . Holder may exercise this Warrant by delivering a duly executed Notice of Exercise in substantially the form attached as Appendix 1 to the principal office of the Company at any time until 5:00 p.m., Chicago time, on                      , 20      . Unless Holder is exercising the conversion right set forth in Section 1.2, Holder shall also deliver to the Company a check for the aggregate Warrant Price for the Shares being purchased.

1.2 Conversion Right . In lieu of exercising this Warrant as specified in Section 1.1, Holder may from time to time convert this Warrant, in whole or in part, into a number of Shares determined by dividing (a) the aggregate fair market value of the Shares or other securities otherwise issuable upon exercise of this Warrant minus the aggregate Warrant Price of such Shares by (b) the fair market value of one Share. The fair market value of the Shares shall be determined pursuant to Section 1.3.

1.3 Fair Market Value , If the Shares are traded in a public market, the fair market value of the Shares shall be the closing price of the Shares (or the closing price of the

 

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Company’s stock into which the Shares are convertible) reported for the business day immediately before Holder delivers its Notice of Exercise to the Company. If the Shares are not traded in a public market, the Board of Directors of the Company shall determine fair market value in its reasonable good faith judgment. The foregoing notwithstanding, if Holder advises the Board of Directors in writing within three days of Holder having received notice from the Company of the fair market value determination of the Board of Directors that Holder disagrees with such determination, then the Company and Holder shall promptly agree upon a reputable investment banking firm to undertake such valuation. If the valuation of such investment banking firm is greater than that determined by the Board of Directors, then all fees and expenses of such investment banking firm shall be paid by the Company. In all other, circumstances, such fees and expenses shall be paid by Holder.

1.4 Delivery of Certificate and New Warrant . Promptly after Holder exercises or converts this Warrant, the Company shall deliver to Holder certificates for the Shares acquired and, if this Warrant has not been fully exercised or converted and has not expired, a new Warrant representing the Shares not so acquired.

1.5 Replacement of Warrants . On receipt of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of this Warrant and, in the case of loss, theft or destruction, on delivery of an indemnity agreement reasonably satisfactory in form and amount to the Company or, in the case of mutilation, on surrender and cancellation of this Warrant, the Company shall execute and deliver, in lieu of this Warrant, a new warrant of like tenor.

1.6 Assumption Upon Sale, Merger, or Consolidation of The Company .

1.6.1. “Acquisition” . For the purpose of this Warrant, “Acquisition” means any sale, license, or other disposition of all or substantially all of the assets or stock of the Company, or any reorganization, consolidation, or merger of the Company where the holders of the Company’s securities before the transaction beneficially own less than 50% of the outstanding voting securities of the surviving entity after the transaction.

1.6.2. Assumption of Warrant . Upon the closing of any Acquisition the successor entity shall assume the obligations of this Warrant, and this Warrant shall be exercisable for the same securities, cash, and property as would be payable for the Shares issuable upon exercise of the unexercised portion of this Warrant as if such Shares were outstanding on the record date for the Acquisition and subsequent closing. The Initial Exercise Price and/or number of shares shall be adjusted accordingly.

ARTICLE 2. ADJUSTMENTS TO THE SHARES .

2.1 Stock Dividends, Splits, Etc . In case at any time or from time to time while this Warrant remains outstanding, the Company shall, by reclassification, by stock split or reverse stock split, by the issuance of a stock dividend on shares for which this Warrant is then exercisable payable in such shares, or other similar means, subdivide or combine the then

 

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outstanding shares of stock for which this Warrant is then exercisable into a greater or lesser number of such shares, then the number of shares which may be purchased hereunder shall be increased or decreased proportionately (as determined by the Board of Directors of the Company) effective upon consummation of such reclassification, stock split or reverse stock split or stock dividend. When any adjustment is required to the number of shares for which this Warrant is exercisable hereunder, the Warrant Price shall be decreased or increased proportionately (as determined by the Board of Directors of the Company) effective upon such adjustment.

2.2 Reclassification, Exchange or Substitution . Upon any reclassification, exchange, substitution, or other event that results in a change of the number and/or class of the securities issuable upon exercise or conversion of this Warrant, Holder shall be entitled to receive, upon exercise or conversion of this Warrant, the number and kind of securities and property that Holder would have received for the Shares if this Warrant had been exercised immediately before such reclassification, exchange, substitution, or other event. Such an event shall include any mandatory conversion of the outstanding or issuable securities of the Company of the same class or series as the Shares to common stock pursuant to the terms of the Company’s Certificate of Incorporation in effect from time to time (the “Certificate”). The Company or its successor shall promptly issue to Holder a new Warrant for such new securities or other property. The new Warrant shall provide for adjustments which shall be as nearly equivalent as may be practicable to the adjustments provided for in this Article 2 including, without limitation, adjustments to the Warrant Price and to the number of securities or property issuable upon exercise of the new Warrant. The provisions of this Section 2.2 shall similarly apply to successive reclassifications, exchanges, substitutions, or other events.

2.3 Adjustments for Diluting Issuances . In the event of issuance by the Company, after the date of original issuance of this Warrant, of securities at a price per share less than the Warrant Price, then the number of shares of common stock issuable upon conversion of the Shares shall be subject to adjustment, from time to time in the manner set forth in the Certificate. The provisions set forth for the Shares in the Certificate relating to the above in effect as of the Issue Date may not be amended, modified or waived, in any manner which adversely affects the Holder in a manner different than the other holders of Series A Preferred Stock (other than differences resulting solely from the number of shares held) without the prior written consent of Holder.

2.4 No Impairment . The Company shall not, by amendment of its Articles of Incorporation or through a reorganization, transfer of assets, consolidation, merger, dissolution, issue, or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed under this Warrant by the Company, but shall at all times in good faith assist in carrying out of all the provisions of this Article 2 and in taking all such action as may be necessary or appropriate to protect Holders rights under this Article against impairment. If the Company takes any action affecting the Shares or its common stock other than as described above that adversely affects Holder’s rights under this Warrant, the Warrant Price shall be adjusted downward and the number of Shares issuable upon exercise of this Warrant shall be adjusted upward in such a manner that the aggregate Warrant Price of this Warrant is unchanged.

 

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2.5 Fractional Shares . No fractional shares shall be issuable upon exercise or conversion of the Warrant and the number of Shares to be issued shall be rounded down to the nearest whole Share. If a fractional share interest arises upon any exercise or conversion of the Warrant, the Company shall eliminate such fractional share interest by paying Holder an amount computed by multiplying the fractional interest by the fair market value of a full Share as determined under Section 1.3.

2.6 Certificate as to Adjustments . Upon each adjustment of the Warrant Price, the Company at its expense shall promptly compute such adjustment, and furnish Holder with a certificate of its Chief Financial Officer (or in the absence, its President) setting forth such adjustment and the facts upon which such adjustment is based. The Company shall, upon written request, furnish Holder a certificate setting forth the Warrant price in effect upon the date thereof and the series of adjustments leading to such Warrant Price.

ARTICLE 3. REPRESENTATIONS AND COVENANTS OF THE COMPANY .

3.1 Representations and Warranties . The Company hereby represents and warrants to the Holder as follows:

(a) The initial Warrant Price referenced on the first page of this Warrant is not greater than (i) the price per share at which, the Shares were last issued in an arms-length transaction in which at least $500,000 of the Shares were sold and (ii) the fair market value of the Shares as of the date of this Warrant.

(b) All Shares which may be issued upon the exercise of the purchase right represented by this Warrant, and all securities, if any, issuable upon conversion of the Shares, shall, upon issuance, be duly authorized, validly issued, fully paid and nonassessable, and free of any liens and encumbrances except for restrictions on transfer provided for herein or under applicable federal and state securities laws.

(c) The Capitalization Table attached hereto is true and correct.

3.2 Notice of Certain Events . If the Company proposes at any time (a) to declare any dividend or distribution upon its common stock, whether in cash, property, stock, or other securities and whether or not a regular cash dividend; (b) to offer for subscription pro rata to the holders of any class or series of its stock any additional shares of stock of any class or series or other rights; (c) to effect any reclassification or recapitalization of common stock; (d) to merge or consolidate with or into any other corporation, or sell, lease, license, or convey all or substantially all of its assets, or to liquidate, dissolve or wind up; or (e) offer holders of registration rights the opportunity to participate in an underwritten public offering of the Company’s securities for cash then, in connection with each such event, the Company shall give Holder (1) at least 20 days prior written notice of the date on which a record will be taken for

 

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such dividend, distribution, or subscription rights (and specifying the date on which the holders of common stock will be entitled thereto) or for, determining rights to vote, if any, in respect of the matters referred to in (c) and (d) above; (2) in the case of the matters referred to in (c) and (d) above at least 20 days prior written notice of the date when the same will take place (and specifying the date on which the holders of common stock will be entitled to exchange their common stock for securities or other property deliverable upon the occurrence of such event); and (3) in the case of the matter referred to in (e) above, the same notice as is given to the holders of such registration rights. The Holder is not entitled to vote and is not entitled to any rights as a shareholder of the Company until this Warrant is exercised.

3.3 Information Rights . So long as the Holder holds this Warrant and/or any of the Shares, the Company shall deliver to the Holder (a) promptly after mailing, copies of all notices or other written communications to all of any class or series of any class of the stockholders of the Company, (b) within 150 days after the end of each fiscal year of the Company, the annual audited financial statements of the Company certified by independent public accountants of recognized standing and (c) such other financial statements required under and in accordance with any loan documents between Holder and the Company (or if there are no such requirements or if the subject loan(s) no longer are outstanding), then within 30 days after the end of each of the first three quarters of each fiscal year, the Company’s quarterly, unaudited financial statements.

3.4 Registration Under Securities Act of 1933, as amended . The Company agrees that the Shares or, if the Shares are convertible into common stock of the Company, such common stock, shall be subject to the registration rights set forth on Exhibit “A” attached hereto.

ARTICLE 4. REPRESENTATIONS, WARRANTIES OF THE HOLDER . The Holder represents and warrants to the Company as follows:

4.1 Purchase for Own Account . Except for transfers to Holder’s affiliates, this Warrant and the securities to be acquired upon exercise of this Warrant by the Holder will be acquired for investment for the Holder’s account, not as a nominee or agent, and not with a view to the public resale or distribution within the meaning of the 1933 Act, and the Holder has no present intention of selling, granting any participation in, or otherwise distributing the same. If not an individual, the Holder also represents that the Holder has not been formed for the specific purpose of acquiring this Warrant or the Shares.

4.2 Disclosure of Information . The Holder has received or has had full access to all the information it considers necessary or appropriate to make an informed investment decision with respect to the acquisition of this Warrant and its underlying securities. The Holder further has had an opportunity to ask questions and receive answers from the Company regarding the terms and conditions of the offering of this Warrant and its underlying securities and to obtain additional information (to the extent the Company possessed such information or could acquire it without unreasonable effort or expense) necessary to verify any information furnished to the Holder or to which the Holder has access.

 

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4.3 Investment Experience . The Holder understands that the purchase of this Warrant and its underlying securities involves substantial risk. The Holder: (i) has experience as an investor in securities of companies in the development stage and acknowledges that the Holder is able to fend for itself, can bear the economic risk of such Holder’s investment in this Warrant and its underlying securities and has such knowledge and experience in financial or business matters that the Holder is capable of evaluating the merits and risks of its investment in this Warrant and its underlying securities and/or (ii) has a preexisting personal or business relationship with the Company and certain of its officers, directors or controlling persons of a nature and duration that enables the Holder to be aware of the character, business acumen and financial circumstances of such persons.

4.4 Accredited Investor Status . The Holder is an “accredited investor” within the meaning of Regulation D promulgated under the 1933 Act.

4.5 Stockholders’ Agreement . In connection with any exercise of this Warrant, the Company may require Holder to enter into and become bound by that certain Stockholders’ Agreement dated as of February 16, 2001 among the Company and its stockholders, as the same may be amended from time to time or superceded by any other agreement among the Company and all of its stockholders.

ARTICLE 5. MISCELLANEOUS .

5.1 Term . This Warrant is exercisable, in whole or in part, at any time and from time to time on or before the Expiration Date set forth above,

5.2 Legends . This Warrant and the Shares (and the securities issuable, directly or indirectly, upon conversion of the Shares, if any) shall be imprinted with a legend in substantially the following form:

THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, PLEDGED OR OTHERWISE TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION THEREOF UNDER SUCH ACT OR PURSUANT TO RULE 144 OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE CORPORATION AND ITS COUNSEL THAT SUCH REGISTRATION IS NOT REQUIRED.

5.3 Compliance with Securities Laws on Transfer . This Warrant and the Shares issuable upon exercise of this Warrant (and the securities issuable, directly or indirectly, upon conversion of the Shares, if any) may not be transferred or assigned in whole or in part without compliance with applicable federal and state securities laws by the transferor and the transferee (including, without limitation, the delivery of investment representation letters and legal opinions reasonably satisfactory to the Company, as reasonably requested by the Company). The Company shall not require Holder to provide an opinion of counsel if the transfer is to an affiliate of Holder or if there is no material question as to the availability of

 

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current information as referenced in Rule 144(c), Holder represents that it has complied with Rule 144(d) and (e) in reasonable detail, the selling broker represents that it has complied with Rule 144(d) and the Company is provided with a copy of Holder’s notice of proposed sale.

5.4 Transfer Procedure . Subject to the provisions of Section 4.3. Holder may transfer all or part of this Warrant or the Shares issuable upon exercise of this Warrant (or the securities issuable, directly or indirectly, upon conversion of the Shares, if any) at any time to Silicon Valley Bancshares or The Silicon Valley Bank Foundation, or to any affiliate of Holder, or, to any other transferee by giving the Company notice of the portion of the Warrant being transferred setting forth the name, address and taxpayer identification number of the transferee and surrendering this Warrant to the Company for reissuance to the transferee(s) (and Holder if applicable). Unless the Company is filing financial information with the Securities and Exchange Commission pursuant to the Securities Exchange Act of 1934, the Company shall have the right to refuse to transfer any portion of this Warrant to any person who directly competes with the Company.

5.5 Notices . All notices and other communications from the Company to the Holder, or vice versa, shall be deemed delivered and effective when given personally or mailed by first-class registered or certified mail, at such address as may have been furnished to the Company or the Holder, as the case may be, in writing by the Company or such holder from time to time. All notices to be provided under this Warrant shall be sent to the following address:

                                                                     

                                                                     

                                                                     

                                                                     

5.6 Waiver . This Warrant and any term hereof may be changed, waived, discharged or terminated only by an instrument in writing signed by the party against which enforcement of such change, waiver, discharge or termination is sought.

5.7 Attorneys Fees . In the event of any dispute between the parties concerning the terms and provisions of this Warrant, the party prevailing in such dispute shall be entitled to collect from the other party all costs incurred in such dispute, including reasonable attorneys’ fees.

5.8 Governing Law . This Warrant shall be governed by and construed in accordance with the laws of the State of Illinois, without giving effect to its principles regarding conflicts of law.

 

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RUBICON TECHNOLOGY, INC.
By:  

 

Name:  

 

  (Print)
Title:   Chairman of the Board, President or Vice President
Accepted and agreed to:
[HOLDER]
By:  

 

Name:  

 

Title:  

 

 

8


APPENDIX 1

NOTICE OF EXERCISE:

1. The undersigned hereby elects to purchase                      shares of the Preferred Series A Stock of Rubicon Technology, Inc. pursuant to the terms of the attached Warrant, and tenders herewith payment of the purchase price of such shares in full.

or

l. The undersigned hereby elects to convert the attached Warrant into Shares in the manner specified in the Warrant. This conversion is exercised with respect to of the Shares covered by the Warrant.

2. Please issue a certificate or certificates representing said shares in the name of the undersigned or in such other name as is specified below:

 

 

 

 
  (Name)  
 

 

 
 

 

 
  (Address)  

3. The undersigned represents it is acquiring the shares solely for its own account and not as a nominee for any other party and not with a view toward the resale or distribution thereof except in compliance with applicable securities laws.

 

 

(Signature)

                    

    (Date)


EXHIBIT A

Registration Rights

The Shares (if common stock), or the common stock issuable upon conversion of the Shares, shall be entitled to registration rights in accordance with the terms of the following agreement (the “Agreement’) between the Company and its investor(s):

 

 

 

 
  (Identify Agreement by date, title and parties. If no Agreement  
  exists, indicate by “none”.)    

The Company agrees that no amendments will be made to the Agreement which would have an adverse impact on Holder’s registration rights in a manner different that the other parties to the Agreement without the consent of Holder. By exercise of this Warrant to which this Exhibit A is attached, Holder agrees to be bound by, and shall be deemed to be a party to, the Agreement.

Exhibit 4.6

THE ISSUANCE OF THE SECURITIES EVIDENCED HEREBY WAS NOT REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR UNDER ANY STATE OR OTHER SECURITIES LAWS. NEITHER THE SECURITIES NOR ANY INTEREST THEREIN MAY BE OFFERED, SOLD, TRANSFERRED, ASSIGNED OR OTHERWISE DISPOSED OF EXCEPT (I) PURSUANT TO EFFECTIVE REGISTRATIONS UNDER APPLICABLE SECURITIES LAWS OR (II) UPON DELIVERY TO THE COMPANY OF AN OPINION OF COUNSEL (OR OTHER EVIDENCE SATISFACTORY TO THE COMPANY) ACCEPTABLE TO THE COMPANY, THAT THE PROPOSED DISPOSITION MAY BE EFFECTED IN COMPLIANCE WITH APPLICABLE SECURITIES LAWS WITHOUT REGISTRATION. ADDITIONAL RESTRICTIONS ON TRANSFER ARE SET FORTH HEREIN.

 

             SHARES    $              PER SHARE

WARRANT NO.          

(the “ Warrant ”)

to Series B Preferred Stock,

par value $0.001, of

RUBICON TECHNOLOGY, INC.

Expiring no later than April      , 2008 (the “ Expiration Date ”)

THIS IS TO CERTIFY THAT, for value received,                                                               , or its registered assigns (the “ Holder ”), is (subject to the restrictions provided herein) entitled to purchase from Rubicon Technology, Inc., a Delaware corporation (the “ Company ”), at any time or from time to time after the date hereof and prior to 5:00 p.m. local time at the location of the Warrant Office (as defined in Section 2.1) on the Expiration Date, at a purchase price of $              per share (the “ Warrant Price ”), up to                      duly authorized, fully paid, validly issued and nonassessable shares of the Company’s Series B Preferred Stock, par value $0.001 (the “ Preferred Stock ”) or other securities or property for which this Warrant becomes exercisable as provided herein (collectively, the Preferred Stock and any other such securities and property being the “ Warrant Shares ”), subject to adjustment as provided herein, and is also entitled to exercise the other rights, powers and privileges hereinafter set forth. Capitalized terms used in this Warrant but not defined in the context thereof shall have the meanings specified in Article V.

ARTICLE I

EXERCISE OF WARRANT

1.1 Method of Exercise . To exercise this Warrant in whole or in part, the Holder shall deliver to the Company at the Warrant Office (i) this Warrant together with the subscription notice attached hereto as Exhibit A (the “ Subscription Notice ”) filled out and duly executed by the Holder indicating the Holder’s election to exercise this Warrant and specifying the number of Warrant Shares to be purchased; and (ii) a certified or bank cashier’s check payable to the order of the Company in an amount equal to the aggregate Warrant Price for the number of Warrant Shares being purchased. Subject to the restrictions provided herein, the Company shall as promptly as practicable, and in any event within 14 days thereafter, execute and deliver or cause to be executed and delivered, in accordance with the Subscription Notice, a single certificate in the name of the Holder representing the aggregate number of Warrant Shares specified in the Subscription Notice. Such certificate shall be deemed to have been issued, and the Holder shall be deemed for all purposes to have become a holder of record of such shares, as of the date the Subscription Notice is actually received by the Company with payment as provided above. If this Warrant

 

R UBICON T ECHNOLOGY , I NC .    -1-    W ARRANT N O .     


shall have been exercised only in part, the Company shall, at the time of delivery of such certificate or certificates, deliver to the Holder a new Warrant evidencing the rights of the Holder to purchase the remaining Warrant Shares called for by this Warrant, which new Warrant shall in all other respects be identical with this Warrant, or at the request of the Holder, appropriate notation may be made on this Warrant and the same returned to the Holder. The Company shall pay all expenses, taxes and other charges payable in connection with the preparation, issuance and delivery of such stock certificates and new Warrants.

1.2 Right to Convert Warrant into Stock: Net Issuance .

(a) Right to Convert . In addition to and without limiting the rights of the Holder under the terms of this Warrant, the Holder shall have the right to convert this Warrant or any portion hereof into Warrant Shares as provided in this Section 1.2 at any time that this Warrant is otherwise exercisable during the term of this Warrant (the “ Conversion Right ”). Upon exercise of the Conversion Right, the Company shall deliver to the Holder (without payment by the Holder of the Warrant Price) that number of fully paid and nonassessable Warrant Shares equal to the quotient of (i) the number of Warrant Shares purchasable under this Warrant (or the portion thereof being exercised); multiplied by the difference of (A) the Fair Market Value of one (1) Warrant Share; minus (B) the Warrant Price; divided by (ii) the Fair Market Value of one (1) Warrant Share.

(b) Method of Exercise . The Conversion Right may be exercised by the Holder by the surrender of this Warrant, at the Warrant Office, together with the Subscription Notice specifying that the Holder thereby intends to exercise the Conversion Right and indicating the number of Warrant Shares with respect to which the Holder intends to exercise this Warrant. The Holder shall also deliver therewith additional consideration, if any, such that the aggregate consideration received by the Company in respect of any Warrant Shares is at least equal to the par value of any Warrant Shares having a par value, or the stated capital of any Warrant Shares not having a par value. The conversion shall be effective on the date which is the later of (i) receipt by the Company of the items described above; or (ii) a date specified in the Holder’s notice to the Company.

1.3 No Fractional Shares to be Issued . The Company shall not be required upon any exercise or conversion of this Warrant to issue a certificate representing any fraction of a share, but, in lieu thereof, may pay to the Holder cash in an amount equal to a corresponding fraction (calculated to the nearest 1/100th of a share) of the Fair Market Value of one Warrant Share as of the date of receipt by the Company of notice of exercise of this Warrant.

1.4 Legend on Warrant Shares . Each certificate for Warrant Shares initially issued upon exercise of this Warrant, unless at the time of exercise such Warrant Shares are registered under the Securities Act of 1933, as amended (the “ Act ”) and applicable state securities laws, shall bear a legend in substantially the following form (and any additional legend required by law or by any securities exchange upon which such Warrant Shares may, at the time of such exercise, be listed):

THE ISSUANCE OF THE SHARES EVIDENCED HEREBY WAS NOT REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR UNDER ANY STATE OR OTHER SECURITIES LAWS. NEITHER THE SHARES NOR ANY INTEREST THEREIN MAY BE OFFERED, SOLD, TRANSFERRED, ASSIGNED OR OTHERWISE DISPOSED OF EXCEPT (I) PURSUANT TO EFFECTIVE REGISTRATIONS UNDER APPLICABLE SECURITIES LAWS OR (II) UPON DELIVERY TO THE CORPORATION OF AN OPINION OF COUNSEL (OR OTHER EVIDENCE SATISFACTORY TO THE CORPORATION) ACCEPTABLE TO THE CORPORATION, THAT THE PROPOSED DISPOSITION MAY BE EFFECTED IN COMPLIANCE WITH APPLICABLE SECURITIES LAWS WITHOUT REGISTRATION.

THE CORPORATION WILL FURNISH WITHOUT CHARGE TO EACH STOCKHOLDER WHO SO REQUESTS, A FULL SUMMARY OR STATEMENT OF ALL OF THE POWERS, DESIGNATIONS, PREFERENCES AND RELATIVE, PARTICIPATING, OPTIONAL, OR OTHER SPECIAL RIGHTS OF EACH CLASS OF STOCK OR SERIES THEREOF AND THE QUALIFICATIONS, LIMITATIONS OR RESTRICTIONS OF SUCH POWERS, PREFERENCES AND/OR RIGHTS. ANY SUCH REQUEST SHOULD BE ADDRESSED TO THE SECRETARY OF THE CORPORATION.

 

R UBICON T ECHNOLOGY , I NC .    -2-    W ARRANT N O .     


Any certificate issued at any time in exchange or substitution for any certificate bearing such legend (except a new certificate issued upon completion of a public distribution pursuant to a registration statement which has become effective under the Act of the securities represented thereby) shall also bear such legend unless, in the opinion of such counsel as shall be approved by the Company, the securities represented thereby need no longer be subject to the restrictions contained in Article III. The provisions of Article III shall be binding upon all subsequent holders of this Warrant.

1.5 Stockholders’ Agreement . In connection with any exercise of this Warrant, the Company may require that the Holder enter into and become bound by the terms and conditions of any stockholders’ agreement by and among the Company and the stockholders of the Company.

ARTICLE II

WARRANT OFFICE; TRANSFER

DIVISION OR COMBINATION OF WARRANTS

2.1 Warrant Office . The Company shall maintain an office for certain purposes specified herein (the “ Warrant Office ”), which office shall initially be the Company’s office at 9931 Franklin Avenue, Franklin Park, Illinois 60131 and may subsequently be such other office of the Company or of any transfer agent in the continental United States as to which written notice has been given to the Holder.

2.2 Warrant Non-Transferable; Ownership of Warrant . This Warrant and all rights hereunder may not be transferred, sold, hypothecated or assigned, without the prior written consent of the Company which shall be promptly provided on the condition that Holder has complied with the provisions of Article III hereof. The Company may deem and treat the Person in whose name this Warrant is registered as the holder and owner hereof (notwithstanding any notations of ownership or writing hereon made by anyone other than the Company) for all purposes and shall not be affected by any notice to the contrary, until presentation of this Warrant for registration of transfer as provided in this Article II.

2.3 Warrant Register . Subject to Section 2.2 and Article III hereof, the Company shall maintain at the Warrant Office books for the registration of warrants and the registration of transfers of warrants. To effect a transfer of this Warrant upon satisfaction of the provisions of Section 2.2 and Article III the Holder shall surrender this Warrant at the Warrant Office, together with a written assignment of this Warrant duly executed by the Holder or the Holder’s duly authorized agent or attorney and funds sufficient to pay any transfer taxes payable upon the making of such transfer. Upon such surrender and payment the Company shall execute and deliver a new Warrant or Warrants in the name of the assignee or assignees and in the denominations specified in such instrument of assignment, and this Warrant shall be canceled.

2.4 Division or Combination of Warrants . This Warrant may be divided or combined with other warrants exercisable at the same Warrant Price upon presentation hereof and of any warrant or warrants with which this warrant is to be combined at the Warrant Office, together with a written notice specifying the names and denominations in which new warrants are to be issued, signed by the Holder and the holders thereof or their respective duly authorized agents or attorneys. Subject to compliance with Sections 2.2 and 2.3 and Article III as to any transfer which may be involved in such division or combination, the Company shall execute and deliver a new warrant or warrants in exchange for the warrant or warrants to be divided or combined in accordance with such notice.

2.5 Expenses of Delivery of Warrants . The Company shall pay all expenses, taxes (other than transfer taxes) and other charges payable in connection with the preparation, issuance and delivery of warrants hereunder.

ARTICLE III

RESTRICTIONS ON EXERCISE AND TRANSFER

3.1 Restrictions on Exercise and Transfer . Notwithstanding any provisions contained in this Warrant to the contrary, this Warrant shall not be exercisable or transferable and the related Warrant Shares shall not be transferable except upon the conditions specified in this Article III, which conditions are intended, among other things, to enable compliance with the provisions of the Act and applicable state securities laws in respect of the exercise or transfer of such Warrant or transfer of such Warrant Shares. The Holder of this Warrant, by acceptance

 

R UBICON T ECHNOLOGY , I NC .    -3-    W ARRANT N O .     


hereof, agrees not to: (i) transfer this Warrant prior to delivery to the Company of an opinion of counsel or other evidence (as such opinion and such counsel or other evidence are described in Section 3.2); (ii) exercise this Warrant prior to delivery to the Company of an opinion of counsel or other evidence (as such opinion and such counsel or other evidence are described in Section 3.2) or until registration of the related Warrant Shares under the Act has become effective and compliance with applicable state securities laws have been obtained; or (iii) transfer such Warrant Shares prior to delivery to the Company of the opinion of counsel or other evidence (as such opinion and such counsel or other evidence are described in Section 3.2) or until registration of such Warrant Shares under the Act has become effective and compliance with applicable state securities laws has been obtained.

3.2 Opinion of Counsel . In connection with any exercise or transfer of this Warrant or any transfer of the related Warrant Shares, the following provisions shall apply:

(a) If in the written opinion of counsel approved by the Company, the proposed exercise or transfer of this Warrant and/or the proposed transfer of such Warrant Shares may be effected without registration of this Warrant and/or such Warrant Shares under the Act and applicable state securities laws, the Holder of this Warrant shall be entitled to exercise or transfer this Warrant and/or transfer such Warrant Shares in accordance with the proposed method of disposition. In lieu of such opinion of counsel the Company may, in its discretion, accept such other evidence of compliance with or exemption from the Act and applicable state securities laws as it deems satisfactory.

(b) If the Company does not obtain the opinion or other evidence referred to in Section 3.2(a), the Holder of this Warrant shall not be entitled to exercise or transfer this Warrant and/or transfer such Warrant Shares. This Warrant shall not be exercisable or transferable and the Warrant Shares shall not be transferable if such exercise or transfer would involve a violation of the Act or any applicable federal or state securities laws.

ARTICLE IV

ADJUSTMENTS

4.1 Conversion of All Preferred Stock .

(a) Number of Warrant Shares . In the event that all of the Company’s Preferred Stock is converted into Common Stock pursuant to the Certificate of Incorporation (the “ Conversion Event ”), then the number of Warrant Shares available for exercise hereunder shall equal the number of shares of the Company’s Common Stock that would have been received by the Holder had such Holder exercised this Warrant with respect to all Warrant Shares available hereunder immediately prior to such Conversion Event.

(b) Warrant Price . Upon the occurrence of a Conversion Event, then the Warrant Price shall equal the quotient obtained by dividing: (i) the original Warrant Price; by (ii) the number of shares of the Company’s Common Stock that one (1) Warrant Share, outstanding immediately prior to such Conversion Event, would have been converted into subsequent to such Conversion Event.

4.2 Effect of Stock Splits, Reverse Stock Splits and Stock Dividends . In case at any time or from time to time while this Warrant remains outstanding the Company shall, by reclassification, by stock split or reverse stock split, by the issuance of a stock dividend on shares for which this Warrant is then exercisable payable in such shares, or by other similar means, subdivide or combine the shares of stock for which this Warrant is then exercisable into a greater or lesser number of such shares, then the number of shares which may be purchased hereunder shall be increased or decreased proportionately (as determined by the Board of Directors of the Company) effective upon consummation of such reclassification, stock split or reverse stock split or stock dividend. When any adjustment is required to the number of shares for which this Warrant is exercisable hereunder, the Warrant Price shall be decreased or increased proportionately (as determined by the Board of Directors of the Company) effective upon such adjustment.

4.3 Effect of Merger or Consolidation . In case the Company shall, while this Warrant remains outstanding, (i) enter into any consolidation with or merger into any other corporation wherein the Company is not the surviving corporation, or wherein securities of a corporation other than the Company are distributable to holders of the Warrant Shares, or (ii) sell or convey its property as an entirety or substantially as an entirety, then in connection with such consolidation, merger, sale or conveyance, lawful and adequate provision, as determined by the Board of Directors of the Company (which may determine, in good faith, that no provision is required), shall be

 

R UBICON T ECHNOLOGY , I NC .    -4-    W ARRANT N O .     


made whereby the Holder shall thereafter be entitled to purchase, pursuant to this Warrant (in lieu of the Warrant Shares such Holder would have been entitled to purchase immediately prior to such consolidation, merger, sale or conveyance), the shares of stock or other securities or property to which the number of Warrant Shares would have been entitled at the time of such consolidation, merger, sale or conveyance, at an aggregate Warrant Price equal to that which would have been payable if all Warrant Shares had been purchased by exercise of this Warrant immediately prior thereto.

4.4 Reorganization or Reclassification . In case of any capital reorganization or any reclassification of the capital stock of the Company (except as provided in Section 4.2) while this Warrant remains outstanding, then, as a condition of such capital reorganization or reclassification, lawful and adequate provision, as determined by the Board of Directors of the Company (which may determine, in good faith, that no provision is required), shall be made whereby the Holder shall thereafter be entitled to purchase, pursuant to this Warrant (in lieu of the Warrant Shares which such Holder would have been entitled to purchase immediately prior to such reorganization or reclassification), the shares of stock of any class or classes or other securities or property to which the number of Warrant Shares would have been entitled at the time of such reorganization or reclassification, at an aggregate Warrant Price equal to that which would have been payable if all Warrant Shares had been purchased immediately prior to such reorganization or reclassification.

4.5 Statement of Adjustment . Upon each adjustment of the number of Warrant Shares hereunder, and in the event of any change in the rights of the Holder by reason of other events herein set forth, then, and in each case, the Company will promptly prepare a schedule setting forth the adjusted number of Warrant Shares, or specifying the other shares of stock, securities or assets and the amount thereof receivable as a result of such change in rights, and setting forth in reasonable detail the method of calculation and the facts upon which such calculation is based. The Company will promptly mail a copy of such schedule to the Holder. In the event of any such adjustment, the Holder shall cooperate with the Company and may be required, as a condition of effectiveness of such adjustment for such Holder, to execute and deliver to the Company such instruments and documents as may be reasonably requested by the Company to effect such adjustment and by which the Holder would acknowledge such adjustment.

4.6 Notifications by the Company . In case at any time the Board of Directors of the Company authorizes any of the following and fixes a record or distribution date therefore:

(a) the payment of any dividend payable in stock (of any class or classes) or in convertible securities upon Preferred Stock or the making of any distribution to the holders of the Preferred Stock;

(b) the making of any capital reorganization or reclassification of the capital stock of the Company, or consolidation or merger of the Company with, or sale or transfer of all or substantially all of its assets to, another corporation; or

(c) a voluntary or involuntary dissolution, liquidation or winding-up of the Company;

then, in any one or more such cases, the Company shall give notice as provided herein to the Holder of such record or distribution date. Such notice shall also specify the date (the “ Participation Date ”) as of which the holders of Preferred Stock of record shall participate in such dividend, distribution or subscription rights, or shall be entitled to vote on or exchange their Preferred Stock for securities or other property deliverable upon such reorganization, reclassification, consolidation, merger, sale or transfer of assets, dissolution, liquidation or winding-up, as the case may be. Such notice shall be given not less than 5 days and not more than 60 days prior to the Participation Date and such notice may state that any such action remains subject to conditions, which conditions shall be generally described in such notice.

4.7 Rounding . All calculations hereunder shall be made to the nearest one-tenth (1/10) of a cent or to the nearest one hundredth (1/100) of a share, as the case may be.

ARTICLE V

CERTAIN DEFINITIONS

Capitalized terms defined herein shall have the meanings ascribed to them. In addition, the following terms shall have the following respective meanings:

Certificate of Incorporation ” shall mean the Company’s Certificate of Incorporation as currently in effect and as amended from time to time.

 

R UBICON T ECHNOLOGY , I NC .    -5-    W ARRANT N O .     


Fair Market Value ” of a Warrant Share shall be equal to the product of (i) the number of shares of the Company’s Common Stock into which each Warrant Share is then convertible pursuant to the Certificate of Incorporation; multiplied by (ii) the average of the daily market prices for one (1) share of the Company’s Common Stock over a period of 20 consecutive business days before such date. The market price for each such business day shall be the last sale price on such day on the principal securities exchange on which the Company’s Common Stock is then listed or admitted to trading, or, if no sale takes place on such day on any such exchange, the average of the closing bid and asked prices on such day as officially quoted on any such exchange, or if the Common Stock is not then listed or admitted to trading on any stock exchange, the market price for each such business day shall be the average of the closing bid and asked prices on such day in the over-the-counter market, as reported through NASDAQ, or, if such prices are not at the time so reported, as furnished by any member of the NASD selected by the Company. Notwithstanding the foregoing, if and so long as there shall be no exchange or over-the-counter market for the Company’s Common Stock during the 20-day period prior to the date on which the Fair Market Value is to be determined, the Fair Market Value shall be an amount determined by the Board of Directors in its reasonable discretion.

Person ” shall mean an individual, a corporation, a partnership, a trust, an unincorporated organization, or any other entity, or a governmental organization or any agency or political subdivision thereof.

ARTICLE VI

CERTAIN COVENANTS OF THE COMPANY

The Company covenants and agrees that:

(a) it will reserve and set apart and have at all times, free from preemptive rights, a number of shares of authorized but unissued Preferred Stock or other securities or property deliverable upon the exercise of the Warrant sufficient to enable it at any time to fulfill all its obligations hereunder; and

(b) before taking any action which would cause an adjustment reducing the Warrant Price below the then par value of the shares of Preferred Stock issuable upon exercise of the Warrant, it will take any corporate action which may be necessary in order that the Company may validly and legally issue fully paid and nonassessable shares of such Preferred Stock at such adjusted Warrant Price.

ARTICLE VII

MISCELLANEOUS

7.1 Entire Agreement . This Warrant contains the entire agreement between the Holder and the Company with respect to the purchase of the Warrant Shares and supersedes all prior arrangements or understanding with respect thereto.

7.2 Governing Law . This Warrant shall be governed by and construed in accordance with the internal substantive laws of the State of Illinois.

7.3 Waiver and Amendment . Any term or provision of this Warrant may be waived at any time by the party which is entitled to the benefits thereof and any term or provision of this Warrant may be amended or supplemented at any time by agreement of the Holder and the Company, except that any waiver of any term or condition, or any amendment or supplementation, of this Warrant must be in writing. A waiver of any breach or failure to enforce any of the terms or conditions of this Warrant shall not in any way affect, limit or waive a party’s rights hereunder at any time to enforce strict compliance thereafter with every term or condition of this Warrant.

7.4 Illegality . In the event that any one or more of the provisions contained in this Warrant shall be determined to be invalid, illegal or unenforceable in any respect for any reason, the validity, legality and enforceability of any such provision in any other respect and the remaining provisions of this Warrant shall not, at the election of the party for whom the benefit of the provision exists, be in any way impaired.

7.5 Filing of Warrant . A copy of this Warrant shall be filed among the records of the Company.

 

R UBICON T ECHNOLOGY , I NC .    -6-    W ARRANT N O .     


7.6 Notice . Any notice required or permitted pursuant to this Warrant shall be in writing and shall be deemed sufficient upon receipt, when delivered personally or sent by courier, overnight delivery service or confirmed facsimile, or seventy-two (72) hours after being deposited in the regular mail, as certified or registered mail (airmail if sent internationally), with postage prepaid, addressed (i) if to the Holder, to the address of the Holder most recently furnished in writing to the Company; and (ii) if to the Company, to the Warrant Office address or at such address as provided by written notice to the Holder.

7.7 No Rights as Stockholder . No provision of this Warrant shall be construed as conferring upon the Holder the right to vote, consent, receive dividends, or other than as herein expressly provided, receive notice in respect of meetings of stockholders or any other matter whatsoever as a stockholder of the Company. No provision hereof, in the absence of the exercise by the Holder hereof to purchase Warrant Shares hereunder, and no mere enumeration herein of the rights or privileges of the Holder, shall give rise to any liability of such Holder for the Warrant Price of any Warrant Shares or as a stockholder of the Company, whether such liability is asserted by the Company or by creditors of the Company.

7.8 Loss, Destruction. etc., of Warrants . Upon receipt of evidence satisfactory to the Company of the loss, theft, mutilation or destruction of any Warrant, and in the case of any such loss, theft or destruction upon delivery of a bond of indemnity in such form and amount as shall be reasonably satisfactory to the Company, or in the event of such mutilation upon surrender and cancellation of the Warrant, the Company will make and deliver a new Warrant, of like tenor, in lieu of such lost, stolen, destroyed or mutilated Warrant. Any Warrant issued under the provisions of this Section 7.8 in lieu of any Warrant alleged to be lost, destroyed or stolen, or in lieu of any mutilated Warrant, shall constitute an original contractual obligation on the part of the Company.

IN WITNESS WHEREOF , the Company has caused this Warrant to be signed in its name by its duly authorized officer.

 

RUBICON TECHNOLOGY, INC.
By:  

 

  Christopher J. Moffitt, Chief Executive Officer

 

R UBICON T ECHNOLOGY , I NC .    -7-    W ARRANT N O .     


EXHIBIT A

SUBSCRIPTION NOTICE

The undersigned, the holder of the foregoing warrant (the “ Warrant ”), hereby (i) represents to the Company (as such term is defined in the Warrant) that the Warrant may presently be exercised and, if applicable, the Warrant Shares transferred as provided below in accordance with the terms of the Warrant; (ii) irrevocably elects to exercise purchase rights represented by the Warrant for, and to purchase thereunder, [                      ] shares of the Preferred Stock covered by the Warrant; (iii) elects, as applicable, to exercise the Conversion Right with respect to [                      ] Warrant Shares, or to make payment in full therefor of $ [              ] by certified or official bank check payable to the order of the Company; and (iv) requests (A) that certificates for such shares (and any securities or other property issuable upon such exercise) be issued in the name of and delivered to:

 

 

Name:

 

 

 
 

Address:

 

 

 
   

 

 
   

 

 
 

Tax ID No.:

 

 

 
and (B) if such shares shall not include all of the shares issuable as provided in the Warrant, that a new Warrant of like tenor and date for the balance of the shares issuable thereunder be delivered to the undersigned.
  Holder:  

 

 
  Signature:  

 

 
  Title or Capacity:  

 

 
  Dated:  

 

 

 

R UBICON T ECHNOLOGY , I NC .    Exhibit A    W ARRANT N O .     

Exhibit 4.7

THE ISSUANCE OF THE SECURITIES EVIDENCED HEREBY WAS NOT REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR UNDER ANY STATE OR OTHER SECURITIES LAWS. NEITHER THE SECURITIES NOR ANY INTEREST THEREIN MAY BE OFFERRED, SOLD, TRANSFERRED, ASSIGNED OR OTHERWISE DISPOSED OF EXCEPT (i) PURSUANT TO EFFECTIVE REGISTRATIONS UNDER APPLICABLE SECURITIES LAWS, OR (ii) UPON DELIVERY TO THE COMPANY OF AN OPINION OF COUNSEL (OR OTHER EVIDENCE SATISFACTORY TO THE COMPANY), ACCEPTABLE TO THE COMPANY, THAT THE PROPOSED DISPOSITION MAY BE EFFECTED IN COMPLIANCE WITH APPLICABLE SECURITIES LAWS WITHOUT REGISTRATION.

RUBICON TECHNOLOGY, INC.

WARRANT TO PURCHASE 22,322 SHARES

OF SERIES B PREFERRED STOCK

THIS CERTIFIES THAT, for value received, SILICON VALLEY BANK and its assignees are entitled to subscribe for and purchase 22,322 shares of the fully paid and nonassessable Series B Preferred Stock (as adjusted pursuant to Section 4 hereof, the “ Shares ”) of RUBICON TECHNOLOGY, INC., a Delaware corporation (the “ Company ”), at the price of $0.56 per share (such price and such other price as shall result, from time to time, from the adjustments specified in Section 4 hereof is herein referred to as the “ Warrant Price ”), subject to the provisions and upon the terms and conditions hereinafter set forth. As used herein, (a) the term “ Series Preferred ” shall mean the Company’s presently authorized Series B Preferred Stock, and any stock into or for which such Series B Preferred Stock may hereafter be converted or exchanged, and after the automatic conversion of the Series B Preferred Stock to Common Stock shall mean the Company’s Common Stock, (b) the term “ Date of Grant ” shall mean July 10, 2002, and (c) the term “ Other Warrants ” shall mean any other warrants issued by the Company in connection with the transaction with respect to which this Warrant was issued, and any warrant issued upon transfer or partial exercise of or in lieu of this Warrant. The term “ Warrant ” as used herein shall be deemed to include Other Warrants unless the context clearly requires otherwise.

1. Term . The purchase right represented by this Warrant is exercisable, in whole or in part, at any time and from time to time from the Date of Grant through the later of (i) ten (10) years after the Date of Grant or (ii) five (5) years after the closing of the Company’s initial public offering of its Common Stock (“ IPO ”) effected pursuant to a Registration Statement on Form S-1 (or its successor) filed under the Securities Act of 1933, as amended (the “ Act ”).

2. Method of Exercise; Payment; Issuance of New Warrant . Subject to Section 1 hereof, the purchase right represented by this Warrant may be exercised by the holder hereof, in whole or in part and from time to time, at the election of the holder hereof, by (a) the surrender of this Warrant (with the notice of exercise substantially in the form attached hereto as Exhibit A-1 duly completed and executed) at the principal office of the Company and by the payment to the Company, by


certified or bank check, or by wire transfer to an account designated by the Company (a “ Wire Transfer ”) of an amount equal to the then applicable Warrant Price multiplied by the number of Shares then being purchased; (b) if in connection with a registered public offering of the Company’s securities, the surrender of this Warrant (with the notice of exercise form attached hereto as Exhibit A-2 duly completed and executed) at the principal office of the Company together with notice of arrangements reasonably satisfactory to the Company for payment to the Company either by certified or bank check or by Wire Transfer from the proceeds of the sale of shares to be sold by the holder in such public offering of an amount equal to the then applicable Warrant Price per share multiplied by the number of Shares then being purchased; or (c) exercise of the “net issuance” right provided for in Section 10.2 hereof. The person or persons in whose name(s) any certificate(s) representing shares of Series Preferred shall be issuable upon exercise of this Warrant shall be deemed to have become the holder(s) of record of, and shall be treated for all purposes as the record holder(s) of, the shares represented thereby (and such shares shall be deemed to have been issued) immediately prior to the close of business on the date or dates upon which this Warrant is exercised. In the event of any exercise of the rights represented by this Warrant, certificates for the shares of stock so purchased shall be delivered to the holder hereof as soon as possible and in any event within thirty (30) days after such exercise and, unless this Warrant has been fully exercised or expired, a new Warrant representing the portion of the Shares, if any, with respect to which this Warrant shall not then have been exercised shall also be issued to the holder hereof as soon as possible and in any event within such thirty-day period; provided that at such time as the Company is subject to the reporting requirements of the Securities Exchange Act of 1934, as amended, if requested by the holder of this Warrant, the Company shall cause its transfer agent to deliver the certificate representing Shares issued upon exercise of this Warrant to a broker or other person (as directed by the holder exercising this Warrant) within the time period required to settle any trade made by the holder after exercise of this Warrant.

3. Stock Fully Paid; Reservation of Shares . All Shares that may be issued upon the exercise of the rights represented by this Warrant will, upon issuance pursuant to the terms and conditions herein, be fully paid and nonassessable, and free from all preemptive rights and taxes, liens and charges with respect to the issue thereof. During the period within which the rights represented by this Warrant may be exercised, the Company will at all times have authorized, and reserved for the purpose of the issue upon exercise of the purchase rights evidenced by this Warrant, a sufficient number of shares of its Series Preferred to provide for the exercise of the rights represented by this Warrant and a sufficient number of shares of its Common Stock to provide for the conversion of the Series Preferred into Common Stock.

4. Adjustment of Warrant Price and Number of Shares . The number and kind of securities purchasable upon the exercise of this Warrant and the Warrant Price shall be subject to adjustment from time to time upon the occurrence of certain events, as follows:

(a) Reclassification or Merger . In case of any reclassification or change of securities of the class issuable upon exercise of this Warrant (other than a change in par value, or from par value to no par value, or from no par value to par value, or as a result of a subdivision or combination), or in case of any merger of the Company with or into another corporation (other than a merger with another corporation in which the Company is the acquiring and the surviving

 

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corporation and which does not result in any reclassification or change of outstanding securities issuable upon exercise of this Warrant), or in case of any sale of all or substantially all of the assets of the Company, the Company, or such successor or purchasing corporation, as the case may be, shall duly execute and deliver to the holder of this Warrant a new Warrant (in form and substance satisfactory to the holder of this Warrant), or the Company shall make appropriate provision without the issuance of a new Warrant, so that the holder of this Warrant shall have the right to receive upon exercise of this Warrant, at a total purchase price not to exceed that payable upon the exercise of the unexercised portion of this Warrant, and in lieu of the shares of Series Preferred theretofore issuable upon exercise of this Warrant, (i) the kind and amount of shares of stock, other securities, money and property receivable upon such reclassification, change, merger or sale by a holder of the number of shares of Series Preferred then purchasable under this Warrant, or (ii) in the case of such a merger or sale in which the consideration paid consists all or in part of assets other than securities of the successor or purchasing corporation, at the option of the Company and with the concurrence of the holder of this Warrant, the securities of the successor or purchasing corporation having a value at the time of the transaction equivalent to the value of the Series Preferred purchasable upon exercise of this Warrant at the time of the transaction. Any new Warrant shall provide for adjustments that shall be as nearly equivalent as may be practicable to the adjustments provided for in this Section 4 . The provisions of this Section 4(a) shall similarly apply to successive reclassifications, changes, mergers and sales.

(b) Subdivision or Combination of Shares . If the Company at any time while this Warrant remains outstanding and unexpired shall subdivide or combine its outstanding shares of Series Preferred, the Warrant Price shall be proportionately decreased and the number of Shares issuable hereunder shall be proportionately increased in the case of a subdivision and the Warrant Price shall be proportionately increased and the number of Shares issuable hereunder shall be proportionately decreased in the case of a combination.

(c) Stock Dividends and Other Distributions . If the Company at any time while this Warrant is outstanding and unexpired shall (i) pay a dividend with respect to Series Preferred payable in Series Preferred, then the Warrant Price shall be adjusted, from and after the date of determination of shareholders entitled to receive such dividend or distribution, to that price determined by multiplying the Warrant Price in effect immediately prior to such date of determination by a fraction (A) the numerator of which shall be the total number of shares of Series Preferred outstanding immediately prior to such dividend or distribution, and (B) the denominator of which shall be the total number of shares of Series Preferred outstanding immediately after such dividend or distribution; or (ii) make any other distribution with respect to Series Preferred (except any distribution specifically provided for in Sections 4(a) and 4(b) ), then, in each such case, provision shall be made by the Company such that the holder of this Warrant shall receive upon exercise of this Warrant a proportionate share of any such dividend or distribution as though it were the holder of the Series Preferred (or Common Stock issuable upon conversion thereof) as of the record date fixed for the determination of the shareholders of the Company entitled to receive such dividend or distribution.

(d) Adjustment of Number of Shares . Upon each adjustment in the Warrant Price, the number of Shares of Series Preferred purchasable hereunder shall be adjusted, to the

 

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nearest whole share, to the product obtained by multiplying the number of Shares purchasable immediately prior to such adjustment in the Warrant Price by a fraction, the numerator of which shall be the Warrant Price immediately prior to such adjustment and the denominator of which shall be the Warrant Price immediately thereafter.

(e) Antidilution Rights . The other antidilution rights applicable to the Shares of Series Preferred purchasable hereunder are set forth in the Company’s Certificate of Incorporation, as amended through the Date of Grant, a true and complete copy of which is attached hereto as Exhibit B (the “ Charter ”). Such antidilution rights shall not be restated, amended, modified or waived in any manner that is adverse to the holder hereof in a manner different than the other holders of Series Preferred (other than differences resulting solely from the number of shares held) without such holder’s prior written consent. The Company shall promptly provide the holder hereof with any restatement, amendment, modification or waiver of the Charter promptly after the same has been made.

5. Notice of Adjustments . Whenever the Warrant Price or the number of Shares purchasable hereunder shall be adjusted pursuant to Section 4 hereof, the Company shall make a certificate signed by its chief financial officer or chief executive officer setting forth, in reasonable detail, the event requiring the adjustment, the amount of the adjustment, the method by which such adjustment was calculated, and the Warrant Price and the number of Shares purchasable hereunder after giving effect to such adjustment, and shall cause copies of such certificate to be mailed (without regard to Section 13 hereof, by first class mail, postage prepaid) to the holder of this Warrant. In addition, whenever the conversion price or conversion ratio of the Series Preferred shall be adjusted, the Company shall make a certificate signed by its chief financial officer or chief executive officer setting forth, in reasonable detail, the event requiring the adjustment, the amount of the adjustment, the method by which such adjustment was calculated, and the conversion price or ratio of the Series Preferred after giving effect to such adjustment, and shall cause copies of such certificate to be mailed (without regard to Section 13 hereof, by first class mail, postage prepaid) to the holder of this Warrant.

6. Fractional Shares . No fractional shares of Series Preferred will be issued in connection with any exercise hereunder, but in lieu of such fractional shares the Company shall make a cash payment therefor based on the fair market value of the Series Preferred on the date of exercise as reasonably determined in good faith by the Company’s Board of Directors.

7. Compliance with Act; Disposition of Warrant or Shares of Series Preferred .

(a) Compliance with Act . The holder of this Warrant, by acceptance hereof, agrees that this Warrant, and the shares of Series Preferred to be issued upon exercise hereof and any Common Stock issued upon conversion thereof are being acquired for investment and that such holder will not offer, sell or otherwise dispose of this Warrant, or any shares of Series Preferred to be issued upon exercise hereof or any Common Stock issued upon conversion thereof except under circumstances which will not result in a violation of the Act or any applicable state securities laws. Upon exercise of this Warrant, unless the Shares being acquired are registered under the Act and any applicable state securities laws or an exemption from such registration is available, the holder hereof

 

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shall confirm in writing that the shares of Series Preferred so purchased (and any shares of Common Stock issued upon conversion thereof) are being acquired for investment and not with a view toward distribution or resale in violation of the Act and shall confirm such other matters related thereto as may be reasonably requested by the Company. This Warrant and all shares of Series Preferred issued upon exercise of this Warrant and all shares of Common Stock issued upon conversion thereof (unless registered under the Act and any applicable state securities laws) shall be stamped or imprinted with a legend in substantially the following form:

“THE ISSUANCE OF THE SECURITIES EVIDENCED HEREBY WAS NOT REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR UNDER ANY STATE OR OTHER SECURITIES LAWS. NEITHER THE SECURITIES NOR ANY INTEREST THEREIN MAY BE OFFERRED, SOLD, TRANSFERRED, ASSIGNED OR OTHERWISE DISPOSED OF EXCEPT (i) PURSUANT TO EFFECTIVE REGISTRATIONS UNDER APPLICABLE SECURITIES LAWS, OR (ii) UPON DELIVERY TO THE COMPANY OF AN OPINION OF COUNSEL (OR OTHER EVIDENCE SATISFACTORY TO THE COMPANY), ACCEPTABLE TO THE COMPANY, THAT THE PROPOSED DISPOSITION MAY BE EFFECTED IN COMPLIANCE WITH APPLICABLE SECURITIES LAWS WITHOUT REGISTRATION.”

Said legend shall be removed by the Company, upon the request of a holder, at such time as the restrictions on the transfer of the applicable security shall have terminated. In addition, in connection with the issuance of this Warrant, the holder specifically represents to the Company by acceptance of this Warrant as follows:

(1) The holder is aware of the Company’s business affairs and financial condition, and has acquired information about the Company sufficient to reach an informed and knowledgeable decision to acquire this Warrant. The holder is acquiring this Warrant for its own account for investment purposes only and not with a view to, or for the resale in connection with, any “distribution” thereof in violation of the Act.

(2) The holder understands that this Warrant has not been registered under the Act in reliance upon a specific exemption therefrom, which exemption depends upon, among other things, the bona fide nature of the holder’s investment intent as expressed herein.

(3) The holder further understands that this Warrant must be held indefinitely unless subsequently registered under the Act and qualified under any applicable state securities laws, or unless exemptions from registration and qualification are otherwise available. The holder is aware of the provisions of Rule 144, promulgated under the Act.

(4) The holder is an “accredited investor” as such term is defined in Rule 501 of Regulation D promulgated under the Act.

(5) In connection with any exercise of this Warrant, the Company may require the holder of this Warrant to enter into and become bound by that certain Amended and Restated Stockholders’ Agreement dated as of May 22, 2002 by and among the Company and its stockholders, as the same may be amended from time to time or superceded by any other agreement among the Company and all of its stockholders.

 

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(b) Disposition of Warrant or Shares . With respect to any offer, sale or other disposition of this Warrant or any shares of Series Preferred acquired pursuant to the exercise of this Warrant prior to registration of such Warrant or shares, the holder hereof agrees to give written notice to the Company prior thereto, describing briefly the manner thereof, together with a written opinion of such holder’s counsel, or other evidence, if reasonably satisfactory to the Company, to the effect that such offer, sale or other disposition may be effected without registration or qualification (under the Act as then in effect or any federal or state securities law then in effect) of this Warrant or such shares of Series Preferred or Common Stock and indicating whether or not under the Act certificates for this Warrant or such shares of Series Preferred to be sold or otherwise disposed of require any restrictive legend as to applicable restrictions on transferability in order to ensure compliance with such law. Upon receiving such written notice and reasonably satisfactory opinion or other evidence, the Company, as promptly as practicable but no later than fifteen (15) days after receipt of the written notice, shall notify such holder that such holder may sell or otherwise dispose of this Warrant or such shares of Series Preferred or Common Stock, all in accordance with the terms of the notice delivered to the Company. If a determination has been made pursuant to this Section  7(b) that the opinion of counsel for the holder or other evidence is not reasonably satisfactory to the Company, the Company shall so notify the holder promptly with details thereof after such determination has been made. Notwithstanding the foregoing, this Warrant or such shares of Series Preferred or Common Stock may, as to such federal laws, be offered, sold or otherwise disposed of in accordance with Rule 144 or 144A under the Act; provided that the Company shall have been furnished with such information as the Company may reasonably request to provide a reasonable assurance that the provisions of Rule 144 or 144A have been satisfied. Each certificate representing this Warrant or the shares of Series Preferred thus transferred (except a transfer pursuant to Rule 144 or 144A) shall bear a legend as to the applicable restrictions on transferability in order to ensure compliance with such laws, unless in the aforesaid opinion of counsel for the holder, such legend is not required in order to ensure compliance with such laws. The Company may issue stop transfer instructions to its transfer agent in connection with such restrictions.

(c) Applicability of Restrictions . Neither any restrictions of any legend described in this Warrant nor the requirements of Section 7(b) above shall apply to any transfer of, or grant of a security interest in, this Warrant (or the Series Preferred or Common Stock obtainable upon exercise thereof) or any part hereof (i) to a partner of the holder if the holder is a partnership or to a member of the holder if the holder is a limited liability company or (ii) to Silicon Valley Bancshares (holder’s parent company) or any affiliate of the holder if the holder is a corporation or bank; provided that in any such transfer, (x) the transferee shall agree in writing to be bound by the terms of this Warrant as if an original holder hereof, (y) so long as the legend contemplated by Section 7(a) is required to be affixed to the securities so transferred as such time, the transferee shall affirm in writing as to itself the representations set forth in clauses (1) through (5) of Section 7(a) , and (z) other than the transfer to Silicon Valley Bancshares the transferor shall give the Company prior written notice thereof in reasonable detail, including the name of the transferee and the extent of the rights and/or number of shares to be transferred. Subject to the provisions of this Section 7(c), upon receipt by holder of the executed Warrant, holder will transfer all or part of this Warrant or Shares issuable upon exercise of this Warrant (or the securities issuable, directly or indirectly, upon conversion of the Shares, if any) to Silicon Valley Bancshares, holder’s parent company. Subject to the provisions of this Section 7(c) and upon providing Company with written notice, holder or Silicon Valley Bancshares may transfer all or part of this Warrant or the Shares issuable upon exercise of this Warrant (or the securities issuable, directly or indirectly, upon conversion of the Shares, if any) to The Silicon Valley Bank Foundation.

8. Rights as Shareholders; Information . No holder of this Warrant, as such, shall be entitled to vote or receive dividends or be deemed the holder of Series Preferred or any other

 

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securities of the Company which may at any time be issuable upon the exercise hereof for any purpose, nor shall anything contained herein be construed to confer upon the holder of this Warrant, as such, any of the rights of a shareholder of the Company or any right to vote for the election of directors or upon any matter submitted to shareholders at any meeting thereof, or to receive notice of meetings, or to receive dividends or subscription rights or otherwise until this Warrant shall have been exercised and the Shares purchasable upon the exercise hereof shall have become deliverable, as provided herein. Notwithstanding the foregoing, the Company will transmit to the holder of this Warrant such information, documents and reports as are generally distributed to the holders of any class or series of the securities of the Company concurrently with the distribution thereof to the shareholders.

9. Registration Rights . The Company grants registration rights to the holder of this Warrant for any Common Stock of the Company obtained upon conversion of the Series Preferred, comparable to the registration rights granted to the investors in that certain Amended and Restated Registration Rights Agreement dated as of May 22, 2002 (the “ Rights Agreement ”), with the following exceptions and clarifications:

(1) The holder will have not have the right to demand registration, but can otherwise participate in any registration demanded by others.

(2) The holder may be required to become a party to the Rights Agreement prior to the exercise of the registration rights herein granted.

(3) The registration rights are freely assignable by the holder of this Warrant in connection with a permitted transfer of this Warrant or the Shares.

(4) From and after the Date of Grant, the holder of this Warrant shall be entitled to receive copies of all notices required pursuant to the terms of the Rights Agreement to be given by the Company to all holders of “Registrable Stock” and, for purposes of such notices, the holder hereof shall be treated as if the holder were a holder of “Registrable Stock” as of the Date of Grant.

10. Additional Rights .

10.1 Acquisition Transactions . The Company shall provide the holder of this Warrant with at least twenty (20) days’ written notice prior to closing thereof of the terms and conditions of any of the following transactions (to the extent the Company has notice thereof): (i) the sale, lease, exchange, conveyance or other disposition of all or substantially all of the Company’s property or business, or (ii) its merger into or consolidation with any other corporation (other than a wholly-owned subsidiary of the Company), or any transaction (including a merger or other reorganization) or series of related transactions, in which more than fifty percent (50%) of the voting power of the Company is disposed of.

10.2 Right to Convert Warrant into Stock: Net Issuance .

(a) Right to Convert . In addition to and without limiting the rights of the holder under the terms of this Warrant, the holder shall have the right to convert this Warrant or any portion thereof (the “ Conversion Right ”) into shares of Series Preferred as provided in this Section 10.2 at any time or from time to time during the term of this Warrant. Upon exercise of the Conversion Right with respect to a particular number of shares subject to this Warrant (the “ Converted Warrant Shares ”), the Company shall deliver to the holder (without payment by the holder of any exercise

 

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price or any cash or other consideration) that number of shares of fully paid and nonassessable Series Preferred as is determined according to the following formula:

 

  X =   B - A   
    Y       

 

  Where:    X  =    the number of shares of Series Preferred that shall be issued to holder
     Y  =    the fair market value of one share of Series Preferred
     A  =    the aggregate Warrant Price of the specified number of Converted Warrant Shares immediately prior to the exercise of the Conversion Right ( i.e. , the number of Converted Warrant Shares multiplied by the Warrant Price)
     B  =    the aggregate fair market value of the specified number of Converted Warrant Shares ( i.e. , the number of Converted Warrant Shares multiplied by the fair market value of one Converted Warrant Share)

No fractional shares shall be issuable upon exercise of the Conversion Right, and, if the number of shares to be issued determined in accordance with the foregoing formula is other than a whole number, the Company shall pay to the holder an amount in cash equal to the fair market value of the resulting fractional share on the Conversion Date (as hereinafter defined). For purposes of Section 10 of this Warrant, shares issued pursuant to the Conversion Right shall be treated as if they were issued upon the exercise of this Warrant.

(b) Method of Exercise . The Conversion Right may be exercised by the holder by the surrender of this Warrant at the principal office of the Company together with a written statement (which may be in the form of Exhibit A-1 or Exhibit A-2 hereto) specifying that the holder thereby intends to exercise the Conversion Right and indicating the number of shares subject to this Warrant which are being surrendered (referred to in Section 10.2(a) hereof as the Converted Warrant Shares) in exercise of the Conversion Right. Such conversion shall be effective upon receipt by the Company of this Warrant together with the aforesaid written statement, or on such later date as is specified therein (the “ Conversion Date ”), and, at the election of the holder hereof, may be made contingent upon the closing of the sale of the Company’s Common Stock to the public in a public offering pursuant to a Registration Statement under the Act (a “ Public Offering ”). Certificates for the shares issuable upon exercise of the Conversion Right and, if applicable, a new warrant evidencing the balance of the shares remaining subject to this Warrant, shall be issued as of the Conversion Date and shall be delivered to the holder within thirty (30) days following the Conversion Date.

(c) Determination of Fair Market Value . For purposes of this Section 10.2 , “fair market value” of a share of Series Preferred (or Common Stock if the Series Preferred has been automatically converted into Common Stock) as of a particular date (the “ Determination Date ”) shall mean:

 

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(i) If the Conversion Right is exercised in connection with and contingent upon a Public Offering, and if the Company’s Registration Statement relating to such Public Offering (“ Registration Statement ”) has been declared effective by the Securities and Exchange Commission, then the initial “Price to Public” specified in the final prospectus with respect to such offering.

(ii) If the Conversion Right is not exercised in connection with and contingent upon a Public Offering, then as follows:

(A) If traded on a securities exchange, the fair market value of the Common Stock shall be deemed to be the average of the closing prices of the Common Stock on such exchange over the five trading days immediately prior to the Determination Date, and the fair market value of the Series Preferred shall be deemed to be such fair market value of the Common Stock multiplied by the number of shares of Common Stock into which each share of Series Preferred is then convertible;

(B) If traded on the Nasdaq Stock Market or other over-the-counter system, the fair market value of the Common Stock shall be deemed to be the average of the closing bid prices of the Common Stock over the five trading days immediately prior to the Determination Date, and the fair market value of the Series Preferred shall be deemed to be such fair market value of the Common Stock multiplied by the number of shares of Common Stock into which each share of Series Preferred is then convertible; and

(C) If there is no public market for the Common Stock, then fair market value shall be determined by the Board of Directors of the Company in its reasonable good faith judgment. The foregoing notwithstanding, if the holder of this Warrant advises the Board of Directors of the Company in writing, within three (3) days of such holder having received notice from the Company of the fair market value determination of the Board of Directors, that the holder disagrees with such determination, then the Company and such holder shall promptly agree upon a reputable investment banking firm to undertake such valuation. If the valuation of such investment banking firm is greater than that determined by the Board of Directors, then all fees and expenses of such investment banking firm shall be paid by the Company; in all other circumstances, such fees and expenses shall be paid by the holder of this Warrant.

In making a determination under clauses (A) or (B) above, if on the Determination Date, five trading days had not passed since the IPO, then the fair market value of the Common Stock shall be the average closing prices or closing bid prices, as applicable, for the shorter period beginning on and including the date of the IPO and ending on the trading day prior to the Determination Date (or if such period includes only one trading day the closing price or closing bid price, as applicable, for such trading day). If closing prices or closing bid prices are no longer reported by a securities exchange or other trading system, the closing price or closing bid price shall be that which is reported by such securities exchange or other trading system at 4:00 p.m. New York City time on the applicable trading day.

10.3 Exercise Prior to Expiration. To the extent this Warrant is not previously exercised as to all of the Shares subject hereto, and if the fair market value of one share of the Series Preferred is

 

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greater than the Warrant Price then in effect, this Warrant shall be deemed automatically exercised pursuant to Section 10.2 above (even if not surrendered) immediately before its expiration. For purposes of such automatic exercise, the fair market value of one share of the Series Preferred upon such expiration shall be determined pursuant to Section 10.2(c) . To the extent this Warrant or any portion thereof is deemed automatically exercised pursuant to this Section 10.3 , the Company agrees to promptly notify the holder hereof of the number of Shares, if any, the holder hereof is to receive by reason of such automatic exercise.

11. Representations and Warranties . The Company represents and warrants to the holder of this Warrant as follows:

(a) This Warrant has been duly authorized and executed by the Company and is a valid and binding obligation of the Company enforceable in accordance with its terms, subject to laws of general application relating to bankruptcy, insolvency and the relief of debtors and the rules of law or principles at equity governing specific performance, injunctive relief and other equitable remedies.

(b) The Shares have been duly authorized and reserved for issuance by the Company and, when issued in accordance with the terms hereof, will be validly issued, fully paid and nonassessable and free from preemptive rights.

(c) The rights, preferences, privileges and restrictions granted to or imposed upon the Series Preferred and the holders thereof are as set forth in the Charter, and on the Date of Grant, each share of the Series Preferred represented by this Warrant is convertible into one share of Common Stock.

(d) The shares of Common Stock issuable upon conversion of the Shares have been duly authorized and reserved for issuance by the Company and, when issued in accordance with the terms of the Charter will be validly issued, fully paid and nonassessable.

(e) The execution and delivery of this Warrant are not, and the issuance of the Shares upon exercise of this Warrant in accordance with the terms hereof will not be, inconsistent with the Company’s Charter or by-laws, do not and will not contravene any law, governmental rule or regulation, judgment or order applicable to the Company, and do not and will not conflict with or contravene any provision of, or constitute a default under, any indenture, mortgage, contract or other instrument of which the Company is a party or by which it is bound or require the consent or approval of, the giving of notice to, the registration or filing with or the taking of any action in respect of or by, any Federal, state or local government authority or agency or other person, except for consents which have been obtained and the filing of notices pursuant to federal and state securities laws, which filings will be effected by the time required thereby.

(f) There are no actions, suits, audits, investigations or proceedings pending or, to the knowledge of the Company, threatened against the Company in any court or before any governmental commission, board or authority which, if adversely determined, could have a material adverse effect on the ability of the Company to perform its obligations under this Warrant.

 

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(g) The number of shares of Common Stock of the Company outstanding on the date hereof, on a fully diluted basis (assuming the conversion of all outstanding convertible securities and the exercise of all outstanding options and warrants), does not exceed 34,000,000 shares.

12. Modification and Waiver . This Warrant and any provision hereof may be changed, waived, discharged or terminated only by an instrument in writing signed by the party against which enforcement of the same is sought.

13. Notices . Any notice, request, communication or other document required or permitted to be given or delivered to the holder hereof or the Company shall be delivered, or shall be sent by certified or registered mail, postage prepaid, to each such holder at its address as shown on the books of the Company or to the Company at the address indicated therefor on the signature page of this Warrant.

14. Binding Effect on Successors . This Warrant shall be binding upon any corporation succeeding the Company by merger, consolidation or acquisition of all or substantially all of the Company’s assets, and all of the obligations of the Company relating to the Series Preferred issuable upon the exercise or conversion of this Warrant shall survive the exercise, conversion and termination of this Warrant and all of the covenants and agreements of the Company shall inure to the benefit of the successors and assigns of the holder hereof.

15. Lost Warrants or Stock Certificates . The Company covenants to the holder hereof that, upon receipt of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of this Warrant or any stock certificate and, in the case of any such loss, theft or destruction, upon receipt of an indemnity reasonably satisfactory to the Company, or in the case of any such mutilation upon surrender and cancellation of such Warrant or stock certificate, the Company will make and deliver a new Warrant or stock certificate, of like tenor, in lieu of the lost, stolen, destroyed or mutilated Warrant or stock certificate.

16. Descriptive Headings . The descriptive headings of the various Section s of this Warrant are inserted for convenience only and do not constitute a part of this Warrant. The language in this Warrant shall be construed as to its fair meaning without regard to which party drafted this Warrant.

17. Governing Law . This Warrant shall be construed and enforced in accordance with, and the rights of the parties shall be governed by, the laws of the State of Delaware.

18. Survival of Representations, Warranties and Agreements . All representations and warranties of the Company and the holder hereof contained herein shall survive the Date of Grant, the exercise or conversion of this Warrant (or any part hereof) or the termination or expiration of rights hereunder. All agreements of the Company and the holder hereof contained herein shall survive indefinitely until, by their respective terms, they are no longer operative.

19. Remedies . In case any one or more of the covenants and agreements contained in this Warrant shall have been breached, the holders hereof (in the case of a breach by the Company), or

 

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the Company (in the case of a breach by a holder), may proceed to protect and enforce their or its rights either by suit in equity and/or by action at law, including, but not limited to, an action for damages as a result of any such breach and/or an action for specific performance of any such covenant or agreement contained in this Warrant.

20. No Impairment of Rights . The Company will not, by amendment of its Charter or through any other means, avoid or seek to avoid the observance or performance of any of the terms of this Warrant, but will at all times in good faith assist in the carrying out of all such terms and in the taking of all such action as may be necessary or appropriate in order to protect the rights of the holder of this Warrant against impairment.

21. Severability . The invalidity or unenforceability of any provision of this Warrant in any jurisdiction shall not affect the validity or enforceability of such provision in any other jurisdiction, or affect any other provision of this Warrant, which shall remain in full force and effect.

22. Recovery of Litigation Costs . If any legal action or other proceeding is brought for the enforcement of this Warrant, or because of an alleged dispute, breach, default, or misrepresentation in connection with any of the provisions of this Warrant, the successful or prevailing party or parties shall be entitled to recover reasonable attorneys’ fees and other costs incurred in that action or proceeding, in addition to any other relief to which it or they may be entitled.

23. Entire Agreement; Modification . This Warrant constitutes the entire agreement between the parties pertaining to the subject matter contained in it and supersedes all prior and contemporaneous agreements, representations, and undertakings of the parties, whether oral or written, with respect to such subject matter.

 

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The Company has caused this Warrant to be duly executed and delivered as of the Date of Grant specified above.

 

RUBICON TECHNOLOGY, INC.
By:  

/s/    Christopher J. Moffitt

Name:  

 

Title:  

 

Address:  

    3000 Lakeside, Suite 105N

    Bannockburn, IL 60015

 

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EXHIBIT A-1

NOTICE OF EXERCISE

 

To: RUBICON TECHNOLOGY, INC. (the “Company”)

 

  1. The undersigned hereby:

 

  ¨ elects to purchase                      shares of [Series Preferred Stock] [Common Stock] of the Company pursuant to the terms of the attached Warrant, and tenders herewith payment of the purchase price of such shares in full, or

 

  ¨ elects to exercise its net issuance rights pursuant to Section 10.2 of the attached Warrant with respect to                      Shares of [Series Preferred Stock] [Common Stock].

2. Please issue a certificate or certificates representing                      shares in the name of the undersigned or in such other name or names as are specified below:

 

 

 

 
  (Name)  
 

 

 
 

 

 
  (Address)  

3. The undersigned represents that the aforesaid shares are being acquired for the account of the undersigned for investment and not with a view to, or for resale in connection with, the distribution thereof and that the undersigned has no present intention of distributing or reselling such shares, all except as in compliance with applicable securities laws.

 

 

(Signature)

                    

    (Date)


EXHIBIT A-2

NOTICE OF EXERCISE

 

To: RUBICON TECHNOLOGY, INC. (the “ Company ”)

1. Contingent upon and effective immediately prior to the closing (the “ Closing ”) of the Company’s public offering contemplated by the Registration Statement on Form S          , filed                      , 200    , the undersigned hereby:

¨ elects to purchase              shares of [Series Preferred Stock] [Common Stock] of the Company (or such lesser number of shares as may be sold on behalf of the undersigned at the Closing) pursuant to the terms of the attached Warrant, or

¨ elects to exercise its net issuance rights pursuant to Section 10.2 of the attached Warrant with respect to              Shares of [Series Preferred Stock] [Common Stock].

2. Please deliver to the custodian for the selling shareholders a stock certificate representing such              shares.

3. The undersigned has instructed the custodian for the selling shareholders to deliver to the Company $              or, if less, the net proceeds due the undersigned from the sale of shares in the aforesaid public offering. If such net proceeds are less than the purchase price for such shares, the undersigned agrees to deliver the difference to the Company prior to the Closing.

 

 

(Signature)

                    

    (Date)

Exhibit 4.8

THE ISSUANCE OF THE SECURITIES EVIDENCED HEREBY WAS NOT REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR UNDER ANY STATE OR OTHER SECURITIES LAWS. NEITHER THE SECURITIES NOR ANY INTEREST THEREIN MAY BE OFFERED, SOLD, TRANSFERRED, ASSIGNED OR OTHERWISE DISPOSED OF EXCEPT (i) PURSUANT TO EFFECTIVE REGISTRATIONS UNDER APPLICABLE SECURITIES LAWS, OR (ii) UPON DELIVERY TO THE COMPANY OF AN OPINION OF COUNSEL (OR OTHER EVIDENCE SATISFACTORY TO THE COMPANY), ACCEPTABLE TO THE COMPANY, THAT THE PROPOSED DISPOSITION MAY BE EFFECTED IN COMPLIANCE WITH APPLICABLE SECURITIES LAWS WITHOUT REGISTRATION.

RUBICON TECHNOLOGY, INC.

WARRANT TO PURCHASE 8,929 SHARES

OF SERIES B PREFERRED STOCK

THIS CERTIFIES THAT, for value received, GATX VENTURES, INC. and its assignees are entitled to subscribe for and purchase 8,929 shares of the fully paid and nonassessable Series B Preferred Stock (as adjusted pursuant to Section 4 hereof, the “ Shares ”) of RUBICON TECHNOLOGY, INC., a Delaware corporation (the “ Company ”), at the price of $0.56 per share (such price and such other price as shall result, from time to time, from the adjustments specified in Section 4 hereof is herein referred to as the “ Warrant Price ”), subject to the provisions and upon the terms and conditions hereinafter set forth. As used herein, (a) the term “ Series Preferred ” shall mean the Company’s presently authorized Series B Preferred Stock, and any stock into or for which such Series B Preferred Stock may hereafter be converted or exchanged, and after the automatic conversion of the Series B Preferred Stock to Common Stock shall mean the Company’s Common Stock, (b) the term “ Date of Grant ” shall mean July 10, 2002, and (c) the term “ Other Warrants ” shall mean any other warrants issued by the Company in connection with the transaction with respect to which this Warrant was issued, and any warrant issued upon transfer or partial exercise of or in lieu of this Warrant. The term “ Warrant ” as used herein shall be deemed to include Other Warrants unless the context clearly requires otherwise.

1. Term . The purchase right represented by this Warrant is exercisable, in whole or in part, at any time and from time to time from the Date of Grant through the later of (i) ten (10) years after the Date of Grant or (ii) five (5) years after the closing of the Company’s initial public offering of its Common Stock (“ IPO ”) effected pursuant to a Registration Statement on Form S-1 (or its successor) filed under the Securities Act of 1933, as amended (the “ Act ”).

2. Method of Exercise; Payment; Issuance of New Warrant . Subject to Section 1 hereof, the purchase right represented by this Warrant may be exercised by the holder hereof, in whole or in part and from time to time, at the election of the holder hereof, by (a) the surrender of this Warrant (with the notice of exercise substantially in the form attached hereto as Exhibit A-1 duly completed and executed) at the principal office of the Company and by the payment to the Company, by


certified or bank check, or by wire transfer to an account designated by the Company (a “ Wire Transfer ”) of an amount equal to the then applicable Warrant Price multiplied by the number of Shares then being purchased; (b) if in connection with a registered public offering of the Company’s securities, the surrender of this Warrant (with the notice of exercise form attached hereto as Exhibit A-2 duly completed and executed) at the principal office of the Company together with notice of arrangements reasonably satisfactory to the Company for payment to the Company either by certified or bank check or by Wire Transfer from the proceeds of the sale of shares to be sold by the holder in such public offering of an amount equal to the then applicable Warrant Price per share multiplied by the number of Shares then being purchased; or (c) exercise of the “net issuance” right provided for in Section 10.2 hereof. The person or persons in whose name(s) any certificate(s) representing shares of Series Preferred shall be issuable upon exercise of this Warrant shall be deemed to have become the holder(s) of record of, and shall be treated for all purposes as the record holder(s) of, the shares represented thereby (and such shares shall be deemed to have been issued) immediately prior to the close of business on the date or dates upon which this Warrant is exercised. In the event of any exercise of the rights represented by this Warrant, certificates for the shares of stock so purchased shall be delivered to the holder hereof as soon as possible and in any event within thirty (30) days after such exercise and, unless this Warrant has been fully exercised or expired, a new Warrant representing the portion of the Shares, if any, with respect to which this Warrant shall not then have been exercised shall also be issued to the holder hereof as soon as possible and in any event within such thirty-day period; provided that at such time as the Company is subject to the reporting requirements of the Securities Exchange Act of 1934, as amended, if requested by the holder of this Warrant, the Company shall cause its transfer agent to deliver the certificate representing Shares issued upon exercise of this Warrant to a broker or other person (as directed by the holder exercising this Warrant) within the time period required to settle any trade made by the holder after exercise of this Warrant.

3. Stock Fully Paid; Reservation of Shares . All Shares that may be issued upon the exercise of the rights represented by this Warrant will, upon issuance pursuant to the terms and conditions herein, be fully paid and nonassessable, and free from all preemptive rights and taxes, liens and charges with respect to the issue thereof. During the period within which the rights represented by this Warrant may be exercised, the Company will at all times have authorized, and reserved for the purpose of the issue upon exercise of the purchase rights evidenced by this Warrant, a sufficient number of shares of its Series Preferred to provide for the exercise of the rights represented by this Warrant and a sufficient number of shares of its Common Stock to provide for the conversion of the Series Preferred into Common Stock.

4. Adjustment of Warrant Price and Number of Shares . The number and kind of securities purchasable upon the exercise of this Warrant and the Warrant Price shall be subject to adjustment from time to time upon the occurrence of certain events, as follows:

(a) Reclassification or Merger . In case of any reclassification or change of securities of the class issuable upon exercise of this Warrant (other than a change in par value, or from par value to no par value, or from no par value to par value, or as a result of a subdivision or combination), or in case of any merger of the Company with or into another corporation (other than a merger with another corporation in which the Company is the acquiring and the surviving

 

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corporation and which does not result in any reclassification or change of outstanding securities issuable upon exercise of this Warrant), or in case of any sale of all or substantially all of the assets of the Company, the Company, or such successor or purchasing corporation, as the case may be, shall duly execute and deliver to the holder of this Warrant a new Warrant (in form and substance satisfactory to the holder of this Warrant), or the Company shall make appropriate provision without the issuance of a new Warrant, so that the holder of this Warrant shall have the right to receive upon exercise of this Warrant, at a total purchase price not to exceed that payable upon the exercise of the unexercised portion of this Warrant, and in lieu of the shares of Series Preferred theretofore issuable upon exercise of this Warrant, (i) the kind and amount of shares of stock, other securities, money and property receivable upon such reclassification, change, merger or sale by a holder of the number of shares of Series Preferred then purchasable under this Warrant, or (ii) in the case of such a merger or sale in which the consideration paid consists all or in part of assets other than securities of the successor or purchasing corporation, at the option of the Company and with the concurrence of the holder of this Warrant, the securities of the successor or purchasing corporation having a value at the time of the transaction equivalent to the value of the Series Preferred purchasable upon exercise of this Warrant at the time of the transaction. Any new Warrant shall provide for adjustments that shall be as nearly equivalent as may be practicable to the adjustments provided for in this Section 4 . The provisions of this Section 4(a) shall similarly apply to successive reclassifications, changes, mergers and sales.

(b) Subdivision or Combination of Shares . If the Company at any time while this Warrant remains outstanding and unexpired shall subdivide or combine its outstanding shares of Series Preferred, the Warrant Price shall be proportionately decreased and the number of Shares issuable hereunder shall be proportionately increased in the case of a subdivision and the Warrant Price shall be proportionately increased and the number of Shares issuable hereunder shall be proportionately decreased in the case of a combination.

(c) Stock Dividends and Other Distributions . If the Company at any time while this Warrant is outstanding and unexpired shall (i) pay a dividend with respect to Series Preferred payable in Series Preferred, then the Warrant Price shall be adjusted, from and after the date of determination of shareholders entitled to receive such dividend or distribution, to that price determined by multiplying the Warrant Price in effect immediately prior to such date of determination by a fraction (A) the numerator of which shall be the total number of shares of Series Preferred outstanding immediately prior to such dividend or distribution, and (B) the denominator of which shall be the total number of shares of Series Preferred outstanding immediately after such dividend or distribution; or (ii) make any other distribution with respect to Series Preferred (except any distribution specifically provided for in Sections 4(a) and 4(b) ), then, in each such case, provision shall be made by the Company such that the holder of this Warrant shall receive upon exercise of this Warrant a proportionate share of any such dividend or distribution as though it were the holder of the Series Preferred (or Common Stock issuable upon conversion thereof) as of the record date fixed for the determination of the shareholders of the Company entitled to receive such dividend or distribution.

(d) Adjustment of Number of Shares . Upon each adjustment in the Warrant Price, the number of Shares of Series Preferred purchasable hereunder shall be adjusted, to the

 

-3-


nearest whole share, to the product obtained by multiplying the number of Shares purchasable immediately prior to such adjustment in the Warrant Price by a fraction, the numerator of which shall be the Warrant Price immediately prior to such adjustment and the denominator of which shall be the Warrant Price immediately thereafter.

(e) Antidilution Rights . The other antidilution rights applicable to the Shares of Series Preferred purchasable hereunder are set forth in the Company’s Certificate of Incorporation, as amended through the Date of Grant, a true and complete copy of which is attached hereto as Exhibit B (the “ Charter ”). Such antidilution rights shall not be restated, amended, modified or waived in any manner that is adverse to the holder hereof in a manner different than the other holders of Series Preferred (other than differences resulting solely from the number of shares held) without such holder’s prior written consent. The Company shall promptly provide the holder hereof with any restatement, amendment, modification or waiver of the Charter promptly after the same has been made.

5. Notice of Adjustments . Whenever the Warrant Price or the number of Shares purchasable hereunder shall be adjusted pursuant to Section 4 hereof, the Company shall make a certificate signed by its chief financial officer or chief executive officer setting forth, in reasonable detail, the event requiring the adjustment, the amount of the adjustment, the method by which such adjustment was calculated, and the Warrant Price and the number of Shares purchasable hereunder after giving effect to such adjustment, and shall cause copies of such certificate to be mailed (without regard to Section 13 hereof, by first class mail, postage prepaid) to the holder of this Warrant. In addition, whenever the conversion price or conversion ratio of the Series Preferred shall be adjusted, the Company shall make a certificate signed by its chief financial officer or chief executive officer setting forth, in reasonable detail, the event requiring the adjustment, the amount of the adjustment, the method by which such adjustment was calculated, and the conversion price or ratio of the Series Preferred after giving effect to such adjustment, and shall cause copies of such certificate to be mailed (without regard to Section 13 hereof, by first class mail, postage prepaid) to the holder of this Warrant.

6. Fractional Shares . No fractional shares of Series Preferred will be issued in connection with any exercise hereunder, but in lieu of such fractional shares the Company shall make a cash payment therefor based on the fair market value of the Series Preferred on the date of exercise as reasonably determined in good faith by the Company’s Board of Directors.

7. Compliance with Act; Disposition of Warrant or Shares of Series Preferred .

(a) Compliance with Act . The holder of this Warrant, by acceptance hereof, agrees that this Warrant, and the shares of Series Preferred to be issued upon exercise hereof and any Common Stock issued upon conversion thereof are being acquired for investment and that such holder will not offer, sell or otherwise dispose of this Warrant, or any shares of Series Preferred to be issued upon exercise hereof or any Common Stock issued upon conversion thereof except under circumstances which will not result in a violation of the Act or any applicable state securities laws. Upon exercise of this Warrant, unless the Shares being acquired are registered under the Act and any applicable state securities laws or an exemption from such registration is available, the holder hereof

 

-4-


shall confirm in writing that the shares of Series Preferred so purchased (and any shares of Common Stock issued upon conversion thereof) are being acquired for investment and not with a view toward distribution or resale in violation of the Act and shall confirm such other matters related thereto as may be reasonably requested by the Company. This Warrant and all shares of Series Preferred issued upon exercise of this Warrant and all shares of Common Stock issued upon conversion thereof (unless registered under the Act and any applicable state securities laws) shall be stamped or imprinted with a legend in substantially the following form:

“THE ISSUANCE OF THE SECURITIES EVIDENCED HEREBY WAS NOT REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR UNDER ANY STATE OR OTHER SECURITIES LAWS. NEITHER THE SECURITIES NOR ANY INTEREST THEREIN MAY BE OFFERRED, SOLD, TRANSFERRED, ASSIGNED OR OTHERWISE DISPOSED OF EXCEPT (i) PURSUANT TO EFFECTIVE REGISTRATIONS UNDER APPLICABLE SECURITIES LAWS, OR (ii) UPON DELIVERY TO THE COMPANY OF AN OPINION OF COUNSEL (OR OTHER EVIDENCE SATISFACTORY TO THE COMPANY), ACCEPTABLE TO THE COMPANY, THAT THE PROPOSED DISPOSITION MAY BE EFFECTED IN COMPLIANCE WITH APPLICABLE SECURITIES LAWS WITHOUT REGISTRATION.”

Said legend shall be removed by the Company, upon the request of a holder, at such time as the restrictions on the transfer of the applicable security shall have terminated. In addition, in connection with the issuance of this Warrant, the holder specifically represents to the Company by acceptance of this Warrant as follows:

(1) The holder is aware of the Company’s business affairs and financial condition, and has acquired information about the Company sufficient to reach an informed and knowledgeable decision to acquire this Warrant. The holder is acquiring this Warrant for its own account for investment purposes only and not with a view to, or for the resale in connection with, any “distribution” thereof in violation of the Act.

(2) The holder understands that this Warrant has not been registered under the Act in reliance upon a specific exemption therefrom, which exemption depends upon, among other things, the bona fide nature of the holder’s investment intent as expressed herein.

(3) The holder further understands that this Warrant must be held indefinitely unless subsequently registered under the Act and qualified under any applicable state securities laws, or unless exemptions from registration and qualification are otherwise available. The holder is aware of the provisions of Rule 144, promulgated under the Act.

(4) The holder is an “accredited investor” as such term is defined in Rule 501 of Regulation D promulgated under the Act.

(5) In connection with any exercise of this Warrant, the Company may require the holder of this Warrant to enter into and become bound by that certain Amended and Restated Stockholders’ Agreement dated as of May 22, 2002 by and among the Company and its stockholders, as the same may be amended from time to time or superceded by any other agreement among the Company and all of its stockholders.

 

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(b) Disposition of Warrant or Shares . With respect to any offer, sale or other disposition of this Warrant or any shares of Series Preferred acquired pursuant to the exercise of this Warrant prior to registration of such Warrant or shares, the holder hereof agrees to give written notice to the Company prior thereto, describing briefly the manner thereof, together with a written opinion of such holder’s counsel, or other evidence, if reasonably satisfactory to the Company, to the effect that such offer, sale or other disposition may be effected without registration or qualification (under the Act as then in effect or any federal or state securities law then in effect) of this Warrant or such shares of Series Preferred or Common Stock and indicating whether or not under the Act certificates for this Warrant or such shares of Series Preferred to be sold or otherwise disposed of require any restrictive legend as to applicable restrictions on transferability in order to ensure compliance with such law. Upon receiving such written notice and reasonably satisfactory opinion or other evidence, the Company, as promptly as practicable but no later than fifteen (15) days after receipt of the written notice, shall notify such holder that such holder may sell or otherwise dispose of this Warrant or such shares of Series Preferred or Common Stock, all in accordance with the terms of the notice delivered to the Company. If a determination has been made pursuant to this Section  7(b) that the opinion of counsel for the holder or other evidence is not reasonably satisfactory to the Company, the Company shall so notify the holder promptly with details thereof after such determination has been made. Notwithstanding the foregoing, this Warrant or such shares of Series Preferred or Common Stock may, as to such federal laws, be offered, sold or otherwise disposed of in accordance with Rule 144 or 144A under the Act; provided that the Company shall have been furnished with such information as the Company may reasonably request to provide a reasonable assurance that the provisions of Rule 144 or 144A have been satisfied. Each certificate representing this Warrant or the shares of Series Preferred thus transferred (except a transfer pursuant to Rule 144 or 144A) shall bear a legend as to the applicable restrictions on transferability in order to ensure compliance with such laws, unless in the aforesaid opinion of counsel for the holder, such legend is not required in order to ensure compliance with such laws. The Company may issue stop transfer instructions to its transfer agent in connection with such restrictions.

(c) Applicability of Restrictions . Neither any restrictions of any legend described in this Warrant nor the requirements of Section 7(b) above shall apply to any transfer of, or grant of a security interest in, this Warrant (or the Series Preferred or Common Stock obtainable upon exercise thereof) or any part hereof (i) to a partner of the holder if the holder is a partnership or to a member of the holder if the holder is a limited liability company, (ii) to a partnership of which the holder is a partner or to a limited liability company of which the holder is a member, or (iii) to any affiliate of the holder if the holder is a corporation; provided that in any such transfer, if applicable, (x) the transferee shall agree in writing to be bound by the terms of this Warrant as if an original holder hereof and (y) so long as the legend contemplated by Section 7(a) is required to be affixed to the securities so transferred as such time, the transferee shall affirm in writing as to itself the representations set forth in clauses (1) through (5) of Section 7(a) .

8. Rights as Shareholders; Information . No holder of this Warrant, as such, shall be entitled to vote or receive dividends or be deemed the holder of Series Preferred or any other

 

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securities of the Company which may at any time be issuable upon the exercise hereof for any purpose, nor shall anything contained herein be construed to confer upon the holder of this Warrant, as such, any of the rights of a shareholder of the Company or any right to vote for the election of directors or upon any matter submitted to shareholders at any meeting thereof, or to receive notice of meetings, or to receive dividends or subscription rights or otherwise until this Warrant shall have been exercised and the Shares purchasable upon the exercise hereof shall have become deliverable, as provided herein. Notwithstanding the foregoing, the Company will transmit to the holder of this Warrant such information, documents and reports as are generally distributed to the holders of any class or series of the securities of the Company concurrently with the distribution thereof to the shareholders.

9. Registration Rights . The Company grants registration rights to the holder of this Warrant for any Common Stock of the Company obtained upon conversion of the Series Preferred, comparable to the registration rights granted to the investors in that certain Amended and Restated Registration Rights Agreement dated as of May 22, 2002 (the “ Rights Agreement ”), with the following exceptions and clarifications:

(1) The holder will have not have the right to demand registration, but can otherwise participate in any registration demanded by others.

(2) The holder may be required to become a party to the Rights Agreement prior to the exercise of the registration rights herein granted.

(3) The registration rights are freely assignable by the holder of this Warrant in connection with a permitted transfer of this Warrant or the Shares.

(4) From and after the Date of Grant, the holder of this Warrant shall be entitled to receive copies of all notices required pursuant to the terms of the Rights Agreement to be given by the Company to all holders of “Registrable Stock” and, for purposes of such notices, the holder hereof shall be treated as if the holder were a holder of “Registrable Stock” as of the Date of Grant.

10. Additional Rights .

10.1 Acquisition Transactions . The Company shall provide the holder of this Warrant with at least twenty (20) days’ written notice prior to closing thereof of the terms and conditions of any of the following transactions (to the extent the Company has notice thereof): (i) the sale, lease, exchange, conveyance or other disposition of all or substantially all of the Company’s property or business, or (ii) its merger into or consolidation with any other corporation (other than a wholly-owned subsidiary of the Company), or any transaction (including a merger or other reorganization) or series of related transactions, in which more than fifty percent (50%) of the voting power of the Company is disposed of.

10.2 Right to Convert Warrant into Stock: Net Issuance .

(a) Right to Convert . In addition to and without limiting the rights of the holder under the terms of this Warrant, the holder shall have the right to convert this Warrant or any portion thereof (the “ Conversion Right ”) into shares of Series Preferred as provided in this Section 10.2 at any time or from time to time during the term of this Warrant. Upon exercise of the Conversion Right with respect to a particular number of shares subject to this Warrant (the “ Converted Warrant Shares ”), the Company shall deliver to the holder (without payment by the holder of any exercise

 

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price or any cash or other consideration) that number of shares of fully paid and nonassessable Series Preferred as is determined according to the following formula:

 

  X =   B - A   
    Y       

 

  Where:    X  =    the number of shares of Series Preferred that shall be issued to holder
     Y  =    the fair market value of one share of Series Preferred
     A  =    the aggregate Warrant Price of the specified number of Converted Warrant Shares immediately prior to the exercise of the Conversion Right ( i.e. , the number of Converted Warrant Shares multiplied by the Warrant Price)
     B  =    the aggregate fair market value of the specified number of Converted Warrant Shares ( i.e. , the number of Converted Warrant Shares multiplied by the fair market value of one Converted Warrant Share)

No fractional shares shall be issuable upon exercise of the Conversion Right, and, if the number of shares to be issued determined in accordance with the foregoing formula is other than a whole number, the Company shall pay to the holder an amount in cash equal to the fair market value of the resulting fractional share on the Conversion Date (as hereinafter defined). For purposes of Section 10 of this Warrant, shares issued pursuant to the Conversion Right shall be treated as if they were issued upon the exercise of this Warrant.

(b) Method of Exercise . The Conversion Right may be exercised by the holder by the surrender of this Warrant at the principal office of the Company together with a written statement (which may be in the form of Exhibit A-1 or Exhibit A-2 hereto) specifying that the holder thereby intends to exercise the Conversion Right and indicating the number of shares subject to this Warrant which are being surrendered (referred to in Section 10.2(a) hereof as the Converted Warrant Shares) in exercise of the Conversion Right. Such conversion shall be effective upon receipt by the Company of this Warrant together with the aforesaid written statement, or on such later date as is specified therein (the “ Conversion Date ”), and, at the election of the holder hereof, may be made contingent upon the closing of the sale of the Company’s Common Stock to the public in a public offering pursuant to a Registration Statement under the Act (a “ Public Offering ”). Certificates for the shares issuable upon exercise of the Conversion Right and, if applicable, a new warrant evidencing the balance of the shares remaining subject to this Warrant, shall be issued as of the Conversion Date and shall be delivered to the holder within thirty (30) days following the Conversion Date.

(c) Determination of Fair Market Value . For purposes of this Section 10.2 , “fair market value” of a share of Series Preferred (or Common Stock if the Series Preferred has been automatically converted into Common Stock) as of a particular date (the “ Determination Date ”) shall mean:

 

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(i) If the Conversion Right is exercised in connection with and contingent upon a Public Offering, and if the Company’s Registration Statement relating to such Public Offering (“ Registration Statement ”) has been declared effective by the Securities and Exchange Commission, then the initial “Price to Public” specified in the final prospectus with respect to such offering.

(ii) If the Conversion Right is not exercised in connection with and contingent upon a Public Offering, then as follows:

(A) If traded on a securities exchange, the fair market value of the Common Stock shall be deemed to be the average of the closing prices of the Common Stock on such exchange over the five trading days immediately prior to the Determination Date, and the fair market value of the Series Preferred shall be deemed to be such fair market value of the Common Stock multiplied by the number of shares of Common Stock into which each share of Series Preferred is then convertible;

(B) If traded on the Nasdaq Stock Market or other over-the-counter system, the fair market value of the Common Stock shall be deemed to be the average of the closing bid prices of the Common Stock over the five trading days immediately prior to the Determination Date, and the fair market value of the Series Preferred shall be deemed to be such fair market value of the Common Stock multiplied by the number of shares of Common Stock into which each share of Series Preferred is then convertible; and

(C) If there is no public market for the Common Stock, then fair market value shall be determined by the Board of Directors of the Company in its reasonable good faith judgment. The foregoing notwithstanding, if the holder of this Warrant advises the Board of Directors of the Company in writing, within three (3) days of such holder having received notice from the Company of the fair market value determination of the Board of Directors, that the holder disagrees with such determination, then the Company and such holder shall promptly agree upon a reputable investment banking firm to undertake such valuation. If the valuation of such investment banking firm is greater than that determined by the Board of Directors, then all fees and expenses of such investment banking firm shall be paid by the Company; in all other circumstances, such fees and expenses shall be paid by the holder of this Warrant.

In making a determination under clauses (A) or (B) above, if on the Determination Date, five trading days had not passed since the IPO, then the fair market value of the Common Stock shall be the average closing prices or closing bid prices, as applicable, for the shorter period beginning on and including the date of the IPO and ending on the trading day prior to the Determination Date (or if such period includes only one trading day the closing price or closing bid price, as applicable, for such trading day). If closing prices or closing bid prices are no longer reported by a securities exchange or other trading system, the closing price or closing bid price shall be that which is reported by such securities exchange or other trading system at 4:00 p.m. New York City time on the applicable trading day.

10.3 Exercise Prior to Expiration. To the extent this Warrant is not previously exercised as to all of the Shares subject hereto, and if the fair market value of one share of the Series Preferred is

 

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greater than the Warrant Price then in effect, this Warrant shall be deemed automatically exercised pursuant to Section 10.2 above (even if not surrendered) immediately before its expiration. For purposes of such automatic exercise, the fair market value of one share of the Series Preferred upon such expiration shall be determined pursuant to Section 10.2(c) . To the extent this Warrant or any portion thereof is deemed automatically exercised pursuant to this Section 10.3 , the Company agrees to promptly notify the holder hereof of the number of Shares, if any, the holder hereof is to receive by reason of such automatic exercise.

11. Representations and Warranties . The Company represents and warrants to the holder of this Warrant as follows:

(a) This Warrant has been duly authorized and executed by the Company and is a valid and binding obligation of the Company enforceable in accordance with its terms, subject to laws of general application relating to bankruptcy, insolvency and the relief of debtors and the rules of law or principles at equity governing specific performance, injunctive relief and other equitable remedies.

(b) The Shares have been duly authorized and reserved for issuance by the Company and, when issued in accordance with the terms hereof, will be validly issued, fully paid and nonassessable and free from preemptive rights.

(c) The rights, preferences, privileges and restrictions granted to or imposed upon the Series Preferred and the holders thereof are as set forth in the Charter, and on the Date of Grant, each share of the Series Preferred represented by this Warrant is convertible into one share of Common Stock.

(d) The shares of Common Stock issuable upon conversion of the Shares have been duly authorized and reserved for issuance by the Company and, when issued in accordance with the terms of the Charter will be validly issued, fully paid and nonassessable.

(e) The execution and delivery of this Warrant are not, and the issuance of the Shares upon exercise of this Warrant in accordance with the terms hereof will not be, inconsistent with the Company’s Charter or by-laws, do not and will not contravene any law, governmental rule or regulation, judgment or order applicable to the Company, and do not and will not conflict with or contravene any provision of, or constitute a default under, any indenture, mortgage, contract or other instrument of which the Company is a party or by which it is bound or require the consent or approval of, the giving of notice to, the registration or filing with or the taking of any action in respect of or by, any Federal, state or local government authority or agency or other person, except for consents which have been obtained and the filing of notices pursuant to federal and state securities laws, which filings will be effected by the time required thereby.

(f) There are no actions, suits, audits, investigations or proceedings pending or, to the knowledge of the Company, threatened against the Company in any court or before any governmental commission, board or authority which, if adversely determined, could have a material adverse effect on the ability of the Company to perform its obligations under this Warrant.

 

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(g) The number of shares of Common Stock of the Company outstanding on the date hereof, on a fully diluted basis (assuming the conversion of all outstanding convertible securities and the exercise of all outstanding options and warrants), does not exceed 34,000,000 shares.

12. Modification and Waiver . This Warrant and any provision hereof may be changed, waived, discharged or terminated only by an instrument in writing signed by the party against which enforcement of the same is sought.

13. Notices . Any notice, request, communication or other document required or permitted to be given or delivered to the holder hereof or the Company shall be delivered, or shall be sent by certified or registered mail, postage prepaid, to each such holder at its address as shown on the books of the Company or to the Company at the address indicated therefor on the signature page of this Warrant.

14. Binding Effect on Successors . This Warrant shall be binding upon any corporation succeeding the Company by merger, consolidation or acquisition of all or substantially all of the Company’s assets, and all of the obligations of the Company relating to the Series Preferred issuable upon the exercise or conversion of this Warrant shall survive the exercise, conversion and termination of this Warrant and all of the covenants and agreements of the Company shall inure to the benefit of the successors and assigns of the holder hereof.

15. Lost Warrants or Stock Certificates . The Company covenants to the holder hereof that, upon receipt of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of this Warrant or any stock certificate and, in the case of any such loss, theft or destruction, upon receipt of an indemnity reasonably satisfactory to the Company, or in the case of any such mutilation upon surrender and cancellation of such Warrant or stock certificate, the Company will make and deliver a new Warrant or stock certificate, of like tenor, in lieu of the lost, stolen, destroyed or mutilated Warrant or stock certificate.

16. Descriptive Headings . The descriptive headings of the various Section s of this Warrant are inserted for convenience only and do not constitute a part of this Warrant. The language in this Warrant shall be construed as to its fair meaning without regard to which party drafted this Warrant.

17. Governing Law . This Warrant shall be construed and enforced in accordance with, and the rights of the parties shall be governed by, the laws of the State of Delaware.

18. Survival of Representations, Warranties and Agreements . All representations and warranties of the Company and the holder hereof contained herein shall survive the Date of Grant, the exercise or conversion of this Warrant (or any part hereof) or the termination or expiration of rights hereunder. All agreements of the Company and the holder hereof contained herein shall survive indefinitely until, by their respective terms, they are no longer operative.

19. Remedies . In case any one or more of the covenants and agreements contained in this Warrant shall have been breached, the holders hereof (in the case of a breach by the Company), or

 

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the Company (in the case of a breach by a holder), may proceed to protect and enforce their or its rights either by suit in equity and/or by action at law, including, but not limited to, an action for damages as a result of any such breach and/or an action for specific performance of any such covenant or agreement contained in this Warrant.

20. No Impairment of Rights . The Company will not, by amendment of its Charter or through any other means, avoid or seek to avoid the observance or performance of any of the terms of this Warrant, but will at all times in good faith assist in the carrying out of all such terms and in the taking of all such action as may be necessary or appropriate in order to protect the rights of the holder of this Warrant against impairment.

21. Severability . The invalidity or unenforceability of any provision of this Warrant in any jurisdiction shall not affect the validity or enforceability of such provision in any other jurisdiction, or affect any other provision of this Warrant, which shall remain in full force and effect.

22. Recovery of Litigation Costs . If any legal action or other proceeding is brought for the enforcement of this Warrant, or because of an alleged dispute, breach, default, or misrepresentation in connection with any of the provisions of this Warrant, the successful or prevailing party or parties shall be entitled to recover reasonable attorneys’ fees and other costs incurred in that action or proceeding, in addition to any other relief to which it or they may be entitled.

23. Entire Agreement; Modification . This Warrant constitutes the entire agreement between the parties pertaining to the subject matter contained in it and supersedes all prior and contemporaneous agreements, representations, and undertakings of the parties, whether oral or written, with respect to such subject matter.

 

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The Company has caused this Warrant to be duly executed and delivered as of the Date of Grant specified above.

 

RUBICON TECHNOLOGY, INC.
By:  

/s/ Christopher J. Moffitt

Name:  

 

Title:  

 

Address:  

    3000 Lakeside, Suite 105N

    Bannockburn, IL 60015

 

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EXHIBIT A-1

NOTICE OF EXERCISE

 

To: RUBICON TECHNOLOGY, INC. (the “Company”)

 

  1. The undersigned hereby:

 

  ¨ elects to purchase                      shares of [Series Preferred Stock] [Common Stock] of the Company pursuant to the terms of the attached Warrant, and tenders herewith payment of the purchase price of such shares in full, or

 

  ¨ elects to exercise its net issuance rights pursuant to Section 10.2 of the attached Warrant with respect to                      Shares of [Series Preferred Stock] [Common Stock].

2. Please issue a certificate or certificates representing                      shares in the name of the undersigned or in such other name or names as are specified below:

 

 

 

 
  (Name)  
 

 

 
 

 

 
  (Address)  

3. The undersigned represents that the aforesaid shares are being acquired for the account of the undersigned for investment and not with a view to, or for resale in connection with, the distribution thereof and that the undersigned has no present intention of distributing or reselling such shares, all except as in compliance with applicable securities laws.

 

 

(Signature)

                    

    (Date)


EXHIBIT A-2

NOTICE OF EXERCISE

 

To: RUBICON TECHNOLOGY, INC. (the “ Company ”)

1. Contingent upon and effective immediately prior to the closing (the “ Closing ”) of the Company’s public offering contemplated by the Registration Statement on Form S          , filed                      , 200    , the undersigned hereby:

¨ elects to purchase              shares of [Series Preferred Stock] [Common Stock] of the Company (or such lesser number of shares as may be sold on behalf of the undersigned at the Closing) pursuant to the terms of the attached Warrant, or

¨ elects to exercise its net issuance rights pursuant to Section 10.2 of the attached Warrant with respect to              Shares of [Series Preferred Stock] [Common Stock].

2. Please deliver to the custodian for the selling shareholders a stock certificate representing such              shares.

3. The undersigned has instructed the custodian for the selling shareholders to deliver to the Company $              or, if less, the net proceeds due the undersigned from the sale of shares in the aforesaid public offering. If such net proceeds are less than the purchase price for such shares, the undersigned agrees to deliver the difference to the Company prior to the Closing.

 

 

(Signature)

                    

    (Date)

Exhibit 4.9

THE ISSUANCE OF THE SECURITIES EVIDENCED HEREBY WAS NOT REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR UNDER ANY STATE OR OTHER SECURITIES LAWS. NEITHER THE SECURITIES NOR ANY INTEREST THEREIN MAY BE OFFERRED, SOLD, TRANSFERRED, ASSIGNED OR OTHERWISE DISPOSED OF EXCEPT (i) PURSUANT TO EFFECTIVE REGISTRATIONS UNDER APPLICABLE SECURITIES LAWS, OR (ii) UPON DELIVERY TO THE COMPANY OF AN OPINION OF COUNSEL (OR OTHER EVIDENCE SATISFACTORY TO THE COMPANY), ACCEPTABLE TO THE COMPANY, THAT THE PROPOSED DISPOSITION MAY BE EFFECTED IN COMPLIANCE WITH APPLICABLE SECURITIES LAWS WITHOUT REGISTRATION.

RUBICON TECHNOLOGY, INC.

WARRANT TO PURCHASE 169,642 SHARES

OF SERIES B PREFERRED STOCK

THIS CERTIFIES THAT, for value received, GATX Ventures, Inc. and its assignees are entitled to subscribe for and purchase 169,642 shares of the fully paid and nonassessable Series B Preferred Stock (as adjusted pursuant to Section 4 hereof, the “ Shares ”) of RUBICON TECHNOLOGY, INC., a Delaware corporation (the “ Company ”), at the price of $0.56 per share (such price and such other price as shall result, from time to time, from the adjustments specified in Section 4 hereof is herein referred to as the “ Warrant Price ”), subject to the provisions and upon the terms and conditions hereinafter set forth. As used herein, (a) the term “ Series Preferred ” shall mean the Company’s presently authorized Series B Preferred Stock, and any stock into or for which such Series B Preferred Stock may hereafter be converted or exchanged, and after the automatic conversion of the Series B Preferred Stock to Common Stock shall mean the Company’s Common Stock, (b) the term “ Date of Grant ” shall mean July 10, 2002, and (c) the term “ Other Warrants ” shall mean any other warrants issued by the Company in connection with the transaction with respect to which this Warrant was issued, and any warrant issued upon transfer or partial exercise of or in lieu of this Warrant. The term “ Warrant ” as used herein shall be deemed to include Other Warrants unless the context clearly requires otherwise.

1. Term . The purchase right represented by this Warrant is exercisable, in whole or in part, at any time and from time to time from the Date of Grant through the later of (i) ten (10) years after the Date of Grant or (ii) five (5) years after the closing of the Company’s initial public offering of its Common Stock (“ IPO ”) effected pursuant to a Registration Statement on Form S-1 (or its successor) filed under the Securities Act of 1933, as amended (the “ Act ”).

2. Method of Exercise; Payment; Issuance of New Warrant . Subject to Section 1 hereof, the purchase right represented by this Warrant may be exercised by the holder hereof, in whole or in part and from time to time, at the election of the holder hereof, by (a) the surrender of this Warrant (with the notice of exercise substantially in the form attached hereto as Exhibit A-1 duly completed and executed) at the principal office of the Company and by the payment to the Company, by


certified or bank check, or by wire transfer to an account designated by the Company (a “ Wire Transfer ”) of an amount equal to the then applicable Warrant Price multiplied by the number of Shares then being purchased; (b) if in connection with a registered public offering of the Company’s securities, the surrender of this Warrant (with the notice of exercise form attached hereto as Exhibit A-2 duly completed and executed) at the principal office of the Company together with notice of arrangements reasonably satisfactory to the Company for payment to the Company either by certified or bank check or by Wire Transfer from the proceeds of the sale of shares to be sold by the holder in such public offering of an amount equal to the then applicable Warrant Price per share multiplied by the number of Shares then being purchased; or (c) exercise of the “net issuance” right provided for in Section 10.2 hereof. The person or persons in whose name(s) any certificate(s) representing shares of Series Preferred shall be issuable upon exercise of this Warrant shall be deemed to have become the holder(s) of record of, and shall be treated for all purposes as the record holder(s) of, the shares represented thereby (and such shares shall be deemed to have been issued) immediately prior to the close of business on the date or dates upon which this Warrant is exercised. In the event of any exercise of the rights represented by this Warrant, certificates for the shares of stock so purchased shall be delivered to the holder hereof as soon as possible and in any event within thirty (30) days after such exercise and, unless this Warrant has been fully exercised or expired, a new Warrant representing the portion of the Shares, if any, with respect to which this Warrant shall not then have been exercised shall also be issued to the holder hereof as soon as possible and in any event within such thirty-day period; provided that at such time as the Company is subject to the reporting requirements of the Securities Exchange Act of 1934, as amended, if requested by the holder of this Warrant, the Company shall cause its transfer agent to deliver the certificate representing Shares issued upon exercise of this Warrant to a broker or other person (as directed by the holder exercising this Warrant) within the time period required to settle any trade made by the holder after exercise of this Warrant.

3. Stock Fully Paid; Reservation of Shares . All Shares that may be issued upon the exercise of the rights represented by this Warrant will, upon issuance pursuant to the terms and conditions herein, be fully paid and nonassessable, and free from all preemptive rights and taxes, liens and charges with respect to the issue thereof. During the period within which the rights represented by this Warrant may be exercised, the Company will at all times have authorized, and reserved for the purpose of the issue upon exercise of the purchase rights evidenced by this Warrant, a sufficient number of shares of its Series Preferred to provide for the exercise of the rights represented by this Warrant and a sufficient number of shares of its Common Stock to provide for the conversion of the Series Preferred into Common Stock.

4. Adjustment of Warrant Price and Number of Shares . The number and kind of securities purchasable upon the exercise of this Warrant and the Warrant Price shall be subject to adjustment from time to time upon the occurrence of certain events, as follows:

(a) Reclassification or Merger . In case of any reclassification or change of securities of the class issuable upon exercise of this Warrant (other than a change in par value, or from par value to no par value, or from no par value to par value, or as a result of a subdivision or combination), or in case of any merger of the Company with or into another corporation (other than a merger with another corporation in which the Company is the acquiring and the surviving

 

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corporation and which does not result in any reclassification or change of outstanding securities issuable upon exercise of this Warrant), or in case of any sale of all or substantially all of the assets of the Company, the Company, or such successor or purchasing corporation, as the case may be, shall duly execute and deliver to the holder of this Warrant a new Warrant (in form and substance satisfactory to the holder of this Warrant), or the Company shall make appropriate provision without the issuance of a new Warrant, so that the holder of this Warrant shall have the right to receive upon exercise of this Warrant, at a total purchase price not to exceed that payable upon the exercise of the unexercised portion of this Warrant, and in lieu of the shares of Series Preferred theretofore issuable upon exercise of this Warrant, (i) the kind and amount of shares of stock, other securities, money and property receivable upon such reclassification, change, merger or sale by a holder of the number of shares of Series Preferred then purchasable under this Warrant, or (ii) in the case of such a merger or sale in which the consideration paid consists all or in part of assets other than securities of the successor or purchasing corporation, at the option of the Company and with the concurrence of the holder of this Warrant, the securities of the successor or purchasing corporation having a value at the time of the transaction equivalent to the value of the Series Preferred purchasable upon exercise of this Warrant at the time of the transaction. Any new Warrant shall provide for adjustments that shall be as nearly equivalent as may be practicable to the adjustments provided for in this Section 4 . The provisions of this Section 4(a) shall similarly apply to successive reclassifications, changes, mergers and sales.

(b) Subdivision or Combination of Shares . If the Company at any time while this Warrant remains outstanding and unexpired shall subdivide or combine its outstanding shares of Series Preferred, the Warrant Price shall be proportionately decreased and the number of Shares issuable hereunder shall be proportionately increased in the case of a subdivision and the Warrant Price shall be proportionately increased and the number of Shares issuable hereunder shall be proportionately decreased in the case of a combination.

(c) Stock Dividends and Other Distributions . If the Company at any time while this Warrant is outstanding and unexpired shall (i) pay a dividend with respect to Series Preferred payable in Series Preferred, then the Warrant Price shall be adjusted, from and after the date of determination of shareholders entitled to receive such dividend or distribution, to that price determined by multiplying the Warrant Price in effect immediately prior to such date of determination by a fraction (A) the numerator of which shall be the total number of shares of Series Preferred outstanding immediately prior to such dividend or distribution, and (B) the denominator of which shall be the total number of shares of Series Preferred outstanding immediately after such dividend or distribution; or (ii) make any other distribution with respect to Series Preferred (except any distribution specifically provided for in Sections 4(a) and 4(b) ), then, in each such case, provision shall be made by the Company such that the holder of this Warrant shall receive upon exercise of this Warrant a proportionate share of any such dividend or distribution as though it were the holder of the Series Preferred (or Common Stock issuable upon conversion thereof) as of the record date fixed for the determination of the shareholders of the Company entitled to receive such dividend or distribution.

(d) Adjustment of Number of Shares . Upon each adjustment in the Warrant Price, the number of Shares of Series Preferred purchasable hereunder shall be adjusted, to the

 

-3-


nearest whole share, to the product obtained by multiplying the number of Shares purchasable immediately prior to such adjustment in the Warrant Price by a fraction, the numerator of which shall be the Warrant Price immediately prior to such adjustment and the denominator of which shall be the Warrant Price immediately thereafter.

(e) Antidilution Rights . The other antidilution rights applicable to the Shares of Series Preferred purchasable hereunder are set forth in the Company’s Certificate of Incorporation, as amended through the Date of Grant, a true and complete copy of which is attached hereto as Exhibit B (the “ Charter ”). Such antidilution rights shall not be restated, amended, modified or waived in any manner that is adverse to the holder hereof in a manner different than the other holders of Series Preferred (other than differences resulting solely from the number of shares held) without such holder’s prior written consent. The Company shall promptly provide the holder hereof with any restatement, amendment, modification or waiver of the Charter promptly after the same has been made.

5. Notice of Adjustments . Whenever the Warrant Price or the number of Shares purchasable hereunder shall be adjusted pursuant to Section 4 hereof, the Company shall make a certificate signed by its chief financial officer or chief executive officer setting forth, in reasonable detail, the event requiring the adjustment, the amount of the adjustment, the method by which such adjustment was calculated, and the Warrant Price and the number of Shares purchasable hereunder after giving effect to such adjustment, and shall cause copies of such certificate to be mailed (without regard to Section 13 hereof, by first class mail, postage prepaid) to the holder of this Warrant. In addition, whenever the conversion price or conversion ratio of the Series Preferred shall be adjusted, the Company shall make a certificate signed by its chief financial officer or chief executive officer setting forth, in reasonable detail, the event requiring the adjustment, the amount of the adjustment, the method by which such adjustment was calculated, and the conversion price or ratio of the Series Preferred after giving effect to such adjustment, and shall cause copies of such certificate to be mailed (without regard to Section 13 hereof, by first class mail, postage prepaid) to the holder of this Warrant.

6. Fractional Shares . No fractional shares of Series Preferred will be issued in connection with any exercise hereunder, but in lieu of such fractional shares the Company shall make a cash payment therefor based on the fair market value of the Series Preferred on the date of exercise as reasonably determined in good faith by the Company’s Board of Directors.

7. Compliance with Act; Disposition of Warrant or Shares of Series Preferred .

(a) Compliance with Act . The holder of this Warrant, by acceptance hereof, agrees that this Warrant, and the shares of Series Preferred to be issued upon exercise hereof and any Common Stock issued upon conversion thereof are being acquired for investment and that such holder will not offer, sell or otherwise dispose of this Warrant, or any shares of Series Preferred to be issued upon exercise hereof or any Common Stock issued upon conversion thereof except under circumstances which will not result in a violation of the Act or any applicable state securities laws. Upon exercise of this Warrant, unless the Shares being acquired are registered under the Act and any applicable state securities laws or an exemption from such registration is available, the holder hereof

 

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shall confirm in writing that the shares of Series Preferred so purchased (and any shares of Common Stock issued upon conversion thereof) are being acquired for investment and not with a view toward distribution or resale in violation of the Act and shall confirm such other matters related thereto as may be reasonably requested by the Company. This Warrant and all shares of Series Preferred issued upon exercise of this Warrant and all shares of Common Stock issued upon conversion thereof (unless registered under the Act and any applicable state securities laws) shall be stamped or imprinted with a legend in substantially the following form:

“THE ISSUANCE OF THE SECURITIES EVIDENCED HEREBY WAS NOT REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR UNDER ANY STATE OR OTHER SECURITIES LAWS. NEITHER THE SECURITIES NOR ANY INTEREST THEREIN MAY BE OFFERRED, SOLD, TRANSFERRED, ASSIGNED OR OTHERWISE DISPOSED OF EXCEPT (i) PURSUANT TO EFFECTIVE REGISTRATIONS UNDER APPLICABLE SECURITIES LAWS, OR (ii) UPON DELIVERY TO THE COMPANY OF AN OPINION OF COUNSEL (OR OTHER EVIDENCE SATISFACTORY TO THE COMPANY), ACCEPTABLE TO THE COMPANY, THAT THE PROPOSED DISPOSITION MAY BE EFFECTED IN COMPLIANCE WITH APPLICABLE SECURITIES LAWS WITHOUT REGISTRATION.”

Said legend shall be removed by the Company, upon the request of a holder, at such time as the restrictions on the transfer of the applicable security shall have terminated. In addition, in connection with the issuance of this Warrant, the holder specifically represents to the Company by acceptance of this Warrant as follows:

(1) The holder is aware of the Company’s business affairs and financial condition, and has acquired information about the Company sufficient to reach an informed and knowledgeable decision to acquire this Warrant. The holder is acquiring this Warrant for its own account for investment purposes only and not with a view to, or for the resale in connection with, any “distribution” thereof in violation of the Act.

(2) The holder understands that this Warrant has not been registered under the Act in reliance upon a specific exemption therefrom, which exemption depends upon, among other things, the bona fide nature of the holder’s investment intent as expressed herein.

(3) The holder further understands that this Warrant must be held indefinitely unless subsequently registered under the Act and qualified under any applicable state securities laws, or unless exemptions from registration and qualification are otherwise available. The holder is aware of the provisions of Rule 144, promulgated under the Act.

(4) The holder is an “accredited investor” as such term is defined in Rule 501 of Regulation D promulgated under the Act.

(5) In connection with any exercise of this Warrant, the Company may require the holder of this Warrant to enter into and become bound by that certain Amended and Restated Stockholders’ Agreement dated as of May 22, 2002 by and among the Company and its stockholders, as the same may be amended from time to time or superceded by any other agreement among the Company and all of its stockholders.

 

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(b) Disposition of Warrant or Shares . With respect to any offer, sale or other disposition of this Warrant or any shares of Series Preferred acquired pursuant to the exercise of this Warrant prior to registration of such Warrant or shares, the holder hereof agrees to give written notice to the Company prior thereto, describing briefly the manner thereof, together with a written opinion of such holder’s counsel, or other evidence, if reasonably satisfactory to the Company, to the effect that such offer, sale or other disposition may be effected without registration or qualification (under the Act as then in effect or any federal or state securities law then in effect) of this Warrant or such shares of Series Preferred or Common Stock and indicating whether or not under the Act certificates for this Warrant or such shares of Series Preferred to be sold or otherwise disposed of require any restrictive legend as to applicable restrictions on transferability in order to ensure compliance with such law. Upon receiving such written notice and reasonably satisfactory opinion or other evidence, the Company, as promptly as practicable but no later than fifteen (15) days after receipt of the written notice, shall notify such holder that such holder may sell or otherwise dispose of this Warrant or such shares of Series Preferred or Common Stock, all in accordance with the terms of the notice delivered to the Company. If a determination has been made pursuant to this Section  7(b) that the opinion of counsel for the holder or other evidence is not reasonably satisfactory to the Company, the Company shall so notify the holder promptly with details thereof after such determination has been made. Notwithstanding the foregoing, this Warrant or such shares of Series Preferred or Common Stock may, as to such federal laws, be offered, sold or otherwise disposed of in accordance with Rule 144 or 144A under the Act; provided that the Company shall have been furnished with such information as the Company may reasonably request to provide a reasonable assurance that the provisions of Rule 144 or 144A have been satisfied. Each certificate representing this Warrant or the shares of Series Preferred thus transferred (except a transfer pursuant to Rule 144 or 144A) shall bear a legend as to the applicable restrictions on transferability in order to ensure compliance with such laws, unless in the aforesaid opinion of counsel for the holder, such legend is not required in order to ensure compliance with such laws. The Company may issue stop transfer instructions to its transfer agent in connection with such restrictions.

(c) Applicability of Restrictions . Neither any restrictions of any legend described in this Warrant nor the requirements of Section 7(b) above shall apply to any transfer of, or grant of a security interest in, this Warrant (or the Series Preferred or Common Stock obtainable upon exercise thereof) or any part hereof (i) to a partner of the holder if the holder is a partnership or to a member of the holder if the holder is a limited liability company, (ii) to a partnership of which the holder is a partner or to a limited liability company of which the holder is a member, or (iii) to any affiliate of the holder if the holder is a corporation; provided that in any such transfer, if applicable, (x) the transferee shall agree in writing to be bound by the terms of this Warrant as if an original holder hereof and (y) so long as the legend contemplated by Section 7(a) is required to be affixed to the securities so transferred as such time, the transferee shall affirm in writing as to itself the representations set forth in clauses (1) through (5) of Section 7(a) .

8. Rights as Shareholders; Information . No holder of this Warrant, as such, shall be entitled to vote or receive dividends or be deemed the holder of Series Preferred or any other

 

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securities of the Company which may at any time be issuable upon the exercise hereof for any purpose, nor shall anything contained herein be construed to confer upon the holder of this Warrant, as such, any of the rights of a shareholder of the Company or any right to vote for the election of directors or upon any matter submitted to shareholders at any meeting thereof, or to receive notice of meetings, or to receive dividends or subscription rights or otherwise until this Warrant shall have been exercised and the Shares purchasable upon the exercise hereof shall have become deliverable, as provided herein. Notwithstanding the foregoing, the Company will transmit to the holder of this Warrant such information, documents and reports as are generally distributed to the holders of any class or series of the securities of the Company concurrently with the distribution thereof to the shareholders.

9. Registration Rights . The Company grants registration rights to the holder of this Warrant for any Common Stock of the Company obtained upon conversion of the Series Preferred, comparable to the registration rights granted to the investors in that certain Amended and Restated Registration Rights Agreement dated as of May 22, 2002 (the “ Rights Agreement ”), with the following exceptions and clarifications:

(1) The holder will have not have the right to demand registration, but can otherwise participate in any registration demanded by others.

(2) The holder may be required to become a party to the Rights Agreement prior to the exercise of the registration rights herein granted.

(3) The registration rights are freely assignable by the holder of this Warrant in connection with a permitted transfer of this Warrant or the Shares.

(4) From and after the Date of Grant, the holder of this Warrant shall be entitled to receive copies of all notices required pursuant to the terms of the Rights Agreement to be given by the Company to all holders of “Registrable Stock” and, for purposes of such notices, the holder hereof shall be treated as if the holder were a holder of “Registrable Stock” as of the Date of Grant.

10. Additional Rights .

10.1 Acquisition Transactions . The Company shall provide the holder of this Warrant with at least twenty (20) days’ written notice prior to closing thereof of the terms and conditions of any of the following transactions (to the extent the Company has notice thereof): (i) the sale, lease, exchange, conveyance or other disposition of all or substantially all of the Company’s property or business, or (ii) its merger into or consolidation with any other corporation (other than a wholly-owned subsidiary of the Company), or any transaction (including a merger or other reorganization) or series of related transactions, in which more than fifty percent (50%) of the voting power of the Company is disposed of.

10.2 Right to Convert Warrant into Stock: Net Issuance .

(a) Right to Convert . In addition to and without limiting the rights of the holder under the terms of this Warrant, the holder shall have the right to convert this Warrant or any portion thereof (the “ Conversion Right ”) into shares of Series Preferred as provided in this Section 10.2 at any time or from time to time during the term of this Warrant. Upon exercise of the Conversion Right with respect to a particular number of shares subject to this Warrant (the “ Converted Warrant Shares ”), the Company shall deliver to the holder (without payment by the holder of any exercise

 

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price or any cash or other consideration) that number of shares of fully paid and nonassessable Series Preferred as is determined according to the following formula:

 

  X =   B - A   
    Y       

 

  Where:    X  =    the number of shares of Series Preferred that shall be issued to holder
     Y  =    the fair market value of one share of Series Preferred
     A  =    the aggregate Warrant Price of the specified number of Converted Warrant Shares immediately prior to the exercise of the Conversion Right ( i.e. , the number of Converted Warrant Shares multiplied by the Warrant Price)
     B  =    the aggregate fair market value of the specified number of Converted Warrant Shares ( i.e. , the number of Converted Warrant Shares multiplied by the fair market value of one Converted Warrant Share)

No fractional shares shall be issuable upon exercise of the Conversion Right, and, if the number of shares to be issued determined in accordance with the foregoing formula is other than a whole number, the Company shall pay to the holder an amount in cash equal to the fair market value of the resulting fractional share on the Conversion Date (as hereinafter defined). For purposes of Section 10 of this Warrant, shares issued pursuant to the Conversion Right shall be treated as if they were issued upon the exercise of this Warrant.

(b) Method of Exercise . The Conversion Right may be exercised by the holder by the surrender of this Warrant at the principal office of the Company together with a written statement (which may be in the form of Exhibit A-1 or Exhibit A-2 hereto) specifying that the holder thereby intends to exercise the Conversion Right and indicating the number of shares subject to this Warrant which are being surrendered (referred to in Section 10.2(a) hereof as the Converted Warrant Shares) in exercise of the Conversion Right. Such conversion shall be effective upon receipt by the Company of this Warrant together with the aforesaid written statement, or on such later date as is specified therein (the “ Conversion Date ”), and, at the election of the holder hereof, may be made contingent upon the closing of the sale of the Company’s Common Stock to the public in a public offering pursuant to a Registration Statement under the Act (a “ Public Offering ”). Certificates for the shares issuable upon exercise of the Conversion Right and, if applicable, a new warrant evidencing the balance of the shares remaining subject to this Warrant, shall be issued as of the Conversion Date and shall be delivered to the holder within thirty (30) days following the Conversion Date.

(c) Determination of Fair Market Value . For purposes of this Section 10.2 , “fair market value” of a share of Series Preferred (or Common Stock if the Series Preferred has been automatically converted into Common Stock) as of a particular date (the “ Determination Date ”) shall mean:

 

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(i) If the Conversion Right is exercised in connection with and contingent upon a Public Offering, and if the Company’s Registration Statement relating to such Public Offering (“ Registration Statement ”) has been declared effective by the Securities and Exchange Commission, then the initial “Price to Public” specified in the final prospectus with respect to such offering.

(ii) If the Conversion Right is not exercised in connection with and contingent upon a Public Offering, then as follows:

(A) If traded on a securities exchange, the fair market value of the Common Stock shall be deemed to be the average of the closing prices of the Common Stock on such exchange over the five trading days immediately prior to the Determination Date, and the fair market value of the Series Preferred shall be deemed to be such fair market value of the Common Stock multiplied by the number of shares of Common Stock into which each share of Series Preferred is then convertible;

(B) If traded on the Nasdaq Stock Market or other over-the-counter system, the fair market value of the Common Stock shall be deemed to be the average of the closing bid prices of the Common Stock over the five trading days immediately prior to the Determination Date, and the fair market value of the Series Preferred shall be deemed to be such fair market value of the Common Stock multiplied by the number of shares of Common Stock into which each share of Series Preferred is then convertible; and

(C) If there is no public market for the Common Stock, then fair market value shall be determined by the Board of Directors of the Company in its reasonable good faith judgment. The foregoing notwithstanding, if the holder of this Warrant advises the Board of Directors of the Company in writing, within three (3) days of such holder having received notice from the Company of the fair market value determination of the Board of Directors, that the holder disagrees with such determination, then the Company and such holder shall promptly agree upon a reputable investment banking firm to undertake such valuation. If the valuation of such investment banking firm is greater than that determined by the Board of Directors, then all fees and expenses of such investment banking firm shall be paid by the Company; in all other circumstances, such fees and expenses shall be paid by the holder of this Warrant.

In making a determination under clauses (A) or (B) above, if on the Determination Date, five trading days had not passed since the IPO, then the fair market value of the Common Stock shall be the average closing prices or closing bid prices, as applicable, for the shorter period beginning on and including the date of the IPO and ending on the trading day prior to the Determination Date (or if such period includes only one trading day the closing price or closing bid price, as applicable, for such trading day). If closing prices or closing bid prices are no longer reported by a securities exchange or other trading system, the closing price or closing bid price shall be that which is reported by such securities exchange or other trading system at 4:00 p.m. New York City time on the applicable trading day.

10.3 Exercise Prior to Expiration. To the extent this Warrant is not previously exercised as to all of the Shares subject hereto, and if the fair market value of one share of the Series Preferred is

 

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greater than the Warrant Price then in effect, this Warrant shall be deemed automatically exercised pursuant to Section 10.2 above (even if not surrendered) immediately before its expiration. For purposes of such automatic exercise, the fair market value of one share of the Series Preferred upon such expiration shall be determined pursuant to Section 10.2(c) . To the extent this Warrant or any portion thereof is deemed automatically exercised pursuant to this Section 10.3 , the Company agrees to promptly notify the holder hereof of the number of Shares, if any, the holder hereof is to receive by reason of such automatic exercise.

11. Representations and Warranties . The Company represents and warrants to the holder of this Warrant as follows:

(a) This Warrant has been duly authorized and executed by the Company and is a valid and binding obligation of the Company enforceable in accordance with its terms, subject to laws of general application relating to bankruptcy, insolvency and the relief of debtors and the rules of law or principles at equity governing specific performance, injunctive relief and other equitable remedies.

(b) The Shares have been duly authorized and reserved for issuance by the Company and, when issued in accordance with the terms hereof, will be validly issued, fully paid and nonassessable and free from preemptive rights.

(c) The rights, preferences, privileges and restrictions granted to or imposed upon the Series Preferred and the holders thereof are as set forth in the Charter, and on the Date of Grant, each share of the Series Preferred represented by this Warrant is convertible into one share of Common Stock.

(d) The shares of Common Stock issuable upon conversion of the Shares have been duly authorized and reserved for issuance by the Company and, when issued in accordance with the terms of the Charter will be validly issued, fully paid and nonassessable.

(e) The execution and delivery of this Warrant are not, and the issuance of the Shares upon exercise of this Warrant in accordance with the terms hereof will not be, inconsistent with the Company’s Charter or by-laws, do not and will not contravene any law, governmental rule or regulation, judgment or order applicable to the Company, and do not and will not conflict with or contravene any provision of, or constitute a default under, any indenture, mortgage, contract or other instrument of which the Company is a party or by which it is bound or require the consent or approval of, the giving of notice to, the registration or filing with or the taking of any action in respect of or by, any Federal, state or local government authority or agency or other person, except for consents which have been obtained and the filing of notices pursuant to federal and state securities laws, which filings will be effected by the time required thereby.

(f) There are no actions, suits, audits, investigations or proceedings pending or, to the knowledge of the Company, threatened against the Company in any court or before any governmental commission, board or authority which, if adversely determined, could have a material adverse effect on the ability of the Company to perform its obligations under this Warrant.

 

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(g) The number of shares of Common Stock of the Company outstanding on the date hereof, on a fully diluted basis (assuming the conversion of all outstanding convertible securities and the exercise of all outstanding options and warrants), does not exceed 34,000,000 shares.

12. Modification and Waiver . This Warrant and any provision hereof may be changed, waived, discharged or terminated only by an instrument in writing signed by the party against which enforcement of the same is sought.

13. Notices . Any notice, request, communication or other document required or permitted to be given or delivered to the holder hereof or the Company shall be delivered, or shall be sent by certified or registered mail, postage prepaid, to each such holder at its address as shown on the books of the Company or to the Company at the address indicated therefor on the signature page of this Warrant.

14. Binding Effect on Successors . This Warrant shall be binding upon any corporation succeeding the Company by merger, consolidation or acquisition of all or substantially all of the Company’s assets, and all of the obligations of the Company relating to the Series Preferred issuable upon the exercise or conversion of this Warrant shall survive the exercise, conversion and termination of this Warrant and all of the covenants and agreements of the Company shall inure to the benefit of the successors and assigns of the holder hereof.

15. Lost Warrants or Stock Certificates . The Company covenants to the holder hereof that, upon receipt of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of this Warrant or any stock certificate and, in the case of any such loss, theft or destruction, upon receipt of an indemnity reasonably satisfactory to the Company, or in the case of any such mutilation upon surrender and cancellation of such Warrant or stock certificate, the Company will make and deliver a new Warrant or stock certificate, of like tenor, in lieu of the lost, stolen, destroyed or mutilated Warrant or stock certificate.

16. Descriptive Headings . The descriptive headings of the various Section s of this Warrant are inserted for convenience only and do not constitute a part of this Warrant. The language in this Warrant shall be construed as to its fair meaning without regard to which party drafted this Warrant.

17. Governing Law . This Warrant shall be construed and enforced in accordance with, and the rights of the parties shall be governed by, the laws of the State of Delaware.

18. Survival of Representations, Warranties and Agreements . All representations and warranties of the Company and the holder hereof contained herein shall survive the Date of Grant, the exercise or conversion of this Warrant (or any part hereof) or the termination or expiration of rights hereunder. All agreements of the Company and the holder hereof contained herein shall survive indefinitely until, by their respective terms, they are no longer operative.

19. Remedies . In case any one or more of the covenants and agreements contained in this Warrant shall have been breached, the holders hereof (in the case of a breach by the Company), or

 

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the Company (in the case of a breach by a holder), may proceed to protect and enforce their or its rights either by suit in equity and/or by action at law, including, but not limited to, an action for damages as a result of any such breach and/or an action for specific performance of any such covenant or agreement contained in this Warrant.

20. No Impairment of Rights . The Company will not, by amendment of its Charter or through any other means, avoid or seek to avoid the observance or performance of any of the terms of this Warrant, but will at all times in good faith assist in the carrying out of all such terms and in the taking of all such action as may be necessary or appropriate in order to protect the rights of the holder of this Warrant against impairment.

21. Severability . The invalidity or unenforceability of any provision of this Warrant in any jurisdiction shall not affect the validity or enforceability of such provision in any other jurisdiction, or affect any other provision of this Warrant, which shall remain in full force and effect.

22. Recovery of Litigation Costs . If any legal action or other proceeding is brought for the enforcement of this Warrant, or because of an alleged dispute, breach, default, or misrepresentation in connection with any of the provisions of this Warrant, the successful or prevailing party or parties shall be entitled to recover reasonable attorneys’ fees and other costs incurred in that action or proceeding, in addition to any other relief to which it or they may be entitled.

23. Entire Agreement; Modification . This Warrant constitutes the entire agreement between the parties pertaining to the subject matter contained in it and supersedes all prior and contemporaneous agreements, representations, and undertakings of the parties, whether oral or written, with respect to such subject matter.

 

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The Company has caused this Warrant to be duly executed and delivered as of the Date of Grant specified above.

 

RUBICON TECHNOLOGY, INC.
By:  

/s/ Christopher J. Moffitt

Name:  

 

Title:  

 

Address:  

    3000 Lakeside, Suite 105N

    Bannockburn, IL 60015

 

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EXHIBIT A-1

NOTICE OF EXERCISE

 

To: RUBICON TECHNOLOGY, INC. (the “Company”)

 

  1. The undersigned hereby:

 

  ¨ elects to purchase                      shares of [Series Preferred Stock] [Common Stock] of the Company pursuant to the terms of the attached Warrant, and tenders herewith payment of the purchase price of such shares in full, or

 

  ¨ elects to exercise its net issuance rights pursuant to Section 10.2 of the attached Warrant with respect to                      Shares of [Series Preferred Stock] [Common Stock].

2. Please issue a certificate or certificates representing                      shares in the name of the undersigned or in such other name or names as are specified below:

 

 

 

 
  (Name)  
 

 

 
 

 

 
  (Address)  

3. The undersigned represents that the aforesaid shares are being acquired for the account of the undersigned for investment and not with a view to, or for resale in connection with, the distribution thereof and that the undersigned has no present intention of distributing or reselling such shares, all except as in compliance with applicable securities laws.

 

 

(Signature)

                    

    (Date)


EXHIBIT A-2

NOTICE OF EXERCISE

 

To: RUBICON TECHNOLOGY, INC. (the “ Company ”)

1. Contingent upon and effective immediately prior to the closing (the “ Closing ”) of the Company’s public offering contemplated by the Registration Statement on Form S          , filed                      , 200    , the undersigned hereby:

¨ elects to purchase              shares of [Series Preferred Stock] [Common Stock] of the Company (or such lesser number of shares as may be sold on behalf of the undersigned at the Closing) pursuant to the terms of the attached Warrant, or

¨ elects to exercise its net issuance rights pursuant to Section 10.2 of the attached Warrant with respect to              Shares of [Series Preferred Stock] [Common Stock].

2. Please deliver to the custodian for the selling shareholders a stock certificate representing such              shares.

3. The undersigned has instructed the custodian for the selling shareholders to deliver to the Company $              or, if less, the net proceeds due the undersigned from the sale of shares in the aforesaid public offering. If such net proceeds are less than the purchase price for such shares, the undersigned agrees to deliver the difference to the Company prior to the Closing.

 

 

(Signature)

                    

    (Date)

Exhibit 4.10

THIS WARRANT AND THE SHARES ISSUABLE HEREUNDER HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, PLEDGED, OR OTHERWISE TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION THEREOF UNDER SUCH ACT OR PURSUANT TO RULE 144 OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE CORPORATION AND ITS COUNSEL, THAT SUCH REGISTRATION IS NOT REQUIRED.

WARRANT TO PURCHASE PREFERRED STOCK

 

Issuer:      RUBICON TECHNOLOGY, INC., a Delaware corporation
Number of Shares:      (As determined in Section 1 below)
Class of Stock:      Series B Preferred Stock, $ .001 par value
Exercise Price:      $.56 per Share
Issue Date:      July 28, 2003
Expiration Date:      The later to occur of (i) the tenth anniversary of the Issue Date or (ii) the fifth anniversary of the closing of the first public offering of the Company’s Common Stock effected pursuant to a Registration Statement on Form S-1 (or its successor) filed under the Securities Act of 1933, as amended (the “Act”) under terms and conditions that require automatic conversion of the Series A Preferred Stock into Common Stock.

THIS WARRANT CERTIFIES THAT, for the agreed upon value of $1.00 and for other good and valuable consideration, including the execution and delivery of that certain Master Lease Agreement dated as of July 28, 2003 (the “Lease”), this Warrant is issued to ATEL VENTURES, INC. and/or its assignees/nominees (“Holder”) by RUBICON TECHNOLOGY, INC., a Delaware corporation (the “Company”).

1. ISSUANCE .

Subject to the terms and conditions hereinafter set forth, the Holder is entitled upon surrender of this Warrant and the duly executed subscription form annexed hereto as Appendix 1, at the office of the Company, 9931 West Franklin Avenue, Franklin Park, Illinois 60131, or such other office as the Company shall notify the Holder of in writing, to purchase from the Company up to 64,285 shares of fully paid and non-assessable shares (the “Shares”) of the Company’s Series B Preferred Stock, $.001 par value per share (“Preferred Stock”), at a purchase price per Share of Fifty-six cents ($.56) (the “Exercise Price”), provided that the number of Shares purchasable hereunder shall be increased by the Additional Number, as defined herein, without any action by the Company or Holder, as of the date (“Share Increase Date”) that Holder makes available to the Company an additional $400,000 under the Lease Line as defined in the Lease. The “Additional Number” is 42,857; if any adjustments to the Initial Number have occurred on or prior to the Share Increase Date pursuant to Article 3 hereto, then the Additional Number shall be correspondingly adjusted, as though the Holder could have acquired the Additional Number of shares of Common Stock commencing on the Issue Date set forth above. This Warrant may be exercised in whole or in part at any time and from time to time until 5:00 PM, Pacific time, on the Expiration Date set forth above, and shall be void thereafter. Until such time as this Warrant is exercised in full or expires, the Exercise Price and the Shares are subject to adjustment from time to time as hereinafter provided.

 

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2. EXERCISE

(a) Method of Exercise . Holder may exercise this Warrant by delivering this Warrant together with a duly executed Notice of Exercise in substantially the form attached as Appendix 1 hereto to the principal office of the Company. Unless Holder is exercising the conversion right set forth in Section 2(b), Holder shall also deliver to the Company a check for the aggregate Exercise Price for the Shares being purchased.

(b) Conversion Right . In lieu of exercising this Warrant as specified in Section 2(a), Holder may from time to time convert this Warrant, in whole or in part, into a number of Shares determined as follows:

X = Y (A-B)

            A

where:

 

  X    =    the number of Shares to be issued to the Holder.
  Y    =    the number of Shares with respect to which this Warrant is being exercised.
  A    =    the Fair Market Value (as determined pursuant to Section 2(c) below) of one Share.
  B    =    the Exercise Price.

(c) Fair Market Value .

(i) If shares of Common Stock are traded on a nationally recognized securities exchange or over the counter market, the fair market value of one Share shall be the average closing price of a share of Common Stock over the five day trading period immediately preceding the date of Holder’s Notice of Exercise to the Company (or such lesser number of trading days as the stock has been publicly traded). Notwithstanding the foregoing, in the event the Warrant is exercised in connection with the Company’s initial public offering of Common Stock, the fair market value per Share shall be the product of (i) the per share offering price to the public of the Company’s initial public offering, and (ii) the number of shares of Common Stock into which each Share of Preferred Stock is convertible at the time of exercise.

(ii) If shares of Common Stock are not traded on a nationally recognized securities exchange or over the counter market, the Board of Directors of the Company shall determine the fair market value of a share of Common Stock in its reasonable good faith judgment. The foregoing notwithstanding, if Holder advises the Board of Directors in writing that Holder disagrees with such determination, then the Company and Holder shall promptly agree upon a reputable investment banking firm to undertake such valuation. If the valuation of such investment banking firm is greater than that determined by the Board of Directors by five percent (5%) or more, then all fees and expenses of such investment banking firm shall be paid by the Company. In all other circumstances, such fees and expenses shall be paid by Holder. The determination of any such investment banking firm shall be conclusive in any event.

 

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(d) Delivery of Certificate and New Warrant . Promptly after Holder exercises or converts this Warrant, the Company shall deliver to Holder certificates for the Shares acquired and, if this Warrant has not been fully exercised or converted and has not expired, a new Warrant representing the right to purchase the Shares not so acquired.

(e) Replacement of Warrants . On receipt of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of this Warrant and, in the case of loss, theft or destruction, on delivery of an indemnity agreement reasonably satisfactory in form and amount to the Company or, in the case of mutilation, on surrender and cancellation of this Warrant, the Company at its expense shall execute and deliver, in lieu of this Warrant, a new warrant of like tenor.

(f) Assumption on Sale, Merger, or Consolidation of the Company .

(i) “Acquisition” . For the purpose of this Warrant, “Acquisition” means any sale, transfer, exclusive license, or other disposition of all or substantially all of the assets of the Company, or any acquisition, reorganization, consolidation or merger of the Company where the holders of the Company’s outstanding voting equity securities immediately prior to the transaction beneficially own less than 50.01% of the outstanding voting equity securities of the surviving or successor entity immediately following the transaction.

(ii) Assumption of Warrant . Upon the closing of any Acquisition and as a condition precedent thereto, the successor or surviving entity shall assume the obligations of this Warrant, and this Warrant shall be exercisable for the same securities and property as would be payable for the Shares issuable upon exercise of the unexercised portion of this Warrant as if such Shares were outstanding on the record date for the Acquisition and subsequent closing. The Exercise Price shall be adjusted accordingly, and the Exercise Price and number and class of Shares shall continue to be subject to adjustment from time to time in accordance with the provisions hereof.

(g) Conversion or Redemption of Preferred Stock . Should all of the Company’s Preferred Stock be, or if outstanding would be, at any time prior to the expiration of the Warrant or any portion thereof, redeemed or converted into shares of the Company’s Common Stock in accordance with Section 4.2.5 and 4.2.7 of the Charter, as hereinafter defined, then this Warrant shall become immediately exercisable prior to such event for that number of shares of the Common Stock that would have been received if this Warrant had been exercised in full and the Preferred Stock received thereupon had been simultaneously converted immediately prior to such event, and the Exercise Price shall immediately be adjusted to equal the quotient obtained by dividing (x) the aggregate Exercise Price of the maximum number of shares of Preferred Stock for which this Warrant was exercisable immediately prior to such conversion or redemption, by (y) the number of shares of Common Stock for which this Warrant is exercisable immediately after such conversion or redemption. For purposes of the forgoing, the “Charter” shall mean the Company’s Fourth Amended and Restated Certificate of Incorporation as amended and /or restated and effective immediately prior to the redemption or conversion of all of the Company’s Preferred Stock.

 

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3. ADJUSTMENTS .

(a) Stock Dividends, Splits, Etc . If the Company declares or pays a dividend on the outstanding shares of Preferred Stock, payable in Common Stock or other securities, or subdivides the outstanding Preferred Stock into a greater amount of Preferred Stock, then upon exercise of this Warrant, for each Share acquired, Holder shall receive, without cost to Holder, the total number and kind of securities to which Holder would have been entitled had Holder owned the Shares of record as of the date the dividend or subdivision occurred. If the outstanding Preferred Stock is subdivided into a greater number of shares, the Exercise Price shall be proportionately decreased and the number of Shares shall be proportionately increased.

(b) Reclassification, Exchange or Substitution . Upon any reclassification, exchange, substitution, or other event that results in a change of the number and/or class of the securities issuable upon exercise or conversion of this Warrant, Holder shall be entitled to receive, upon exercise or conversion of this Warrant, the number and kind of securities and property that Holder would have received for the Shares if this Warrant had been exercised immediately before such reclassification, exchange, substitution, or other event. The Company or its successor shall promptly issue to Holder a new Warrant for such new securities or other property. The new Warrant shall provide for adjustments which shall be as nearly equivalent as may be practicable to the adjustments provided for in this Section 3 including, without limitation, adjustments to the Exercise Price and to the number of securities or property issuable upon exercise of the new Warrant. The provisions of this Section 3(b) shall similarly apply to successive reclassifications, exchanges, substitutions, or other events.

(c) Adjustments for Combinations, Etc . If the outstanding shares of Common Stock are combined or consolidated, by reclassification or otherwise, into a lesser number of shares, the Exercise Price shall be proportionately increased and the number of Shares shall be proportionately decreased.

(d) No Impairment . The Company shall not, by amendment of its Certificate of Incorporation or by-laws, or through a reorganization, transfer of assets, consolidation, merger, dissolution, issue, or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed under this Warrant by the Company, but shall at all times in good faith assist in carrying out of all the provisions of this Section 3 and in taking all such action as may be necessary or appropriate to protect Holder’s rights under this Article against impairment.

(e) Fractional Shares . No fractional Shares shall be issuable upon exercise or conversion of the Warrant and the number of Shares to be issued shall be rounded down to the nearest whole Share. If a fractional Share interest arises upon any exercise or conversion of this Warrant, the Company shall eliminate such fractional Share interest by paying Holder an amount computed by multiplying such fractional interest by the Fair Market Value (determined in accordance with Section 2(c) above) of one Share.

(f) Certificate as to Adjustments . Upon each adjustment of the Exercise Price, number of Shares or class of security for which this Warrant is exercisable, the Company at its expense shall promptly compute such adjustment, and furnish Holder with a certificate of its

 

4


chief financial officer setting forth such adjustment and the facts upon which such adjustment is based. The Company shall, upon written request, furnish Holder a certificate setting forth the Exercise Price, number of Shares class of security for which this Warrant is exercisable in effect upon the date thereof and the series of adjustments leading to such Exercise Price, number of Shares and class of security.

(g) Issuance of Additional Shares . In the event that the Company shall issue shares of its capital stock at a price less than the Exercise Price after the date hereof, the price at which the Shares may be converted into the Company’s Common Stock shall be subject to the adjustment provided in the Company’s Charter.

4. REPRESENTATIONS AND COVENANTS OF THE COMPANY .

(a) Representations and Warranties. The Company hereby represents and warrants to Holder as follows:

(i) All Shares which may be issued upon the due exercise of this Warrant shall, upon issuance in accordance with the terms hereof, be duly authorized, validly issued, fully paid and non-assessable, and free of any liens and encumbrances except for restrictions on transfer provided for herein or under applicable federal and state securities laws.

(ii) Appendix 2 sets forth all of the outstanding shares of common stock and preferred stock and outstanding options, warrants, convertible securities, convertible debentures, and rights to acquire, subscribe for, and/or purchase any Common Stock, preferred stock and/or other capital stock of the Company or any securities or debentures convertible into or exchangeable for Common Stock, preferred stock and/or other capital stock of the Company.

(iii) The Company covenants that it shall at all times cause to be reserved and kept available out of its authorized and unissued shares such number of shares of its Preferred Stock and other securities as will be sufficient to permit the exercise in full of this Warrant and the conversion or exchange of such Preferred Stock into or for such other securities.

(iv) The execution and delivery by the Company of this Warrant and the performance of all obligations of the Company hereunder, including the issuance to Holder of the right to acquire the shares of Preferred Stock, have been duly authorized by all necessary corporate action on the part of the Company, this Warrant is not inconsistent with the Company’s Charter or By-laws, does not contravene any law or governmental rule, regulation or order applicable to it, does not and will not contravene any provision of, or constitute a default under, any indenture, mortgage, contract or other instrument to which it is a party or by which it is bound, and this Warrant Agreement constitutes a legal, valid and binding agreement of the Company, enforceable in accordance with its terms.

(v) No consent or approval of, giving of notice to, registration with, or taking of any other action in respect of any state, Federal or other governmental authority or agency is required with respect to the execution, delivery and performance by the Company of its obligations under this Warrant, except for the filing of notices pursuant to Regulation D under the 1933 Act and any filing required by applicable state securities law, which filings will be effective by the time required thereby.

 

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(b) Notice of Certain Events . If the Company proposes at any time (a) to declare any dividend or distribution upon its Common Stock, whether in cash, property, stock, or other securities and whether or not a regular cash dividend; (b) to offer for subscription pro rata to the holders of Common Stock any additional shares of stock of any class or series or other rights; (c) to effect any reclassification or recapitalization of its Common Stock; (d) to merge or consolidate with or into any other corporation, or sell, lease, license, or convey all or substantially all of its assets, or to liquidate, dissolve or wind up; or (e) offer holders of registration rights the opportunity to participate in an underwritten public offering of the company’s securities for cash, then, in connection with each such event, the Company shall give Holder (1) 15 days (or such shorter period as is reasonable under the circumstances) prior written notice of the date on which a record will be taken for such dividend, distribution, or subscription rights (and specifying the date on which the holders of securities of the Company shall be entitled to receive such dividend, distribution or rights) or for determining rights to vote, if any, in respect of the matters referred to in (c) and (d) above; (2) in the case of the matters referred to in (c) and (d) above 15 days (or such shorter period as is reasonable under the circumstances) prior written notice of the date when the same will take place (and specifying the date on which the holders of securities of the Company will be entitled to exchange their securities of the Company for securities or other property deliverable upon the occurrence of such event); and (3) in the case of the matter referred to in (e) above, the same notice as is given to the holders of such registration rights.

(c) Information Rights . So long as the Holder holds this Warrant and/or no less than 20,000 Shares, the Company shall deliver to the Holder (a) promptly after mailing, copies of all notices or other written communications to the shareholders of the Company, (b) within one-hundred and twenty (120) days after the end of each fiscal year of the Company, the annual audited financial statements of the Company certified by independent public accountants of recognized standing and (c) such other financial statements required under and in accordance with any loan documents between Holder and the Company or if there are no such requirements (or if the subject loan(s) no longer are outstanding), then within forty-five (45) days after the end of each of the first three quarters of each fiscal year, the Company’s quarterly, unaudited financial statements.

(d) Registration Under Securities Act of 1933, as amended . The Shares shall have “piggyback” registration rights as provided for in that certain Amended and Restated Registration Rights Agreement dated as of May 22, 2002 (“Registration Rights Agreement”). The Company agrees that Holder is a Holder of Common Stock Equivalents under the Registration Rights Agreement, which Common Stock Equivalents shall convert into shares of Common Stock which, in turn shall be “Registrable Stock” as defined in the Registration Rights Agreement. Company agrees that Holder’s registration rights are pari-pasu to the rights of the other Holders of Registrable Stock. Holder agrees to be bound by the terms and conditions of the Registration Rights Agreement. The Company represents and warrants to Holder that the Company’s execution, delivery and performance of such Registration Rights Agreement (a) has been duly authorized by all necessary corporate action of the Company’s Board of Directors and shareholders, (b) does not and will not violate the Company’s Charter or By-laws, each as amended, (c) does not and will not violate or cause a breach or default (or an event which with the passage of time or the giving of notice or both, would constitute a breach or default) under any agreement, instrument, mortgage, deed of trust or other arrangement to which the Company is a party or to or by which it or any of its assets is subject or bound, and (d) pursuant to Section 12(b) of the Registration Rights Agreement, does not require the approval, consent or waiver of or by any shareholder, registration rights holder or other third party which approval, consent or waiver has not been obtained as of the date of issuance of this Warrant.

 

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5. MISCELLANEOUS .

(a) Automatic Conversion upon Expiration . In the event that, upon the Expiration Date, the Fair Market Value of one Share (or other security issuable upon the exercise hereof) as determined in accordance with Section 2(c) above is greater than the Exercise Price in effect on such date, then this Warrant shall automatically be deemed on and as of such date to be converted pursuant to Section 2(b) above as to all Shares (or such other securities) for which it shall not previously have been exercised or converted, and the Company shall promptly deliver a certificate representing the Shares (or such other securities) issued upon such conversion to the Holder.

(b) Legends . This Warrant and the Shares (and the securities issuable, directly or indirectly, upon conversion of the Shares, if any) shall be imprinted with a legend in substantially the following form:

THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, PLEDGED OR OTHERWISE TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION THEREOF UNDER SUCH ACT OR PURSUANT TO RULE 144 OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE COMPANY AND ITS COUNSEL THAT SUCH REGISTRATION IS NOT REQUIRED.

(c) Compliance with Securities Laws on Transfer . This Warrant and the Shares (and the securities issuable, directly or indirectly, upon conversion of the Shares, if any) may not be transferred or assigned in whole or in part without compliance with applicable federal and state securities laws by the transferor and the transferee (including, without limitation, the delivery of investment representation letters). The Company shall not require Holder to provide an opinion of counsel if the transfer is to an affiliate of Holder or if (a) there is no material question as to the availability of current information as referenced in Rule 144(c), (b) Holder represents that it has complied with Rule 144(d) and (e) in reasonable detail, (c) the selling broker represents that it has complied with Rule 144(f), and (d) the Company is provided with a copy of Holder’s notice of proposed sale.

(d) Transfer Procedure . Subject to the provisions of Section 5(c), Holder may transfer all or part of this Warrant and/or the Shares issuable upon exercise of this Warrant (or the securities issuable, directly or indirectly, upon conversion of the Shares, if any) at any time to ATEL Venture Fund, LLC , or to any other affiliate of Holder, or to any other transferee by giving the Company notice of the portion of the Warrant being transferred setting forth the name, address and taxpayer identification number of the transferee and surrendering this Warrant to the Company for reissuance to the transferee(s) (and Holder if applicable).

(e) Notices . All notices and other communications from the Company to the Holder, or vice versa, shall be deemed delivered and effective when given personally or sent by electronic facsimile transmission, express overnight courier service, or mailed by first-class registered or certified mail, postage prepaid, at such address as may have been furnished to the

 

7


Company or the Holder, as the case may be, in writing by the Company or such holder from time to time, but in all cases, unless instructed in writing otherwise, the Company shall deliver a copy of all notices to Holder at 600 California Street, 6 th Floor, San Francisco CA 94108, Attention: General Counsel.

(f) Waiver . This Warrant and any term hereof may be changed, waived, discharged or terminated only by an instrument in writing signed by the party against which enforcement of such change, waiver, discharge or termination is sought.

(g) Remedies . In the event of any default hereunder, the non-defaulting party may proceed to protect and enforce its rights either by suit in equity and/or by action at law, including but not limited to an action for damages as a result of any such default, and/or an action for specific performance for any default where Holder will not have an adequate remedy at law and where damages will not be readily ascertainable. The Company expressly agrees that it shall not oppose an application by the Holder or any other person entitled to the benefit of this Warrant requiring specific performance of any or all provisions hereof or enjoining the Company from continuing to commit any such breach of this Warrant.

(h) Attorneys Fees . In the event of any dispute between the parties concerning the terms and provisions of this Warrant, the party prevailing in such dispute shall be entitled to collect from the other party all costs incurred in such dispute, including reasonable attorneys’ fees.

(i) Governing Law . This Warrant shall be governed by and construed in accordance with the laws of the State of California, without giving effect to its principles regarding conflicts of law.

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IN WITNESS WHEREOF, the Company has caused this Warrant to Purchase Preferred Stock to be executed by its duly authorized representative as of the date first above written.

 

COMPANY
RUBICON TECHNOLOGY, INC.
By:  

/s/ David P. Aniol

Name:   D.P. Aniol
Title:   CFO
HOLDER
ATEL VENTURES, INC.
By:  

/s/ Peritosh K. Choksi

Name:   Peritosh K. Choksi
Title:   Executive Vice President

 

9


APPENDIX 1

NOTICE OF EXERCISE

1. The undersigned hereby elects to purchase                      shares of the                      stock of                              pursuant to Section 2(a) of the attached Warrant, and tenders herewith payment of the Exercise Price of such shares in full.

1. The undersigned hereby elects to convert the attached Warrant into Shares in the manner specified in Section 2(b) of the attached Warrant. This conversion is exercised with respect to                      of shares of the                                  Stock of                      .

[Strike paragraph that does not apply.]

2. Please issue a certificate or certificates representing said shares in the name of the undersigned or in such other name as is specified below:

 

 

 

 
          (Name)  
 

 

 
 

 

 
          (Address)  

3. The undersigned represents it is acquiring the shares solely for its own account and not as a nominee for any other party and not with a view toward the resale or distribution thereof except in compliance with applicable securities laws.

 

 

    

 

(Date)      (Signature)

 

10

Exhibit 4.11

THE ISSUANCE OF THE SECURITIES EVIDENCED HEREBY WAS NOT REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR UNDER ANY STATE OR OTHER SECURITIES LAWS. NEITHER THE SECURITIES NOR ANY INTEREST THEREIN MAY BE OFFERED, SOLD, TRANSFERRED, ASSIGNED OR OTHERWISE DISPOSED OF EXCEPT (I) PURSUANT TO EFFECTIVE REGISTRATIONS UNDER APPLICABLE SECURITIES LAWS OR (II) UPON DELIVERY TO THE COMPANY OF AN OPINION OF COUNSEL (OR OTHER EVIDENCE SATISFACTORY TO THE COMPANY) ACCEPTABLE TO THE COMPANY, THAT THE PROPOSED DISPOSITION MAY BE EFFECTED IN COMPLIANCE WITH APPLICABLE SECURITIES LAWS WITHOUT REGISTRATION. ADDITIONAL RESTRICTIONS ON TRANSFER ARE SET FORTH HEREIN.

 

535,714 SHARES   $0.56 PER SHARE

WARRANT NO. WB-023

(the “ Warrant ”)

to Series B Preferred Stock,

par value $0.001, of

RUBICON TECHNOLOGY, INC.

THIS IS TO CERTIFY THAT, for value received, Heller Financial Leasing, Inc., a GE Capital Company, or its registered assigns (the “ Holder ”), is (subject to the restrictions provided herein) entitled to purchase from Rubicon Technology, Inc., a Delaware corporation (the “ Company ”), at a purchase price (the “ Warrant Price ”) of $0.56 per share, up to 535,714 duly authorized, fully paid, validly issued and nonassessable shares of the Company’s Series B Preferred Stock, par value $0.001 (the “ Preferred Stock ”) or other securities or property for which this Warrant becomes exercisable as provided herein (collectively, the Preferred Stock and any other such securities and property being the “ Warrant Shares ”), subject to adjustment as provided herein, and is also entitled to exercise the other rights, powers and privileges hereinafter set forth in the Stockholders’ Agreement as amended and restated from time to time. The Company acknowledges that the cash consideration paid by Holder for this Warrant is $10.00 for income tax purposes, that such amount has been duly received by the Company, and that this Warrant is issued in connection with that certain financial accommodation entered into by and between Company as the obligor and Holder as the obligee thereunder. The purchase rights represented by this Warrant are exercisable, in whole or in part, at any time and from time to time, however prior to 5:00 p.m. local time at the location of the Warrant Office (as defined in Section 2.1), from and after October 24, 2003 (the “Grant Date”) and on or prior to the earlier to occur of (i) the tenth anniversary of the Grant Date and (ii) an initial public offering of the company’s capital stock or a merger, consolidation or sale of the Company (the “Expiration Date”)

ARTICLE I

EXERCISE OF WARRANT

1.1 Method of Exercise . To exercise this Warrant in whole or in part, the Holder shall deliver to the Company at the Warrant Office (i) this Warrant together with the subscription notice attached hereto as Exhibit A (the “ Subscription Notice ”) filled out and duly executed by the Holder indicating the Holder’s election to exercise this Warrant and specifying the number of Warrant Shares to be purchased; and (ii) either a certified or bank cashier’s check payable to the order of the Company in an amount equal to the aggregate purchase price for the number of Warrant Shares being purchased, or provides notice of Holder’s net issuance Conversion Right election referenced in Section 1.2 herewith. Subject to the restrictions provided herein, the Company shall as promptly as practicable, and in any event within 14 days thereafter, execute and deliver or cause to be executed and delivered, in accordance with the Subscription Notice, a single certificate in the name of the Holder representing the aggregate

 

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number of Warrant Shares specified in the Subscription Notice. Such certificate shall be deemed to have been issued, and the Holder shall be deemed for all purposes to have become a holder of record of such shares, as of the date the Subscription Notice is actually received by the Company with payment as provided above. If this Warrant shall have been exercised only in part, the Company shall, at the time of delivery of such certificate or certificates, deliver to the Holder a new Warrant evidencing the rights of the Holder to purchase the remaining Warrant Shares called for by this Warrant, which new Warrant shall in all other respects be identical with this Warrant, or at the request of the Holder, appropriate notation may be made on this Warrant and the same returned to the Holder. The Company shall pay all expenses, taxes and other charges payable in connection with the preparation, issuance and delivery of such stock certificates and new Warrants.

1.2 Right to Convert Warrant into Stock: Net Issuance .

(a) Right to Convert . In addition to and without limiting the rights of the Holder under the terms of this Warrant, the Holder shall have the right (the “ Conversion Right ”) to convert this Warrant or any portion hereof into Warrant Shares as provided in this Section 1.2 at any time that this Warrant is otherwise exercisable during the term of this Warrant. Upon exercise of the Conversion Right, the Company shall deliver to the Holder (without payment by the Holder of the Warrant Price) that number of fully paid and nonassessable Warrant Shares equal to the quotient of (i) the number of Warrant Shares purchasable under this Warrant (or the portion thereof being exercised); multiplied by the difference of (A) the Fair Market Value of one (1) Warrant Share; minus (B) the Warrant Price; divided by (ii) the Fair Market Value of one (1) Warrant Share.

(b) Method of Exercise . The Conversion Right may be exercised by the Holder by the surrender of this Warrant, at the Warrant Office, together with the Subscription Notice specifying that the Holder thereby intends to exercise the Conversion Right and indicating the number of Warrant Shares with respect to which the Holder intends to exercise this Warrant. The Holder shall also deliver therewith additional consideration, if any, such that the aggregate consideration received by the Company in respect of any Warrant Shares is at least equal to the par value of any Warrant Shares having a par value, or the stated capital of any Warrant Shares not having a par value. The conversion shall be effective on the date which is the later of (i) receipt by the Company of the items described above; or (ii) a date specified in the Holder’s notice to the Company.

1.3 No Fractional Shares to be Issued . The Company shall not be required upon any exercise or conversion of this Warrant to issue a certificate representing any fraction of a share, but, in lieu thereof, may pay to the Holder cash in an amount equal to a corresponding fraction (calculated to the nearest 1/100th of a share) of the Fair Market Value of one Warrant Share as of the date of receipt by the Company of notice of exercise of this Warrant.

1.4 Legend on Warrant Shares . Each certificate for Warrant Shares initially issued upon exercise of this Warrant, unless at the time of exercise such Warrant Shares are registered under the Securities Act of 1933, as amended (the “ Act ”) and applicable state securities laws, shall bear a legend in substantially the following form (and any additional legend required by law or by any securities exchange upon which such Warrant Shares may, at the time of such exercise, be listed):

THE ISSUANCE OF THE SHARES EVIDENCED HEREBY WAS NOT REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR UNDER ANY STATE OR OTHER SECURITIES LAWS. NEITHER THE SHARES NOR ANY INTEREST THEREIN MAY BE OFFERED, SOLD, TRANSFERRED, ASSIGNED OR OTHERWISE DISPOSED OF EXCEPT (I) PURSUANT TO EFFECTIVE REGISTRATIONS UNDER APPLICABLE SECURITIES LAWS OR (II) UPON DELIVERY TO THE CORPORATION OF AN OPINION OF COUNSEL (OR OTHER EVIDENCE SATISFACTORY TO THE CORPORATION) ACCEPTABLE TO THE CORPORATION, THAT THE PROPOSED DISPOSITION MAY BE EFFECTED IN COMPLIANCE WITH APPLICABLE SECURITIES LAWS WITHOUT REGISTRATION.

THE CORPORATION WILL FURNISH WITHOUT CHARGE TO EACH STOCKHOLDER WHO SO REQUESTS, A FULL SUMMARY OR STATEMENT OF ALL OF THE POWERS, DESIGNATIONS, PREFERENCES AND RELATIVE, PARTICIPATING, OPTIONAL, OR OTHER SPECIAL RIGHTS OF EACH CLASS OF STOCK OR SERIES THEREOF AND THE QUALIFICATIONS, LIMITATIONS

 

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OR RESTRICTIONS OF SUCH POWERS, PREFERENCES AND/OR RIGHTS. ANY SUCH REQUEST SHOULD BE ADDRESSED TO THE SECRETARY OF THE CORPORATION.

Any certificate issued at any time in exchange or substitution for any certificate bearing such legend (except a new certificate issued upon completion of a public distribution pursuant to a registration statement which has become effective under the Act of the securities represented thereby) shall also bear such legend unless, in the opinion of such counsel as shall be approved by the Company, the securities represented thereby need no longer be subject to the restrictions contained in Article III. The provisions of Article III shall be binding upon all subsequent holders of this Warrant.

1.5 Automatic Exercise. Immediately before the expiration or termination of this Warrant, to the extent this Warrant is not previously exercised, and if the Fair Market Value of one share of whichever is applicable of either (i) the Preferred Stock subject to this Warrant or (ii) the Company’s Common Stock issuable upon conversion of the Preferred Stock subject to this Warrant, is greater than the Warrant Price, then in effect as adjusted pursuant to this Warrant, then this Warrant shall be deemed automatically exercised pursuant to Section 1.2(a) above, even if not surrendered. To the extent this Warrant or any portion thereof is deemed automatically exercised pursuant to this Section, the Company agrees to promptly notify the Holder of the number of Warrant Shares, if any, the holder hereof is to receive by reason of such automatic exercise.

1.6 Stockholders’ Agreement . In connection with any exercise of this Warrant, the Company may require that the Holder enter into and become bound by the terms and conditions of any stockholders’ agreement by and among the Company and the stockholders of the Company, provided such terms and conditions are applied to Holder in the same manner as any other stockholder of the Company. Company, within thirty days of Grant Date, and within thirty days of any subsequent revisions to stockholders’ agreement, shall deliver to Holder each stockholders’ agreement as amended and restated from time to time.

1.7 Notwithstanding Section 1.6 above, beginning on the date whereby Company no longer has any indebtedness owed to Holder under any Loan and Security Agreement or Revolver or Other Agreement, and until the earlier of the Expiration Date or the tenth anniversary of the Grant Date, Company shall cause to be furnished to Holder, (i) the audited fiscal year end financial statements of Company no later 120 days after the related fiscal year end, and (ii) internal quarterly financial statements of Company no later than 45 days after the related quarter end. Each financial statement to be furnished to Holder must be prepared in accordance with generally accepted accounting principles, consistently applied.

ARTICLE II

WARRANT OFFICE; TRANSFER

DIVISION OR COMBINATION OF WARRANTS

2.1 Warrant Office . The Company shall maintain an office for certain purposes specified herein (the “ Warrant Office ”), which office shall initially be the Company’s office at 9931 Franklin Avenue, Franklin Park, Illinois 60131 and may subsequently be such other office of the Company or of any transfer agent in the continental United States as to which written notice has been given to the Holder.

2.2 Warrant Non-Transferable; Ownership of Warrant . This Warrant and all rights hereunder may not be transferred, sold, hypothecated or assigned, without the prior written consent of the Company which shall be promptly provided on the condition that Holder has complied with the provisions of Article III hereof. The Company may deem and treat the Person in whose name this Warrant is registered as the holder and owner hereof (notwithstanding any notations of ownership or writing hereon made by anyone other than the Company) for all purposes and shall not be affected by any notice to the contrary, until presentation of this Warrant for registration of transfer as provided in this Article II.

2.3 Warrant Register . Subject to Section 2.2 and Article III hereof, the Company shall maintain at the Warrant Office books for the registration of warrants and the registration of transfers of warrants. To effect a transfer of this Warrant upon satisfaction of the provisions of Section 2.2 and Article III the Holder shall surrender this Warrant at the Warrant Office, together with a written assignment of this Warrant duly executed by the Holder or the Holder’s duly authorized agent or attorney and funds sufficient to pay any transfer taxes payable upon the

 

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making of such transfer. Upon such surrender and payment the Company shall execute and deliver a new Warrant or Warrants in the name of the assignee or assignees and in the denominations specified in such instrument of assignment, and this Warrant shall be canceled.

2.4 Division or Combination of Warrants . This Warrant may be divided or combined with other warrants exercisable at the same Warrant Price upon presentation hereof and of any warrant or warrants with which this warrant is to be combined at the Warrant Office, together with a written notice specifying the names and denominations in which new warrants are to be issued, signed by the Holder and the holders thereof or their respective duly authorized agents or attorneys. Subject to compliance with Sections 2.2 and 2.3 and Article III as to any transfer which may be involved in such division or combination, the Company shall execute and deliver a new warrant or warrants in exchange for the warrant or warrants to be divided or combined in accordance with such notice.

2.5 Expenses of Delivery of Warrants . The Company shall pay all expenses, taxes (other than transfer taxes incurred by Holder in connection with any transfers made by Holder after receipt of the Warrant Shares) and other charges payable in connection with the preparation, issuance and delivery of warrants hereunder.

ARTICLE III

RESTRICTIONS ON EXERCISE AND TRANSFER

3.1 Restrictions on Exercise and Transfer . Notwithstanding any provisions contained in this Warrant to the contrary, this Warrant shall not be exercisable or transferable and the related Warrant Shares shall not be transferable except upon the conditions specified in this Article III, which conditions are intended, among other things, to enable compliance with the provisions of the Act and applicable state securities laws in respect of the exercise or transfer of such Warrant or transfer of such Warrant Shares. The Holder of this Warrant, by acceptance hereof, agrees not to: (i) transfer this Warrant prior to delivery to the Company of an opinion of counsel or other evidence (as such opinion and such counsel or other evidence are described in Section 3.2); or (ii) transfer such Warrant Shares prior to delivery to the Company of the opinion of counsel or other evidence (as such opinion and such counsel or other evidence are described in Section 3.2) or until registration of such Warrant Shares under the Act has become effective and compliance with applicable state securities laws has been obtained.

3.2 Opinion of Counsel . In connection with any transfer of this Warrant or any transfer of the related Warrant Shares, the following provisions shall apply:

(a) If in the written opinion of counsel provided by Holder and reasonably satisfactory to Company, the proposed transfer of this Warrant and/or the proposed transfer of such Warrant Shares may be effected without registration of this Warrant and/or such Warrant Shares under the Act and applicable state securities laws, the Holder of this Warrant shall be entitled to transfer this Warrant and/or transfer such Warrant Shares in accordance with the proposed method of disposition. In lieu of such opinion of counsel the Company may, in its discretion, accept such other evidence of compliance with or exemption from the Act and applicable state securities laws as it deems satisfactory.

(b) If the Company does not obtain the opinion or other evidence referred to in Section 3.2(a), the Holder of this Warrant shall not be entitled to transfer this Warrant and/or transfer such Warrant Shares. This Warrant shall not be exercisable or transferable and the Warrant Shares shall not be transferable if such transfer would involve a violation of the Act or any applicable federal or state securities laws.

ARTICLE IV

ADJUSTMENTS

4.1 Conversion of All Preferred Stock .

(a) Number of Warrant Shares . In the event (the “ Conversion Event ”) that all of the Company’s Preferred Stock is converted into Common Stock pursuant to the Certificate of Incorporation, then the number of Warrant Shares available for exercise hereunder shall equal the number of shares of the Company’s Common Stock that would have been received by the Holder had such Holder exercised this Warrant with respect to all Warrant Shares available hereunder immediately prior to such Conversion Event.

(b) Warrant Price . Upon the occurrence of a Conversion Event, then the Warrant Price shall

 

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equal the quotient obtained by dividing: (i) the original Warrant Price; by (ii) the number of shares of the Company’s Common Stock that one (1) Warrant Share, outstanding immediately prior to such Conversion Event, would have been converted into subsequent to such Conversion Event.

4.2 Effect of Stock Splits, Reverse Stock Splits and Stock Dividends . In case at any time or from time to time while this Warrant remains outstanding the Company shall, by reclassification, by stock split or reverse stock split, by the issuance of a stock dividend on shares for which this Warrant is then exercisable payable in such shares, or by other similar means, subdivide or combine the shares of stock for which this Warrant is then exercisable into a greater or lesser number of such shares, then the number of shares which may be purchased hereunder shall be increased or decreased proportionately (as determined by the Board of Directors of the Company) effective upon consummation of such reclassification, stock split or reverse stock split or stock dividend. When any adjustment is required to the number of shares for which this Warrant is exercisable hereunder, the Warrant Price shall be decreased or increased proportionately (as determined by the Board of Directors of the Company) effective upon such adjustment.

4.3 Effect of Merger or Consolidation . In case the Company shall, while this Warrant remains outstanding, (i) enter into any consolidation with or merger into any other corporation wherein the Company is not the surviving corporation, or wherein securities of a corporation other than the Company are distributable to holders of the Warrant Shares, or (ii) sell or convey its property as an entirety or substantially as an entirety, then in connection with such consolidation, merger, sale or conveyance, lawful and adequate provision, as determined by the Board of Directors of the Company (which may determine, in good faith, that no provision is required), shall be made whereby the Holder shall thereafter be entitled to purchase, pursuant to this Warrant (in lieu of the Warrant Shares such Holder would have been entitled to purchase immediately prior to such consolidation, merger, sale or conveyance), the shares of stock or other securities or property to which the number of Warrant Shares would have been entitled at the time of such consolidation, merger, sale or conveyance, at an aggregate Warrant Price equal to that which would have been payable if all Warrant Shares had been purchased by exercise of this Warrant immediately prior thereto.

4.4 Reorganization or Reclassification . In case of any capital reorganization or any reclassification of the capital stock of the Company (except as provided in Section 4.2) while this Warrant remains outstanding, then, as a condition of such capital reorganization or reclassification, lawful and adequate provision, as determined by the Board of Directors of the Company (which may determine, in good faith, that no provision is required), shall be made whereby the Holder shall thereafter be entitled to purchase, pursuant to this Warrant (in lieu of the Warrant Shares which such Holder would have been entitled to purchase immediately prior to such reorganization or reclassification), the shares of stock of any class or classes or other securities or property to which the number of Warrant Shares would have been entitled at the time of such reorganization or reclassification, at an aggregate Warrant Price equal to that which would have been payable if all Warrant Shares had been purchased immediately prior to such reorganization or reclassification.

4.5 Statement of Adjustment . Upon each adjustment of the number of Warrant Shares hereunder, and in the event of any change in the rights of the Holder by reason of other events herein set forth, then, and in each case, the Company will promptly prepare a schedule setting forth the adjusted number of Warrant Shares, or specifying the other shares of stock, securities or assets and the amount thereof receivable as a result of such change in rights, and setting forth in reasonable detail the method of calculation and the facts upon which such calculation is based. The Company will promptly mail a copy of such schedule to the Holder. In the event of any such adjustment, the Holder shall cooperate with the Company and may be required, as a condition of effectiveness of such adjustment for such Holder, to execute and deliver to the Company such instruments and documents as may be reasonably requested by the Company to effect such adjustment and by which the Holder would acknowledge such adjustment.

4.6 Notifications by the Company . In case at any time the Board of Directors of the Company authorizes any of the following and fixes a record or distribution date therefore:

(a) the payment of any dividend payable in stock (of any class or classes) or in convertible securities upon Preferred Stock or the making of any distribution to the holders of the Preferred Stock;

 

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(b) the making of any capital reorganization or reclassification of the capital stock of the Company, or consolidation or merger of the Company with, or sale or transfer of all or substantially all of its assets to, another corporation; or

(c) a voluntary or involuntary dissolution, liquidation or winding-up of the Company;

then, in any one or more such cases, the Company shall give notice as provided herein to the Holder of such record or distribution date. Such notice shall also specify the date (the “ Participation Date ”) as of which the holders of Preferred Stock of record shall participate in such dividend, distribution or subscription rights, or shall be entitled to vote on or exchange their Preferred Stock for securities or other property deliverable upon such reorganization, reclassification, consolidation, merger, sale or transfer of assets, dissolution, liquidation or winding-up, as the case may be. Such notice shall be given not less than 5 days and not more than 60 days prior to the Participation Date and such notice may state that any such action remains subject to conditions, which conditions shall be generally described in such notice.

4.7 Rounding . All calculations hereunder shall be made to the nearest one-tenth (1/10) of a cent or to the nearest one hundredth (1/100) of a share, as the case may be.

ARTICLE V

CERTAIN DEFINITIONS

Capitalized terms defined herein shall have the meanings ascribed to them. In addition, the following terms shall have the following respective meanings:

Certificate of Incorporation ” shall mean the Company’s Certificate of Incorporation as currently in effect and as amended from time to time.

Fair Market Value ” of a Warrant Share shall be equal to the product of (i) the number of shares of the Company’s Common Stock into which each Warrant Share is then convertible pursuant to the Certificate of Incorporation; multiplied by (ii) the average of the daily market prices for one (1) share of the Company’s Common Stock over a period of 20 consecutive business days before such date. The market price for each such business day shall be the last sale price on such day on the principal securities exchange on which the Company’s Common Stock is then listed or admitted to trading, or, if no sale takes place on such day on any such exchange, the average of the closing bid and asked prices on such day as officially quoted on any such exchange, or if the Common Stock is not then listed or admitted to trading on any stock exchange, the market price for each such business day shall be the average of the closing bid and asked prices on such day in the over-the-counter market, as reported through NASDAQ, or, if such prices are not at the time so reported, as furnished by any member of the NASD selected by the Company. Notwithstanding the foregoing, if and so long as there shall be no exchange or over-the-counter market for the Company’s Common Stock during the 20-day period prior to the date on which the Fair Market Value is to be determined, the Fair Market Value shall be an amount determined by the Board of Directors in its reasonable discretion.

Person ” shall mean an individual, a corporation, a partnership, a trust, an unincorporated organization, or any other entity, or a governmental organization or any agency or political subdivision thereof.

ARTICLE VI

CERTAIN COVENANTS AND REPRESENTATIONS AND WARRANTIES OF THE COMPANY

6.1 The Company covenants and agrees that:

(a) it will reserve and set apart and have at all times, free from preemptive rights, a number of shares of authorized but unissued Preferred Stock or other securities or property deliverable upon the exercise of the Warrant sufficient to enable it at any time to fulfill all its obligations hereunder;

(b) in the event of lost warrants or stock certificates, Company, upon receipt of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of this Warrant or Warrant Shares, and upon receipt of an indemnity reasonably satisfactory to Company, or in the case of any such mutilation

 

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upon surrender and cancellation of such Warrant or Warrant Shares, the Company will make and deliver a new Warrant or Warrant Shares, of like tenor, in lieu of the lost, stolen, destroyed or mutilated Warrant or Warrant Shares.

(c) before taking any action which would cause an adjustment reducing the Warrant Price below the then par value of the shares of Preferred Stock issuable upon exercise of the Warrant, it will take any corporate action which may be necessary in order that the Company may validly and legally issue fully paid and nonassessable shares of such Preferred Stock at such adjusted Warrant Price.

6.2 Company represents and warrants to the holder of this Warrant as follows:

(a) This Warrant has been duly authorized and executed by Company and is a valid and binding obligation of Company enforceable in accordance with its terms, subject to laws of general application relating to bankruptcy, insolvency, and the relief of debtors and the rules of law or principles at equity governing specific performance, injunctive relief and other equitable remedies.

(b) There are no actions, suits, audits, investigations or proceedings pending or, to the knowledge of Company, threatened against Company in any court or before any governmental commission, board or authority which, if adversely determined, could have a material adverse effect on the ability of Company to perform its obligations under this Warrant.

ARTICLE VII

MISCELLANEOUS

7.1 Entire Agreement . This Warrant contains the entire agreement between the Holder and the Company with respect to the purchase of the Warrant Shares and supersedes all prior arrangements or understanding with respect thereto.

7.2 Governing Law . This Warrant shall be governed by and construed and enforced in accordance with the laws of the State of Illinois.

7.3 Waiver and Amendment . Any term or provision of this Warrant may be waived at any time by the party which is entitled to the benefits thereof and any term or provision of this Warrant may be amended or supplemented at any time by agreement of the Holder and the Company, except that any waiver of any term or condition, or any amendment or supplementation, of this Warrant must be in writing. A waiver of any breach or failure to enforce any of the terms or conditions of this Warrant shall not in any way affect, limit or waive a party’s rights hereunder at any time to enforce strict compliance thereafter with every term or condition of this Warrant.

7.4 Illegality . In the event that any one or more of the provisions contained in this Warrant shall be determined to be invalid, illegal or unenforceable in any respect for any reason, the validity, legality and enforceability of any such provision in any other respect and the remaining provisions of this Warrant shall not, at the election of the party for whom the benefit of the provision exists, be in any way impaired.

7.5 Filing of Warrant . A copy of this Warrant shall be filed among the records of the Company.

7.6 Notice . Any notice required or permitted pursuant to this Warrant shall be in writing and shall be deemed sufficient upon receipt, when delivered personally or sent by courier, overnight delivery service or confirmed facsimile, or seventy-two (72) hours after being deposited in the regular mail, as certified or registered mail (airmail if sent internationally), with postage prepaid, addressed (i) if to the Holder, to the address of the Holder most recently furnished in writing to the Company; and (ii) if to the Company, to the Warrant Office address or at such address as provided by written notice to the Holder.

7.7 No Rights as Stockholder . No provision of this Warrant shall be construed as conferring upon the Holder the right to vote, consent, receive dividends, or other than as herein expressly provided, receive notice in respect of meetings of stockholders or any other matter whatsoever as a stockholder of the Company. No provision hereof, in the absence of the exercise by the Holder hereof to purchase Warrant Shares hereunder, and no mere enumeration herein of the rights or privileges of the Holder, shall give rise to any liability of such Holder for the Warrant Price of any Warrant Shares or as a stockholder of the Company, whether such liability is asserted by the Company or by creditors of the Company.

 

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7.8 Loss, Destruction. etc., of Warrants . Upon receipt of evidence satisfactory to the Company of the loss, theft, mutilation or destruction of any Warrant, and in the case of any such loss, theft or destruction upon delivery of a bond of indemnity in such form and amount as shall be reasonably satisfactory to the Company, or in the event of such mutilation upon surrender and cancellation of the Warrant, the Company will make and deliver a new Warrant, of like tenor, in lieu of such lost, stolen, destroyed or mutilated Warrant. Any Warrant issued under the provisions of this Section 7.8 in lieu of any Warrant alleged to be lost, destroyed or stolen, or in lieu of any mutilated Warrant, shall constitute an original contractual obligation on the part of the Company.

IN WITNESS WHEREOF , the Company has caused this Warrant to be signed in its name by its duly authorized officer.

 

RUBICON TECHNOLOGY, INC.
By:  

/s/ Christopher J. Moffitt

  Christopher J. Moffitt, Chief Executive Officer

 

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EXHIBIT A

SUBSCRIPTION NOTICE

The undersigned, the holder of the foregoing warrant (the “ Warrant ”), hereby (i) represents to the Company (as such term is defined in the Warrant) that the Warrant may presently be exercised and, if applicable, the Warrant Shares transferred as provided below in accordance with the terms of the Warrant; (ii) irrevocably elects to exercise purchase rights represented by the Warrant for, and to purchase thereunder, [                      ] shares of the Preferred Stock covered by the Warrant; (iii) elects, as applicable, to exercise the Conversion Right with respect to [                      ] Warrant Shares, or to make payment in full therefor of $ [                      ] by certified or official bank check payable to the order of the Company; and (iv) requests (A) that certificates for such shares (and any securities or other property issuable upon such exercise) be issued in the name of and delivered to:

 

Name:  

 

Address:  

 

 

 

 

 

Tax ID No.:  

 

and (B) if such shares shall not include all of the shares issuable as provided in the Warrant, that a new Warrant of like tenor and date for the balance of the shares issuable thereunder be delivered to the undersigned.

 

Holder:  

 

Signature:  

 

Title or Capacity:  

 

Dated:  

 

 

R UBICON T ECHNOLOGY , I NC .

   Exhibit A    W ARRANT N O .     

Exhibit 4.12

THE ISSUANCE OF THE SECURITIES EVIDENCED HEREBY WAS NOT REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR UNDER ANY STATE OR OTHER SECURITIES LAWS. NEITHER THE SECURITIES NOR ANY INTEREST THEREIN MAY BE OFFERED, SOLD, TRANSFERRED, ASSIGNED OR OTHERWISE DISPOSED OF EXCEPT (I) PURSUANT TO EFFECTIVE REGISTRATIONS UNDER APPLICABLE SECURITIES LAWS OR (II) UPON DELIVERY TO THE COMPANY OF AN OPINION OF COUNSEL (OR OTHER EVIDENCE SATISFACTORY TO THE COMPANY) ACCEPTABLE TO THE COMPANY, THAT THE PROPOSED DISPOSITION MAY BE EFFECTED IN COMPLIANCE WITH APPLICABLE SECURITIES LAWS WITHOUT REGISTRATION. ADDITIONAL RESTRICTIONS ON TRANSFER ARE SET FORTH HEREIN.

 

535,714 SHARES

   $0.56 PER SHARE

WARRANT NO. WB-024

(the “ Warrant ”)

to Series B Preferred Stock,

par value $0.001, of

RUBICON TECHNOLOGY, INC.

THIS IS TO CERTIFY THAT, for value received, Lighthouse Capital Partners IV, L.P., or its registered assigns (the “ Holder ”), is (subject to the restrictions provided herein) entitled to purchase from Rubicon Technology, Inc., a Delaware corporation (the “ Company ”), at a purchase price (the “ Warrant Price ”) of $0.56 per share, up to 535,714 duly authorized, fully paid, validly issued and nonassessable shares of the Company’s Series B Preferred Stock, par value $0.001 (the “ Preferred Stock ”) or other securities or property for which this Warrant becomes exercisable as provided herein (collectively, the Preferred Stock and any other such securities and property being the “ Warrant Shares ”), subject to adjustment as provided herein, and is also entitled to exercise the other rights, powers and privileges hereinafter set forth in the Stockholders’ Agreement as amended and restated from time to time. The Company acknowledges that the cash consideration paid by Holder for this Warrant is $10.00 for income tax purposes, that such amount has been duly received by the Company, and that this Warrant is issued in connection with that certain financial accommodation entered into by and between Company as the obligor and Holder as the obligee thereunder. The purchase rights represented by this Warrant are exercisable, in whole or in part, at any time and from time to time, however prior to 5:00 p.m. local time at the location of the Warrant Office (as defined in Section 2.1), from and after October 24, 2003 (the “Grant Date”) and on or prior to the earlier to occur of (i) the tenth anniversary of the Grant Date and (ii) an initial public offering of the company’s capital stock or a merger, consolidation or sale of the Company (the “Expiration Date”)

ARTICLE I

EXERCISE OF WARRANT

1.1 Method of Exercise . To exercise this Warrant in whole or in part, the Holder shall deliver to the Company at the Warrant Office (i) this Warrant together with the subscription notice attached hereto as Exhibit A (the “ Subscription Notice ”) filled out and duly executed by the Holder indicating the Holder’s election to exercise this Warrant and specifying the number of Warrant Shares to be purchased; and (ii) either a certified or bank cashier’s check payable to the order of the Company in an amount equal to the aggregate purchase price for the number of Warrant Shares being purchased, or provides notice of Holder’s net issuance Conversion Right election referenced in Section 1.2 herewith. Subject to the restrictions provided herein, the Company shall as promptly as practicable, and in any event within 14 days thereafter, execute and deliver or cause to be executed and delivered, in accordance with the Subscription Notice, a single certificate in the name of the Holder representing the aggregate

 

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number of Warrant Shares specified in the Subscription Notice. Such certificate shall be deemed to have been issued, and the Holder shall be deemed for all purposes to have become a holder of record of such shares, as of the date the Subscription Notice is actually received by the Company with payment as provided above. If this Warrant shall have been exercised only in part, the Company shall, at the time of delivery of such certificate or certificates, deliver to the Holder a new Warrant evidencing the rights of the Holder to purchase the remaining Warrant Shares called for by this Warrant, which new Warrant shall in all other respects be identical with this Warrant, or at the request of the Holder, appropriate notation may be made on this Warrant and the same returned to the Holder. The Company shall pay all expenses, taxes and other charges payable in connection with the preparation, issuance and delivery of such stock certificates and new Warrants.

1.2 Right to Convert Warrant into Stock: Net Issuance .

(a) Right to Convert . In addition to and without limiting the rights of the Holder under the terms of this Warrant, the Holder shall have the right (the “ Conversion Right ”) to convert this Warrant or any portion hereof into Warrant Shares as provided in this Section 1.2 at any time that this Warrant is otherwise exercisable during the term of this Warrant. Upon exercise of the Conversion Right, the Company shall deliver to the Holder (without payment by the Holder of the Warrant Price) that number of fully paid and nonassessable Warrant Shares equal to the quotient of (i) the number of Warrant Shares purchasable under this Warrant (or the portion thereof being exercised); multiplied by the difference of (A) the Fair Market Value of one (1) Warrant Share; minus (B) the Warrant Price; divided by (ii) the Fair Market Value of one (1) Warrant Share.

(b) Method of Exercise . The Conversion Right may be exercised by the Holder by the surrender of this Warrant, at the Warrant Office, together with the Subscription Notice specifying that the Holder thereby intends to exercise the Conversion Right and indicating the number of Warrant Shares with respect to which the Holder intends to exercise this Warrant. The Holder shall also deliver therewith additional consideration, if any, such that the aggregate consideration received by the Company in respect of any Warrant Shares is at least equal to the par value of any Warrant Shares having a par value, or the stated capital of any Warrant Shares not having a par value. The conversion shall be effective on the date which is the later of (i) receipt by the Company of the items described above; or (ii) a date specified in the Holder’s notice to the Company.

1.3 No Fractional Shares to be Issued . The Company shall not be required upon any exercise or conversion of this Warrant to issue a certificate representing any fraction of a share, but, in lieu thereof, may pay to the Holder cash in an amount equal to a corresponding fraction (calculated to the nearest 1/100th of a share) of the Fair Market Value of one Warrant Share as of the date of receipt by the Company of notice of exercise of this Warrant.

1.4 Legend on Warrant Shares . Each certificate for Warrant Shares initially issued upon exercise of this Warrant, unless at the time of exercise such Warrant Shares are registered under the Securities Act of 1933, as amended (the “ Act ”) and applicable state securities laws, shall bear a legend in substantially the following form (and any additional legend required by law or by any securities exchange upon which such Warrant Shares may, at the time of such exercise, be listed):

THE ISSUANCE OF THE SHARES EVIDENCED HEREBY WAS NOT REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR UNDER ANY STATE OR OTHER SECURITIES LAWS. NEITHER THE SHARES NOR ANY INTEREST THEREIN MAY BE OFFERED, SOLD, TRANSFERRED, ASSIGNED OR OTHERWISE DISPOSED OF EXCEPT (I) PURSUANT TO EFFECTIVE REGISTRATIONS UNDER APPLICABLE SECURITIES LAWS OR (II) UPON DELIVERY TO THE CORPORATION OF AN OPINION OF COUNSEL (OR OTHER EVIDENCE SATISFACTORY TO THE CORPORATION) ACCEPTABLE TO THE CORPORATION, THAT THE PROPOSED DISPOSITION MAY BE EFFECTED IN COMPLIANCE WITH APPLICABLE SECURITIES LAWS WITHOUT REGISTRATION.

THE CORPORATION WILL FURNISH WITHOUT CHARGE TO EACH STOCKHOLDER WHO SO REQUESTS, A FULL SUMMARY OR STATEMENT OF ALL OF THE POWERS, DESIGNATIONS, PREFERENCES AND RELATIVE, PARTICIPATING, OPTIONAL, OR OTHER SPECIAL RIGHTS OF EACH CLASS OF STOCK OR SERIES THEREOF AND THE QUALIFICATIONS, LIMITATIONS

 

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OR RESTRICTIONS OF SUCH POWERS, PREFERENCES AND/OR RIGHTS. ANY SUCH REQUEST SHOULD BE ADDRESSED TO THE SECRETARY OF THE CORPORATION.

Any certificate issued at any time in exchange or substitution for any certificate bearing such legend (except a new certificate issued upon completion of a public distribution pursuant to a registration statement which has become effective under the Act of the securities represented thereby) shall also bear such legend unless, in the opinion of such counsel as shall be approved by the Company, the securities represented thereby need no longer be subject to the restrictions contained in Article III. The provisions of Article III shall be binding upon all subsequent holders of this Warrant.

1.5 Automatic Exercise. Immediately before the expiration or termination of this Warrant, to the extent this Warrant is not previously exercised, and if the Fair Market Value of one share of whichever is applicable of either (i) the Preferred Stock subject to this Warrant or (ii) the Company’s Common Stock issuable upon conversion of the Preferred Stock subject to this Warrant, is greater than the Warrant Price, then in effect as adjusted pursuant to this Warrant, then this Warrant shall be deemed automatically exercised pursuant to Section 1.2(a) above, even if not surrendered. To the extent this Warrant or any portion thereof is deemed automatically exercised pursuant to this Section, the Company agrees to promptly notify the Holder of the number of Warrant Shares, if any, the holder hereof is to receive by reason of such automatic exercise.

1.6 Stockholders’ Agreement . In connection with any exercise of this Warrant, the Company may require that the Holder enter into and become bound by the terms and conditions of any stockholders’ agreement by and among the Company and the stockholders of the Company, provided such terms and conditions are applied to Holder in the same manner as any other stockholder of the Company. Company, within thirty days of Grant Date, and within thirty days of any subsequent revisions to stockholders’ agreement, shall deliver to Holder each stockholders’ agreement as amended and restated from time to time.

1.7 Notwithstanding Section 1.6 above, beginning on the date whereby Company no longer has any indebtedness owed to Holder under any Loan and Security Agreement or Revolver or Other Agreement, and until the earlier of the Expiration Date or the tenth anniversary of the Grant Date, Company shall cause to be furnished to Holder, (i) the audited fiscal year end financial statements of Company no later 120 days after the related fiscal year end, and (ii) internal quarterly financial statements of Company no later than 45 days after the related quarter end. Each financial statement to be furnished to Holder must be prepared in accordance with generally accepted accounting principles, consistently applied.

Article II

WARRANT OFFICE; TRANSFER

DIVISION OR COMBINATION OF WARRANTS

2.1 Warrant Office . The Company shall maintain an office for certain purposes specified herein (the “ Warrant Office ”), which office shall initially be the Company’s office at 9931 Franklin Avenue, Franklin Park, Illinois 60131 and may subsequently be such other office of the Company or of any transfer agent in the continental United States as to which written notice has been given to the Holder.

2.2 Warrant Non-Transferable; Ownership of Warrant . This Warrant and all rights hereunder may not be transferred, sold, hypothecated or assigned, without the prior written consent of the Company which shall be promptly provided on the condition that Holder has complied with the provisions of Article III hereof. The Company may deem and treat the Person in whose name this Warrant is registered as the holder and owner hereof (notwithstanding any notations of ownership or writing hereon made by anyone other than the Company) for all purposes and shall not be affected by any notice to the contrary, until presentation of this Warrant for registration of transfer as provided in this Article II.

2.3 Warrant Register . Subject to Section 2.2 and Article III hereof, the Company shall maintain at the Warrant Office books for the registration of warrants and the registration of transfers of warrants. To effect a transfer of this Warrant upon satisfaction of the provisions of Section 2.2 and Article III the Holder shall surrender this Warrant at the Warrant Office, together with a written assignment of this Warrant duly executed by the Holder or the Holder’s duly authorized agent or attorney and funds sufficient to pay any transfer taxes payable upon the

 

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making of such transfer. Upon such surrender and payment the Company shall execute and deliver a new Warrant or Warrants in the name of the assignee or assignees and in the denominations specified in such instrument of assignment, and this Warrant shall be canceled.

2.4 Division or Combination of Warrants . This Warrant may be divided or combined with other warrants exercisable at the same Warrant Price upon presentation hereof and of any warrant or warrants with which this warrant is to be combined at the Warrant Office, together with a written notice specifying the names and denominations in which new warrants are to be issued, signed by the Holder and the holders thereof or their respective duly authorized agents or attorneys. Subject to compliance with Sections 2.2 and 2.3 and Article III as to any transfer which may be involved in such division or combination, the Company shall execute and deliver a new warrant or warrants in exchange for the warrant or warrants to be divided or combined in accordance with such notice.

2.5 Expenses of Delivery of Warrants . The Company shall pay all expenses, taxes (other than transfer taxes incurred by Holder in connection with any transfers made by Holder after receipt of the Warrant Shares) and other charges payable in connection with the preparation, issuance and delivery of warrants hereunder.

ARTICLE III

RESTRICTIONS ON EXERCISE AND TRANSFER

3.1 Restrictions on Exercise and Transfer . Notwithstanding any provisions contained in this Warrant to the contrary, this Warrant shall not be exercisable or transferable and the related Warrant Shares shall not be transferable except upon the conditions specified in this Article III, which conditions are intended, among other things, to enable compliance with the provisions of the Act and applicable state securities laws in respect of the exercise or transfer of such Warrant or transfer of such Warrant Shares. The Holder of this Warrant, by acceptance hereof, agrees not to: (i) transfer this Warrant prior to delivery to the Company of an opinion of counsel or other evidence (as such opinion and such counsel or other evidence are described in Section 3.2); or (ii) transfer such Warrant Shares prior to delivery to the Company of the opinion of counsel or other evidence (as such opinion and such counsel or other evidence are described in Section 3.2) or until registration of such Warrant Shares under the Act has become effective and compliance with applicable state securities laws has been obtained.

3.2 Opinion of Counsel . In connection with any transfer of this Warrant or any transfer of the related Warrant Shares, the following provisions shall apply:

(a) If in the written opinion of counsel provided by Holder and reasonably satisfactory to Company, the proposed transfer of this Warrant and/or the proposed transfer of such Warrant Shares may be effected without registration of this Warrant and/or such Warrant Shares under the Act and applicable state securities laws, the Holder of this Warrant shall be entitled to transfer this Warrant and/or transfer such Warrant Shares in accordance with the proposed method of disposition. In lieu of such opinion of counsel the Company may, in its discretion, accept such other evidence of compliance with or exemption from the Act and applicable state securities laws as it deems satisfactory.

(b) If the Company does not obtain the opinion or other evidence referred to in Section 3.2(a), the Holder of this Warrant shall not be entitled to transfer this Warrant and/or transfer such Warrant Shares. This Warrant shall not be exercisable or transferable and the Warrant Shares shall not be transferable if such transfer would involve a violation of the Act or any applicable federal or state securities laws.

ARTICLE IV

ADJUSTMENTS

 

4.1 Conversion of All Preferred Stock .

(a) Number of Warrant Shares . In the event (the “ Conversion Event ”) that all of the Company’s Preferred Stock is converted into Common Stock pursuant to the Certificate of Incorporation, then the number of Warrant Shares available for exercise hereunder shall equal the number of shares of the Company’s Common Stock that would have been received by the Holder had such Holder exercised this Warrant with respect to all Warrant Shares available hereunder immediately prior to such Conversion Event.

(b) Warrant Price . Upon the occurrence of a Conversion Event, then the Warrant Price shall

 

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equal the quotient obtained by dividing: (i) the original Warrant Price; by (ii) the number of shares of the Company’s Common Stock that one (1) Warrant Share, outstanding immediately prior to such Conversion Event, would have been converted into subsequent to such Conversion Event.

4.2 Effect of Stock Splits, Reverse Stock Splits and Stock Dividends . In case at any time or from time to time while this Warrant remains outstanding the Company shall, by reclassification, by stock split or reverse stock split, by the issuance of a stock dividend on shares for which this Warrant is then exercisable payable in such shares, or by other similar means, subdivide or combine the shares of stock for which this Warrant is then exercisable into a greater or lesser number of such shares, then the number of shares which may be purchased hereunder shall be increased or decreased proportionately (as determined by the Board of Directors of the Company) effective upon consummation of such reclassification, stock split or reverse stock split or stock dividend. When any adjustment is required to the number of shares for which this Warrant is exercisable hereunder, the Warrant Price shall be decreased or increased proportionately (as determined by the Board of Directors of the Company) effective upon such adjustment.

4.3 Effect of Merger or Consolidation . In case the Company shall, while this Warrant remains outstanding, (i) enter into any consolidation with or merger into any other corporation wherein the Company is not the surviving corporation, or wherein securities of a corporation other than the Company are distributable to holders of the Warrant Shares, or (ii) sell or convey its property as an entirety or substantially as an entirety, then in connection with such consolidation, merger, sale or conveyance, lawful and adequate provision, as determined by the Board of Directors of the Company (which may determine, in good faith, that no provision is required), shall be made whereby the Holder shall thereafter be entitled to purchase, pursuant to this Warrant (in lieu of the Warrant Shares such Holder would have been entitled to purchase immediately prior to such consolidation, merger, sale or conveyance), the shares of stock or other securities or property to which the number of Warrant Shares would have been entitled at the time of such consolidation, merger, sale or conveyance, at an aggregate Warrant Price equal to that which would have been payable if all Warrant Shares had been purchased by exercise of this Warrant immediately prior thereto.

4.4 Reorganization or Reclassification . In case of any capital reorganization or any reclassification of the capital stock of the Company (except as provided in Section 4.2) while this Warrant remains outstanding, then, as a condition of such capital reorganization or reclassification, lawful and adequate provision, as determined by the Board of Directors of the Company (which may determine, in good faith, that no provision is required), shall be made whereby the Holder shall thereafter be entitled to purchase, pursuant to this Warrant (in lieu of the Warrant Shares which such Holder would have been entitled to purchase immediately prior to such reorganization or reclassification), the shares of stock of any class or classes or other securities or property to which the number of Warrant Shares would have been entitled at the time of such reorganization or reclassification, at an aggregate Warrant Price equal to that which would have been payable if all Warrant Shares had been purchased immediately prior to such reorganization or reclassification.

4.5 Statement of Adjustment . Upon each adjustment of the number of Warrant Shares hereunder, and in the event of any change in the rights of the Holder by reason of other events herein set forth, then, and in each case, the Company will promptly prepare a schedule setting forth the adjusted number of Warrant Shares, or specifying the other shares of stock, securities or assets and the amount thereof receivable as a result of such change in rights, and setting forth in reasonable detail the method of calculation and the facts upon which such calculation is based. The Company will promptly mail a copy of such schedule to the Holder. In the event of any such adjustment, the Holder shall cooperate with the Company and may be required, as a condition of effectiveness of such adjustment for such Holder, to execute and deliver to the Company such instruments and documents as may be reasonably requested by the Company to effect such adjustment and by which the Holder would acknowledge such adjustment.

4.6 Notifications by the Company . In case at any time the Board of Directors of the Company authorizes any of the following and fixes a record or distribution date therefore:

(a) the payment of any dividend payable in stock (of any class or classes) or in convertible securities upon Preferred Stock or the making of any distribution to the holders of the Preferred Stock;

 

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(b) the making of any capital reorganization or reclassification of the capital stock of the Company, or consolidation or merger of the Company with, or sale or transfer of all or substantially all of its assets to, another corporation; or

(c) a voluntary or involuntary dissolution, liquidation or winding-up of the Company;

then, in any one or more such cases, the Company shall give notice as provided herein to the Holder of such record or distribution date. Such notice shall also specify the date (the “ Participation Date ”) as of which the holders of Preferred Stock of record shall participate in such dividend, distribution or subscription rights, or shall be entitled to vote on or exchange their Preferred Stock for securities or other property deliverable upon such reorganization, reclassification, consolidation, merger, sale or transfer of assets, dissolution, liquidation or winding-up, as the case may be. Such notice shall be given not less than 5 days and not more than 60 days prior to the Participation Date and such notice may state that any such action remains subject to conditions, which conditions shall be generally described in such notice.

4.7 Rounding . All calculations hereunder shall be made to the nearest one-tenth (1/10) of a cent or to the nearest one hundredth (1/100) of a share, as the case may be.

ARTICLE V

CERTAIN DEFINITIONS

Capitalized terms defined herein shall have the meanings ascribed to them. In addition, the following terms shall have the following respective meanings:

Certificate of Incorporation ” shall mean the Company’s Certificate of Incorporation as currently in effect and as amended from time to time.

Fair Market Value ” of a Warrant Share shall be equal to the product of (i) the number of shares of the Company’s Common Stock into which each Warrant Share is then convertible pursuant to the Certificate of Incorporation; multiplied by (ii) the average of the daily market prices for one (1) share of the Company’s Common Stock over a period of 20 consecutive business days before such date. The market price for each such business day shall be the last sale price on such day on the principal securities exchange on which the Company’s Common Stock is then listed or admitted to trading, or, if no sale takes place on such day on any such exchange, the average of the closing bid and asked prices on such day as officially quoted on any such exchange, or if the Common Stock is not then listed or admitted to trading on any stock exchange, the market price for each such business day shall be the average of the closing bid and asked prices on such day in the over-the-counter market, as reported through NASDAQ, or, if such prices are not at the time so reported, as furnished by any member of the NASD selected by the Company. Notwithstanding the foregoing, if and so long as there shall be no exchange or over-the-counter market for the Company’s Common Stock during the 20-day period prior to the date on which the Fair Market Value is to be determined, the Fair Market Value shall be an amount determined by the Board of Directors in its reasonable discretion.

Person ” shall mean an individual, a corporation, a partnership, a trust, an unincorporated organization, or any other entity, or a governmental organization or any agency or political subdivision thereof.

ARTICLE VI

CERTAIN COVENANTS AND REPRESENTATIONS AND WARRANTIES OF THE COMPANY

6.1 The Company covenants and agrees that:

(a) it will reserve and set apart and have at all times, free from preemptive rights, a number of shares of authorized but unissued Preferred Stock or other securities or property deliverable upon the exercise of the Warrant sufficient to enable it at any time to fulfill all its obligations hereunder;

(b) in the event of lost warrants or stock certificates, Company, upon receipt of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of this Warrant or Warrant Shares, and upon receipt of an indemnity reasonably satisfactory to Company, or in the case of any such mutilation

 

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upon surrender and cancellation of such Warrant or Warrant Shares, the Company will make and deliver a new Warrant or Warrant Shares, of like tenor, in lieu of the lost, stolen, destroyed or mutilated Warrant or Warrant Shares.

(c) before taking any action which would cause an adjustment reducing the Warrant Price below the then par value of the shares of Preferred Stock issuable upon exercise of the Warrant, it will take any corporate action which may be necessary in order that the Company may validly and legally issue fully paid and nonassessable shares of such Preferred Stock at such adjusted Warrant Price.

6.2 Company represents and warrants to the holder of this Warrant as follows:

(a) This Warrant has been duly authorized and executed by Company and is a valid and binding obligation of Company enforceable in accordance with its terms, subject to laws of general application relating to bankruptcy, insolvency, and the relief of debtors and the rules of law or principles at equity governing specific performance, injunctive relief and other equitable remedies.

(b) There are no actions, suits, audits, investigations or proceedings pending or, to the knowledge of Company, threatened against Company in any court or before any governmental commission, board or authority which, if adversely determined, could have a material adverse effect on the ability of Company to perform its obligations under this Warrant.

ARTICLE VII

MISCELLANEOUS

7.1 Entire Agreement . This Warrant contains the entire agreement between the Holder and the Company with respect to the purchase of the Warrant Shares and supersedes all prior arrangements or understanding with respect thereto.

7.2 Governing Law . This Warrant shall be governed by and construed and enforced in accordance with the laws of the State of Illinois.

7.3 Waiver and Amendment . Any term or provision of this Warrant may be waived at any time by the party which is entitled to the benefits thereof and any term or provision of this Warrant may be amended or supplemented at any time by agreement of the Holder and the Company, except that any waiver of any term or condition, or any amendment or supplementation, of this Warrant must be in writing. A waiver of any breach or failure to enforce any of the terms or conditions of this Warrant shall not in any way affect, limit or waive a party’s rights hereunder at any time to enforce strict compliance thereafter with every term or condition of this Warrant.

7.4 Illegality . In the event that any one or more of the provisions contained in this Warrant shall be determined to be invalid, illegal or unenforceable in any respect for any reason, the validity, legality and enforceability of any such provision in any other respect and the remaining provisions of this Warrant shall not, at the election of the party for whom the benefit of the provision exists, be in any way impaired.

7.5 Filing of Warrant . A copy of this Warrant shall be filed among the records of the Company.

7.6 Notice . Any notice required or permitted pursuant to this Warrant shall be in writing and shall be deemed sufficient upon receipt, when delivered personally or sent by courier, overnight delivery service or confirmed facsimile, or seventy-two (72) hours after being deposited in the regular mail, as certified or registered mail (airmail if sent internationally), with postage prepaid, addressed (i) if to the Holder, to the address of the Holder most recently furnished in writing to the Company; and (ii) if to the Company, to the Warrant Office address or at such address as provided by written notice to the Holder.

7.7 No Rights as Stockholder . No provision of this Warrant shall be construed as conferring upon the Holder the right to vote, consent, receive dividends, or other than as herein expressly provided, receive notice in respect of meetings of stockholders or any other matter whatsoever as a stockholder of the Company. No provision hereof, in the absence of the exercise by the Holder hereof to purchase Warrant Shares hereunder, and no mere enumeration herein of the rights or privileges of the Holder, shall give rise to any liability of such Holder for the Warrant Price of any Warrant Shares or as a stockholder of the Company, whether such liability is asserted by the Company or by creditors of the Company.

 

R UBICON T ECHNOLOGY , I NC .

   -7-    W ARRANT N O .     


7.8 Loss, Destruction. etc., of Warrants . Upon receipt of evidence satisfactory to the Company of the loss, theft, mutilation or destruction of any Warrant, and in the case of any such loss, theft or destruction upon delivery of a bond of indemnity in such form and amount as shall be reasonably satisfactory to the Company, or in the event of such mutilation upon surrender and cancellation of the Warrant, the Company will make and deliver a new Warrant, of like tenor, in lieu of such lost, stolen, destroyed or mutilated Warrant. Any Warrant issued under the provisions of this Section 7.8 in lieu of any Warrant alleged to be lost, destroyed or stolen, or in lieu of any mutilated Warrant, shall constitute an original contractual obligation on the part of the Company.

IN WITNESS WHEREOF , the Company has caused this Warrant to be signed in its name by its duly authorized officer.

 

RUBICON TECHNOLOGY, INC.
By:  

/s/ Christopher J. Moffitt

  Christopher J. Moffitt, Chief Executive Officer

 

R UBICON T ECHNOLOGY , I NC .

   -8-    W ARRANT N O .     


EXHIBIT A

SUBSCRIPTION NOTICE

The undersigned, the holder of the foregoing warrant (the “ Warrant ”), hereby (i) represents to the Company (as such term is defined in the Warrant) that the Warrant may presently be exercised and, if applicable, the Warrant Shares transferred as provided below in accordance with the terms of the Warrant; (ii) irrevocably elects to exercise purchase rights represented by the Warrant for, and to purchase thereunder, [                      ] shares of the Preferred Stock covered by the Warrant; (iii) elects, as applicable, to exercise the Conversion Right with respect to [                          ] Warrant Shares, or to make payment in full therefor of $ [                      ] by certified or official bank check payable to the order of the Company; and (iv) requests (A) that certificates for such shares (and any securities or other property issuable upon such exercise) be issued in the name of and delivered to:

 

Name:  

 

Address:  

 

 

 

 

 

Tax ID No.:  

 

and (B) if such shares shall not include all of the shares issuable as provided in the Warrant, that a new Warrant of like tenor and date for the balance of the shares issuable thereunder be delivered to the undersigned.

 

Holder:  

 

Signature:  

 

Title or Capacity:  

 

Dated:  

 

 

R UBICON T ECHNOLOGY , I NC .

   Exhibit A    W ARRANT N O .     

Exhibit 4.13

THE ISSUANCE OF THE SECURITIES EVIDENCED HEREBY WAS NOT REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR UNDER ANY STATE OR OTHER SECURITIES LAWS. NEITHER THE SECURITIES NOR ANY INTEREST THEREIN MAY BE OFFERED, SOLD, TRANSFERRED, ASSIGNED OR OTHERWISE DISPOSED OF EXCEPT (I) PURSUANT TO EFFECTIVE REGISTRATIONS UNDER APPLICABLE SECURITIES LAWS OR (II) UPON DELIVERY TO THE COMPANY OF AN OPINION OF COUNSEL (OR OTHER EVIDENCE SATISFACTORY TO THE COMPANY) ACCEPTABLE TO THE COMPANY, THAT THE PROPOSED DISPOSITION MAY BE EFFECTED IN COMPLIANCE WITH APPLICABLE SECURITIES LAWS WITHOUT REGISTRATION. ADDITIONAL RESTRICTIONS ON TRANSFER ARE SET FORTH HEREIN.

 

131,096 SHARES    $0.7628 PER SHARE

WARRANT NO. 1

(the “ Warrant ”)

to Series C Preferred Stock,

par value $0.001, of

RUBICON TECHNOLOGY, INC.

THIS IS TO CERTIFY THAT, for value received, Heller Financial Leasing, Inc. or its registered assigns (the “ Holder ”), is (subject to the restrictions provided herein) entitled to purchase from Rubicon Technology, Inc., a Delaware corporation (the “ Company ”), at a purchase price (the “ Warrant Price ”) of $ 0.7628 per share, up to 131,096 duly authorized, fully paid, validly issued and nonassessable shares of the Company’s Series C Preferred Stock, par value $0.001 (the “ Preferred Stock ”) or other securities or property for which this Warrant becomes exercisable as provided herein (collectively, the Preferred Stock and any other such securities and property being the “ Warrant Shares ”), subject to adjustment as provided herein, and is also entitled to exercise the other rights, powers and privileges hereinafter set forth in the Stockholders’ Agreement as amended and restated from time to time. The Company acknowledges that the cash consideration paid by Holder for this Warrant is $10.00 for income tax purposes, that such amount has been duly received by the Company, and that this Warrant is issued in connection with that certain financial accommodation entered into by and between Company as the obligor and Holder as the obligee thereunder. The purchase rights represented by this Warrant are exercisable, in whole or in part, at any time and from time to time, however prior to 5:00 p.m. local time at the location of the Warrant Office (as defined in Section 2.1), from and after March 31, 2005 (the “Grant Date”) and on or prior to the earlier to occur of (i) the tenth anniversary of the Grant Date and (ii) an initial public offering of the company’s capital stock or a merger, consolidation or sale of the Company (the “Expiration Date”)

ARTICLE I

EXERCISE OF WARRANT

1.1 Method of Exercise . To exercise this Warrant in whole or in part, the Holder shall deliver to the Company at the Warrant Office (i) this Warrant together with the subscription notice attached hereto as Exhibit A (the “ Subscription Notice ”) filled out and duly executed by the Holder indicating the Holder’s election to exercise this Warrant and specifying the number of Warrant Shares to be purchased; and (ii) either a certified or bank cashier’s check payable to the order of the Company in an amount equal to the aggregate purchase price for the number of Warrant Shares being purchased, or provides notice of Holder’s net issuance Conversion Right election referenced in Section 1.2 herewith. Subject to the restrictions provided herein, the Company shall as promptly as practicable, and in any event within 14 days thereafter, execute and deliver or cause to be executed and delivered, in

 

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accordance with the Subscription Notice, a single certificate in the name of the Holder representing the aggregate number of Warrant Shares specified in the Subscription Notice. Such certificate shall be deemed to have been issued, and the Holder shall be deemed for all purposes to have become a holder of record of such shares, as of the date the Subscription Notice is actually received by the Company with payment as provided above. If this Warrant shall have been exercised only in part, the Company shall, at the time of delivery of such certificate or certificates, deliver to the Holder a new Warrant evidencing the rights of the Holder to purchase the remaining Warrant Shares called for by this Warrant, which new Warrant shall in all other respects be identical with this Warrant, or at the request of the Holder, appropriate notation may be made on this Warrant and the same returned to the Holder. The Company shall pay all expenses, taxes and other charges payable in connection with the preparation, issuance and delivery of such stock certificates and new Warrants.

1.2 Right to Convert Warrant into Stock: Net Issuance .

(a) Right to Convert . In addition to and without limiting the rights of the Holder under the terms of this Warrant, the Holder shall have the right (the “ Conversion Right ”) to convert this Warrant or any portion hereof into Warrant Shares as provided in this Section 1.2 at any time that this Warrant is otherwise exercisable during the term of this Warrant. Upon exercise of the Conversion Right, the Company shall deliver to the Holder (without payment by the Holder of the Warrant Price) that number of fully paid and nonassessable Warrant Shares equal to the quotient of (i) the number of Warrant Shares purchasable under this Warrant (or the portion thereof being exercised); multiplied by the difference of (A) the Fair Market Value of one (1) Warrant Share; minus (B) the Warrant Price; divided by (ii) the Fair Market Value of one (1) Warrant Share.

(b) Method of Exercise . The Conversion Right may be exercised by the Holder by the surrender of this Warrant, at the Warrant Office, together with the Subscription Notice specifying that the Holder thereby intends to exercise the Conversion Right and indicating the number of Warrant Shares with respect to which the Holder intends to exercise this Warrant. The Holder shall also deliver therewith additional consideration, if any, such that the aggregate consideration received by the Company in respect of any Warrant Shares is at least equal to the par value of any Warrant Shares having a par value, or the stated capital of any Warrant Shares not having a par value. The conversion shall be effective on the date which is the later of (i) receipt by the Company of the items described above; or (ii) a date specified in the Holder’s notice to the Company.

1.3 No Fractional Shares to be Issued . The Company shall not be required upon any exercise or conversion of this Warrant to issue a certificate representing any fraction of a share, but, in lieu thereof, may pay to the Holder cash in an amount equal to a corresponding fraction (calculated to the nearest 1/100th of a share) of the Fair Market Value of one Warrant Share as of the date of receipt by the Company of notice of exercise of this Warrant.

1.4 Legend on Warrant Shares . Each certificate for Warrant Shares initially issued upon exercise of this Warrant, unless at the time of exercise such Warrant Shares are registered under the Securities Act of 1933, as amended (the “ Act ”) and applicable state securities laws, shall bear a legend in substantially the following form (and any additional legend required by law or by any securities exchange upon which such Warrant Shares may, at the time of such exercise, be listed):

THE ISSUANCE OF THE SHARES EVIDENCED HEREBY WAS NOT REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR UNDER ANY STATE OR OTHER SECURITIES LAWS. NEITHER THE SHARES NOR ANY INTEREST THEREIN MAY BE OFFERED, SOLD, TRANSFERRED, ASSIGNED OR OTHERWISE DISPOSED OF EXCEPT (I) PURSUANT TO EFFECTIVE REGISTRATIONS UNDER APPLICABLE SECURITIES LAWS OR (II) UPON DELIVERY TO THE CORPORATION OF AN OPINION OF COUNSEL (OR OTHER EVIDENCE SATISFACTORY TO THE CORPORATION) ACCEPTABLE TO THE CORPORATION, THAT THE PROPOSED DISPOSITION MAY BE EFFECTED IN COMPLIANCE WITH APPLICABLE SECURITIES LAWS WITHOUT REGISTRATION.

THE CORPORATION WILL FURNISH WITHOUT CHARGE TO EACH STOCKHOLDER WHO SO REQUESTS, A FULL SUMMARY OR STATEMENT OF ALL OF THE POWERS, DESIGNATIONS, PREFERENCES AND RELATIVE, PARTICIPATING, OPTIONAL, OR OTHER SPECIAL RIGHTS OF EACH CLASS

 

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OF STOCK OR SERIES THEREOF AND THE QUALIFICATIONS, LIMITATIONS OR RESTRICTIONS OF SUCH POWERS, PREFERENCES AND/OR RIGHTS. ANY SUCH REQUEST SHOULD BE ADDRESSED TO THE SECRETARY OF THE CORPORATION.

Any certificate issued at any time in exchange or substitution for any certificate bearing such legend (except a new certificate issued upon completion of a public distribution pursuant to a registration statement which has become effective under the Act of the securities represented thereby) shall also bear such legend unless, in the opinion of such counsel as shall be approved by the Company, the securities represented thereby need no longer be subject to the restrictions contained in Article III. The provisions of Article III shall be binding upon all subsequent holders of this Warrant.

1.5 Automatic Exercise. Immediately before the expiration or termination of this Warrant, to the extent this Warrant is not previously exercised, and if the Fair Market Value of one share of whichever is applicable of either (i) the Preferred Stock subject to this Warrant or (ii) the Company's Common Stock issuable upon conversion of the Preferred Stock subject to this Warrant, is greater than the Warrant Price, then in effect as adjusted pursuant to this Warrant, then this Warrant shall be deemed automatically exercised pursuant to Section 1.2(a) above, even if not surrendered. To the extent this Warrant or any portion thereof is deemed automatically exercised pursuant to this Section, the Company agrees to promptly notify the Holder of the number of Warrant Shares, if any, the holder hereof is to receive by reason of such automatic exercise.

1.6 Stockholders’ Agreement . In connection with any exercise of this Warrant, the Company may require that the Holder enter into and become bound by the terms and conditions of any stockholders’ agreement by and among the Company and the stockholders of the Company, provided such terms and conditions are applied to Holder in the same manner as any other stockholder of the Company. Company, within thirty days of Grant Date, and within thirty days of any subsequent revisions to stockholders’ agreement, shall deliver to Holder each stockholders’ agreement as amended and restated from time to time.

1.7 Notwithstanding Section 1.6 above, beginning on the date whereby Company no longer has any indebtedness owed to Holder under any Loan and Security Agreement or Revolver or Other Agreement, and until the earlier of the Expiration Date or the tenth anniversary of the Grant Date, Company shall cause to be furnished to Holder, (i) the audited fiscal year end financial statements of Company no later 120 days after the related fiscal year end, and (ii) internal quarterly financial statements of Company no later than 45 days after the related quarter end. Each financial statement to be furnished to Holder must be prepared in accordance with generally accepted accounting principles, consistently applied.

ARTICLE II

WARRANT OFFICE; TRANSFER

DIVISION OR COMBINATION OF WARRANTS

2.1 Warrant Office . The Company shall maintain an office for certain purposes specified herein (the “ Warrant Office ”), which office shall initially be the Company's office at 9931 Franklin Avenue, Franklin Park, Illinois 60131 and may subsequently be such other office of the Company or of any transfer agent in the continental United States as to which written notice has been given to the Holder.

2.2 Warrant Non-Transferable; Ownership of Warrant . This Warrant and all rights hereunder may not be transferred, sold, hypothecated or assigned, without the prior written consent of the Company which shall be promptly provided on the condition that Holder has complied with the provisions of Article III hereof. The Company may deem and treat the Person in whose name this Warrant is registered as the holder and owner hereof (notwithstanding any notations of ownership or writing hereon made by anyone other than the Company) for all purposes and shall not be affected by any notice to the contrary, until presentation of this Warrant for registration of transfer as provided in this Article II.

2.3 Warrant Register . Subject to Section 2.2 and Article III hereof, the Company shall maintain at the Warrant Office books for the registration of warrants and the registration of transfers of warrants. To effect a transfer of this Warrant upon satisfaction of the provisions of Section 2.2 and Article III the Holder shall surrender this Warrant at the Warrant Office, together with a written assignment of this Warrant duly executed by the Holder

 

R UBICON T ECHNOLOGY , I NC .    -3-    W ARRANT N O . 1


or the Holder’s duly authorized agent or attorney and funds sufficient to pay any transfer taxes payable upon the making of such transfer. Upon such surrender and payment the Company shall execute and deliver a new Warrant or Warrants in the name of the assignee or assignees and in the denominations specified in such instrument of assignment, and this Warrant shall be canceled.

2.4 Division or Combination of Warrants . This Warrant may be divided or combined with other warrants exercisable at the same Warrant Price upon presentation hereof and of any warrant or warrants with which this warrant is to be combined at the Warrant Office, together with a written notice specifying the names and denominations in which new warrants are to be issued, signed by the Holder and the holders thereof or their respective duly authorized agents or attorneys. Subject to compliance with Sections 2.2 and 2.3 and Article III as to any transfer which may be involved in such division or combination, the Company shall execute and deliver a new warrant or warrants in exchange for the warrant or warrants to be divided or combined in accordance with such notice.

2.5 Expenses of Delivery of Warrants . The Company shall pay all expenses, taxes (other than transfer taxes incurred by Holder in connection with any transfers made by Holder after receipt of the Warrant Shares) and other charges payable in connection with the preparation, issuance and delivery of warrants hereunder.

ARTICLE III

RESTRICTIONS ON EXERCISE AND TRANSFER

3.1 Restrictions on Exercise and Transfer . Notwithstanding any provisions contained in this Warrant to the contrary, this Warrant shall not be exercisable or transferable and the related Warrant Shares shall not be transferable except upon the conditions specified in this Article III, which conditions are intended, among other things, to enable compliance with the provisions of the Act and applicable state securities laws in respect of the exercise or transfer of such Warrant or transfer of such Warrant Shares. The Holder of this Warrant, by acceptance hereof, agrees not to: (i) transfer this Warrant prior to delivery to the Company of an opinion of counsel or other evidence (as such opinion and such counsel or other evidence are described in Section 3.2); or (ii) transfer such Warrant Shares prior to delivery to the Company of the opinion of counsel or other evidence (as such opinion and such counsel or other evidence are described in Section 3.2) or until registration of such Warrant Shares under the Act has become effective and compliance with applicable state securities laws has been obtained.

3.2 Opinion of Counsel . In connection with any transfer of this Warrant or any transfer of the related Warrant Shares, the following provisions shall apply:

(a) If in the written opinion of counsel provided by Holder and reasonably satisfactory to Company, the proposed transfer of this Warrant and/or the proposed transfer of such Warrant Shares may be effected without registration of this Warrant and/or such Warrant Shares under the Act and applicable state securities laws, the Holder of this Warrant shall be entitled to transfer this Warrant and/or transfer such Warrant Shares in accordance with the proposed method of disposition. In lieu of such opinion of counsel the Company may, in its discretion, accept such other evidence of compliance with or exemption from the Act and applicable state securities laws as it deems satisfactory.

(b) If the Company does not obtain the opinion or other evidence referred to in Section 3.2(a), the Holder of this Warrant shall not be entitled to transfer this Warrant and/or transfer such Warrant Shares. This Warrant shall not be exercisable or transferable and the Warrant Shares shall not be transferable if such transfer would involve a violation of the Act or any applicable federal or state securities laws.

 

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ARTICLE IV

ADJUSTMENTS

4.1 Conversion of All Preferred Stock .

(a) Number of Warrant Shares . In the event (the “ Conversion Event ”) that all of the Company’s Preferred Stock is converted into Common Stock pursuant to the Certificate of Incorporation, then the number of Warrant Shares available for exercise hereunder shall equal the number of shares of the Company’s Common Stock that would have been received by the Holder had such Holder exercised this Warrant with respect to all Warrant Shares available hereunder immediately prior to such Conversion Event.

(b) Warrant Price . Upon the occurrence of a Conversion Event, then the Warrant Price shall equal the quotient obtained by dividing: (i) the original Warrant Price; by (ii) the number of shares of the Company’s Common Stock that one (1) Warrant Share, outstanding immediately prior to such Conversion Event, would have been converted into subsequent to such Conversion Event.

4.2 Effect of Stock Splits, Reverse Stock Splits and Stock Dividends . In case at any time or from time to time while this Warrant remains outstanding the Company shall, by reclassification, by stock split or reverse stock split, by the issuance of a stock dividend on shares for which this Warrant is then exercisable payable in such shares, or by other similar means, subdivide or combine the shares of stock for which this Warrant is then exercisable into a greater or lesser number of such shares, then the number of shares which may be purchased hereunder shall be increased or decreased proportionately (as determined by the Board of Directors of the Company) effective upon consummation of such reclassification, stock split or reverse stock split or stock dividend. When any adjustment is required to the number of shares for which this Warrant is exercisable hereunder, the Warrant Price shall be decreased or increased proportionately (as determined by the Board of Directors of the Company) effective upon such adjustment.

4.3 Effect of Merger or Consolidation . In case the Company shall, while this Warrant remains outstanding, (i) enter into any consolidation with or merger into any other corporation wherein the Company is not the surviving corporation, or wherein securities of a corporation other than the Company are distributable to holders of the Warrant Shares, or (ii) sell or convey its property as an entirety or substantially as an entirety, then in connection with such consolidation, merger, sale or conveyance, lawful and adequate provision, as determined by the Board of Directors of the Company (which may determine, in good faith, that no provision is required), shall be made whereby the Holder shall thereafter be entitled to purchase, pursuant to this Warrant (in lieu of the Warrant Shares such Holder would have been entitled to purchase immediately prior to such consolidation, merger, sale or conveyance), the shares of stock or other securities or property to which the number of Warrant Shares would have been entitled at the time of such consolidation, merger, sale or conveyance, at an aggregate Warrant Price equal to that which would have been payable if all Warrant Shares had been purchased by exercise of this Warrant immediately prior thereto.

4.4 Reorganization or Reclassification . In case of any capital reorganization or any reclassification of the capital stock of the Company (except as provided in Section 4.2) while this Warrant remains outstanding, then, as a condition of such capital reorganization or reclassification, lawful and adequate provision, as determined by the Board of Directors of the Company (which may determine, in good faith, that no provision is required), shall be made whereby the Holder shall thereafter be entitled to purchase, pursuant to this Warrant (in lieu of the Warrant Shares which such Holder would have been entitled to purchase immediately prior to such reorganization or reclassification), the shares of stock of any class or classes or other securities or property to which the number of Warrant Shares would have been entitled at the time of such reorganization or reclassification, at an aggregate Warrant Price equal to that which would have been payable if all Warrant Shares had been purchased immediately prior to such reorganization or reclassification.

4.5 Statement of Adjustment . Upon each adjustment of the number of Warrant Shares hereunder, and in the event of any change in the rights of the Holder by reason of other events herein set forth, then, and in each case, the Company will promptly prepare a schedule setting forth the adjusted number of Warrant Shares, or specifying the other shares of stock, securities or assets and the amount thereof receivable as a result of such change in rights, and setting forth in reasonable detail the method of calculation and the facts upon which such calculation is based. The Company will promptly mail a copy of such schedule to the Holder. In the event of any such adjustment, the Holder shall cooperate with the Company and may be required, as a condition of effectiveness of such adjustment for such Holder, to execute and deliver to the Company such instruments and documents as may be reasonably requested by the Company to effect such adjustment and by which the Holder would acknowledge such adjustment.

4.6 Notifications by the Company . In case at any time the Board of Directors of the Company authorizes any of the following and fixes a record or distribution date therefore:

(a) the payment of any dividend payable in stock (of any class or classes) or in convertible securities upon Preferred Stock or the making of any distribution to the holders of the Preferred Stock;

 

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(b) the making of any capital reorganization or reclassification of the capital stock of the Company, or consolidation or merger of the Company with, or sale or transfer of all or substantially all of its assets to, another corporation; or

(c) a voluntary or involuntary dissolution, liquidation or winding-up of the Company;

then, in any one or more such cases, the Company shall give notice as provided herein to the Holder of such record or distribution date. Such notice shall also specify the date (the “ Participation Date ”) as of which the holders of Preferred Stock of record shall participate in such dividend, distribution or subscription rights, or shall be entitled to vote on or exchange their Preferred Stock for securities or other property deliverable upon such reorganization, reclassification, consolidation, merger, sale or transfer of assets, dissolution, liquidation or winding-up, as the case may be. Such notice shall be given not less than 5 days and not more than 60 days prior to the Participation Date and such notice may state that any such action remains subject to conditions, which conditions shall be generally described in such notice.

4.7 Rounding . All calculations hereunder shall be made to the nearest one-tenth (1/10) of a cent or to the nearest one hundredth (1/100) of a share, as the case may be.

ARTICLE V

CERTAIN DEFINITIONS

Capitalized terms defined herein shall have the meanings ascribed to them. In addition, the following terms shall have the following respective meanings:

Certificate of Incorporation ” shall mean the Company’s Certificate of Incorporation as currently in effect and as amended from time to time.

Fair Market Value ” of a Warrant Share shall be equal to the product of (i) the number of shares of the Company’s Common Stock into which each Warrant Share is then convertible pursuant to the Certificate of Incorporation; multiplied by (ii) the average of the daily market prices for one (1) share of the Company’s Common Stock over a period of 20 consecutive business days before such date. The market price for each such business day shall be the last sale price on such day on the principal securities exchange on which the Company’s Common Stock is then listed or admitted to trading, or, if no sale takes place on such day on any such exchange, the average of the closing bid and asked prices on such day as officially quoted on any such exchange, or if the Common Stock is not then listed or admitted to trading on any stock exchange, the market price for each such business day shall be the average of the closing bid and asked prices on such day in the over-the-counter market, as reported through NASDAQ, or, if such prices are not at the time so reported, as furnished by any member of the NASD selected by the Company. Notwithstanding the foregoing, if and so long as there shall be no exchange or over-the-counter market for the Company’s Common Stock during the 20-day period prior to the date on which the Fair Market Value is to be determined, the Fair Market Value shall be an amount determined by the Board of Directors in its reasonable discretion.

Person ” shall mean an individual, a corporation, a partnership, a trust, an unincorporated organization, or any other entity, or a governmental organization or any agency or political subdivision thereof.

ARTICLE VI

CERTAIN COVENANTS AND REPRESENTATIONS AND WARRANTIES OF THE COMPANY

6.1 The Company covenants and agrees that:

(a) it will reserve and set apart and have at all times, free from preemptive rights, a number of shares of authorized but unissued Preferred Stock or other securities or property deliverable upon the exercise of the Warrant sufficient to enable it at any time to fulfill all its obligations hereunder;

(b) in the event of lost warrants or stock certificates, Company, upon receipt of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of this Warrant or Warrant Shares, and upon receipt of an indemnity reasonably satisfactory to Company, or in the case of any such mutilation

 

R UBICON T ECHNOLOGY , I NC .    -6-    W ARRANT N O . 1


upon surrender and cancellation of such Warrant or Warrant Shares, the Company will make and deliver a new Warrant or Warrant Shares, of like tenor, in lieu of the lost, stolen, destroyed or mutilated Warrant or Warrant Shares.

(c) before taking any action which would cause an adjustment reducing the Warrant Price below the then par value of the shares of Preferred Stock issuable upon exercise of the Warrant, it will take any corporate action which may be necessary in order that the Company may validly and legally issue fully paid and nonassessable shares of such Preferred Stock at such adjusted Warrant Price.

6.2 Company represents and warrants to the holder of this Warrant as follows:

(a) This Warrant has been duly authorized and executed by Company and is a valid and binding obligation of Company enforceable in accordance with its terms, subject to laws of general application relating to bankruptcy, insolvency, and the relief of debtors and the rules of law or principles at equity governing specific performance, injunctive relief and other equitable remedies.

(b) There are no actions, suits, audits, investigations or proceedings pending or, to the knowledge of Company, threatened against Company in any court or before any governmental commission, board or authority which, if adversely determined, could have a material adverse effect on the ability of Company to perform its obligations under this Warrant.

ARTICLE VII

MISCELLANEOUS

7.1 Entire Agreement . This Warrant contains the entire agreement between the Holder and the Company with respect to the purchase of the Warrant Shares and supersedes all prior arrangements or understanding with respect thereto.

7.2 Governing Law . This Warrant shall be governed by and construed and enforced in accordance with the laws of the State of Illinois.

7.3 Waiver and Amendment . Any term or provision of this Warrant may be waived at any time by the party which is entitled to the benefits thereof and any term or provision of this Warrant may be amended or supplemented at any time by agreement of the Holder and the Company, except that any waiver of any term or condition, or any amendment or supplementation, of this Warrant must be in writing. A waiver of any breach or failure to enforce any of the terms or conditions of this Warrant shall not in any way affect, limit or waive a party's rights hereunder at any time to enforce strict compliance thereafter with every term or condition of this Warrant.

7.4 Illegality . In the event that any one or more of the provisions contained in this Warrant shall be determined to be invalid, illegal or unenforceable in any respect for any reason, the validity, legality and enforceability of any such provision in any other respect and the remaining provisions of this Warrant shall not, at the election of the party for whom the benefit of the provision exists, be in any way impaired.

7.5 Filing of Warrant . A copy of this Warrant shall be filed among the records of the Company.

7.6 Notice . Any notice required or permitted pursuant to this Warrant shall be in writing and shall be deemed sufficient upon receipt, when delivered personally or sent by courier, overnight delivery service or confirmed facsimile, or seventy-two (72) hours after being deposited in the regular mail, as certified or registered mail (airmail if sent internationally), with postage prepaid, addressed (i) if to the Holder, to the address of the Holder most recently furnished in writing to the Company; and (ii) if to the Company, to the Warrant Office address or at such address as provided by written notice to the Holder.

7.7 No Rights as Stockholder . No provision of this Warrant shall be construed as conferring upon the Holder the right to vote, consent, receive dividends, or other than as herein expressly provided, receive notice in respect of meetings of stockholders or any other matter whatsoever as a stockholder of the Company. No provision hereof, in the absence of the exercise by the Holder hereof to purchase Warrant Shares hereunder, and no mere enumeration herein of the rights or privileges of the Holder, shall give rise to any liability of such Holder for the Warrant Price of any Warrant Shares or as a stockholder of the Company, whether such liability is asserted by the Company or by creditors of the Company.

 

R UBICON T ECHNOLOGY , I NC .    -7-    W ARRANT N O . 1


7.8 Loss, Destruction. etc., of Warrants . Upon receipt of evidence satisfactory to the Company of the loss, theft, mutilation or destruction of any Warrant, and in the case of any such loss, theft or destruction upon delivery of a bond of indemnity in such form and amount as shall be reasonably satisfactory to the Company, or in the event of such mutilation upon surrender and cancellation of the Warrant, the Company will make and deliver a new Warrant, of like tenor, in lieu of such lost, stolen, destroyed or mutilated Warrant. Any Warrant issued under the provisions of this Section 7.8 in lieu of any Warrant alleged to be lost, destroyed or stolen, or in lieu of any mutilated Warrant, shall constitute an original contractual obligation on the part of the Company.

IN WITNESS WHEREOF , the Company has caused this Warrant to be signed in its name by its duly authorized officer as of the Grant Date.

 

RUBICON TECHNOLOGY, INC.
By:  

/s/    Christopher J. Moffitt

  Christopher J. Moffitt, Chief Executive Officer

 

R UBICON T ECHNOLOGY , I NC .    -8-    W ARRANT N O . 1


EXHIBIT A

SUBSCRIPTION NOTICE

The undersigned, the holder of the foregoing warrant (the “Warrant ”), hereby (i) represents to the Company (as such term is defined in the Warrant) that the Warrant may presently be exercised and, if applicable, the Warrant Shares transferred as provided below in accordance with the terms of the Warrant; (ii) irrevocably elects to exercise purchase rights represented by the Warrant for, and to purchase thereunder, [                      ] shares of the Preferred Stock covered by the Warrant; (iii) elects, as applicable, to exercise the Conversion Right with respect to [                                           ] Warrant Shares, or to make payment in full therefor of $ [                      ] by certified or official bank check payable to the order of the Company; and (iv) requests (A) that certificates for such shares (and any securities or other property issuable upon such exercise) be issued in the name of and delivered to:

 

  Name:   

 

 
  Address:   

 

 
    

 

 
    

 

 
  Tax ID No.:   

 

 
and (B) if such shares shall not include all of the shares issuable as provided in the Warrant, that a new Warrant of like tenor and date for the balance of the shares issuable thereunder be delivered to the undersigned.
  Holder:   

 

 
  Signature:   

 

 
  Title or Capacity:   

 

 
  Dated:   

 

 

 

R UBICON T ECHNOLOGY , I NC .    Exhibit A    W ARRANT N O . 1

Exhibit 4.14

THE ISSUANCE OF THIS WARRANT AND THE SECURITIES ISSUABLE PUSUANT TO THE TERMS HEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR UNDER ANY STATE OR OTHER SECURITIES LAWS. NEITHER THE SECURITIES NOR ANY INTEREST THEREIN MAY BE OFFERED, SOLD, TRANSFERRED, ASSIGNED OR OTHERWISE DISPOSED OF EXCEPT (I) PURSUANT TO EFFECTIVE REGISTRATIONS UNDER APPLICABLE SECURITIES LAWS OR (II) UPON DELIVERY TO THE COMPANY OF AN OPINION OF COUNSEL (OR OTHER EVIDENCE SATISFACTORY TO THE COMPANY) ACCEPTABLE TO THE COMPANY, THAT THE PROPOSED DISPOSITION MAY BE EFFECTED IN COMPLIANCE WITH APPLICABLE SECURITIES LAWS WITHOUT REGISTRATION. ADDITIONAL RESTRICTIONS ON TRANSFER ARE SET FORTH HEREIN.

WARRANT NO.      

(the “ Warrant ”)

to purchase Series E Convertible Preferred Stock

of

RUBICON TECHNOLOGY, INC.

THIS IS TO CERTIFY THAT, for value received, including the payment of              Dollars ($              ) and other good and valuable consideration the amount and sufficiency is hereby acknowledged,                              , or its registered assigns (the “ Holder ”), is (subject to the restrictions provided herein) entitled to purchase from Rubicon Technology, Inc., a Delaware corporation (the “ Company ”), at any time or from time to time and prior to 5:00 p.m. local time at the location of the Warrant Office (as defined in Section 2.1) on                      , 20      , at the Warrant Price,                              shares of Series E Convertible Preferred Stock, par value $.001 per share (“ Series E Convertible Preferred Stock ”), subject to Section 1.3 below with respect to any fractional amount and subject to adjustment as provided herein, and is also entitled to exercise the other rights, powers and privileges hereinafter set forth. Capitalized terms used in this Warrant but not defined in the context thereof shall have the meanings specified in Article V.

ARTICLE I

EXERCISE OF WARRANT

1.1 Method of Exercise . To exercise this Warrant in whole or in part, the Holder shall deliver to the Company at the Warrant Office (i) this Warrant together with the subscription notice attached hereto as Exhibit A (the “ Subscription Notice ”) filled out and duly executed by the Holder indicating the Holder’s election to exercise this Warrant and specifying the number of shares of Series E Convertible Preferred Stock to be purchased; and (ii) a certified or bank cashier’s check payable to the order of the Company in an amount equal to the aggregate Warrant Price for the number of shares of Series E Convertible Preferred Stock being purchased. Subject to the restrictions provided herein, the Company shall as promptly as practicable, and in any event within 14 days thereafter, execute and deliver or cause to be executed and delivered, in accordance with the Subscription Notice, a single certificate in the name of the Holder representing the aggregate number of shares of Series E Convertible Preferred Stock specified in the Subscription Notice. Such certificate shall be deemed to have been issued, and the Holder shall be deemed for all purposes to have become a holder of record of such shares, as of the date the Subscription Notice is actually received by the Company with payment as provided above. If this Warrant shall have been exercised only in part, the Company shall, at the time of delivery of such certificate or certificates, deliver to the Holder a new Warrant evidencing the rights of the Holder to purchase the remaining shares of Series E Convertible Preferred Stock called for by this Warrant, which new Warrant shall in all other respects be identical with this Warrant, or at the request of the Holder, appropriate notation may be made on this Warrant and the same returned to the Holder. The Company shall pay all expenses, taxes and other charges payable in connection with the preparation, issuance and delivery of such stock certificates and new Warrants.

1.2 Right to Convert Warrant into Stock: Net Issuance .

(a) Right to Convert . In addition to and without limiting the rights of the Holder under the terms of this Warrant, the Holder shall have the right to convert this Warrant or any portion hereof into shares of

 

R UBICON T ECHNOLOGY , I NC .    -1-    W ARRANT N O .     


Series E Convertible Preferred Stock as provided in this Section 1.2 at any time that this Warrant is otherwise exercisable during the term of this Warrant (the “ Conversion Right ”). Upon exercise of the Conversion Right, the Company shall deliver to the Holder (without payment by the Holder of the Warrant Price) that number of fully paid and nonassessable shares of Series E Convertible Preferred Stock equal to the quotient of (i) the number of shares of Series E Convertible Preferred Stock purchasable under this Warrant (or the portion thereof being exercised); multiplied by the difference of (A) the Fair Market Value of one (1) share of Series E Convertible Preferred Stock; minus (B) the Warrant Price; divided by (ii) the Fair Market Value of one (1) share of Series E Convertible Preferred Stock.

(b) Method of Exercise . The Conversion Right may be exercised by the Holder by the surrender of this Warrant, at the Warrant Office, together with the Subscription Notice specifying that the Holder thereby intends to exercise the Conversion Right and indicating the number of shares of Series E. Convertible Preferred Stock with respect to which the Holder intends to exercise this Warrant. The Holder shall also deliver therewith additional consideration, if any, such that the aggregate consideration received by the Company in respect of any shares of Series E Convertible Preferred Stock is at least equal to the par value of the shares of Series E Convertible Preferred Stock. The conversion shall be effective on the date which is the later of (i) receipt by the Company of the items described above; or (ii) a date specified in the Holder’s notice to the Company.

1.3 No Fractional Shares to be Issued . The Company shall not be required upon any exercise or conversion of this Warrant to issue a certificate representing any fraction of a share, but, in lieu thereof, may pay to the Holder cash in an amount equal to a corresponding fraction (calculated to the nearest 1/100th of a share) of the Fair Market Value of one share of Series E Convertible Preferred Stock as of the date of receipt by the Company of notice of exercise of this Warrant.

1.4 Legend on Shares . Each certificate for shares of Series E Convertible Preferred Stock initially issued upon exercise of this Warrant, unless at the time of exercise such shares of Series E Convertible Preferred Stock are registered under the Securities Act of 1933, as amended (the “ Act ”) and applicable state securities laws, shall bear a legend in substantially the following form (and any additional legend required by law or by any securities exchange upon which such shares of Series E Convertible Preferred Stock may, at the time of such exercise, be listed):

THE ISSUANCE OF THE SHARES EVIDENCED HEREBY WAS NOT REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR UNDER ANY STATE OR OTHER SECURITIES LAWS. NEITHER THE SHARES NOR ANY INTEREST THEREIN MAY BE OFFERED, SOLD, TRANSFERRED, ASSIGNED OR OTHERWISE DISPOSED OF EXCEPT (I) PURSUANT TO EFFECTIVE REGISTRATIONS UNDER APPLICABLE SECURITIES LAWS OR (II) UPON DELIVERY TO THE CORPORATION OF AN OPINION OF COUNSEL (OR OTHER EVIDENCE SATISFACTORY TO THE CORPORATION) ACCEPTABLE TO THE CORPORATION, THAT THE PROPOSED DISPOSITION MAY BE EFFECTED IN COMPLIANCE WITH APPLICABLE SECURITIES LAWS WITHOUT REGISTRATION.

THE CORPORATION WILL FURNISH WITHOUT CHARGE TO EACH STOCKHOLDER WHO SO REQUESTS, A FULL SUMMARY OR STATEMENT OF ALL OF THE POWERS, DESIGNATIONS, PREFERENCES AND RELATIVE, PARTICIPATING, OPTIONAL, OR OTHER SPECIAL RIGHTS OF EACH CLASS OF STOCK OR SERIES THEREOF AND THE QUALIFICATIONS, LIMITATIONS OR RESTRICTIONS OF SUCH POWERS, PREFERENCES AND/OR RIGHTS. ANY SUCH REQUEST SHOULD BE ADDRESSED TO THE SECRETARY OF THE CORPORATION.

Any certificate issued at any time in exchange or substitution for any certificate bearing such legend (except a new certificate issued upon completion of a public distribution pursuant to a registration statement which has become effective under the Act of the securities represented thereby) shall also bear such legend unless, in the opinion of such counsel as shall be approved by the Company, the securities represented thereby need no longer be subject to the restrictions contained in Article III. The provisions of Article III shall be binding upon all subsequent holders of this Warrant.

 

R UBICON T ECHNOLOGY , I NC .    -2-    W ARRANT N O .     


1.5 Registration Rights Agreement . In connection with any exercise of this Warrant, the parties will enter into and become bound by the terms and conditions of the registration rights agreement between the Company and the holders of Series E Convertible Preferred Stock.

ARTICLE II

WARRANT OFFICE; TRANSFER

DIVISION OR COMBINATION OF WARRANTS

2.1 Warrant Office . The Company shall maintain an office for certain purposes specified herein (the “ Warrant Office ”), which office shall initially be the Company’s office at 9931 Franklin Avenue, Franklin Park, Illinois 60131 and may subsequently be such other office of the Company or of any transfer agent in the continental United States as to which written notice has been given to the Holder.

2.2 Warrant Non-Transferable; Ownership of Warrant . This Warrant and all rights hereunder may not be transferred, sold, hypothecated or assigned, without the prior written consent of the Company which shall be promptly provided on the condition that Holder has complied with the provisions of Article III hereof. The Company may deem and treat the Person in whose name this Warrant is registered as the holder and owner hereof (notwithstanding any notations of ownership or writing hereon made by anyone other than the Company) for all purposes and shall not be affected by any notice to the contrary, until presentation of this Warrant for registration of transfer as provided in this Article II.

2.3 Warrant Register . Subject to Section 2.2 and Article III hereof, the Company shall maintain at the Warrant Office books for the registration of warrants and the registration of transfers of warrants. To effect a transfer of this Warrant upon satisfaction of the provisions of Section 2.2 and Article III the Holder shall surrender this Warrant at the Warrant Office, together with a written assignment of this Warrant duly executed by the Holder or the Holder’s duly authorized agent or attorney and funds sufficient to pay any transfer taxes payable upon the making of such transfer. Upon such surrender and payment the Company shall execute and deliver a new Warrant or Warrants in the name of the assignee or assignees and in the denominations specified in such instrument of assignment, and this Warrant shall be canceled.

2.4 Division or Combination of Warrants . This Warrant may be divided or combined with other warrants exercisable at the same Warrant Price upon presentation hereof and of any warrant or warrants with which this warrant is to be combined at the Warrant Office, together with a written notice specifying the names and denominations in which new warrants are to be issued, signed by the Holder and the holders thereof or their respective duly authorized agents or attorneys. Subject to compliance with Sections 2.2 and 2.3 and Article III as to any transfer which may be involved in such division or combination, the Company shall execute and deliver a new warrant or warrants in exchange for the warrant or warrants to be divided or combined in accordance with such notice.

2.5 Expenses of Delivery of Warrants . The Company shall pay all expenses, taxes (other than transfer taxes) and other charges payable in connection with the preparation, issuance and delivery of warrants hereunder.

ARTICLE III

RESTRICTIONS ON EXERCISE AND TRANSFER

3.1 Restrictions on Exercise and Transfer . Notwithstanding any provisions contained in this Warrant to the contrary, this Warrant shall not be exercisable or transferable and the related shares of Series E Convertible Preferred Stock shall not be transferable except upon the conditions specified in this Article III, which conditions are intended, among other things, to enable compliance with the provisions of the Act and applicable state securities laws in respect of the exercise or transfer of such Warrant or transfer of such shares of Series E Convertible Preferred Stock. The Holder of this Warrant, by acceptance hereof, agrees not to: (i) transfer this Warrant prior to delivery to the Company of an opinion of counsel or other evidence (as such opinion and such counsel or other evidence are described in Section 3.2); (ii) exercise this Warrant prior to delivery to the Company of an opinion of counsel or other evidence (as such opinion and such counsel or other evidence are described in Section 3.2) or until registration of the related shares of Series E Convertible Preferred Stock under the Act has become effective and compliance with applicable state securities laws have been obtained; or (iii) transfer such shares of Series E

 

R UBICON T ECHNOLOGY , I NC .    -3-    W ARRANT N O .     


Convertible Preferred Stock prior to delivery to the Company of the opinion of counsel or other evidence (as such opinion and such counsel or other evidence are described in Section 3.2) or until registration of such shares of Series E Convertible Preferred Stock under the Act has become effective and compliance with applicable state securities laws has been obtained.

3.2 Opinion of Counsel . In connection with any exercise or transfer of this Warrant or any transfer of the related shares of Series E Convertible Preferred Stock, the following provisions shall apply:

(a) If in the written opinion of counsel approved by the Company, the proposed exercise or transfer of this Warrant and/or the proposed transfer of such shares of Series E Convertible Preferred Stock may be effected without registration of this Warrant and/or such shares of Series E Convertible Preferred Stock under the Act and applicable state securities laws, the Holder of this Warrant shall be entitled to exercise or transfer this Warrant and/or transfer such shares of Series E Convertible Preferred Stock in accordance with the proposed method of disposition. In lieu of such opinion of counsel the Company may, in its discretion, accept such other evidence of compliance with or exemption from the Act and applicable state securities laws as it deems satisfactory.

(b) If the Company does not obtain the opinion or other evidence referred to in Section 3.2(a), the Holder of this Warrant shall not be entitled to exercise or transfer this Warrant and/or transfer such shares of Series E Convertible Preferred Stock. This Warrant shall not be exercisable or transferable and the shares of Series E Convertible Preferred Stock shall not be transferable if such exercise or transfer would involve a violation of the Act or any applicable federal or state securities laws.

ARTICLE IV

ADJUSTMENTS

4.1 Conversion of All Series E Convertible Preferred Stock .

(a) Number of Shares . In the event that all of the Company’s Series E Convertible Preferred Stock are converted into Common Stock pursuant to the Certificate of Incorporation (the “ Conversion Event ”), then the number of shares of Series E Convertible Preferred Stock available for exercise hereunder shall equal the number of shares of the Company’s Common Stock that would have been received by the Holder had such Holder exercised this Warrant with respect to all shares of Series E Convertible Preferred Stock available hereunder immediately prior to such Conversion Event.

(b) Warrant Price . Upon the occurrence of a Conversion Event, then the Warrant Price shall equal the quotient obtained by dividing: (i) the original Warrant Price; by (ii) the number of shares of the Company’s Common Stock that one (1) share of Series E Convertible Preferred Stock, outstanding immediately prior to such Conversion Event, would have been converted into subsequent to such Conversion Event.

4.2 Effect of Stock Splits, Reverse Stock Splits and Stock Dividends . In case at any time or from time to time while this Warrant remains outstanding the Company shall, by reclassification, by stock split or reverse stock split, by the issuance of a stock dividend on shares for which this Warrant is then exercisable payable in such shares, or by other similar means, subdivide or combine the shares of stock for which this Warrant is then exercisable into a greater or lesser number of such shares, then the number of shares which may be purchased hereunder shall be increased or decreased proportionately (as determined by the Board of Directors of the Company) effective upon consummation of such reclassification, stock split or reverse stock split or stock dividend. When any adjustment is required to the number of shares for which this Warrant is exercisable hereunder, the Warrant Price shall be decreased or increased proportionately (as determined by the Board of Directors of the Company) effective upon such adjustment.

4.3 Effect of Merger or Consolidation . In case the Company shall, while this Warrant remains outstanding, (i) enter into any consolidation with or merger into any other corporation wherein the Company is not the surviving corporation, or wherein securities of a corporation other than the Company are distributable to holders of the shares of Series E Convertible Preferred Stock, or (ii) sell or convey its property as an entirety or substantially as an entirety, then in connection with such consolidation, merger, sale or conveyance, lawful and adequate provision, as determined by the Board of Directors of the Company (which may determine, in good faith, that no provision is required), shall be made whereby the Holder shall thereafter be entitled to purchase, pursuant to this Warrant (in lieu of the shares of Series E Convertible Preferred Stock such Holder would have been entitled to purchase immediately prior to such consolidation, merger, sale or conveyance), the shares of stock or other

 

R UBICON T ECHNOLOGY , I NC .    -4-    W ARRANT N O .     


securities or property to which the number of shares of Series E Convertible Preferred Stock would have been entitled at the time of such consolidation, merger, sale or conveyance, at an aggregate Warrant Price equal to that which would have been payable if all shares of Series E Convertible Preferred Stock had been purchased by exercise of this Warrant immediately prior thereto.

4.4 Reorganization or Reclassification . In case of any capital reorganization or any reclassification of the capital stock of the Company (except as provided in Section 4.2) while this Warrant remains outstanding, then, as a condition of such capital reorganization or reclassification, lawful and adequate provision, as determined by the Board of Directors of the Company (which may determine, in good faith, that no provision is required), shall be made whereby the Holder shall thereafter be entitled to purchase, pursuant to this Warrant (in lieu of the shares of Series E Convertible Preferred Stock which such Holder would have been entitled to purchase immediately prior to such reorganization or reclassification), the shares of stock of any class or classes or other securities or property to which the number of shares of Series E Convertible Preferred Stock would have been entitled at the time of such reorganization or reclassification, at an aggregate Warrant Price equal to that which would have been payable if all shares of Series E Convertible Preferred Stock had been purchased immediately prior to such reorganization or reclassification.

4.5 Statement of Adjustment . Upon each adjustment of the number of shares of Series E Convertible Preferred Stock hereunder, and in the event of any change in the rights of the Holder by reason of other events herein set forth, then, and in each case, the Company will promptly prepare a schedule setting forth the adjusted number of shares of Series E Convertible Preferred Stock, or specifying the other shares of stock, securities or assets and the amount thereof receivable as a result of such change in rights, and setting forth in reasonable detail the method of calculation and the facts upon which such calculation is based. The Company will promptly mail a copy of such schedule to the Holder. In the event of any such adjustment, the Holder shall cooperate with the Company and may be required, as a condition of effectiveness of such adjustment for such Holder, to execute and deliver to the Company such instruments and documents as may be reasonably requested by the Company to effect such adjustment and by which the Holder would acknowledge such adjustment.

4.6 Notifications by the Company . In case at any time the Board of Directors of the Company authorizes any of the following and fixes a record or distribution date therefore:

(a) the payment of any dividend payable in stock (of any class or classes) or in convertible securities upon the Series E Convertible Preferred Stock or the making of any distribution to the holders of outstanding Series E Convertible Preferred Stock;

(b) the making of any capital reorganization or reclassification of the capital stock of the Company, or consolidation or merger of the Company with, or sale or transfer of all or substantially all of its assets to, another corporation; or

(c) a voluntary or involuntary dissolution, liquidation or winding-up of the Company;

then, in any one or more such cases, the Company shall give notice as provided herein to the Holder of such record or distribution date. Such notice shall also specify the date (the “ Participation Date ”) as of which the holders of Series E Convertible Preferred Stock of record shall participate in such dividend, distribution or subscription rights, or shall be entitled to vote on or exchange their shares of Series E Convertible Preferred Stock for securities or other property deliverable upon such reorganization, reclassification, consolidation, merger, sale or transfer of assets, dissolution, liquidation or winding-up, as the case may be. Such notice shall be given not less than 5 days and not more than 60 days prior to the Participation Date and such notice may state that any such action remains subject to conditions, which conditions shall be generally described in such notice.

4.7 Rounding . All calculations hereunder shall be made to the nearest one-tenth (1/10) of a cent or to the nearest one hundredth (1/100) of a share, as the case may be.

ARTICLE V

CERTAIN DEFINITIONS

Capitalized terms defined herein shall have the meanings ascribed to them. In addition, the following terms shall have the following respective meanings:

Certificate of Incorporation ” shall mean the Company’s Certificate of Incorporation as currently in effect and as amended from time to time.

 

R UBICON T ECHNOLOGY , I NC .    -5-    W ARRANT N O .     


Fair Market Value ” of a share of Series E Convertible Preferred Stock shall be equal to the product of (i) the number of shares of the Company’s Common Stock into which each share of Series E Convertible Preferred Stock is then convertible pursuant to the Certificate of Incorporation; multiplied by (ii) the average of the daily market prices for one (1) share of the Company’s Common Stock over a period of 20 consecutive business days before such date. The market price for each such business day shall be the last sale price on such day on the principal securities exchange on which the Company’s Common Stock is then listed or admitted to trading, or, if no sale takes place on such day on any such exchange, the average of the closing bid and asked prices on such day as officially quoted on any such exchange, or if the Common Stock is not then listed or admitted to trading on any stock exchange, the market price for each such business day shall be the average of the closing bid and asked prices on such day in the over-the-counter market, as reported through NASDAQ, or, if such prices are not at the time so reported, as furnished by any member of the NASD selected by the Company. Notwithstanding the foregoing, if and so long as there shall be no exchange or over-the-counter market for the Company’s Common Stock during the 20-day period prior to the date on which the Fair Market Value is to be determined, the Fair Market Value shall be an amount determined by the Board of Directors in its reasonable discretion.

Person ” shall mean an individual, a corporation, a partnership, a trust, an unincorporated organization, or any other entity, or a governmental organization or any agency or political subdivision thereof.

Warrant Price ” shall mean $                  .

ARTICLE VI

CERTAIN COVENANTS OF THE COMPANY

The Company covenants and agrees that from and after the issuance of this Warrant:

(a) it will reserve and set apart and have at all times, free from preemptive rights, a number of shares of authorized but unissued shares of Series E Convertible Preferred Stock sufficient to enable it at any time to fulfill all its obligations hereunder; and

(b) before taking any action which would cause an adjustment reducing the Warrant Price below the then par value of the shares of Series E Convertible Preferred Stock issuable upon exercise of the Warrant, it will take any corporate action which may be necessary in order that the Company may validly and legally issue fully paid and nonassessable shares of such Series E Convertible Preferred Stock at such adjusted Warrant Price.

ARTICLE VII

MISCELLANEOUS

7.1 Entire Agreement . This Warrant contains the entire agreement between the Holder and the Company with respect to the purchase of the shares of Series E Convertible Preferred Stock and supersedes all prior arrangements or understanding with respect thereto.

7.2 Governing Law . This Warrant shall be governed by and construed in accordance with the internal substantive laws of the State of Illinois.

7.3 Waiver and Amendment . Any term or provision of this Warrant may be waived at any time by the party which is entitled to the benefits thereof and any term or provision of this Warrant may be amended or supplemented at any time by agreement of the Holder and the Company, except that any waiver of any term or condition, or any amendment or supplementation, of this Warrant must be in writing. A waiver of any breach or failure to enforce any of the terms or conditions of this Warrant shall not in any way affect, limit or waive a party’s rights hereunder at any time to enforce strict compliance thereafter with every term or condition of this Warrant.

7.4 Illegality . In the event that any one or more of the provisions contained in this Warrant shall be determined to be invalid, illegal or unenforceable in any respect for any reason, the validity, legality and enforceability of any such provision in any other respect and the remaining provisions of this Warrant shall not, at the election of the party for whom the benefit of the provision exists, be in any way impaired.

 

R UBICON T ECHNOLOGY , I NC .    -6-    W ARRANT N O .     


7.5 Filing of Warrant . A copy of this Warrant shall be filed among the records of the Company.

7.6 Notice . Any notice required or permitted pursuant to this Warrant shall be in writing and shall be deemed sufficient upon receipt, when delivered personally or sent by courier, overnight delivery service or confirmed facsimile, or seventy-two (72) hours after being deposited in the regular mail, as certified or registered mail (airmail if sent internationally), with postage prepaid, addressed (i) if to the Holder, to the address of the Holder most recently furnished in writing to the Company; and (ii) if to the Company, to the Warrant Office address or at such address as provided by written notice to the Holder.

7.7 No Rights as Stockholder . No provision of this Warrant shall be construed as conferring upon the Holder the right to vote, consent, receive dividends, or other than as herein expressly provided, receive notice in respect of meetings of stockholders or any other matter whatsoever as a stockholder of the Company. No provision hereof, in the absence of the exercise by the Holder hereof to purchase shares of Series E Convertible Preferred Stock hereunder, and no mere enumeration herein of the rights or privileges of the Holder, shall give rise to any liability of such Holder for the Warrant Price of any shares of Series E Convertible Preferred Stock or as a stockholder of the Company, whether such liability is asserted by the Company or by creditors of the Company.

7.8 Loss, Destruction. etc., of Warrants . Upon receipt of evidence satisfactory to the Company of the loss, theft, mutilation or destruction of any Warrant, and in the case of any such loss, theft or destruction upon delivery of a bond of indemnity in such form and amount as shall be reasonably satisfactory to the Company, or in the event of such mutilation upon surrender and cancellation of the Warrant, the Company will make and deliver a new Warrant, of like tenor, in lieu of such lost, stolen, destroyed or mutilated Warrant. Any Warrant issued under the provisions of this Section 7.8 in lieu of any Warrant alleged to be lost, destroyed or stolen, or in lieu of any mutilated Warrant, shall constitute an original contractual obligation on the part of the Company.

IN WITNESS WHEREOF , the Company has caused this Warrant to be signed in its name by its duly authorized officer.

 

RUBICON TECHNOLOGY, INC.
By:  

 

  David Nuti, Chief Financial Officer

 

R UBICON T ECHNOLOGY , I NC .    -7-    W ARRANT N O .     


EXHIBIT A

SUBSCRIPTION NOTICE

The undersigned, the holder of the foregoing warrant (the “ Warrant ”), hereby (i) represents to the Company (as such term is defined in the Warrant) that the Warrant may presently be exercised and, if applicable, the shares of Series E Convertible Preferred Stock transferred as provided below in accordance with the terms of the Warrant; (ii) irrevocably elects to exercise purchase rights represented by the Warrant for, and to purchase thereunder, [              ] shares of the Series E Convertible Preferred Stock covered by the Warrant; (iii) elects, as applicable, to exercise the Conversion Right with respect to [              ] shares of Series E Convertible Preferred Stock, or to make payment in full therefor of $ [              ] by certified or official bank check payable to the order of the Company; and (iv) requests (A) that certificates for such shares (and any securities or other property issuable upon such exercise) be issued in the name of and delivered to:

 

  Name:  

 

 
  Address:  

 

 
   

 

 
   

 

 
  Tax ID No.:  

 

 
and (B) if such shares shall not include all of the shares issuable as provided in the Warrant, that a new Warrant of like tenor and date for the balance of the shares issuable thereunder be delivered to the undersigned.
  Holder:  

 

 
  Signature:  

 

 
  Title or Capacity:  

 

 
  Dated:  

 

 

 

R UBICON T ECHNOLOGY , I NC .    Exhibit A    W ARRANT N O .     

Exhibit 4.15

THE ISSUANCE OF THIS WARRANT AND THE SECURITIES ISSUABLE PURSUANT TO THE TERMS HEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR UNDER ANY STATE OR OTHER SECURITIES LAWS. NEITHER THE SECURITIES NOR ANY INTEREST THEREIN MAY BE OFFERED, SOLD, TRANSFERRED, ASSIGNED OR OTHERWISE DISPOSED OF EXCEPT (I) PURSUANT TO EFFECTIVE REGISTRATIONS UNDER APPLICABLE SECURITIES LAWS OR (II) UPON DELIVERY TO THE COMPANY OF AN OPINION OF COUNSEL (OR OTHER EVIDENCE SATISFACTORY TO THE COMPANY) ACCEPTABLE TO THE COMPANY, THAT THE PROPOSED DISPOSITION MAY BE EFFECTED IN COMPLIANCE WITH APPLICABLE SECURITIES LAWS WITHOUT REGISTRATION. ADDITIONAL RESTRICTIONS ON TRANSFER ARE SET FORTH HEREIN.

WARRANT NO. 29

(the “ Warrant ”)

to purchase Series E Convertible Preferred Stock

of

RUBICON TECHNOLOGY, INC.

THIS IS TO CERTIFY THAT, for value received, including the payment of Ten Dollars ($10.00) and other good and valuable consideration the amount and sufficiency is hereby acknowledged, Lighthouse Capital Partners IV, L.P., or its registered assigns (the “ Holder ”), is (subject to the restrictions provided herein) entitled to purchase from Rubicon Technology, Inc., a Delaware corporation (the “ Company ”), at any time or from time to time and prior to 5:00 p.m. local time at the location of the Warrant Office (as defined in Section 2.1) on December 20, 2015, at the Warrant Price, Three Hundred and Seventeen Thousand Six Hundred and Ninety-six (317,696) shares of Series E Convertible Preferred Stock, par value $.001 per share (“ Series E Convertible Preferred Stock ”), subject to Section 1.3 below with respect to any fractional amount and subject to adjustment as provided herein, and is also entitled to exercise the other rights, powers and privileges hereinafter set forth. Capitalized terms used in this Warrant but not defined in the context thereof shall have the meanings specified in Article V.

ARTICLE I

EXERCISE OF WARRANT

1.1 Method of Exercise . To exercise this Warrant in whole or in part, the Holder shall deliver to the Company at the Warrant Office (i) this Warrant together with the subscription notice attached hereto as Exhibit A (the “ Subscription Notice ”) filled out and duly executed by the Holder indicating the Holder’s election to exercise this Warrant and specifying the number of shares of Series E Convertible Preferred Stock to be purchased; and (ii) a certified or bank cashier’s check payable to the order of the Company in an amount equal to the aggregate Warrant Price for the number of shares of Series E Convertible Preferred Stock being purchased. Subject to the restrictions provided herein, the Company shall as promptly as practicable, and in any event within 14 days thereafter, execute and deliver or cause to be executed and delivered, in accordance with the Subscription Notice, a single certificate in the name of the Holder representing the aggregate number of shares of Series E Convertible Preferred Stock specified in the Subscription Notice. Such certificate shall be deemed to have been issued, and the Holder shall be deemed for all purposes to have become a holder of record of such shares, as of the date the Subscription Notice is actually received by the Company with payment as provided above. If this Warrant shall have been exercised only in part, the Company shall, at the time of delivery of such certificate or certificates, deliver to the Holder a new Warrant evidencing the rights of the Holder to purchase the remaining shares of Series E Convertible Preferred Stock called for by this Warrant, which new Warrant shall in all other respects be identical with this Warrant, or at the request of the Holder, appropriate notation may be made on this Warrant and the same returned to the Holder. The Company shall pay all expenses, taxes and other charges payable in connection with the preparation, issuance and delivery of such stock certificates and new Warrants.

1.2 Right to Convert Warrant into Stock: Net Issuance .

(a) Right to Convert . In addition to and without limiting the rights of the Holder under the

 

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terms of this Warrant, the Holder shall have the right to convert this Warrant or any portion hereof into shares of Series E Convertible Preferred Stock as provided in this Section 1.2 at any time that this Warrant is otherwise exercisable during the term of this Warrant (the “ Conversion Right ”). Upon exercise of the Conversion Right, the Company shall deliver to the Holder (without payment by the Holder of the Warrant Price) that number of fully paid and nonassessable shares of Series E Convertible Preferred Stock equal to the quotient of (i) the number of shares of Series E Convertible Preferred Stock purchasable under this Warrant (or the portion thereof being exercised); multiplied by the difference of (A) the Fair Market Value of one (1) share of Series E Convertible Preferred Stock; minus (B) the Warrant Price; divided by (ii) the Fair Market Value of one (1) share of Series E Convertible Preferred Stock.

(b) Method of Exercise . The Conversion Right may be exercised by the Holder by the surrender of this Warrant, at the Warrant Office, together with the Subscription Notice specifying that the Holder thereby intends to exercise the Conversion Right and indicating the number of shares of Series E Convertible Preferred Stock with respect to which the Holder intends to exercise this Warrant. The Holder shall also deliver therewith additional consideration, if any, such that the aggregate consideration received by the Company in respect of any shares of Series E Convertible Preferred Stock is at least equal to the par value of the shares of Series E Convertible Preferred Stock. The conversion shall be effective on the date which is the later of (i) receipt by the Company of the items described above; or (ii) a date specified in the Holder’s notice to the Company.

1.3 No Fractional Shares to be Issued . The Company shall not be required upon any exercise or conversion of this Warrant to issue a certificate representing any fraction of a share, but, in lieu thereof, may pay to the Holder cash in an amount equal to a corresponding fraction (calculated to the nearest 1/100th of a share) of the Fair Market Value of one share of Series E Convertible Preferred Stock as of the date of receipt by the Company of notice of exercise of this Warrant.

1.4 Legend on Shares . Each certificate for shares of Series E Convertible Preferred Stock initially issued upon exercise of this Warrant, unless at the time of exercise such shares of Series E Convertible Preferred Stock are registered under the Securities Act of 1933, as amended (the “ Act ”) and applicable state securities laws, shall bear a legend in substantially the following form (and any additional legend required by law or by any securities exchange upon which such shares of Series E Convertible Preferred Stock may, at the time of such exercise, be listed):

THE ISSUANCE OF THE SHARES EVIDENCED HEREBY WAS NOT REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR UNDER ANY STATE OR OTHER SECURITIES LAWS. NEITHER THE SHARES NOR ANY INTEREST THEREIN MAY BE OFFERED, SOLD, TRANSFERRED, ASSIGNED OR OTHERWISE DISPOSED OF EXCEPT (I) PURSUANT TO EFFECTIVE REGISTRATIONS UNDER APPLICABLE SECURITIES LAWS OR (II) UPON DELIVERY TO THE CORPORATION OF AN OPINION OF COUNSEL (OR OTHER EVIDENCE SATISFACTORY TO THE CORPORATION) ACCEPTABLE TO THE CORPORATION, THAT THE PROPOSED DISPOSITION MAY BE EFFECTED IN COMPLIANCE WITH APPLICABLE SECURITIES LAWS WITHOUT REGISTRATION.

THE CORPORATION WILL FURNISH WITHOUT CHARGE TO EACH STOCKHOLDER WHO SO REQUESTS, A FULL SUMMARY OR STATEMENT OF ALL OF THE POWERS, DESIGNATIONS, PREFERENCES AND RELATIVE, PARTICIPATING, OPTIONAL, OR OTHER SPECIAL RIGHTS OF EACH CLASS OF STOCK OR SERIES THEREOF AND THE QUALIFICATIONS, LIMITATIONS OR RESTRICTIONS OF SUCH POWERS, PREFERENCES AND/OR RIGHTS. ANY SUCH REQUEST SHOULD BE ADDRESSED TO THE SECRETARY OF THE CORPORATION.

Any certificate issued at any time in exchange or substitution for any certificate bearing such legend (except a new certificate issued upon completion of a public distribution pursuant to a registration statement which has become effective under the Act of the securities represented thereby) shall also bear such legend unless, in the opinion of such counsel as shall be approved by the Company, the securities represented thereby need no longer be subject to the restrictions contained in Article III. The provisions of Article III shall be binding upon all subsequent holders of this Warrant.

 

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1.5 Automatic Exercise. Immediately before the expiration or termination of this Warrant, to the extent this Warrant is not previously exercised, and if the Fair Market Value of one share of whichever is applicable of either (i) the Preferred Stock subject to this Warrant or (ii) the Company’s Common Stock issuable upon conversion of the Preferred Stock subject to this Warrant, is greater than the Warrant Price, then in effect as adjusted pursuant to this Warrant, then this Warrant shall be deemed automatically exercised pursuant to Section 1.2(a) above, even if not surrendered. To the extent this Warrant or any portion thereof is deemed automatically exercised pursuant to this Section, the Company agrees to promptly notify the Holder of the number of shares of Series E Convertible Preferred Stock, if any, the holder hereof is to receive by reason of such automatic exercise.

1.6 Registration Rights Agreement . In connection with any exercise of this Warrant, the parties will enter into and become bound by the terms and conditions of the registration rights agreement between the Company and the holders of Series E Convertible Preferred Stock.

1.7 Stockholders’ Agreement . In connection with any exercise of this Warrant, the Company may require that the Holder enter into and become bound by the terms and conditions of any stockholders’ agreement by and among the Company and the stockholders of the Company, provided such terms and conditions are applied to Holder in the same manner as any other stockholder of the Company. Company, within thirty days of Grant Date, and within thirty days of any subsequent revisions to stockholders’ agreement, shall deliver to Holder each stockholders’ agreement as amended and restated from time to time.

1.8 Information. Notwithstanding Section 1.7 above, beginning on the date whereby Company no longer has any indebtedness owed to Holder under any Loan and Security Agreement or Revolver or Other Agreement, and until the earlier of the Expiration Date or the tenth anniversary of the Grant Date, Company shall cause to be furnished to Holder, (i) the audited fiscal year end financial statements of Company no later 120 days after the related fiscal year end, and (ii) internal quarterly financial statements of Company no later than 45 days after the related quarter end. Each financial statement to be furnished to Holder must be prepared in accordance with generally accepted accounting principles, consistently applied.

ARTICLE II

WARRANT OFFICE; TRANSFER

DIVISION OR COMBINATION OF WARRANTS

2.1 Warrant Office . The Company shall maintain an office for certain purposes specified herein (the “ Warrant Office ”), which office shall initially be the Company’s office at 9931 Franklin Avenue, Franklin Park, Illinois 60131 and may subsequently be such other office of the Company or of any transfer agent in the continental United States as to which written notice has been given to the Holder.

2.2 Warrant Non-Transferable; Ownership of Warrant . This Warrant and all rights hereunder may not be transferred, sold, hypothecated or assigned, without the prior written consent of the Company which shall be promptly provided on the condition that Holder has complied with the provisions of Article III hereof. The Company may deem and treat the Person in whose name this Warrant is registered as the holder and owner hereof (notwithstanding any notations of ownership or writing hereon made by anyone other than the Company) for all purposes and shall not be affected by any notice to the contrary, until presentation of this Warrant for registration of transfer as provided in this Article II.

2.3 Warrant Register . Subject to Section 2.2 and Article III hereof, the Company shall maintain at the Warrant Office books for the registration of warrants and the registration of transfers of warrants. To effect a transfer of this Warrant upon satisfaction of the provisions of Section 2.2 and Article III the Holder shall surrender this Warrant at the Warrant Office, together with a written assignment of this Warrant duly executed by the Holder or the Holder’s duly authorized agent or attorney and funds sufficient to pay any transfer taxes payable upon the making of such transfer. Upon such surrender and payment the Company shall execute and deliver a new Warrant or Warrants in the name of the assignee or assignees and in the denominations specified in such instrument of assignment, and this Warrant shall be canceled.

 

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2.4 Division or Combination of Warrants . This Warrant may be divided or combined with other warrants exercisable at the same Warrant Price upon presentation hereof and of any warrant or warrants with which this warrant is to be combined at the Warrant Office, together with a written notice specifying the names and denominations in which new warrants are to be issued, signed by the Holder and the holders thereof or their respective duly authorized agents or attorneys. Subject to compliance with Sections 2.2 and 2.3 and Article III as to any transfer which may be involved in such division or combination, the Company shall execute and deliver a new warrant or warrants in exchange for the warrant or warrants to be divided or combined in accordance with such notice.

2.5 Expenses of Delivery of Warrants . The Company shall pay all expenses, taxes (other than transfer taxes) and other charges payable in connection with the preparation, issuance and delivery of warrants hereunder.

ARTICLE III

RESTRICTIONS ON TRANSFER

3.1 Restrictions on Exercise and Transfer . Notwithstanding any provisions contained in this Warrant to the contrary, this Warrant shall not be transferable and the related shares of Series E Convertible Preferred Stock shall not be transferable except upon the conditions specified in this Article III, which conditions are intended, among other things, to enable compliance with the provisions of the Act and applicable state securities laws in respect of the transfer of such Warrant or transfer of such shares of Series E Convertible Preferred Stock. The Holder of this Warrant, by acceptance hereof, agrees not to: (i) transfer this Warrant prior to delivery to the Company of an opinion of counsel or other evidence (as such opinion and such counsel or other evidence are described in Section 3.2); or (ii) transfer such shares of Series E Convertible Preferred Stock prior to delivery to the Company of the opinion of counsel or other evidence (as such opinion and such counsel or other evidence are described in Section 3.2) or until registration of such shares of Series E Convertible Preferred Stock under the Act has become effective and compliance with applicable state securities laws has been obtained.

3.2 Opinion of Counsel . In connection with any transfer of this Warrant or any transfer of the related shares of Series E Convertible Preferred Stock, the following provisions shall apply:

(a) If in the written opinion of counsel approved by the Company, the proposed transfer of this Warrant and/or the proposed transfer of such shares of Series E Convertible Preferred Stock may be effected without registration of this Warrant and/or such shares of Series E Convertible Preferred Stock under the Act and applicable state securities laws, the Holder of this Warrant shall be entitled to transfer this Warrant and/or transfer such shares of Series E Convertible Preferred Stock in accordance with the proposed method of disposition. In lieu of such opinion of counsel the Company may, in its discretion, accept such other evidence of compliance with or exemption from the Act and applicable state securities laws as it deems satisfactory.

(b) If the Company does not obtain the opinion or other evidence referred to in Section 3.2(a), the Holder of this Warrant shall not be entitled to transfer this Warrant and/or transfer such shares of Series E Convertible Preferred Stock. This Warrant shall not be transferable and the shares of Series E Convertible Preferred Stock shall not be transferable if such exercise or transfer would involve a violation of the Act or any applicable federal or state securities laws.

ARTICLE IV

ADJUSTMENTS

4.1 Conversion of All Series E Convertible Preferred Stock .

(a) Number of Shares . In the event that all of the Company’s Series E Convertible Preferred Stock are converted into Common Stock pursuant to the Certificate of Incorporation (the “ Conversion Event ”), then the number of shares of Series E Convertible Preferred Stock available for exercise hereunder shall equal the number of shares of the Company’s Common Stock that would have been received by the Holder had such Holder exercised this Warrant with respect to all shares of Series E Convertible Preferred Stock available hereunder immediately prior to such Conversion Event.

(b) Warrant Price . Upon the occurrence of a Conversion Event, then the Warrant Price shall equal the quotient obtained by dividing: (i) the original Warrant Price; by (ii) the number of shares of the Company’s Common Stock that one (1) share of Series E Convertible Preferred Stock, outstanding immediately prior to such Conversion Event, would have been converted into subsequent to such Conversion Event.

 

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4.2 Effect of Stock Splits, Reverse Stock Splits and Stock Dividends . In case at any time or from time to time while this Warrant remains outstanding the Company shall, by reclassification, by stock split or reverse stock split, by the issuance of a stock dividend on shares for which this Warrant is then exercisable payable in such shares, or by other similar means, subdivide or combine the shares of stock for which this Warrant is then exercisable into a greater or lesser number of such shares, then the number of shares which may be purchased hereunder shall be increased or decreased proportionately (as determined by the Board of Directors of the Company) effective upon consummation of such reclassification, stock split or reverse stock split or stock dividend. When any adjustment is required to the number of shares for which this Warrant is exercisable hereunder, the Warrant Price shall be decreased or increased proportionately (as determined by the Board of Directors of the Company) effective upon such adjustment.

4.3 Effect of Merger or Consolidation . In case the Company shall, while this Warrant remains outstanding, (i) enter into any consolidation with or merger into any other corporation wherein the Company is not the surviving corporation, or wherein securities of a corporation other than the Company are distributable to holders of the shares of Series E Convertible Preferred Stock, or (ii) sell or convey its property as an entirety or substantially as an entirety, then in connection with such consolidation, merger, sale or conveyance, lawful and adequate provision, as determined by the Board of Directors of the Company (which may determine, in good faith, that no provision is required), shall be made whereby the Holder shall thereafter be entitled to purchase, pursuant to this Warrant (in lieu of the shares of Series E Convertible Preferred Stock such Holder would have been entitled to purchase immediately prior to such consolidation, merger, sale or conveyance), the shares of stock or other securities or property to which the number of shares of Series E Convertible Preferred Stock would have been entitled at the time of such consolidation, merger, sale or conveyance, at an aggregate Warrant Price equal to that which would have been payable if all shares of Series E Convertible Preferred Stock had been purchased by exercise of this Warrant immediately prior thereto.

4.4 Reorganization or Reclassification . In case of any capital reorganization or any reclassification of the capital stock of the Company (except as provided in Section 4.2) while this Warrant remains outstanding, then, as a condition of such capital reorganization or reclassification, lawful and adequate provision, as determined by the Board of Directors of the Company (which may determine, in good faith, that no provision is required), shall be made whereby the Holder shall thereafter be entitled to purchase, pursuant to this Warrant (in lieu of the shares of Series E Convertible Preferred Stock which such Holder would have been entitled to purchase immediately prior to such reorganization or reclassification), the shares of stock of any class or classes or other securities or property to which the number of shares of Series E Convertible Preferred Stock would have been entitled at the time of such reorganization or reclassification, at an aggregate Warrant Price equal to that which would have been payable if all shares of Series E Convertible Preferred Stock had been purchased immediately prior to such reorganization or reclassification.

4.5 Statement of Adjustment . Upon each adjustment of the number of shares of Series E Convertible Preferred Stock hereunder, and in the event of any change in the rights of the Holder by reason of other events herein set forth, then, and in each case, the Company will promptly prepare a schedule setting forth the adjusted number of shares of Series E Convertible Preferred Stock, or specifying the other shares of stock, securities or assets and the amount thereof receivable as a result of such change in rights, and setting forth in reasonable detail the method of calculation and the facts upon which such calculation is based. The Company will promptly mail a copy of such schedule to the Holder. In the event of any such adjustment, the Holder shall cooperate with the Company and may be required, as a condition of effectiveness of such adjustment for such Holder, to execute and deliver to the Company such instruments and documents as may be reasonably requested by the Company to effect such adjustment and by which the Holder would acknowledge such adjustment.

4.6 Notifications by the Company . In case at any time the Board of Directors of the Company authorizes any of the following and fixes a record or distribution date therefore:

(a) the payment of any dividend payable in stock (of any class or classes) or in convertible securities upon the Series E Convertible Preferred Stock or the making of any distribution to the holders of outstanding Series E Convertible Preferred Stock;

(b) the making of any capital reorganization or reclassification of the capital stock of the Company, or consolidation or merger of the Company with, or sale or transfer of all or substantially all of its assets to, another corporation; or

 

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(c) a voluntary or involuntary dissolution, liquidation or winding-up of the Company;

then, in any one or more such cases, the Company shall give notice as provided herein to the Holder of such record or distribution date. Such notice shall also specify the date (the “ Participation Date ”) as of which the holders of Series E Convertible Preferred Stock of record shall participate in such dividend, distribution or subscription rights, or shall be entitled to vote on or exchange their shares of Series E Convertible Preferred Stock for securities or other property deliverable upon such reorganization, reclassification, consolidation, merger, sale or transfer of assets, dissolution, liquidation or winding-up, as the case may be. Such notice shall be given not less than 5 days and not more than 60 days prior to the Participation Date and such notice may state that any such action remains subject to conditions, which conditions shall be generally described in such notice.

4.7 Rounding . All calculations hereunder shall be made to the nearest one-tenth (1/10) of a cent or to the nearest one hundredth (1/100) of a share, as the case may be.

ARTICLE V

CERTAIN DEFINITIONS

Capitalized terms defined herein shall have the meanings ascribed to them. In addition, the following terms shall have the following respective meanings:

Certificate of Incorporation ” shall mean the Company’s Certificate of Incorporation as currently in effect and as amended from time to time.

Fair Market Value ” of a share of Series E Convertible Preferred Stock shall be equal to the product of (i) the number of shares of the Company’s Common Stock into which each share of Series E Convertible Preferred Stock is then convertible pursuant to the Certificate of Incorporation; multiplied by (ii) the average of the daily market prices for one (1) share of the Company’s Common Stock over a period of 20 consecutive business days before such date. The market price for each such business day shall be the last sale price on such day on the principal securities exchange on which the Company’s Common Stock is then listed or admitted to trading, or, if no sale takes place on such day on any such exchange, the average of the closing bid and asked prices on such day as officially quoted on any such exchange, or if the Common Stock is not then listed or admitted to trading on any stock exchange, the market price for each such business day shall be the average of the closing bid and asked prices on such day in the over-the-counter market, as reported through NASDAQ, or, if such prices are not at the time so reported, as furnished by any member of the NASD selected by the Company. Notwithstanding the foregoing, if and so long as there shall be no exchange or over-the-counter market for the Company’s Common Stock during the 20-day period prior to the date on which the Fair Market Value is to be determined, the Fair Market Value shall be an amount determined in good faith by the Board of Directors in its reasonable discretion.

Person ” shall mean an individual, a corporation, a partnership, a trust, an unincorporated organization, or any other entity, or a governmental organization or any agency or political subdivision thereof.

Warrant Price ” shall mean $.2806.

ARTICLE VI

CERTAIN COVENANTS OF THE COMPANY

The Company covenants and agrees that from and after the issuance of this Warrant:

 

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(a) it will reserve and set apart and have at all times, free from preemptive rights, a number of shares of authorized but unissued shares of Series E Convertible Preferred Stock sufficient to enable it at any time to fulfill all its obligations hereunder; and

(b) before taking any action which would cause an adjustment reducing the Warrant Price below the then par value of the shares of Series E Convertible Preferred Stock issuable upon exercise of the Warrant, it will take any corporate action which may be necessary in order that the Company may validly and legally issue fully paid and nonassessable shares of such Series E Convertible Preferred Stock at such adjusted Warrant Price.

6.2 Company represents and warrants to the holder of this Warrant as follows:

(a) This Warrant has been duly authorized and executed by Company and is a valid and binding obligation of Company enforceable in accordance with its terms, subject to laws of general application relating to bankruptcy, insolvency, and the relief of debtors and the rules of law or principles at equity governing specific performance, injunctive relief and other equitable remedies.

(b) There are no actions, suits, audits, investigations or proceedings pending or, to the knowledge of Company, threatened against Company in any court or before any governmental commission, board or authority which, if adversely determined, could have a material adverse effect on the ability of Company to perform its obligations under this Warrant.

ARTICLE VII

MISCELLANEOUS

7.1 Entire Agreement . This Warrant contains the entire agreement between the Holder and the Company with respect to the purchase of the shares of Series E Convertible Preferred Stock and supersedes all prior arrangements or understanding with respect thereto.

7.2 Governing Law . This Warrant shall be governed by and construed in accordance with the internal substantive laws of the State of Illinois.

7.3 Waiver and Amendment . Any term or provision of this Warrant may be waived at any time by the party which is entitled to the benefits thereof and any term or provision of this Warrant may be amended or supplemented at any time by agreement of the Holder and the Company, except that any waiver of any term or condition, or any amendment or supplementation, of this Warrant must be in writing. A waiver of any breach or failure to enforce any of the terms or conditions of this Warrant shall not in any way affect, limit or waive a party’s rights hereunder at any time to enforce strict compliance thereafter with every term or condition of this Warrant.

7.4 Illegality . In the event that any one or more of the provisions contained in this Warrant shall be determined to be invalid, illegal or unenforceable in any respect for any reason, the validity, legality and enforceability of any such provision in any other respect and the remaining provisions of this Warrant shall not, at the election of the party for whom the benefit of the provision exists, be in any way impaired.

7.5 Filing of Warrant . A copy of this Warrant shall be filed among the records of the Company.

7.6 Notice . Any notice required or permitted pursuant to this Warrant shall be in writing and shall be deemed sufficient upon receipt, when delivered personally or sent by courier, overnight delivery service or confirmed facsimile, or seventy-two (72) hours after being deposited in the regular mail, as certified or registered mail (airmail if sent internationally), with postage prepaid, addressed (i) if to the Holder, to the address of the Holder most recently furnished in writing to the Company; and (ii) if to the Company, to the Warrant Office address or at such address as provided by written notice to the Holder.

7.7 No Rights as Stockholder . No provision of this Warrant shall be construed as conferring upon the Holder the right to vote, consent, receive dividends, or other than as herein expressly provided, receive notice in respect of meetings of stockholders or any other matter whatsoever as a stockholder of the Company. No provision hereof, in the absence of the exercise by the Holder hereof to purchase shares of Series E Convertible Preferred Stock hereunder, and no mere enumeration herein of the rights or privileges of the Holder, shall give rise to any liability of such Holder for the Warrant Price of any shares of Series E Convertible Preferred Stock or as a stockholder of the Company, whether such liability is asserted by the Company or by creditors of the Company.

 

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7.8 Loss, Destruction. etc., of Warrants . Upon receipt of evidence satisfactory to the Company of the loss, theft, mutilation or destruction of any Warrant, and in the case of any such loss, theft or destruction upon delivery of a bond of indemnity in such form and amount as shall be reasonably satisfactory to the Company, or in the event of such mutilation upon surrender and cancellation of the Warrant, the Company will make and deliver a new Warrant, of like tenor, in lieu of such lost, stolen, destroyed or mutilated Warrant. Any Warrant issued under the provisions of this Section 7.8 in lieu of any Warrant alleged to be lost, destroyed or stolen, or in lieu of any mutilated Warrant, shall constitute an original contractual obligation on the part of the Company.

IN WITNESS WHEREOF , the Company has caused this Warrant to be signed in its name by its duly authorized officer.

 

RUBICON TECHNOLOGY, INC.
By:  

/s/ David Nuti

  David Nuti, Chief Financial Officer

 

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EXHIBIT A

SUBSCRIPTION NOTICE

The undersigned, the holder of the foregoing warrant (the “ Warrant ”), hereby (i) represents to the Company (as such term is defined in the Warrant) that the Warrant may presently be exercised and, if applicable, the shares of Series E Convertible Preferred Stock transferred as provided below in accordance with the terms of the Warrant; (ii) irrevocably elects to exercise purchase rights represented by the Warrant for, and to purchase thereunder, [              ] shares of the Series E Convertible Preferred Stock covered by the Warrant; (iii) elects, as applicable, to exercise the Conversion Right with respect to [              ] shares of Series E Convertible Preferred Stock, or to make payment in full therefor of $ [              ] by certified or official bank check payable to the order of the Company; and (iv) requests (A) that certificates for such shares (and any securities or other property issuable upon such exercise) be issued in the name of and delivered to:

 

  Name:  

 

 
  Address:  

 

 
   

 

 
   

 

 
  Tax ID No.:  

 

 
and (B) if such shares shall not include all of the shares issuable as provided in the Warrant, that a new Warrant of like tenor and date for the balance of the shares issuable thereunder be delivered to the undersigned.
  Holder:  

 

 
  Signature:  

 

 
  Title or Capacity:  

 

 
  Dated:  

 

 

 

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Exhibit 4.16

THE ISSUANCE OF THIS WARRANT AND THE SECURITIES ISSUABLE PURSUANT TO THE TERMS HEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR UNDER ANY STATE OR OTHER SECURITIES LAWS. NEITHER THE SECURITIES NOR ANY INTEREST THEREIN MAY BE OFFERED, SOLD, TRANSFERRED, ASSIGNED OR OTHERWISE DISPOSED OF EXCEPT (I) PURSUANT TO EFFECTIVE REGISTRATIONS UNDER APPLICABLE SECURITIES LAWS OR (II) UPON DELIVERY TO THE COMPANY OF AN OPINION OF COUNSEL (OR OTHER EVIDENCE SATISFACTORY TO THE COMPANY) ACCEPTABLE TO THE COMPANY, THAT THE PROPOSED DISPOSITION MAY BE EFFECTED IN COMPLIANCE WITH APPLICABLE SECURITIES LAWS WITHOUT REGISTRATION. ADDITIONAL RESTRICTIONS ON TRANSFER ARE SET FORTH HEREIN.

WARRANT NO. 30

(the “ Warrant ”)

to purchase Series E Convertible Preferred Stock

of

RUBICON TECHNOLOGY, INC.

THIS IS TO CERTIFY THAT, for value received, including the payment of Ten Dollars ($10.00) and other good and valuable consideration the amount and sufficiency is hereby acknowledged, Heller Financial Leasing, Inc., or its registered assigns (the “ Holder ”), is (subject to the restrictions provided herein) entitled to purchase from Rubicon Technology, Inc., a Delaware corporation (the “ Company ”), at any time or from time to time and prior to 5:00 p.m. local time at the location of the Warrant Office (as defined in Section 2.1) on December 20, 2015, at the Warrant Price, One Million Nine Hundred and Eighty Thousand Nine Hundred and Forty-nine (1,980,949) shares of Series E Convertible Preferred Stock, par value $.001 per share (“ Series E Convertible Preferred Stock ”), subject to Section 1.3 below with respect to any fractional amount and subject to adjustment as provided herein, and is also entitled to exercise the other rights, powers and privileges hereinafter set forth. Capitalized terms used in this Warrant but not defined in the context thereof shall have the meanings specified in Article V.

ARTICLE I

EXERCISE OF WARRANT

1.1 Method of Exercise . To exercise this Warrant in whole or in part, the Holder shall deliver to the Company at the Warrant Office (i) this Warrant together with the subscription notice attached hereto as Exhibit A (the “ Subscription Notice ”) filled out and duly executed by the Holder indicating the Holder’s election to exercise this Warrant and specifying the number of shares of Series E Convertible Preferred Stock to be purchased; and (ii) a certified or bank cashier’s check payable to the order of the Company in an amount equal to the aggregate Warrant Price for the number of shares of Series E Convertible Preferred Stock being purchased. Subject to the restrictions provided herein, the Company shall as promptly as practicable, and in any event within 14 days thereafter, execute and deliver or cause to be executed and delivered, in accordance with the Subscription Notice, a single certificate in the name of the Holder representing the aggregate number of shares of Series E Convertible Preferred Stock specified in the Subscription Notice. Such certificate shall be deemed to have been issued, and the Holder shall be deemed for all purposes to have become a holder of record of such shares, as of the date the Subscription Notice is actually received by the Company with payment as provided above. If this Warrant shall have been exercised only in part, the Company shall, at the time of delivery of such certificate or certificates, deliver to the Holder a new Warrant evidencing the rights of the Holder to purchase the remaining shares of Series E Convertible Preferred Stock called for by this Warrant, which new Warrant shall in all other respects be identical with this Warrant, or at the request of the Holder, appropriate notation may be made on this Warrant and the same returned to the Holder. The Company shall pay all expenses, taxes and other charges payable in connection with the preparation, issuance and delivery of such stock certificates and new Warrants.

1.2 Right to Convert Warrant into Stock: Net Issuance .

(a) Right to Convert . In addition to and without limiting the rights of the Holder under the

 

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terms of this Warrant, the Holder shall have the right to convert this Warrant or any portion hereof into shares of Series E Convertible Preferred Stock as provided in this Section 1.2 at any time that this Warrant is otherwise exercisable during the term of this Warrant (the “ Conversion Right ”). Upon exercise of the Conversion Right, the Company shall deliver to the Holder (without payment by the Holder of the Warrant Price) that number of fully paid and nonassessable shares of Series E Convertible Preferred Stock equal to the quotient of (i) the number of shares of Series E Convertible Preferred Stock purchasable under this Warrant (or the portion thereof being exercised); multiplied by the difference of (A) the Fair Market Value of one (1) share of Series E Convertible Preferred Stock; minus (B) the Warrant Price; divided by (ii) the Fair Market Value of one (1) share of Series E Convertible Preferred Stock.

(b) Method of Exercise . The Conversion Right may be exercised by the Holder by the surrender of this Warrant, at the Warrant Office, together with the Subscription Notice specifying that the Holder thereby intends to exercise the Conversion Right and indicating the number of shares of Series E Convertible Preferred Stock with respect to which the Holder intends to exercise this Warrant. The Holder shall also deliver therewith additional consideration, if any, such that the aggregate consideration received by the Company in respect of any shares of Series E Convertible Preferred Stock is at least equal to the par value of the shares of Series E Convertible Preferred Stock. The conversion shall be effective on the date which is the later of (i) receipt by the Company of the items described above; or (ii) a date specified in the Holder’s notice to the Company.

1.3 No Fractional Shares to be Issued . The Company shall not be required upon any exercise or conversion of this Warrant to issue a certificate representing any fraction of a share, but, in lieu thereof, may pay to the Holder cash in an amount equal to a corresponding fraction (calculated to the nearest 1/100th of a share) of the Fair Market Value of one share of Series E Convertible Preferred Stock as of the date of receipt by the Company of notice of exercise of this Warrant.

1.4 Legend on Shares . Each certificate for shares of Series E Convertible Preferred Stock initially issued upon exercise of this Warrant, unless at the time of exercise such shares of Series E Convertible Preferred Stock are registered under the Securities Act of 1933, as amended (the “ Act ”) and applicable state securities laws, shall bear a legend in substantially the following form (and any additional legend required by law or by any securities exchange upon which such shares of Series E Convertible Preferred Stock may, at the time of such exercise, be listed):

THE ISSUANCE OF THE SHARES EVIDENCED HEREBY WAS NOT REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR UNDER ANY STATE OR OTHER SECURITIES LAWS. NEITHER THE SHARES NOR ANY INTEREST THEREIN MAY BE OFFERED, SOLD, TRANSFERRED, ASSIGNED OR OTHERWISE DISPOSED OF EXCEPT (I) PURSUANT TO EFFECTIVE REGISTRATIONS UNDER APPLICABLE SECURITIES LAWS OR (II) UPON DELIVERY TO THE CORPORATION OF AN OPINION OF COUNSEL (OR OTHER EVIDENCE SATISFACTORY TO THE CORPORATION) ACCEPTABLE TO THE CORPORATION, THAT THE PROPOSED DISPOSITION MAY BE EFFECTED IN COMPLIANCE WITH APPLICABLE SECURITIES LAWS WITHOUT REGISTRATION.

THE CORPORATION WILL FURNISH WITHOUT CHARGE TO EACH STOCKHOLDER WHO SO REQUESTS, A FULL SUMMARY OR STATEMENT OF ALL OF THE POWERS, DESIGNATIONS, PREFERENCES AND RELATIVE, PARTICIPATING, OPTIONAL, OR OTHER SPECIAL RIGHTS OF EACH CLASS OF STOCK OR SERIES THEREOF AND THE QUALIFICATIONS, LIMITATIONS OR RESTRICTIONS OF SUCH POWERS, PREFERENCES AND/OR RIGHTS. ANY SUCH REQUEST SHOULD BE ADDRESSED TO THE SECRETARY OF THE CORPORATION.

Any certificate issued at any time in exchange or substitution for any certificate bearing such legend (except a new certificate issued upon completion of a public distribution pursuant to a registration statement which has become effective under the Act of the securities represented thereby) shall also bear such legend unless, in the opinion of such counsel as shall be approved by the Company, the securities represented thereby need no longer be subject to the restrictions contained in Article III. The provisions of Article III shall be binding upon all subsequent holders of this Warrant.

 

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1.5 Automatic Exercise. Immediately before the expiration or termination of this Warrant, to the extent this Warrant is not previously exercised, and if the Fair Market Value of one share of whichever is applicable of either (i) the Preferred Stock subject to this Warrant or (ii) the Company’s Common Stock issuable upon conversion of the Preferred Stock subject to this Warrant, is greater than the Warrant Price, then in effect as adjusted pursuant to this Warrant, then this Warrant shall be deemed automatically exercised pursuant to Section 1.2(a) above, even if not surrendered. To the extent this Warrant or any portion thereof is deemed automatically exercised pursuant to this Section, the Company agrees to promptly notify the Holder of the number of shares of Series E Convertible Preferred Stock, if any, the holder hereof is to receive by reason of such automatic exercise.

1.6 Registration Rights Agreement . In connection with any exercise of this Warrant, the parties will enter into and become bound by the terms and conditions of the registration rights agreement between the Company and the holders of Series E Convertible Preferred Stock.

1.7 Stockholders’ Agreement . In connection with any exercise of this Warrant, the Company may require that the Holder enter into and become bound by the terms and conditions of any stockholders’ agreement by and among the Company and the stockholders of the Company, provided such terms and conditions are applied to Holder in the same manner as any other stockholder of the Company. Company, within thirty days of Grant Date, and within thirty days of any subsequent revisions to stockholders’ agreement, shall deliver to Holder each stockholders’ agreement as amended and restated from time to time.

1.8 Information. Notwithstanding Section 1.7 above, beginning on the date whereby Company no longer has any indebtedness owed to Holder under any Loan and Security Agreement or Revolver or Other Agreement, and until the earlier of the Expiration Date or the tenth anniversary of the Grant Date, Company shall cause to be furnished to Holder, (i) the audited fiscal year end financial statements of Company no later 120 days after the related fiscal year end, and (ii) internal quarterly financial statements of Company no later than 45 days after the related quarter end. Each financial statement to be furnished to Holder must be prepared in accordance with generally accepted accounting principles, consistently applied.

ARTICLE II

WARRANT OFFICE; TRANSFER

DIVISION OR COMBINATION OF WARRANTS

2.1 Warrant Office . The Company shall maintain an office for certain purposes specified herein (the “ Warrant Office ”), which office shall initially be the Company’s office at 9931 Franklin Avenue, Franklin Park, Illinois 60131 and may subsequently be such other office of the Company or of any transfer agent in the continental United States as to which written notice has been given to the Holder.

2.2 Warrant Non-Transferable; Ownership of Warrant . This Warrant and all rights hereunder may not be transferred, sold, hypothecated or assigned, without the prior written consent of the Company which shall be promptly provided on the condition that Holder has complied with the provisions of Article III hereof. The Company may deem and treat the Person in whose name this Warrant is registered as the holder and owner hereof (notwithstanding any notations of ownership or writing hereon made by anyone other than the Company) for all purposes and shall not be affected by any notice to the contrary, until presentation of this Warrant for registration of transfer as provided in this Article II.

2.3 Warrant Register . Subject to Section 2.2 and Article III hereof, the Company shall maintain at the Warrant Office books for the registration of warrants and the registration of transfers of warrants. To effect a transfer of this Warrant upon satisfaction of the provisions of Section 2.2 and Article III the Holder shall surrender this Warrant at the Warrant Office, together with a written assignment of this Warrant duly executed by the Holder or the Holder’s duly authorized agent or attorney and funds sufficient to pay any transfer taxes payable upon the making of such transfer. Upon such surrender and payment the Company shall execute and deliver a new Warrant or Warrants in the name of the assignee or assignees and in the denominations specified in such instrument of assignment, and this Warrant shall be canceled.

 

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2.4 Division or Combination of Warrants . This Warrant may be divided or combined with other warrants exercisable at the same Warrant Price upon presentation hereof and of any warrant or warrants with which this warrant is to be combined at the Warrant Office, together with a written notice specifying the names and denominations in which new warrants are to be issued, signed by the Holder and the holders thereof or their respective duly authorized agents or attorneys. Subject to compliance with Sections 2.2 and 2.3 and Article III as to any transfer which may be involved in such division or combination, the Company shall execute and deliver a new warrant or warrants in exchange for the warrant or warrants to be divided or combined in accordance with such notice.

2.5 Expenses of Delivery of Warrants . The Company shall pay all expenses, taxes (other than transfer taxes) and other charges payable in connection with the preparation, issuance and delivery of warrants hereunder.

ARTICLE III

RESTRICTIONS ON TRANSFER

3.1 Restrictions on Exercise and Transfer . Notwithstanding any provisions contained in this Warrant to the contrary, this Warrant shall not be transferable and the related shares of Series E Convertible Preferred Stock shall not be transferable except upon the conditions specified in this Article III, which conditions are intended, among other things, to enable compliance with the provisions of the Act and applicable state securities laws in respect of the transfer of such Warrant or transfer of such shares of Series E Convertible Preferred Stock. The Holder of this Warrant, by acceptance hereof, agrees not to: (i) transfer this Warrant prior to delivery to the Company of an opinion of counsel or other evidence (as such opinion and such counsel or other evidence are described in Section 3.2); or (ii) transfer such shares of Series E Convertible Preferred Stock prior to delivery to the Company of the opinion of counsel or other evidence (as such opinion and such counsel or other evidence are described in Section 3.2) or until registration of such shares of Series E Convertible Preferred Stock under the Act has become effective and compliance with applicable state securities laws has been obtained.

3.2 Opinion of Counsel . In connection with any transfer of this Warrant or any transfer of the related shares of Series E Convertible Preferred Stock, the following provisions shall apply:

(a) If in the written opinion of counsel approved by the Company, the proposed transfer of this Warrant and/or the proposed transfer of such shares of Series E Convertible Preferred Stock may be effected without registration of this Warrant and/or such shares of Series E Convertible Preferred Stock under the Act and applicable state securities laws, the Holder of this Warrant shall be entitled to transfer this Warrant and/or transfer such shares of Series E Convertible Preferred Stock in accordance with the proposed method of disposition. In lieu of such opinion of counsel the Company may, in its discretion, accept such other evidence of compliance with or exemption from the Act and applicable state securities laws as it deems satisfactory.

(b) If the Company does not obtain the opinion or other evidence referred to in Section 3.2(a), the Holder of this Warrant shall not be entitled to transfer this Warrant and/or transfer such shares of Series E Convertible Preferred Stock. This Warrant shall not be transferable and the shares of Series E Convertible Preferred Stock shall not be transferable if such exercise or transfer would involve a violation of the Act or any applicable federal or state securities laws.

ARTICLE IV

ADJUSTMENTS

4.1 Conversion of All Series E Convertible Preferred Stock .

(a) Number of Shares . In the event that all of the Company’s Series E Convertible Preferred Stock are converted into Common Stock pursuant to the Certificate of Incorporation (the “ Conversion Event ”), then the number of shares of Series E Convertible Preferred Stock available for exercise hereunder shall equal the number of shares of the Company’s Common Stock that would have been received by the Holder had such Holder exercised this Warrant with respect to all shares of Series E Convertible Preferred Stock available hereunder immediately prior to such Conversion Event.

(b) Warrant Price . Upon the occurrence of a Conversion Event, then the Warrant Price shall equal the quotient obtained by dividing: (i) the original Warrant Price; by (ii) the number of shares of the Company’s Common Stock that one (1) share of Series E Convertible Preferred Stock, outstanding immediately prior to such Conversion Event, would have been converted into subsequent to such Conversion Event.

 

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4.2 Effect of Stock Splits, Reverse Stock Splits and Stock Dividends . In case at any time or from time to time while this Warrant remains outstanding the Company shall, by reclassification, by stock split or reverse stock split, by the issuance of a stock dividend on shares for which this Warrant is then exercisable payable in such shares, or by other similar means, subdivide or combine the shares of stock for which this Warrant is then exercisable into a greater or lesser number of such shares, then the number of shares which may be purchased hereunder shall be increased or decreased proportionately (as determined by the Board of Directors of the Company) effective upon consummation of such reclassification, stock split or reverse stock split or stock dividend. When any adjustment is required to the number of shares for which this Warrant is exercisable hereunder, the Warrant Price shall be decreased or increased proportionately (as determined by the Board of Directors of the Company) effective upon such adjustment.

4.3 Effect of Merger or Consolidation . In case the Company shall, while this Warrant remains outstanding, (i) enter into any consolidation with or merger into any other corporation wherein the Company is not the surviving corporation, or wherein securities of a corporation other than the Company are distributable to holders of the shares of Series E Convertible Preferred Stock, or (ii) sell or convey its property as an entirety or substantially as an entirety, then in connection with such consolidation, merger, sale or conveyance, lawful and adequate provision, as determined by the Board of Directors of the Company (which may determine, in good faith, that no provision is required), shall be made whereby the Holder shall thereafter be entitled to purchase, pursuant to this Warrant (in lieu of the shares of Series E Convertible Preferred Stock such Holder would have been entitled to purchase immediately prior to such consolidation, merger, sale or conveyance), the shares of stock or other securities or property to which the number of shares of Series E Convertible Preferred Stock would have been entitled at the time of such consolidation, merger, sale or conveyance, at an aggregate Warrant Price equal to that which would have been payable if all shares of Series E Convertible Preferred Stock had been purchased by exercise of this Warrant immediately prior thereto.

4.4 Reorganization or Reclassification . In case of any capital reorganization or any reclassification of the capital stock of the Company (except as provided in Section 4.2) while this Warrant remains outstanding, then, as a condition of such capital reorganization or reclassification, lawful and adequate provision, as determined by the Board of Directors of the Company (which may determine, in good faith, that no provision is required), shall be made whereby the Holder shall thereafter be entitled to purchase, pursuant to this Warrant (in lieu of the shares of Series E Convertible Preferred Stock which such Holder would have been entitled to purchase immediately prior to such reorganization or reclassification), the shares of stock of any class or classes or other securities or property to which the number of shares of Series E Convertible Preferred Stock would have been entitled at the time of such reorganization or reclassification, at an aggregate Warrant Price equal to that which would have been payable if all shares of Series E Convertible Preferred Stock had been purchased immediately prior to such reorganization or reclassification.

4.5 Statement of Adjustment . Upon each adjustment of the number of shares of Series E Convertible Preferred Stock hereunder, and in the event of any change in the rights of the Holder by reason of other events herein set forth, then, and in each case, the Company will promptly prepare a schedule setting forth the adjusted number of shares of Series E Convertible Preferred Stock, or specifying the other shares of stock, securities or assets and the amount thereof receivable as a result of such change in rights, and setting forth in reasonable detail the method of calculation and the facts upon which such calculation is based. The Company will promptly mail a copy of such schedule to the Holder. In the event of any such adjustment, the Holder shall cooperate with the Company and may be required, as a condition of effectiveness of such adjustment for such Holder, to execute and deliver to the Company such instruments and documents as may be reasonably requested by the Company to effect such adjustment and by which the Holder would acknowledge such adjustment.

4.6 Notifications by the Company . In case at any time the Board of Directors of the Company authorizes any of the following and fixes a record or distribution date therefore:

(a) the payment of any dividend payable in stock (of any class or classes) or in convertible securities upon the Series E Convertible Preferred Stock or the making of any distribution to the holders of outstanding Series E Convertible Preferred Stock;

(b) the making of any capital reorganization or reclassification of the capital stock of the Company, or consolidation or merger of the Company with, or sale or transfer of all or substantially all of its assets to, another corporation; or

 

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(c) a voluntary or involuntary dissolution, liquidation or winding-up of the Company;

then, in any one or more such cases, the Company shall give notice as provided herein to the Holder of such record or distribution date. Such notice shall also specify the date (the “ Participation Date ”) as of which the holders of Series E Convertible Preferred Stock of record shall participate in such dividend, distribution or subscription rights, or shall be entitled to vote on or exchange their shares of Series E Convertible Preferred Stock for securities or other property deliverable upon such reorganization, reclassification, consolidation, merger, sale or transfer of assets, dissolution, liquidation or winding-up, as the case may be. Such notice shall be given not less than 5 days and not more than 60 days prior to the Participation Date and such notice may state that any such action remains subject to conditions, which conditions shall be generally described in such notice.

4.7 Rounding . All calculations hereunder shall be made to the nearest one-tenth (1/10) of a cent or to the nearest one hundredth (1/100) of a share, as the case may be.

ARTICLE V

CERTAIN DEFINITIONS

Capitalized terms defined herein shall have the meanings ascribed to them. In addition, the following terms shall have the following respective meanings:

Certificate of Incorporation ” shall mean the Company’s Certificate of Incorporation as currently in effect and as amended from time to time.

Fair Market Value ” of a share of Series E Convertible Preferred Stock shall be equal to the product of (i) the number of shares of the Company’s Common Stock into which each share of Series E Convertible Preferred Stock is then convertible pursuant to the Certificate of Incorporation; multiplied by (ii) the average of the daily market prices for one (1) share of the Company’s Common Stock over a period of 20 consecutive business days before such date. The market price for each such business day shall be the last sale price on such day on the principal securities exchange on which the Company’s Common Stock is then listed or admitted to trading, or, if no sale takes place on such day on any such exchange, the average of the closing bid and asked prices on such day as officially quoted on any such exchange, or if the Common Stock is not then listed or admitted to trading on any stock exchange, the market price for each such business day shall be the average of the closing bid and asked prices on such day in the over-the-counter market, as reported through NASDAQ, or, if such prices are not at the time so reported, as furnished by any member of the NASD selected by the Company. Notwithstanding the foregoing, if and so long as there shall be no exchange or over-the-counter market for the Company’s Common Stock during the 20-day period prior to the date on which the Fair Market Value is to be determined, the Fair Market Value shall be an amount determined in good faith by the Board of Directors in its reasonable discretion.

Person ” shall mean an individual, a corporation, a partnership, a trust, an unincorporated organization, or any other entity, or a governmental organization or any agency or political subdivision thereof.

Warrant Price ” shall mean $.2806.

ARTICLE VI

CERTAIN COVENANTS OF THE COMPANY

The Company covenants and agrees that from and after the issuance of this Warrant:

 

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(a) it will reserve and set apart and have at all times, free from preemptive rights, a number of shares of authorized but unissued shares of Series E Convertible Preferred Stock sufficient to enable it at any time to fulfill all its obligations hereunder; and

(b) before taking any action which would cause an adjustment reducing the Warrant Price below the then par value of the shares of Series E Convertible Preferred Stock issuable upon exercise of the Warrant, it will take any corporate action which may be necessary in order that the Company may validly and legally issue fully paid and nonassessable shares of such Series E Convertible Preferred Stock at such adjusted Warrant Price.

6.2 Company represents and warrants to the holder of this Warrant as follows:

(a) This Warrant has been duly authorized and executed by Company and is a valid and binding obligation of Company enforceable in accordance with its terms, subject to laws of general application relating to bankruptcy, insolvency, and the relief of debtors and the rules of law or principles at equity governing specific performance, injunctive relief and other equitable remedies.

(b) There are no actions, suits, audits, investigations or proceedings pending or, to the knowledge of Company, threatened against Company in any court or before any governmental commission, board or authority which, if adversely determined, could have a material adverse effect on the ability of Company to perform its obligations under this Warrant.

ARTICLE VII

MISCELLANEOUS

7.1 Entire Agreement . This Warrant contains the entire agreement between the Holder and the Company with respect to the purchase of the shares of Series E Convertible Preferred Stock and supersedes all prior arrangements or understanding with respect thereto.

7.2 Governing Law . This Warrant shall be governed by and construed in accordance with the internal substantive laws of the State of Illinois.

7.3 Waiver and Amendment . Any term or provision of this Warrant may be waived at any time by the party which is entitled to the benefits thereof and any term or provision of this Warrant may be amended or supplemented at any time by agreement of the Holder and the Company, except that any waiver of any term or condition, or any amendment or supplementation, of this Warrant must be in writing. A waiver of any breach or failure to enforce any of the terms or conditions of this Warrant shall not in any way affect, limit or waive a party’s rights hereunder at any time to enforce strict compliance thereafter with every term or condition of this Warrant.

7.4 Illegality . In the event that any one or more of the provisions contained in this Warrant shall be determined to be invalid, illegal or unenforceable in any respect for any reason, the validity, legality and enforceability of any such provision in any other respect and the remaining provisions of this Warrant shall not, at the election of the party for whom the benefit of the provision exists, be in any way impaired.

7.5 Filing of Warrant . A copy of this Warrant shall be filed among the records of the Company.

7.6 Notice . Any notice required or permitted pursuant to this Warrant shall be in writing and shall be deemed sufficient upon receipt, when delivered personally or sent by courier, overnight delivery service or confirmed facsimile, or seventy-two (72) hours after being deposited in the regular mail, as certified or registered mail (airmail if sent internationally), with postage prepaid, addressed (i) if to the Holder, to the address of the Holder most recently furnished in writing to the Company; and (ii) if to the Company, to the Warrant Office address or at such address as provided by written notice to the Holder.

7.7 No Rights as Stockholder . No provision of this Warrant shall be construed as conferring upon the Holder the right to vote, consent, receive dividends, or other than as herein expressly provided, receive notice in respect of meetings of stockholders or any other matter whatsoever as a stockholder of the Company. No provision hereof, in the absence of the exercise by the Holder hereof to purchase shares of Series E Convertible Preferred Stock hereunder, and no mere enumeration herein of the rights or privileges of the Holder, shall give rise to any liability of such Holder for the Warrant Price of any shares of Series E Convertible Preferred Stock or as a stockholder of the Company, whether such liability is asserted by the Company or by creditors of the Company.

 

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7.8 Loss, Destruction. etc., of Warrants . Upon receipt of evidence satisfactory to the Company of the loss, theft, mutilation or destruction of any Warrant, and in the case of any such loss, theft or destruction upon delivery of a bond of indemnity in such form and amount as shall be reasonably satisfactory to the Company, or in the event of such mutilation upon surrender and cancellation of the Warrant, the Company will make and deliver a new Warrant, of like tenor, in lieu of such lost, stolen, destroyed or mutilated Warrant. Any Warrant issued under the provisions of this Section 7.8 in lieu of any Warrant alleged to be lost, destroyed or stolen, or in lieu of any mutilated Warrant, shall constitute an original contractual obligation on the part of the Company.

IN WITNESS WHEREOF , the Company has caused this Warrant to be signed in its name by its duly authorized officer.

 

RUBICON TECHNOLOGY, INC.
By:  

/s/ David Nuti

  David Nuti, Chief Financial Officer

 

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EXHIBIT A

SUBSCRIPTION NOTICE

The undersigned, the holder of the foregoing warrant (the “ Warrant ”), hereby (i) represents to the Company (as such term is defined in the Warrant) that the Warrant may presently be exercised and, if applicable, the shares of Series E Convertible Preferred Stock transferred as provided below in accordance with the terms of the Warrant; (ii) irrevocably elects to exercise purchase rights represented by the Warrant for, and to purchase thereunder, [              ] shares of the Series E Convertible Preferred Stock covered by the Warrant; (iii) elects, as applicable, to exercise the Conversion Right with respect to [              ] shares of Series E Convertible Preferred Stock, or to make payment in full therefor of $ [              ] by certified or official bank check payable to the order of the Company; and (iv) requests (A) that certificates for such shares (and any securities or other property issuable upon such exercise) be issued in the name of and delivered to:

 

  Name:  

 

 
  Address:  

 

 
   

 

 
   

 

 
  Tax ID No.:  

 

 
and (B) if such shares shall not include all of the shares issuable as provided in the Warrant, that a new Warrant of like tenor and date for the balance of the shares issuable thereunder be delivered to the undersigned.
  Holder:  

 

 
  Signature:  

 

 
  Title or Capacity:  

 

 
  Dated:  

 

 

 

R UBICON T ECHNOLOGY , I NC .    Exhibit A    W ARRANT N O . 30

Exhibit 4.17

THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 AS AMENDED, OR ANY STATE SECURITIES LAWS. THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED, OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT RELATED THERETO OR AN OPINION OF COUNSEL (WHICH MAY BE COMPANY COUNSEL) REASONABLY SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE SECURITIES ACT OF 1933 ACT AS AMENDED, OR ANY APPLICABLE STATE SECURITIES LAWS.

WARRANT AGREEMENT

To Purchase Shares of the Series E Preferred Stock of

RUBICON TECHNOLOGY, INC.

Dated as of April 9, 2007 (the “ Effective Date ”)

WHEREAS, Rubicon Technology, Inc., a Delaware corporation (the “ Company ”), has entered into a Loan and Security Agreement of even date herewith (the “ Loan Agreement ”) with Hercules Technology Growth Capital Inc., a Maryland corporation (the “ Warrantholder ”);

WHEREAS, the Company desires to grant to Warrantholder, in consideration for, among other things, the financial accommodations provided for in the Loan Agreement, the right to purchase shares of its Series E Preferred Stock pursuant to this Warrant Agreement (the “ Agreement ”);

NOW, THEREFORE, in consideration of the Warrantholder executing and delivering the Loan Agreement and providing the financial accommodations contemplated therein, and in consideration of the mutual covenants and agreements contained herein, the Company and Warrantholder agree as follows:

SECTION 1. GRANT OF THE RIGHT TO PURCHASE PREFERRED STOCK.

For value received, the Company hereby grants to the Warrantholder, and the Warrantholder is entitled, upon the terms and subject to the conditions hereinafter set forth, to subscribe for and purchase, from the Company, up to 1,710,620 fully paid and non-assessable shares of Preferred Stock (as defined below) at the Exercise Price (as defined below). As used herein, the following terms shall have the following meanings:

1934 Act ” has the meaning given to it in Section 10(d).

Acknowledgment of Exercise ” has the meaning given to it in Section 3(a).

Act ” means the Securities Exchange Act of 1933, as amended.

Charter ” means the Company’s Articles of Incorporation, Certificate of Incorporation or other constitutional document, as may be amended from time to time.

Common Stock ” means the Company’s common stock, $.001 par value per share.

Exercise Price ” means $0.2806. The Exercise Price is subject to adjustment as provided in Section 8.

 

1


Initial Public Offering ” means the initial underwritten public offering of the Company’s Common Stock pursuant to a registration statement under the Act, which public offering has been declared effective by the Securities and Exchange Commission (“ SEC ”).

Merger Event ” means (i) a merger or consolidation involving the Company in which (x) the Company is not the surviving entity, or (y) the outstanding shares of the Company’s capital stock are otherwise converted into or exchanged for shares of capital of another entity; or (ii) or the sale of all or substantially all of the assets of the Company; provided however that Merger Event shall not include any transaction constituting a Public Acquisition if this Warrant is terminated pursuant to clause (iii) of Section 2.

Net Issuance ” has the meaning given to it in Section 3(a).

Notice of Exercise ” has the meaning given to it in Section 3(a).

Preferred Stock ” means the Series E Preferred Stock of the Company and any other stock into or for which the Series E Preferred Stock may be converted or exchanged, and upon and after the occurrence of an event which results in the automatic or voluntary conversion, redemption or retirement of all (but not less than all) of the outstanding shares of such Preferred Stock, including, without limitation, the consummation of an Initial Public Offering of the Common Stock in which such a conversion occurs, then from and after the date upon which such outstanding shares are so converted, redeemed or retired, “Preferred Stock” shall mean such Common Stock.

Public Acquisition ” means any consolidation or merger of the Company with another corporation, or the sale of all or substantially all of its assets to another corporation which is effected such that (i) the holders of Preferred Stock shall be entitled to receive cash or shares of stock that are of a publicly traded company listed on a national market or exchange which may be sold without restrictions after the close of such event, (ii) the Company’s stockholders own less than 50% of the voting securities of the surviving entity, and (iii) if the Company has other warrants that are then outstanding, the surviving entity does not assume such other warrants.

Purchase Price ” means, with respect to any exercise of this Agreement, an amount equal to the Exercise Price as of the relevant time multiplied by the number of shares of Preferred Stock requested to be exercised under this Agreement pursuant to such exercise.

Transfer Notice ” has the meaning given to it in Section 11.

Warrant ” has the meaning given to it in Section 2.

In addition, capitalized terms used herein but not otherwise defined herein shall have the meaning assigned to such terms in the Loan Agreement.

SECTION 2. TERM OF THE AGREEMENT.

Except as otherwise provided for herein, the term of this Agreement and the right to purchase Preferred Stock as granted herein (the “ Warrant ”) shall commence on the Effective Date and shall be exercisable for a period ending upon the earliest to occur of (i) seven (7) years from the Effective Date; (ii) three (3) years after the Initial Public Offering; or (iii) upon the written request of the acquiring company, a Public Acquisition.

SECTION 3. EXERCISE OF THE PURCHASE RIGHTS.

(a) Exercise . The purchase rights set forth in this Agreement are exercisable by the Warrantholder, in whole or in part, at any time, or from time to time, prior to the expiration of the term set forth in Section 2, by tendering to the Company at its principal office a notice of exercise

 

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in the form attached hereto as Exhibit I (the “ Notice of Exercise ”), duly completed and executed. Promptly upon receipt of the Notice of Exercise and the payment of the Purchase Price in accordance with the terms set forth below, and in no event later than three (3) days thereafter, the Company shall issue to the Warrantholder a certificate for the number of shares of Preferred Stock purchased and shall execute the acknowledgment of exercise in the form attached hereto as Exhibit II (the “ Acknowledgment of Exercise ”) indicating the number of shares which remain subject to future purchases, if any.

The Purchase Price may be paid at the Warrantholder’s election either (i) by cash or check, or (ii) by surrender of all or a portion of the Warrant for shares of Preferred Stock to be exercised under this Agreement and, if applicable, indicate on the Acknowledgement of Exercise the remaining number of shares purchasable hereunder, as determined below (“ Net Issuance ”). If the Warrantholder elects the Net Issuance method, the Company will issue Preferred Stock in accordance with the following formula:

 

  X =     Y(A-B)    
     A   
Where:   X =    the number of shares of Preferred Stock to be issued to the Warrantholder.
     Y =    the number of shares of Preferred Stock requested to be exercised under this Agreement.
     A =    the fair market value of one (1) share of Preferred Stock at the time of issuance of such shares of Preferred Stock.
     B =    the Exercise Price.

For purposes of the above calculation, current fair market value of Preferred Stock shall mean with respect to each share of Preferred Stock:

(i) if the exercise is in connection with an Initial Public Offering, and if the Company’s Registration Statement relating to such Initial Public Offering has been declared effective by the SEC, then the fair market value per share shall be the product of (x) the initial “Price to Public” of the Common Stock specified in the final prospectus with respect to the offering and (y) the number of shares of Common Stock into which each share of Preferred Stock is convertible at the time of such exercise;

(ii) if the exercise is after, and not in connection with an Initial Public Offering, and:

(A) if the Common Stock is traded on a securities exchange, the fair market value shall be deemed to be the product of (x) the average of the closing prices over a ten (10) day period ending three days before the day the current fair market value of the securities is being determined and (y) the number of shares of Common Stock into which each share of Preferred Stock is convertible at the time of such exercise; or

(B) if the Common Stock is traded over-the-counter, the fair market value shall be deemed to be the product of (x) the average of the closing bid and asked prices quoted on the NASDAQ system (or similar system) over the ten (10) day period ending three days before the day the current fair market value of the securities is being determined and (y) the number of shares of Common Stock into which each share of Preferred Stock is convertible at the time of such exercise;

 

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(iii) if at any time the Common Stock is not listed on any securities exchange or quoted in the NASDAQ National Market or the over-the-counter market, the current fair market value of Preferred Stock shall be the product of (x) the highest price per share which the Company could obtain from a willing buyer (not a current employee or director) for shares of Common Stock sold by the Company, from authorized but unissued shares, as determined in good faith by its Board of Directors and (y) the number of shares of Common Stock into which each share of Preferred Stock is convertible at the time of such exercise, unless the Company shall become subject to a Merger Event pursuant to which the Company is not the surviving party, in which case the fair market value of Preferred Stock shall be deemed to be the per share value received by the holders of the Company’s Preferred Stock on a common equivalent basis pursuant to such Merger Event.

Upon partial exercise by either cash or Net Issuance, the Company shall indicate on the Acknowledgement of Exercise the remaining number of shares purchasable hereunder. All other terms and conditions of such amended Agreement shall be identical to those contained herein, including, but not limited to the Effective Date hereof.

(b) Exercise Prior to Expiration . To the extent this Agreement is not previously exercised as to all Preferred Stock subject hereto, and if the fair market value of one share of the Preferred Stock is greater than the Exercise Price then in effect, this Agreement shall be deemed automatically exercised pursuant to Section 3(a) (even if not surrendered) immediately before its expiration. For purposes of such automatic exercise, the fair market value of one share of the Preferred Stock upon such expiration shall be determined pursuant to Section 3(a). To the extent this Agreement or any portion thereof is deemed automatically exercised pursuant to this Section 3(b), the Company agrees to promptly notify the Warrantholder of the number of shares of Preferred Stock, if any, the Warrantholder is to receive by reason of such automatic exercise.

SECTION 4. RESERVATION OF SHARES.

During the term of this Agreement, the Company will at all times have authorized and reserved a sufficient number of shares of its Preferred Stock to provide for the exercise of the rights to purchase Preferred Stock as provided for herein. As soon as practicable and, in any event, upon exercise by Warrantholder of its rights to purchase Preferred Stock as provided for herein, the Company shall authorize and reserve a sufficient number of shares of its Common Stock to provide for the conversion of the Preferred Shares available hereunder.

SECTION 5. NO FRACTIONAL SHARES OR SCRIP.

No fractional shares or scrip representing fractional shares shall be issued upon the exercise of this Agreement, but in lieu of such fractional shares the Company shall make a cash payment therefor upon the basis of the Exercise Price then in effect.

SECTION 6. NO RIGHTS AS SHAREHOLDER/STOCKHOLDER.

This Agreement does not entitle the Warrantholder to any voting rights or other rights as a shareholder/stockholder of the Company prior to the exercise of this Agreement.

SECTION 7. WARRANTHOLDER REGISTRY.

The Company shall maintain a registry showing the name and address of the registered holder of this Agreement. Warrantholder’s initial address, for purposes of such registry, is set forth in Section 12(g). Warrantholder may change such address by giving written notice of such changed address to the Company.

 

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SECTION 8. ADJUSTMENT RIGHTS.

The Exercise Price and the number of shares of Preferred Stock purchasable hereunder are subject to adjustment, as follows:

(a) Merger Event . If at any time there shall be a Merger Event, then, as a part of such Merger Event, lawful provision shall be made so that the Warrantholder shall thereafter be entitled to receive, upon exercise of this Agreement, the kind, amount and value of shares of preferred stock or other securities or property of the successor, surviving or purchasing corporation resulting from, or participating in, such Merger Event that would have been issuable if Warrantholder had exercised this Agreement immediately prior to the Merger Event. In any such case, appropriate adjustment (as determined in good faith by the Company’s Board of Directors) shall be made in the application of the provisions of this Agreement with respect to the rights and interests of the Warrantholder after the Merger Event to the end that the provisions of this Agreement (including adjustments of the Exercise Price) shall be applicable in their entirety, and to the greatest extent possible. Without limiting the foregoing, in connection with any Merger Event, upon the closing thereof, the successor, surviving or purchasing entity shall assume the obligations of this Agreement. The provisions of this Section 8(a) shall similarly apply to successive Merger Events. In connection with a Merger Event and upon Warrantholder’s written election to the Company, the Company shall cause this Warrant Agreement to be exchanged for the consideration that Warrantholder would have received if Warrantholder chose to exercise its right to have shares issued pursuant to the Net Issuance provisions of this Warrant Agreement without actually exercising such right, acquiring such shares and exchanging such shares for such consideration.

(b) Reclassification of Shares . Except as set forth in Section 8(a), if the Company at any time shall, by combination, reclassification, exchange or subdivision of securities or otherwise, change any of the securities as to which purchase rights under this Agreement exist into the same or a different number of securities of any other class or classes, this Agreement shall thereafter represent the right to acquire such number and kind of securities as would have been issuable as the result of such change with respect to the securities which were subject to the purchase rights under this Agreement immediately prior to such combination, reclassification, exchange, subdivision or other change.

(c) Subdivision or Combination of Shares . If the Company at any time shall combine or subdivide its Preferred Stock, (i) in the case of a subdivision, the Exercise Price shall be proportionately decreased, and the number of shares of Preferred Stock issuable upon exercise of this Agreement shall be proportionately increased, or (ii) in the case of a combination, the Exercise Price shall be proportionately increased, and the number of shares of Preferred Stock issuable upon the exercise of this Agreement shall be proportionately decreased.

(d) Stock Dividends . If the Company at any time while this Agreement is outstanding and unexpired shall:

(i) pay a dividend with respect to the Preferred Stock payable in Preferred Stock, then the Exercise Price shall be adjusted, from and after the date of determination of shareholders/stockholders entitled to receive such dividend or distribution, to that price determined by multiplying the Exercise Price in effect immediately prior to such date of determination by a fraction (A) the numerator of which shall be the total number of shares of Preferred Stock outstanding immediately prior to such dividend or distribution, and (B) the denominator of which shall be the total number of shares of Preferred Stock outstanding immediately after such dividend or distribution; or

 

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(ii) make any other distribution with respect to Preferred Stock (or stock into which the Preferred Stock is convertible), except any distribution specifically provided for in any other clause of this Section 8, then, in each such case, provision shall be made by the Company such that the Warrantholder shall receive upon exercise or conversion of this Warrant a proportionate share of any such distribution as though it were the holder of the Preferred Stock (or other stock for which the Preferred Stock is convertible) as of the record date fixed for the determination of the shareholders/stockholders of the Company entitled to receive such distribution.

(e) Antidilution Rights . Additional antidilution rights applicable to the Preferred Stock purchasable hereunder are as set forth in the Company’s Charter and any other applicable shareholders’ rights agreements, and shall be applicable with respect to the Preferred Stock issuable hereunder. The Company shall promptly provide the Warrantholder with any restatement, amendment, modification or waiver of the Charter or any other applicable shareholders’ rights agreements; provided , that no such amendment, modification or waiver shall impair or reduce the antidilution rights applicable to the Preferred Stock as of the date hereof unless such amendment, modification or waiver affects the rights of Warrantholder with respect to the Preferred Stock in the same manner as it affects all other holders of Preferred Stock. The Company shall provide Warrantholder with prior written notice of any issuance of its stock or other equity security to occur after the Effective Date of this Agreement, which notice shall include (a) the price at which such stock or security is to be sold, (b) the number of shares to be issued, and (c) such other information as necessary for Warrantholder to determine if a dilutive event has occurred. For the avoidance of doubt, there shall be no duplicate anti-dilution adjustment pursuant to this subsection (e), the forgoing subsection (d) and the Company’s Charter.

(f) Notice of Adjustments . If: (i) the Company shall declare any dividend or distribution upon its stock, whether in stock, cash, property or other securities (assuming Warrantholder consents under the Loan Agreement to a dividend involving cash, property or other securities); (ii) the Company shall offer for subscription prorata to the holders of any class of its Preferred Stock or other convertible stock any additional shares of stock of any class or other rights; (iii) there shall be any Merger Event; (iv) there shall be an Initial Public Offering; (v) the Company shall sell, lease, license or otherwise transfer all or substantially all of its assets; or (vi) there shall be any voluntary dissolution, liquidation or winding up of the Company; then, in connection with each such event, the Company shall send to the Warrantholder: (A) at least 10 days’ prior written notice of the date on which the books of the Company shall close or a record shall be taken for such dividend, distribution, subscription rights (specifying the date on which the holders of Preferred Stock shall be entitled thereto) or for determining rights to vote in respect of such Merger Event, dissolution, liquidation or winding up; (B) in the case of any such Merger Event, sale, lease, license or other transfer of all or substantially all assets, dissolution, liquidation or winding up, at least 10 days’ prior written notice of the date when the same shall take place (and specifying the date on which the holders of Preferred Stock shall be entitled to exchange their Preferred Stock for securities or other property deliverable upon such Merger Event, dissolution, liquidation or winding up); and (C) in the case of an Initial Public Offering, the Company shall give the Warrantholder at least 10 days’ written notice prior to the effective date thereof.

Each such written notice shall set forth, in reasonable detail, (i) the event requiring the notice, and (ii) if any adjustment is required to be made, (A) the amount of such adjustment, (B) the method by which such adjustment was calculated, (C) the adjusted Exercise Price (if the Exercise Price has been adjusted), and (D) the number of shares subject to purchase hereunder after giving effect to such adjustment, and shall be given by first class mail, postage prepaid, or by reputable overnight courier with all charges prepaid, addressed to the Warrantholder at the address for Warrantholder set forth in the registry referred to in Section 7.

 

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(g) Timely Notice . Failure to timely provide such notice required by subsection (f) above shall entitle Warrantholder to retain the benefit of the applicable notice period notwithstanding anything to the contrary contained in any insufficient notice received by Warrantholder. For purposes of this subsection (g), and notwithstanding anything to the contrary in Section 12(g), the notice period shall begin on the date Warrantholder actually receives a written notice containing all the information required to be provided in such subsection (f).

SECTION 9. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE COMPANY.

(a) Reservation of Preferred Stock . The Preferred Stock issuable upon exercise of the Warrantholder’s rights has been duly and validly reserved and, when issued in accordance with the provisions of this Agreement, will be validly issued, fully paid and non-assessable, and will be free of any taxes, liens, charges or encumbrances of any nature whatsoever; provided , that the Preferred Stock issuable pursuant to this Agreement may be subject to restrictions on transfer under state and/or federal securities laws. The Company has made available to the Warrantholder true, correct and complete copies of its Charter and current bylaws. The issuance of certificates for shares of Preferred Stock upon exercise of this Agreement shall be made without charge to the Warrantholder for any issuance tax in respect thereof, or other cost incurred by the Company in connection with such exercise and the related issuance of shares of Preferred Stock; provided , that the Company shall not be required to pay any tax which may be payable in respect of any transfer and the issuance and delivery of any certificate in a name other than that of the Warrantholder.

(b) Due Authority . The execution and delivery by the Company of this Agreement and the performance of all obligations of the Company hereunder, including the issuance to Warrantholder of the right to acquire the shares of Preferred Stock and the Common Stock into which it may be converted, have been duly authorized by all necessary corporate action on the part of the Company. The Loan Agreement and this Agreement: (1) are not inconsistent with the Company’s Charter or current bylaws; (2) do not contravene any law or governmental rule, regulation or order applicable to it; and (3) do not and will not contravene any provision of, or constitute a default under, any indenture, mortgage, contract or other instrument to which it is a party or by which it is bound. The Loan Agreement and this Agreement constitute legal, valid and binding agreements of the Company, enforceable in accordance with their respective terms.

(c) Consents and Approvals . No consent or approval of, giving of notice to, registration with, or taking of any other action in respect of any state, federal or other governmental authority or agency is required with respect to the execution, delivery and performance by the Company of its obligations under this Agreement, except for the filing of notices pursuant to Regulation D under the Act and any filing required by applicable state securities law, which filings will be effective by the time required thereby.

(d) Issued Securities . All issued and outstanding shares of Common Stock, Preferred Stock or any other securities of the Company have been duly authorized and validly issued and are fully paid and nonassessable. All outstanding shares of Common Stock, Preferred Stock and any other securities were issued in full compliance with all federal and state securities laws. In addition, as of the date immediately preceding the Effective Date:

(i) The authorized capital of the Company consists of (A) 85,000,000 shares of Common Stock, of which 3,278,375 shares are issued and outstanding and (B) 140,285,871 shares of Preferred Stock, of which (a) 1,995,411 shares are designated

 

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Series A Preferred Stock, of which 1,969,010 shares are issued and outstanding and are convertible into 14,815,608 shares of Common Stock at $0.9941 per share, (b) 27,886,160 shares are designated Series B Convertible Preferred Stock, including 14,648,570 shares which are further designated Series B-2 Convertible Preferred Stock, of which an aggregate of 25,446,430 shares are issued and outstanding and are convertible into 39,390,212 shares of Common Stock at $0.56 per share, (c) 16,180,666 shares are designated Series C Convertible Preferred Stock, including 12,693,013 shares which are further designated Series C-2 Convertible Preferred Stock, of which an aggregate of 16,049,570 shares are issued and outstanding and are convertible into 20,696,713 shares of Common Stock at $0.7489 per share, (d) 6,123,619 shares are designated Series D Convertible Preferred Stock, including 5,258,432 shares which are further designated Series D-2 Convertible Preferred Stock, of which an aggregate of 6,123,619 shares are issued and outstanding and are convertible into 9,919,088 shares of Common Stock at $0.6423 per share, and (e) 55,500,000 shares are designated Series E Convertible Preferred Stock, of which an aggregate of 46,681,517 shares are issued and outstanding and are convertible into 46,681,517 shares of Common Stock at $0.2806 per share.

(ii) The Company has reserved (A) 18,871,677 shares of Common Stock for issuance under its Stock Option Plan(s), under which 14,026,686 options are outstanding, (B) 198,650 shares of Common Stock for issuance upon exercise and conversion of Warrants to purchase Series A Preferred Stock (C) 3,084,451 shares of Common Stock for issuance upon exercise and conversion of Warrants to purchase Series B Convertible Preferred Stock and Series B-2 Convertible Preferred Stock, (D) 133,534 shares of Common Stock for issuance upon exercise and conversion of Series C Convertible Preferred Stock and (E) 6,790,802 shares of Common Stock for issuance upon exercise and conversion of Series E Convertible Preferred Stock. There are no other options, warrants, conversion privileges or other rights presently outstanding to purchase or otherwise acquire any authorized but unissued shares of the Company’s capital stock or other securities of the Company. The Company has no outstanding loans to any employee, officer or director of the Company, and the Company agrees not to enter into any such loan or otherwise guarantee the payment of any loan made to an employee, officer or director by a third party.

(e) Insurance . The Company has in full force and effect insurance policies, with extended coverage, insuring the Company and its property and business against such losses and risks, and in such amounts, as are customary for corporations engaged in a similar business and similarly situated and as otherwise may be required pursuant to the terms of any other contract or agreement.

(f) Other Commitments to Register Securities . Except as set forth in this Agreement, the Charter and the Fourth Amended and Restated Registration Rights Agreement dated as of November 30, 2005, the Company is not, pursuant to the terms of any other agreement currently in existence, under any obligation to register under the Act any of its presently outstanding securities or any of its securities which may hereafter be issued.

(g) Exempt Transaction . Subject to the accuracy of the Warrantholder’s representations in Section 10, the issuance of the Preferred Stock upon exercise of this Agreement, and the issuance of the Common Stock upon conversion of the Preferred Stock, will each constitute a transaction exempt from (i) the registration requirements of Section 5 of the Act, in reliance upon Section 4(2) thereof, and (ii) the qualification requirements of the applicable state securities laws.

 

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(h) Compliance with Rule 144 . If the Warrantholder proposes to sell Preferred Stock issuable upon the exercise of this Agreement, or the Common Stock into which it is convertible, in compliance with Rule 144 promulgated by the SEC, then, upon Warrantholder’s written request to the Company, the Company shall furnish to the Warrantholder, within ten days after receipt of such request, a written statement confirming the Company’s compliance with the filing requirements of the SEC as set forth in such Rule, as such Rule may be amended from time to time.

(i) Information Rights . During the term of this Warrant, Warrantholder shall be entitled to the information rights contained in Section 7.1 of the Loan Agreement, and Section 7.1 of the Loan Agreement is hereby incorporated into this Agreement by this reference as though fully set forth herein, provided, however, that the Company shall not be required to deliver a Compliance Certificate once all Indebtedness (as defined in the Loan Agreement) owed by the Company to Warrantholder as been repaid.

SECTION 10. REPRESENTATIONS AND COVENANTS OF THE WARRANTHOLDER.

This Agreement has been entered into by the Company in reliance upon the following representations and covenants of the Warrantholder:

(a) Investment Purpose . The right to acquire Preferred Stock or the Preferred Stock issuable upon exercise of the Warrantholder’s rights contained herein will be acquired for investment and not with a view to the sale or distribution of any part thereof, and the Warrantholder has no present intention of selling or engaging in any public distribution of the same except pursuant to a registration or exemption.

(b) Private Issue . The Warrantholder understands (i) that the Preferred Stock issuable upon exercise of this Agreement is not registered under the Act or qualified under applicable state securities laws on the ground that the issuance contemplated by this Agreement will be exempt from the registration and qualifications requirements thereof, and (ii) that the Company’s reliance on such exemption is predicated on the representations set forth in this Section 10.

(c) Financial Risk . The Warrantholder has such knowledge and experience in financial and business matters as to be capable of evaluating the merits and risks of its investment, and has the ability to bear the economic risks of its investment.

(d) Risk of No Registration . The Warrantholder understands that if the Company does not register with the SEC pursuant to Section 12 of the Securities Exchange Act of 1934 (the “ 1934 Act ”), or file reports pursuant to Section 15(d) of the 1934 Act, or if a registration statement covering the securities under the Act is not in effect when it desires to sell (i) the rights to purchase Preferred Stock pursuant to this Agreement or (ii) the Preferred Stock issuable upon exercise of the right to purchase, it may be required to hold such securities for an indefinite period. The Warrantholder also understands that any sale of (A) its rights hereunder to purchase Preferred Stock or (B) Preferred Stock issued or issuable hereunder which might be made by it in reliance upon Rule 144 under the Act may be made only in accordance with the terms and conditions of that Rule.

(e) Accredited Investor . Warrantholder is an “accredited investor” within the meaning of the Securities and Exchange Rule 501 of Regulation D, as presently in effect.

SECTION 11. TRANSFERS.

Subject to compliance with applicable federal and state securities laws, this Agreement and all rights hereunder are transferable, in whole or in part, without charge to the holder hereof (except for transfer taxes) upon surrender of this Agreement properly endorsed. Each taker and

 

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holder of this Agreement, by taking or holding the same, consents and agrees that this Agreement, when endorsed in blank, shall be deemed negotiable, and that the holder hereof, when this Agreement shall have been so endorsed and its transfer recorded on the Company’s books, shall be treated by the Company and all other persons dealing with this Agreement as the absolute owner hereof for any purpose and as the person entitled to exercise the rights represented by this Agreement. The transfer of this Agreement shall be recorded on the books of the Company upon receipt by the Company of a notice of transfer in the form attached hereto as Exhibit III (the “ Transfer Notice ”), at its principal offices and the payment to the Company of all transfer taxes and other governmental charges imposed on such transfer. Until the Company receives such Transfer Notice, the Company may treat the registered owner hereof as the owner for all purposes.

SECTION 12. MISCELLANEOUS.

(a) Effective Date . The provisions of this Agreement shall be construed and shall be given effect in all respects as if it had been executed and delivered by the Company on the date hereof. This Agreement shall be binding upon any successors or assigns of the Company.

(b) Remedies . In the event of any default hereunder, the non-defaulting party may proceed to protect and enforce its rights either by suit in equity and/or by action at law, including but not limited to an action for damages as a result of any such default, and/or an action for specific performance in accordance with Section 12(s).

(c) No Impairment of Rights . The Company will not, by amendment of its Charter or through any other means, avoid or seek to avoid the observance or performance of any of the terms of this Agreement, but will at all times in good faith assist in the carrying out of all such terms and in the taking of all such actions as may be necessary or appropriate in order to protect the rights of the Warrantholder against impairment.

(d) Additional Documents . The Company, upon execution of this Agreement, shall provide the Warrantholder with a certificate with respect to the representations, warranties and covenants set forth in Sections 9(a) through 9(d), 9(f) and 9(g). The Company shall also supply such other documents as the Warrantholder may from time to time reasonably request.

(e) Attorney’s Fees . In any litigation, arbitration or court proceeding between the Company and the Warrantholder relating hereto, the prevailing party shall be entitled to attorneys’ fees and expenses and all costs of proceedings incurred in enforcing this Agreement. For the purposes of this Section 12(e), attorneys’ fees shall include without limitation fees incurred in connection with the following: (i) contempt proceedings; (ii) discovery; (iii) any motion, proceeding or other activity of any kind in connection with an insolvency proceeding; (iv) garnishment, levy, and debtor and third party examinations; and (v) post-judgment motions and proceedings of any kind, including without limitation any activity taken to collect or enforce any judgment.

(f) Severability . In the event any one or more of the provisions of this Agreement shall for any reason be held invalid, illegal or unenforceable, the remaining provisions of this Agreement shall be unimpaired, and the invalid, illegal or unenforceable provision shall be replaced by a mutually acceptable valid, legal and enforceable provision, which comes closest to the intention of the parties underlying the invalid, illegal or unenforceable provision.

(g) Notices . Except as otherwise provided herein, any notice, demand, request, consent, approval, declaration, service of process or other communication that is required, contemplated, or permitted under this Agreement or with respect to the subject matter hereof shall be in writing, and shall be deemed to have been validly served, given, delivered, and received upon the earlier of: (i) the first business day after transmission by facsimile or hand delivery or deposit with an

 

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overnight express service or overnight mail delivery service; or (ii) the third calendar day after deposit in the United States mails, with proper first class postage prepaid, and shall be addressed to the party to be notified as follows:

If to Warrantholder:

 

HERCULES TECHNOLOGY GROWTH CAPITAL, INC.

Legal Department

Attention: Chief Legal Officer

400 Hamilton Avenue, Suite 310

Palo Alto, CA 94301

Facsimile: 650-473-9194

Telephone: 650-289-3060

With a copy to :

 

BINGHAM MCCUTCHEN

Attn: John Connolly

Three Embarcadero Center

San Francisco, CA 94111

Facsimile: 415-393-2286

Telephone: 415-393-2560

If to the Company:

RUBICON TECHNOLOGY, INC.

Attention: President

9931 Franklin Avenue

Franklin Park, Illinois 60131

Facsimile: 847-233-0177

Telephone: 847-295-7000

With a copy to :

Scott L. Glickson

McGuire Woods LLP

77 W. Wacker Drive, Suite 4100

Chicago, Il 60601

Facsimile: 312 849-3690

Telephone: 312 321 7652

or to such other address as each party may designate for itself by like notice.

(h) Entire Agreement; Amendments . This Agreement constitutes the entire agreement and understanding of the parties hereto in respect of the subject matter hereof, and supersedes and replaces in their entirety any prior proposals, term sheets, letters, negotiations or other documents or agreements, whether written or oral, with respect to the subject matter hereof (including Warrantholder’s proposal letter February 28, 2007). None of the terms of this Agreement may be amended except by an instrument executed by each of the parties hereto.

(i) Headings . The various headings in this Agreement are inserted for convenience only and shall not affect the meaning or interpretation of this Agreement or any provisions hereof.

 

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(j) Advice of Counsel . Each of the parties represents to each other party hereto that it has discussed (or had an opportunity to discuss) with its counsel this Agreement and, specifically, the provisions of Sections 12(n), 12(o), 12(p) and 12(q).

(k) No Strict Construction . The parties hereto have participated jointly in the negotiation and drafting of this Agreement. In the event an ambiguity or question of intent or interpretation arises, this Agreement shall be construed as if drafted jointly by the parties hereto and no presumption or burden of proof shall arise favoring or disfavoring any party by virtue of the authorship of any provisions of this Agreement.

(l) No Waiver . No omission or delay by Warrantholder at any time to enforce any right or remedy reserved to it, or to require performance of any of the terms, covenants or provisions hereof by the Company at any time designated, shall be a waiver of any such right or remedy to which Warrantholder is entitled, nor shall it in any way affect the right of Warrantholder to enforce such provisions thereafter.

(m) Survival . All agreements, representations and warranties contained in this Agreement or in any document delivered pursuant hereto shall be for the benefit of Warrantholder and shall survive the execution and delivery of this Agreement and the expiration or other termination of this Agreement.

(n) Governing Law . This Agreement has been negotiated and delivered to Warrantholder in the State of California, and shall have been accepted by Warrantholder in the State of California. Delivery of Preferred Stock to Warrantholder by the Company under this Agreement is due in the State of California. This Agreement shall be governed by, and construed and enforced in accordance with, the laws of the State of California, excluding conflict of laws principles that would cause the application of laws of any other jurisdiction.

(o) Consent to Jurisdiction and Venue . All judicial proceedings arising in or under or related to this Agreement may be brought in any state or federal court of competent jurisdiction located in the State of California. By execution and delivery of this Agreement, each party hereto generally and unconditionally: (a) consents to personal jurisdiction in Santa Clara County, State of California; (b) waives any objection as to jurisdiction or venue in Santa Clara County, State of California; (c) agrees not to assert any defense based on lack of jurisdiction or venue in the aforesaid courts; and (d) irrevocably agrees to be bound by any judgment rendered thereby in connection with this Agreement. Service of process on any party hereto in any action arising out of or relating to this Agreement shall be effective if given in accordance with the requirements for notice set forth in Section 12(g), and shall be deemed effective and received as set forth in Section 12(g). Nothing herein shall affect the right to serve process in any other manner permitted by law or shall limit the right of either party to bring proceedings in the courts of any other jurisdiction.

(p) Mutual Waiver of Jury Trial . Because disputes arising in connection with complex financial transactions are most quickly and economically resolved by an experienced and expert person and the parties wish applicable state and federal laws to apply (rather than arbitration rules), the parties desire that their disputes be resolved by a judge applying such applicable laws. EACH OF THE COMPANY AND WARRANTHOLDER SPECIFICALLY WAIVES ANY RIGHT IT MAY HAVE TO TRIAL BY JURY OF ANY CAUSE OF ACTION, CLAIM, CROSS-CLAIM, COUNTERCLAIM, THIRD PARTY CLAIM OR ANY OTHER CLAIM (COLLECTIVELY, “CLAIMS”) ASSERTED BY THE COMPANY AGAINST WARRANTHOLDER OR ITS ASSIGNEE OR BY WARRANTHOLDER OR ITS ASSIGNEE AGAINST THE COMPANY. This waiver extends to all such Claims, including Claims that involve Persons other than the Company and Warrantholder; Claims that arise out of or are in any way connected to the relationship between the Company and Warrantholder; and any Claims for damages, breach of contract, specific performance, or any equitable or legal relief of any kind, arising out of this Agreement.

 

12


(q) Judicial Reference . If the Mutual Waiver of Jury Trial set forth in Section 12(p) is ineffective or unenforceable, the parties agree that all Claims shall be resolved by reference to a private judge sitting without a jury, pursuant to Code of Civil Procedure Section 638, before a mutually acceptable referee or, if the parties cannot agree, a referee selected by the Presiding Judge of Santa Clara County, California. Such proceeding shall be conducted in Santa Clara County, California, with California rules of evidence and discovery applicable to such proceeding. In the event Claims are to be resolved by judicial reference, either party may seek from a court identified in Section 12(o), any prejudgment order, writ or other relief and have such prejudgment order, writ or other relief enforced to the fullest extent permitted by law notwithstanding that all Claims are otherwise subject to resolution by judicial reference.

(r) Counterparts . This Agreement and any amendments, waivers, consents or supplements hereto may be executed in any number of counterparts, and by different parties hereto in separate counterparts, each of which when so delivered shall be deemed an original, but all of which counterparts shall constitute but one and the same instrument.

(s) Specific Performance . The parties hereto hereby declare that it is impossible to measure in money the damages which will accrue to Warrantholder by reason of the Company’s failure to perform any of the obligations under this Agreement and agree that the terms of this Agreement shall be specifically enforceable by Warrrantholder. If Warrantholder institutes any action or proceeding to specifically enforce the provisions hereof, any person against whom such action or proceeding is brought hereby waives the claim or defense therein that Warrantholder has an adequate remedy at law, and such person shall not offer in any such action or proceeding the claim or defense that such remedy at law exists.

[Remainder of Page Intentionally Left Blank]

 

13


IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by its officers thereunto duly authorized as of the Effective Date.

 

COMPANY:    RUBICON TECHNOLOGY, INC.
   By:   

/s/    Raja M. Parvez

   Title:    President
WARRANTHOLDER:    HERCULES TECHNOLOGY GROWTH CAPITAL, INC.
   By:   

/s/    Scott Harney

   Title:    Chief Legal Officer

 

14


EXHIBIT I

NOTICE OF EXERCISE

 

To: Rubicon Technology, Inc. (the “Company”)

 

(1) The undersigned Warrantholder hereby elects to purchase [              ] shares of the Series E Preferred Stock of the Company, pursuant to the terms of that certain Warrant Agreement, dated as of April 9, 2007, between the Company and the Warrantholder (the “Agreement”), and [CASH PAYMENT: tenders herewith payment of the Purchase Price in full, together with all applicable transfer taxes, if any.] [NET ISSUANCE: elects pursuant to Section 3(a) of the Agreement to effect a Net Issuance.]

 

(2) In exercising its rights to purchase the Series E Preferred Stock of the Company, the undersigned, as representative for the Warrantholder, hereby confirms and acknowledges the investment representations and warranties made in Section 10 of the Agreement and as a condition to the issuance of said shares, will execute and deliver a joinder agreement adopting and adding the Warrantholder as a party to the Third Amended and Restated Stockholders Agreement dated as of June 28, 2005.

 

(3) Please issue a certificate or certificates representing said shares of Series E Preferred Stock in the name of the Warrantholder or in such other name as is specified below.

 

WARRANTHOLDER:  

HERCULES TECHNOLOGY GROWTH CAPITAL, INC.

  By:   

 

  Name:   

 

  Title:   

 

  Date:   

 

 

Address:   400 Hamilton Avenue, Suite 310

Palo Alto, CA 94301

Facsimile: 650-473-9194

Telephone: 650-289-3060

 

15


EXHIBIT II

ACKNOWLEDGMENT OF EXERCISE

The undersigned, as representative of Rubicon Technology, Inc. (the “Company”), hereby acknowledges receipt of the “Notice of Exercise” from                                          (the “Warrantholder “), to purchase [              ] shares of the Series E Preferred Stock of the Company, pursuant to the terms of that certain Warrant Agreement, dated as of April 9, 2007, between the Company and the Warrantholder (the “Agreement”), and further acknowledges that [              ] shares remain subject to purchase under the terms of the Agreement.

 

COMPANY:

   RUBICON TECHNOLOGY, INC.
   By:   

 

   Title:   

 

   Date:   

 

 

16


EXHIBIT III

TRANSFER NOTICE

FOR VALUE RECEIVED, that certain Warrant Agreement, dated as of April 9, 2007, between Rubicon Technology, Inc. and Hercules Technology Growth Capital, Inc., as the Warrantholder (the “Agreement”), and all rights evidenced thereby are hereby transferred and assigned to

 

(Please Print)

   

whose address is  

   
     

 

 

Dated:

 

 

 

Holder’s Signature:

 

 

 

Holder’s Address:

 

 

 

 

Signature Guaranteed:

 

 

NOTE: The signature to this Transfer Notice must correspond with the name as it appears on the face of the Agreement, without alteration or enlargement or any change whatever. Officers of corporations and those acting in a fiduciary or other representative capacity should file proper evidence of authority to assign the foregoing Agreement.

 

17

Exhibit 10.1

RUBICON TECHNOLOGY, INC.

2001 EQUITY PLAN

1. Purposes of the Plan . The purposes of this 2001 Equity Plan are:

 

   

to assist the Company to attract and retain the best available personnel for positions of substantial responsibility;

 

   

to provide additional incentive to Employees, Directors and Consultants; and

 

   

to promote the success of the Company’s business.

Options granted under the Plan may be Incentive Stock Options or Non-qualified Stock Options, as determined by the Administrator at the time of grant. Stock Purchase Rights may also be granted under the Plan.

2. Definitions . As used herein, the following definitions shall apply:

(a) “ Administrator ” means the Board or any of its Committees, or any delegee of the Board or any such Committee, as shall be administering the Plan, in accordance with Section 4 of the Plan.

(b) “ Applicable Laws ” means the requirements relating to the administration of stock option plans under U. S. state corporate laws, U.S. federal and state securities laws, the Code, any stock exchange or quotation system on which the Common Stock is listed or quoted and the applicable laws of any foreign country or jurisdiction where Options or Stock Purchase Rights are, or will be, granted under the Plan.

(c) “ Board ” means the Board of Directors of the Company.

(d) “ Code ” means the Internal Revenue Code of 1986, as amended, and the Treasury Regulations promulgated thereunder.

(e) “ Committee ” means a committee of Directors appointed by the Board in accordance with Section 4 of the Plan.

(f) “ Common Stock ” means the Common Stock, $0.001 par value per share, of the Company.

(g) “ Company ” means Rubicon Technology, Inc., a Delaware corporation.

(h) “ Consultant ” means any person, including an advisor, other than an Employee or Director, engaged by the Company or a Parent or Subsidiary of the Company to render services to such entity.

(i) “ Director ” means a member of the Board.


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(j) “ Disability ” means permanent and total disability as defined in Section 22(e)(3) of the Code.

(k) “ Employee ” means any person, including Officers and Directors in their capacity as employees, employed by the Company or any Parent or Subsidiary of the Company. An Employee shall not cease to be an Employee for purposes of this Plan in the case of (i) any leave of absence approved by the Company or (ii) transfers between locations of the Company or between the Company, its Parent, any of its Subsidiaries, or any successor. For purposes of Incentive Stock Options, no such leave may exceed ninety (90) days, unless reemployment upon expiration of such leave is guaranteed by statute or contract. If reemployment upon expiration of a leave of absence approved by the Company is not so guaranteed, on the one hundred eighty-first (181st) day of such leave any Incentive Stock Option held by the Optionee shall cease to be treated as an Incentive Stock Option and shall be treated for tax purposes as a Non-qualified Stock Option. Neither service as a Director nor payment of a director’s fee by the Company shall be sufficient to constitute “employment” by the Company.

(l) “ Exchange Act ” means the Securities Exchange Act of 1934, as amended, and the regulations promulgated thereunder.

(m) “ Fair Market Value ” means, as of any date, the value of Common Stock determined as follows:

(i) If the Common Stock is listed on any established stock exchange or a national market system, including without limitation the Nasdaq National Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market, its Fair Market Value shall be the closing sales price for such stock (or the closing bid, if no sales were reported) as quoted on such exchange or system for the last market trading day prior to the day of determination, as reported in The Wall Street Journal or such other source as the Administrator deems reliable;

(ii) If the Common Stock is regularly quoted by a recognized securities dealer but selling prices are not reported, the Fair Market Value of a Share shall be the mean between the high bid and low asked prices for the Common Stock on the last market trading day prior to the day of determination, as reported in The Wall Street Journal or such other source as the Administrator deems reliable; or

(iii) In the absence of an established market for the Common Stock, the Fair Market Value shall be determined in good faith by the Administrator, consistent with past practices.

(n) “ Incentive Stock Option ” means an Option intended to qualify as an incentive stock option within the meaning of Section 422 of the Code.

(o) “ Non-qualified Stock Option ” means an Option not intended to qualify as an Incentive Stock Option.

(p) “ Notice of Grant ” means a written or electronic notice evidencing certain terms and conditions of an individual Option or Stock Purchase Right grant. The Notice of Grant is part of the Option Agreement or the Restricted Stock Purchase Agreement, as applicable.


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(q) “ Officer ” means a person who is an officer of the Company within the meaning of Section 16 of the Exchange Act and the rules and regulations promulgated thereunder.

(r) “ Option ” means a stock option granted pursuant to the Plan.

(s) “ Option Agreement ” means an agreement between the Company and an Optionee evidencing the terms and conditions of an individual Option grant. The Option Agreement is subject to the terms and conditions of the Plan and the Notice of Grant.

(t) “ Option Exchange Program ” means a program whereby outstanding Options are surrendered in exchange for Options with a lower exercise price.

(u) “ Optioned Stock ” means the Common Stock subject to an Option or Stock Purchase Right.

(v) “ Optionee ” means the holder of an outstanding Option or Stock Purchase Right granted under the Plan.

(w) “ Parent ” means a “parent corporation,” whether now or hereafter existing, as defined in Section 424(e) of the Code.

(x) “ Plan ” means this 2001 Equity Plan.

(y) “ Restricted Stock ” means shares of Common Stock acquired pursuant to a grant of Stock Purchase Rights under Section 11 of the Plan.

(z) “ Restricted Stock Purchase Agreement ” means a written agreement between the Company and the Optionee evidencing the terms and restrictions applying to stock purchased under a Stock Purchase Right. The Restricted Stock Purchase Agreement is subject to the terms and conditions of the Plan and the Notice of Grant.

(aa) “ Rule 16b-3 ” means Rule 16b-3 of the Exchange Act or any successor to Rule 16b-3, as in effect when discretion is being exercised with respect to the Plan.

(bb) “ Securities Act ” means the Securities Act of 1933, as amended, and the regulations promulgated thereunder.

(cc) “ Service Provider ” means an Employee, Director or Consultant.

(dd) “ Share ” means a share of the Common Stock, as adjusted in accordance with Section 13 of the Plan.

(ee) “ Stock Purchase Right ” means the right to purchase Common Stock pursuant to Section 11 of the Plan, as evidenced by a Notice of Grant.

(ff) “ Subsidiary ” means a “subsidiary corporation,” whether now or hereafter existing, as defined in Section 424(f) of the Code.


R UBICON T ECHNOLOGY , I NC .    -3-    2001 E QUITY P LAN


3. Stock Subject to the Plan . Subject to the provisions of Section 13 of the Plan, the maximum number of Shares which may be optioned or sold under the Plan is five hundred three thousand three hundred eighty-four (503,384) Shares. If an Option or Stock Purchase Right expires or becomes unexercisable without having been exercised in full, or is surrendered pursuant to an Option Exchange Program, the unpurchased Shares which were subject thereto shall become available for future grant or sale under the Plan (unless the Plan has terminated); provided , however , that Shares that have actually been issued under the Plan, whether upon exercise of an Option or Stock Purchase Right, shall not be returned to the Plan and shall not become available for future distribution under the Plan, except that if Shares that have been issued pursuant to Options or Shares of Restricted Stock, are repurchased by the Company, such Shares shall become available for future grant under the Plan.

4. Administration of the Plan .

(a) Procedure .

(i) Multiple Administrative Bodies . The Plan may be administered by different Committees with respect to different groups of Service Providers.

(ii) Section 162(m) . To the extent that the Administrator determines it to be desirable to qualify Options granted hereunder as “performance-based compensation” within the meaning of Section 162(m) of the Code, the Plan shall be administered by a Committee of two or more “outside directors” within the meaning of Section 162(m) of the Code.

(iii) Rule 16b-3 . To the extent desirable to qualify transactions hereunder as exempt under Rule 16b-3, the transactions contemplated hereunder shall be structured to satisfy the requirements for exemption under Rule 16b-3.

(iv) Other Administration . Other than as provided above, the Plan shall be administered by an Administrator, in accordance with Applicable Laws.

(b) Powers of the Administrator . Subject to the provisions of the Plan, and in the case of a Committee, subject to the specific duties delegated by the Board to such Committee, the Administrator shall have the authority, in its discretion:

(i) to determine the Fair Market Value;

(ii) to select the Service Providers to whom Options and Stock Purchase Rights may be granted hereunder;

(iii) to determine the number of Shares to be covered by each Option and Stock Purchase Right granted hereunder;

(iv) to approve forms of agreement for use under the Plan;

(v) to determine the terms and conditions, not inconsistent with the terms of the Plan, of any Option or Stock Purchase Right granted hereunder. Such terms and conditions include, but are not limited to, the exercise price, the time or times when Options or Stock


R UBICON T ECHNOLOGY , I NC .    -4-    2001 E QUITY P LAN


Purchase Rights may be exercised (which may be based on performance criteria), any vesting acceleration or waiver of forfeiture restrictions, and any restriction or limitation regarding any Option or Stock Purchase Right or the Shares relating thereto, based in each case on such factors as the Administrator, in its sole discretion, shall determine;

(vi) to reduce the exercise price of any Option or Stock Purchase Right to the then current Fair Market Value if the Fair Market Value of the Common Stock covered by such Option or Stock Purchase Right shall have declined since the date the Option or Stock Purchase Right was granted;

(vii) to provide for the repurchase of the Optionee’s Optioned Stock in the event the Optionee ceases to be a Service Provider;

(viii) to impose market stand off restrictions on Optionees for periods after the effective date of a registration statement filed under the Securities Act in connection with the Company’s underwritten public offering of its equity securities;

(ix) to require an Optionee, as a condition precedent to the exercise by an Optionee of an Option or Stock Purchase Right, to agree to be bound by the terms and conditions of a stockholders’ agreement, including but not limited to, that certain Stockholders’ Agreement dated as of February 16, 2001, by and between the Company and the Stockholders of the Company (as defined therein);

(x) to institute an Option Exchange Program;

(xi) to construe and interpret the terms of the Plan and awards granted pursuant to the Plan;

(xii) to prescribe, amend and rescind rules and regulations relating to the Plan, including rules and regulations relating to sub-plans established for the purpose of qualifying for preferred tax treatment under foreign tax laws;

(xiii) to modify or amend each Option or Stock Purchase Right (subject to Section 15(c) of the Plan), including the discretionary authority to extend the post-termination exercisability period of Options longer than is otherwise provided for in the Plan;

(xiv) to make such provisions and to take such steps as it may deem necessary or appropriate for the withholding of any taxes which the Company is required by any law or regulation of any governmental authority, whether federal, state or local, domestic or foreign, to withhold in connection with any Option or Stock Purchase Right, including, but not limited to, the withholding of the issuance of all or any portion of the Shares subject to the Option or the Stock Purchase Right until the Optionee reimburses the Company for the amount required to be withheld with respect to such taxes, canceling any portion of the issuance of the Shares subject to an Option in an amount sufficient to reimburse the Company for such amount, deducting from the Optionee’s compensation an amount sufficient to reimburse the Company for such amount, or taking any other action reasonably required to satisfy the withholding obligation of the Company;


R UBICON T ECHNOLOGY , I NC .    -5-    2001 E QUITY P LAN


(xv) to allow Optionees to satisfy withholding tax obligations by electing to have the Company withhold from the Shares to be issued upon exercise of an Option or Stock Purchase Right that number of Shares having a Fair Market Value equal to the amount required to be withheld. The Fair Market Value of the Shares to be withheld shall be determined on the date that the amount of tax to be withheld is to be determined. All elections by an Optionee to have Shares withheld for this purpose shall be made in such form and under such conditions as the Administrator may deem necessary or advisable;

(xvi) to authorize any person to execute on behalf of the Company any instrument required to effect the grant of an Option or Stock Purchase Right previously granted by the Administrator;

(xvii) to make all other determinations deemed necessary or advisable for administering the Plan.

(c) Effect of Administrator’s Decision . The Administrator’s decisions, determinations and interpretations shall be final and binding on all Optionees and any other holders of Options or Stock Purchase Rights.

5. Eligibility . Non-qualified Stock Options and Stock Purchase Rights may be granted to Service Providers. Incentive Stock Options may be granted only to Employees.

6. Limitations .

(a) Each Option shall be designated in the Option Agreement as either an Incentive Stock Option or a Non-qualified Stock Option. To the extent that the aggregate Fair Market Value of the Shares with respect to which Incentive Stock Options are exercisable for the first time by the Optionee during any calendar year (under all plans of the Company and any Parent or Subsidiary of the Company) exceeds the limit set forth in Section 422(d) of the Code, such Options shall be treated as Non-qualified Stock Options. For purposes of this Section 6(a) of the Plan, Incentive Stock Options shall be taken into account in the order in which they were granted. The Fair Market Value of the Shares shall be determined as of the time the Option with respect to such Shares is granted.

(b) Neither the Plan nor any Option or Stock Purchase Right shall confer upon an Optionee any right with respect to continuing the Optionee’s relationship as a Service Provider with the Company, nor shall an Option or Stock Purchase Right interfere in any way with the Optionee’s right or the Company’s right to terminate such relationship.

(c) The Administrator may impose limitations on the number of Options granted to a Service Provider in any fiscal year of the Company. Any limitations established pursuant to the preceding sentence shall be adjusted proportionately in connection with any change in the Company’s capitalization as described in Section 13 of the Plan. If an Option is cancelled in the same fiscal year of the Company in which it was granted (other than in connection with a transaction described in Section 13 of the Plan), the cancelled Option will be counted against the limits established pursuant to the first sentence of this paragraph. For this purpose, if the exercise price of an Option is reduced, the transaction will be treated as a cancellation of the Option and the grant of a new Option.


R UBICON T ECHNOLOGY , I NC .    -6-    2001 E QUITY P LAN


7. Term of Plan . Subject to Section 19 of the Plan, the Plan shall become effective upon its adoption by the Board. It shall continue in effect for a term of ten (10) years unless terminated earlier under Section 15 of the Plan.

8. Term of Option . The term of each Option shall be stated in the Option Agreement. In the case of an Incentive Stock Option, the term shall be ten (10) years from the date of grant or such shorter term as may be provided in the Option Agreement. Moreover, in the case of an Incentive Stock Option granted to an Optionee who, at the time the Incentive Stock Option is granted, owns stock representing more than ten percent (10%) of the total combined voting power of all classes of stock of the Company or any Parent or Subsidiary of the Company, the term of the Incentive Stock Option shall be five (5) years from the date of grant or such shorter term as may be provided in the Option Agreement.

9. Option Exercise Price and Consideration .

(a) Exercise Price . The per Share exercise price for the Shares to be issued pursuant to exercise of an Option shall be no less than the par value, if any, per Share and otherwise as determined by the Administrator, subject to the following:

(i) In the case of an Incentive Stock Option

(A) granted to an Employee who, at the time the Incentive Stock Option is granted, owns stock representing more than ten percent (10%) of the voting power of all classes of stock of the Company or any Parent or Subsidiary of the Company, the per Share exercise price shall be no less than 110% of the Fair Market Value per Share on the date of grant.

(B) granted to any Employee other than an Employee described in paragraph (A) immediately above, the per Share exercise price shall be no less than 100% of the Fair Market Value per Share on the date of grant.

(ii) In the case of a Non-qualified Stock Option, the per Share exercise price shall be determined by the Administrator. In the case of a Non-qualified Stock Option intended to qualify as “performance-based compensation” within the meaning of Section 162(m) of the Code, the per Share exercise price shall be no less than 100% of the Fair Market Value per Share on the date of grant.

(iii) Notwithstanding the foregoing, to the extent allowable pursuant to Applicable Laws, Options may be granted with a per Share exercise price of less than 100% of the Fair Market Value per Share on the date of grant pursuant to a merger or other corporate transaction.

(b) Waiting Period and Exercise Dates . At the time an Option is granted, the Administrator shall fix the period within which the Option may be exercised and shall determine any conditions which must be satisfied before the Option may be exercised.

(c) Form of Consideration . The Administrator shall determine the acceptable form of consideration for exercising an Option, including the method of payment. In the case of an Incentive Stock Option, the Administrator shall determine the acceptable form of consideration at the time of grant. Such consideration may consist entirely of:

(i) cash;

(ii) check;

(iii) promissory note;


R UBICON T ECHNOLOGY , I NC .    -7-    2001 E QUITY P LAN


(iv) other Shares which (A) in the case of Shares acquired upon exercise of an Option, have been owned by the Optionee for more than one (1) year on the date of surrender, and (B) have a Fair Market Value on the date of surrender equal to the aggregate exercise price of the Shares as to which said Option shall be exercised;

(v) consideration received by the Company under a cashless exercise program implemented by the Company in connection with the Plan;

(vi) a reduction in the amount of any Company liability to the Optionee, including any liability attributable to the Optionee’s participation in any Company-sponsored deferred compensation program or arrangement;

(vii) any combination of the foregoing methods of payment; or

(viii) such other consideration and method of payment for the issuance of Shares to the extent permitted by Applicable Laws.

10. Exercise of Option .

(a) Procedure for Exercise; Rights as a Stockholder . Any Option granted hereunder shall be exercisable according to the terms of the Plan and at such times and under such conditions as determined by the Administrator and set forth in the Option Agreement. Unless the Administrator provides otherwise, vesting of Options granted hereunder shall be tolled during any unpaid leave of absence. An Option may not be exercised for a fraction of a Share.

Unless otherwise provided in an Option Agreement, an Option shall be deemed exercised when the Company receives: (i) written or electronic notice of exercise (in accordance with the Option Agreement) from the person entitled to exercise the Option, and (ii) full payment for the Shares with respect to which the Option is exercised. Full payment may consist of any consideration and method of payment authorized by the Administrator and permitted by the Option Agreement and the Plan. Shares issued upon exercise of an Option shall be issued in the name of the Optionee or, if requested by the Optionee, in the name of the Optionee and his or her spouse. Until the Shares are issued (as evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company), no right to vote or receive dividends or any other rights as a stockholder shall exist with respect to the Optioned Stock, notwithstanding the exercise of the Option. The Company shall issue (or cause to be issued) such Shares promptly after the Option is exercised. No adjustment will be made for a dividend or other right for which the record date is prior to the date the Shares are issued, except as provided in Section 13 of the Plan.


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Exercising an Option in any manner shall decrease the number of Shares thereafter available, both for purposes of the Plan and for sale under the Option, by the number of Shares as to which the Option is exercised.

(b) Termination of Relationship as a Service Provider . If an Optionee ceases to be a Service Provider, other than upon the Optionee’s death or Disability, the Optionee may exercise his or her Option within such period of time as is specified in the Option Agreement to the extent that the Option is vested on the date of termination (but in no event later than the expiration of the term of such Option as set forth in the Option Agreement). In the absence of a specified time in the Option Agreement, the Option shall remain exercisable for three (3) months following the Optionee’s termination. If, on the date of termination, the Optionee is not vested as to his or her entire Option, the Shares covered by the unvested portion of the Option shall revert to the Plan. If, after termination, the Optionee does not exercise his or her Option within the time specified by the Administrator, the Option shall terminate, and the Shares covered by such Option shall revert to the Plan.

(c) Disability of Optionee . If an Optionee ceases to be a Service Provider as a result of the Optionee’s Disability, the Optionee may exercise his or her Option within such period of time as is specified in the Option Agreement to the extent the Option is vested on the date of termination (but in no event later than the expiration of the term of such Option as set forth in the Option Agreement). In the absence of a specified time in the Option Agreement, the Option shall remain exercisable for one (1) year following the Optionee’s termination. If, on the date of termination, the Optionee is not vested as to his or her entire Option, the Shares covered by the unvested portion of the Option shall revert to the Plan. If, after termination, the Optionee does not exercise his or her Option within the time specified herein, the Option shall terminate, and the Shares covered by such Option shall revert to the Plan.

(d) Death of Optionee . If an Optionee dies while a Service Provider, the Option may be exercised within such period of time as is specified in the Option Agreement (but in no event later than the expiration of the term of such Option as set forth in the Option Agreement), by the Optionee’s estate or by a person who acquires the right to exercise the Option by bequest or inheritance, but only to the extent that the Option is vested on the date of death. In the absence of a specified time in the Option Agreement, the Option shall remain exercisable for one (1) year following the Optionee’s death. If, at the time of death, the Optionee is not vested as to his or her entire Option, the Shares covered by the unvested portion of the Option shall immediately revert to the Plan. The Option may be exercised by the executor or administrator of the Optionee’s estate or, if none, by the person(s) entitled to exercise the Option under the Optionee’s will or the laws of descent or distribution. If the Option is not so exercised within the time specified herein, the Option shall terminate, and the Shares covered by such Option shall revert to the Plan.

(e) Buyout Provisions . The Administrator may at any time offer to buy out for a payment in cash or Shares an Option previously granted based on such terms and conditions as the Administrator shall establish and communicate to the Optionee at the time that such offer is made.


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11. Stock Purchase Rights .

(a) Rights to Purchase . Stock Purchase Rights may be issued either alone, in addition to, or in tandem with other awards granted under the Plan and/or non-stock awards made outside of the Plan. After the Administrator determines that it will offer Stock Purchase Rights under the Plan, it shall advise the offeree in writing or electronically, by means of a Notice of Grant, of the terms, conditions and restrictions related to the offer, including the number of Shares that the Service Provider shall be entitled to purchase, the price to be paid, if any, and the time within which the offeree must accept such offer. The offer shall be accepted by execution of a Restricted Stock Purchase Agreement in the form determined by the Administrator.

(b) Repurchase Option . Unless the Administrator determines otherwise, the Restricted Stock Purchase Agreement shall grant the Company a repurchase option exercisable upon the voluntary or involuntary termination of the Service Provider’s service with the Company for any reason (including death or Disability). The terms and conditions of such repurchase option shall be determined by the Administrator.

(c) Other Provisions . The Restricted Stock Purchase Agreement shall contain such other terms, provisions and conditions not inconsistent with the Plan as may be determined by the Administrator.

(d) Rights as a Stockholder . Except as otherwise set forth in a Restricted Stock Purchase Agreement, once the Stock Purchase Right is exercised, the purchaser shall have the rights equivalent to those of a stockholder, and shall be a stockholder when his or her purchase is entered upon the records of the duly authorized transfer agent of the Company. No adjustment will be made for a dividend or other right for which the record date is prior to the date the Stock Purchase Right is exercised, except as provided in Section 13 of the Plan.

12. Non-Transferability of Options and Stock Purchase Rights . Unless determined otherwise by the Administrator, an Option or Stock Purchase Right may not be sold, pledged, assigned, hypothecated, transferred, or disposed of in any manner other than by will or by the laws of descent or distribution and may be exercised, during the lifetime of the Optionee, only by the Optionee. If the Administrator makes an Option or Stock Purchase Right transferable, such Option or Stock Purchase Right shall contain such additional terms and conditions as the Administrator deems appropriate.

13. Adjustments Upon Changes in Capitalization, Dissolution, Merger or Asset Sale .

(a) Changes in Capitalization . Subject to any required action by the stockholders of the Company, the number of Shares covered by each outstanding Option and Stock Purchase Right, and the number of Shares which have been authorized for issuance under the Plan but as to which no Options or Stock Purchase Rights have yet been granted or which have been returned to the Plan upon cancellation or expiration of an Option or Stock Purchase Right, as well as the price per Share covered by each such outstanding Option or Stock Purchase Right, shall be proportionately adjusted for any increase or decrease in the number of issued Shares resulting from a stock split, reverse stock split, stock dividend, combination or reclassification of the Common Stock, or any other increase or decrease in the number of issued Shares effected


R UBICON T ECHNOLOGY , I NC .    -10-    2001 E QUITY P LAN


without receipt of consideration by the Company; provided , however , that conversion of any convertible securities of the Company shall not be deemed to have been “effected without receipt of consideration.” Such adjustment shall be made by the Board, whose determination in that respect shall be final, binding and conclusive.

(b) Dissolution or Liquidation . In the event of the proposed dissolution or liquidation of the Company, the Administrator shall notify each Optionee as soon as practicable prior to the effective date of such proposed transaction. The Administrator in its discretion may provide for an Optionee to have the right to exercise his or her Option until ten (10) days prior to such transaction as to all of the Optioned Stock covered thereby, including Shares as to which the Option would not otherwise be exercisable. In addition, the Administrator may provide that any Company repurchase option applicable to any Shares purchased upon exercise of an Option or Stock Purchase Right shall lapse as to all such Shares, provided the proposed dissolution or liquidation takes place at the time and in the manner contemplated. To the extent it has not been previously exercised, an Option or Stock Purchase Right will terminate immediately prior to the consummation of such proposed action.

(c) Merger, Reorganization or Sale . In the event of any merger, consolidation, or similar reorganization of the Company with any other entity pursuant to which the holders of Shares surrender Shares (or the Shares are deemed converted) in exchange for other shares of capital stock or securities of the Company or another entity or the sale of substantially all of the assets of the Company, if each outstanding Option and Stock Purchase Right is not assumed or an equivalent option or right is not substituted by the successor corporation or a Parent or Subsidiary of the successor corporation, then the Optionee shall fully vest in and have the right to exercise the Option or Stock Purchase Right as to all of the Optioned Stock, including Shares as to which it would not otherwise be vested or exercisable. If an Option or Stock Purchase Right becomes fully vested and exercisable in lieu of assumption or substitution in the event of a merger or sale of assets, the Administrator shall notify the Optionee in writing or electronically that the Option or Stock Purchase Right shall be fully vested and exercisable for a period of fifteen (15) days from the date of such notice, and the Option or Stock Purchase Right shall terminate upon the expiration of such period. For the purposes of this paragraph, the determination of whether the Option or Stock Purchase Right has been assumed or substituted shall be made by the Board, whose determination in that respect shall be final, binding and conclusive.

(d) Reservation of Rights . Except as provided in this Section 13 of the Plan, an Optionee shall have no rights by reason of (i) any subdivision or consolidation of shares of stock of any class, (ii) the payment of any dividend, or (iii) any other increase or decrease in the number of shares of stock of any class. Any issuance by the Company of shares of stock of any class, or securities convertible into shares of stock of any class, shall not affect, and no adjustment by reason thereof shall be made with respect to, the number or exercise price of Shares subject to an Option or Stock Purchase Right. The grant of an Option or Stock Purchase Right pursuant to the Plan shall not affect in any way the right or power of the Company to make adjustments, reclassifications, reorganizations or changes of its capital or business structure, to merge or consolidate or to dissolve, liquidate, sell or transfer all or any part of its business or assets.


R UBICON T ECHNOLOGY , I NC .    -11-    2001 E QUITY P LAN


14. Date of Grant . The date of grant of an Option or Stock Purchase Right shall be, for all purposes, the date on which the Administrator makes the determination granting such Option or Stock Purchase Right, or such other later date as is determined by the Administrator. Notice of the determination shall be provided to each Optionee within a reasonable time after the date of such grant.

15. Amendment and Termination of the Plan .

(a) Amendment and Termination . The Board may at any time amend, alter, suspend or terminate the Plan.

(b) Stockholder Approval . The Company shall obtain stockholder approval of any Plan amendment to the extent necessary to comply with Applicable Laws.

(c) Effect of Amendment or Termination . No amendment, alteration, suspension or termination of the Plan shall impair the rights of any Optionee, unless mutually agreed otherwise between the Optionee and the Administrator, which agreement must be in writing and signed by the Optionee and the Company. Termination of the Plan shall not affect the Administrator’s ability to exercise the powers granted to it hereunder with respect to Options granted under the Plan prior to the date of such termination.

16. Conditions Upon Issuance of Shares .

(a) Legal Compliance . Shares shall not be issued pursuant to the exercise of an Option or Stock Purchase Right unless the exercise of such Option or Stock Purchase Right and the issuance and delivery of such Shares shall comply with Applicable Laws and shall be further subject to the approval of counsel for the Company with respect to such compliance. Under no circumstances shall the Company be obligated to effect or maintain any registration under the Securities Act or other similar Applicable Laws.

(b) Investment Representations . As a condition to the exercise of an Option or Stock Purchase Right, the Company may require the person exercising such Option or Stock Purchase Right to represent and warrant at the time of any such exercise that the Shares are being purchased only for investment and without any present intention to sell or distribute such Shares if, in the opinion of counsel for the Company, such a representation is required.

17. Inability to Obtain Authority . The inability or failure of the Company to obtain authority from any regulatory body having jurisdiction (including, without limitation, effectiveness of a registration statement under the Securities Act), which authority is deemed by the Company’s counsel to be necessary to the lawful granting of Options or issuance and sale of any Shares pursuant to the exercise of an Option or Stock Purchase Right, shall not subject the Company to, and shall relieve the Company of, any liability in respect of the failure to grant such Option or issue or sell such Shares as to which such requisite authority shall not have been obtained.

18. Reservation of Shares . The Company, during the term of this Plan, will at all times reserve and keep available such number of Shares as shall be sufficient to satisfy the requirements of the Plan.


R UBICON T ECHNOLOGY , I NC .    -12-    2001 E QUITY P LAN


19. Stockholder Approval . The Plan shall be subject to approval by the stockholders of the Company within twelve (12) months after the date the Plan is adopted by the Board in the manner and to the degree required under Applicable Laws.

The 2001 Equity Plan was approved by the Board of Directors of the Company as of August 2, 2001 and by the stockholders of the Company as of August 2, 2001.


R UBICON T ECHNOLOGY , I NC .    -13-    2001 E QUITY P LAN

Exhibit 10.1(a)

RUBICON TECHNOLOGY, INC.

AMENDMENT NO. 1

TO

2001 EQUITY PLAN

This Amendment No. 1 (this “Amendment”) amends the 2001 Equity Plan (the “Plan”) of Rubicon Technology, Inc., a Delaware corporation (the “Company”). Except as expressly modified hereby, all of the terms and provisions of the Plan shall continue in full force and effect. A copy of this Amendment shall be attached to and made a part of the Plan.

 

1. Amendment to Section 3 of the Plan . The first sentence of Section 3 of the Plan is hereby deleted in its entirety and the following substituted in its stead:

Subject to the provisions of Section 13 of the Plan, the maximum number of Shares which may be optioned or sold under the Plan is four hundred nine thousand three hundred eighty-one (409,381) Shares.

 

2. Adoption .

This Amendment to the Plan was adopted by the Board of Directors and approved by the stockholders of the Company, as of November 6, 2001.

Rubicon Technology, Inc., a Delaware corporation

Exhibit 10.1(b)

RUBICON TECHNOLOGY, INC.

AMENDMENT NO. 2

TO

2001 EQUITY PLAN

This Amendment No. 2 (this “Amendment”) amends the 2001 Equity Plan (the “Plan”) of Rubicon Technology, Inc., a Delaware corporation (the “Company”). Except as expressly modified hereby, all of the terms and provisions of the Plan shall continue in full force and effect. A copy of this Amendment shall be attached to and made a part of the Plan.

 

1. Amendment to Section 3 of the Plan . The first sentence of Section 3 of the Plan is hereby deleted in its entirety and the following substituted in its stead:

Subject to the provisions of Section 13 of the Plan, the maximum number of Shares which may be optioned or sold under the Plan is Four Million Four Hundred Nine Thousand Three Hundred Eighty-One (4,409,381) Shares.

 

2. Adoption .

This Amendment to the Plan was adopted by the Board of Directors and approved by the stockholders of the Company, as of May 21, 2002.

Rubicon Technology, Inc., a Delaware corporation

 


R UBICON T ECHNOLOGY , I NC .   A MENDMENT N O . 2 TO 2001 E QUITY P LAN

Exhibit 10.1(c)

R UBICON T ECHNOLOGY , I NC .

AMENDMENT NO. 3

TO THE

RUBICON TECHNOLOGY, INC. 2001 EQUITY PLAN

This Amendment No. 3 (the “Amendment”) amends the 2001 Equity Plan, as amended by Amendment No. 1, dated as of November 6, 2001 and Amendment No. 2, dated as of May 21, 2002 (the “Plan”) of Rubicon Technology, Inc., a Delaware corporation. Except as expressly modified hereby, all of the terms and provisions of the Plan shall continue in full force and effect.

 

1. Amendment to Section 3 of the Plan. The first sentence of Section 3 of the Plan is hereby deleted in its entirety and the following substituted in its stead:

Subject to the provisions of Section 13 of the Plan, the maximum number of Shares which may be optioned or sold under the Plan is Six Million Nine Hundred Forty-Nine Thousand Twenty Two (6,949,022) Shares.

 

2. Adoption

This Amendment to the Plan has been adopted by the Board of Directors as of May 28, 2004 and the Stockholders as of May 28, 2004.

 

RUBICON TECHNOLOGY, INC.
By:  

/s/ Christopher J. Moffitt

  Christopher J. Moffitt.
  Chief Executive Officer and President

Exhibit 10.1(d)

R UBICON T ECHNOLOGY , I NC .

AMENDMENT NO. 4

TO THE

RUBICON TECHNOLOGY, INC. 2001 EQUITY PLAN

DECEMBER 6, 2004

This Amendment No. 4 (the “Amendment”) amends the 2001 Equity Plan, dated as of August 2, 2001, as amended by Amendment No. 1, dated as of November 6, 2001, Amendment No. 2, dated as of May 21, 2002 and Amendment No. 3, dated as of My 28, 2004 (the “Plan”) of Rubicon Technology, Inc., a Delaware corporation. Except as expressly modified hereby, all of the terms and provisions of the Plan shall continue in full force and effect.

 

1. Amendment to Section 3 of the Plan.

 

  (a) The first sentence of Section 3 of the Plan is hereby deleted in its entirety and the following substituted in its stead:

Subject to the provisions of Section 13 of the Plan and except as provided under Section 3(b) below, the maximum number of Shares which may be optioned or sold under the Plan is Seven Million Six Hundred and Eleven Thousand and One Hundred and Fifty-two (7,611,152) Shares.

 

  (b) Section 3 of the Plan is hereby amended by (i) renumbering the first paragraph thereof as subsection (a), and (ii) adding the following as subsection (b):

(b) Upon the issuance of shares of the Company’s Series C Convertible Preferred Stock, $.001 par value per share after December 8, 2004, the number of Shares reserved under this Section 3 shall automatically be increased to be 12.5% of the fully diluted capital of the Company (assuming the full exercise of any outstanding options, warrants or other rights to purchase Common Stock or any preferred stock of the Company (excluding Options outstanding under this Plan and shares issued as a result of the exercise of Options under this Plan) and the full conversion of any preferred stock of the Company outstanding on that date); provided, however, that in no case shall the number of Shares reserved under the Plan be decreased as a result of the foregoing and no more than twenty percent (20%) of the Shares reserved under the Plan shall be subject, at any one time, to Incentive Stock Options.

 


R UBICON T ECHNOLOGY , I NC .   -1-  

A MENDMENT N O . 4 TO

2001 E QUITY P LAN


2. Adoption

This Amendment to the Plan has been adopted by the Board of Directors as of December 6, 2004 and the Stockholders as of December 6, 2004.

 

RUBICON TECHNOLOGY, INC.

By:

 

/s/ Christopher J. Moffitt

 

Christopher J. Moffitt.

 

Chief Executive Officer and President

 


R UBICON T ECHNOLOGY , I NC .   -2-  

A MENDMENT N O . 4 TO

2001 E QUITY P LAN

Exhibit 10.1(e)

R UBICON T ECHNOLOGY , I NC .

AMENDMENT NO. 5

TO THE

RUBICON TECHNOLOGY, INC. 2001 EQUITY PLAN

This Amendment No. 5 (the “Amendment”) amends the 2001 Equity Plan, as amended by Amendment No. 1, dated as of November 6, 2001, Amendment No. 2, dated as of May 21, 2002, Amendment No. 3, dated as of May 28, 2004 and Amendment No. 4, dated as of December 6, 2004 (the “Plan”) of Rubicon Technology, Inc., a Delaware corporation. Except as expressly modified hereby, all of the terms and provisions of the Plan shall continue in full force and effect.

 

1. Amendment to Section 3 of the Plan. The first sentence of Section 3 of the Plan is hereby deleted in its entirety and the following substituted in its stead:

Subject to the provisions of Section 13 of the Plan, the maximum number of Shares which may be optioned or sold under the Plan is Nine Million One Hundred Fifty-five Thousand (9,155,000) Shares.

 

2. Adoption

This Amendment to the Plan has been adopted by the Board of Directors as of June 28, 2005 and the Stockholders as of June 28, 2005.

Exhibit 10.1(f)

R UBICON T ECHNOLOGY , I NC .

AMENDMENT NO. 6

TO THE

RUBICON TECHNOLOGY, INC. 2001 EQUITY PLAN

This Amendment No. 6 (the “Amendment”) amends the 2001 Equity Plan, as amended by Amendment No. 1, dated as of November 6, 2001, Amendment No. 2, dated as of May 21, 2002, Amendment No. 3, dated as of May 28, 2004, Amendment No. 4, dated as of December 6, 2004, Amendment No. 5, dated as of June 28, 2005 (the “Plan”) of Rubicon Technology, Inc., a Delaware corporation. Except as expressly modified hereby, all of the terms and provisions of the Plan shall continue in full force and effect.

 

  (a) The first sentence of Section 3 of the Plan is hereby deleted in its entirety and the following substituted in its stead:

Subject to the provisions of Section 13 of the Plan and except as provided under Section 3(b) below, the maximum number of Shares which may be optioned or sold under the Plan is Sixteen Million Nine Hundred and Eight Thousand (16,908,000) Shares.

 

  (b) Section 3 of the Plan is hereby amended by (i) renumbering the first paragraph thereof as subsection (a), and (ii) adding the following as subsection (b):

(b) Upon the issuance of shares of the Company’s Series E Convertible Preferred Stock, $.001 par value per share, the number of Shares reserved under this Section 3 shall automatically be increased to be 12.5% of the fully diluted capital of the Company (assuming the full exercise of any outstanding options, warrants or other rights to purchase Common Stock or any preferred stock of the Company (excluding Options outstanding under this Plan and shares issued as a result of the exercise of Options under this Plan) and the full conversion of any preferred stock of the Company outstanding on that date); provided, however, that in no case shall the number of Shares reserved under the Plan be decreased as a result of the foregoing and no more than twenty percent (20%) of the Shares reserved under the Plan shall be subject, at any one time, to Incentive Stock Options.

 

2. Adoption

This Amendment to the Plan has been adopted by the Board of Directors as of November 30, 2005 and the Stockholders as of November 30, 2005.

Exhibit 10.1(g)

R UBICON T ECHNOLOGY , I NC .

AMENDMENT NO. 7

TO THE

RUBICON TECHNOLOGY, INC. 2001 EQUITY PLAN

This Amendment No. 7 (the “Amendment”) amends the 2001 Equity Plan of Rubicon Technology, Inc., a Delaware corporation, as amended by Amendment No. 1, dated as of November 6, 2001, Amendment No. 2, dated as of May 21, 2002, Amendment No. 3, dated as of May 28, 2004, Amendment No. 4, dated as of December 6, 2004, Amendment No. 5, dated as of June 28, 2005 and Amendment No. 6, dated November 30, 2005 (the “Plan”). Except as expressly modified hereby, all of the terms and provisions of the Plan shall continue in full force and effect.

 

1. Amendments

 

  (a) Section 3(a) (numbered as paragraph (a) pursuant to the Amendment No. 6 to the Plan) is hereby amended to renumber that paragraph as Section “3” and the first sentence of that paragraph is hereby deleted in its entirety and the following substituted in its stead:

Subject to the provisions of Section 13 of the Plan, the maximum number of Shares which may be optioned or sold under the Plan is Eighteen Million Eight Hundred Forty-Five Thousand Six Hundred Seventy-Seven (18,845,677) Shares.

 

  (b) Section 3(b) of the Plan is hereby deleted in its entirety.

 

2. Adoption

This Amendment to the Plan has been adopted by the Board of Directors as of July 26, 2006 and the Stockholders as of July 26, 2006.

Exhibit 10.1(h)

R UBICON T ECHNOLOGY , I NC .

2001 EQUITY PLAN

NOTICE OF STOCK OPTION GRANT AND STOCK OPTION AGREEMENT

You have been granted an option (the “Option”) to purchase Common Stock of Rubicon Technology, Inc. (the “Company”), a Delaware corporation, on the terms and conditions set forth herein. Capitalized terms used without definition in this Notice of Stock Option Grant (the “Notice”) or in the Stock Option Agreement (the “Option Agreement”) of which this Notice is a part, are used as defined in the 2001 Equity Plan (the “Plan”) of the Company.

 

Name of Optionee:   

 

  
Date of Grant:   

 

  
Vesting Commencement Date:   

 

  
Type of Option:    Non-qualified Stock Option   
Term:    Ten (10) years from Date of Grant (subject to earlier termination as provided in the Plan)   

This Option is for                      shares of Common Stock at an exercise price per share of $              , subject to adjustment pursuant to the Plan.

Vesting Schedule : Subject to the other requirements hereof, this Option may be exercised only upon and after, and to the extent that, this Option has vested. The portions of this Option listed below shall vest on each of the dates listed below, provided in each case that Optionee continues to be a Service Provider on such date:

 

Percentage of Shares of Optioned Stock Vesting

  

Date

25%    First (1st) anniversary of the Vesting Commencement Date
25%    Second (2nd) anniversary of the Vesting Commencement Date
25%    Third (3rd) anniversary of the Vesting Commencement Date
25%    Fourth (4 th ) anniversary of the Vesting Commencement Date

By your signature and the signature of the Company’s representative below, you and the Company agree that this Option is granted under and governed by the terms and conditions of the Plan and the Option Agreement to which this Notice is attached. The Option Agreement is a part hereof. Optionee has reviewed the Plan, this Notice and the Option Agreement, and has had an opportunity to obtain the advice of counsel prior to executing this Notice and Option Agreement. Optionee hereby agrees to accept as binding, conclusive and final all decisions or interpretations of the Administrator upon any questions relating to the Plan, this Notice and the Option Agreement. Optionee is a resident of the state listed below.

 

OPTIONEE       RUBICON TECHNOLOGY, INC.

 

    By  

 

Signature      

 

     

 

Printed Name       Printed Name

 

     

 

State of Residence       Title


THE ISSUANCE OF THE SECURITIES EVIDENCED HEREBY WAS NOT REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR UNDER ANY STATE OR OTHER SECURITIES LAWS. NEITHER THE SECURITIES NOR ANY INTEREST THEREIN MAY BE OFFERED, SOLD, TRANSFERRED, ASSIGNED OR OTHERWISE DISPOSED OF EXCEPT (I) PURSUANT TO EFFECTIVE REGISTRATIONS UNDER APPLICABLE SECURITIES LAWS OR (II) UPON DELIVERY TO THE COMPANY OF AN OPINION OF COUNSEL (OR OTHER EVIDENCE SATISFACTORY TO THE COMPANY) ACCEPTABLE TO THE COMPANY, THAT THE PROPOSED DISPOSITION MAY BE EFFECTED IN COMPLIANCE WITH APPLICABLE SECURITIES LAWS WITHOUT REGISTRATION. ADDITIONAL RESTRICTIONS ON TRANSFER ARE SET FORTH HEREIN.

R UBICON T ECHNOLOGY , I NC .

2001 EQUITY PLAN

STOCK OPTION AGREEMENT

1. Grant of Option .

(a) The Administrator of the Company hereby grants to the optionee (the “Optionee”) named in the Notice of Stock Option Grant (the “Notice”) to which this Stock Option Agreement (the “Option Agreement”) is attached an option (the “Option”) to purchase the number of shares, as set forth in such Notice, at the exercise price per share set forth in the Notice (the “Exercise Price”), subject to the terms and conditions of the Plan, which is incorporated herein by reference. Subject to provisions of the Plan stating otherwise, in the event of a conflict between the terms and conditions of the Plan and the terms and conditions of this Option Agreement, the terms and conditions of the Plan shall prevail.

(b) This Option is not intended to qualify as an Incentive Stock Option under Section 422 of the Code unless it is so designated in the Notice as an Incentive Stock Option. However, if this Option is designated to be an Incentive Stock Option, to the extent that it exceeds the limit set forth in Section 422(d) of the Code, it shall be treated as a Non-qualified Stock Option.

2. Exercise of Option .

(a) Right to Exercise . Subject to Sections 2(c), 2(d), and 2(e) below, this Option is exercisable during its term in accordance with the Vesting Schedule set out in the Notice and the applicable provisions of the Plan and this Option Agreement.

(b) Method of Exercise . The Option is exercisable by delivery of an exercise notice, in the form attached as Exhibit A (the “Exercise Notice”), which shall state the election to exercise the Option, the number of Shares in respect of which the Option is being exercised (the “Exercised Shares”), and such other representations and agreements as may be required by the Company pursuant to the provisions of the Plan. The Exercise Notice shall be completed by the Optionee, or personal representative of the Optionee as provided in the Plan, and delivered to an officer of the Company. The Exercise Notice shall be accompanied by payment of the aggregate Exercise Price as to all Exercised Shares. The Option shall be deemed to be exercised upon receipt by the Company of such fully executed Exercise Notice accompanied by such aggregate Exercise Price.

(c) Compliance with Law . No Shares shall be issued pursuant to the exercise of this Option unless such issuance and exercise complies with Applicable Laws. Assuming such compliance, for income tax purposes the Exercised Shares shall be considered transferred to the Optionee on the date the Option is exercised with respect to such Exercised Shares.

(d) Merger, Reorganization or Sale . In the event of any merger, consolidation, or similar reorganization of the Company with any other entity pursuant to which the holders of Shares surrender Shares (or the Shares are deemed converted) in exchange for other shares of capital stock or securities of the Company or another entity or the sale of substantially all of the assets of the Company, if the Option is not assumed or an equivalent option or right is not substituted by the successor corporation or a Parent or Subsidiary of the successor corporation, then the Optionee shall fully vest in and have the right to exercise the Option as to all of the Optioned Stock, including Shares as to which it would not otherwise be vested or exercisable. If the Option becomes fully

 


R UBICON T ECHNOLOGY , I NC .    -1-    S TOCK O PTION A GREEMENT


vested and exercisable in lieu of assumption or substitution in the event of a merger or sale of assets, the Administrator shall notify the Optionee in writing or electronically that the Option shall be fully vested and exercisable for a period of fifteen (15) days from the date of such notice, and the Option shall terminate upon the expiration of such period. For the purposes of this Section 2(d), the determination of whether the Option has been assumed or substituted shall be made by the Board, whose determination in that respect shall be final, binding and conclusive.

(e) Death or Disability . Upon the death or Disability of Optionee, all Shares subject to the Option shall immediately vest, and the Option shall become immediately exercisable with respect to all Shares subject to the Option in accordance with this Option Agreement and the Plan.

(f) Restrictions on Voting . Until the occurrence of an underwritten public offering by the Company of its equity securities pursuant to an effective registration statement filed under the Securities Act, Optioned Stock will be voted by the Chairman of the Board of the Company, pursuant to an irrevocable proxy in the form attached hereto as Exhibit B (the “Proxy”). As a condition precedent to the exercise of the Option, Optionee shall agree to be bound by the terms and conditions of the Proxy and shall deliver an executed version of the Proxy with the executed Exercise Notice. The Proxy shall be binding upon the estate, heirs, successors and assigns of the Optionee.

3. Method of Payment .

Payment of the aggregate Exercise Price shall be by any of the following, or a combination thereof, at the election of the Optionee:

(a) cash; or

(b) certified check; or

(c) such other consideration as permitted by the Administrator in its sole discretion.

4. Non-Transferability of Option .

This Option may not be transferred in any manner otherwise than by will or by the laws of descent or distribution and may be exercised during the lifetime of Optionee only by the Optionee. The terms of the Plan and this Option Agreement shall be binding upon the executors, administrators, heirs, successors and assigns of the Optionee.

5. Term of Option .

This Option may be exercised only within the term set out in the Notice of Grant, and may be exercised during such term only in accordance with the Plan and the terms of this Option Agreement.

6. Other Restrictions .

(a) Stockholders’ Agreement . As a condition precedent to the exercise of the Option, Optionee shall agree to be bound by the terms and conditions of that certain Amended and Restated Stockholder’s Agreement, dated as of June 28, 2005, by and between the Company and the Stockholders of the Company (as defined therein) (the “Stockholders’ Agreement”). Optionee shall, upon exercise of the Option, deliver an executed version of the Adoption of Stockholders’ Agreement, attached hereto as Exhibit C , to the Company. Optionee agrees to be bound by the Stockholders’ Agreement as an Other Stockholder (as defined therein).

(b) Repurchase Option . In addition to the restrictions within the Stockholder’s Agreement, in the event that Optionee ceases to be a Service Provider, whether voluntarily or involuntarily, due to death, Disability or otherwise, the Company may purchase from Optionee or Optionee’s estate, heirs, beneficiaries, representatives or successors in interest (the “Successors”), until the later of (i) one (1) year after the date the Optionee ceases to be a Service Provider of the Company, or (ii) one (1) year after the exercise by the Optionee or the Successors of any vested portion of the Option, all, or any portion of, Optionee’s Optioned Stock, at a price equal to the fair market value of such Optioned Stock as of the purchase date as determined by the Company’s Board in its sole and absolute discretion to the extent permitted by the Stockholders’ Agreement in accordance with Section 2.5 of the Stockholders’ Agreement.

7. Restrictions on Transfer .

(a) Securities Law Restrictions . Regardless of whether the offering and sale of Shares under the Plan have been registered under the Securities Act or have been registered or qualified under the securities laws of any

 


R UBICON T ECHNOLOGY , I NC .    -2-    S TOCK O PTION A GREEMENT


state, the Company at its discretion may impose restrictions upon the sale, pledge or other transfer of such Shares (including the placement of appropriate legends on stock certificates or the imposition of stop-transfer instructions) if, in the judgment of the Company, such restrictions are necessary or desirable in order to achieve compliance with the Securities Act, the securities laws of any state or any other law.

(b) Market Stand-Off . In connection with any underwritten public offering by the Company of its equity securities pursuant to an effective registration statement filed under the Securities Act, including the Company’s initial public offering, the Optionee shall not directly or indirectly without the prior written consent of the Company or its underwriters (i) offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant for the sale of, lend or otherwise dispose of or transfer any Shares or any securities convertible into or exchangeable or exercisable for such Common Stock, whether now owned or hereafter acquired by the Optionee or with respect to which the Optionee has or hereafter acquires the power of disposition or file any registration statement under the Securities Act with respect to any of the foregoing or (ii) enter into any swap or any other agreement or any transaction that transfers, in whole or in part, directly or indirectly, the economic consequence of ownership of such Common Stock or any securities convertible into or exchangeable or exercisable for such Common Stock, whether any such swap or transaction is to be settled by delivery of such Common Stock or other securities in cash or otherwise or (iii) agree to engage in any of the foregoing transactions. Such restriction, or other substantially similar restriction requested by the underwriters (in either case, the “Market Stand-Off”) shall be in effect for such period of time following the date of the final prospectus for the offering as may be requested by the Company or such underwriters. In the event of the declaration of a stock dividend, a spin-off, a stock split, an adjustment in conversion ratio, a recapitalization or a similar transaction affecting the Company’s outstanding securities without receipt of consideration, any new, substituted or additional securities which are by reason of such transaction distributed with respect to any Shares subject to the Market Stand-Off, or into which such Shares thereby become convertible, shall immediately be subject to the Market Stand-Off. In order to enforce the Market Stand-Off, the Company may impose stop-transfer instructions with respect to the Shares acquired under this Option Agreement until the end of the applicable stand-off period. The Company’s underwriters shall be beneficiaries of the agreement set forth in this Section 7(b). This Section 7(b) shall not apply to Shares registered in the public offering under the Securities Act, and the Optionee shall be subject to this Section 7(b) only if the directors and officers of the Company are subject to similar arrangements. The Optionee agrees to evidence the Market Stand-Off by execution of a written lock-up letter addressed to such underwriters if and to the extent and in such form as may be requested by such underwriters.

(c) Investment Intent at Grant . The Optionee represents and agrees that the Shares to be acquired upon exercising this Option will be acquired for investment, and not with a view to the sale or distribution thereof.

(d) Investment Intent at Exercise . In the event that the sale of Shares under the Plan is not registered under the Securities Act but an exemption is available which requires an investment representation or other representation, the Optionee shall represent and agree at the time of exercise that the Shares being acquired upon exercising this Option are being acquired for investment, and not with a view to the sale or distribution thereof, and shall make such other representations as are deemed necessary or appropriate by the Company and its counsel.

(e) Securities Legend . All certificates evidencing Shares purchased under this Option Agreement in an unregistered transaction shall bear the following legend (and such other restrictive legends as are required or deemed advisable under the provisions of any applicable law):

THE ISSUANCE OF THE SHARES EVIDENCED HEREBY WAS NOT REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR UNDER ANY STATE OR OTHER SECURITIES LAWS. NEITHER THE SHARES NOR ANY INTEREST THEREIN MAY BE OFFERED, SOLD, TRANSFERRED, ASSIGNED OR OTHERWISE DISPOSED OF EXCEPT (I) PURSUANT TO EFFECTIVE REGISTRATIONS UNDER APPLICABLE SECURITIES LAWS OR (II) UPON DELIVERY TO THE COMPANY OF AN OPINION OF COUNSEL (OR OTHER EVIDENCE SATISFACTORY TO THE COMPANY) ACCEPTABLE TO THE COMPANY, THAT THE PROPOSED DISPOSITION MAY BE EFFECTED IN COMPLIANCE WITH APPLICABLE SECURITIES LAWS WITHOUT REGISTRATION. ADDITIONAL RESTRICTIONS ON TRANSFER ARE SET FORTH HEREIN.

 


R UBICON T ECHNOLOGY , I NC .    -3-    S TOCK O PTION A GREEMENT


THE CORPORATION WILL FURNISH WITHOUT CHARGE TO EACH STOCKHOLDER WHO SO REQUESTS, A FULL SUMMARY OR STATEMENT OF ALL OF THE POWERS, DESIGNATIONS, PREFERENCES AND RELATIVE, PARTICIPATING, OPTIONAL, OR OTHER SPECIAL RIGHTS OF EACH CLASS OF STOCK OR SERIES THEREOF AND THE QUALIFICATIONS, LIMITATIONS OR RESTRICTIONS OF SUCH POWERS, PREFERENCES AND/OR RIGHTS. ANY SUCH REQUEST SHOULD BE ADDRESSED TO THE SECRETARY OF THE CORPORATION.

(f) Proxy Legend . All certificates evidencing Shares purchased under this Option Agreement subject to the Proxy shall bear the following legend (and such other restrictive legends as are required or deemed advisable under the provisions of any applicable law):

THE VOTING OF THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO THAT CERTAIN IRREVOCABLE PROXY FROM THE HOLDER HEREOF IN FAVOR OF THE CHAIRMAN OF THE BOARD OF THE CORPORATION, DATED AS OF                      .

(g) Additional Legends . All certificates evidencing Shares purchased under this Option Agreement shall bear the following legend (and such other restrictive legends as are required or deemed advisable under the provisions of the Stockholders’ Agreement or the Plan):

THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO THE TERMS AND CONDITIONS OF THE STOCKHOLDERS’ AGREEMENT DATED AS OF FEBRUARY 16, 2001, AS AMENDED, THE CORPORATION’S 2001 EQUITY PLAN, AND A STOCK OPTION AGREEMENT BETWEEN THE CORPORATION AND THE REGISTERED HOLDER OF THE SHARES (OR THE PREDECESSOR IN INTEREST TO THE SHARES). SUCH SHARES MAY NOT BE SOLD, TRANSFERRED, OR OTHERWISE DISPOSED OF EXCEPT IN ACCORDANCE WITH SAID PLAN AND AGREEMENTS.

(h) Removal of Legends . If, in the opinion of the Company and its counsel, any legend placed on a stock certificate representing Shares sold under this Option Agreement is no longer required, the holder of such certificate shall be entitled to exchange such certificate for a certificate representing the same number of Shares but without such legend.

(i) Administration . Any determination by the Company and its counsel in connection with any of the matters set forth in this Section 7 shall be conclusive and binding on the Optionee and all other persons.

8. Entire Agreement; Governing Law . The Plan is incorporated herein by reference. The Plan and this Option Agreement constitute the entire agreement of the parties with respect to the subject matter hereof and supersede in their entirety all prior undertakings and agreements of the Company and Optionee with respect to the subject matter hereof, and may not be modified adversely to the Optionee’s interest except by means of a writing signed by the Company and Optionee. This Option Agreement is governed by the internal substantive laws, but not the choice of law rules, of the State of Illinois.

9. NO PROMISE OR GUARANTEE OF CONTINUED SERVICE . OPTIONEE ACKNOWLEDGES AND AGREES THAT THE VESTING OF THE OPTION PURSUANT TO THE VESTING SCHEDULE HEREOF IS EARNED ONLY BY CONTINUING AS A SERVICE PROVIDER AT THE WILL OF THE COMPANY (AND NOT THROUGH THE ACT OF BEING HIRED, BEING GRANTED AN OPTION OR PURCHASING SHARES HEREUNDER). OPTIONEE FURTHER ACKNOWLEDGES AND AGREES THAT THIS OPTION AGREEMENT, THE TRANSACTIONS CONTEMPLATED HEREUNDER AND THE VESTING SCHEDULE SET FORTH HEREIN DO NOT CONSTITUTE AN EXPRESS OR IMPLIED PROMISE OF CONTINUED ENGAGEMENT AS A SERVICE PROVIDER FOR THE VESTING PERIOD, FOR ANY PERIOD, OR AT ALL, AND SHALL NOT INTERFERE WITH OPTIONEE’S RIGHT OR THE COMPANY’S RIGHT TO TERMINATE OPTIONEE’S RELATIONSHIP AS A SERVICE PROVIDER AT ANY TIME, WITH OR WITHOUT CAUSE.

 


R UBICON T ECHNOLOGY , I NC .    -4-    S TOCK O PTION A GREEMENT


EXHIBIT A

2001 EQUITY PLAN

EXERCISE NOTICE

Rubicon Technology, Inc.

9931 Franklin Avenue

Franklin Park, IL 60131

Attention: Secretary

1. Exercise of Option . Effective as of today,                      , 20      , the undersigned (“Purchaser”) hereby elects to purchase                      shares (the “Shares”) of the Common Stock of Rubicon Technology, Inc. (the “Company”) under and pursuant to the 2001 Equity Plan (the “Plan”) and the Stock Option Agreement dated,                      , 20      (the “Option Agreement”). The purchase price for the Shares shall be $              per Share, as required by the Option Agreement.

2. Deliveries . Purchaser herewith delivers to the Company the full purchase price for the Shares, an executed Proxy (as defined in the Option Agreement), and an executed Adoption of Stockholders’ Agreement (as defined in the Option Agreement).

3. Representations of Purchaser . Purchaser acknowledges that Purchaser has received, read and understood the Plan and the Option Agreement and agrees to abide by and be bound by their terms and conditions.

4. Rights as Stockholder . Until the issuance (as evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company) of the Shares, no right to vote or receive dividends or any other rights as a stockholder shall exist with respect to the Optioned Stock, notwithstanding the exercise of the Option. The Shares so acquired shall be issued to the Optionee as soon as practicable after exercise of the Option. No adjustment will be made for a dividend or other right for which the record date is prior to the date of issuance, except as provided in Section 13 of the Plan.

5. Tax Consultation . Purchaser understands that Purchaser may suffer adverse tax consequences (possibly including, without limitation, the obligation to make tax payments prior to realizing cash value) as a result of Purchaser’s purchase or disposition of the Shares. Purchaser represents that Purchaser has consulted with any tax consultants Purchaser deems advisable in connection with the purchase or disposition of the Shares and that Purchaser is not relying on the Company or any accountant, attorney or other agent of the Company for any tax advice.

 

    Accepted by:
PURCHASER     RUBICON TECHNOLOGY, INC.

 

   

 

Signature     By  

 

   

 

Printed Name     Name  

 

   

 

Address     Title  

 

   

 

Address     Date Received

 


R UBICON T ECHNOLOGY , I NC .    Exhibit A    S TOCK O PTION A GREEMENT
   Exercise Notice   


EXHIBIT B

2001 EQUITY PLAN

IRREVOCABLE PROXY

The undersigned hereby revokes any previous proxies and irrevocably appoints the Chairman of the Board of Directors of Rubicon Technology, Inc. (the “Company”), and his successor or successors (the “Proxyholder”), as the proxy of the undersigned, with the power to act hereunder, to attend any and all meetings of the stockholders of the Company, and any adjournments or postponements of such meetings (collectively, a “Meeting”), to vote for and in the name, place and stead of the undersigned at any Meeting all shares of the Common Stock, par value $0.001 per share (the “Stock”) owned by the undersigned on the date of this proxy and any other shares of any capital stock of the Company issued to the undersigned in exchange therefor, as a dividend in respect thereof or hereafter otherwise acquired by the undersigned, to execute written consents to corporate action, to represent and otherwise act for the undersigned on any and all matters with the same force and effect as if the undersigned were personally present at such Meeting or were executing such consent, and to receive all notices by the Company to stockholders of the Company on behalf of the undersigned.

This proxy is coupled with an interest and is expressly made irrevocable and will be effective until the earlier of (i) the consummation of an initial public offering by the Company that is registered under the Securities Act of 1933, as amended, or (ii) the expiration of ten years from the date hereof. The undersigned acknowledges that monetary damages would be an inadequate remedy for a breach of the provisions of this proxy and that (in addition to any other remedy available at law) the obligations of the undersigned and the rights of the Proxyholder are specifically enforceable.

The undersigned authorizes the Proxyholder to substitute any other person or entity to act under this proxy, to revoke any such substitution, and to file this proxy and any substitution or revocation of this proxy with the Secretary of the Company. This proxy shall be binding upon the undersigned’s estate, heirs, successors and assigns.

 

Dated as of                      , 20     

 

 

  Signature
 

 

  Printed Name
 

 

  Spouse’s Signature
 

 

  Printed Name

 


R UBICON T ECHNOLOGY , I NC .    Exhibit B    S TOCK O PTION A GREEMENT
   Irrevocable Proxy   


EXHIBIT C

2001 EQUITY PLAN

ADOPTION OF STOCKHOLDERS’ AGREEMENT

The undersigned (the “Purchaser”) as a condition precedent to becoming owner of record of _________________ shares of the Common Stock, par value $0.001 per share, of Rubicon Technology, Inc., a Delaware corporation (the “Company”), hereby agrees to become a party to and be bound by that certain Stockholders’ Agreement, by and among the Company and the Stockholders of the Company, as may be amended from time to time (as defined therein), attached hereto as Exhibit I (the “Stockholders’ Agreement”). The Purchaser hereby agrees to be bound by the Stockholders’ Agreement as an Other Stockholder (as defined therein).

IN WITNESS WHEREOF, this Adoption of Stockholder’s Agreement has been duly executed by or on behalf of the undersigned as of the date below written.

 

    Accepted by:
PURCHASER     RUBICON TECHNOLOGY, INC.

 

   

 

Signature     By  

 

   

 

Printed Name     Name  

 

   

 

Address     Title  

 

   

 

Address     Date Received

 


R UBICON T ECHNOLOGY , I NC .    Exhibit C    S TOCK O PTION A GREEMENT
   Adoption of Stockholders’ Agreement   

Exhibit 10.2

RUBICON TECHNOLOGY, INC.

2007 STOCK INCENTIVE PLAN

ARTICLE 1

Establishment and Purposes of the Plan.

Rubicon Technology, Inc., a Delaware corporation (the “Company”), hereby establishes this stock incentive plan to be known as the Rubicon Technology, Inc. 2007 Stock Incentive Plan (the “Plan”). The Plan was duly adopted by the Board of Directors of the Company (the “Board”) on August 29, 2007 (the “Effective Date”).

 

1.1 Purposes of the Plan . The purposes of this Plan are:

 

  (a) to attract and retain the best available personnel for positions of substantial responsibility;

 

  (b) to provide additional incentive to Employees, Directors and Consultants; and

 

  (c) to promote the success of the Company’s business.

ARTICLE 2

Definitions

 

2.1 As used herein, the following terms shall have the meanings set forth below, unless otherwise clearly required by the context:

 

  (a) Adverse Conduct ” means, for purposes of Article 14, any of the following:

 

  (1) In the case of an Awardee who is an Employee, the Awardee’s rendering of services for any organization or engaging directly or indirectly in any business which is or becomes competitive with the Company, or which organization or business, or the rendering of services to such organization or business, is or becomes otherwise prejudicial to or in conflict with the interests of the Company in violation of any noncompetition or other similar agreement between the Company and the Employee;

 

  (2) An Awardee’s unauthorized disclosure to anyone outside the Company, or the use in other than the Company’s business, of any confidential information or material relating to the business of the Company, acquired by the Awardee either during or after employment with the Company or either during or after having provided services to the Company as a Consultant;

 

  (3) An Awardee’s failure or refusal to disclose promptly and to assign to the Company, all right, title and interest in any invention or idea, patentable or not, made or conceived by the Awardee during employment by the Company, relating in any manner to the actual or anticipated business, research or development work of the Company or the failure or refusal to do anything reasonably necessary to enable the Company to secure a patent where appropriate in the United States and in other countries where the Awardee has a legal obligation to so disclose, assign or take such actions;

 

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  (4) Activity by the Awardee that results in termination of the Awardee’s employment or services for the Company for Cause;

 

  (5) An Awardee’s violation of any written Company rules, policies, procedures or guidelines regarding business conduct, where such rules, policies, procedures or guidelines have been distributed or made available to the Awardee; or

 

  (6) Any attempt directly or indirectly to induce any employee of the Company to be employed or perform services elsewhere or any attempt directly or indirectly to solicit the trade or business of any current or prospective customer, supplier or partner of the Company in violation of any noncompetition or other similar agreement between the Company and the Employee;

 

  (b) Applicable Laws ” means the requirements relating to the administration of stock incentive plans under U.S. state corporate laws, rules and regulations, U.S. federal and state securities laws, rules and regulations, the Code, any stock exchange or quotation system on which the Common Stock is listed or quoted and the applicable laws of any foreign country or jurisdiction where Awards are, or will be, granted under the Plan.

 

  (c) Award ” means an Option, Stock Appreciation Right, Restricted Stock, Restricted Stock Unit, Performance Award or Bonus Shares granted under the Plan.

 

  (d) Award Agreement ” means a written or electronic agreement between an Awardee and the Company evidencing the terms and conditions of an Award granted pursuant to the Plan. An Award Agreement is subject to the terms and conditions of the Plan.

 

  (e) Awardee ” means the Service Provider-recipient of an outstanding Award granted under the Plan.

 

  (f) Board ” means the Board of Directors of the Company.

 

  (g) Bonus Shares ” means Shares that are granted to a Service Provider pursuant to Article 11 of the Plan without cost and without restrictions in recognition of past performance (whether determined by reference to another employee benefit plan of the Company or otherwise) or as an incentive to become a Service Provider of the Company or a Subsidiary.

 

  (h) Cause ” means, unless otherwise defined for a particular Awardee in an Award Agreement or in an employment or consulting agreement between the Company and such Awardee which addresses the effect of a termination for Cause (as therein defined) on benefits hereunder:

 

  (1) an Awardee’s commission of a felony or other crime involving fraud, dishonesty or moral turpitude;

 

  (2) an Awardee’s willful or reckless misconduct in the performance of the Awardee’s duties;

 

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  (3) an Awardee’s habitual neglect of duties; provided, however that the Awardee is given at least ten (10) days prior written notice of such habitual neglect and the opportunity to cure any curable neglect; or

 

  (4) an Awardee’s breach or violation of any agreement between the Awardee and the Company, including but not limited to any noncompetition, nonsolicitation, or nondisclosure undertaking, or of any Company policy

Notwithstanding the foregoing, for purposes of clauses (2) and (3) above, Cause shall not include bad judgment or negligent acts not amounting to habitual neglect of duties. An Awardee who agrees to resign his affiliation with the Company or a Subsidiary in lieu of being terminated for Cause may be deemed to have been terminated for Cause for purposes of this Plan.

 

  (i) “Change in Control” means the occurrence of any of the following events:

 

  (1) Any “person” (as such term is used in Sections 13(d) and 14(d) of the Exchange Act) becomes the “beneficial owner” (as defined in Rule 13d-3 of the Exchange Act), directly or indirectly, of securities of the Company representing fifty percent (50%) or more of the total voting power represented by the Company’s then outstanding voting securities;

 

  (2) The consummation of the sale or disposition by the Company of all or substantially all of the Company’s assets;

 

  (3) A change in the composition of the Board occurring within a two (2)-year period, as a result of which fewer than a majority of the directors are Incumbent Directors. “Incumbent Directors” means directors who either (A) are Directors as of the effective date of the Plan, or (B) are elected, or nominated for election, to the Board with the affirmative votes of at least a majority of the Incumbent Directors at the time of such election or nomination (but will not include an individual whose election or nomination is in connection with an actual or threatened proxy contest relating to the election of directors to the Company); or

 

  (4) The consummation of a merger or consolidation of the Company with any other corporation, other than a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity or its parent) at least fifty percent (50%) of the total voting power represented by the voting securities of the Company or such surviving entity or its parent outstanding immediately after such merger or consolidation.

 

  (j) Code ” means the Internal Revenue Code of 1986, as amended, and any regulations and rulings thereunder.

 

  (k) Committee ” means the Board or the committee of the Board designated by the Board to administer this Plan in accordance with Article 4 of the Plan.

 

  (l) Common Stock ” means the common stock, $0.001 par value, of the Company.

 

R UBICON T ECHNOLOGY , I NC .    -3-    2007 S TOCK I NCENTIVE P LAN


  (m) Company ” means Rubicon Technology, Inc., a Delaware corporation.

 

  (n) Consultant ” means a natural person, including an advisor, engaged by the Company or a Parent or Subsidiary to render services to such entity (other than an Employee or Director).

 

  (o) Date of Grant ” means the date on which the Committee completes the corporate action granting an Award or such other later date following the completion of such corporate action as is established by the Committee and set forth in the Award Agreement. Notice of a grant shall be provided to each Awardee within a reasonable time after the date of such grant.

 

  (p) Director ” means a member of the Board.

 

  (q) Disability ” or “ Disabled ” means:

 

  (1) as to an Incentive Stock Option, a total and permanent disability as defined in Code Section 22(e)(3);

 

  (2) as to an Award (other than an Incentive Stock Option), that constitutes “deferred compensation” for purposes of Code Section 409A:

 

  (A) The Awardee is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment that can be expected to result in death or can be expected to last for a continuous period of not less than 12 months;

 

  (B) The Awardee is, by reason of any medically determinable physical or mental impairment that can be expected to result in death or can be expected to last for a continuous period of not less than 12 months, receiving income replacement benefits for a period of not less than three months under an accident and health plan covering employees of the Company;

 

  (C) The Awardee is determined to be totally disabled by the Social Security Administration; or

 

  (D) The Awardee is determined to be disabled under a disability insurance program applying the definition of disability set forth in either Subsection (A) or (C) of this definition; and

 

  (3) As to all other Awards, as determined by the Committee.

 

  (r) Effective Date ” means August 30, 2007.

 

  (s) Employee ” means any person, including Officers and Directors, employed by the Company or any Parent or Subsidiary of the Company. Neither service as a Director nor payment of a director’s fee by the Company shall be sufficient to constitute “employment” by the Company.

 

  (t) Exchange Act ” means the Securities Exchange Act of 1934, as amended, and any regulations and rulings thereunder.

 

R UBICON T ECHNOLOGY , I NC .    -4-    2007 S TOCK I NCENTIVE P LAN


  (u) Fair Market Value ” means, as of any date, the value of Common Stock determined as follows:

 

  (1) If the Common Stock is listed on any established stock exchange or a national market system, including without limitation the Nasdaq Global Market, The Nasdaq Global Select Market or The Nasdaq Capital Market of The Nasdaq Stock Market, its Fair Market Value shall be the closing sales price for such stock (or the closing bid, if no sales were reported) as quoted on such exchange or system for the last market trading day prior to the time of determination, as reported in The Wall Street Journal or such other source as the Committee deems reliable;

 

  (2) If the Common Stock is regularly quoted by a recognized securities dealer but selling prices are not reported, the Fair Market Value of a Share of Common Stock shall be the mean between the high bid and low asked prices for the Common Stock on the last market trading day prior to the day of determination, as reported in The Wall Street Journal or such other source as the Committee deems reliable;

 

  (3) The price per share at which Shares are initially offered for sale to the public by the Company’s underwriters in the Initial Public Offering of the Common Stock pursuant to a registration statement filed with the SEC under the Securities Act if the Award is made on the effective date of such registration statement; or

 

  (4) In the absence of an established market for the Common Stock, the Fair Market Value shall be determined in good faith by the Committee by the reasonable application of a reasonable valuation method.

 

  (v) Incentive Stock Option ” means an Option intended to qualify as an incentive stock option within the meaning of Code Section 422.

 

  (w) Initial Public Offering ” means the underwritten initial public offering of Common Stock that is registered under the Securities Act.

 

  (x) Irrevocable Proxy ” means the method by which the Service Provider irrevocably appoints the Company as the proxy for the Service Provider for all purposes related to the Shares issued pursuant to an Award under the Plan.

 

  (y) Modification ” means any change in the terms of an Option or a Stock Appreciation Right (or change in the terms of the Plan or applicable Option or Stock Appreciation Right agreement) that may provide the holder of the Option or Stock Appreciation Right with a direct or indirect reduction in the exercise price of the Option or Stock Appreciation Right, or an additional deferral feature, or an extension or renewal of the Option or Stock Appreciation Right, regardless of whether the holder in fact benefits from the change in terms.

 

  (1) An extension of an Option or Stock Appreciation Right refers to the granting to the holder of an additional period of time within which to exercise the Option or Stock Appreciation Right.

 

R UBICON T ECHNOLOGY , I NC .    -5-    2007 S TOCK I NCENTIVE P LAN


  (2) A renewal of an Option or Stock Appreciation Right is the granting by the Company of the same rights or privileges contained in the original Option or Stock Appreciation Right on the same terms and conditions.

 

  (3) Notwithstanding the foregoing provisions of this Section 2.1(y)(3), it is not a Modification of an Option or Stock Appreciation Right to provide an additional period of time within which to exercise the Option or Stock Appreciation Right if such additional period of time ends no later than (i) the original term of the Option or Stock Appreciation Right, or (ii) ten (10) years, and it is not a Modification to change the terms of an Option or Stock Appreciation Right in any of the ways or for any of the purposes specifically described in applicable Treasury Regulations under Code Section 409A as not resulting in a modification, extension or renewal of a stock right, or the granting of a new stock right, for purposes of that section.

 

  (z) Nonstatutory Stock Option ” means an Option not intended to qualify as an Incentive Stock Option.

 

  (aa) Notice of Grant ” means a written or electronic notice evidencing certain terms and conditions of an individual Award grant. The Notice of Grant is part of the Award Agreement.

 

  (bb) Officer ” means a person who is an officer of the Company within the meaning of Section 16 of the Exchange Act.

 

  (cc) Option ” means a stock option granted under the Plan pursuant to Article 6 of the Plan.

 

  (dd) Option Agreement ” means an Award Agreement between the Company and an Optionee evidencing the terms and conditions of an individual Option granted to the Optionee pursuant to the Plan. The Option Agreement is subject to the terms and conditions of the Plan.

 

  (ee) Optioned Stock ” means the Common Stock subject to an Option.

 

  (ff) Optionee ” means the holder of an outstanding Option granted under the Plan.

 

  (gg) Parent ” means a “parent corporation,” whether now or hereafter existing, as defined in Section 424(e) of the Code.

 

  (hh) Performance Award ” means an Award granted under the Plan pursuant to Article 10 of the Plan.

 

  (ii) Performance Factors ” means the performance of the Company or any Subsidiary, division, business unit or individual using one of the following measures, either on an operating or GAAP basis where applicable, and including measuring the performance of any of the following relative to a defined peer group of companies: revenue; net revenue; revenue growth; net revenue growth; earnings (including on a per share basis); earnings growth rate (including on a per share basis); earnings before interest, taxes, depreciation and amortization (“EBITDA”); total shareholder return; profitability; return on equity; return on capital; return on assets, cash flow, including free cash flow; cost savings; process improvement goals; achievement of balance sheet or income statement objective goals; product units shipped; and capital expenditures. When establishing Performance Factors for

 

R UBICON T ECHNOLOGY , I NC .    -6-    2007 S TOCK I NCENTIVE P LAN


 

a Performance Period, the Committee may exclude any or all “extraordinary items” as determined under U.S. generally accepted accounting principles, including without limitation, the charges or costs associated with restructurings of the Company, discontinued operations, other unusual or nonrecurring items, and the cumulative effects of accounting changes.

 

  (jj) Performance Period ” means the period of 12 months or longer, but not exceeding five years, established by the Committee in connection with the grant of an Award for which the Committee has established performance objectives.

 

  (kk) Parent ” means a “parent corporation,” whether now or hereafter existing, as defined in Code Section 424(e).

 

  (ll) Plan ” means this Rubicon Technology, Inc. 2007 Stock Incentive Plan, as amended from time to time.

 

  (mm) Restricted Stock ” means Shares granted under the Plan pursuant to Article 8 of the Plan.

 

  (nn) Restricted Stock Agreement ” means an Award Agreement between the Company and an Awardee evidencing the terms and conditions of a grant of Restricted Stock to the Awardee. The Restricted Stock Agreement is subject to the terms and conditions of the Plan.

 

  (oo) Restricted Stock Unit ” means an Award granted under the Plan pursuant to Article 9 of the Plan.

 

  (pp) Rule 16b-3 ” means Rule 16b-3 of the Exchange Act or any successor to Rule 16b-3, as in effect when discretion is being exercised with respect to the Plan.

 

  (qq) SEC ” means the United States Securities and Exchange Commission, or any successor thereto.

 

  (rr) Section 16(b) ” means Section 16(b) of the Exchange Act.

 

  (ss) Securities Act ” means the Securities Act of 1933, as amended, and any regulations and rulings thereunder.

 

  (tt) Service Provider ” means an Employee, Director or Consultant.

 

  (uu) Stock Appreciation Right ” means a right to receive Shares or cash from the Company pursuant to Article 7 of the Plan.

 

  (vv) Share ” means a share of the Common Stock, as adjusted in accordance with Article 13 of the Plan.

 

  (ww) Subsidiary ” means a “subsidiary corporation”, whether now or hereafter existing, as defined in Code Section 424(f).

 

  (xx) Termination ” means the termination of an Awardee’s employment or service with the Company and all Subsidiaries. An Employee’s transfer between locations of the Company or between the Company, its Parent, any Subsidiary, or any successor does not constitute a

 

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Termination. A Service Provider for a Subsidiary shall, however, incur a Termination if the Subsidiary ceases to be a Subsidiary and the Service Provider does not immediately thereafter become a Service Provider of the Company or another Subsidiary.

 

  (1) A Service Provider who is an Employee shall not incur a Termination in the case of any leave of absence approved by the Company, except, that:

 

  (2) For purposes of Incentive Stock Options, no leave of absence may exceed ninety (90) days, unless reemployment upon expiration of such leave is guaranteed by statute or contract. If reemployment upon expiration of a leave of absence approved by the Company is not so guaranteed, on the one hundred eighty-first (181st) day of such leave, any Incentive Stock Option held by the Optionee shall cease to be treated as an Incentive Stock Option and shall be treated for tax purposes as a Nonstatutory Stock Option.

 

  (3) For purposes of an Award (other than an Incentive Stock Option), that constitutes “deferred compensation” for purposes of Code Section 409A, if reemployment upon expiration of a leave of absence approved by the Company is not guaranteed by statute or contract, the Awardee shall be deemed to have incurred a Termination on the one hundred eighty-first (181st) day of such leave.

 

2.2 In addition, certain terms used herein that are capitalized and set forth in quotes shall have the definitions ascribed to them in the first place in which they are used.

 

2.3 In applying the Plan’s definitions, the masculine shall include the feminine and the singular shall include the plural, and vice versa.

ARTICLE 3

Type of Awards; Shares Subject to the Plan

 

3.1 Types of Awards . The following types of Awards may be granted under the Plan: Options, Stock Appreciation Rights, Restricted Stock, Restricted Stock Units, Performance Awards, and Bonus Shares. Options granted under the Plan may be Incentive Stock Options or Nonstatutory Stock Options, as determined by the Committee at the time of grant.

 

3.2 Shares Subject to the Plan . Subject to adjustment as provided in Article 13 of the Plan, the maximum number of Shares which may be awarded or sold under the Plan is 2,307,692 Shares. All of the Shares that may be issued under this Plan may be issued upon the exercise of Options that qualify as Incentive Stock Options. The Shares may be authorized, but unissued, or reacquired Common Stock.

 

  (a) If an Award covered by one or more Shares is settled in cash or is forfeited without the delivery of Shares, such Shares shall again become available for future grant or sale under the Plan (unless the Plan has been terminated).

 

  (b) If an Option or Stock Appreciation Right expires or becomes unexercisable without having been exercised in full, the unpurchased Share or Shares which were subject thereto shall become available for future grant or sale under the Plan (unless the Plan has terminated); provided, however, that Shares that have actually been issued under the Plan shall not be returned to the Plan and shall not become available for future distribution under the Plan;

 

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  (c) If an Optionee tenders previously-acquired Shares in payment of the exercise price of an Option or if Shares are withheld in payment of the Option exercise price, the number of Shares represented thereby shall again be available for further Awards under the Plan;

 

  (d) If a Stock Appreciation Right is exercised and settled in Shares, the difference between the total Shares exercised and the net Shares delivered shall again be available for further awards under the Plan; and

 

  (e) If an Awardee tenders previously-acquired Shares in satisfaction of applicable tax withholding obligations, or if any Shares covered by an Award are not delivered to the Awardee because such Shares are withheld to satisfy applicable tax withholding obligations, such Shares shall again be available for further Awards under the Plan.

 

3.3 Individual Award Limits . The maximum number of Shares with respect to which Awards may be granted in a single calendar year to an individual Awardee (including Awards that are denominated in Shares but may be settled by payment of an equivalent amount in cash) may not exceed 200,000 Shares. The maximum amount of Awards denominated in cash (including Awards that are denominated in cash but may be settled by payment of an equivalent amount in Shares) that may be granted in a single calendar year to an individual Awardee may not exceed $2,400,000.

 

3.4 Substitute Awards . The Committee may grant Awards under the Plan in substitution for stock and stock based awards held by service providers of another corporation in connection with a merger or consolidation of the other corporation with the Company or a Subsidiary or the acquisition by the Company or a Subsidiary of property or stock of the other corporation. The Committee may direct that the substitute Awards be granted on such terms and conditions as the Committee considers appropriate in the circumstances. Such substitution of any outstanding stock option or stock appreciation right must satisfy the requirements of Treasury Regulation § 1.424-1 and Code Section 409A, as applicable. Any substitute Awards granted under the Plan shall not count against the share limitation set forth in Section 3.2 of the Plan.

ARTICLE 4

Administration of the Plan

 

4.1 Procedure .

 

  (a) Multiple Administrative Bodies . The Board shall appoint a committee of the Board to administer the Plan. The committee so appointed may consist of the Board itself.

 

  (1) The Board may appoint different committees to administer the Plan with respect to different groups of Service Providers, in which case, the Board shall specify the duties and authority of each such committee, and, to the extent such authority has been delegated by the Board, each such committee shall be the “Committee” for purposes of the Plan.

 

  (2) The Board may delegate to the Company’s chief executive officer all or part of the Committee’s duties with respect to Awards, including the granting thereof, to individuals who are not subject to the reporting and other provisions of Section 16 of the Exchange Act or “covered employees” within the meaning of Code Section 162(m). To the extent such authority has been delegated by the Board, the Company’s chief executive officer shall be the “Committee” for purposes of the Plan.

 

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  (3) The Board may revoke or amend the terms of a delegation at any time but such action shall not invalidate any prior actions of the Board’s delegate or delegates that were consistent with the terms of the Plan.

 

  (4) Unless expressly delegated, the Board has reserved to itself the authority to amend, alter, suspend or terminate the Plan.

 

  (b) Code Section 162(m) . To the extent that the Committee determines it to be desirable to qualify Awards granted hereunder as “performance-based compensation” within the meaning of Code Section 162(m), the Plan shall be administered by a Committee of two or more “outside directors” within the meaning of Code Section 162(m).

 

  (c) Rule 16b-3 . To the extent that the Committee determines it to be desirable to qualify transactions hereunder as exempt under Rule 16b-3, the Plan shall be administered by a Committee of two or more “non-employee directors” within the meaning of Rule 16-3 and the transactions contemplated hereunder shall be structured to satisfy the requirements for exemption under Rule 16b-3.

 

  (d) Exchange Requirements . To the extent required, the Plan shall be administered by a Committee of “independent directors” within the meaning of any applicable stock exchange rule.

 

4.2 Powers of the Committee . Subject to the provisions of the Plan and subject to the specific duties delegated by the Board to such Committee, the Committee shall have the authority, in its sole discretion:

 

  (a) to determine type of Awards (i.e., Options, Stock Appreciation Rights, Restricted Stock, Restricted Stock Units, Performance Awards and/or Bonus Shares) to be granted hereunder;

 

  (b) to determine the Fair Market Value;

 

  (c) to select the Service Providers to whom Awards may be granted;

 

  (d) to determine the number of shares of Common Stock to be covered by each Award granted hereunder;

 

  (e) to approve forms of agreements for use under the Plan;

 

  (f) to determine the terms and conditions, not inconsistent with the terms of the Plan, of any Award granted hereunder. Such terms and conditions include, but are not limited to:

 

  (1) in the case of an Option or Stock Appreciation Right, the time or times when Options may be exercised (which may be based on performance objectives);

 

  (2) in the case of a grant of Restricted Stock, the amount (if any) of the consideration to be paid by a Service Provider for such Restricted Stock;

 

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  (3) any vesting acceleration or waiver of forfeiture restrictions with respect to Awards, and any restriction or limitation regarding any Award or the shares of Common Stock relating thereto, based in each case on such factors as the Committee, in its sole discretion, shall determine;

 

  (g) to construe and interpret the terms of the Plan and Awards granted pursuant to the Plan;

 

  (h) to prescribe, amend and rescind rules and regulations relating to the Plan, including rules and regulations relating to sub-plans established for the purpose of qualifying for preferred tax treatment under foreign tax laws;

 

  (i) to modify or amend each Award (subject to Article 16 of the Plan);

 

  (j) to allow Optionees to satisfy withholding tax obligations by electing to have the Company withhold from the Shares to be issued upon exercise of an Award that number of Shares having a Fair Market Value equal to the amount required to be withheld. The Fair Market Value of the Shares to be withheld shall be determined on the date that the amount of tax to be withheld is to be determined. All elections by an Optionee to have Shares withheld for this purpose shall be made in such form and under such conditions as the Committee may deem necessary or advisable;

 

  (k) to authorize any person to execute on behalf of the Company any instrument required to effect the grant of an Award previously granted by the Committee;

 

  (l) to cancel any unexpired or unpaid Options if at any time the Committee determines the Optionee is not in compliance with the terms and conditions (including, but not limited to any noncompete or nonsolicitation provisions) of the Option Agreement related to such Options; and

 

  (m) to make all other determinations deemed necessary or advisable for administering the Plan.

 

4.3 Effect of Committee’s Decision . The Committee’s decisions, determinations and interpretations shall be final and binding on all Awardees and any other holders of Awards. No member of the Board or of any of the Committees administering the Plan shall be liable for any action or determination made with respect to the Plan or any grant thereunder.

ARTICLE 5

Eligibility

 

5.1 The Committee may grant Nonstatutory Stock Options, Restricted Stock, Restricted Stock Awards, Performance Awards, and Bonus Shares to all Service Providers. Incentive Stock Options may be granted only to Employees. The provisions of Awards need not be the same with respect to each recipient. Each grant of an Award shall be confirmed by, and subject to the terms of an Award Agreement.

ARTICLE 6

Options

 

6.1 Generally . Subject to the limitations of the Plan, the Committee may make grants of Options to Service Providers.

 

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6.2 Designation As Either An Incentive Stock Option or As A Nonstatutory Stock Option; $100,000 Limitation . Each Option shall be designated in the Option Agreement as either an Incentive Stock Option or a Nonstatutory Stock Option. However, notwithstanding such designation, to the extent that the aggregate Fair Market Value of the Shares with respect to which Incentive Stock Options are exercisable for the first time by the Optionee during any calendar year (under all plans of the Company and any Parent or Subsidiary) exceeds One Hundred Thousand Dollars ($100,000), such Options shall be treated as Nonstatutory Stock Options. For purposes of this Section 6.2, Incentive Stock Options shall be taken into account in the order in which they were granted. The Fair Market Value of the Shares shall be determined as of the time the Option with respect to such Shares is granted.

 

6.3 Option Term . The term of each Option shall be ten (10) years from the date of grant or such shorter term as may be provided in the Option Agreement. In the case of an Incentive Stock Option granted to an Optionee who, at the time the Incentive Stock Option is granted, owns stock representing more than ten percent (10%) of the total combined voting power of all classes of stock of the Company or any Parent or Subsidiary, the term of the Incentive Stock Option shall be five (5) years from the date of grant or such shorter term as may be provided in the Option Agreement.

 

6.4 Exercise Price . The per share exercise price for the Shares to be issued pursuant to exercise of an Option shall be determined by the Committee, subject to the following:

 

  (a) In the case of an Incentive Stock Option,

 

  (1) granted to an Employee who, at the time the Incentive Stock Option is granted, owns stock representing more than ten percent (10%) of the voting power of all classes of stock of the Company or any Parent or Subsidiary, the per Share exercise price shall be no less than one hundred ten percent (110%) of the Fair Market Value per Share on the Date of Grant.

 

  (2) granted to any Employee other than an Employee described in paragraph (1) immediately above, the per Share exercise price shall be no less than one hundred percent (100%) of the Fair Market Value per Share on the Date of Grant.

 

  (b) In the case of a Nonstatutory Stock Option, the per Share exercise price shall be determined by the Committee; provided, however, that the per Share exercise price shall not be less than one hundred percent (100%) of the Fair Market Value per Share on the Date of Grant.

 

6.5 Waiting Period and Exercise Dates . At the time an Option is granted, the Committee shall fix the period within which the Option may be exercised and shall determine any conditions which must be satisfied before the Option may be exercised.

 

6.6 Form of Consideration . The Committee shall determine the acceptable form of consideration for exercising an Option, including the method of payment. Such consideration may consist entirely of:

 

  (a) cash;

 

  (b) check;

 

  (c) other Shares which (1) in the case of Shares acquired upon exercise of an Option, have been owned by the Optionee for more than six (6) months on the date of surrender, and (2) have a Fair Market Value on the date of surrender equal to the aggregate exercise price of the Shares as to which said Option shall be exercised;

 

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  (d) consideration received by the Company under a cashless exercise program implemented by the Company in connection with the Plan to the extent permitted by Applicable Laws;

 

  (e) a reduction in the amount of any Company liability to the Optionee;

 

  (f) any combination of the foregoing methods of payment; or

 

  (g) such other consideration and method of payment for the issuance of Shares to the extent permitted by Applicable Laws.

In the case of an Incentive Stock Option, the Committee shall determine the acceptable form of consideration at the time of grant.

 

6.7 Procedure for Exercise; Rights as a Shareholder . Any Option granted hereunder shall be exercisable according to the terms of the Plan and at such times and under such conditions as determined by the Committee and set forth in the Option Agreement. Unless the Committee provides otherwise, vesting of any Option granted hereunder shall be tolled during any unpaid leave of absence. An Option may not be exercised for a fraction of a Share.

 

  (a) An Option shall be deemed exercised when the Company receives: (i) written or electronic notice of exercise (in accordance with the Option Agreement) from the person entitled to exercise the Option, (ii) the Irrevocable Proxy, duly executed, in the form attached hereto as Exhibit A if the Option is exercised prior to the Company’s Initial Public Offering, (iii) full payment for the Shares with respect to which the Option is exercised, and (iv) any other written representations, covenants, and undertakings that the Company may prescribe in the Option Agreement. Full payment may consist of any consideration and method of payment authorized by the Committee and permitted by the Option Agreement and the Plan. Shares issued upon exercise of an Option shall be issued in the name of the Optionee or, if requested by the Optionee, in the name of the Optionee and his or her spouse. Until the Shares are issued (as evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company), no right to vote or receive dividends or any other rights as a shareholder shall exist with respect to the Optioned Stock, notwithstanding the exercise of the Option. The Company shall issue (or cause to be issued) such Shares promptly after the Option is exercised. No adjustment will be made for a dividend or other right for which the record date is prior to the date the Shares are issued, except as provided in Article 13 of the Plan.

 

  (b) Exercising an Option in any manner shall decrease the number of Shares thereafter available, both for purposes of the Plan and for sale under the Option, by the number of Shares as to which the Option is exercised.

 

  (c) The Committee may suspend the right to exercise a Stock Option at any time when the Committee determines that allowing the exercise and issuance of Stock would violate any federal or state securities or other laws. The Committee may provide that any time periods to exercise the Stock Option are extended during a period of suspension.

 

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6.8 Notification under Code Section 83(b) . If the Optionee, in connection with the exercise of any Option, makes the election permitted under Code Section 83(b) to include in such Optionee’s gross income in the year of transfer the amounts specified in Code Section 83(b), then such Optionee shall notify the Company of such election within ten (10) days of filing the notice of the election with the Internal Revenue Service, in addition to any filing and notification required pursuant to regulations issued under Code Section 83(b). The Committee may, in connection with the grant of an Option or at any time thereafter prior to such an election being made, prohibit an Optionee from making the election described above.

 

6.9 Buyout Provisions . The Committee may at any time offer to buy out for a payment in cash or Shares an Option previously granted based on such terms and conditions as the Committee shall establish and communicate to the Optionee at the time that such offer is made.

 

6.10 Modifications Generally Prohibited . Once granted, no Modification shall be made in respect to any Option if such Modification would result in the Option constituting a deferral of compensation or having an additional deferral feature within the meaning of applicable Treasury Regulations under Code Section 409A.

 

6.11 Non-Transferability of Options . An Option that is an Incentive Stock Option may not be sold, pledged, assigned, hypothecated, transferred, or disposed of in any manner other than by will or by the laws of descent or distribution and may be exercised, during the lifetime of the Optionee, only by the Optionee. Unless determined otherwise by the Committee, a Nonstatutory Stock Option may not be sold, pledged, assigned, hypothecated, transferred, or disposed of in any manner other than by will or by the laws of descent or distribution and may be exercised, during the lifetime of the Optionee. If the Committee grants a Nonstatutory Stock Option that is transferable, the Option Agreement for such Nonstatutory Stock Option shall contain such additional terms and conditions governing the Option’s transferability as the Committee deems appropriate.

 

6.12 Termination of Service Provider For Cause . If a Service Provider is terminated for Cause, any unexercised Option shall terminate effective immediately upon such termination.

 

6.13 Disability of Optionee . If an Optionee ceases to be a Service Provider as a result of the Optionee’s Disability, the Optionee may exercise his or her Option within such period of time as is specified in the Option Agreement to the extent the Option is vested and exercisable on the date of termination (but in no event later than the expiration of the term of such Option as set forth in the Option Agreement); provided, however, that the time specified in the Option Agreement shall not be less than six (6) months. In the absence of a specified time in the Option Agreement, the Option shall remain exercisable for twelve (12) months following the Optionee’s termination. If, on the date of termination, the Optionee is not vested as to his or her entire Option, the Shares covered by the unvested portion of the Option shall revert to the Plan. If, after termination, the Optionee does not exercise his or her Option within the time specified herein, the Option shall terminate, and the Shares covered by such Option shall revert to the Plan.

 

6.14 Death of Optionee . If an Optionee dies while a Service Provider, the Option may be exercised within such period of time as is specified in the Option Agreement (but in no event later than the expiration of the term of such Option as set forth in the Notice of Grant), by the Optionee’s estate or by a person who acquires the right to exercise the Option by bequest or inheritance, but only to the extent that the Option is vested and exercisable on the date of death; provided, however, that the time specified in the Option Agreement shall not be less than six (6) months. In the absence of a specified time in the Option Agreement, the Option shall remain exercisable for six (6) months following the Optionee’s death. If, at the time of death, the Optionee is not vested as to his or her entire Option, the Shares covered by the unvested portion of the Option shall immediately revert to the Plan. The Option may be exercised by the executor or administrator of the Optionee’s estate or, if none, by the person(s) entitled to exercise the Option under the Optionee’s will or the laws of descent or distribution. If the Option is not so exercised within the time specified herein, the Option shall terminate, and the Shares covered by such Option shall revert to the Plan.

 

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6.15 For Any Other Reason . If an Optionee ceases to be a Service Provider, other than for Cause or upon the Optionee’s death or Disability, the Optionee may exercise his or her Option within such period of time as is specified in the Option Agreement to the extent that the Option is vested and exercisable on the date of termination (but in no event later than the expiration of the term of such Option as set forth in the Option Agreement); provided, however, that the time specified in the Option Agreement shall not be less than thirty (30) days. In the absence of a specified time in the Option Agreement, the Option shall remain exercisable for three (3) months following the Optionee’s termination. If, on the date of termination, the Optionee is not vested as to his or her entire Option, the Shares covered by the unvested portion of the Option shall revert to the Plan. If, after termination, the Optionee does not exercise his or her Option within the time specified by the Committee, the Option shall terminate, and the Shares covered by such Option shall revert to the Plan.

ARTICLE 7

Stock Appreciation Rights

 

7.1 Generally . Subject to the limitations of the Plan, the Committee may grant Stock Appreciation Rights to Service Providers. Stock Appreciation Rights may be granted in connection with, and on the same Date of Grant, as all or any part of an Option to a Service Provider or may be granted as a separate Award.

 

7.2 Stock Appreciation Rights Not Granted In Connection With Options . The following provisions apply to all Stock Appreciation Rights that are not granted in connection with Options:

 

  (a) Described . A Stock Appreciation Right shall entitle the Awardee, upon exercise of all or any part of the Stock Appreciation Right, to receive in exchange from the Company an amount equal to the excess of (x) the Fair Market Value on the date of exercise of the Shares covered by the surrendered Stock Appreciation Right over (y) the Fair Market Value of the Shares on the Date of Grant of the Stock Appreciation Right. The Committee may not revise or amend a Stock Appreciation Right to reduce the Fair Market Value of the Stock Appreciation Right on the Date of Grant, except as provided in Article 13 of the Plan.

 

  (b) Term . The term of each Stock Appreciation Right shall be ten (10) years from the Date of Grant or such shorter term as may be provided in the Award Agreement. No Stock Appreciation Right may be exercised after the expiration of its term.

 

  (c) Waiting Period and Exercise Dates . At the time a Stock Appreciation Right is granted, the Committee shall fix the period within which the Stock Appreciation Right may be exercised and shall determine any conditions which must be satisfied before the Stock Appreciation Right may be exercised. A Stock Appreciation Right may only be exercised at a time when the Fair Market Value of the Shares covered by the Stock Appreciation Right exceeds the Fair Market Value of the Shares on the Date of Grant of the Stock Appreciation Right.

 

  (d) Exercise . Any Stock Appreciation Right granted hereunder shall be exercisable according to the terms of the Plan and at such times and under such conditions as determined by the Committee and set forth in the Award Agreement. Unless the Committee provides otherwise, vesting of any Stock Appreciation Right granted hereunder shall be tolled during any unpaid leave of absence. A Stock Appreciation Right may not be exercised for a fraction of a Share.

 

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  (e) Effect of Exercise Upon Available Shares . Exercising a Stock Appreciation Right in any manner shall decrease the number of Shares thereafter available, both for purposes of the Plan and for sale under the Stock Appreciation Right, by the number of Shares as to which the Stock Appreciation Right is exercised.

 

  (f) Notification under Code Section 83(b) . If the Awardee, in connection with the exercise of any Stock Appreciation Right, makes the election permitted under Code Section 83(b) to include in such Awardee’s gross income in the year of transfer the amounts specified in Code Section 83(b), then such Awardee shall notify the Company of such election within ten (10) days of filing the notice of the election with the Internal Revenue Service, in addition to any filing and notification required pursuant to regulations issued under Code Section 83(b). The Committee may, in connection with the grant of a Stock Appreciation Right or at any time thereafter prior to such an election being made, prohibit an Awardee from making the election described above.

 

  (g) Buyout Provisions . The Committee may at any time offer to buy out for a payment in cash or Shares a Stock Appreciation Right previously granted based on such terms and conditions as the Committee shall establish and communicate to the Awardee at the time that such offer is made.

 

  (h) Non-Transferability of Stock Appreciation Rights . Unless determined otherwise by the Committee, a Stock Appreciation Right may not be sold, pledged, assigned, hypothecated, transferred, or disposed of in any manner other than by will or by the laws of descent or distribution and may be exercised, during the lifetime of the Awardee, only by the Awardee. If the Committee grants a Stock Appreciation Right that is transferable, the Award Agreement for such Stock Appreciation Right shall contain such additional terms and conditions governing the Stock Appreciation Right’s transferability as the Committee deems appropriate.

 

  (i) Termination of Service Provider For Cause . If a Service Provider is terminated for Cause, any unexercised Stock Appreciation Right shall terminate effective immediately upon such termination.

 

  (j) Disability of Awardee . If an Awardee ceases to be a Service Provider as a result of the Awardee’s Disability, the Awardee may exercise his or her Stock Appreciation Right within such period of time as is specified in the Award Agreement to the extent the Stock Appreciation Right is vested and exercisable on the date of termination (but in no event later than the expiration of the term of such Stock Appreciation Right as set forth in the Award Agreement); provided, however, that the time specified in the Award Agreement shall not be less than six (6) months. In the absence of a specified time in the Award Agreement, the Stock Appreciation Right shall remain exercisable for twelve (12) months following the Awardee’s termination. If, on the date of termination, the Awardee is not vested as to his or her entire Stock Appreciation Right, the Shares covered by the unvested portion of the Stock Appreciation Right shall revert to the Plan. If, after termination, the Awardee does not exercise his or her Stock Appreciation Right within the time specified herein, the Stock Appreciation Right shall terminate, and the Shares covered by such Stock Appreciation Right shall revert to the Plan.

 

  (k) Death of Awardee . If an Awardee dies while a Service Provider, the Stock Appreciation Right may be exercised within such period of time as is specified in the Award Agreement (but in no event later than the expiration of the term of such Stock Appreciation Right as set forth in the Notice of Grant), by the Awardee’s estate or by a person who acquires the right to exercise the Stock Appreciation Right by bequest or inheritance, but only to the extent that

 

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the Stock Appreciation Right is vested and exercisable on the date of death; provided, however, that the time specified in the Award Agreement shall not be less than six (6) months. In the absence of a specified time in the Award Agreement, the Stock Appreciation Right shall remain exercisable for six (6) months following the Awardee’s death. If, at the time of death, the Awardee is not vested as to his or her entire Stock Appreciation Right, the Shares covered by the unvested portion of the Stock Appreciation Right shall immediately revert to the Plan. The Stock Appreciation Right may be exercised by the executor or administrator of the Awardee’s estate or, if none, by the person(s) entitled to exercise the Stock Appreciation Right under the Awardee’s will or the laws of descent or distribution. If the Stock Appreciation Right is not so exercised within the time specified herein, the Stock Appreciation Right shall terminate, and the Shares covered by such Stock Appreciation Right shall revert to the Plan.

 

  (l) For Any Other Reason . If an Awardee ceases to be a Service Provider, other than for Cause or upon the Awardee’s death or Disability, the Awardee may exercise his or her Stock Appreciation Right within such period of time as is specified in the Award Agreement to the extent that the Stock Appreciation Right is vested and exercisable on the date of termination (but in no event later than the expiration of the term of such Stock Appreciation Right as set forth in the Award Agreement); provided, however, that the time specified in the Award Agreement shall not be less than thirty (30) days. In the absence of a specified time in the Award Agreement, the Stock Appreciation Right shall remain exercisable for three (3) months following the Awardee’s termination. If, on the date of termination, the Awardee is not vested as to his or her entire Stock Appreciation Right, the Shares covered by the unvested portion of the Stock Appreciation Right shall revert to the Plan. If, after termination, the Awardee does not exercise his or her Stock Appreciation Right within the time specified by the Committee, the Stock Appreciation Right shall terminate, and the Shares covered by such Stock Appreciation Right shall revert to the Plan.

 

7.3 Stock Appreciation Rights Granted In Connection With Options . The following provisions apply to all Stock Appreciation Rights that are granted in connection with Options:

 

  (a) A Stock Appreciation Right granted in connection with an Option must be granted on the same Date of Grant as the Option to which it relates.

 

  (b) A Stock Appreciation Right granted in connection with an Option shall entitle the Awardee, upon exercise of all or any part of the Stock Appreciation Right, to surrender to the Company unexercised that portion of the underlying Option relating to the same number of Shares as is covered by the Stock Appreciation Right (or the portion of the Stock Appreciation Right so exercised) and to receive in exchange from the Company an amount equal to the excess of (x) the Fair Market Value on the date of exercise of the Shares covered by the surrendered portion of the underlying Option over (y) the exercise price of the Shares covered by the surrendered portion of the underlying Option.

 

  (c) Upon the exercise of a Stock Appreciation Right and surrender of the related portion of the underlying Option, the Option, to the extent surrendered, shall not thereafter be exercisable.

 

  (d) Subject to any further conditions upon exercise imposed by the Committee, a Stock Appreciation Right shall be exercisable only to the extent that the related Option is exercisable and a Stock Appreciation Right shall lapse or be forfeited no later than the date on which the related Option lapses or is forfeited.

 

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  (e) A Stock Appreciation Right shall terminate and shall no longer be exercisable upon the exercise of the related Option.

 

  (f) The Stock Appreciation Right is only transferable when the related Options are otherwise transferable.

 

  (g) A Stock Appreciation Right may only be exercised at a time when the Fair Market Value of the Shares covered by the Stock Appreciation Right exceeds the exercise price of the Shares covered by the underlying Option.

 

7.4 Form of Payment . The manner in which the Company’s obligation arising upon the exercise of a Stock Appreciation Right shall be paid shall be determined by the Committee and shall be set forth in the Award Agreement. The Award Agreement may provide for payment in (i) Shares, (ii) cash, (iii) a fixed combination of Shares or cash, or (iv) the Committee may reserve the right to determine the manner of payment at the time the Stock Appreciation Right is exercised. Shares of Common Stock issued upon the exercise of a Stock Appreciation Right shall be valued at their Fair Market Value on the date of exercise. Any Shares issued upon exercise of a Stock Appreciation Right shall be issued in the name of the Awardee or, if requested by the Awardee, in the name of the Awardee and his or her spouse. Until Shares are issued (as evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company), in payment of a Stock Appreciation Right, no right to vote or receive dividends or any other rights as a shareholder shall exist with respect to the Stock Appreciation Right, notwithstanding the exercise of the Stock Appreciation Right. The Company shall issue (or cause to be issued) Shares that are to be issued in payment of a Stock Appreciation Right promptly after the Stock Appreciation Right is exercised. No adjustment will be made for a dividend or other right for which the record date is prior to the date the Shares are issued, except as provided in Article 13 of the Plan.

 

7.5 Procedure for Exercise; Rights As a Shareholder . A Stock Appreciation Right shall be deemed exercised when the Company receives a written or electronic notice of exercise (in accordance with the Award Agreement) from the person entitled to exercise the Stock Appreciation Right. In addition, if the Stock Appreciation Right provides for the delivery of Shares in settlement of the Company’s obligation under the Stock Appreciation Right, prior to the delivery of Shares, the Company must also receive from the person entitled to exercise the Stock Appreciation Right: (i) the Irrevocable Proxy, duly executed, in the form attached hereto as Exhibit A if the Stock Appreciation Right is exercised prior to the Company’s Initial Public Offering and (ii) any other written representations, covenants, and undertakings that the Company may prescribe in the Award Agreement.

 

7.6 Modifications Generally Prohibited . Once granted, no Modification shall be made in respect to any Stock Appreciation Right if such Modification would result in the Stock Appreciation Right constituting a deferral of compensation or having an additional deferral feature within the meaning of applicable Treasury Regulations under Code Section 409A.

ARTICLE 8

Restricted Stock

 

8.1 Generally . Subject to the limitations of the Plan, the Committee may make grants of Restricted Stock to Service Providers.

 

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8.2 Administration . Shares of Restricted Stock may be granted either alone or in addition to other Awards granted under the Plan. The Committee shall determine the Service Providers to whom, and the time(s) at which grants of Restricted Stock will be made, the number of shares to be awarded to any Service Provider, the amount of the consideration (if any) that is to be paid, the time(s) within which, and the conditions under which such Restricted Stock may be subject to forfeiture, and any other terms and conditions of the Awards, in addition to those contained in this Article 8.

 

8.3 Awards and Certificates . As a condition to the grant of Restricted Stock under the Plan, each Awardee shall execute and deliver to the Company (i) an agreement in form and substance satisfactory to the Committee reflecting the conditions and restrictions imposed upon the Shares awarded, (ii) the Irrevocable Proxy, duly executed, in the form attached hereto as Exhibit A if the Shares are to be delivered to the Awardee prior to the Company’s Initial Public Offering, (iii) the consideration, if any, to be paid for the Shares, and (iv) any other written representations, covenants, and undertakings that the Committee may prescribe in the Restricted Stock Agreement. Certificates for Shares delivered pursuant to such Awards may, if the Committee so determines, bear a legend referring to the restrictions and the instruments to which such Shares of Restricted Stock are subject.

 

8.4 Form of Consideration . The consideration for Restricted Stock (if any) shall consist entirely of cash.

 

8.5 Notification under Code Section 83(b) . If, in connection with a grant of Restricted Stock, the Awardee makes the election permitted under Code Section 83(b) to include in such Awardee’s gross income in the year of transfer the amounts specified in Code Section 83(b), then such Awardee shall notify the Company of such election within ten (10) days of filing the notice of the election with the Internal Revenue Service, in addition to any filing and notification required pursuant to regulations issued under Code Section 83(b). The Committee may, in connection with the grant of Restricted Stock or at any time thereafter prior to such an election being made, prohibit an Awardee from making the election described above.

 

8.6 Buyout Provisions . The Committee may at any time offer to buy out for a payment in cash, Restricted Stock previously granted based on such terms and conditions as the Committee shall establish and communicate to the Awardee at the time that such offer is made.

 

8.7 Terms and Conditions . Subject to the provisions of the Plan and the applicable Restricted Stock Agreement, during a period set by the Committee, commencing with the date of such Award (the “Restriction Period”), the Awardee shall not be permitted to sell, assign, transfer, pledge or otherwise encumber shares of Restricted Stock. The Committee may provide for the lapse of such restrictions in installments or otherwise and may accelerate or waive such restrictions, in whole or in part, in each case based on period of service, performance of the Awardee or of the Company for which the Awardee is employed or such other factors or criteria as the Committee may determine.

 

8.8

Rights as a Shareholder . Except as otherwise provided in this Plan, the applicable Restricted Stock Agreement, and the Irrevocable Proxy, the Awardee shall have, with respect to the Shares of Restricted Stock, all of the rights of a stockholder of the Company holding the class or series of stock that is the subject of the Restricted Stock, including, if applicable, the right to vote the Shares and the right to receive any cash dividends. Absent a provision regarding the disposition of dividends in the applicable Restricted Stock Agreement, any dividend payable with respect to Restricted Stock shall be paid to the Service Provider no later than the end of the calendar year in which the same dividends on Shares are paid to the shareholders of such Shares generally, or if later, the 15 th day of the third month following the date on which the same dividends on Shares are paid to the Shares’ shareholders.

 

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8.9 Termination for Cause . If a Service Provider is terminated for Cause, any Restricted Stock previously granted to the Service Provider that remains unvested as of the date of termination shall be forfeited effective immediately upon such termination.

 

8.10 Termination Other Than for Cause . Except as otherwise provided in the applicable Restricted Stock Agreement or as determined by the Committee, if a Service Provider ceases to be a Service Provider other than for Cause, any Restricted Stock previously granted to the Service Provider that remains unvested as of the date of cessation shall be forfeited immediately upon such cessation.

ARTICLE 9

Restricted Stock Units

 

9.1 Generally . Subject to the limitations of the Plan, the Committee may make grants of Restricted Stock Units to Service Providers. A Restricted Stock Unit is the grant of a right to receive a Share of Common Stock or the Fair Market Value in cash of a Share of Common Stock, in the future, at such time and contingent upon such terms as the Committee shall establish.

 

9.2 Administration . Restricted Stock Units may be granted either alone or in addition to other Awards granted under the Plan. The Committee shall determine the Service Providers to whom, and the time(s) at which grants of Restricted Stock Units will be made, the number of Restricted Stock Units to be awarded to any Service Provider, the time(s) within which, and the conditions under which such Restricted Stock Unit may be subject to forfeiture, and any other terms and conditions of the Awards, in addition to those contained in this Article 9.

 

9.3 Terms and Conditions . The Committee shall establish as to each grant of Restricted Stock Units the terms and conditions upon which such Restricted Units shall become vested. The Committee may base the vesting of Restricted Stock Units upon (i) the continued employment or service of the Awardee, (ii) the achievement of performance objectives, or (iii) a combination thereof. The Committee may provide for the vesting of Restricted Stock Units in installments or otherwise and may accelerate or waive such restrictions, in whole or in part, in each case based on period of service, performance of the Awardee or of the Company for which the Awardee is employed or such other factors or criteria as the Committee may determine.

 

9.4 Dividend Equivalents . If (and only if) expressly authorized in the applicable Award Agreement, in the event that the Company pays any cash or other dividend or makes any other distribution in respect of the Common Stock, a Service Provider will be credited with an additional number of Restricted Stock Units (including fractions thereof) determined by dividing (i) the amount of cash, or the value (as determined by the Committee) of any securities or other property, paid or distributed in respect of a Share by (ii) the Fair Market Value of a Share for the date of such payment or distribution, and multiplying the result of such division by (iii) the number of Restricted Stock Units that were credited to a Service Provider immediately prior to the date of the dividend or other distribution. Credits shall be made effective as of the date of the dividend or other distribution in respect of the Common Stock to the bookkeeping account to which the Service Provider’s Restricted Stock Units are credited. Dividends credited to a Service Provider shall be subject to the same restrictions and shall be distributed at the same time and in the same manner as the Restricted Stock Units to which they relate.

 

9.5 Non-Transferability . Restricted Stock Units may not be sold, pledged, assigned, hypothecated, transferred, or disposed of in any manner.

 

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9.6 No Rights as a Shareholder . A Service Provider who is to receive settlement of his or her vested Restricted Stock Units by the delivery of Shares shall have no rights as a shareholder of the Company until the Shares are actually issued to the Service Provider pursuant to the terms of the applicable Award Agreement. The Shares may be issued without consideration.

 

9.7 Termination for Cause . If a Service Provider is terminated for Cause, any Restricted Stock Units previously granted to the Service Provider that have not been settled by the delivery of cash or Shares shall be forfeited effective immediately upon such termination.

 

9.8 Termination Other Than for Cause . Except as otherwise provided in the applicable Award Agreement or as determined by the Committee, if a Service Provider ceases to be a Service Provider other than for Cause, any Restricted Stock Units previously granted to the Service Provider that remain unvested as of the date of cessation shall be forfeited immediately upon such cessation.

 

9.9 Form of Payment . The manner in which the Company shall settle its obligation (if any) arising out of the grant of a grant of Restricted Stock Units shall be determined by the Committee and shall be set forth in the Award Agreement. The Award Agreement may provide for payment in (i) Shares, (ii) cash, (iii) a fixed combination of Shares or cash, or (iv) the Committee may reserve the right to determine the manner of payment at the time that the Restricted Stock Units are settled.

 

  (a) Shares of Common Stock issued in settlement of Restricted Stock Units shall be valued at (i) their Fair Market Value on the date of payment for purposes of determining the amount of compensation paid to the Awardee, and (ii) as provided in the Award Agreement for any other purpose.

 

  (b) In addition, if the Award Agreement for a grant of Restricted Stock Units provides for the delivery of Shares in settlement of the Company’s obligation under the Award, prior to the delivery of any Shares, the Company must also receive from the Awardee (i) the Irrevocable Proxy, duly executed, in the form attached hereto as Exhibit A, if the Shares are to be delivered to the Awardee prior to the Company’s Initial Public Offering, and (ii) any other written representations, covenants, and undertakings that the Company may prescribe in the Award Agreement.

 

  (c) Any Shares issued upon settlement of Restricted Stock Units shall be issued in the name of the Awardee or, if requested by the Awardee, in the name of the Awardee and his or her spouse. Until Shares are actually issued (as evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company), in settlement of Restricted Stock Units, no right to vote or receive dividends or any other rights as a shareholder shall exist with respect to the Award. No adjustment will be made for a dividend or other right for which the record date is prior to the date the Shares are issued, except as provided in Article 13 of the Plan.

ARTICLE 10

Performance Awards

 

10.1 Generally . Subject to the limitations of the Plan, the Committee may make grants of Performance Awards to Service Providers who are Employees. A Performance Award shall consist of the right to receive a payment that is contingent upon the attainment of one or more performance objectives during a Performance Period. Performance Awards may be denominated in cash (e.g., units valued at $100 at target level of performance) or Shares. Each grant of Performance Awards shall be evidenced by an Award Agreement, which shall set forth the terms and conditions of the Performance Award.

 

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10.2 Establishment of Performance Criteria . On or prior to the Date of Grant of a Performance Award, the Committee shall establish for such Performance Award:

 

  (a) The Performance Period;

 

  (b) One or more performance objectives;

 

  (c) The formula for determining the amount or amounts that shall be earned under the Performance Award, if any, based upon the degree of attainment of the applicable performance objectives;

 

  (d) The conditions under which an Awardee shall forfeit the Performance Award;

 

  (e) Such other terms and conditions that the Committee shall establish.

 

10.3 Performance Objectives . Performance objectives may include a threshold level of performance below which no payout or vesting will occur, target levels of performance at which a full payout of full vesting will occur, and/or a maximum level of performance at which a specified additional payout or vesting will occur. Unless otherwise provided in the Award Agreement, the Committee shall have the right to reduce or increase the amount payable to an Awardee with respect to an Award from the amount that would be payable by application of the Award’s formula.

 

10.4 Determination of Award Amount . At the expiration of the Performance Period, the Committee shall determine (i) the extent to which the predetermined performance objectives have been achieved during the Performance Period, (ii) the resulting value of the Performance Awards, and (iii) the payment, if any, owed to the Awardee.

 

10.5 Non-Transferability . Performance Awards may not be sold, pledged, assigned, hypothecated, transferred, or disposed of in any manner.

 

10.6 Form of Payment . The manner in which the Company shall settle its obligation (if any) arising out of the grant of a Performance Award shall be determined by the Committee and shall be set forth in the Award Agreement. The Award Agreement may provide for payment in (i) Shares, (ii) cash, (iii) a fixed combination of Shares or cash, or (iv) the Committee may reserve the right to determine the manner of payment at the time the Performance Award is settled.

 

  (a) Shares of Common Stock issued in settlement of a Performance Award shall be valued at (i) their Fair Market Value on the date of payment for purposes of determining the amount of compensation paid to the Awardee, and (ii) as provided in the Award Agreement for any other purpose (e.g., for purpose of converting a Performance Award denominated in cash into Shares for purposes of payment).

 

  (b) In addition, if the Award Agreement for a Performance Award provides for the delivery of Shares in settlement of the Company’s obligation under the Award, prior to the delivery of any Shares, the Company must also receive from the Awardee (i) the Irrevocable Proxy, duly executed, in the form attached hereto as Exhibit A, if the Shares are to be delivered to the Awardee prior to the Company’s Initial Public Offering, and (ii) any other written representations, covenants, and undertakings that the Company may prescribe in the Award Agreement.

 

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  (c) Any Shares issued upon settlement of Performance Awards shall be issued in the name of the Awardee or, if requested by the Awardee, in the name of the Awardee and his or her spouse. Until Shares are actually issued (as evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company), in settlement of a Performance Award grant, no right to vote or receive dividends or any other rights as a shareholder shall exist with respect to the Award. No adjustment will be made for a dividend or other right for which the record date is prior to the date the Shares are issued, except as provided in Article 13 of the Plan.

ARTICLE 11

Bonus Shares

 

11.1 Generally . Subject to the limitations of the Plan, the Committee may grant Bonus Shares to any Service Provider, in such amount and upon such terms, at any time and from time to time as the Committee in its sole discretion shall determine.

 

11.2 Awards and Certificates . Prior to the delivery of any Shares to the Awardee in payment of a grant of Bonus Shares, the Company must receive from the Awardee (i) the Irrevocable Proxy, duly executed, in the form attached hereto as Exhibit A, if the Shares are to be delivered to the Awardee prior to the Company’s Initial Public Offering, and (ii) any other written representations, covenants, and undertakings that the Company may prescribe in the Award Agreement. Any Shares issued with respect to a grant of Bonus Shares shall be issued in the name of the Awardee or, if requested by the Awardee, in the name of the Awardee and his or her spouse. Until Shares are actually issued (as evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company), no right to vote or receive dividends or any other rights as a shareholder shall exist with respect to the Award. No adjustment will be made for a dividend or other right for which the record date is prior to the date the Shares are issued, except as provided in Article 13 of the Plan.

 

11.3 Non-Transferability . Until actually delivered to the Awardee, Bonus Shares may not be sold, pledged, assigned, hypothecated, transferred, or disposed of in any manner.

ARTICLE 12

Designation of Awards as Performance-Based Compensation

The Committee may designate an Award of Restricted Stock, Restricted Stock Units, or Performance Awards as intended to qualify as “performance based compensation” within the meaning of Code Section 162(m).

 

12.1 Any Award of Restricted Stock, Restricted Stock Units, or any Performance Award that is intended to qualify as performance-based compensation shall be, to the extent required by Code Section 162(m), either (i) conditioned upon the attainment of one or more Performance Factors, or (ii) granted based upon the achievement of one or more Performance Factors.

 

12.2 Any Award of Restricted Stock, Restricted Stock Units, or any Performance Award that is intended to qualify as performance-based compensation shall also be subject to the following:

 

  (a) No later than ninety (90) days following the commencement of each performance period (or such other time as may be required or permitted by Code Section 162(m)), the Committee

 

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shall, in writing, (1) grant a target number of Shares or units, (2) select the performance goal or goals applicable to the performance period and (3) specify the relationship between performance goals and the number of Shares or units that may be earned by an Awardee for such Performance Period.

 

  (b) Following the completion of each Performance Period, the Committee shall certify in writing whether the applicable performance objectives have been achieved and the number of units or Shares, if any, earned by an Awardee for such Performance Period.

 

  (c) In determining the number of units or Shares earned by an Awardee for a given Performance Period, subject to any applicable Award Agreement, the Committee shall have the right to reduce (but not increase) the amount earned at a given level of performance to take into account additional factors that the Committee may deem relevant to the assessment of individual or corporate performance for the Performance Period.

ARTICLE 13

Adjustments Upon Changes in Capitalization, Dissolution, Merger or Asset Sale

 

13.1 Changes in Capitalization . Subject to any required action by the shareholders of the Company, the number of Shares covered by each outstanding Award, and the number of Shares which have been authorized for issuance under the Plan but as to which no Awards have yet been granted or which have been returned to the Plan as well as the price per Share covered by each outstanding Option and the base amount per Share of each Stock Appreciation Right, shall be proportionately adjusted for any increase or decrease in the number of issued Shares resulting from a stock split, reverse stock split, stock dividend, combination or reclassification of the Share, or any other increase or decrease in the number of issued Shares effected without receipt of consideration by the Company; provided, however, that conversion of any convertible securities of the Company shall not be deemed to have been “effected without receipt of consideration”; provided, however, that with respect to Incentive Stock Options, no such adjustment shall be authorized to the extent that such adjustment would cause the Plan to violate Code Section 422(b)(1); provided further, that with respect to Options and Stock Appreciation Rights, no such adjustment shall be authorized to the extent such adjustment would cause the Options and Stock Appreciation Rights to become “deferred compensation” subject to Code Section 409A. Such adjustment shall be made by the Committee, whose determination in that respect shall be final, binding and conclusive. Except as expressly provided herein, no issuance by the Company of shares of stock of any class, or securities convertible into shares of stock of any class, shall affect, and no adjustment by reason thereof shall be made with respect to, the number or price of Shares subject to an Award.

ARTICLE 14

Cancellation and Rescission of Awards

 

14.1 Cancellation of Awards . Unless the Award Agreement specifies otherwise, the Committee may cancel, rescind, suspend, withhold, or otherwise limit or restrict any unexercised (in the case of Options or Stock Appreciation Rights), unvested, or unpaid Award at any time if the Awardee is not in compliance with all applicable provisions of the Award Agreement and the Plan, or if the Awardee has engaged in any Adverse Conduct.

 

14.2 Certification of Compliance May Be Required . Upon exercise, payment or delivery pursuant to an Award, the Committee may require the Awardee to certify, in a manner acceptable to the Company, that the Awardee is in compliance with the terms and conditions of the Plan.

 

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14.3 Rescission of Awards . Unless the Award Agreement specifies otherwise, for a period of two (2) years following the exercise, payment or delivery of an Award (the “Rescission Period”), the Committee may rescind any such exercise, payment, or delivery of the Award upon its determination that the Awardee has engaged in Adverse Conduct prior to the delivery of the Award or during the Rescission Period. In the event of any such rescission, the Awardee shall pay to the Company the amount of any gain realized or payment received as a result of the rescinded exercise, payment or delivery, in such manner and on such terms and conditions as may be required.

ARTICLE 15

Change in Control Provisions

 

15.1 In the event of a merger or Change in Control, each outstanding Award will be treated as the Committee determines, including, without limitation, that each Award be assumed or an equivalent option or right substituted by the successor corporation or a Parent or Subsidiary of the successor corporation. The Committee will not be required to treat all Awards similarly in the transaction.

 

15.2 In the event that the successor corporation does not assume or substitute for the Award, the Awardee will fully vest in and have the right to exercise all of his or her outstanding Options and Stock Appreciation Rights, including Shares as to which such Awards would not otherwise be vested or exercisable, all restrictions on Restricted Stock and Restricted Stock Units will lapse, and, with respect to Awards with performance-based vesting, all performance goals or other vesting criteria will be deemed achieved at one hundred percent (100%) of target levels and all other terms and conditions met. In addition, if an Option or Stock Appreciation Right is not assumed or substituted in the event of a Change in Control, the Committee will notify the Awardee in writing or electronically that the Option or Stock Appreciation Right will be fully vested and exercisable for a period of time determined by the Committee in its sole discretion, and the Option or Stock Appreciation Right will terminate upon the expiration of such period.

 

15.3 For the purposes of this Article 15, an Award will be considered assumed if, following the Change in Control, the Award confers the right to purchase or receive, for each Share subject to the Award immediately prior to the Change in Control, the consideration (whether stock, cash, or other securities or property) received in the Change in Control by holders of Common Stock for each Share held on the effective date of the transaction (and if holders were offered a choice of consideration, the type of consideration chosen by the holders of a majority of the outstanding Shares); provided, however, that if such consideration received in the Change in Control is not solely common stock of the successor corporation or its Parent, the Committee may, with the consent of the successor corporation, provide for the consideration to be received upon the exercise of an Option or Stock Appreciation Right or upon the payout of a Restricted Stock Unit, or Performance Award, for each Share subject to such Award (or in the case of an Award settled in cash, the number of implied shares determined by dividing the value of the Award by the per share consideration received by holders of Common Stock in the Change in Control), to be solely common stock of the successor corporation or its Parent equal in fair market value to the per share consideration received by holders of Common Stock in the Change in Control.

 

15.4 Notwithstanding anything in this Article 15 to the contrary, an Award that vests, is earned or paid-out upon the satisfaction of one or more performance goals will not be considered assumed if the Company or its successor modifies any of such performance goals without the Awardee’s consent; provided, however, a modification to such performance goals only to reflect the successor corporation’s post-Change in Control corporate structure will not be deemed to invalidate an otherwise valid Award assumption.

 

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ARTICLE 16

Amendment and Termination of the Plan

 

16.1 Amendment and Termination . The Board may at any time amend, alter, suspend or terminate the Plan.

 

16.2 Shareholder Approval . The Company shall obtain shareholder approval of any Plan amendment to the extent necessary and desirable to comply with Applicable Laws.

 

16.3 Effect of Amendment or Termination . No amendment, alteration, suspension or termination of the Plan shall impair the rights of any Awardee, unless mutually agreed otherwise between the Awardee and the Committee, which agreement must be in writing and signed by the Awardee and the Company. Termination of the Plan shall not affect the Committee’s ability to exercise the powers granted to it hereunder with respect to Awards granted under the Plan prior to the date of such termination.

ARTICLE 17

Conditions Upon Issuance of Shares

 

17.1 Legal Compliance . Shares shall not be issued pursuant to the exercise of an Award unless the exercise of such Award and the issuance and delivery of such Shares shall comply with Applicable Laws and shall be further subject to the approval of counsel for the Company with respect to such compliance. Under no circumstances shall the Company be obligated to effect or maintain any registration under the Securities Act or other similar Applicable Laws.

 

17.2 Investment Representations . As a condition to the exercise of an Award, the Company may require the person exercising such Award to represent and warrant at the time of any such exercise that the Shares are being purchased only for investment and without any present intention to sell or distribute such Shares if, in the opinion of counsel for the Company, such a representation is required.

 

17.3 Restrictions on Share Transferability .

 

  (a) Generally . The Committee may include in the Award Agreement such restrictions on any Shares acquired pursuant to the exercise or vesting of an Award as it may deem advisable, including restrictions under applicable federal securities laws.

 

  (b) Market Standoff . In the event of an underwritten public offering by the Company of its equity securities pursuant to an effective resignation statement filed under the Securities Act, including the Company’s Initial Public Offering, no person may sell, make any short sale of, loan, hypothecate, pledge, grant any option for the purchase of, or otherwise dispose of or transfer for value or otherwise agree to engage in any of the foregoing transactions with respect to any Shares issued pursuant to an Award granted under the Plan without the prior written consent of the Company or its underwriters. Such limitations shall be in effect for such period of time as may be requested by the Company or such underwriters; provided, however, that in no event shall such period exceed two hundred fourteen (214) days following the effective date of the registration statement. The limitations of this Section 17.3(b) shall in all events terminate two years after the effective date of the Company’s Initial Public Offering.

 

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  (1) In the event of any stock split, stock dividend, recapitalization, combination of Shares, exchange of Shares or other change affecting the Company’s outstanding Common Stock effected as a class without the Company’s receipt of consideration, any new, substituted or additional securities distributed with respect to the purchased Shares shall be immediately subject to the provisions of this Section 17.3(b), to the same extent the purchased Shares are at such time covered by such provisions.

 

  (2) In order to enforce the limitations of this Section 17.3(b), the Company may impose stop-transfer instructions with respect to the purchased shares until the end of the applicable stand off period.

ARTICLE 18

Additional Provisions

 

18.1 Term of Plan . Subject to Section 18.6 of the Plan, the Plan shall become effective upon its adoption by the Board. It shall continue in effect for a term of ten (10) years unless terminated earlier under Article 16 of the Plan.

 

18.2 Unfunded Status of Plan . It is intended that the Plan shall constitute an “unfunded” plan for incentive and deferred compensation. The Committee may authorize the creation of trusts or other arrangements to meet the obligations created under the Plan to deliver stock or make payments; provided, however, that the existence of such trusts or other arrangements is consistent with the “unfunded” status of the Plan.

 

18.3 No Right to Continue As A Service Provider . Neither the Plan nor any Award shall confer upon an Awardee any right with respect to continuing the Awardee’s relationship as a Service Provider with the Company, nor shall they interfere in any way with the Awardee’s right or the Company’s right to terminate such relationship at any time, with or without Cause.

 

18.4 Inability to Obtain Authority . The inability or failure of the Company to obtain authority from any regulatory body having jurisdiction (including, without limitation, effectiveness of a registration statement under the Securities Act), which authority is deemed by the Company’s counsel to be necessary to the lawful issuance and sale of any Shares hereunder, shall relieve the Company of any liability in respect of the failure to issue or sell such Shares as to which such requisite authority shall not have been obtained.

 

18.5 Reservation of Shares . The Company, during the term of this Plan, will at all times reserve and keep available such number of Shares as shall be sufficient to satisfy the requirements of the Plan.

 

18.6 Shareholder Approval . The Plan shall be subject to approval by the shareholders of the Company within twelve (12) months after the date the Plan is adopted. Such shareholder approval shall be obtained in the manner and to the degree required under Applicable Laws. If such shareholder approval is not obtained, all Awards granted under the Plan shall be cancelled.

 

18.7 No Right to Participation . No Employee, Director or Consultant shall have the right to be selected to receive an Award, or, having been so selected, to be selected to receive a future Award.

 

18.8 Successors . All obligations of the Company under the Plan with respect to Awards granted hereunder shall be binding on any successor to the Company, whether the existence of such successor is the result of a direct or indirect purchase, merger, consolidation, or otherwise of all or substantially all of the business or assets of the Company.

 

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18.9    Severability . If any part of the Plan is declared by any court or governmental authority to be unlawful or invalid, such unlawfulness or invalidity shall not invalidate any other part of the Plan. Any Section or part of a Section so declared to be unlawful or invalid shall, if possible, be construed in a manner which will give effect to the terms of such Section or part of a Section to the fullest extent possible while remaining lawful and valid.

 

18.10  Designation of Beneficiary . The Committee may establish procedures allowing an Awardee to designate a beneficiary or beneficiaries to exercise any Award or receive any payment under any Award payable on or after the Awardee’s death.

 

18.11  Governing Law . The Plan shall be construed in accordance with and governed by the laws of the State of Illinois.

 

18.12  Code Section 409A . To the extend that any Award shall constitute “deferred compensation” subject to Code Section 409A, such Award shall be administered in accordance with the requirements of Code section 409A(a)(2)(A)(i), which prohibits the distribution of compensation subject to Code section 409A to a “specified employee” of a publicly traded company any earlier than six months after the date of separation of service in the case of a distribution by reason of a separation of service.

[END OF PLAN]

 

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Executed this 29th day of August, 2007.

 

RUBICON TECHNOLOGY, INC.
By:  

/s/ Raja M. Parvez

Its:   President and CEO

 

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EXHIBIT A

RUBICON TECHNOLOGY, INC.

2007 STOCK INCENTIVE PLAN

IRREVOCABLE PROXY

The undersigned hereby revokes any previous proxies and irrevocably appoints the Chairman of the Board of Directors of Rubicon Technology, Inc. (the “Company”), and his successor or successors (the “Proxyholder”), pursuant to the Rubicon Technology, Inc. 2007 Stock Incentive Plan as the proxy of the undersigned to attend any and all meetings of the shareholders of the Company, and any adjournments or postponements of such meetings (collectively, a “Meeting”), to vote for and in the name, place and stead of the undersigned at any Meeting all shares of common stock, par value $.001 per share of the Company (the “Stock”), owned by the undersigned on the date of this proxy and any other shares of Stock hereafter acquired by the undersigned (collectively, the “Proxy Shares”), to execute written consents to corporate action, and to represent and otherwise act for the undersigned on any and all matters with the same force and effect as if the undersigned were personally present at such meeting or were executing such consent.

This proxy is coupled with an interest and is expressly made irrevocable and will be effective until the earliest to occur of (i) the consummation of an initial public offering by the Company that is registered under the Securities Act of 1933, as amended, or (ii) the expiration of ten (10) years from the execution date hereof. The undersigned acknowledges that monetary damages would be an inadequate remedy for a breach of the provisions of this proxy and that (in addition to any other remedy available at law) the obligations of the undersigned and the rights of the Proxyholder are specifically enforceable.

The undersigned authorizes the Proxyholder to substitute any other person or entity to act under this proxy, to revoke any such substitution, and to file this proxy and any substitution or revocation of this proxy with the Secretary of the Company.

 

          Dated as of  

 

   

 

      Signature
     

 

      Printed Name

 

R UBICON T ECHNOLOGY , I NC .    Exhibit A-1    2007 S TOCK I NCENTIVE P LAN

Exhibit 10.3

DESCRIPTION OF RUBICON TECHNOLOGY, INC.

2006 INCENTIVE BONUS PLAN

In 2006, the employees of Rubicon Technology, Inc. (the “Company”) were entitled to earn annual cash bonuses under the Company’s 2006 Incentive Bonus Plan (the “2006 Plan”). The Compensation Committee of the Company’s Board of Directors (the “Committee”) established a series of objectives for the participants of the 2006 Plan based on the gross revenue and EBITDA targets set forth in the Company’s 2006 revised budget. Bonuses were calculated as a percentage of base salary.

The Company’s Chief Executive Officer, Senior Vice Presidents and Vice Presidents were entitled to receive a 20% bonus if the Company met the minimum targets set by the Committee; a 25% bonus if the Company exceeded the minimum targets by up to 10%; and a 30% bonus if the Company exceeded the targets by more than 10%.

The Company’s directors were entitled to receive a 15% bonus if the Company met the minimum targets set by the Committee; a 20% bonus if the Company exceeded the minimum targets by up to 10%; and a 25% bonus if the Company exceeded the targets by more than 10%.

The Company’s managers and professionals were entitled to receive a 10% bonus if the Company met the minimum targets set by the Committee; a 15% bonus if the Company exceeded the minimum targets by up to 10%; and a 20% bonus if the Company exceeded the targets by more than 10%.

The Company’s operators and support staff were entitled to receive a 5% bonus if the Company met the minimum targets set by the Committee; a 10% bonus if the Company exceeded the minimum targets by up to 10%; and a 15% bonus if the Company exceeded the targets by more than 10%.

Exhibit 10.4

RUBICON TECHNOLOGY, INC.

MANAGEMENT INCENTIVE BONUS PLAN

Rubicon Technology, Inc. (the “ Company ”) has adopted this Rubicon Technology, Inc. Bonus Plan (the “ Plan ”) to provide the framework for the payment of bonuses to certain employees of the Company in the event that the Company is sold. The purpose of the Plan is to provide those employees with an opportunity to participate financially in the proceeds of such a transaction, such as a merger or sale of the Company, which may otherwise create personal uncertainties for such employees.

 

1. ELIGIBILITY

Employees of the Company designated by resolution of the Board of Directors of the Company (the “ Board ”) are eligible to receive a bonus (the “ Bonus ”) under the terms of this Plan. Each person who may receive a Bonus under this Plan is herein referred to as a “ Participant .” In order to receive a Bonus, the Participant must be employed by the Company through the consummation of a Sale Transaction (as defined below).

 

2. DEFINTIONS

For purposes of this Plan, the following terms shall have the meanings set forth below:

Initial Public Offering ” shall mean the first offering by the Company of its equity securities to the public pursuant to an effective registration statement filed under the Securities Act of 1933, as amended, or under any similar law then in effect.

Sale Transaction ” shall mean the consummation of a transaction involving: (i) any sale or transfer (in one transaction or a series of related transactions) of all or substantially all of the Company’s assets, property or business; (ii) any merger or consolidation with any other entity or entities where the Company is not the surviving entity (except for a merger effected solely for the purpose of changing the domicile of the Company); or (iii) any transaction or series of related transactions in which the stockholders of the Company immediately preceding such transaction or series of related transactions own, following such transaction or series of related transactions, less than fifty percent (50%) of the voting securities of the Company; provided , however , that in any event a Sale Transaction shall not be deemed to have occurred unless the Sale Proceeds (as defined below) exceed $50,000,000.

Sale Proceeds ” shall mean the consideration paid and received for the assets or equity of the Company in the Sale Transaction that is distributable to the stockholders of the Company (after payment of all expenses of sale, including, but not limited to legal, accounting, financing, management or retention fees, broker, investment banker or advisor fees and any other closing costs and payment of any outstanding liabilities of the Company not assumed in the Sale Transaction but expressly excluding the liability to pay any Bonuses under this Plan), up to the “ Sale Proceeds Limit ” (defined in this paragraph).

 


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For purposes of clarity, the value of any assumed liabilities in any Sale Transaction is not part of the Sale Proceeds. To the extent that the Sale Proceeds are not paid in cash, the value of such Sale Proceeds shall be as valued in the Sale Transaction and as otherwise determined by the Board in its sole and absolute discretion. If the Sale Transaction provides for any deferred payment of consideration (such as payments contingent upon the business attaining certain financial or other business goals during a designated period or deferred payments to be held-back and applied against any indemnification claims following the consummation of the Sale Transaction), then such deferred payments shall not be deemed Sale Proceeds until paid and received (and shall be subject in the case of hold-backs to off-set for indemnification claims). For purposes of this Plan, “ Sale Proceeds Limit ” shall mean an amount equal to the total value of the liquidation preferences (including accrued but unpaid dividends) of all outstanding series of the Company’s preferred stock measured immediately prior to the consummation of the Sale Transaction, plus $8,000,000.

 

3. BONUSES

In connection with the consummation of a Sale Transaction, subject to the terms hereof, the Company shall pay each Participant a Bonus in an amount equal to the Sales Proceeds multiplied by the percentage specified by resolution of the Board at the time that the Participant was designated as a Participant under the Plan. Unless the Board expressly provides otherwise in any resolution designating an employee as a Participant under this Plan and specifying a percentage, percentages specified by resolution are subject to reduction to reflect dilution for any securities that may be issued after the resolution date (or any other date specified in the resolution and to which the percentage established relates) and any adjustments in the conversion rates of the outstanding preferred stock of the Company occurring after that date. Notwithstanding the foregoing, Bonus percentages are not subject to adjustment for any proportionate changes in the outstanding capital stock of the Company such as by means of a stock dividend or split, reverse stock split or the like and any resulting changes in the conversion rates of the outstanding preferred stock of the Company. Payment of Bonuses shall be made within thirty days of the receipt of the Sale Proceeds. If Sale Proceeds are payable on a deferred basis, payment shall be made based on the calculation set forth in the first sentence of this paragraph (subject to reduction as provided in this Plan), only as and within thirty days of the receipt of the deferred portions of the Sale Proceeds. Bonuses shall be payable in cash, or at the option of the Company, in such form of consideration as payable in the Sale Transaction.

No Participant or other person shall have any interest in any of the assets of the Company by reason of being eligible to receive a benefit under this Plan. Participants shall have only the rights of a general unsecured creditor of the Company with respect to any rights under the Plan; provided, that payment of such Bonuses shall be made as if on a pari passu basis with the liquidation preference of the Company’s most senior series of preferred stock (the “ Senior Liquidation Preference ”) or the shares into which such stock was converted prior to the Sale Transaction, as a part thereof. Accordingly, if the Sale Proceeds (or the assets of the Company available for distribution, if applicable) after

 


R UBICON T ECHNOLOGY , I NC .    -2-   

M ANAGEMENT I NCENTIVE B ONUS

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payment of any Bonuses would be insufficient to pay the full Senior Liquidation Preference, then payment of the Bonuses will be made on a pro rata basis with the Senior Liquidation Preference (and the Bonuses shall be reduced accordingly).

Examples

 

   

If all of the assets of the Company are sold for consideration valued at $45,000,000, then no Sale Transaction will be deemed to have occurred.

 

   

If (i) the Company enters into a Sale Transaction for consideration valued at $60,000,000, (ii) the expenses of the transaction and the outstanding liabilities of the Company equals $20,000,000, (iii) the Senior Liquidation Preference is $17,000,000 (and thus enough assets to pay the full Senior Liquidation Preference), and (iv) the aggregate Bonus percentages for all Participants under the Plan is 5%, then the aggregate Bonuses would equal $2,000,000 (5% of $40,000,000 ($60,000,000 less $20,000,000)) and, since the Sales Proceeds would be sufficient to pay the Senior Liquidation Preference, the Bonuses would not be subject to reduction pursuant to the second paragraph of Section 3 of this Plan. In this example, each Participant’s specific Bonus would be equal to their respective percentage (as determined in the first paragraph of Section 3 of this Plan) multiplied by $40,000,000 (e.g., if a Participant’s designated percentage is .05%, then the Bonus shall be equal to $20,000).

 

   

If (i) the Company enters into a Sale Transaction with Sale Proceeds valued at $60,000,000, (ii) the expenses of the transaction and the outstanding liabilities of the Company equals $35,000,000, (iii) the Senior Liquidation Preference is $25,000,000, and (iv) the aggregate Bonus percentages of all Participants under the Plan is 6%, then the aggregate Bonuses for all Participants would be $1,500,000 (6% of $25,000,000 ($60,000,000 less $35,000,000)), provided that there would not be enough Sales Proceeds to pay the Senior Liquidation Preference and accordingly, the Bonuses will be payable on a pro rata basis with the Senior Liquidation Preference and reduced by approximately 5.7%.

 

4. MISCELLANEOUS

The Board (or a committee of the Board designated by it, which committee shall be deemed the Board for all purposes of this Plan), will administer this Plan in accordance with its terms, and will have all power necessary to carry out the Plan. The Board has full discretion to, and will, interpret the Plan and determine all questions arising in its administration, interpretation and application, including but not limited to questions of eligibility and the calculations of any payments contemplated by this Plan. All determinations by the Board shall be final, conclusive and binding on all persons.

The Company reserves the right to amend or terminate this Plan at any time without the consent of any Participant, provided that without the written consent of the Participant, no amendment or termination shall adversely affect the rights of Participants to benefits

 


R UBICON T ECHNOLOGY , I NC .    -3-   

M ANAGEMENT I NCENTIVE B ONUS

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previously granted under this Plan (except for amendments immaterially affecting all Participants in a like manner excluding differences based on Bonus percentages). Notwithstanding the foregoing, this Plan and all rights and benefits granted hereunder shall terminate immediately upon consummation of an Initial Public Offering.

Participation in the Plan does not guarantee or imply continued employment and nothing in this Plan is intended to create an employment agreement with a Participant or any other employee of the Company, it being the express understanding that all employment by the Company (except as might be agreed to otherwise in a written instrument outside this Plan) is “at-will.”

All measurements and calculations shall be done by the Board, using such rounding conventions as it deems appropriate in its sole discretion and all such measurements shall be final, conclusive and binding on all persons.

Any payments under this Plan shall be subject to withholding for applicable deductions required by federal, state or local law.

This Plan is dated as of February 28, 2007.

 


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Exhibit 10.4(a)

AMENDMENT NO. 1 TO

RUBICON TECHNOLOGY, INC.

MANAGEMENT INCENTIVE BONUS PLAN

RECITALS

The Company previously adopted the Plan, effective as of February 28, 2007. Unless otherwise defined herein, all capitalized terms in this Amendment have the same meaning as provided in the Plan.

The Plan provides that it may be amended by resolution of the Board.

The Board approved, at its meeting on August 29, 2007, the amendment of the Plan to provide that members of the Board (each a “Director”) and those individuals serving as advisors to the Board (“each an “Advisor”) are eligible to participate and receive Bonuses under the Plan.

AMENDMENT

1. The Plan is hereby amended by deleting Section 1 in its entirety and replacing it with the following:

“1. ELIGIBILITY

Any Employee of the Company, Director or Advisor designated by resolution of the Board (a “Participant”) is eligible to receive a bonus (the “ Bonus ”) under the terms of this Plan. In order to receive a Bonus, the Participant must be employed by the Company or serving as a Director or Advisor through the consummation of a Sale Transaction (as defined below).”

2. The Plan is hereby amended by deleting the third paragraph under Section 4 in its entirety and replacing it with the following:

“Participation in the Plan does not guarantee or imply continued employment and nothing in this Plan is intended to create an employment agreement with a Participant or any other employee of the Company, it being the express understanding that all employment by the Company (except as might be provided otherwise in a written instrument outside this Plan) is “at-will.” Further, participation in the Plan does not guarantee or imply continued service as a member of the Board, such service being subject to applicable law and the Company’s Certificate of Incorporation, as it may be amended from time to time, or as an Advisor to the Board, such service being “at-will” and subject to the discretion of the Board.”

3. Except as expressly provided above, the Plan is not further amended and remains in effect.


4. This Amendment is effective as of August 29, 2007.

 

Rubicon Technology, Inc.
By:   /s/ Raja M. Parvez
  Raja M. Parvez, President and CEO

Exhibit 10.5

EXECUTIVE EMPLOYMENT AGREEMENT

THIS EXECUTIVE EMPLOYMENT AGREEMENT (“ Agreement ”) is made and entered into as of the 17th day of November, 2005 (the “ Effective Date ”), by and between Rubicon Technology, Inc., a Delaware corporation (the “ Company ”), and Raja M. Parvez, a resident of the State of Pennsylvania (the “ Executive ”).

PRELIMINARY STATEMENTS

The Company is in the business of providing material science solutions of sapphire and other advanced technology materials for the Opto-electrics Semiconductor Fabrication, Optical and Laser and Telecommunications Marketplaces (“ Company’s Business ”; provided , however , the term shall be deemed amended to reflect any actual change in the Company’s Business after the date hereof but prior to the day following the date on which Executive shall cease to be employed by the Company (as reflected in the minutes of the Board of Directors of the Company prior to the Termination Date (as defined below) or the Resignation Date (as defined below), as applicable).

The Executive has been and will be employed by the Company and, as a result of such employment, has and will become acquainted with the affairs of the Company and its personnel, services, products, and business practices and relationships and other Confidential Information (as defined in Section 5 below). This Agreement is entered into for, among other things, the protection of the Company’s business relationships, goodwill and going business value and the prevention of the unauthorized use or disclosure of any Confidential Information by the Executive.

The Executive is currently employed and in reliance upon the execution of this Agreement shall terminate his current employment prior to January 2, 2006 (the “ Commencement Date ”) of this Agreement.

AGREEMENT

In consideration of the premises and the mutual promises and covenants contained in this Agreement and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto agree as follows:

Section 1. Employment and Duties.

(a) Employment Duties . Throughout the Employment Term (as defined in Section 2 below), the Executive shall serve as President and Chief Executive Officer of the Company, and shall report to the Board of Directors of the Company (the “ Board ”). Throughout the Employment Term, the Executive shall: (i) devote his working hours, on a full-time basis, to his duties and responsibilities to the Company; (ii) faithfully and loyally serve the Company; (iii) comply in all material respects with all lawful directions and instructions given to him by the Board; and (iv) use his best efforts to promote and serve the interests of the Company. The Executive shall comply in all material respects with all applicable laws, rules and regulations relating to the performance of the


Executive’s duties and responsibilities hereunder. The Board will use its reasonable efforts to cause the Executive to be elected to the Board by the end of the first quarter of 2006.

(b) Exclusive Employment . Throughout the Employment Term, the Executive shall not render his services, directly or indirectly, to any person or entity other than the Company without the prior consent of the Board, which may be withheld or granted by the Board in its sole discretion. The Executive shall not engage in any activity which would materially interfere with the faithful and timely performance of his duties under this Agreement; provided , however , the Executive may, subject to the prior consent of the Board, which shall not be unreasonably withheld, serve as a director of any other company, so long as such service does not unreasonably and materially interfere with the timely performance of the Executive’s duties under this Agreement.

Section 2. Employment Term. The Executive’s employment with the Company, pursuant to this Agreement, shall commence on January 2, 2006 and shall continue thereafter until January 2, 2008 (the “ Initial Term ”), unless otherwise terminated as provided herein. The Initial Term shall be automatically extended on a year-to-year basis thereafter (a “ Renewal Term ”), unless a notice of non-renewal is given in writing by either party to the other party not less than sixty (60) days prior to the end of the Initial Term or any Renewal Term, as applicable. The Executive’s employment by the Company shall be subject to termination at any time during or at the end of the Initial Term or any Renewal Term as provided in Section 4 . As used herein, “ Employment Term ” shall mean the actual period of time during which the Executive is employed by the Company under the terms and conditions of this Agreement.

Section 3. Compensation and Other Benefits. During the Employment Term, the Company shall pay and provide the following compensation and other benefits to the Executive as full compensation for all services rendered by the Executive to the Company:

(a) Annual Salary . In exchange for the Executive’s performance under the terms of this Agreement, the annual salary shall be Two Hundred Seventy-Five Thousand Dollars ($275,000) (the “ Annual Salary ”). The Annual Salary shall be paid in accordance with the then-prevailing payroll practices of the Company, less applicable taxes, payroll deductions and withholdings required by law. The Company agrees that the Board shall review the Annual Salary on an annual basis and make appropriate adjustments thereto from time to time.

(b) Bonuses . The Executive shall be eligible for the following bonuses:

(i) On the Commencement Date, the Executive shall receive a one-time signing bonus of Twenty-Five Thousand Dollars ($25,000) from the Company.

(ii) The Executive shall be eligible to receive a one-time incentive bonus of Twenty-Five Thousand Dollars ($25,000) (the “ Incentive Bonus ”). The Incentive Bonus shall be deemed earned by the Executive if for two (2) consecutive months during the 2006 calendar year the Company’s cash flow as

 

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shown on its monthly statement of cash flows, or its equivalent, is equal to or greater than zero ($0) utilizing accounting principles consistent with the prior practice of the Company. The Incentive Bonus shall be paid thirty (30) days after the conclusion of the 2006 calendar year.

(iii) For each calendar year during the Employment Term, the Executive shall be eligible to receive an annual discretionary bonus from the Company not to exceed Seventy-Five Thousand Dollars ($75,000) based upon the achievement of certain objectives and criteria mutually agreed upon by the Board and the Executive. For the 2006 calendar year, the Board and the Executive shall agree upon the bonus objectives and criteria within sixty (60) days of the Commencement Date. For all calendar years thereafter, the Board and the Executive shall agree upon the bonus objectives and criteria on or before December 31 st of the immediately preceding calendar year.

All of the bonuses referenced above shall be subject to applicable taxes, payroll deductions and withholdings required by law.

(c) Stock Option Plan . Within a reasonable time after the initial closing of the issuance by the Company of shares of Series E Convertible Preferred Stock, the Executive shall be granted an option (the “ Option ”) under the Rubicon Technology, Inc. Stock Option Plan (the “ Plan ”), to purchase shares of common stock, with a par value of $0.001 per share, of the Company (collectively, the “ Common Shares ”) in an amount equal to four percent (4%) of the full-diluted capital stock of the Company (assuming conversion of all convertible securities and exercise of options and warrants) after a $7.5 million Series E round of financing and the associated true-up of the stock option pool to be granted under the Plan at a purchase price per Common Share equal to twenty-five percent (25%) of the price per share of the Series E Convertible Preferred Stock (as may be adjusted pursuant to the Company’s annual year-end auditor review), which shall be fully vested on the Option Date (as defined in the Option Agreement (as defined below)). The Option is subject to normal dilution in the event of further issuances (or deemed issuances) of capital stock by the Company. The Option shall also be subject to all of the terms and conditions under the Plan and that certain Option Agreement attached hereto as Exhibit 3(c) (the “ Option Agreement ”). Notwithstanding the foregoing sentence, in the event that the Executive’s employment with the Company is terminated without Cause (pursuant to Section 4(b) ) or voluntarily for Good Reason (pursuant to Section 4(d) ), any vesting provisions relating to the Option in the Option Agreement shall be accelerated by rounding up to the next full vesting year, without any further action by the parties hereto; provided , however , that the Executive executes and delivers to the Company a complete release of all claims that the Executive may have against the Company in form and substance reasonably acceptable to the Company.

(d) Management Incentive Plan . The Executive shall be granted a four percent (4%) participation right (based upon the completion of a $7.5 million Series E round of financing and a true-up of the option pool in connection therewith) (the “ Participation Right ”) under the Company’s Management Incentive Plan (the “ Incentive Plan ”); provided, however, the Participation Right shall be subject to all of the terms and

 

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conditions of this subsection (d) as well as the Incentive Plan applicable to all management of the Company, including all waiting periods, eligibility requirements, exclusions and other similar conditions or limitations. The Participation Right is subject to normal and customary dilution in the event of further issuances (or deemed issuances) of capital stock by the Company. Notwithstanding anything in this Agreement or the Incentive Plan to the contrary, the Participation Right will not entitle the Executive to participate in a liquidity event of the Company unless and until the gross proceeds in connection with such liquidity event are equal to or in excess of Forty Million Four Hundred Fifty-Three Thousand Eight Hundred Twenty-One Dollars ($40,453,821) and then the Executive shall be entitled to participate with respect to the Participation Right on the entire amount of the gross proceeds received in connection with such liquidity event. The Participation Right shall be subject to vesting over a three (3) year period as follows: (i) 1/3 of the Participation Right shall vest on the first anniversary of the Commencement Date; (ii) 1/3 of the Participation Right shall vest on the second anniversary of the Commencement Date and (iii) 1/3 of the Participation Right shall vest on the third anniversary of the Commencement Date; provided, however, upon the occurrence of a Change of Control (as defined in the Incentive Plan) of the Company, the Participation Right shall accelerate and become fully vested. The Board is currently reviewing several alternatives with its legal advisors and accountants in an effort to develop a more tax efficient way for eligible members of the management team to participate in a liquidity event of the Company and a result, upon the consent of the Executive, the Company may (but shall not be required to) adjust the Incentive Plan based upon the outcome of such review.

(e) Employee Benefit Plans . The Executive shall be eligible to participate in all employee benefit plans offered by the Company, but participation shall be subject to all of the terms and conditions of such plans applicable to all such employees, including all waiting periods, eligibility requirements, contributions, exclusions and other similar conditions or limitations.

(f) Vacation Leave . The Executive shall be entitled to twenty (20) calendar days of vacation leave per calendar year, to be taken at such times as mutually agreed upon by the Board and the Executive. The Executive shall accrue and receive full compensation and benefits during his vacation leave periods. Unused vacation time shall not entitle the Executive to any additional compensation.

(g) Relocation Expenses . Subject to the conditions described in this Section 3(g) , the Company shall loan to the Executive an amount equal to the reasonable relocation expenses incurred by the Executive between the Commencement Date and January 2, 2007, determined by the Company in its sole discretion to be necessary to allow the Executive to relocate to the Chicago, Illinois metropolitan area in connection with his employment with the Company, not to exceed a maximum amount of Fifty Thousand Dollars ($50,000). At the time of the first loan payment to, or on behalf of, the Executive to cover such expenses, the Executive shall execute a promissory note in the form attached hereto as Exhibit 3(g) (the “ Note ”). At the time of each subsequent Company payment of an expense on behalf of the Executive or of such advance to the Executive to cover such expenses, the Executive shall sign a schedule (the “ Loan

 

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Schedule ”) to the Note acknowledging the payment of such expense or recording the receipt of such advance. Except as otherwise set forth below, the Company shall cancel in two equal installments the then-outstanding amount repayable by the Executive under the Note on each of the first two anniversaries of the Commencement Date (each a “ Cancellation Date ”), provided , that, as of the time of such Cancellation Date, (i) the Executive’s employment with the Company has not been terminated for Cause (as determined pursuant to Section 4(a) ) or terminated voluntarily by the Executive (pursuant to Section 4(c) ); and (ii) the Executive is in compliance with any and all written agreements between the Executive and the Company. In the event that the Executive’s employment with the Company is terminated for Cause or terminated voluntarily by the Executive prior to any Cancellation Date, the Executive shall promptly repay any amounts then outstanding under the Note, as evidenced by the Loan Schedule. The Executive agrees that the Company may withhold payment of any salary owing to the Executive to offset such repayment obligation. In the event that the Executive’s employment with the Company is terminated without Cause (pursuant to Section 4(b) ), terminated voluntarily for Good Reason (pursuant to Section 4(d) ) or terminated by death or Permanent Disability (pursuant to Sections 4(e) or (f) ) prior to any Cancellation Date, the Note shall be deemed null and void and of no further force and effect as of such date.

(h) Commuting Expenses . For the time between the Effective Date and January 2, 2006, the Company shall reimburse the Executive for all reasonable travel expenses incurred by the Executive for travel from Pennsylvania to Chicago or other locations requested by the Company in the scope of his employment hereunder. For the time between January 2, 2006 and January 2, 2007, the Company shall reimburse the Executive, consistent with the Company’s policies and procedures, for his reasonable commuting expenses (which shall be defined to include all travel and lodging costs, all meal expenses and other miscellaneous costs) associated with maintaining a presence in Chicago, Illinois prior to the Executive’s relocation. Such stipend shall be paid in accordance with the then-prevailing payroll practices of the Company, less applicable taxes, payroll deductions and withholdings required by law.

(i) Other Expenses . The Company shall reimburse the Executive for all reasonable and ordinary out-of-pocket business expenses incurred by the Executive in the scope of his employment hereunder. The Executive shall submit itemized expense reports in order to obtain reimbursement of expenses and shall submit with such expense reports such records and logs as may be required by the relevant taxing authorities for the substantiation of each such business expense as a deduction on the Company’s income tax returns.

Section 4. Termination of Employment. The Executive’s employment with the Company shall be subject to termination as follows:

(a) Termination for Cause . The Company may immediately terminate the Executive for Cause (as defined below) by giving written notice to the Executive. In the event of a termination for Cause, the Executive shall be entitled to payment of that portion of any Executive’s Annual Salary that the Executive earned through and including the Termination Date, at the rate of the Annual Salary in effect at that time, and any

 

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bonus declared prior to the Termination Date that remains unpaid, subject to any offset or recoupment rights of the Company and any other rights or remedies applicable to any breach of this Agreement by the Executive prior to the Termination Date. Except as provided herein or required by applicable law, the Executive shall not be entitled to any other compensation or benefits. Termination for “ Cause ” shall mean termination by the Board of the Executive’s employment with the Company, after a good faith determination by the Board at a meeting called and held for that purpose, or in a written consent to resolutions signed by all members of the Board, and after reasonable notice to the Executive, that the Executive:

(i) has willfully engaged in misconduct materially and adversely affecting the Company;

(ii) engaged in theft, fraud, embezzlement or similar behavior;

(iii) has been indicted or convicted of a felony; or

(iv) willfully continued, following a specified correction period of not less than thirty (30) calendar days, to fail to substantially perform the material duties of his position with the Company, other than failure resulting from incapacity due to physical or mental illness, after a demand for substantial performance is delivered to the Executive by the Board which identifies the manner in which the Board in good faith believes that the Executive has not substantially performed his material duties and specifies the reasonable time period for correction, which shall not be less than ten (10) calendar days.

(b) Termination Without Cause . The Company may, in its sole discretion, terminate the Executive without Cause, by providing written notice to the Executive (the “ Termination Notice ”) at least sixty (60) calendar days prior to the Termination Date. In the event of a termination without Cause, the Executive shall be entitled to: (i) payment of that portion of any Executive’s Annual Salary that the Executive earned through and including the Termination Date, at the rate of the Annual Salary in effect at that time; (ii) any bonus declared prior to the Termination Date that remains unpaid; (iii) payment of an amount equal to the Executive’s Annual Salary, at the rate of the Annual Salary in effect at that time (the “ Severance Payment ”) which shall be payable by the Company to the Executive in two (2) installments: (A) the first installment shall be due and payable on the Termination Date and (b) the second installment shall due and payable on the six month anniversary of the Termination Date; and (iv) accelerated vesting of the Option pursuant to Section 3(c) ; provided , however , that the Executive executes and delivers to the Company a complete release agreement in form and substance reasonably acceptable to the Company. In addition, the Company shall be obligated to continue any health and welfare benefits provided to the Executive under Section 3(e) throughout the period commencing on the Termination Date and continuing for a twelve-month period thereafter. Except as provided herein or required by applicable law, the Executive shall not be entitled to any other compensation or benefits. With respect to the payments to be made to the Executive by the Company under this subsection (b), such payments shall be less applicable taxes, payroll deductions and withholdings required by law.

 

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(c) Resignation . The Executive may resign from his employment with the Company at any time by providing written notice to the Company thirty (30) calendar days prior to the Resignation Date. In the event of resignation, the Executive shall be entitled to payment of that portion of the Executive’s Annual Salary that the Executive earned through and including the Resignation Date, at the rate of the Annual Salary in effect at that time, and any bonus declared by the Board prior to the Resignation Date that remains unpaid. Except as provided herein (including, without limitation, in Section 4(d) ) or required by applicable law, the Executive shall not be entitled to any other compensation or benefits.

(d) Resignation for Good Reason . Notwithstanding Section 4(c) , the Executive may terminate his employment by the Company for Good Reason (as defined below) by providing written notice thereof to the Company (the “ Resignation Notice ”) at least thirty (30) days prior to the Resignation Date, which notice shall set forth in reasonable detail the nature of the facts and circumstances which constitute Good Reason and Company shall have thirty (30) days after receipt of the Resignation Notice to cure in all material respects the facts and circumstances which constitute Good Reason. In the event of a termination for Good Reason, the Executive shall be entitled to: (i) payment of that portion of any Executive’s Annual Salary that the Executive earned through and including the Resignation Date, at the rate of the Annual Salary in effect at that time; (ii) any bonus declared prior to the Resignation Date that remains unpaid; (iii) payment of the Severance Payment which shall be payable by the Company to the Executive in two (2) installments: (A) the first installment shall be due and payable on the Resignation Date and (b) the second installment shall due and payable on the six month anniversary of the Resignation Date; and (iv) accelerated vesting of the Option pursuant to Section 3(c) ; provided , however , that the Executive executes and delivers to the Company a complete release of all claims that the Executive may have against the Company in form and substance reasonably acceptable to the Company. In addition, the Company shall be obligated to continue any health and welfare benefits provided to the Executive under Section 3(e) throughout the period commencing on the Resignation Date and continuing for a six-month period thereafter. Except as provided herein or required by applicable law, the Executive shall not be entitled to any other compensation or benefits. With respect to the payments to be made to the Executive by the Company under this subsection (d), such payments shall be less applicable taxes, payroll deductions and withholdings required by law. For purposes of this Agreement, “ Good Reason ” means the resignation of the Executive’s employment by the Company by the Executive, because of (A) any reduction in the Executive’s Annual Salary of $275,000 or diminution of the benefits outlined in Section 3 above, other than a reduction applicable to all other similarly situated participants, (B) a substantial diminution in the duties, responsibilities or titles of the Executive, but only if uncured in accordance with the foregoing provisions hereof, or (C) being required by the Board to relocate (for a period longer than six (6) consecutive months) greater than 100 miles from the Chicago, Illinois metropolitan area in order to maintain employment with the Company pursuant to this Agreement.

(e) Death . If the Executive dies, his employment with the Company shall automatically terminate on the date of his death. The Executive’s estate or personal representative shall be entitled to receive that portion of the Annual Salary that the

 

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Executive earned through and including the date of the Executive’s death, at the rate of the Annual Salary in effect at that time, and any bonus declared prior to the date of the Executive’s death that remains unpaid. Except as provided herein or required by applicable law, neither the Executive’s estate nor his personal representative shall be entitled to any other compensation or benefits.

(f) Disability . The Executive shall be deemed “ Permanently Disabled ” when he has suffered any medically determinable physical or mental illness, injury or infirmity that prevents the Executive from performing his responsibilities under this Agreement and which disability has lasted or can be expected to last for a continuous period of not less than 120 calendar days and that the Board determines in good faith that such illness or other disability is likely to continue for at least the next succeeding thirty (30) calendar days. The determination that the physical or mental illness, injury or infirmity constitutes a Disability shall be made by a medical doctor who is not an employee of the Company and who is reasonably selected by the Company and reasonably acceptable to the Executive (unless the Company and the Executive reach mutual agreement regarding the existence of a Disability) and such determination shall be binding on both parties (including any guardians or representatives for the Executive). The Executive must submit to at least one (1) examination by the designated medical doctor and the Executive hereby authorizes the disclosure and release to the Company of such determination and all supporting medical records. If the Executive becomes Permanently Disabled, the Company may terminate the Executive’s employment with the Company as a result of the Permanent Disability by providing written notice to the Executive thirty (30) calendar days prior to the Termination Date, or the Executive may resign from his employment with the Company by providing written notice to the Company thirty (30) calendar days prior to the Resignation Date. If the Executive resigns from employment with the Company as a result of a Permanent Disability or the Company terminates the Executive’s employment as a result of a Permanent Disability, the Executive shall be entitled to receive that portion of the Annual Salary, at the rate in effect when he became Permanently Disabled, that he earned through and including the Termination Date or Resignation Date, as applicable, less any amounts the Executive is entitled to receive under any disability insurance policy maintained by the Company through the Termination Date. Except as provided herein or required by applicable law, the Executive shall not be entitled to any other compensation or benefits.

Section 5. Confidentiality . For purposes of this Section 5 , the term “ Company ” shall include, in addition to the Company, its affiliates, subsidiaries and any of their respective predecessors, successors and assigns.

(a) Confidential Information . As used in this Agreement, “ Confidential Information ” means any and all confidential, proprietary or other information, whether or not originated by the Executive or the Company, which is in any way related to the past or present Company’s Business and is either designated as confidential or not generally known by or available to the public. Confidential Information includes, but is not limited to (whether or not reduced to writing or designated as confidential) (i) information regarding the Company’s existing and potential customers and vendors; (ii) any contracts (including the existence and contents thereof and parties thereto) to which the Company

 

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is a party or is bound; (iii) information regarding products and services being purchased or leased by or provided to the Company; (iv) information received by the Company from third parties under an obligation of confidentiality, restricted disclosure or restricted use; (v) personnel and financial information of the Company; (vi) information with respect to the Company’s products, services, facilities, business methods, systems, trade secrets, technical know-how, and other intellectual property; (vii) marketing and developmental plans and techniques, price and cost data, forecasts and forecast assumptions, and potential strategies of the Company; and (viii) any other information relating to the Company which was obtained by the Executive in connection with his employment by the Company, whether before, on or after the Effective Date.

(b) Non-Disclosure and Non-Use of Confidential Information . The Executive acknowledges that the Confidential Information of the Company is a valuable, unique asset of the Company and the Executive’s unauthorized use or disclosure thereof could cause irreparable harm to the Company for which no remedy at law could be adequate. Accordingly, the Executive agrees that he shall hold all Confidential Information of the Company in strict confidence and solely for the benefit of the Company, and that, except as necessary in the course of Executive’s duties as an employee of the Company, he shall not, directly or indirectly, disclose or use or authorize any third party to disclose or use any Confidential Information. The Executive shall follow all the Company policies and procedures to protect all Confidential Information and take any additional precautions necessary to preserve and protect the use or disclosure of any Confidential Information at all times.

(c) Ownership of Confidential Information . The Executive acknowledges and agrees that all Confidential Information is and shall remain the exclusive property of the Company, whether or not prepared in whole or in part by the Executive (other than information prepared prior to his employment by the Company) and whether or not disclosed to or entrusted to the custody of the Executive. Upon the termination or resignation of his employment by the Company, or at any other time at the request of the Company, the Executive shall promptly deliver to the Company all documents, tapes, disks, or other storage media and any other materials, and all copies thereof in whatever form, in the possession of the Executive pertaining to the Company’s Business, including, but not limited to, any containing Confidential Information.

(d) Public Information . Notwithstanding anything contained in this Agreement to the contrary, information which is generally available or accessible to the public shall be deemed Confidential Information of the Company if such information was retrieved, gathered, assembled or maintained by the Company in such a manner not available to the public or for a purpose beneficial to the Company. From time to time, the Company may, for its own benefit, choose to place certain Confidential Information or records of the Company in the public domain. Notwithstanding anything contained in this Agreement to the contrary, the fact that such Confidential Information may be made available to the public in a limited form and under limited circumstances does not change the confidential and proprietary nature of such information, and does not release the Executive from his duties with respect to such Confidential Information as set forth in this Agreement.

 

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(e) Survival . The Executive’s obligations set forth in this Section 5 , and the Company’s rights and remedies with respect hereto, shall survive the termination of this Agreement and the Executive’s employment by the Company, regardless of the reason therefor for a period of five (5) years.

Section 6. Restrictive Covenants . For purposes of this Section 6 , the term “ Company ” shall include, in addition to the Company, its affiliates, subsidiaries and any of their respective predecessors, successors and assigns.

(a) Non-Competition . The Executive shall not, during the Restricted Period and within the Restricted Area (each as defined in subsection (c) below), directly or indirectly, perform on behalf of any Competitor (as defined in subsection (c) below) the same or similar services as those that Executive performed for the Company during the Executive’s employment by the Company or otherwise. In addition, the Executive shall not, during the Restricted Period or within the Restricted Area, directly or indirectly engage in, own, manage, operate, join, control, lend money or other assistance to, or participate in or be connected with (as an officer, director, member, manager, partner, shareholder, consultant, employee, agent, or otherwise), any Competitor.

(b) Non-Solicitation . During the Restricted Period, the Executive shall not, directly or indirectly, for himself or on behalf of any Person (as defined in subsection (c) below), (i) solicit or attempt to solicit any Customers (as defined in subsection (c) below) or prospective Customers with whom the Executive had contact at any time during the Executive’s employment by the Company for purposes of soliciting the sale of competing products; (ii) divert or attempt to divert any business of the Company to any other Person; (iii) solicit or attempt to solicit for employment, endeavor to entice away from the Company, recruit, hire, or otherwise interfere with the Company’s relationship with, any Person who is employed by or otherwise engaged to perform services for the Company (or was employed or otherwise engaged to perform services for the Company, as of any given time, within the immediately preceding twenty-four (24) month period); (iv) cause or assist, or attempt to cause or assist, any employee or other service provider to leave the Company; or (v) otherwise interfere in any manner with the employment or business relationships of the Company or the business or operations then being conducted by the Company.

(c) Definitions . For purposes of this Section 6 , the following definitions have the following meanings:

(i) “ Competitor ” means any Person that engages in a business that is substantially the same as, or similar to, the Company’s Business, as an example, the production of light emitting diode technology is of primary use in the lighting industry, but a competitor shall not be deemed to be a Person who manufactures lights but is not involved in light emitting diode technology.

 

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(ii) “ Customer ” means any Person which, as of any given date, used or purchased or contracted to use or purchase any services or products from the Company within the immediately preceding twenty-four (24) month period.

(iii) “ Person ” means any individual, corporation, partnership, joint venture, association, limited liability company, joint-stock company, trust, or unincorporated organization, or any governmental agency, officer, department, commission, board, bureau, or instrumentality thereof.

(iv) “ Restricted Area ” means, because the market for Company’s Business is global, or has the potential of being global, and is not dependent upon the physical location or presence of the Company, the Executive, or any individual or entity that may be in violation of this Agreement, the broadest geographic region enforceable by law (excluding any location where this type of restriction is prohibited by law) as follows: (A) everywhere in the world that has access to Company’s Business because of the availability of the Internet; (B) everywhere in the world that the Executive has the ability to compete with Company’s Business through the Internet; (C) each state, commonwealth, territory, province and other political subdivision located in North America; (D) each state, commonwealth, territory and other political subdivision of the United States of America; (E) Indiana and any state in which the Executive has performed any services for the Company; (F) any geographical area in which the Company has performed any services or sold any products; (G) any geographical area in which the Company or any of its subsidiaries have engaged in Company’s Business, which has resulted in aggregate sales revenues of at least $25,000 during any year in the five (5) year period immediately preceding the commencement of the Restricted Period; (H) any state or other jurisdiction where the Company had an office at any time during the Executive’s employment by the Company; (I) within one hundred (100) miles of any location in which the Company had an office at any time during the Executive’s employment by the Company; and (J) within one hundred (100) miles of any location in which the Executive provided services for the Company.

(v) “ Restricted Period ” means the period of time during the Executive’s employment by the Company plus a period of twelve (12) months from the Termination Date or Resignation Date, as applicable. In the event of a breach of this Agreement by the Executive, the Restricted Period will be extended automatically by the period of the breach.

(d) Survival . The Executive’s obligations set forth in this Section 6 , and the Company’s rights and remedies with respect thereto, will remain in full force and effect during the Restricted Period and, if a legal action is pending in a court of general jurisdiction with respect to an alleged violation of this Section 6 by the Executive, then until entry of a final court order with respect to such dispute.

(e) Public Company Exception . The prohibitions contained in this Section 6 do not prohibit the Executive’s ownership of stock which is publicly traded, provided that

 

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(1) the investment is passive, (2) the Executive has no other involvement with the company, (3) the Executive’s interest is less than five (5%) percent of the shares of the company, and (4) the Executive makes full disclosure to the Company of the stock at the time that the Executive acquires the shares of stock.

Section 7. Assignment of Inventions . Any and all inventions, improvements, discoveries, designs, works of authorship, concepts or ideas, or expressions thereof, whether or not subject to patents, copyrights, trademarks or service mark protections, and whether or not reduced to practice, that are conceived or developed by the Executive while employed with the Company and which relate to or result from the actual or anticipated business, work, research or investigation of the Company (collectively, “ Inventions ”), shall be the sole and exclusive property of the Company. The Executive shall do all things reasonably requested by the Company to assign to and vest in the Company the entire right, title and interest to any such Inventions and to obtain full protection therefor. Notwithstanding the foregoing, the provisions of this Agreement do not apply to an Invention for which no equipment, supplies, facility, or Confidential Information of the Company was used and which was developed entirely on the Executive’s own time, unless (a) the Invention relates (i) to Company’s Business, or (ii) to the Company’s actual or demonstrably anticipated research or development, or (b) the Invention results from any work performed by the Executive for the Company.

Section 8. Reasonableness; Remedies; Arbitration .

(a) Reasonableness . The Executive has carefully considered the nature, extent and duration of the restrictions and obligations contained in this Agreement, including, without limitation, the geographical coverage contained in Section 6 and the time periods contained in Section 5 and Section 6 , and acknowledges and agrees that such restrictions are fair and reasonable in all respects to protect the legitimate interests of the Company and that these restrictions are designed for the reasonable protection of Company’s Business.

(b) Remedies . The Executive recognizes that any breach of this Agreement shall cause irreparable injury to the Company, inadequately compensable in monetary damages. Accordingly, in addition to any other legal or equitable remedies that may be available to the Company, the Executive agrees that the Company shall be able to seek and obtain injunctive relief in the form of a temporary restraining order, preliminary injunction, or permanent injunction, in each case without notice or bond, against Executive to enforce this Agreement. The Company shall not be required to demonstrate actual injury or damage to obtain injunctive relief from the courts. To the extent that any damages are calculable resulting from the breach of this Agreement, the Company shall also be entitled to recover damages, including, but not limited to, any lost profits of the Company and/or its affiliates or subsidiaries. For purposes of this Agreement, lost profits of the Company shall be deemed to include all gross revenues resulting from any activity of the Executive in violation of this Agreement and all such revenues shall be held in trust for the benefit of the Company. Any recovery of damages by the Company shall be in addition to and not in lieu of the injunctive relief to which the Company is entitled. In no event will a damage recovery be considered a penalty in liquidated damages. In addition, in any action at law or in equity arising out of this Agreement, the prevailing

 

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party shall be entitled to recover, in addition to any damages caused by a breach of this Agreement, all costs and expenses, including, but not limited to, reasonable attorneys’ fees, expenses, and court costs incurred by such party in connection with such action or proceeding. Without limiting the Company’s rights under this Section 7(b) or any other remedies of the Company, if a court of competent jurisdiction determines that the Executive breached any of the provisions of Sections 5 or 6 , the Company will have the right to cease making any payments or providing any benefits otherwise due to the Executive under the terms and conditions of this Agreement. The remedies set forth in this Section 8(b) shall be available under this Agreement for any breach of this Agreement, and shall only be narrowly limited as set forth in subsection (c) below.

(c) Arbitration . If the Executive is terminated for Cause, the Executive may contest the reason for his termination, but he may not require reinstatement. In the event the Executive contests the termination, the matter shall be submitted to arbitration at the request of the Executive, except as limited below. If the Executive resigns for a Good Reason, which is contested by the Company, either party may require the determination as to whether or not the resignation was for Good Reason to be submitted to arbitration, except as limited below. The arbitration process will be conducted as follows: (i) the Company and the Executive shall select one (1) arbitrator each, (ii) the selected arbitrators shall then select one (1) additional arbitrator, and (iii) the three (3) arbitrators shall jointly select the rules and procedures that shall govern the arbitration. Notwithstanding the above, if the Executive is terminated for Cause due to the confidentiality, non-competition and non-solicitation provisions contained in Sections 5 and 6 hereof, such matter shall not be subject to arbitration. The sole issue for determination by the Arbitration panel shall be to determine whether or not the Board had good reason to believe that the Executive actually engaged in activities enumerated in Section 4(a)(i) – 4(a)(iv) above, so as to justify a “for Cause” termination, or if the Executive had good reason to believe that the actions taken by the Company justify a resignation by the Executive for Good Reason under Section 4(d) above. This arbitration provision shall relate solely and exclusively to termination for Cause of the Executive or resignation for Good Reason.

Section 9. Nonassignability, Binding Agreement.

(a) By the Executive . The Executive shall not assign, transfer or delegate this Agreement or any right, duty, obligation, or interest under this Agreement without the Company’s prior written consent; provided, however, that nothing shall preclude the Executive from designating beneficiaries to receive compensation or benefits, if any, payable under this Agreement upon his death.

(b) By the Company . The Company shall not assign, transfer or delegate this Agreement or any right, duty, obligation or intent under this Agreement without the Executive’s prior written consent; provided, however, that the Company may assign this Agreement and all of its rights and obligations hereunder to any person who or entity that shall acquire all or substantially all of the assets and properties of the Company in a bona fide sale transaction.

 

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(c) Binding Effect . This Agreement shall be binding upon and inure to the benefit of the parties, any successors or assigns of the Company and the Executive’s heirs and the personal representative(s) or executor(s) of the Executive’s estate.

Section 10. Definitions. The following capitalized terms shall have, throughout this Agreement, the following meanings:

(a) “ Resignation Date ” shall mean the date specified in the Resignation Notice, or the actual date the Executive terminates employment with the Company as the result of a resignation as provided in whichever occurs earlier.

(b) “ Termination Date ” shall mean the actual date the Executive ceases to be employed with the Company as a result of action taken by the Company, and not as a result of Executive’s resignation from employment.

Section 11. Severability. If a court of competent jurisdiction makes a final determination that any term or provision of this Agreement is invalid or unenforceable, and all rights to appeal the determination have been exhausted or the period of time during which any appeal of the determination may be perfected has been exhausted, the remaining terms and provisions shall be unimpaired and the invalid or unenforceable term or provision shall be deemed replaced by a term or provision that is valid and enforceable and that most closely approximates the intention of the parties with respect to the invalid or unenforceable term or provision, as evidenced by the remaining valid and enforceable terms and conditions of this Agreement.

Section 12. Amendment. This Agreement may not be modified, amended, or waived in any manner except by a written instrument signed by both parties to this Agreement.

Section 13. Waiver. The waiver by any party of compliance by any other party with any provision of this Agreement shall not operate or be construed as a waiver of any other provision of this Agreement (whether or not similar), or a continuing waiver or a waiver of any subsequent breach by a party of a provision of this Agreement. Performance by any of the parties of any act not required of it under the terms and conditions of this Agreement shall not constitute a waiver of the limitations on its obligations under this Agreement, and no performance shall estop that party from asserting those limitations as to any further or future performance of its obligations.

Section 14. Governing Law. This Agreement shall be governed, construed and enforced in accordance with the laws of the State of Illinois, without regard to principles of conflict of laws of such State.

Section 15. Notices. All notices required or desired to be given under this Agreement shall be in writing and shall be deemed to have been given if delivered in person and receipted for by the party to whom the notice is directed; mailed by certified or registered United States mail postage prepaid, not later than the day upon which the notice is required to be given pursuant to this Agreement; or delivered by expedited courier, shipping prepaid or mailed to sender, on the next business day, after the date on which it is so sent, and addressed as follows:

 

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If to the Company, to:

  

Board of Directors

Rubicon Technology, Inc.

9931 Franklin Avenue

Franklin Park, Illinois 60131

If to the Executive, to:

  

Raja M. Parvez

3182 Rambeau Road

Bethlehem, PA 18020

 

Either party may, by giving written notice to the other party, change the address to which notice shall then be sent.

Section 16. Prior Agreements . This Agreement is a complete and total integration of the understanding of the parties related to the Executive’s employment with the Company and supersedes all prior or contemporaneous negotiations, commitments, agreements, writings, and discussions with respect to the subject matter of this Agreement, including, without limitation, the offer letter from the Company to the Executive dated November 8, 2005.

Section 17. Headings. The headings of the sections of this Agreement are inserted solely for convenience of reference and shall not be deemed to affect the meaning or interpretation of this Agreement.

Section 18. Counterparts. This Agreement may be executed in two (2) counterparts, each of which shall be deemed to be an original, but both of which together shall constitute one and the same Agreement.

Section 19. Statutory and Common Law Duties. The duties the Executive owes to the Company under this Agreement shall be deemed to include federal and state statutory and common law obligations of the Executive, and do not in any way supersede or limit any of the obligations or duties the Executive owes to the Company. This Agreement is intended, among other things, to supplement the provisions of the Illinois Uniform Trade Secrets Act, as enacted and amended from time to time.

Section 20. Executive Acknowledgments .

(a) The Executive Has Read the Document . The Executive acknowledges and agrees that he has carefully read this entire Agreement and has been given sufficient opportunity to discuss this Agreement with the Company before signing.

(b) The Executive Has Had an Opportunity to Consult with Others . The Executive acknowledges and agrees that he has been given an adequate opportunity to consult with his lawyer, accountant, tax advisor, spouse and other persons he deems appropriate concerning this Agreement and the terms and conditions hereof.

(c) Executive Has a Copy . The Executive acknowledges and agrees that he has been given a copy of this Agreement.

 

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(d) Signing is Acceptance . By signing, the Executive agrees to accept all of the terms and conditions of this Agreement and understands that the Company is relying upon the Executive’s stated acceptance of such terms and conditions.

[SIGNATURE PAGE FOLLOWS]

 

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IN WITNESS WHEREOF, the parties have executed this Agreement as of the Effective Date.

 

“COMPANY”

 

RUBICON TECHNOLOGY, INC.

    “EXECUTIVE”
By:   /s/ Don N. Aquilano       /s/ Raja M. Parvez
  Don N. Aquilano, Chairman       Raja M. Parvez

 

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Exhibit 10.5(a)

RUBICON TECHNOLOGY, INC.

AMENDMENT TO EMPLOYMENT AGREEMENT

THIS AMENDMENT (This “ Amendment ”) to the Executive Employment Agreement dated November 17, 2005 (the “ Agreement ”), is made and entered into as of July 25, 2007 (the “ Effective Date ”), by and between Rubicon Technology, Inc., a Delaware corporation (the “ Company ”), and Raja Parvez (“ Executive ”).

PRELIMINARY STATEMENTS

It is in the best interests of the Company to assure the continued dedication of Executive in a time of uncertainty following a change of control in the corporation before an initial public offering of the Company’s securities.

AGREEMENT

In consideration of the premises and the mutual promises and covenants contained in this Amendment and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto agree as follows:

Section 1. Definitions.

Initial Public Offering ” (“ IPO ”) shall mean the first offering by the Company of its equity securities to the public pursuant to an effective registration statement filed under the “Securities Act of 1933, as amended, or under any similar law then in effect.

Section 2. Amendments.

Add a new Section 4(h), as follows:

(h) Termination Without Cause Subsequent to a Change in Control . Notwithstanding Section 4(b), in the event that the Company, at any time prior to the initial public offering of the Company’s securities, and within one (1) year after a Change in Control (as defined below), terminates the Executive without Cause, the Executive shall be entitled to, in lieu of the payment pursuant to Section 4(b)(iii), a lump sum payment within thirty (30) days of the Termination Date equal to 2.99 times the Executive’s Annual Salary, less applicable taxes, payroll deductions and withholdings required by law. Notwithstanding the preceding sentence, if the independent accountants acting as auditors for the Company on the date of the Change in Control determine that such single payment, together with other compensation received by the Executive, would constitute “excess parachute payments” within the meaning of Section 280G of the Internal Revenue Code of 1986, as amended, and regulations thereunder, the single payment to the Executive shall be reduced to the maximum amount which may be paid without such payments in the aggregate constituting “excess parachute payments”, provided that such amount shall not be reduced below the payment as set forth in Section 4(b)(iii) as referenced above.


For purposes of this Agreement, “Change in Control” means the occurrence of: (A) any consolidation or merger of the Company pursuant to which the stockholders of the Company immediately before the transaction do not retain immediately after the transaction, in substantially the same proportions as their ownership of shares of the Company’s voting stock immediately before the transaction, direct or indirect beneficial ownership of more than 50% of the total combined voting power of the outstanding voting securities of the surviving business entity; (B) any sale, lease, exchange or other transfer (in one transaction or a series of related transactions) of all, or substantially all, of the assets of the Company other than any sale, lease, exchange or other transfer to any company where the Company owns, directly or indirectly, 100% of the outstanding voting securities of such company after any such transfer; or (C) the direct or indirect sale or exchange in a single or series of related transactions by the stockholders of the Company of more than 50% of the voting stock of the Company.”

IN WITNESS WHEREOF, the parties have executed this Amendment as of the Effective Date.

 

“COMPANY”     “Executive”
RUBICON TECHNOLOGY, INC.    
By:  

/s/ Raja Parvez

   

/s/ Raja Parvez

      Raja Parvez
Its:  

President

   

Acknowledged and approved on behalf of

the Board of Directors of Rubicon Technology, Inc.

 

By:  

/s/ Don Aquilano

  Don Aquilano, Chairman

Exhibit 10.6

EMPLOYMENT AGREEMENT

Between

RUBICON TECHNOLOGY, INC.

And

Hap Hewes

This Employment Agreement (the “Agreement”), effective as of March 29, 2004 (the “Effective Date”), is entered into by and between Hap Hewes (“Employee”) and Rubicon Technology, Inc., a Delaware corporation (the “Company”).

The Company desires to establish its right to the services of Employee in the capacity described below, on the terms and conditions, and subject to the rights of termination hereinafter set forth, and Employee is willing to accept such employment on such terms and conditions.

In consideration of the mutual agreements hereinafter set forth, Employee and the Company have agreed and do hereby agree as follows:

1. Employment as Vice President, Strategic Technology Planning and Product Development . The Company does hereby employ, engage and hire Employee as Vice President, Strategic Technology Planning and Product Development and Employee does hereby accept and agree to such hiring, engagement and employment. Employee will report directly to the Chairman and CEO of the Company. Employee will devote his or her full time, energy and skill to the performance of his or her duties for the Company and for the benefit of the Company, reasonable vacations authorized by the President and reasonable absences because of illness or any court orders excepted. The foregoing shall not prevent Employee from engaging in other activities subject to the approval of the President of the Company. Furthermore, Employee will exercise due diligence and care in the performance of his or her duties for the Company under this Agreement.

2. Compensation . The Company shall pay Employee, and Employee agrees to accept from the Company, in full payment for his or her services and promises to the Company (specifically including the promises set forth in (i) the Non-Competition Agreement, attached hereto as Exhibit A and by this reference incorporated herein in its entirety (the “Non-Competition Agreement”), and (ii) the Non-Disclosure and Developments Agreement, attached hereto as Exhibit B and by this reference incorporated herein in its entirety (the “Non-Disclosure and Developments Agreement”), a base salary (the “Base Salary”) at the rate of One Hundred Forty Thousand Dollars ($140,000) per year, payable in accordance with Company policy. Employee will also be eligible to receive, at the discretion of the Company’s Board of Directors, an annual discretionary bonus from the Company of up to 40% of Employee’s base salary. Such bonus will be determined by the Chairman in his sole discretion, and may be based upon certain to-be-designated performance criteria. Finally, upon signing this Agreement, Employee will receive a signing bonus of Twenty Thousand Dollars ($20,000).

At the commencement of employment, Employee will also receive a grant of 147,355 stock options (one-third of one percent of the Company’s current, fully-diluted shares outstanding). The terms and conditions of such grant will be consistent with the Company’s stock option plan as determined by the Company’s Board of Directors.


3. Prior Non-compete . Rubicon agrees that in the event that Employee’s previous employer commences legal proceedings against Hewes, and a basis for such proceedings is Rubicon’s employment of Hewes, Rubicon will provide attorneys and will reimburse Hewes on a current basis for all reasonable legal fees and costs incurred by such attorneys in defense of Hewes in any such proceedings or claims alleged therein but only to the extent that such proceedings relate to Rubicon’s employment of Hewes. In addition, the mere pendency of legal proceedings or any order issued in any such suit will not constitute grounds for the termination of Employee’s employment; provided that such pendency does not exceed a maximum period of one year.

4. Fringe Benefits and Benefit Plans . You will be entitled to participate in any fringe benefits and benefit programs adopted from time to time by the Company on terms generally applicable to other personnel. You will be entitled to health insurance benefits pursuant to the Company plan, with enrollment eligibility commencing on the first day of the month immediately following your date of hire.

5. Relocation Expenses . Subject to the conditions described in this Section 5, the Company will loan to Employee an amount equal to the reasonable relocation expenses, determined by the Company in its sole discretion to be necessary to allow Employee to relocate to the Chicago, Illinois area in connection with his or her employment with the Company, up to a maximum amount of Twelve Thousand Dollars ($12,000). At the time of the first payment to, or on behalf of, Employee to cover such expenses, Employee shall execute a promissory note in the form attached hereto as Exhibit C , as such form may be amended or modified by the Company from time to time (a “Note”). At the time of each subsequent Company payment of an expense on behalf of Employee or of each advance to Employee to cover such expenses, Employee shall sign a schedule (the “Loan Schedule”) to the Note acknowledging the payment of such expense or recording the receipt of such advance. The Company will reduce by one-third the amount repayable by Employee under the Note on each of the first three anniveraries of the Effective Date (the “Cancellation Date”), provided that Employee’s employment with the Company has not been terminated for cause or voluntarily by Employee as of such date and provided that Employee is in compliance as of such date with any and all agreements between Employee and the Company. In the event that Employee’s employment with the Company is terminated for cause or voluntarily by Employee prior to the Cancellation Date, Employee shall promptly repay any amounts then outstanding under the Note, as evidenced by the Loan Schedule. Employee agrees that the Company may withhold payment of any salary or benefits owing to Employee to offset such repayment obligation.

6. Vacation . Employee is entitled to 20 days of paid vacation per calendar year, with such vacation to be scheduled and taken in accordance with the Company’s standard vacation policies. In the event that you do not use your entire vacation in any given year, any unused vacation days will not carry over to the next year.

7. Termination of Employment . Employee will be considered an “employee-at-will.” Either party hereto may terminate this Agreement with thirty (30) days’ advance written notice. In the event that the Company terminates Employee’s employment for any reason, other than “for cause”, the Company will provide Employee with severance benefits. If the termination occurs during the first year of employment, Employee will continue to receive his compensation (which shall not include any bonus payments unless such bonus payments to Employee have been earned by Employee and approved by the Company’s Board of Directors prior to such termination) and health benefits hereunder (the “Severance Benefit”) for six months following the termination. If the termination occurs after the first year of employment, Employee will receive his Severance Benefit for three months.


8. Assignment . This Agreement is personal in its nature and neither of the parties hereto shall, without the consent of the other, assign or transfer this Agreement or any rights or obligations hereunder; provided that, in the event of a merger or consolidation of the Company with any other entity, the assignment of all or substantially all of the business or assets of the Company to a successor entity or the recapitalization, reorganization, reincorporation, or conversion of the Company to another form of legal entity (any of such entities, a “Successor”), this Agreement may be assigned without restriction to such Successor and shall, subject to the provisions hereof, be binding upon and inure to the benefit of such Successor and such Successor shall discharge and perform all the promises, covenants, duties and obligations of the Company hereunder.

9. Governing Law . This Agreement shall be governed in all respects, whether as to validity, construction, capacity, performance, or otherwise, by the laws of the State of Illinois, without regard to the conflict of laws provisions thereof, and no action involving this Agreement may be brought except in the Circuit Court of Cook County, Illinois or the United States District Court for the Northern District of Illinois, Eastern Division.

10. Entire Agreement . This Agreement incorporates the terms of the Company’s Offer Letter to Employee of February 16, 2004 and together the two documents embody the entire agreement of the parties respecting those matters within its scope and may be modified only in writing executed by the Company and Employee.

11. Waiver . Failure to insist upon strict compliance with any of the terms, covenants or conditions hereof shall not be deemed a waiver of such term, covenant or condition, nor shall any waiver or relinquishment of, or failure to insist upon strict compliance with, any right or power hereunder at any one or more times be deemed a waiver or relinquishment of such right or power at any other time or times.

12. Arbitration . All claims, disputes and other matters in question between the parties arising out of the employment relationship (other than claims arising pursuant to the Non-Competition Agreement and the Non-Disclosure and Developments Agreement) shall be decided by arbitration in accordance with the rules of the American Arbitration Association, unless the parties mutually agree otherwise. The award by the arbitrator shall be final, and judgment may be entered upon it in accordance with applicable law in any Illinois State or Federal court having jurisdiction thereof.

13. Severability . In the event that a court of competent jurisdiction determines that any portion of this Agreement is in violation of any statute or public policy, then only the portions of this Agreement that violate such statute or public policy shall be stricken. All portions of this Agreement that do not violate any statute or public policy shall continue in full force and effect. Further, any court order striking any portion of this Agreement shall modify the stricken terms to give as much effect as possible to the intentions of the parties under this Agreement.

14. Notices . Any notice, consent, or other communication required or permitted to be given hereunder shall be in writing and shall be deemed to have been given three (3) days after the date sent if sent by United States certified mail, return receipt requested, with proper postage thereon, one (1) day after the date sent if sent by overnight courier of national recognition, or when transmitted, if sent by facsimile, and shall be addressed as follows:


  (a)    If to the Company:   
     Rubicon Technology, Inc.   
     9931 Franklin Ave.   
     Franklin Park, IL 60131   
     Phone Number: (847) 295-7000   
     Facsimile Number: (847) 295-7555   
     Attn: CEO   
  (b)    If to Employee:   
     Hap Hewes   
     34 Westview Rd.   
     Brookline, NH 03033   

or at such other address or addresses as the party addressed may from time to time designate in writing.

This Employment Agreement is signed and delivered by Employee as Employee’s free and voluntary act after being given the opportunity to review this Employment Agreement and all of its terms with third parties not affiliated with the Company, including Employee’s personal attorney. The parties hereto have executed this Employment Agreement as of the Effective Date.

 

/s/ Hap Hewes

    Rubicon Technology, Inc.
Name: Hap Hewes    
   

/s/ Chris Moffitt

    By:   Chris Moffitt
    Title:   Chairman and CEO

Confidential

Exhibit 10.7

RUBICON TECHNOLOGY, INC.

SEVERANCE AGREEMENT

THIS SEVERANCE AGREEMENT (this “Agreement”) is made and entered into by and between Rubicon Technology, Inc., a Delaware corporation (the “Company”) and Hap R. Hewes (“Executive”) as of September 8, 2005 (the “Effective Date”).

WHEREAS, it is in the best interests of the Company and the Company’s stockholders to assure Executive’s continued dedication to the Company; and

WHEREAS, it is in the best interests of the Company and the Company’s stockholders to retain Executive’s dedication by providing Executive with compensation and benefits arrangements in the event of certain terminations of Executive’s employment, as more fully provided herein;

NOW, THEREFORE, in consideration of and reliance upon the foregoing and the covenants contained in this Agreement, and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the Company and Executive agree as follows:

1. DEFINITIONS

1.1 “Cause” shall mean any of the following: (i) Executive’s commission of a willful act (including, without limitation, a dishonest or fraudulent act) or a grossly negligent act, or the willful or grossly negligent omission to act by Executive, which is intended to cause, causes or is reasonably likely to cause material harm to the Company or any of its subsidiaries (including harm to the business reputation of the Company or any of its subsidiaries); (ii) Executive’s commission or conviction of, or plea of nolo contendere to, any felony or any crime or offense involving dishonesty or fraud or that is significantly injurious to the Company or any of its subsidiaries (including harm to the business reputation of the Company or any of its subsidiaries); (iii) Executive’s breach of any material term or covenant of any agreement with the Company or any of its subsidiaries that, if capable of being cured, remains uncured for thirty (30) days following written notice of such breach from the Company to Executive (unless such agreement provides for a longer cure period in which case such longer cure period shall apply); (iv) Executive’s willful neglect of or continued failure to substantially perform, in any material respect, his or her duties (as assigned to Executive from time to time) or obligations (including a violation of policy) to the Company or any of its subsidiaries, which neglect or failure continues for thirty (30) days following written notice thereof from the Company to Executive; or (v) Executive’s use or abuse of illegal drugs or other controlled substances at any time or Executive being under the influence of alcohol or being affected by the use of alcohol during any time period in which he or she is required to perform his or her duties and obligations to the Company.

1.2 “Good Reason” shall mean any one of the following events, without Executive’s written consent: (i) the assignment to Executive of duties materially inconsistent with Executive’s then-current level of authority or responsibilities, or any other action by the Company that results in a material diminution in Executive’s position, compensation, authority,

 

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Confidential

duties or responsibilities; (ii) a breach by the Company of any material term or covenant of any agreement with Executive that, if capable of being cured, remains uncured for thirty (30) days following written notice of such breach from Executive to the Company (unless such agreement provides for a longer cure period in which case such longer cure period shall apply); (iii) a requirement that Executive be based at any office or location that is more than seventy-five (75) miles from the Executive’s principal office location; or (iv) a failure by any successor (whether direct or indirect by purchase, merger, consolidation or otherwise) to all or substantially all of the business or assets of the Company to assume expressly and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. Executive must provide the Company written notice of any claim of Good Reason within ninety (90) days after the occurrence of any action/inaction giving rise to such claim, and the Company or its Affiliate will have thirty (30) days to cure such claim (or such longer period as may be provided under clause (ii) of the immediately preceding sentence).

2. TERMINATIONS OF EMPLOYMENT TRIGGERING SEVERANCE BENEFITS

2.1 Subject to Section 2.2, and provided that Executive has executed a full and complete release of the Company and its subsidiaries (and their related parties) from any and all claims, in a form prepared by the Company, the Company will provide Executive with the benefits set forth in Section 3 if Executive’s employment is terminated for the following reasons (“Qualifying Terminations”): (i) by the Company without Cause at any time; or (ii) by Executive for Good Reason at any time.

2.2 In no event will benefits be payable to Executive under this Agreement in the event of termination due to Executive’s death, disability, retirement, termination by the Company for Cause, or voluntary termination by Executive without Good Reason.

3. TERMINATION BENEFITS.

3.1 Subject to the conditions set forth in Section 2, the following benefits shall be paid or provided to Executive in the event Executive’s employment is terminated and the termination is a Qualifying Termination:

(a) Cash Severance . The Company shall pay to Executive six months’ of Executive’s annualized base salary in effect at the Qualifying Termination, payable in accordance with the Company’s standard payroll practices over the six month period following the date of the Qualifying Termination.

(b) Health Benefits . To the extent permissible under applicable law, the Company shall continue to provide coverage to Executive (and to Executive’s spouse and dependents who are covered as of date of the Qualifying Termination) under the health benefit plans the Company maintains for active employees following Executive’s Qualifying Termination, at the same cost to Executive and under the same terms applicable to active employees (and their dependents), for a period of twelve months after Executive’s Qualifying Termination. Notwithstanding the foregoing, if Executive becomes employed with another employer during such twelve month period and is eligible to receive substantially comparable health benefits from such employer, the

 

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Confidential

obligation of the Company to provide the benefits described in this Section 3.1(b) shall cease. Executive hereby authorizes the Company to make appropriate deductions from the severance payable hereunder for the Executive’s cost portion with respect to such continued health benefits.

(c) Option Expirations and Vesting . The period during which Executive is permitted to exercise any vested portions of each option award under the Rubicon Technology, Inc. 2001 Equity Plan, as heretofore or hereafter amended, or any similar or successor plan, held by Executive on the date of the Qualifying Termination, shall be extended until the second anniversary of the date of the Qualifying Termination or any earlier expiration of the term of such option. Additionally, if any portion of an option is subject to vesting and more than one-half of the then current vesting period has elapsed on the date of the Qualifying Termination, then with respect to that portion of the option, the vesting of such award shall be accelerated as if the Qualifying Termination had occurred on the last day of the option vesting period during which the Qualifying Termination had occurred (such that, by way of example, if the date of a Qualifying Termination occurs during the second half of the second year of an option that vests over four one-year periods, the vesting of such option shall be accelerated as if the Qualifying Termination had occurred on the last day of the second year of vesting, but if the Qualifying Termination occurs during the first month of the second year of such option, then the vesting shall not be accelerated).

(d) Performance Bonus . The Company shall pay to Executive a bonus equal to two times the “Minimum Bonus” (as such term is used in the Rubicon Technology, Inc. 2005 Performance Bonus Plan) that Executive would otherwise be entitled to under such plan but for the Qualifying Termination. The foregoing amount shall be payable at the same time and in the same manner as bonuses are payable under the Rubicon Technology, Inc. 2005 Performance Bonus Plan.

3.2 Taxation and Withholding . The Company does not make any representations or warranties with respect to, and has no responsibility or liability for, the personal tax consequences of this Agreement to Executive. The Company may make such provisions and take such steps as it may deem necessary or appropriate for the withholding of any taxes that the Company is required by any law or regulation of any governmental authority, whether federal, state or local, domestic or foreign, to withhold in connection with this Agreement.

3.4 Executive’s Death . If Executive dies before the completion of any payments or benefits required under the Section 3, the Company will make or continue payments and benefits to Executive’s surviving spouse, if any, or Executive’s estate in accordance with this Section.

4. MISCELLANEOUS

4.1 Employment Status . Nothing herein shall be deemed to create any term of employment, it being expressly understood and agreed between the parties that Executive’s employment is at will and that either party may terminate such employment at any time.

4.2 Governing Law . All provisions of this Agreement will be construed and governed by Illinois law without regard to its choice of law principles or the laws of any other

 

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Confidential

jurisdiction. Any suit, claim or other legal proceeding arising out of or relating to Executive’s employment, his or her termination from employment, or this Agreement shall be brought exclusively in the federal or state courts located in Cook County, Illinois, and Executive and the Company hereby submit to personal jurisdiction in the State of Illinois and to venue in such courts. Notwithstanding the foregoing, the Company may seek and obtain injunctive relief against Executive in any court having jurisdiction over Executive.

4.3 Severability . Every provision of this Agreement is intended to be severable. If any provision or portion of a provision is illegal or invalid, then the remainder of this Agreement shall not be affected. Moreover, any provision of this Agreement which is determined to be unreasonable, arbitrary or against public policy shall be modified as necessary so that it is not unreasonable, arbitrary or against public policy while maximizing the intent of the parties.

4.4 Entire Agreement . This Agreement constitutes the entire understanding of the parties with respect to payment of any severance benefits superseding all prior agreements, understandings, negotiations and discussions between them, whether written or oral (including any portions of any employment agreements relating to the payment of any severance benefits) and as of the Effective Date, there are no other understandings, representations, warranties or commitments with respect to payment of any severance benefits.

4.5 Successors and Assigns . This Agreement may not be assigned by Executive. This Agreement shall be binding upon and inure to the benefit of all successors and assigns (whether by operation of law or otherwise) of the Company.

4.6 Amendment . This Agreement may only be amended or terminated by mutual written agreement between the Company and Executive. No modification, amendment or waiver of this Agreement or consent to any departure by Executive from any of the terms or conditions thereof, shall be effective unless in writing and signed by the Chairman of the Board.

4.7 Counterparts . The parties may execute this Agreement in one or more counterparts, all of which together shall constitute but one Agreement.

IN WITNESS WHEREOF, each party has executed this Severance Agreement or caused this Severance Agreement to be duly executed as of the Effective Date.

 

RUBICON TECHNOLOGY, INC.

    EXECUTIVE

By:

  /s/ Don N. Aquilano     /s/ Hap Hewes

Its:

  Chairman    

By:

  Hap Hewes

 

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Exhibit 10.8

EXECUTIVE EMPLOYMENT AGREEMENT

THIS EXECUTIVE EMPLOYMENT AGREEMENT (“ Agreement ”) is made and entered into as of July 30, 2007 (the “ Effective Date ”), by and between Rubicon Technology, Inc., a Delaware corporation (the “ Company ”), and William F. Weissman, a resident of the State of Illinois (the “ CFO ”).

PRELIMINARY STATEMENTS

The Company is in the business of providing material science solutions of sapphire and other advanced technology materials for the Opto-electrics Semiconductor Fabrication, Optical and Laser and Telecommunications Marketplaces (“ Company’s Business ”); provided , however , the term shall be deemed amended to reflect any actual change in the Company’s Business after the date hereof but prior to the day following the date on which CFO shall cease to be employed by the Company (as reflected in the minutes of the Board of Directors of the Company prior to the Termination Date (as defined below) or the Resignation Date (as defined below), as applicable).

The CFO has been employed on a part-time basis for approximately two (2) months prior to the date hereof and will be employed by the Company and, as a result of such employment, has and will become acquainted with the affairs of the Company and its personnel, services, products, and business practices and relationships and other Confidential Information (as defined in Section 5 below). This Agreement is entered into for, among other things, the protection of the Company’s business relationships, goodwill and going business value and the prevention of the unauthorized use or disclosure of any Confidential Information by the CFO.

AGREEMENT

In consideration of the premises and the mutual promises and covenants contained in this Agreement and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto agree as follows:

Section 1. Employment and Duties.

(a) Employment Duties . Throughout the Employment Term (as defined in Section 2 below), the CFO shall serve as Chief Financial Officer of the Company, and shall report to the Chief Executive Officer (“CEO”). Throughout the Employment Term, the CFO shall: (i) devote his working hours, on a full-time basis, to his duties and responsibilities to the Company; (ii) faithfully and loyally serve the Company; (iii) comply in all material respects with all lawful directions and instructions given to him by the CEO and the Board of Directors of the Company (the “ Board ”); and (iv) use his best efforts to promote and serve the interests of the Company. The CFO shall comply in all material respects with all applicable laws, rules and regulations relating to the performance of the CFO’s duties and responsibilities hereunder.

(b) Exclusive Employment . Throughout the Employment Term, the CFO shall not render his services, directly or indirectly, to any person or entity other than the

 

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Company without the prior consent of the Board, which may be withheld or granted by the Board in its sole discretion. The CFO shall not engage in any activity which would materially interfere with the faithful and timely performance of his duties under this Agreement; provided , however , the CFO may, subject to the prior consent of the Board, which shall not be unreasonably withheld, serve as a director of any other company, so long as such service does not unreasonably and materially interfere with the timely performance of the CFO’s duties under this Agreement.

Section 2. Employment Term. The CFO’s employment with the Company, pursuant to this Agreement, shall commence on July 30, 2007 and shall continue thereafter until June 30, 2008 (the “ Initial Term ”), unless otherwise terminated as provided herein. The Initial Term shall be automatically extended on a year-to-year basis thereafter (a “ Renewal Term ”), unless a notice of non-renewal is given in writing by either party to the other party not less than sixty (60) days prior to the end of the Initial Term or any Renewal Term, as applicable. The CFO’s employment by the Company shall be subject to termination at any time during or at the end of the Initial Term or any Renewal Term as provided in Section 4 . As used herein, “ Employment Term ” shall mean the actual period of time during which the CFO is employed by the Company under the terms and conditions of this Agreement.

Section 3. Compensation and Other Benefits. During the Employment Term, the Company shall pay and provide the following compensation and other benefits to the CFO as full compensation for all services rendered by the CFO to the Company:

(a) Annual Salary . In exchange for the CFO’s performance under the terms of this Agreement, the annual salary shall be Two Hundred Thousand Dollars ($200,000) (the “ Annual Salary ”). The Annual Salary shall be paid in accordance with the then-prevailing payroll practices of the Company, less applicable taxes, payroll deductions and withholdings required by law. The Company agrees that the Board shall review the Annual Salary on an annual basis and make appropriate adjustments thereto from time to time; provided that the Annual Salary shall not be reduced below $200,000 without the CFO’s consent.

(b) Bonuses . The CFO shall be eligible to receive, at the sole discretion of the Board and the Board-appointed Compensation Committee, an annual discretionary bonus from the Company of 25% of the Annual Salary; provided that, in the discretion of the Company, the bonus may be more or less than such targeted amount. This bonus shall be subject to applicable taxes, payroll deductions and withholdings required by law.

(c) Stock Options . The CFO has previously been granted, under the Rubicon Technology, Inc. 2001 Equity Plan (the “ Plan ”), a non-qualified option to purchase 200,000 common shares, par value $0.001 per share, of the Company (“ Common Shares ”) at a purchase price of sixty-five cents ($.65) per share, which shall vest over four (4) years at 25% per year, provided that, upon consummation of the Company’s IPO or a Change of Control, such options shall automatically become fully vested and exercisable, provided , however , that the CFO executes and delivers to the Company a complete release agreement in form and substance reasonably acceptable to the Company. In addition, the CFO is hereby granted, under the Plan, a non-qualified option

 

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to purchase 2,474,531 Common Shares at a purchase price per Common Share of sixty-five cents ($.65), which shall vest in four (4) equal amounts on the first day of August of each of the next four (4) calendar years; provided that, if the CFO’s employment is terminated by the Company without Cause (as hereafter defined) or by the CFO for Good Reason (as hereafter defined) these options shall immediately be fully vested. Except as is expressly provided above, each of the options granted to the CFO shall be subject to the Plan and to the terms of the Company’s standard Option Agreement which shall be executed and delivered by the parties promptly upon the execution hereof. All numbers of shares and “per share” amounts in this paragraph are subject to equitable adjustment to reflect any stock splits, combinations or recapitalization affecting the Common Shares, including the Company’s proposed 1 for 13 reverse stock split on the Common Shares.

(d) Management Incentive Plan . The CFO will be entitled to participate in the Company’s Management Incentive Plan (the “ Incentive Plan ”), but participation shall be subject to all of the terms and conditions of the Incentive Plan applicable to all management of the Company, including all waiting periods, eligibility requirements, exclusions and other similar conditions or limitations. Under the Incentive Plan, the CFO shall be entitled to receive one-half of one percent (.5%) of the Sales Proceeds, as defined therein, which allocation may be increased as provided in the Incentive Plan from time to time.

(e) Employee Benefit Plans . The CFO shall be eligible to participate in all employee benefit plans offered by the Company, but participation shall be subject to all of the terms and conditions of such plans applicable to all such employees, including all waiting periods, eligibility requirements, contributions, exclusions and other similar conditions or limitations.

(f) Vacation Leave . The CFO shall be entitled to twenty-one (21) calendar days of vacation leave per calendar year, prorated for any portion of a calendar year this Agreement is in effect, to be taken at such times as mutually agreed upon by the Board and the CFO. The CFO shall accrue and receive full compensation and benefits during his vacation leave periods. Unused vacation time shall not entitle the CFO to any additional compensation.

(g) Other Expenses . The Company shall reimburse the CFO for all reasonable and ordinary out-of-pocket business expenses incurred by the CFO in the scope of his employment hereunder. The CFO shall submit itemized expense reports in order to obtain reimbursement of expenses and shall submit with such expense reports such records and logs as may be required by the relevant taxing authorities for the substantiation of each such business expense as a deduction on the Company’s income tax returns.

Section 4. Termination of Employment. The CFO’s employment with the Company shall be subject to termination as follows:

(a) Termination for Cause . The Company may immediately terminate the CFO for Cause (as defined below) by giving written notice to the CFO. In the event of a

 

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termination for Cause, the CFO shall be entitled to payment of that portion of any of CFO’s Annual Salary that the CFO earned through and including the Termination Date, at the rate of the Annual Salary in effect at that time, and any bonus declared prior to the Termination Date that remains unpaid, subject to any offset or recoupment rights of the Company and any other rights or remedies applicable to any breach of this Agreement by the CFO prior to the Termination Date. Except as provided herein or required by applicable law, the CFO shall not be entitled to any other compensation or benefits. Termination for “ Cause ” shall mean termination by the Board of the CFO’s employment with the Company, after a good faith determination by the Board at a meeting called and held for that purpose, or in a written consent to resolutions signed by all members of the Board, and after reasonable notice to the CFO, that the CFO:

(i) has willfully engaged in misconduct materially and adversely affecting the Company;

(ii) engaged in theft, fraud, embezzlement or similar behavior;

(iii) has been indicted or convicted of a felony; or

(iv) has willfully continued, after a correction period, to fail to substantially perform the material duties of CFO’s position with the Company (other than failure resulting from incapacity due to physical or mental illness). The correction period shall last not less than ten (10) days after the Company provides CFO with written notice of CFO’s failure to substantially perform CFO’s material duties.

(b) Termination Without Cause . The Company may, in its sole discretion, terminate the CFO without Cause, by providing written notice to the CFO (the “ Termination Notice ”) at least thirty (30) calendar days prior to the Termination Date. In the event of a termination without Cause, the CFO shall be entitled to: (i) payment of that portion of any CFO’s Annual Salary that the CFO earned through and including the Termination Date, at the rate of the Annual Salary in effect at that time; (ii) any bonus declared prior to the Termination Date that remains unpaid; (iii) payment of that portion of CFO’s Annual Salary, at the rate of the Annual Salary in effect at that time, commencing on the Termination Date and continuing for the six-month period thereafter; and (iv) accelerated vesting of the Option pursuant to Section 3(c) ; provided , however , that the CFO executes and delivers to the Company a complete release agreement in form and substance reasonably acceptable to the Company. In addition, the Company shall be obligated to continue any health and welfare benefits provided to the Executive under Section 3(e) throughout the period commencing on the Termination Date and continuing for a six-month period thereafter. Except as provided herein or required by applicable law, the CFO shall not be entitled to any other compensation or benefits. With respect to Section 4(b)(iii) above, such payments shall be paid in accordance with the then-prevailing payroll practices of the Company, less applicable taxes, payroll deductions and withholdings required by law.

 

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(c) Termination Without Cause Post-IPO After Change in Control . In the event that the Company, at any time after an IPO and within one (1) year after a Change in Control, terminates the CFO without Cause (as defined below), the CFO shall be entitled to a lump sum payment within thirty (30) days of termination equal to six (6) months of the CFO’s base pay, less applicable taxes, payroll deductions and withholdings required by law, provided , however , that the CFO executes and delivers to the Company a complete release agreement in form and substance reasonably acceptable to the Company. Notwithstanding the preceding sentence, if the independent accountants acting as auditors for the Company on the date of the Change in Control determine that such single payment, together with other compensation received by the CFO, would constitute “excess parachute payments” within the meaning of Section 280G of the Internal Revenue Code of 1986, as amended, and regulations thereunder, the single payment to the CFO shall be reduced to the maximum amount which may be paid without such payments in the aggregate constituting “excess parachute payments”.

(d) Resignation . The CFO may resign from his employment with the Company at any time by providing written notice to the Company thirty (30) calendar days prior to the Resignation Date. In the event of resignation, the CFO shall be entitled to payment of that portion of the CFO’s Annual Salary that the CFO earned through and including the Resignation Date, at the rate of the Annual Salary in effect at that time, and any bonus declared by the Board prior to the Resignation Date that remains unpaid. Except as provided herein (including, without limitation, in Section 4(d) ) or required by applicable law, the CFO shall not be entitled to any other compensation or benefits.

(e) Resignation for Good Reason . Notwithstanding Section 4(c) , the CFO may terminate his employment by the Company for Good Reason (as defined below) by providing written notice thereof to the Company (the “ Resignation Notice ”) at least thirty (30) days prior to the Resignation Date, which notice shall set forth in reasonable detail the nature of the facts and circumstances which constitute Good Reason and Company shall have thirty (30) days after receipt of the Resignation Notice to cure in all material respects the facts and circumstances which constitute Good Reason. In the event of a termination for Good Reason, the CFO shall be entitled to: (i) payment of that portion of the CFO’s Annual Salary that the CFO earned through and including the Resignation Date, at the rate of the Annual Salary in effect at that time; (ii) any bonus declared prior to the Resignation Date that remains unpaid; (iii) payment of that portion of CFO’s Annual Salary, at the rate of the Annual Salary in effect at that time, commencing on the Resignation Date and continuing for the six-month period thereafter; and (iv) accelerated vesting of the Option pursuant to Section 3(c) ; provided , however , that the CFO executes and delivers to the Company a complete release agreement in form and substance reasonably acceptable to the Company. In addition, the Company shall be obligated to continue any health and welfare benefits provided to the Executive under Section 3(e) throughout the period commencing on the Termination Date and continuing for a six-month period thereafter. Except as provided herein or required by applicable law, the CFO shall not be entitled to any other compensation or benefits. With respect to Section 4(d)(iii) above, such payments shall be paid in accordance with the then-prevailing payroll practices of the Company, less applicable taxes, payroll deductions and withholdings required by law. For purposes of this Agreement, “ Good Reason ” means

 

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the resignation of the CFO’s employment by the Company by the CFO, because of (A) any reduction in the CFO’s Annual Salary then in effect in a manner that is not permitted under Section 3(a) hereof, (B) a substantial diminution in the duties, responsibilities or titles of the CFO, but only if uncured in accordance with the foregoing provisions hereof, or (C) being required by the Board to relocate (for a period longer than six (6) consecutive months) greater than 100 miles from the Chicago, Illinois metropolitan area in order to maintain employment with the Company pursuant to this Agreement.

(f) Death . If the CFO dies, his employment with the Company shall automatically terminate on the date of his death. The CFO’s estate or personal representative shall be entitled to receive that portion of the Annual Salary that the CFO earned through and including the date of the CFO’s death, at the rate of the Annual Salary in effect at that time, and any bonus declared prior to the date of the CFO’s death that remains unpaid. Except as provided herein or required by applicable law, neither the CFO’s estate nor his personal representative shall be entitled to any other compensation or benefits.

(g) Disability . The CFO shall be deemed “ Permanently Disabled ” when he has suffered any medically determinable physical or mental illness, injury or infirmity that prevents the CFO from performing his responsibilities under this Agreement and which disability has lasted or that the Board in good faith has determined can be expected to last for a continuous period of not less than 120 calendar days. The Board has the discretion to determine whether the CFO is disabled and that determination shall be binding and conclusive on the CFO (and any guardians or representatives for him). If the CFO becomes Permanently Disabled, the Company may terminate the CFO’s employment with the Company as a result of the Permanent Disability by providing written notice to the CFO thirty (30) calendar days prior to the Termination Date, or the CFO may resign from his employment with the Company by providing written notice to the Company thirty (30) calendar days prior to the Resignation Date. If the CFO resigns from employment with the Company as a result of a Permanent Disability or the Company terminates the CFO’s employment as a result of a Permanent Disability, the CFO shall be entitled to receive that portion of the Annual Salary, at the rate in effect when he became Permanently Disabled, that he earned through and including the Termination Date or Resignation Date, as applicable, less any amounts the CFO is entitled to receive under any disability insurance policy maintained by the Company, and any bonus declared prior to the Termination Date or Resignation Date, as applicable, that remains unpaid. Except as provided herein or required by applicable law, the CFO shall not be entitled to any other compensation or benefits.

Section 5. Confidentiality . For purposes of this Section 5 , the term “ Company ” shall include, in addition to the Company, its affiliates, subsidiaries and any of their respective predecessors, successors and assigns.

(a) Confidential Information . As used in this Agreement, “ Confidential Information ” means any and all confidential, proprietary or other information, whether or not originated by the CFO or the Company, which is in any way related to the past or present Company’s Business and is either designated as confidential or not generally

 

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known by or available to the public. Confidential Information includes, but is not limited to (whether or not reduced to writing or designated as confidential) (i) information regarding the Company’s existing and potential customers and vendors; (ii) any contracts (including the existence and contents thereof and parties thereto) to which the Company is a party or is bound; (iii) information regarding products and services being purchased or leased by or provided to the Company; (iv) information received by the Company from third parties under an obligation of confidentiality, restricted disclosure or restricted use; (v) personnel and financial information of the Company; (vi) information with respect to the Company’s products, services, facilities, business methods, systems, trade secrets, technical know-how, and other intellectual property; (vii) marketing and developmental plans and techniques, price and cost data, forecasts and forecast assumptions, and potential strategies of the Company; and (viii) any other information relating to the Company which was obtained by the CFO in connection with his employment by the Company, whether before, on or after the Effective Date.

(b) Non-Disclosure and Non-Use of Confidential Information . The CFO acknowledges that the Confidential Information of the Company is a valuable, unique asset of the Company and the CFO’s unauthorized use or disclosure thereof could cause irreparable harm to the Company for which no remedy at law could be adequate. Accordingly, the CFO agrees that he shall hold all Confidential Information of the Company in strict confidence and solely for the benefit of the Company, and that, except as necessary in the course of CFO’s duties as an employee of the Company, he shall not, directly or indirectly, disclose or use or authorize any third party to disclose or use any Confidential Information. The CFO shall follow all the Company policies and procedures to protect all Confidential Information and take any additional precautions necessary to preserve and protect the use or disclosure of any Confidential Information at all times.

(c) Ownership of Confidential Information . The CFO acknowledges and agrees that all Confidential Information is and shall remain the exclusive property of the Company, whether or not prepared in whole or in part by the CFO and whether or not disclosed to or entrusted to the custody of the CFO. Upon the termination or resignation of his employment by the Company, or at any other time at the request of the Company, the CFO shall promptly deliver to the Company all documents, tapes, disks, or other storage media and any other materials, and all copies thereof in whatever form, in the possession of the CFO pertaining to the Company’s Business, including, but not limited to, any containing Confidential Information.

(d) Public Information . Notwithstanding anything contained in this Agreement to the contrary, information which is generally available or accessible to the public shall be deemed Confidential Information of the Company if such information was retrieved, gathered, assembled or maintained by the Company in such a manner not available to the public or for a purpose beneficial to the Company. From time to time, the Company may, for its own benefit, choose to place certain Confidential Information or records of the Company in the public domain. Notwithstanding anything contained in this Agreement to the contrary, the fact that such Confidential Information may be made available to the public in a limited form and under limited circumstances does not change

 

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the confidential and proprietary nature of such information, and does not release the CFO from his duties with respect to such Confidential Information as set forth in this Agreement.

(e) Survival . The CFO’s obligations set forth in this Section 5 , and the Company’s rights and remedies with respect hereto, shall indefinitely survive the termination of this Agreement and the CFO’s employment by the Company, regardless of the reason therefor.

Section 6. Restrictive Covenants . For purposes of this Section 6 , the term “ Company ” shall include, in addition to the Company, its affiliates, subsidiaries and any of their respective predecessors, successors and assigns.

(a) Non-Competition . The CFO shall not, during the Restricted Period and within the Restricted Area (each as defined in subsection (c) below), directly or indirectly, perform on behalf of any Competitor (as defined in subsection (c) below) the same or similar services as those that CFO performed for the Company during the CFO’s employment by the Company or otherwise. In addition, the CFO shall not, during the Restricted Period or within the Restricted Area, directly or indirectly engage in, own, manage, operate, join, control, lend money or other assistance to, or participate in or be connected with (as an officer, director, member, manager, partner, shareholder, consultant, employee, agent, or otherwise), any Competitor.

(b) Non-Solicitation . During the Restricted Period, the CFO shall not, directly or indirectly, for himself or on behalf of any Person (as defined in subsection (c) below), (i) solicit or attempt to solicit any Customers (as defined in subsection (c) below) or prospective Customers with whom the CFO had contact at any time during the CFO’s employment by the Company; (ii) divert or attempt to divert any business of the Company to any other Person; (iii) solicit or attempt to solicit for employment, endeavor to entice away from the Company, recruit, hire, or otherwise interfere with the Company’s relationship with, any Person who is employed by or otherwise engaged to perform services for the Company (or was employed or otherwise engaged to perform services for the Company, as of any given time, within the immediately preceding twenty-four (24) month period); (iv) cause or assist, or attempt to cause or assist, any employee or other service provider to leave the Company; or (v) otherwise interfere in any manner with the employment or business relationships of the Company or the business or operations then being conducted by the Company.

(c) Definitions . For purposes of this Section 6 , the following definitions have the following meanings:

(i) “ Competitor ” means any Person that engages in a business that is the same as, or similar to, the Company’s Business.

(ii) “ Customer ” means any Person which, as of any given date, used or purchased or contracted to use or purchase any services or products from the Company within the immediately preceding twenty-four (24) month period.

 

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(iii) “ Person ” means any individual, corporation, partnership, joint venture, association, limited liability company, joint-stock company, trust, or unincorporated organization, or any governmental agency, officer, department, commission, board, bureau, or instrumentality thereof.

(iv) “ Restricted Area ” means, because the market for Company’s Business is global, or has the potential of being global, and is not dependent upon the physical location or presence of the Company, the CFO, or any individual or entity that may be in violation of this Agreement, the broadest geographic region enforceable by law (excluding any location where this type of restriction is prohibited by law) as follows: (A) everywhere in the world that has access to Company’s Business because of the availability of the Internet; (B) everywhere in the world that the CFO has the ability to compete with Company’s Business through the Internet; (C) each state, commonwealth, territory, province and other political subdivision located in North America; (D) each state, commonwealth, territory and other political subdivision of the United States of America; (E) any state in which the CFO has performed any services for the Company; (F) any geographical area in which the Company has performed any services or sold any products; (G) any geographical area in which the Company or any of its subsidiaries have engaged in Company’s Business, which has resulted in aggregate sales revenues of at least $25,000 during any year in the five (5) year period immediately preceding the commencement of the Restricted Period; (H) any state or other jurisdiction where the Company had an office at any time during the CFO’s employment by the Company; (I) within one hundred (100) miles of any location in which the Company had an office at any time during the CFO’s employment by the Company; and (J) within one hundred (100) miles of any location in which the CFO provided services for the Company.

(v) “ Restricted Period ” means the period of time during the CFO’s employment by the Company plus a period of twelve (12) months from the Termination Date or Resignation Date, as applicable. In the event of a breach of this Agreement by the CFO, the Restricted Period will be extended automatically by the period of the breach.

(d) Survival . The CFO’s obligations set forth in this Section 6 , and the Company’s rights and remedies with respect thereto, will remain in full force and effect during the Restricted Period and until full resolution of any dispute related to the performance of the CFO’s obligations during the Restricted Period.

(e) Public Company Exception . The prohibitions contained in this Section 6 do not prohibit the CFO’s ownership of stock which is publicly traded, provided that (1) the investment is passive, (2) the CFO has no other involvement with the company, (3) the CFO’s interest is less than five (5%) percent of the shares of the company, and (4) the CFO makes full disclosure to the Company of the stock at the time that the CFO acquires the shares of stock.

 

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Section 7. Assignment of Inventions . Any and all inventions, improvements, discoveries, designs, works of authorship, concepts or ideas, or expressions thereof, whether or not subject to patents, copyrights, trademarks or service mark protections, and whether or not reduced to practice, that are conceived or developed by the CFO while employed with the Company and which relate to or result from the actual or anticipated business, work, research or investigation of the Company (collectively, “ Inventions ”), shall be the sole and exclusive property of the Company. The CFO shall do all things reasonably requested by the Company to assign to and vest in the Company the entire right, title and interest to any such Inventions and to obtain full protection therefor. Notwithstanding the foregoing, the provisions of this Agreement do not apply to an Invention for which no equipment, supplies, facility, or Confidential Information of the Company was used and which was developed entirely on the CFO’s own time, unless (a) the Invention relates (i) to Company’s Business, or (ii) to the Company’s actual or demonstrably anticipated research or development, or (b) the Invention results from any work performed by the CFO for the Company.

Section 8. Reasonableness; Remedies; Claims .

(a) Reasonableness . The CFO has carefully considered the nature, extent and duration of the restrictions and obligations contained in this Agreement, including, without limitation, the geographical coverage contained in Section 6 and the time periods contained in Section 5 and Section 6 , and acknowledges and agrees that such restrictions are fair and reasonable in all respects to protect the legitimate interests of the Company and that these restrictions are designed for the reasonable protection of Company’s Business.

(b) Remedies . The CFO recognizes that any breach of this Agreement shall cause irreparable injury to the Company, inadequately compensable in monetary damages. Accordingly, in addition to any other legal or equitable remedies that may be available to the Company, the CFO agrees that the Company shall be able to seek and obtain injunctive relief in the form of a temporary restraining order, preliminary injunction, or permanent injunction, in each case without notice or bond, against CFO to enforce this Agreement. The Company shall not be required to demonstrate actual injury or damage to obtain injunctive relief from the courts. To the extent that any damages are calculable resulting from the breach of this Agreement, the Company shall also be entitled to recover damages, including, but not limited to, any lost profits of the Company and/or its affiliates or subsidiaries. For purposes of this Agreement, lost profits of the Company shall be deemed to include all gross revenues resulting from any activity of the CFO in violation of this Agreement and all such revenues shall be held in trust for the benefit of the Company. Any recovery of damages by the Company shall be in addition to and not in lieu of the injunctive relief to which the Company is entitled. In no event will a damage recovery be considered a penalty in liquidated damages. In addition, in any action at law or in equity arising out of this Agreement, the prevailing party shall be entitled to recover, in addition to any damages caused by a breach of this Agreement, all costs and expenses, including, but not limited to, reasonable attorneys’ fees, expenses, and court costs incurred by such party in connection with such action or proceeding. Without limiting the Company’s rights under this Section 7(b) or any other remedies of the Company, if a court of competent jurisdiction determines that the CFO breached any

 

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of the provisions of Sections 5 or 6 , the Company will have the right to cease making any payments or providing any benefits otherwise due to the CFO under the terms and conditions of this Agreement.

(c) Claims by the CFO . The CFO acknowledges and agrees that any claim or cause of action by the CFO against the Company shall not constitute a defense to the enforcement of the restrictions and covenants set forth in this Agreement and shall not be used to prohibit injunctive relief.

Section 9. Nonassignability, Binding Agreement.

(a) By the CFO . The CFO shall not assign, transfer or delegate this Agreement or any right, duty, obligation, or interest under this Agreement without the Company’s prior written consent; provided, however, that nothing shall preclude the CFO from designating beneficiaries to receive compensation or benefits, if any, payable under this Agreement upon his death.

(b) By the Company . The Company shall not assign, transfer or delegate this Agreement or any right, duty, obligation or intent under this Agreement without the CFO’s prior written consent; provided, however, that the Company may assign this Agreement and all of its rights and obligations hereunder to any person who or entity that shall acquire all or substantially all of the assets and properties of the Company in a bona fide sale transaction.

(c) Binding Effect . This Agreement shall be binding upon and inure to the benefit of the parties, any successors or assigns of the Company and the CFO’s heirs and the personal representative(s) or executor(s) of the CFO’s estate.

Section 10. Definitions. The following capitalized terms shall have, throughout this Agreement, the following meanings:

(a) “ Change of Contro l” shall mean the occurrence of (a) any consolidation or merger of the Company pursuant to which the stockholders of the Company immediately before the transaction do not retain immediately after the transaction, in substantially the same proportions as their ownership of shares of the Company’s voting stock immediately before the transaction, direct or indirect beneficial ownership of more than 50% of the total combined voting power of the outstanding voting securities of the surviving business entity; (b) any sale, lease, exchange or other transfer (in one transaction or a series of related transactions) of all, or substantially all, of the assets of the Company other than any sale, lease, exchange or other transfer to any company where the company owns, directly or indirectly, 100% of the outstanding voting securities of such company after any such transfer; or (c) direct or indirect sale or exchange in a single or series of related transactions by the stockholders of the Company of more than 50% of the voting stock of the Company.

(b) “ Initial Public Offering ” (“ IPO ”) shall mean the first offering by the Company of its equity securities to the public pursuant to an effective registration statement filed under the Securities Act of 1933, as amended, or under any similar law then in effect.

 

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(c) “ Resignation Date ” shall mean the date specified in the Resignation Notice, or the actual date the CFO terminates employment with the Company as the result of a resignation as provided in whichever occurs earlier.

(d) “ Termination Date ” shall mean the actual date the CFO ceases to be employed with the Company as a result of action taken by the Company, and not as a result of CFO’s resignation from employment.

Section 11. Severability. If a court of competent jurisdiction makes a final determination that any term or provision of this Agreement is invalid or unenforceable, and all rights to appeal the determination have been exhausted or the period of time during which any appeal of the determination may be perfected has been exhausted, the remaining terms and provisions shall be unimpaired and the invalid or unenforceable term or provision shall be deemed replaced by a term or provision that is valid and enforceable and that most closely approximates the intention of the parties with respect to the invalid or unenforceable term or provision, as evidenced by the remaining valid and enforceable terms and conditions of this Agreement.

Section 12. Amendment. This Agreement may not be modified, amended, or waived in any manner except by a written instrument signed by both parties to this Agreement.

Section 13. Waiver. The waiver by any party of compliance by any other party with any provision of this Agreement shall not operate or be construed as a waiver of any other provision of this Agreement (whether or not similar), or a continuing waiver or a waiver of any subsequent breach by a party of a provision of this Agreement. Performance by any of the parties of any act not required of it under the terms and conditions of this Agreement shall not constitute a waiver of the limitations on its obligations under this Agreement, and no performance shall estop that party from asserting those limitations as to any further or future performance of its obligations.

Section 14. Governing Law. This Agreement shall be governed, construed and enforced in accordance with the laws of the State of Illinois, without regard to principles of conflict of laws of such State.

Section 15. Notices. All notices required or desired to be given under this Agreement shall be in writing and shall be deemed to have been given if delivered in person and receipted for by the party to whom the notice is directed; mailed by certified or registered United States mail postage prepaid, not later than the day upon which the notice is required to be given pursuant to this Agreement; or delivered by expedited courier, shipping prepaid or mailed to sender, on the next business day, after the date on which it is so sent, and addressed as follows:

 

If to the Company, to:            Board of Directors
           Rubicon Technology, Inc.
           9931 Franklin Avenue
           Franklin Park, Illinois 60131

 

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If to the CFO, to:            William F. Weissman
           26W156 Jerome Ave
           Wheaton, IL 60187

Either party may, by giving written notice to the other party, change the address to which notice shall then be sent.

Section 16. Prior Agreements . This Agreement is a complete and total integration of the understanding of the parties related to the CFO’s employment with the Company and supersedes all prior or contemporaneous negotiations, commitments, agreements, writings, and discussions with respect to the subject matter of this Agreement.

Section 17. Headings. The headings of the sections of this Agreement are inserted solely for convenience of reference and shall not be deemed to affect the meaning or interpretation of this Agreement.

Section 18. Counterparts. This Agreement may be executed in two (2) counterparts, each of which shall be deemed to be an original, but both of which together shall constitute one and the same Agreement.

Section 19. Statutory and Common Law Duties. The duties the CFO owes to the Company under this Agreement shall be deemed to include federal and state statutory and common law obligations of the CFO, and do not in any way supersede or limit any of the obligations or duties the CFO owes to the Company. This Agreement is intended, among other things, to supplement the provisions of the Illinois Uniform Trade Secrets Act, as enacted and amended from time to time.

Section 20. CFO Acknowledgments.

(a) The CFO Has Read the Document . The CFO acknowledges and agrees that he has carefully read this entire Agreement and has been given sufficient opportunity to discuss this Agreement with the Company before signing.

(b) The CFO Has Had an Opportunity to Consult with Others . The CFO acknowledges and agrees that he has been given an adequate opportunity to consult with his lawyer, accountant, tax advisor, spouse and other persons he deems appropriate concerning this Agreement and the terms and conditions hereof.

(c) CFO Has a Copy . The CFO acknowledges and agrees that he has been given a copy of this Agreement.

(d) Signing is Acceptance . By signing, the CFO agrees to accept all of the terms and conditions of this Agreement and understands that the Company is relying upon the CFO’s stated acceptance of such terms and conditions.

[SIGNATURE PAGE FOLLOWS]

 

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IN WITNESS WHEREOF, the parties have executed this Agreement as of the Effective Date.

 

     
“COMPANY”     “CFO”
RUBICON TECHNOLOGY, INC.    
By:  

/s/ Raja Parvez

   

/s/ William F. Weissman

  Raja Parvez, President     William F. Weissman
     

 

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Exhibit 10.9

Execution Version

LOAN AND SECURITY AGREEMENT

THIS LOAN AND SECURITY AGREEMENT is made and dated as of April 9, 2007 and is entered into by and between RUBICON TECHNOLOGY, INC. a Delaware corporation, and each of its subsidiaries (hereinafter collectively referred to as “Borrower”), on the one hand, and HERCULES TECHNOLOGY GROWTH CAPITAL, INC., a Maryland corporation (“Lender” and collectively with any assignee, the “Lenders”), on the other hand.

RECITALS

A. Borrower has requested the Lenders to make available to Borrower a term loan in an aggregate principal amount of up to Twelve Million and No/100 DOLLARS ($12,000,000) (the “Term Loan”); and

B. Borrower has requested the Lenders to make available to Borrower a revolving facility in an aggregate principal amount of up to Four Million and No/100 DOLLARS ($4,000,000) (the “Revolving Loan”); and

C. The Lenders are willing to make the Term Loan and the Revolving Loan on the terms and conditions set forth in this Agreement.

AGREEMENT

NOW, THEREFORE, Borrower and the Lenders agree as follows:

SECTION 1. DEFINITIONS AND RULES OF CONSTRUCTION

1.1. Unless otherwise defined herein, the following capitalized terms shall have the following meanings:

“Account Control Agreement(s)” means any agreement entered into by and among the Lenders, Borrower and a third party Bank or other institution (including a Securities Intermediary) in which Borrower maintains a Deposit Account or Investment Property and which is intended to perfect the Lenders’ security interest in any of the Collateral.

“Advance(s)” means a Term Loan Advance and/or a Revolving Loan Advance.

“Advance Date” means the funding date of any Advance.

“Advance Request” means a request for an Advance submitted by Borrower to Hercules in substantially the form of Exhibit A .

“Agreement” means this Loan and Security Agreement, as the same may from time to time be amended, modified, supplemented or restated from time to time in accordance with the terms hereof.

“Availability Termination Date” means December 31, 2007; provided , however , if Borrower achieves EBITDA equal to or greater than $1,200,000 for the 2007 fiscal year period, the calculation of which will be attached to a Compliance Certificate and delivered on or before January 25, 2008, the Availability Termination Date means April 30, 2008.

“Borrower Products” means all products, software, service offerings, technical data or technology currently being designed, manufactured or sold by Borrower or which Borrower intends to sell, license, or distribute in the future including any products or service offerings under development, collectively, together with all products, software, service offerings, technical data or technology that have been sold, licensed or distributed by Borrower since its incorporation.

“Borrowing Base” is (a) 85% of Eligible Accounts plus (b) 60% of the value of Borrower’s Eligible Inventory (valued at the lower of cost or wholesale fair market value), in each case as determined by Lenders from Borrower’s most recent Borrowing Base Certificate; provided, however, that the Lenders may decrease the foregoing percentages in their good faith business judgment based on events, conditions, contingencies, or risks which, as determined by the Lenders, may adversely affect Collateral.


“Borrowing Base Certificate” means a borrowing base certificate substantially in the form of Exhibit H.

“Cash” means all cash and liquid funds.

“Closing Date” means the date of this Agreement.

“Collateral” means the property described in Section 3.

“Contingent Obligation” means, as applied to any Person, any direct or indirect liability, contingent or otherwise, of that Person with respect to (i) any indebtedness, lease, dividend, letter of credit or other obligation of another, including any such obligation directly or indirectly guaranteed, endorsed, co-made or discounted or sold with recourse by that Person, or in respect of which that Person is otherwise directly or indirectly liable; (ii) any obligations with respect to undrawn letters of credit, corporate credit cards or merchant services issued for the account of that Person; and (iii) all obligations arising under any interest rate, currency or commodity swap agreement, interest rate cap agreement, interest rate collar agreement, or other agreement or arrangement designated to protect a Person against fluctuation in interest rates, currency exchange rates or commodity prices; provided, however, that the term “Contingent Obligation” shall not include (x) endorsements for collection or deposit in the ordinary course of business or (y) product warranties extended in the ordinary course of business. The amount of any Contingent Obligation shall be deemed to be an amount equal to the stated or determined amount of the primary obligation in respect of which such Contingent Obligation is made or, if not stated or determinable, the maximum reasonably anticipated liability in respect thereof as determined by such Person in good faith; provided, however, that such amount shall not in any event exceed the maximum amount of the obligations under the guarantee or other support arrangement.

“Copyrights” means all copyrights, whether registered or unregistered, held pursuant to the laws of the United States, any State thereof, or of any other country.

“Copyright License” means any written agreement granting any right to use any Copyright or Copyright registration, now owned or hereafter acquired by Borrower or in which Borrower now holds or hereafter acquires any interest.

“Deposit Accounts” means any “deposit accounts,” as such term is defined in the UCC, and includes any checking account, savings account, or certificate of deposit.

“EBITDA” shall mean, for any period, (a) Net Income plus (b) to the extent deducted in the calculation of Net Income, (i) Interest Expense, (ii) depreciation and amortization, (iii) income tax expense and (iv) write-offs due to decommissions of capital equipment.

“Eligible Accounts” means Accounts arising in the ordinary course of Borrower’s business. The Lenders reserve the right at any time and from time to time after the Closing Date, to adjust any of the criteria set forth below and to establish new criteria in its good faith credit judgment. Unless otherwise agreed by the Lenders, Eligible Accounts shall not include the following;

(a) Accounts that the account debtor has failed to pay in full within 90 days of invoice date;

(b) Accounts owing by an account debtor, including its Affiliates, whose total obligations to Borrower exceed 30% of all Accounts, in each instance to the extent those obligations exceed that percentage, except as approved by the Lenders;

(c) Accounts owing by an account debtor, including its Affiliates, 25% of whose Accounts the account debtor has failed to pay within 90 days of invoice date;

 

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(d) Accounts owing by an account debtor that does not have its principal place of business in the United States except for the account debtors listed on Exhibit J hereto, as updated by Borrower from time to time and delivered to the Lenders;

(e) Accounts owing by an account debtor that Borrower owes money, goods and/or services or is otherwise obligated, but only to the extent of the potential amount owed but not including any amount potentially owed under product warranties provided by Borrower in the ordinary course of business;

(f) Accounts arising out of deferred revenue;

(g) Accounts owing by an affiliate of Borrower;

(h) Accounts that are the obligation of an account debtor that is the United States government or a political subdivision thereof, or any state, county or municipality or department, agency or instrumentality thereof unless the Lenders, in their sole discretion, have agreed to the contrary in writing and Borrower, if necessary or desirable, has complied with respect to such obligation with the Federal Assignment of Claims Act of 1940, or any applicable state, county or municipal law restricting assignment thereof;

(i) Accounts that arise with respect to goods that are delivered on a bill-and-hold, cash-on-delivery basis or placed on consignment, guaranteed sale or other terms by reason of which the payment by the account debtor is or may be conditional;

(j) Accounts (i) upon which Borrower’s right to receive payment is not absolute or is contingent upon the fulfillment of any condition whatsoever other than customary rights of inspection or (ii) as to which Borrower is not able to bring suit or otherwise enforce its remedies against the account debtor through judicial process; and

(k) Accounts the collection of which the Lenders determine in their good faith credit judgment to be doubtful.

“Eligible Inventory” means as at the date of determination, all Inventory of the Borrower, except any Inventory that:

(a) is not subject to a first priority perfected security interest of the Lenders or is not owned by Borrower free and clear of all Liens and rights of others (except the Liens in favor of the Lenders);

(b) is not located at Borrower’s principal place of business (or any location permitted under Section 7.11);

(c) subject to Section 7.19, is located on premises with respect to which the Lenders have not received a Landlord Consent;

(d) is in transit;

(e) is covered by a negotiable document of title, unless such document and evidence of acceptable insurance covering such Inventory has been delivered to the Lenders;

(f) in the Lenders’ good faith credit judgment, is obsolete, unsalable, shopworn, damaged, unfit for further processing, is of substandard quality or is not of good and merchantable quality, free from any defects;

(g) consists of (i) discontinued items, (ii) slow-moving or excess items held in inventory, or (iii) used items held for resale;

(h) does not meet all standards imposed by any governmental authority, including with respect to its production, acquisition or importation (as the case may be);

 

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(i) is placed by Borrower on consignment or held by Borrower on consignment from another Person;

(j) is held for rental or lease by or on behalf of Borrower;

(k) is produced in violation of the Fair Labor Standards Act and subject to the “hot goods” provisions contained in 29 U.S.C. § 215 or any successor statute or section;

(l) in any way fails to meet or violates any warranty, representation or covenant contained in this Agreement;

(m) is subject to any licensing, patent, royalty, trademark, trade name or copyright agreement with any third parties;

(n) requires the consent of any Person for the completion of manufacture, sale or other disposition of such Inventory by the Lenders following an Event of Default and such completion, manufacture or sale constitutes a breach or default under any contract or agreement to which Borrower is a party or to which such Inventory is or may become subject; or

(o) is not otherwise acceptable in the good faith discretion of the Lenders.

“Event of Default” has the meaning given to it in Section 9.

“Facility Charge” means $152,000.

“Financial Statements” has the meaning given to it in Section 7.1.

“GAAP” means generally accepted accounting principles in the United States of America, as in effect from time to time.

“Indebtedness” means indebtedness of any kind, including (a) all indebtedness for borrowed money or the deferred purchase price of property or services, including reimbursement and other obligations with respect to surety bonds and letters of credit, (b) all obligations evidenced by notes, bonds, debentures or similar instruments, (c) all capital lease obligations, and (d) all Contingent Obligations.

“Initial Public Offering” means the initial firm commitment underwritten offering of Borrower’s common stock pursuant to a registration statement under the Securities Act of 1933 filed with and declared effective by the Securities and Exchange Commission.

“Intellectual Property” means all Copyrights; Trademarks; Patents; Licenses; trade secrets and inventions; Borrower’s applications therefor and reissues, extensions, or renewals thereof; and Borrower’s goodwill associated with any of the foregoing, together with Borrower’s rights to sue for past, present and future infringement of Intellectual Property and the goodwill associated therewith.

“Interest Expense” shall mean, for any period, all interest expense on the Advances and other Indebtedness of Borrower and its Subsidiaries on a consolidated basis, including all commissions, discounts or related amortization and other fees and charges with respect to letters of credit and bankers’ acceptance financing and the net costs associated with interest rate swap, cap and similar arrangements, amortization of debt expense and original issue discount and the interest portion of any deferred payment obligation (including leases of all types), calculated in accordance with the effective interest method.

“Investment” means any beneficial ownership of (including stock, partnership or limited liability company interests) of or in any Person, or any loan, advance or capital contribution to any Person.

“Joinder Agreements” means for each Subsidiary, a completed and executed Joinder Agreement in substantially the form attached hereto as Exhibit G .

“Landlord Consent” landlord or mortgagee letter acceptable in form and substance to the Lenders.

 

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“Lenders” has the meaning given to it in the preamble to this Agreement.

“License” means any Copyright License, Patent License, Trademark License or other license of rights or interests.

“Lien” means any mortgage, deed of trust, pledge, hypothecation, assignment for security, security interest, encumbrance, levy, lien or charge of any kind, whether voluntarily incurred or arising by operation of law or otherwise, against any property, any conditional sale or other title retention agreement, any lease in the nature of a security interest, and the filing of any financing statement (other than a precautionary financing statement with respect to a lease that is not in the nature of a security interest) under the UCC or comparable law of any jurisdiction.

“Loan” means the Advances made under this Agreement.

“Loan Documents” means this Agreement, the Notes, Account Control Agreements, Joinder Agreements, all UCC Financing Statements, the Warrants, the Landlord Consents, the Collateral Grant of Security Interest in Copyrights, the Trademark Security Agreement, the Patent Security Agreement and any other documents executed in connection with the Secured Obligations or the transactions contemplated hereby, as the same may from time to time be amended, modified, supplemented or restated.

“Material Adverse Effect” means a material adverse effect upon: (i) the business, operations, properties, assets, prospects or condition (financial or otherwise) of Borrower; or (ii) the ability of Borrower to perform the Secured Obligations in accordance with the terms of the Loan Documents, or the ability of the Lenders to enforce any of their rights or remedies with respect to the Secured Obligations; or (iii) the Collateral or the Lenders’ Liens on the Collateral or the priority of such Liens.

“Maximum Rate” shall have the meaning assigned to such term in Section 2.5.

“Maximum Revolving Loan Amount” means Four Million and No/100 Dollars ($4,000,000).

“Maximum Term Loan Amount” means Twelve Million and No/100 Dollars ($12,000,000).

“Net Income” shall mean, for any period, the net income (or loss) of Borrower and its Subsidiaries, without duplication, as determined in accordance with GAAP, provided that there shall be excluded: (i) extraordinary gains; (ii) the income of any Person accrued prior to the date it becomes a Subsidiary or is merged into or consolidated with Borrower or any of its Subsidiaries, and the income of any Person, substantially all of the assets of which have been acquired in any manner, realized by such other Person prior to the date of acquisition; (iii) the income of any Person (other than a Subsidiary) in which Borrower or any of its Subsidiaries has an ownership interest, except to the extent that any such income has been actually received by Borrower or any of its Subsidiaries in the form of cash dividends or similar cash distributions; (iv) the undistributed earnings of any Subsidiary to the extent that the declaration or payment of dividends or similar distributions by such Subsidiary is not at the time permitted by the terms of its charter or any agreement, instrument, judgment, decree, order, statute, rule or governmental regulation applicable to such Subsidiary; (v) any restoration to income of any contingency reserve, except to the extent that provision for such reserve was made out of income accrued during such period; (vi) any gain arising from the acquisition of any security, or the extinguishment, under GAAP, of any Indebtedness, of Borrower or any of its Subsidiaries; (vii) any net income or gain (but not any net loss) during such period from (x) any restatement of the consolidated financial statements pursuant to a change in accounting principles in accordance with GAAP, (y) any prior period adjustments resulting from any change in accounting principles in accordance with GAAP or (z) any discontinued operations or the disposition thereof; and (ix) any deferred credit representing the excess of equity in any Subsidiary at the date of acquisition over the cost of the investment in such Subsidiary.

 

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“Next Event” means the closing of Borrower’s next round of private equity financing of at least $3,000,000, which first becomes effective after the Closing Date.

“Note(s)” means a Revolving Note and/or Term Note.

“Patent License” means any written agreement granting any right with respect to any invention on which a Patent is in existence or a Patent application is pending, in which agreement Borrower now holds or hereafter acquires any interest.

“Patents” means all letters patent of, or rights corresponding thereto, in the United States or in any other country, all registrations and recordings thereof, and all applications for letters patent of, or rights corresponding thereto, in the United States or any other country.

“Permitted Indebtedness” means: (a) Indebtedness of Borrower in favor of the Lenders arising under this Agreement or any other Loan Document; (b) Indebtedness existing on the Closing Date and disclosed in Schedule 1A ; (c) Indebtedness of up to $500,000 outstanding at any time secured by a lien described in clause (vi) of the defined term “Permitted Liens,” provided such Indebtedness does not exceed the lesser of the cost or fair market value of the Equipment financed with such Indebtedness; (d) Indebtedness to trade creditors incurred in the ordinary course of business, including Indebtedness incurred in the ordinary course of business with corporate credit cards; (e) Indebtedness that also constitutes a Permitted Investment; (f) Indebtedness consisting of a loan to any Subsidiary that is not a Borrower in an amount not to exceed $100,000; (g) unsecured obligations to lessors of real estate leased by Borrower in the ordinary course of business in an amount not to exceed $5,000,000 in the aggregate and (h) extensions, refinancings and renewals of any items of Permitted Indebtedness, provided that the principal amount is not increased or the terms modified to impose materially more burdensome terms upon Borrower or its Subsidiary, as the case may be.

“Permitted Investment” means: (a) Investments existing on the Closing Date disclosed in Schedule 1B ; (b) (i) Marketable direct obligations issued or unconditionally guaranteed by the United States of America or any agency or any State thereof maturing within one year from the date of acquisition thereof, (ii) commercial paper maturing no more than one year from the date of creation thereof and currently having rating of at least A-2 or P-2 from either Standard & Poor’s Corporation or Moody’s Investors Service, (iii) certificates of deposit issued by any bank with assets of at least $500,000,000 maturing no more than one year from the date of investment therein, and (iv) money market accounts; (c) Repurchases of stock from former employees, directors, or consultants of Borrower under the terms of applicable repurchase agreements in an aggregate amount not to exceed $100,000 in any fiscal year, provided that no Event of Default has occurred, is continuing or would exist after giving effect to the repurchases; (d) Investments accepted in connection with Permitted Transfers; (e) Investments (including debt obligations) received in connection with the bankruptcy or reorganization of customers or suppliers and in settlement of delinquent obligations of, and other disputes with, customers or suppliers arising in the ordinary course of Borrower’s business; (f) Investments consisting of notes receivable of, or prepaid royalties and other credit extensions, to customers and suppliers who are not affiliates, in the ordinary course of business, provided that this subparagraph (f) shall not apply to Investments of Borrower in any Subsidiary; (g) additional Investments that do not exceed $250,000 in the aggregate; and (h) Joint ventures or strategic alliances in the ordinary course of Borrower’s business consisting of the nonexclusive licensing of technology, the development of technology or the providing of technical support, provided that any cash Investments by Borrower do not exceed $2,000,000 in the aggregate in any fiscal year.

“Permitted Liens” means any and all of the following: (i) Liens existing on the Closing Date disclosed in Schedule 1C ; (ii) Liens for taxes, fees, assessments or other governmental charges or levies, either not delinquent or being contested in good faith by appropriate proceedings; provided , that Borrower maintains adequate reserves therefor in accordance with GAAP; (iii) Liens securing claims or demands of materialmen, artisans, mechanics, carriers, warehousemen, landlords and other like Persons arising in the ordinary course of Borrower’s business and imposed without action of such parties; provided ,

 

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that the payment thereof is not yet required; (iv) Liens arising from judgments, decrees or attachments in circumstances which do not constitute an Event of Default hereunder; (v) the following deposits, to the extent made in the ordinary course of business: deposits under worker’s compensation, unemployment insurance, social security and other similar laws, or to secure the performance of bids, tenders or contracts (other than for the repayment of borrowed money) or to secure indemnity, performance or other similar bonds for the performance of bids, tenders or contracts (other than for the repayment of borrowed money) or to secure statutory obligations (other than liens arising under ERISA or environmental liens) or surety or appeal bonds, or to secure indemnity, performance or other similar bonds; (vi) liens on Equipment constituting purchase money liens and liens in connection with capital leases securing Indebtedness permitted in clause (vi) of “Permitted Indebtedness”; and (vii) Liens incurred in connection with the extension, renewal or refinancing of the Indebtedness secured by Liens of the type described in clauses (i) through (vi) above; provided , that any extension, renewal or replacement Lien shall be limited to the property encumbered by the existing Lien and the principal amount of the indebtedness being extended, renewed or refinanced (as may have been reduced by any payment thereon) does not increase.

“Permitted Transfers” means (i) sales of Inventory in the normal course of business, (ii) licenses and similar arrangements for the use of Intellectual Property in the ordinary course of business, or (iii) dispositions of worn-out or obsolete Equipment.

“Person” means any individual, sole proprietorship, partnership, joint venture, trust, unincorporated organization, association, corporation, limited liability company, institution, other entity or government.

“Preferred Stock” means at any given time any equity security issued by Borrower that has any rights, preferences or privileges senior to Borrower’s common stock.

“Prepayment Event” means any (i) reorganization, recapitalization, consolidation or merger (or similar transaction or series of related transactions) of Borrower or any Subsidiary, (ii) sale or exchange of outstanding shares (or similar transaction or series of related transactions) of Borrower or any Subsidiary in which the holders of Borrower or Subsidiary’s outstanding shares immediately before consummation of such transaction or series of related transactions do not, immediately after consummation of such transaction or series of related transactions, retain shares representing at least more than fifty percent (50%) of the voting power of the surviving entity of such transaction or series of related transactions (or the parent of such surviving entity if such surviving entity is wholly owned by such parent), in each case without regard to whether Borrower or Subsidiary is the surviving entity, (iii) sale or exchange of outstanding or newly issued shares (or similar transaction or series of related transactions) of Borrower or any Subsidiary in which the shares issued after the Closing Date would entitle the holders thereof (excluding all shares owned by such holders prior to the Closing Date) to 50% or more of the proceeds that would be distributed to holders of Preferred Stock assuming that proceeds available for distribution are sufficient only to provide a distribution to holders of Preferred Stock; (iv) sale, lease, license or transfer of any substantial part of the assets of Borrower or any Subsidiary; or (v) acquisition by Borrower or any Subsidiary of all or substantially all of the capital stock or assets of another Person, provided however, that in all cases a Subsidiary may be merged into Borrower or into another Subsidiary without constituting a “Prepayment Event.”

“Principal Amortization Date” means October 31, 2007; provided , however , that if Borrower achieves EBITDA equal to or greater than $500,000 for the fiscal quarter ending September 30, 2007 the Principal Amortization Date shall mean April 30, 2008.

“Receivables” means (i) all of Borrower’s Accounts, Instruments, Documents, Chattel Paper, Supporting Obligations, letters of credit, proceeds of any letter of credit, and Letter of Credit Rights, and (ii) all customer lists, software, and business records related thereto.

 

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“Refinancing Commitment” a legally binding commitment from any non-Lender to provide debt financing to Borrower prior to Borrower entering into an agreement with such non-Lender debt provider.

“Revolving Commitment Termination Date” means the first to occur of (i) the day that is one week prior to the Revolving Loan Maturity Date or (ii) the occurrence of an Event of Default.

“Revolving Interest Rate” means for any day, the prime rate as reported in The Wall Street Journal plus 0.25%.

“Revolving Loan” has the meaning given to it in the preamble to this Agreement.

“Revolving Loan Advance” means any Revolving Loan funds advanced under this Agreement.

“Revolving Loan Maturity Date” means April 1, 2008.

“Revolving Note” means a Promissory Note in substantially the form of Exhibit B-2 .

“Secured Obligations” means Borrower’s obligation to repay to the Lenders the Loan and all Advances (whether or not evidenced by any Note), together with all principal, interest, fees, charges, costs, professional fees and expenses, or other liabilities or obligations for monetary amounts owed by Borrower to the Lenders however arising, including the indemnity and insurance obligations in Section 6 and including such amounts as may accrue or be incurred before or after default or workout or the commencement of any liquidation, dissolution, bankruptcy, receivership or reorganization by or against Borrower, whether due or to become due, matured or unmatured, liquidated or unliquidated, contingent or non-contingent, and all covenants and duties of any kind or nature, present or future, in each case, arising under this Agreement, the Notes, or any of the other Loan Documents, as the same may from time to time be amended, modified, supplemented or restated, whether or not such obligations are partially or fully secured by the value of Collateral.

“Subsidiary” means an entity, whether corporate, partnership, limited liability company, joint venture or otherwise, in which Borrower owns or controls 50% or more of the outstanding voting securities, including each entity listed on Schedule 1 hereto.

“Term Loan” has the meaning given to it in the preamble to this Agreement.

“Term Loan Advance” means any Term Loan funds advanced under this Agreement.

“Term Loan Interest Rate” means for any day, the prime rate as reported in The Wall Street Journal plus 3.375%.

“Term Loan Maturity Date” means December 31, 2010.

“Term Note” means a Promissory Note in substantially the form of Exhibit B-1 .

“Trademark License” means any written agreement granting any right to use any Trademark or Trademark registration, now owned or hereafter acquired by Borrower or in which Borrower now holds or hereafter acquires any interest.

“Trademarks” means all trademarks (registered, common law or otherwise) and any applications in connection therewith, including registrations, recordings and applications in the United States Patent and Trademark Office or in any similar office or agency of the United States, any State thereof or any other country or any political subdivision thereof.

“UCC” means the Uniform Commercial Code as the same is, from time to time, in effect in the State of California; provided , that in the event that, by reason of mandatory provisions of law, any or all of the attachment, perfection or priority of, or remedies with respect to, the Lenders’ Liens on any Collateral is governed by the Uniform Commercial Code as the same is, from time to time, in effect in a jurisdiction

 

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other than the State of California, then the term “UCC” shall mean the Uniform Commercial Code as in effect, from time to time, in such other jurisdiction solely for purposes of the provisions thereof relating to such attachment, perfection, priority or remedies and for purposes of definitions related to such provisions. Unless otherwise defined herein or in the other Loan Documents or the context indicates otherwise, capitalized terms that are used herein or in the other Loan Documents and defined in the UCC shall have the meanings given to them in the UCC.

“Warrants” means, collectively, the warrants issued by Borrower in favor of each of the Lenders in connection with the Loan.

1.2. Unless otherwise specified, all references in this Agreement or any Annex or Schedule hereto to a “Section,” “subsection,” “Exhibit,” “Annex,” or “Schedule” shall refer to the corresponding Section, subsection, Exhibit, Annex, or Schedule in or to this Agreement. Unless otherwise specifically provided herein, any accounting term used in this Agreement or the other Loan Documents shall have the meaning customarily given such term in accordance with GAAP, and all financial computations hereunder shall be computed in accordance with GAAP, consistently applied.

SECTION 2. THE LOAN

2.1. Revolving Loan .

(a) Advances . Subject to the terms and conditions of this Agreement, Borrower may draw Revolving Loan Advances on or before the Revolving Commitment Termination Date in an aggregate principal amount of up to the lesser of the (i) Borrowing Base or (ii) the Maximum Revolving Loan Amount, provided each Revolving Loan Advance shall be in a minimum amount of $500,000. Revolving Loan Advances may be repaid and reborrowed at any time, without premium or penalty. If the aggregate Revolving Loan Advances at any time exceed the lesser of the (i) Borrowing Base or (ii) the Maximum Revolving Loan Amount, Borrower shall repay the amount of that excess to the Lenders within three (3) business days.

(b) Advance Request . To obtain a Revolving Loan Advance, Borrower shall complete, sign and deliver an Advance Request and a Borrowing Base Certificate to the Lenders at least three (3) business days prior to the requested Advance Date. The Lenders shall fund the Revolving Advance in the manner requested by the Advance Request provided that each of the conditions precedent to such Revolving Advance is satisfied as of the requested Advance Date.

(c) Interest . The principal balance of the Revolving Loan shall bear interest thereon from the initial Revolving Loan Advance Date, calculated at the floating Revolving Interest Rate per annum upon a year consisting of 360 days and payable for the actual number of days elapsed. Interest payments shall be due on the first day of each month.

(d) Payment . The entire principal balance of the Revolving Loan and all accrued interest and fees on or relating to the Revolving Loan shall be repaid in full on the Revolving Loan Maturity Date. Borrower shall make all payments under this Agreement without setoff, recoupment or deduction and regardless of any counterclaim or defense.

2.2. Term Loan .

(a) Advances . Subject to the terms and conditions of this Agreement, Lender will make, and Borrower agrees to draw, a Term Loan Advance in the amount of not less than $4,000,000 on the Closing Date. Commencing on the Closing Date, and continuing until the Availability Termination Date, Borrower may request additional Term Loan Advances in an aggregate amount up to the Maximum Term Loan Amount. Each Term Loan Advance shall be in a minimum amount of $500,000.

(b) Advance Request . To obtain a Term Loan Advance, Borrower shall complete, sign and deliver to the Lenders an Advance Request three (3) business days prior to the Advance Date and a Term Note on or before the Advance Date. The Lenders shall fund the Term Loan Advance in the manner requested by the Advance Request provided that each of the conditions precedent to such Term Loan Advance is satisfied as of the requested Advance Date.

 

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(c) Interest . The principal balance of each Term Loan Advance shall bear interest thereon from such Advance Date, precomputed at the Term Loan Interest Rate based on a year consisting of 360 days, with interest computed daily based on the actual number of days in each month. The Term Loan Interest Rate for each Term Loan Advance will be floating, including during the period of amortization.

(d) Payment . Borrower will pay interest on each Advance in arrears on the first day of each month, beginning the month after the Advance Date. Borrower shall repay the aggregate principal balance that is (i) outstanding on the Principal Amortization Date or (ii) drawn thereafter, in each case, in equal monthly installments of principal on the first business day of each month thereafter until the Term Loan Maturity Date. The entire principal balance on the Term Loan and all accrued but unpaid interest hereunder, shall be due and payable on the Term Loan Maturity Date. Borrower shall make all payments under this Agreement without setoff, recoupment or deduction and regardless of any counterclaim or defense.

2.3. Maximum Interest . Notwithstanding any provision in this Agreement, the Notes, or any other Loan Document, it is the parties’ intent not to contract for, charge or receive interest at a rate that is greater than the maximum rate permissible by law that a court of competent jurisdiction shall deem applicable hereto (which under the laws of the State of California shall be deemed to be the laws relating to permissible rates of interest on commercial loans) (the “Maximum Rate”). If a court of competent jurisdiction shall finally determine that Borrower has actually paid to the Lenders an amount of interest in excess of the amount that would have been payable if all of the Secured Obligations had at all times borne interest at the Maximum Rate, then such excess interest actually paid by Borrower shall be applied as follows: first , to the payment of principal outstanding on the Notes; second , after all principal is repaid, to the payment of the Lenders’ accrued interest, costs, expenses, professional fees and any other Secured Obligations; and third , after all Secured Obligations are repaid, the excess (if any) shall be refunded to Borrower.

2.4. Default Interest . In the event any payment is not paid on the scheduled payment date, an amount equal to five percent (5%) of the past due amount shall be payable on demand. In addition, upon the occurrence and during the continuation of an Event of Default hereunder, all Secured Obligations, including principal, interest, compounded interest, and professional fees, shall bear interest at a rate per annum equal to the rate set forth in Section 2.1(c) or 2.2(c), as applicable, plus five percent (5%) per annum. In the event any interest is not paid when due hereunder, delinquent interest shall be added to principal and shall bear interest on interest, compounded at the rate set forth in Section 2.1(c), 2.2(c) or Section 2.4, as applicable.

2.5. Prepayment . At its option, Borrower may prepay, in whole of in part, the outstanding Term Loan Advances by paying all accrued interest on such Term Loan Advance principal being prepaid, together with a prepayment charge equal to the following percentage of the Term Loan Advance amount being prepaid: if such Term Loan Advance amounts are prepaid in any of the first 12 months following the Closing Date, 3%; in months 13 - 24, 2%; and thereafter, 1% (each, a “Prepayment Charge”); provided , however , that if the Lenders refuse to provide financing to Borrower on substantially the same terms of a Refinancing Commitment, the Prepayment Charge for the Term Loan Advances being prepaid concurrently with the closing of the debt facility contemplated by the Refinancing Commitment (which, for purposes of this proviso, shall not exceed the amount of such Refinancing Commitment) shall be equal to the following percentage of such amount being prepaid: in months 1-3, 3%; in months 4 - 12, 2%; and thereafter, 1%. Borrower agrees that the Prepayment Charge is a reasonable calculation of the Lenders’ lost profits in view of the difficulties and impracticality of determining actual damages resulting from an early repayment of the Term Loan Advances. Borrower shall prepay the outstanding amount of all principal and accrued interest upon a Prepayment Event and may prepay all or any portion of the outstanding amount of principal and accrued interest at any time after the completion of an Initial Public Offering; and no Prepayment Charge will be required in either event.

 

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SECTION 3. SECURITY INTEREST

3.1. As security for the prompt, complete and indefeasible payment when due (whether on the Payment Dates or otherwise) of all the Secured Obligations, Borrower grants to each of the Lenders a security interest in all of Borrower’s personal property now owned or hereafter acquired, including the following (collectively, the “Collateral”): (a) Receivables; (b) Equipment; (c) Fixtures; (d) General Intangibles; (e) Accounts; (f) Inventory; (g) Investment Property; (h) Deposit Accounts; (i) Cash; (j) Goods and other tangible and intangible personal property of Borrower whether now or hereafter owned or existing, leased, consigned by or to, or acquired by, Borrower and wherever located; and (k) to the extent not otherwise included, all Proceeds of each of the foregoing and all accessions to, substitutions and replacements for, and rents, profits and products of each of the foregoing.

SECTION 4. CONDITIONS PRECEDENT TO LOAN

The obligations of the Lenders to make the Loan hereunder are subject to the satisfaction by Borrower of the following conditions:

4.1. Initial Advance . On or prior to the Closing Date, Borrower shall have delivered to the Lenders the following:

(a) executed originals of the Loan Documents, Account Control Agreements, a legal opinion of Borrower’s counsel, and all other documents and instruments reasonably required by the Lenders to effectuate the transactions contemplated hereby or to create and perfect the Liens of the Lenders with respect to all Collateral, in all cases in form and substance reasonably acceptable to the Lenders;

(b) certified copy of resolutions of Borrower’s board of directors evidencing approval of (i) the Loan and other transactions evidenced by the Loan Documents; and (ii) the Warrants and transactions evidenced thereby;

(c) certified copies of the Certificate of Incorporation and the Bylaws, as amended through the Closing Date, of Borrower;

(d) a certificate of good standing for Borrower from its state of incorporation and similar certificates from all other jurisdictions in which it does business and where the failure to be qualified would have a Material Adverse Effect;

(e) payment of the Facility Charge and reimbursement of the Lenders’ current expenses reimbursable pursuant to Section 11.11, which amounts may be deducted from the initial Advance; and

(f) such other documents as the Lenders may reasonably request; provided, that such documents do not impose additional requirements or conditions on Borrower or its rights or obligations hereunder.

4.2. All Advances . On each Advance Date:

(a) Each Lender shall have received (i) an Advance Request and a Note for the relevant Advance as required by Section 2.1(b) or 2.2(b), as applicable, each duly executed by Borrower’s Chief Executive Officer or Chief Financial Officer, and (ii) any other documents the Lenders may reasonably request.

(b) The representations and warranties set forth in this Agreement and in Section 5 and in the Warrants shall be true and correct in all material respects on and as of the Advance Date with the same effect as though made on and as of such date, except to the extent such representations and warranties expressly relate to an earlier date.

 

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(c) Borrower shall be in compliance with all the terms and provisions set forth herein and in each other Loan Document on its part to be observed or performed, and at the time of and immediately after such Advance no Event of Default shall have occurred and be continuing.

(d) Each Advance Request shall be deemed to constitute a representation and warranty by Borrower on the relevant Advance Date as to the matters specified in paragraphs (b) and (c) of this Section 4.2 and as to the matters set forth in the Advance Request.

4.3. No Default . As of the Closing Date and each Advance Date, (i) no fact or condition exists that would (or would, with the passage of time, the giving of notice, or both) constitute an Event of Default and (ii) no event that has had or could reasonably be expected to have a Material Adverse Effect has occurred and is continuing.

SECTION 5. REPRESENTATIONS AND WARRANTIES OF BORROWER

Borrower represents, warrants and agrees that:

5.1. Corporate Status . Borrower is a corporation duly organized, legally existing and in good standing under the laws of the State of Delaware, and is duly qualified as a foreign corporation in all jurisdictions in which the nature of its business or location of its properties require such qualifications and where the failure to be qualified could reasonably be expected to have a Material Adverse Effect. Borrower’s present name, former names (if any), locations, place of formation, tax identification number, organizational identification number and other information are correctly set forth in Exhibit C .

5.2. Collateral . Borrower owns all right, title and interest in and to the Collateral, free of all Liens whatsoever, except for Permitted Liens. Borrower has the full power and authority to grant and convey to the Lenders a Lien in the Collateral as security for the Secured Obligations, free of all other Liens other than Permitted Liens. All of Borrower’s Inventory is in all material respects of good and marketable quality, free from material defects.

5.3. Consents . Borrower’s execution, delivery and performance of the Notes, this Agreement and all other Loan Documents, and Borrower’s execution of the Warrants, (i) have been duly authorized by all necessary corporate action of Borrower, (ii) will not result in the creation or imposition of any Lien upon the Collateral, other than Permitted Liens and the Liens created by this Agreement and the other Loan Documents, (iii) do not violate any provisions of Borrower’s Certificate of Incorporation, bylaws, or any, law, regulation, order, injunction, judgment, decree or writ to which Borrower is subject and (iv) except as described on Schedule 5.3 , do not violate any contract or agreement or require the consent or approval of any other Person. The individual or individuals executing the Loan Documents and the Warrant are duly authorized to do so.

5.4. Material Adverse Effect . No event that has had or could reasonably be expected to have a Material Adverse Effect has occurred and is continuing, and Borrower is not aware of any event likely to occur that is reasonably expected to result in a Material Adverse Effect.

5.5. Actions Before Governmental Authorities . Except as described on Schedule 5.5 , there are no actions, suits or proceedings at law or in equity or by or before any governmental authority now pending or, to the knowledge of Borrower, threatened against or affecting Borrower or any business, property or rights of Borrower (i) which involve any Loan Document or (ii) as to which there is a reasonable possibility of an adverse determination and which, if adversely determined, would reasonably be expected to, individually or in the aggregate, result in a Material Adverse Effect.

5.6. Laws . Borrower is not in violation of any law, rule or regulation, or in default with respect to any judgment, writ, injunction or decree of any governmental authority, where such violation or default is reasonably expected to result in a Material Adverse Effect. Borrower is not in default in any manner under any provision of any indenture or other agreement, contract or instrument evidencing indebtedness, or any other material agreement, contract or instrument to which it is a party or by which it or any of its properties or assets are or may be bound and for which such default would reasonably be expected to result in a Material Adverse Effect.

 

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5.7. Information Correct . No information, report, Advance Request, financial statement, exhibit or schedule furnished, by or on behalf of Borrower to the Lenders in connection with any Loan Document or included therein or delivered pursuant thereto contained, contains or will contain any material misstatement of fact or omitted, omits or will omit to state any material fact necessary to make the statements therein, in the light of the circumstances under which they were, are or will be made, not misleading.

5.8. Tax Matters . Except as described on Schedule 5.8 , (a) Borrower has filed all federal, state and local tax returns that it is required to file, (b) Borrower has duly paid or fully reserved for all taxes or installments thereof (including any interest or penalties) as and when due, which have or may become due pursuant to such returns, and (c) Borrower has paid or fully reserved for any tax assessment received by Borrower for the three (3) years preceding the Closing Date, if any (including any taxes being contested in good faith and by appropriate proceedings).

5.9. Intellectual Property Claims . Borrower is the sole owner of, or otherwise has the right to use, the Intellectual Property. Except as described on Schedule 5. 9, each of the material Copyrights, Trademarks and Patents is valid and enforceable, and no part of the Intellectual Property that is owned by Borrower has been judged invalid or unenforceable, in whole or in part, and no claim has been made to Borrower that any part of the Intellectual Property violates the rights of any third party except to the extent such claim would not reasonably be expected to cause a Material Adverse Effect. Exhibit D is a true, correct and complete list of each of Borrower’s Patents, registered Trademarks, registered Copyrights, and material agreements under which Borrower licenses Intellectual Property from third parties (other than shrink-wrap software licenses and other licenses which if terminated could not reasonably be expected to result in a Material Adverse Effect), together with application or registration numbers, as applicable, owned by Borrower or any Subsidiary. Borrower is not in material breach of, nor has Borrower failed to perform any material obligations under, any of the foregoing contracts, licenses or agreements and, to Borrower’s knowledge, no third party to any such contract, license or agreement is in material breach thereof or has failed to perform any material obligations thereunder.

5.10. Intellectual Property . Except as described on Schedule 5.10 , Borrower’s Intellectual Property constitutes all rights used in or necessary in the operation or conduct of Borrower’s business as currently conducted and proposed to be conducted by Borrower. Without limiting the generality of the foregoing, Borrower has the right to freely transfer, license or assign Intellectual Property without condition, restriction or payment of any kind to any third party, and Borrower owns or has the right to use, pursuant to valid licenses, all software development tools, library functions, compilers and all other third-party software and other items that are used in the design, development, promotion, sale, license, manufacture, import, export, use or distribution of Borrower Products.

5.11. Borrower Products . Except as described on Schedule 5.11 , no Intellectual Property owned by Borrower or Borrower Product has been or is subject to any actual or, to the knowledge of Borrower, threatened litigation, proceeding (including any proceeding in the United States Patent and Trademark Office or any corresponding foreign office or agency) or outstanding decree, order, judgment, settlement agreement or stipulation that restricts in any manner Borrower’s use, transfer or licensing thereof or that may affect the validity, use or enforceability thereof. There is no decree, order, judgment, agreement, stipulation, arbitral award or other provision entered into in connection with any litigation or proceeding that obligates Borrower to grant licenses or ownership interest in any future Intellectual Property related to the operation or conduct of the business of Borrower or Borrower Products. There is no outstanding or, to the knowledge of Borrower, threatened, dispute or disagreement of which Borrower is aware with respect to any contract, license or agreement between Borrower and any third party related to the Intellectual Property. Borrower has not received any written notice or claim, or, to the knowledge of Borrower, oral notice or

 

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claim, challenging or questioning Borrower’s ownership in any Intellectual Property (or written notice of any claim challenging or questioning the ownership in any licensed Intellectual Property of the owner thereof) or suggesting that any third party has any claim of legal or beneficial ownership with respect thereto nor, to Borrower’s knowledge, is there a reasonable basis for any such claim. Neither Borrower’s use of its Intellectual Property nor the production and sale of Borrower Products infringes the Intellectual Property or other rights of others.

5.12. Financial Accounts . Schedule 5.12 and Exhibit E are a true, correct and complete list of (a) all banks and other financial institutions at which Borrower or any Subsidiary maintains Deposit Accounts and (b) all institutions at which Borrower or any Subsidiary maintains an account holding Investment Property, and such exhibit correctly identifies the name, address and telephone number of each bank or other institution, the name in which the account is held, a description of the purpose of the account, and the complete account number therefor.

5.13. Employee Loans . Borrower has no outstanding loans to any employee, officer or director of the Borrower nor has Borrower guaranteed the payment of any loan made to an employee, officer or director of the Borrower by a third party, greater than $50,000 in the aggregate.

5.14. Capitalization . Borrower’s capitalization is set forth on Schedule 5.14 annexed hereto. Borrower does not own any stock, partnership interest or other equity securities of any Person, except for Permitted Investments. Attached as Schedule 5.14 hereto is a true, correct and complete list of each Subsidiary, and all information set forth on Schedule 5.14 is true, correct and complete.

5.15. Eligible Accounts. For any Eligible Account in any Borrowing Base Certificate, all statements made and all unpaid balances appearing in all invoices, instruments and other documents evidencing such Eligible Accounts are and shall be true and correct (except for any good faith immaterial errors promptly corrected when discovered) and all such invoices, instruments and other documents, and all of Borrower’s books are genuine and in all respects what they purport to be. All sales and other transactions underlying or giving rise to each Eligible Account shall comply in all material respects with all applicable laws and governmental rules and regulations. Borrower has no knowledge of any actual or imminent insolvency proceeding of any Account debtor whose accounts are an Eligible Account in any Borrowing Base Certificate. To the best of Borrower’s knowledge, all signatures and endorsements on all documents, instruments, and agreements relating to all Eligible Accounts are genuine, and all such documents, instruments and agreements are legally enforceable in accordance with their terms.

5.16. Rubicon Worldwide, Inc. Rubicon Worldwide, Inc. generates no material receivables and owns no material assets.

SECTION 6. INSURANCE; INDEMNIFICATION

6.1. Coverage . So long as there are any Secured Obligations outstanding, Borrower shall cause to be carried and maintained commercial general liability insurance, on an occurrence form, against risks customarily insured against in Borrower’s line of business. Such risks shall include the risks of bodily injury, including death, property damage, personal injury, advertising injury, and contractual liability per the terms of the indemnification agreement found in Section 6.3. Borrower must maintain a minimum of Two Million Dollars ($2,000,000.00) of commercial general liability insurance for each occurrence, which may include coverage under an umbrella liability policy. Borrower has and agrees to maintain a minimum of $5,000,000 of directors and officers’ insurance for each occurrence, and $10,000,000 in the aggregate. So long as there are any Secured Obligations outstanding, Borrower shall also cause to be carried and maintained insurance upon the Collateral, insuring against all risks of physical loss or damage howsoever caused, subject to such coverage being available and not including risks not customarily insured against in the area of the Collateral, such as earthquake coverage in Chicago, in an amount not less than the full replacement cost of the Collateral. Borrower shall also carry and maintain a fidelity insurance policy in an amount not less than $50,000; provided , that if Borrower establishes foreign facilities, as otherwise expressly permitted herein, Borrower shall carry and maintain a fidelity insurance policy in an amount not less than $500,000.

 

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6.2. Certificates . Borrower shall deliver to the Lenders certificates of insurance that evidence Borrower’s compliance with its insurance obligations in Section 6.1 and the obligations contained in this Section 6.2. Borrower’s insurance certificate shall state that the Lenders is an additional insured for commercial general liability, an additional insured and a loss payee for all risk property damage insurance, subject to the insurer’s approval, a loss payee for fidelity insurance, and a loss payee for property insurance and additional insured for liability insurance for any future insurance that Borrower may acquire from such insurer. Attached to the certificates of insurance will be additional insured endorsements for liability and lender’s loss payable endorsements for all risk property damage insurance and fidelity. All certificates of insurance will provide for a minimum of thirty (30) days advance written notice to the Lenders of cancellation or any other change adverse to the Lenders’ interests. Any failure of the Lenders to scrutinize such insurance certificates for compliance is not a waiver of any of the Lenders’ rights, all of which are reserved.

6.3. Indemnity . Borrower shall and does hereby indemnify and hold each of the Lenders and the officers, directors, employees, agents, in-house attorneys, representatives and shareholders of each Lender harmless from and against any and all claims, costs, expenses, damages and liabilities (including such claims, costs, expenses, damages and liabilities based on liability in tort, including strict liability in tort), including reasonable attorneys’ fees and disbursements and other costs of investigation or defense (including those incurred upon any appeal), that may be instituted or asserted against or incurred by such Lender or any such Person as the result of credit having been extended, suspended or terminated under this Agreement and the other Loan Documents or the administration of such credit, or in connection with or arising out of the transactions contemplated hereunder and thereunder, or any actions or failures to act in connection therewith, or arising out of the disposition or utilization of the Collateral, excluding in all cases claims resulting solely from such Lender’s gross negligence or willful misconduct. Borrower agrees to pay, and to save each of the Lenders harmless from, any and all liabilities with respect to, or resulting from any delay in paying, any and all excise, sales or other similar taxes (excluding taxes imposed on or measured by the net income of a Lender) that may be payable or determined to be payable with respect to any of the Collateral or this Agreement.

SECTION 7. COVENANTS OF BORROWER

Borrower agrees as follows:

7.1. Financial Reports . Borrower shall furnish to the Lenders the Compliance Certificate in the form of Exhibit F monthly within 25 days after the end of each month (except as specified in Section 7.1(d)) and the financial statements listed hereinafter, each prepared in accordance with GAAP, consistently applied (the “Financial Statements”) all of which shall be kept confidential by Lenders pursuant to Section 11.2 of this Agreement:

(a) as soon as practicable (and in any event within 25 days) after the end of each month, unaudited interim financial statements as of the end of such month (prepared on a consolidated and consolidating basis, if applicable), including balance sheet and related statements of income and cash flows accompanied by a report detailing any material contingencies (including the commencement of any material litigation by or against Borrower) or any other occurrence that would reasonably be expected to have a Material Adverse Effect, all certified by Borrower’s Chief Executive Officer or Chief Financial Officer;

(b) as soon as practicable (and in any event within 25 days) after the end of each calendar quarter, unaudited interim financial statements as of the end of such calendar quarter (prepared on a consolidated and consolidating basis, if applicable), including balance sheet and related statements of income and cash flows accompanied by a report detailing any material

 

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contingencies (including the commencement of any material litigation by or against Borrower) or any other occurrence that would reasonably be expected to have a Material Adverse Effect, all certified by Borrower’s Chief Executive Officer or Chief Financial Officer;

(c) as soon as practicable (and in any event within one hundred twenty (120) days) after the end of each fiscal year, (i) unqualified audited financial statements as of the end of such year (prepared on a consolidated and consolidating basis, if applicable), including balance sheet and related statements of income and cash flows, and setting forth in comparative form the corresponding figures for the preceding fiscal year, certified by a firm of independent certified public accountants selected by Borrower and reasonably acceptable to each of the Lenders, accompanied by any management report from such accountants;

(d) so long as the Revolving Loan is outstanding, as soon as practicable (and in any event within fifteen (15) days) after the end of each month, a Compliance Certificate attaching a Borrowing Base Certificate and (A) monthly accounts receivable agings, aged by invoice date, (B) monthly accounts payable agings, aged by invoice date, and (C) monthly reconciliations of accounts receivable agings (aged by invoice date), transaction reports, and general ledger, and (D) monthly reports for Inventory at the lower of cost or market (in accordance with GAAP)

(e) promptly after the sending or filing thereof, as the case may be, copies of any proxy statements, financial statements or reports that Borrower has made available to holders of its Series E Preferred Stock and copies of any regular, periodic and special reports or registration statements that Borrower files with the Securities and Exchange Commission or any governmental authority that may be substituted therefor, or any national securities exchange;

(f) at the same time and in the same manner as it gives to its directors, copies of all notices, minutes, consents and other materials that Borrower provides to its directors in connection with meetings of the Board of Directors, and within 30 days after each such meeting, minutes of such meeting not including matters subject to attorney-client or other privilege or matters pertaining to the relationship with Borrower; and

(g) budgets, operating plans and other financial information reasonably requested by either of the Lenders.

The executed Compliance Certificate may be sent via facsimile to the Lenders at (866) 468-8916 and (617) 261-6551, attention Roy Liu, or via e-mail to financialstatements@herculestech.com. All Financial Statements required to be delivered pursuant to clauses (a), (b) and (c) shall be sent (i) via e-mail to financialstatements@herculestech.com with a copy to rliu@herculestech.com, provided , that if e-mail is not available or sending such Financial Statements via e-mail is not possible, they shall be sent via facsimile to: (866) 468-8916, attention Chief Credit Officer, reference “Rubicon”.

7.2. Management Rights . Borrower shall permit any representative that the Lenders authorize, including their attorneys and accountants, to inspect the Collateral and examine and make copies and abstracts of the books of account and records of Borrower at reasonable times and upon reasonable notice during normal business hours in either case, not more often than twice per year unless an Event of Default has occurred and is continuing. In addition, any such representative shall have the right to meet with management and officers of Borrower to discuss such books of account and records. In addition, each of the Lenders shall be entitled at reasonable times and intervals to consult with and advise the management and officers of Borrower concerning significant business issues affecting Borrower. Such consultations shall not unreasonably interfere with Borrower’s business operations. The parties intend that the rights granted the Lenders shall constitute “management rights” within the meaning of 29 C.F.R Section 2510.3-101(d)(3)(ii), but that any advice, recommendations or participation by either of the Lenders with respect to any business issues shall not be deemed to give such Lender, nor be deemed an exercise by such Lender of, control over Borrower’s management or policies.

 

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7.3. Further Assurances . Borrower shall from time to time execute, deliver and file, alone or with either of the Lenders, any financing statements, security agreements, collateral assignments, notices, control agreements, or other documents to perfect or give the highest priority to the Lenders’ Liens on the Collateral. Borrower shall from time to time procure any instruments or documents as may be requested by either of the Lenders, and take all further action that may be necessary or desirable, or that either of the Lenders may reasonably request, to perfect and protect the Liens granted hereby and thereby. In addition, and for such purposes only, Borrower hereby authorizes each of the Lenders to execute and deliver on behalf of Borrower and to file such financing statements, collateral assignments, notices, control agreements, security agreements and other documents without the signature of Borrower either in a Lender’s name or in the name of a Lender as agent and attorney-in-fact for Borrower. Borrower shall protect and defend Borrower’s title to the Collateral and the Lenders’ Liens thereon against all Persons claiming any interest adverse to Borrower or either of the Lenders.

7.4. Compromise of Agreements . Borrower shall not (a) grant any material extension of the time of payment of any of the Receivables or General Intangibles, (b) to any material extent, compromise, compound or settle the same for less than the full amount thereof, (c) release, wholly or partly, any Person liable for the payment thereof in excess of $50,000 in the aggregate, or (d) allow any credit or discount whatsoever thereon other than trade discounts granted by Borrower in the ordinary course of business of Borrower. Borrower must promptly notify Lender of all returns, recoveries, disputes and claims that involve more than One Hundred Thousand Dollars ($100,000).

7.5. Indebtedness . Borrower shall not create, incur, assume, guarantee or be or remain liable with respect to any Indebtedness, or permit any Subsidiary so to do, other than Permitted Indebtedness, or prepay any Indebtedness or take any actions which impose on Borrower an obligation to prepay any Indebtedness.

7.6. Collateral . Borrower shall at all times keep the Collateral and all other property and assets used in Borrower’s business or in which Borrower now or hereafter holds any interest free and clear from any legal process or Liens whatsoever (except for Permitted Liens), and shall give Lenders prompt written notice of any legal process affecting the Collateral, such other property and assets, or any Liens thereon. Borrower shall cause its Subsidiaries to protect and defend such Subsidiary’s title to its assets from and against all Persons claiming any interest adverse to such Subsidiary, and Borrower shall cause its Subsidiaries at all times to keep such Subsidiary’s property and assets free and clear from any legal process or Liens whatsoever (except for Permitted Liens), and shall give Lenders prompt written notice of any legal process affecting such Subsidiary’s assets.

7.7. Investments . Borrower shall not directly or indirectly acquire or own, or make any Investment in or to any Person, or permit any of its Subsidiaries so to do, other than Permitted Investments.

7.8. Distributions . Borrower shall not, and shall not allow any Subsidiary to, (a) repurchase or redeem any class of stock or other equity interest except as expressly permitted by subsection (c) of the definition of Permitted Investment, or (b) declare or pay any cash dividend or make a cash distribution on any class of stock or other equity interest, or (c) lend money to any employees, officers or directors or guarantee the payment of any such loans granted by a third party in excess of $100,000 in the aggregate or (d) waive, release or forgive any indebtedness owed by any employees, officers or directors in excess of $100,000 in the aggregate.

7.9. Transfers . Except for Permitted Transfers, Borrower shall not voluntarily or involuntarily transfer, sell, lease, license, lend or in any other manner convey any equitable, beneficial or legal interest in any material portion of its assets.

7.10. Taxes . Borrower and its Subsidiaries shall pay when due all taxes, fees or other charges of any nature whatsoever (together with any related interest or penalties) now or hereafter imposed or assessed against Borrower, either of the Lenders or the Collateral or upon Borrower’s ownership, possession, use,

 

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operation or disposition thereof or upon Borrower’s rents, receipts or earnings arising therefrom. Borrower shall file on or before the due date therefor all personal property tax returns in respect of the Collateral. Notwithstanding the foregoing, Borrower may contest, in good faith and by appropriate proceedings, taxes for which Borrower maintains adequate reserves therefor in accordance with GAAP.

7.11. Corporate Changes . Neither Borrower nor any Subsidiary shall change its corporate name, legal form or jurisdiction of formation without twenty (20) days’ prior written notice to the Lenders. Neither Borrower nor any Subsidiary shall relocate its chief executive office or its principal place of business unless: (i) it has provided prior written notice to the Lenders; and (ii) such relocation shall be within the continental United States. Neither Borrower nor any Subsidiary shall relocate any item of Collateral (other than (x) sales of Inventory in the ordinary course of business, (y) relocations of Equipment having an aggregate value of up to $150,000 in any fiscal year, and (z) relocations of Collateral from a location described on Exhibit C to another location described on Exhibit C) unless (i) it has provided prompt written notice to each of the Lenders, (ii) such relocation is within the continental United States and, (iii) if such relocation is to a third party bailee, it has delivered a bailee agreement in form and substance reasonably acceptable to the Lenders; provided , however , that Borrower may, without consent from the Lenders but with notice to the Lenders, lease a facility outside the continental United States and locate up to $2,000,000 of Equipment and Inventory at such location upon delivery of a lease assignment acceptable to Lenders in their reasonable discretion. Borrower or any applicable Subsidiary shall provide prompt written notice to Lenders of any change in Borrower’s or such Subsidiary’s chief executive officer or chief financial officer.

7.12. Payments . The Lender will initiate debit entries to the Borrower’s account as authorized on the ACH Debit Authorization Agreement in the form of Exhibit I on each Payment Date of all periodic obligations payable to the Lenders under each Note or Advance.

7.13. Deposit Accounts . Neither Borrower nor any Subsidiary shall maintain any Deposit Accounts, or accounts holding Investment Property, except with respect to which the Lenders have a perfected security interest in each such account.

7.14. Subsidiaries . Borrower shall notify the Lenders of each Subsidiary formed subsequent to the Closing Date and, within 15 days of formation, shall cause any such Subsidiary to execute and deliver to the Lenders a Joinder Agreement.

7.15. Accounts and Inventory . Borrower shall notify Lender promptly of any event or circumstance which to Borrower’s knowledge would cause Lender to consider any then existing Account or Inventory as no longer constituting an Eligible Account or Eligible Inventory, as the case may be. Borrower shall keep all Inventory in good and marketable condition, free from material defects.

7.16. Audits . Upon seven (7) calendar days notice and no more than twice (2) a year, unless an Event of Default has occurred, in which case such limitations do not apply, any of the Lenders’ officers, employees, representatives or agents shall have the right, at any time during normal business hours, to verify the validity, amount or any other matter relating to any Accounts, Inventory or any other Collateral of the Borrower. Borrower shall cooperate fully with the Lenders in an effort to facilitate and promptly conclude such verification process.

7.17. Minimum EBITDA . Borrower shall maintain a minimum EBITDA of $1.00, measured quarterly on a trailing 6 month basis.

7.18. Rubicon Worldwide, Inc. Dissolution . Borrower shall not transfer any assets to Rubicon Worldwide, Inc. and shall dissolve and wind-up such Subsidiary on or before April 17, 2007.

7.19. Landlord Consents . Notwithstanding subsection (c) of the definition of Eligible Inventory, (i) Borrower shall not be required to deliver a Landlord Consent for the property located at 9931 Franklin Avenue, Franklin Park, Illinois 60131 and (ii) Borrower shall deliver a Landlord Consent for the property located at 9901-9923 Franklin Avenue, Franklin Park, Illinois 60131 on or before April 20, 2007.

 

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SECTION 8. RIGHT TO PURCHASE STOCK

8.1. Lender or its assignee or nominee shall have the right, in its discretion, to purchase shares of Borrower’s securities having an aggregate purchase price of up to $500,000 in the Next Event on the same terms and conditions afforded to other investors in the Next Event.

SECTION 9. EVENTS OF DEFAULT

The occurrence of any one or more of the following events shall be an Event of Default:

9.1. Payments . Borrower fails to pay any amount due under this Agreement, the Notes or any of the other Loan Documents within two (2) days of the due date; or

9.2. Covenants . Borrower breaches or defaults in the performance of any covenant or Secured Obligation under this Agreement, the Notes, or any of the other Loan Documents, and (a) with respect to a default under any covenant under this Agreement (other than under Sections 6, 7.5, 7.6, 7.7, 7.8, 7.9 or 7.17) such default continues for more than ten (10) days after the earlier of the date on which (i) the Lenders have given notice of such default to Borrower and (ii) the Chief Executive Officer or Chief Financial Officer of Borrower has actual knowledge of such default or (b) with respect to a default under any of Sections 6, 7.5, 7.6, 7.7, 7.8, 7.9 or 7.17, the occurrence of such default; or

9.3. Material Adverse Effect . A circumstance has occurred that would reasonably be expected to have a Material Adverse Effect; or

9.4. Other Loan Documents . The occurrence of any default under (i) any Loan Document not otherwise specifically referenced in this Section 9 or (ii) any other agreement between Borrower and the Lenders and such default continues for more than ten (10) days after the earlier of (a) the Lenders have given notice of such default to Borrower, or (b) the Chief Executive Officer or Chief Financial Officer of Borrower has actual knowledge of such default; or

9.5. Representations . Any representation or warranty made by Borrower in any Loan Document or in the Warrant shall have been false or misleading in any material respect; or

9.6. Insolvency . Borrower (A) (i) shall make an assignment for the benefit of creditors; or (ii) shall admit in writing its inability to pay its debts as they become due, or its inability to pay or perform under the Loan Documents; or (iii) shall file a voluntary petition in bankruptcy; or (iv) shall file any petition, answer, or document seeking for itself any reorganization, arrangement, composition, readjustment, liquidation, dissolution or similar relief under any present or future statute, law or regulation pertinent to such circumstances; or (v) shall seek or consent to or acquiesce in the appointment of any trustee, receiver, or liquidator of Borrower or of all or any substantial part (i.e., 33-1/3% or more) of the assets or property of Borrower; or (vi) shall cease operations of its business as its business has normally been conducted, or terminate substantially all of its employees, or becomes insolvent; or (vii) Borrower or its directors or majority shareholders shall take any action initiating any of the foregoing actions described in clauses (i) through (vi); or (B) either (i) thirty (30) days shall have expired after the commencement of an involuntary action against Borrower seeking reorganization, arrangement, composition, readjustment, liquidation, dissolution or similar relief under any present or future statute, law or regulation, without such action being dismissed or all orders or proceedings thereunder affecting the operations or the business of Borrower being stayed; or (ii) a stay of any such order or proceedings shall thereafter be set aside and the action setting it aside shall not be timely appealed; or (iii) Borrower shall file any answer admitting or not contesting the material allegations of a petition filed against Borrower in any such proceedings; or (iv) the court in which such proceedings are pending shall enter a decree or order granting the relief sought in any such proceedings; or (v) thirty (30) days shall have expired after the appointment, without the consent or acquiescence of Borrower, of any trustee, receiver or liquidator of Borrower or of all or any substantial part of the properties of Borrower without such appointment being vacated; or

 

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9.7. Attachments; Judgments. Any portion of Borrower’s assets is attached or seized, or a levy is filed against any such assets, or a judgment or judgments is/are entered for the payment of money, individually or in the aggregate, of at least $300,000, or Borrower is enjoined or in any way prevented by court order from conducting any material part of its business; or

9.8. Other Obligations . The occurrence of any default under any agreement or obligation of Borrower involving any obligation in excess of $300,000 or that, when aggregated with any other such defaults, would reasonably be expected to have a Material Adverse Effect.

SECTION 10. REMEDIES

10.1. General . Upon and during the continuance of any one or more Events of Default, (i) Lenders may, at their option, accelerate and demand payment of all or any part of the Secured Obligations and declare them to be immediately due and payable ( provided , that upon the occurrence of an Event of Default of the type described in Section 9.6, the Notes and all of the Secured Obligations shall automatically be accelerated and made due and payable, in each case without any further notice or act), and (ii) Lenders may notify any of Borrower’s account debtors to make payment directly to Lenders, compromise the amount of any such account on Borrower’s behalf and endorse a Lender’s name without recourse on any such payment for deposit directly to such Lender’s account. Lenders may exercise all rights and remedies with respect to the Collateral under the Loan Documents or otherwise available to Lenders under the UCC and other applicable law, including the right to release, hold, sell, lease, liquidate, collect, realize upon, or otherwise dispose of all or any part of the Collateral and the right to occupy, utilize, process and commingle the Collateral. All of the Lenders’ rights and remedies shall be cumulative and not exclusive.

10.2. Collection; Foreclosure . Upon the occurrence and during the continuance of any Event of Default, either Lender may, at any time or from time to time, apply, collect, liquidate, sell in one or more sales, lease or otherwise dispose of, any or all of the Collateral, in its then condition or following any commercially reasonable preparation or processing, in such order as such Lender may elect. Any such sale may be made either at public or private sale at its place of business or elsewhere. Borrower agrees that any such public or private sale may occur upon ten (10) calendar days’ prior written notice to Borrower. Either Lender may require Borrower to assemble the Collateral and make it available to such Lender at a place designated by such Lender that is reasonably convenient to such Lender and Borrower. The proceeds of any sale, disposition or other realization upon all or any part of the Collateral shall be applied by the Lenders in the following order of priorities:

First , to the Lenders in an amount sufficient to pay in full the Lenders’ respective costs and professionals’ and advisors’ fees and expenses as described in Section 11.12;

Second , to the Lenders in an amount equal to the then unpaid amount of the Secured Obligations (including principal, interest, and the Default Rate interest), in such order and priority as the Lenders may choose in their sole discretion; and

Finally , after the full, final, and indefeasible payment in Cash of all of the Secured Obligations, to any creditor holding a junior Lien on the Collateral, or to Borrower or its representatives or as a court of competent jurisdiction may direct.

Each Lender shall be deemed to have acted reasonably in the custody, preservation and disposition of any of the Collateral if it complies with the obligations of a secured party under the UCC.

10.3. No Waiver . Neither Lender shall be under any obligation to marshal any of the Collateral for the benefit of Borrower or any other Person, and Borrower expressly waives all rights, if any, to require either Lender to marshal any Collateral.

 

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10.4. Cumulative Remedies . The rights, powers and remedies of the Lenders hereunder shall be in addition to all rights, powers and remedies given by statute or rule of law and are cumulative. The exercise of any one or more of the rights, powers and remedies provided herein shall not be construed as a waiver of or election of remedies with respect to any other rights, powers and remedies of the Lenders.

SECTION 11. MISCELLANEOUS

11.1. Severability . Whenever possible, each provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement shall be prohibited by or invalid under such law, such provision shall be ineffective only to the extent and duration of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Agreement.

11.2. Notice . Except as otherwise provided herein, any notice, demand, request, consent, approval, declaration, service of process or other communication (including the delivery of Financial Statements) that is required, contemplated, or permitted under the Loan Documents or with respect to the subject matter hereof shall be in writing, and shall be deemed to have been validly served, given, delivered, and received upon the earlier of: (i) the day of transmission by facsimile or hand delivery or deposit with an overnight express service or overnight mail delivery service; or (ii) the third calendar day after deposit in the United States mails, with proper first class postage prepaid, in each case addressed to the party to be notified as follows:

 

(a)    If to the Lenders:
     HERCULES TECHNOLOGY GROWTH CAPITAL, INC.
     Legal Department
     Attention: Chief Legal Officer and Roy Liu
     400 Hamilton Ave., Suite 310
     Palo Alto, CA 94301
     Facsimile: 650-473-9194
     Telephone: 650-289-3068
(b)    If to Borrower:
     RUBICON TECHNOLOGY, INC.
     Attention: Chief Financial Officer
     9931 Franklin Avenue
     Franklin Park, Illinois 60131
     Facsimile: 847-233-0177
     Telephone: 847-295-7000

or to such other address as each party may designate for itself by like notice.

11.3. Entire Agreement; Amendments . This Agreement, the Notes, and the other Loan Documents constitute the entire agreement and understanding of the parties hereto in respect of the subject matter hereof and thereof, and supersede and replace in their entirety any prior proposals, term sheets, letters, negotiations or other documents or agreements, whether written or oral, with respect to the subject matter hereof or thereof (including the Lenders’ revised proposal letter dated February 28, 2007). None of the terms of this Agreement, the Notes or any of the other Loan Documents may be amended except by an instrument executed by each of the parties hereto.

11.4. No Strict Construction . The parties hereto have participated jointly in the negotiation and drafting of this Agreement. In the event an ambiguity or question of intent or interpretation arises, this

 

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Agreement shall be construed as if drafted jointly by the parties hereto and no presumption or burden of proof shall arise favoring or disfavoring any party by virtue of the authorship of any provisions of this Agreement.

11.5. No Waiver . The powers conferred upon the Lenders by this Agreement are solely to protect their respective rights hereunder and under the other Loan Documents and their respective interests in the Collateral and shall not impose any duty upon either of the Lenders to exercise any such powers. No omission or delay by either of the Lenders at any time to enforce any right or remedy reserved to it, or to require performance of any of the terms, covenants or provisions hereof by Borrower at any time designated, shall be a waiver of any such right or remedy to which such Lender is entitled, nor shall it in any way affect the right of such Lender to enforce such provisions thereafter.

11.6. Survival . All agreements, representations and warranties contained in this Agreement, the Notes and the other Loan Documents or in any document delivered pursuant hereto or thereto shall be for the benefit of the Lenders and shall survive the execution and delivery of this Agreement and the expiration or other termination of this Agreement.

11.7. Successors and Assigns . The provisions of this Agreement and the other Loan Documents shall inure to the benefit of and be binding on Borrower and its permitted assigns (if any). Borrower shall not assign its obligations under this Agreement, the Notes or any of the other Loan Documents without each of the Lenders’ express prior written consent, and any such attempted assignment shall be void and of no effect. Either Lender may assign, transfer, or endorse its rights hereunder and under the other Loan Documents without prior notice to Borrower, and all of such rights shall inure to the benefit of such Lender’s successors and assigns.

11.8. Governing Law . This Agreement, the Notes and the other Loan Documents have been negotiated and delivered to the Lenders in the State of California, and shall have been accepted by the Lenders in the State of California. Payment to the Lenders by Borrower of the Secured Obligations is due in the State of California. This Agreement, the Notes and the other Loan Documents shall be governed by, and construed and enforced in accordance with, the laws of the State of California, excluding conflict of laws principles that would cause the application of laws of any other jurisdiction.

11.9. Consent to Jurisdiction and Venue . All judicial proceedings (to the extent that the reference requirement of Section 11.10 is not applicable) arising in or under or related to this Agreement, the Notes or any of the other Loan Documents may be brought in any state or federal court located in the State of California. By execution and delivery of this Agreement, each party hereto generally and unconditionally: (a) consents to nonexclusive personal jurisdiction in Santa Clara County, State of California; (b) waives any objection as to jurisdiction or venue in Santa Clara County, State of California; (c) agrees not to assert any defense based on lack of jurisdiction or venue in the aforesaid courts; and (d) irrevocably agrees to be bound by any judgment rendered thereby in connection with this Agreement, the Notes or the other Loan Documents. Service of process on any party hereto in any action arising out of or relating to this Agreement shall be effective if given in accordance with the requirements for notice set forth in Section 11.3, and shall be deemed effective and received as set forth in Section 11.3. Nothing herein shall affect the right to serve process in any other manner permitted by law or shall limit the right of either party to bring proceedings in the courts of any other jurisdiction.

11.10. Mutual Waiver of Jury Trial / Judicial Reference .

(a) THE UNDERSIGNED ACKNOWLEDGE THAT THE RIGHT TO TRIAL BY JURY IS A CONSTITUTIONAL ONE, BUT THAT IT MAY BE WAIVED UNDER CERTAIN CIRCUMSTANCES. TO THE EXTENT PERMITTED BY LAW, EACH PARTY, AFTER CONSULTING (OR HAVING HAD THE OPPORTUNITY TO CONSULT) WITH COUNSEL OF ITS CHOICE, KNOWINGLY AND VOLUNTARILY, AND FOR THE MUTUAL BENEFIT OF ALL PARTIES, WAIVES ANY RIGHT TO TRIAL BY JURY IN THE EVENT OF LITIGATION ARISING OUT OF OR RELATED TO THIS AGREEMENT OR ANY OTHER DOCUMENT, INSTRUMENT OR AGREEMENT BETWEEN THE UNDERSIGNED PARTIES.

 

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(b) If the waiver of jury trial set forth in Section 11.10(a) is ineffective or unenforceable, the parties elect to proceed under the judicial reference provision set forth below.

(c) With the exception of the items specified in clause (d), below, any controversy, dispute or claim (each, a “Claim”) between the parties arising out of or relating to this Agreement or any other document, instrument or agreement between the undersigned parties (collectively in this Section, the “Lenders’ Documents”), will be resolved by a reference proceeding in California in accordance with the provisions of Sections 638 et seq. of the California Code of Civil Procedure (“CCP”), or their successor sections, which shall constitute the exclusive remedy for the resolution of any Claim, including whether the Claim is subject to the reference proceeding. Except as otherwise provided in the Lenders’ Documents, venue for the reference proceeding will be in the state or federal court in the county or district where the real property involved in the action, if any, is located or in the state or federal court in the county or district where venue is otherwise appropriate under applicable law (the “Court”).

(d) The matters that shall not be subject to a reference are the following: (i) nonjudicial foreclosure of any security interests in real or personal property, (ii) exercise of self-help remedies (including, without limitation, set-off), (iii) appointment of a receiver and (iv) temporary, provisional or ancillary remedies (including, without limitation, writs of attachment, writs of possession, temporary restraining orders or preliminary injunctions). This reference provision does not limit the right of any party to exercise or oppose any of the rights and remedies described in clauses (i) and (ii) or to seek or oppose from a court of competent jurisdiction any of the items described in clauses (iii) and (iv). The exercise of, or opposition to, any of those items does not waive the right of any party to a reference pursuant to this reference provision as provided herein.

(e) The referee shall be a retired judge or justice selected by mutual written agreement of the parties. If the parties do not agree within ten (10) days of a written request to do so by any party, then, upon request of any party, the referee shall be selected by the Presiding Judge of the Court (or his or her representative). A request for appointment of a referee may be heard on an ex parte or expedited basis, and the parties agree that irreparable harm would result if ex parte relief is not granted. Pursuant to CCP § 170.6, each party shall have one peremptory challenge to the referee selected by the Presiding Judge of the Court (or his or her representative).

(f) The parties agree that time is of the essence in conducting the reference proceedings. Accordingly, the referee shall be requested, subject to change in the time periods specified herein for good cause shown, to (i) set the matter for a status and trial-setting conference within fifteen (15) days after the date of selection of the referee, (ii) if practicable, try all issues of law or fact within one hundred twenty (120) days after the date of the conference and (iii) report a statement of decision within twenty (20) days after the matter has been submitted for decision.

(g) The referee will have power to expand or limit the amount and duration of discovery. The referee may set or extend discovery deadlines or cutoffs for good cause, including a party’s failure to provide requested discovery for any reason whatsoever. Unless otherwise ordered based upon good cause shown, no party shall be entitled to “priority” in conducting discovery, depositions may be taken by either party upon seven (7) days written notice, and all other discovery shall be responded to within fifteen (15) days after service. All disputes relating to discovery which cannot be resolved by the parties shall be submitted to the referee whose decision shall be final and binding.

(h) Except as expressly set forth herein, the referee shall determine the manner in which the reference proceeding is conducted including the time and place of hearings, the order of presentation of evidence, and all other questions that arise with respect to the course of the reference proceeding. All proceedings and hearings conducted before the referee, except for trial, shall be conducted without a court

 

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reporter, except that when any party so requests, a court reporter will be used at any hearing conducted before the referee, and the referee will be provided a courtesy copy of the transcript. The party making such a request shall have the obligation to arrange for and pay the court reporter. Subject to the referee’s power to award costs to the prevailing party, the parties will equally share the cost of the referee and the court reporter at trial.

(i) The referee shall be required to determine all issues in accordance with existing case law and the statutory laws of the State of California. The rules of evidence applicable to proceedings at law in the State of California will be applicable to the reference proceeding. The referee shall be empowered to enter equitable as well as legal relief, enter equitable orders that will be binding on the parties and rule on any motion which would be authorized in a court proceeding, including without limitation motions for summary judgment or summary adjudication. The referee shall issue a decision at the close of the reference proceeding which disposes of all claims of the parties that are the subject of the reference. Pursuant to CCP § 644, such decision shall be entered by the Court as a judgment or an order in the same manner as if the action had been tried by the Court and any such decision will be final, binding and conclusive. The parties reserve the right to appeal from the final judgment or order or from any appealable decision or order entered by the referee. The parties reserve the right to findings of fact, conclusions of laws, a written statement of decision, and the right to move for a new trial or a different judgment, which new trial, if granted, is also to be a reference proceeding under this provision.

(j) If the enabling legislation which provides for appointment of a referee is repealed (and no successor statute is enacted), any dispute between the parties that would otherwise be determined by reference procedure will be resolved and determined by arbitration. The arbitration will be conducted by a retired judge or justice, in accordance with the California Arbitration Act §1280 through §1294.2 of the CCP as amended from time to time. The limitations with respect to discovery set forth above shall apply to any such arbitration proceeding.

(k) THE PARTIES RECOGNIZE AND AGREE THAT ALL CONTROVERSIES, DISPUTES AND CLAIMS RESOLVED UNDER THIS REFERENCE PROVISION WILL BE DECIDED BY A REFEREE AND NOT BY A JURY. AFTER CONSULTING (OR HAVING HAD THE OPPORTUNITY TO CONSULT) WITH COUNSEL OF ITS OWN CHOICE, EACH PARTY KNOWINGLY AND VOLUNTARILY, AND FOR THE MUTUAL BENEFIT OF ALL PARTIES, AGREES THAT THIS REFERENCE PROVISION WILL APPLY TO ANY CONTROVERSY, DISPUTE OR CLAIM BETWEEN OR AMONG THEM ARISING OUT OF OR IN ANY WAY RELATED TO, THIS AGREEMENT OR THE OTHER LENDERS’ DOCUMENTS.

11.11. Professional Fees . Borrower promises to pay the Lenders’ fees and expenses necessary to finalize the loan documentation, including but not limited to reasonable attorneys fees, UCC searches, filing costs, and other miscellaneous expenses. In addition, Borrower promises to pay any and all reasonable attorneys’ and other professionals’ fees and expenses incurred by either of the Lenders after the Closing Date in connection with or related to: (a) the administration, collection, or enforcement of the Loan; (b) the amendment or modification of the Loan Documents; (c) any waiver, consent, release, or termination under the Loan Documents; (d) the protection, preservation, sale, lease, liquidation, or disposition of Collateral or the exercise of remedies with respect to the Collateral; (e) any legal, litigation, administrative, arbitration, or out of court proceeding in connection with or related to Borrower or the Collateral, and any appeal or review thereof; and (f) any bankruptcy, restructuring, reorganization, assignment for the benefit of creditors, workout, foreclosure, or other action related to Borrower, the Collateral, the Loan Documents, including representing the Lenders in any adversary proceeding or contested matter commenced or continued by or on behalf of Borrower’s estate, and any appeal or review thereof. Notwithstanding the foregoing, Borrower shall not be obligated to pay any costs or expenses associated with the assignment of the Loan.

 

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11.12. Confidentiality . The Lenders acknowledge that certain items of Collateral and information provided to the Lenders by Borrower are confidential and proprietary information of Borrower, if and to the extent such information is marked as confidential by Borrower at the time of disclosure (the “Confidential Information”). In handling any Confidential Information, each Lender and all employees and agents of such Lender shall exercise the same degree of care that such Lender exercises with respect to its own proprietary information of the same types to maintain the confidentiality of any non-public information thereby received or received pursuant to this Agreement except that disclosure of such information may be made (i) to the subsidiaries or Affiliates of such Lender in connection with their present or prospective business relations with Borrower, (ii) to prospective transferees or purchasers of any interest in the Loans, provided that they have entered into a comparable confidentiality agreement in favor of Borrower and have delivered a copy to Borrower, (iii) as required by law, regulations, rule or order, subpoena, judicial order or similar order after notice to Borrower as soon as possible after Lender’s receipt thereof in order to allow Borrower an opportunity to object to such disclosure or seek a protective order, (iv) as may be required in connection with the examination, audit or similar investigation of such Lender and (v) as such Lender may determine in connection with the enforcement of any remedies hereunder. Confidential Information hereunder shall not include information that either: (a) is in the public domain or in the knowledge or possession of a Lender when disclosed to such Lender, or becomes part of the public domain after disclosure to such Lender through no fault of such Lender; or (b) is disclosed to such Lender by a third party, provided such Lender does not have actual knowledge that such third party is prohibited from disclosing such information.

11.13. Assignment of Rights . Borrower acknowledges and understands that either Lender may sell and assign all or part of its interest hereunder and under the Note(s) and Loan Documents to any person or entity (an “Assignee”); provided , that Lender may not sell, assign or otherwise transfer such interest to an Assignee if the Assignee or any of its affiliates is a competitor, significant supplier or customer of Borrower or an affiliate thereof. After such assignment the term “Lender” or “Lenders” as used in the Loan Documents shall mean and include such Assignee, and such Assignee shall be vested with all rights, powers and remedies of a Lender hereunder with respect to the interest so assigned; but with respect to any such interest not so transferred, the assigning Lender shall retain all rights, powers and remedies hereby given. No such assignment by a Lender shall relieve Borrower of any of its obligations hereunder. Each Lender agrees that in the event of any transfer by it of the Note(s), it will endorse thereon a notation as to the portion of the principal of the Note(s), which shall have been paid at the time of such transfer and as to the date to which interest shall have been last paid thereon.

11.14. Revival of Secured Obligations . This Agreement and the Loan Documents shall remain in full force and effect and continue to be effective if any petition is filed by or against Borrower for liquidation or reorganization, if Borrower becomes insolvent or makes an assignment for the benefit of creditors, if a receiver or trustee is appointed for all or any significant part of Borrower’s assets, or if any payment or transfer of Collateral is recovered from a Lender. The Loan Documents and the Secured Obligations and Collateral security shall continue to be effective, or shall be revived or reinstated, as the case may be, if at any time payment and performance of the Secured Obligations or any transfer of Collateral to a Lender, or any part thereof is rescinded, avoided or avoidable, reduced in amount, or must otherwise be restored or returned by, or is recovered from, such Lender or by any obligee of the Secured Obligations, whether as a “voidable preference,” “fraudulent conveyance,” or otherwise, all as though such payment, performance, or transfer of Collateral had not been made. In the event that any payment, or any part thereof, is rescinded, reduced, avoided, avoidable, restored, returned, or recovered, the Loan Documents and the Secured Obligations shall be deemed, without any further action or documentation, to have been revived and reinstated except to the extent of the full, final, and indefeasible payment to the Lenders in Cash.

11.15. Counterparts . This Agreement and any amendments, waivers, consents or supplements hereto may be executed in any number of counterparts, and by different parties hereto in separate counterparts, each of which when so delivered shall be deemed an original, but all of which counterparts shall constitute but one and the same instrument.

 

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11.16. No Third Party Beneficiaries . No provisions of the Loan Documents are intended, nor will be interpreted, to provide or create any third-party beneficiary rights or any other rights of any kind in any person other than the Lenders and Borrower unless specifically provided otherwise herein, and, except as otherwise so provided, all provisions of the Loan Documents will be personal and solely between the Lenders and Borrower.

11.17. Specific Performance . The parties hereto hereby declare that it is impossible to measure in money the damages which will accrue to the Lenders by reason of Borrower’s failure to perform any of the obligations under this Agreement and agree that the terms of this Agreement shall be specifically enforceable by the Lenders. If either Lender institutes any action or proceeding to specifically enforce the provisions hereof, any Person against whom such action or proceeding is brought hereby waives the claim or defense therein that such Lender has an adequate remedy at law, and such Person shall not offer in any such action or proceeding the claim or defense that such remedy at law exists.

11.18. Publicity . The Lenders may use Borrower’s name and logo, and include a brief description of the relationship between Borrower and the Lenders, in the Lenders’ respective marketing materials.

(SIGNATURES TO FOLLOW)

 

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IN WITNESS WHEREOF, Borrower and Lender have duly executed and delivered this Loan and Security Agreement as of the day and year first above written.

 

BORROWER:     RUBICON TECHNOLOGY, INC.
    Signature:  

/s/ Raja M. Parvez

    Print Name:  

Raja M. Parvez

    Title:  

President

Accepted in Palo Alto, California :

 

LENDER:     HERCULES TECHNOLOGY GROWTH CAPITAL, INC.
    Signature:  

/s/ Scott Harvey

    Print Name:  

Scott Harvey

    Title:  

Chief Legal Officer

 

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Exhibit 10.10

RUBICON TECHNOLOGY, INC.

POST-IPO CHANGE OF CONTROL SEVERANCE AGREEMENT

 


THIS SEVERANCE AGREEMENT (This “ Agreement ”) is made and entered into as of                                                               (the “ Effective Date ”), by and between Rubicon Technology, Inc., a Delaware corporation (the “ Company ”), and                                               (“Employee”).

PRELIMINARY STATEMENTS

It is in the best interests of the Company to assure the continued dedication of Employee in a time of uncertainty following a change of control in the corporation after an IPO.

AGREEMENT

In consideration of the premises and the mutual promises and covenants contained in this Agreement and other good and valuable consideration, the sufficiency of which is hereby acknowledged, the parties hereto agree as follows:

Section 1. Severance . In the event that the Company, at any time after an Initial Public Offering (“IPO”) (as defined below), and within one (1) year after a Change in Control (as defined below), terminates Employee without Cause (as defined below), provided that Employee executes and delivers to the Company a full release of any and all claims Employee may have against the Company as of the date of termination other than any arising out of this Agreement, in form and substance satisfactory to the Company, Employee shall be entitled to a lump sum payment within thirty (30) days of termination equal to six (6) times the average of the Employee’s base monthly pay for the last full six (6) calendar months preceding the date of termination, less applicable taxes, payroll deductions and withholdings required by law. Notwithstanding the preceding sentence, if the independent accountants acting as auditors for the Company on the date of the Change in Control determine that such single payment, together with other compensation received by the Employee, would constitute “excess parachute payments” within the meaning of Section 280G of the Internal Revenue Code of 1986, as amended, and regulations thereunder, the single payment to the Employee shall be reduced to the maximum amount which may be paid without such payments in the aggregate constituting “excess parachute payments”.

Section 2. No Guarantee of Employment. This Agreement does not create an obligation on the Company or any other person or entity to continue Employee’s employment, which shall continue to be on an “at-will” basis.

Section 3. Definitions.

For purposes of this Agreement, the following terms shall have the meanings set forth below:

 

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Change of Contro l” shall mean the occurrence of (a) any consolidation or merger of the Company pursuant to which the stockholders of the Company immediately before the transaction do not retain immediately after the transaction, in substantially the same proportions as their ownership of shares of the Company’s voting stock immediately before the transaction, direct or indirect beneficial ownership of more than 50% of the total combined voting power of the outstanding voting securities of the surviving business entity; (b) any sale, lease, exchange or other transfer (in one transaction or a series of related transactions) of all, or substantially all, of the assets of the Company other than any sale, lease, exchange or other transfer to any company where the company owns, directly or indirectly, 100% of the outstanding voting securities of such company after any such transfer; or (c) direct or indirect sale or exchange in a single or series of related transactions by the stockholders of the Company of more than 50% of the voting stock of the Company.

Cause ” shall mean termination of Employee’s employment with the Company, after a good faith determination by the Company, and after reasonable notice to Employee, that Employee

(i) has willfully engaged in misconduct materially and adversely affecting the Company,

(ii) engaged in theft, fraud, embezzlement or similar behavior,

(iii) has been indicted or convicted of a felony, or

(iv) has willfully continued, after a correction period, to fail to substantially perform the material duties of Employee’s position with the Company (other than failure resulting from incapacity due to physical or mental illness). The correction period shall last not less than ten (10) days after the Company provides Employee with written notice of Employee’s failure to substantially perform Employee’s material duties.

Initial Public Offering ” (“ IPO ”) shall mean the first offering by the Company of its equity securities to the public pursuant to an effective registration statement filed under the Securities Act of 1933, as amended, or under any similar law then in effect.

IN WITNESS WHEREOF, the parties have executed this Agreement as of the Effective Date.

 

“COMPANY”     “Employee”
RUBICON TECHNOLOGY, INC.    

By:

         

Its:

          

 

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Exhibit 10.11

FORM OF INDEMNIFICATION AGREEMENT

This Indemnification Agreement (“Agreement”) is made as of this          day of                          , 2007 by and between Rubicon Technology, Inc., a Delaware corporation (the “Company”), and the undersigned [director/officer] of the Company (“Indemnitee”).

WHEREAS, the Company and Indemnitee recognize the increasing difficulty in obtaining directors’ and officers’ liability insurance, the significant increases in the cost of such insurance and the general reductions in the coverage of such insurance;

WHEREAS, the Company and Indemnitee further recognize the substantial increase in corporate litigation in general, subjecting officers, directors and employees to expensive litigation risks at the same time as the availability and coverage of liability insurance has been severely limited; and

WHEREAS, the Company desires to attract and retain the services of highly qualified individuals such as Indemnitee to serve as officers, directors or employees of the Company or any subsidiary and to indemnify such officers, directors and employees so as to provide them with the maximum protection permitted by law.

NOW THEREFORE, in consideration for Indemnitee’s services as a director or officer of the Company or any subsidiary, the Company and Indemnitee hereby agree as follows:

1. Indemnification .

(a) Third Party Proceedings . The Company shall indemnify Indemnitee if Indemnitee is or was a party or is threatened to be made a party to, or is otherwise involved (including involvement as a witness) in, any threatened, pending or completed action, suit, proceeding or any alternative dispute resolution mechanism, whether civil, criminal, administrative or investigative (other than an action by or in the right of the Company) by reason of the fact that Indemnitee is or was a director or officer of the Company or any subsidiary of the Company, by reason of any action or inaction on the part of Indemnitee while a director or officer of the Company or any subsidiary of the Company or by reason of the fact that Indemnitee, while serving as a director or officer of the Company or any subsidiary of the Company, is or was serving at the request of the Company or any subsidiary of the Company as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys’ fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by Indemnitee in connection with such action, suit or proceeding if Indemnitee acted in good faith and in a manner Indemnitee reasonably believed to be in or not opposed to the best interests of the Company or any subsidiary of the Company and, with respect to any criminal action or proceeding, had no reasonable cause to believe Indemnitee’s conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement or conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that Indemnitee did not act in good faith and in a manner which Indemnitee reasonably believed to be in or not opposed to the best interests of the Company or any subsidiary of the Company and, with respect to any criminal action or proceeding, had reasonable cause to believe that Indemnitee’s conduct was unlawful.


(b) Proceedings by or in the Right of the Company . The Company shall indemnify Indemnitee if Indemnitee was or is a party or is threatened to be made a party to, or is otherwise involved (including involvement as a witness) in, any threatened, pending or completed action or suit by or in the right of the Company or any subsidiary of the Company to procure a judgment in its favor by reason of the fact that Indemnitee is or was a director or officer of the Company or any subsidiary of the Company, by reason of any action or inaction on the part of Indemnitee while a director or officer of the Company or any subsidiary of the Company or by reason of the fact that Indemnitee, while serving as a director or officer of the Company or any subsidiary of the Company, is or was serving at the request of the Company or any subsidiary of the Company as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys’ fees) and, to the fullest extent permitted by law, amounts paid in settlement actually and reasonably incurred by Indemnitee in connection with the defense or settlement of such action or suit if Indemnitee acted in good faith and in a manner Indemnitee reasonably believed to be in or not opposed to the best interests of the Company or any subsidiary of the Company, except that no indemnification shall be made in respect of any claim, issue or matter as to which Indemnitee shall have been adjudged to be liable to the Company or any subsidiary of the Company unless and only to the extent that the Court of Chancery of the State of Delaware or the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, Indemnitee is fairly and reasonably entitled to indemnity for such expenses which the Court of Chancery of the State of Delaware or such other court shall deem proper.

(c) Mandatory Payment of Expenses . To the extent that Indemnitee has been successful on the merits or otherwise in defense of any action, suit or proceeding referred to in subsections (a) and (b) of this Section 1, or in defense of any claim, issue or matter therein, Indemnitee shall be indemnified against expenses (including attorneys’ fees) actually and reasonably incurred by Indemnitee in connection therewith.

2. Agreement to Serve . In consideration of the protection afforded by this Agreement, if Indemnitee is a director of the Company, he or she agrees to serve at least for the six months after the effective date of this Agreement as a director and not to resign voluntarily during such period without the written consent of a majority of the Board of Directors of the Company. If Indemnitee is an officer of the Company or any subsidiary of the Company not serving under an employment contract, he or she agrees to serve in such capacity at least for the balance of the current fiscal year of the Company or such subsidiary of the Company and not to resign voluntarily during such period without the written consent of a majority of the Board of Directors of the Company. Following the applicable period set forth above, Indemnitee agrees to continue to serve in such capacity at the will of the Company or any subsidiary of the Company (or under separate agreement, if such agreement exists) so long as he or she is duly appointed or elected and qualified in accordance with the applicable provisions of the Bylaws of the Company or such subsidiary of the Company or until such time as he or she tenders his or her resignation in writing. Nothing contained in this Agreement is intended to create in Indemnitee any right to continued employment.

3. Expenses; Indemnification Procedure .

 

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(a) Advancement of Expenses . The Company shall advance all expenses incurred by Indemnitee in connection with the investigation, defense, settlement or appeal of any civil or criminal action, suit or proceeding referenced in Section 1(a) or (b) (but not amounts actually paid in settlement of any such action, suit or proceeding). Indemnitee hereby undertakes to repay such amounts advanced (without interest) only if, and to the extent that, it shall ultimately be determined that Indemnitee is not entitled to be indemnified by the Company as authorized hereby.

(b) Notice/Cooperation by Indemnitee . Indemnitee shall, as a condition precedent to his or her right to be indemnified under this Agreement, give the Company notice in writing as soon as practicable of any claim made against Indemnitee for which indemnification will or could be sought under this Agreement. Notice to the Company shall be directed to the President of the Company at the address shown on the signature page of this Agreement (or such other address as the Company shall designate in writing to Indemnitee). Notice shall be deemed received three (3) business days after the date postmarked if sent by domestic certified or registered mail, properly addressed; or five (5) business days if sent by airmail to a country outside of North America; otherwise notice shall be deemed received when such notice shall actually be received by the Company. In addition, Indemnitee shall give the Company such information and cooperation as it may reasonably require and as shall be within Indemnitee’s power.

(c) Procedure . Any indemnification and advances provided for in Section 1 and this Section 3 shall be made no later than thirty (30) days (or, in the case of an advance of expenses, twenty (20) days) after receipt of the written request of Indemnitee. Indemnitee may request indemnification at any time following the final disposition of a proceeding. If a claim under this Agreement, under any statute or under any provision of the Company’s Certificate of Incorporation or Bylaws providing for indemnification is not paid in full by the Company within thirty (30) days (or, in the case of an advance of expenses, twenty (20) days) after a written request for payment thereof has first been received by the Company, Indemnitee may, but need not, at anytime thereafter, bring an action against the Company to recover the unpaid amount of the claim and, subject to Section 13 of this Agreement, Indemnitee shall also be entitled to be paid for the expenses (including attorneys’ fees) of bringing such action. If a determination by the Corporation that the director or officer is entitled to indemnification pursuant to this Article 6 is required, and the Corporation fails to respond within sixty (60) days to a written request for indemnity, the Corporation shall be deemed to have approved the request. It shall be a defense to any such action (other than an action brought to enforce a claim for expenses incurred in connection with any action, suit or proceeding in advance of its final disposition) that Indemnitee has not met the standards of conduct which make it permissible under applicable law for the Company to indemnify Indemnitee for the amount claimed. However, Indemnitee shall be entitled to receive interim payments of expenses pursuant to Section 3(a) unless and until such defense may be finally adjudicated by court order or judgment from which no further right of appeal exists. It is the parties’ intention that if the Company contests Indemnitee’s right to indemnification, the question of Indemnitee’s right to indemnification shall be for the court to decide, and neither the failure of the Company (including its Board of Directors, any committee or subgroup of the Board of Directors, independent legal counsel or its stockholders) to have made a determination that indemnification of Indemnitee is proper in the circumstances because Indemnitee has met the applicable standard of conduct required by applicable law, nor an actual

 

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determination by the Company (including its Board of Directors, any committee or subgroup of the Board of Directors, independent legal counsel or its stockholders) that Indemnitee has not met such applicable standard of conduct, shall be a defense to Indemnitee’s action for indemnification or create a presumption that Indemnitee has or has not met the applicable standard of conduct.

(d) Notice to Insurers . If, at the time of the receipt of a notice of a claim pursuant to Section 3(b), the Company has directors and officers liability insurance in effect, the Company shall give prompt notice of the commencement of such proceeding to the insurers in accordance with the procedures set forth in the respective policies. The Company shall thereafter take all necessary or desirable action to cause such insurers to pay, on behalf of Indemnitee, all amounts payable as a result of such proceeding in accordance with the terms of such policies.

(e) Selection of Counsel . In the event the Company shall be obligated under Section 3(a) to advance the expenses of any proceeding against Indemnitee, the Company, if appropriate, shall be entitled to assume the defense of such proceeding, with counsel approved by Indemnitee, upon the delivery to Indemnitee of written notice of its election and approval of counsel by Indemnitee. After the delivery of such notice, approval of such counsel by Indemnitee and retention of such counsel by the Company, the Company shall not be liable to Indemnitee under this Agreement for any fees of counsel subsequently incurred by Indemnitee with respect to the same proceeding, except as provided below. The Indemnitee shall have the right to employ his or her own counsel in any such proceeding at Indemnitee’s expense unless: (i) the employment of counsel by Indemnitee has been previously authorized by the Company, (ii) Indemnitee shall have reasonably concluded that there may be a material conflict of interest between the Company and Indemnitee in the conduct of any such defense or (iii) the Company shall not, in fact, have employed counsel to assume the defense of such proceeding, in each of which case the fees and expenses of Indemnitee’s counsel shall be at the expense of the Company.

4. Additional Indemnification Rights; Nonexclusivity .

(a) Scope . Notwithstanding any other provision of this Agreement, the Company hereby agrees to indemnify Indemnitee to the fullest extent permitted by law, notwithstanding that such indemnification is not specifically authorized by the other provisions of this Agreement, by the Company’s Certificate of Incorporation or Bylaws or by statute. In the event of any change after the date of this Agreement in any applicable law, statute or rule which expands the right of a Delaware corporation to indemnify a member of its board of directors or an officer or employee of the Company or any subsidiary of the Company, such changes shall be, ipso facto, within the purview of Indemnitee’s rights and the Company’s obligations under this Agreement. In the event of any change in any applicable law, statute or rule which narrows the right of a Delaware corporation to indemnify a member of its board of directors or an officer or employee of the Company or any subsidiary of the Company, such changes, to the extent not otherwise required by such law, statute or rule to be applied to this Agreement, shall have no effect on this Agreement or the parties’ rights and obligations hereunder.

(b) Nonexclusivity . The indemnification provided by this Agreement shall not be deemed exclusive of any rights to which Indemnitee may be entitled under the Company’s

 

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Certificate of Incorporation or Bylaws, any agreement, any vote of stockholders or disinterested directors, the General Corporation Law of the State of Delaware (the “DGCL”) or otherwise, both as to action in Indemnitee’s official capacity and as to action in another capacity while holding such office. The indemnification provided under this Agreement shall continue as to Indemnitee for any action taken or not taken while serving in an indemnified capacity even though he or she may have ceased to serve in such capacity at the time of any action, suit or other covered proceeding.

5. Partial Indemnification . If Indemnitee is entitled under any provision of this Agreement to indemnification by the Company for some or a portion of the expenses, judgments, fines or penalties actually or reasonably incurred by him or her in the investigation, defense, appeal or settlement of any civil or criminal action, suit or proceeding, but not, however, for the total amount thereof, the Company shall nevertheless indemnify Indemnitee for the portion of such expenses, judgments, fines or penalties to which Indemnitee is entitled.

6. Mutual Acknowledgement . Both the Company and Indemnitee acknowledge that in certain instances Federal law or applicable public policy may prohibit the Company from indemnifying its directors, officers and employees under this Agreement or otherwise. Indemnitee understands and acknowledges that the Company has undertaken or may be required in the future to undertake with the Securities and Exchange Commission to submit the question of indemnification to a court in certain circumstances for a determination of the Company’s right under public policy to indemnify Indemnitee.

7. Directors and Officers Liability Insurance . The Company shall, from time to time, make a good faith determination whether or not it is practicable for the Company to obtain and maintain a policy or policies of insurance with reputable insurance companies providing the directors, officers and employees of the Company or any subsidiary of the Company with coverage for losses from wrongful acts or to ensure the Company’s performance of its indemnification obligations under this Agreement. Among other considerations, the Company will weigh the costs of obtaining such insurance coverage against the protection afforded by such coverage. In all policies of directors’ and officers’ liability insurance, Indemnitee shall be named as an insured in such a manner as to provide Indemnitee the same rights and benefits as are accorded to the most favorably insured of the Company’s directors, if Indemnitee is a director; or the most favorably insured of the Company’s officers, if Indemnitee is not a director of the Company but is an officer of the Company or any subsidiary of the Company. Notwithstanding the foregoing, and subject to the Change in Control provisions of Section 22, the Company shall have no obligation to obtain or maintain such insurance if the Company determines in good faith that such insurance is not reasonably available, if the premium costs for such insurance are disproportionate to the amount of coverage provided, if the coverage provided by such insurance is limited by exclusions so as to provide an insufficient benefit or if Indemnitee is covered by similar insurance maintained by a subsidiary or parent of the Company.

8. Severability . Nothing in this Agreement is intended to require or shall be construed as requiring the Company to do or fail to do any act in violation of applicable law. The Company’s inability, pursuant to court order, to perform its obligations under this Agreement shall not constitute a breach of this Agreement. The provisions of this Agreement shall be severable as provided in this Section 8. If this Agreement or any portion hereof shall be invalidated on any

 

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ground by any court of competent jurisdiction, then the Company shall nevertheless indemnify Indemnitee to the fullest extent permitted by any applicable portion of this Agreement that shall not have been invalidated, and the balance of this Agreement not so invalidated shall be enforceable in accordance with its terms.

9. Exceptions . Any other provision herein to the contrary notwithstanding, the Company shall not be obligated pursuant to the terms of this Agreement:

(a) to indemnify or advance expenses to Indemnitee with respect to proceedings or claims initiated or brought voluntarily by Indemnitee and not by way of defense, except with respect to proceedings brought to establish or enforce a right to indemnification under this Agreement or any other statute or law or otherwise as required under Section 145 of the DGCL, but such indemnification or advancement of expenses may be provided by the Company in specific cases if the Board of Directors has approved the initiation or bringing of such suit; or

(b) to indemnify Indemnitee for any expenses incurred by Indemnitee with respect to any proceeding instituted by Indemnitee to enforce or interpret this Agreement, if a court of competent jurisdiction determines that each of the material assertions made by Indemnitee in such proceeding was not made in good faith or was frivolous; or

(c) to indemnify Indemnitee for expenses or liabilities of any type whatsoever (including, but not limited to, judgments, fines, ERISA excise taxes or penalties, and amounts paid in settlement) which have been paid directly to Indemnitee by an insurance carrier under a policy of directors and officers liability insurance maintained by the Company, its parent or any of its subsidiaries or under any statute, indemnity provisions, vote or otherwise; or

(d) for any reimbursement of the Corporation by such person of any bonus or other incentive-based or equity-based compensation or of any profits realized by such person from the sale of securities of the Corporation, as required in each case under the Securities Exchange Act of 1934, as amended, or any similar successor statute (the “Exchange Act”) (including any such reimbursements that arise from an accounting restatement of the Corporation pursuant to Section 304 of the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”), or the payment to the Corporation of profits arising from the purchase and sale by such person of securities in violation of Section 306 of the Sarbanes-Oxley Act), if such person is held liable therefor (including pursuant to any settlement arrangements); or

(e) to indemnify Indemnitee for an accounting or disgorgement of profits pursuant to Section 16(b) of the Exchange Act, or similar provisions of federal, state or local statutory law or common law, if such person is held liable therefor (including pursuant to any settlement arrangements); or

(f) to indemnify Indemnitee if prohibited by applicable law.

10. Construction of Certain Terms and Phrases .

(a) For purposes of this Agreement, references to the “Company” shall not include any constituent corporation absorbed in a consolidation or merger with the Company.

 

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(b) For purposes of this Agreement, references to “other enterprises” shall include employee benefit plans; and references to “serving at the request of the Company” shall include any service as a director, officer, employee or agent of the Company which imposes duties on, or involves services by, such director, officer, employee or agent with respect to an employee benefit plan or its participants or beneficiaries; and if Indemnitee acted in good faith and in a manner Indemnitee reasonably believed to be in the interest of the participants and beneficiaries of an employee benefit plan, Indemnitee shall be deemed to have acted in a manner “not opposed to the best interests of the Company” as referred to in this Agreement.

(c) For purposes of this Agreement, a “change in control of the Company” shall be deemed to have occurred if after the effective date: (i) as the result of, or in connection with, any cash tender or exchange offer, merger or other business combination, sale of all or substantially all of the assets or contested election, or any combination of the foregoing transactions, less than a majority of the combined voting power of the then-outstanding securities of the Company or any successor corporation or entity entitled to vote generally in the election of the directors of the Company or such other corporation or entity after such transaction is held in the aggregate by the holders of the securities of the Company entitled to vote generally in the election of directors of the Company immediately prior to such transaction; (ii) any person or entity, including a “group” (as defined in Section 13(d)(3) of the Exchange Act), other than the Company, any wholly-owned subsidiary of the Company, any employee benefit plan of the Company or any subsidiary of the Company, becomes the beneficial owner (as defined in Rule 13d-3 under the Exchange Act) of securities of the Company having 50% or more of the combined voting power of the then-outstanding securities of the Company that may be cast for the election of directors of the Company (other than as a result of an issuance of securities initiated by the Company in the ordinary course of business); (iii) during any period of two consecutive years, individuals who at the beginning of any such period constitute the directors of the Company cease for any reason to constitute at least a majority thereof unless the election, or the nomination for election by the stockholders of the Company, of each new director of the Company during such period was approved by a vote of at least two-thirds of such directors of the Company then still in office who were directors of the Company at the beginning of any such period; or (iv) the stockholders of the Company approve a plan of complete liquidation of the Company.

11. Counterparts . This Agreement may be executed in one or more counterparts, each of which shall constitute an original.

12. Successors and Assigns . This Agreement shall be binding upon the Company and its successors and assigns and shall inure to the benefit of Indemnitee and Indemnitee’s estate, heirs, legal representatives and assigns. The Company shall require and cause any successor (whether direct or indirect by purchase, merger, consolidation or otherwise) to all, substantially all or a substantial part of the business and/or assets of the Company, by written agreement in form and substance satisfactory to Indemnitee, expressly to assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform if no such succession had taken place.

13. Attorneys’ Fees . In the event that any action is instituted by Indemnitee under this Agreement to enforce or interpret any of the terms hereof, Indemnitee shall be entitled to be paid all court costs and expenses, including reasonable attorneys’ fees, incurred by Indemnitee with

 

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respect to such action, unless as a part of such action, the court of competent jurisdiction determines that each of the material assertions made by Indemnitee as a basis for such action was not made in good faith or was frivolous. In the event of an action instituted by or in the name of the Company under this Agreement or to enforce or interpret any of the terms of this Agreement, Indemnitee shall be entitled to be paid all court costs and expenses, including attorneys’ fees, incurred by Indemnitee in defense of such action (including with respect to Indemnitee’s counterclaims and cross-claims made in such action), unless as a part of such action the court determines that each of Indemnitee’s material defenses to such action was made in bad faith or was frivolous.

14. Notice . Except as provided in Section 3(b), all notices, requests, demands and other communications under this Agreement shall be in writing and shall be deemed duly given (i) if delivered by hand and receipted for by the party addressee, on the date of such receipt, or (ii) if mailed by domestic certified or registered mail with postage prepaid, on the third business day after the date postmarked. Addresses for notice to either party are as shown on the signature page of this Agreement, or as subsequently modified by written notice.

15. Consent to Jurisdiction . The Company and Indemnitee each hereby irrevocably consent to the jurisdiction of the courts of the State of Delaware for all purposes in connection with any action or proceeding which arises out of or relates to this Agreement and agree that any action instituted under this Agreement shall be brought only in the state courts of the State of Delaware.

16. Choice of Law . This Agreement shall be governed by and its provisions construed in accordance with the laws of the State of Delaware, as applied to contracts between Delaware residents entered into and to be performed entirely within Delaware without regard to the conflict of law principles thereof.

17. Period of Limitations . No legal action shall be brought and no cause of action shall be asserted by or in the right of the Company against Indemnitee, Indemnitee’s estate, spouse, heirs, executors or personal or legal representatives after the expiration of two years from the date of accrual of such cause of action, and any claim or cause of action of the Company shall be extinguished and deemed released unless asserted by the timely filing of a legal action within such two-year period; provided, however, that if any shorter period of limitations is otherwise applicable to any such cause of action, such shorter period shall govern.

18. Subrogation . In the event of payment under this Agreement, the Company shall be subrogated to the extent of such payment to all of the rights of recovery of Indemnitee, who shall execute all documents required and shall do all acts that may be necessary to secure such rights and to enable the Company effectively to bring suit to enforce such rights.

19. Retroactivity . This Agreement shall be deemed to have been in effect during all periods that Indemnitee was a director, officer or employee of the Company, regardless of the date of this Agreement.

20. Amendment and Termination . No amendment, modification, termination or cancellation of this Agreement shall be effective unless it is in writing signed by both of the

 

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parties hereto. No waiver of any of the provisions of this Agreement shall be deemed or shall constitute a waiver of any other provisions hereof (whether or not similar), nor shall such waiver constitute a continuing waiver.

21. Integration and Entire Agreement . Subject to the provisions of Section 4, this Agreement sets forth the entire understanding between the parties hereto and supersedes and merges all previous written and oral negotiations, commitments, understandings and agreements relating to the subject matter hereof between the parties hereto.

22. Change in Control . Notwithstanding any provision of this Agreement to the contrary, following the occurrence of a change in control of the Company:

(a) all determinations with respect to Indemnitee’s entitlement to indemnification and advancement of expenses shall, if requested by Indemnitee, be made by independent legal counsel selected by Indemnitee and reasonably acceptable to the Company, the determination of which shall be provided in writing to the Company and Indemnitee;

(b) Indemnitee shall be entitled to control the defense of any action, suit, proceeding or other matter with counsel of its own choosing reasonably acceptable to the Company, the reasonable fees and expenses of which shall be paid by the Company promptly as incurred; provided that the Company shall not be liable for any settlement of any such action, suit, proceeding or other matter by Indemnitee effected without the Company’s written consent, which consent shall not be unreasonably withheld, delayed or conditioned;

(c) the Company shall, for a period of six years after the date of the change in control, maintain in effect with reputable insurers a policy or policies of directors and officers liability insurance substantially equivalent (in terms of policy terms and levels of coverage) to the policy or policies maintained by the Company as of the date of the change in control with respect to claims arising from or relating to actions or omissions, or alleged actions or omissions, occurring on or prior to the date of the change in control; and

(d) the Company shall, for a period of six years after the date of the change in control, maintain in effect the provisions in its Certificate of Incorporation and Bylaws providing for exculpation of director, officer and employee liability and indemnification to the fullest extent permitted from time to time under the laws of the State of Delaware, which provisions shall not be amended except as required by applicable law or to make changes permitted by applicable law that would enlarge the scope of the Indemnitee’s indemnification rights hereunder.

[signature page follows]

 

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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written.

 

RUBICON TECHNOLOGY, INC.

a Delaware Corporation

By:    
Name:    
Title:    
Address for notice :
 
 


AGREED TO AND ACCEPTED:

 

INDEMNITEE:

By:    
Name:    
Title:    

Exhibit 10.12

COMMERCIAL LEASE

 

Date of Lease    Term of Lease    Base Rent:
December 23rd, 2004    See Paragraph 1 below    $282,000 per lease year, payable in equal monthly installments of $23,500
Purpose    Building    Premises:    Security Deposit:
See Paragraph 4   

Approximately

28,800 square feet

  

9901-9923 Franklin Avenue

Franklin Park, Illinois 60131

   $23,500

 

Lessee    Lessor
Name:    RUBICON TECHOLOGY, INC.    Name:    BARTMANNS, PERALES & DOLTER, LLC
Address:    9931 Franklin Avenue    Address:    1502 W. Fir
City, State, Zip:    Franklin Park, Illinois 60131    City, State, Zip    Perry, Oklahoma 73077
Telephone:    (847) 457-3610    Telephone:    (580) 336-0035

In consideration of the mutual covenants and agreements herein stated, Lessee hereby leases to Lessee and Lessee hereby leases from Lessor solely for the above purpose.

 

TERM    1. The Term of this Lease shall commence on the Commencement Date (as defined below) and end on the date immediately preceding the tenth (10 th ) anniversary date of the Commencement Date. As used in this Lease, “Commencement Date” shall mean the date which is thirty (30) days after the last to occur of (i) Lessor obtaining record title to the Premises, (ii) Lessee receiving a copy of the existing Phase I Environmental Report on the Property prepared by Noble & Associates, Inc., dated January 22, 2002, and the No Further Remediation Letter issued by the Illinois Environmental Protection Agency dated March 28, 2003, (iii) Lessee obtaining a certificate of occupancy for that portion of the Premises known as 9901 Franklin Avenue from appropriate governmental authorities, and (iv) Masterform Tools, Inc. vacates that portion of the Premises known as 9901 Franklin Avenue and the same are put in a “broom clean” condition ready for occupancy; provided, however, that notwithstanding the foregoing, so long as conditions (i) and (iv) have occurred, the Commencement Date shall be no later than June 1, 2005. Lessor shall use its best efforts to cause the occurrence of (i) above not later than April 30, 2005.
RENT    2. Lessee shall pay Lessor or Lessor’s agent as base rent for the Premises for each year of the term of this Lease the sum stated above, monthly on the first day of each month at Lessor’s address stated above or such other address as Lessor may designate in writing.

ADDITIONAL

RENT

   3. In addition to the base rent set forth in this Lease, Lessee shall also pay to Lessor as additional rent the sum of $250,000.00, payable in equal monthly installments of $2,083.33 throughout the term of this Lease on the first day of each month along with the base rent due hereunder; subject, however, to the provisions of Paragraph 10 of this Lease.

LEASED PREMISES;

USE

   4. The Premises shall include the rentable area of each of the buildings located 9901-9923 Franklin Avenue, Franklin Park, Illinois, 60131. The Premises shall be used only for manufacturing and general support office purposes, in compliance with all federal, state, and local laws, and for no other purpose.
SECURITY DEPOSIT    5. Lessee shall maintain a Security Deposit at all times during the term hereof with Lessor equal to one (1) month base rent (the “Security Deposit”). Lessee shall deposit the Security Deposit with Lessor within three (3) business days after the Commencement Date. The Security Deposit shall be held by Lessor as security for the faithful performance by Lessee of all the terms, covenants, and conditions of this Lease to be kept and performed by Lessee during the term hereof. If Lessee defaults with respect to any provisions of this Lease, including the provisions relating to the payment of rent, after the serving of any required notice and expiration of any applicable cure period, Lessor may, but shall not be required to use, apply or retain all or any part of this Security Deposit for the payment of any rent or any other sum in default, or to compensate Lessor for any other loss or damage which Lessor may suffer by reason of Lessee’s default. If any portion of such deposit is so used or applied, Lessee shall, within five days after written demand therefore, deposit cash with Lessor in an amount sufficient to restore the Security Deposit to its proper amount and Lessee’s failure to do so shall be a default under this Lease. Lessor shall not be required to keep this Security Deposit separate from its general funds, and Lessee shall not be entitled to interest on such deposit. If Lessee shall fully and faithfully perform every provision of this Lease to be performed by it, the Security Deposit or any balance thereof shall be returned to Lessee (or, at Lessor’s option, to the last assignee of Lessee’s interest hereunder) within 30 days following expiration of the Lease term. In the event of termination of Lessor’s interest in this Lease, Lessor shall transfer the deposit to Lessor’s successor in interest. The Security Deposit shall not be treated as an advance payment of rent.


ADDITIONAL CHARGES   

6. In addition to the Rent provided in this Lease, Lessee shall pay when due to appropriate third parties 100% of the following items (the “Additional Charges”) and shall produce at Lessor’s request proof of payment of the Additional Charges:

 

a. All real estate taxes and assessments including all water and sewer rents and other governmental impositions and charges of every kind and nature whatsoever, extraordinary, ordinary, foreseen and unforeseen, on the Premises, including land, building and improvements thereon. Notwithstanding anything to the contrary, at Lessor’s request, Lessee shall pay to Lessor each month a prorated amount of Real Estate Taxes, based upon the reasonable estimate of Lessor or its lender, which amount shall be applied toward the payment of Real Estate Taxes when due. Lessee may contest the amount of the Real Estate Taxes and/or the assessed value of the Premises in compliance with applicable laws so long as Lessee pays the Real Estate Taxes when due or posts adequate security for their payment so as to avoid any tax sale of the Premises.

 

b. All insurance premiums on the Premises, including all insurance premiums for fire, extended coverage, liability, and vandalism and malicious mischief endorsements and any other insurance and endorsements that Lessor reasonably deems necessary on the Premises and that is available to Lessee on a commercially reasonable basis. Notwithstanding anything to the contrary, at Lessor’s request, Lessee shall pay to Lessor each month a prorated amount of insurance premiums, based upon the reasonable estimate of Lessor or its lender, which amount shall be applied toward the payment of insurance premiums when due.

 

c. All costs to maintain, repair, supervise and administer common areas, parking lots, sidewalks, driveways, and other areas of the Premises including police and fire protection, all utility costs, landscaping, gardening, sound and music systems, if any, and personnel used in such operation as necessary to maintain the Premises in the same condition as when the Lease commenced, ordinary wear and tear excepted. The foregoing shall not require Lessee to pay any management, administrative or other charges to Lessor or any agent of Lessor.

 

d. Any parking charges, utilities, surcharges, or any other costs levied, assessed or imposed by, or at the direction of, or resulting from statutes or regulations, or interpretations thereof promulgated by any governmental authority in connection with the use or occupancy of the Building or the parking facilities servicing the Premises.

 

If Lessee fails to make any such payment within 15 days when due, Lessor shall have the right, but not the obligation to pay same and any such payment shall be included within Additional Rent hereunder.

FINAL CHARGES    7. Even though the term has expired and Lessee has vacated the Premises, when the final determination is made of Lessee’s share of said Additional Charges of the year in which the Lease terminates, Lessee shall immediately pay same.
UTILITIES    8. Lessee shall pay in addition to the rent above specified, all gas, heat, light, power, sewer charges, telephone service and all other services and utilities supplied to the Premises, together with any taxes thereon, and in case such water rents and bills for gas, electric light and power shall not be paid when due, Lessor shall have the right to pay the same, which amount so paid, together with any sums paid by Lessor to keep the Premises in a clean and health condition, as above specified, are declared to be so much additional rent and payable with the installment of rent next due thereunder. If any such services are not separately metered to Lessee, Lessee shall pay the aforementioned prorated share of all charges metered with other premises.
LATE CHARGES    9. Lessee hereby acknowledges that the late payment by Lessee to Lessor of rent or other sums due hereunder will cause Lessor to incur costs not contemplated by this Lease the exact amount of which will be extremely difficult to ascertain. Such costs include processing and accounting charges, and late charges which may be imposed upon Lessor by terms of any mortgage or trust deed covering the Premises. Accordingly, if any installment of Base Rent, Additional Rent, Additional Charges or any other sum due from Lessee shall not be received by Lessor or Lessor’s designee within five days of its due date or, if no due date is specified in this Lease, within five (5) days of demand from Lessor, Lessee shall pay to Lessor a late charge equal to five percent of such overdue amount plus any attorney’s fees incurred by Lessor by reason of Lessee’s failure too pay Rent and/or other charges when due hereunder and, if such payments remain unpaid for a period of thirty (30) days after written demand from Lessor, interest at the rate of 10% per annum. The parties hereby agree that such late charges represent a fair and reasonable amount of the cost that Lessor will incur by reason of the late payment by Lessee. Lessee hereby specifically waives all notice, demand and presentment for monthly Base Rent and Additional Rent (as defined in Section 3 above), except as expressly provided for herein. Acceptance of such late charges by the Lessor shall in no event constitute a waiver of Lessee’s default with respect to such overdue amount, not prevent Lessor from exercising any of the other rights and remedies granted hereunder.

 

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OPTION TO PURCHASE    10. Lessee shall have the option to purchase all, but not less than all, of the Premises at any time during the Lease Term after the first day of the 61 th month of the Lease Term and prior to the end of the Lease Tern, provided Lessee is not then in default under this Lease, which option is exercisable by written notice to Lessor not later than 120 days prior to such date. The Purchase Price under this option shall be the greater of (i) $1,200,000, or (ii) the fair market value of the Premises (as of the date of Lessee’s exercise of the option) as determined by an appraiser mutually agreeable to Lessor and Lessee, plus or minus standard prorations, payable in cash at closing. The parties agree to execute mutually acceptable documents, including a separate real estate purchase contract as may be reasonably necessary to consummate this transaction, which contract shall include terms and conditions consistent with this Lease and with customs prevailing in Chicago, Illinois for transactions of this type. Title shall be conveyed by recordable warranty deed and shall be free and clear of all liens and encumbrances except those arising from or imposed by applicable laws and ordinances, easements of record existing at the date of this Lease and taxes not yet due and payable. In the event Lessee exercises its option to purchase, Lessee further agrees to pay to Lessor in a lump sum, at closing of the purchase under the option, the total of all remaining monthly installments provided for in Paragraph 3 above for the unexpired portion of the 10 year Lease term.
LESSEE NOT TO MISUSE SUBLET; ASSIGNMENT    11. Lessee shall not keep or store on the Premises any flammable or explosive liquids or materials save such as may be necessary for use in the business of the Lessee, and in such case, any such substances shall be delivered and stored in amount, and used, in accordance with the rules of the applicable Board of Underwriters and statutes and ordinances now or hereafter in force. Lessee shall not do or permit anything to be done in or about the Premises nor bring or keep anything therein which will in any way increase the existing rate of & affect any fire or other insurance upon the Building or any of its contents, or cause a cancellation of any insurance policy covering the Building or any part thereof or any of its contents without the consent of Lessor and the amount of such increase, if any, shall be paid by Lessee to Lessor upon demand. Lessee will not load floors with machinery or goods beyond the floor load rating prescribed by applicable municipal ordinances and will not allow the Premises to be occupied in whole, or in part, by any other person, and will not sublet the same or any part thereof nor assign this Lease without in each case the prior written consent of the Lessor, which consent will not be unreasonably withheld or delayed by Lessor, and Lessee will not permit any transfer by operation of law the interest in the Premises acquired through this Lease. Lessee shall not do or permit anything to be done in or about the Premises which will in any way obstruct or interfere with the rights of other tenants or occupants of the Building or inure or annoy them or use or allow the Premises to be used for any improper, immoral, or unlawful purposes, nor shall Lessee cause, maintain or permit any nuisance in, on or about the Premises. Lessee shall comply with all governmental regulations, laws and ordinances relating to Lessor’s occupancy, use, repair and maintenance of the Premises and all equipment and contents contained therein. Lessee shall not commit or allow to be committed any waste in or upon the Premises. Lessee will not permit the same to remain vacant or unoccupied for more than ten consecutive days, and will not allow any sign (except for signage identifying Lessee’s business), cards or placards to be posted, or placed thereon.
MECHANIC’S LIEN    12. Lessee will not permit any mechanic’s lien or liens to be placed upon the Premises or the Building during the term hereof and in case of the filing of such lien, Lessee will promptly pay same, or, if Lessee desires to contest such lien, Lessee will deposit reasonably adequate security with Lessor. If default in payment thereof shall continue for 30 days after written notice thereof from Lessor to the Lessee, Lessee shall have the right and privilege at Lessor’s option of paying the same or any portion thereof without inquiry as to the validity thereof and any amounts so paid, including attorney’s fees, expenses and interest, shall be so much additional rent hereunder due from Lessee to Lessor and shall be immediately due and payable by Lessee to Lessor.
ALTERATIONS AND ADDITIONS    13. Lessee shall not paint any brick or concrete walls, columns or ceilings, and Lessee shall not make or allow to be made any alterations, additions or improvements to or of the Premises or any part thereof without the prior written consent of Lessor which shall not be unreasonably withheld and any alterations, additions or improvements to or of the Premises shall at once become a part of the realty and belong to the Lessor and shall be surrendered with the Premises. If Lessor consents to the making of any alterations, additions or improvements to the Premises by Lessee, the same shall be made by Lessee at Lessee’s sole cost and expense. Upon termination of this Lease, Lessor, at its sole option, and at Lessee’s sole cost and expense, may remove or require Lessee to remove certain alterations, additions, or improvements made by Lessee and repair any damage to the Premises caused by such removal, whether or not such were made with Lessor’s approval. Notwithstanding any term or provision in this Lease to the contrary, any special air-conditioning, water cooling, electricity-generating or other special equipment installed in or about the Premises by Lessee, however attached, shall be considered a trade fixture and the personal property of Lessee and may be removed by Lessee upon any termination of the Lease; provided that Lessee shall repair any damage caused by such removal.

 

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REPAIRS    14. By entry hereunder, Lessee shall be deemed to have accepted the Premises as being in good, sanitary order, condition and repair and acknowledges that no representations or warranties as to the conditions and repair thereof have been made by Lessor, or his agent other than those specifically set forth herein, if any, Lessee shall, at Lessor’s sole cost and expense, keep the Premises and every part thereof in good condition and repair, as well as in a good tenantable and wholesome condition. Lessee will, as far as commercially reasonably possible, keep said improvements from deterioration due to ordinary wear and from falling temporarily out of repair. If Lessee does not make repairs as required hereunder promptly and adequately, after at least five (5) days notice form Lessor, Lessor may, but need not make such repairs and pay the costs therefore and such costs shall be so much additional rent immediately due from and payable by Lessee to Lessor. Lessee shall, upon the expiration or sooner termination of the Lease, deliver the Premises to the Lessor in a broom clean condition, ordinary wear and tear excepted. Any damage to adjacent premises caused by Lessee’s use of the Premises shall be repaired at the sole cost and expense of Lessee. Lessor shall not be liable for any failure to make any repairs or to perform any maintenance. Lessee, at its sole option, shall carry such business interruption insurance as it deems advisable. There shall be no abatement of rent and no liability of Lessor by reason of any injury to or interference with Lessee’s business arising from the making of any repairs, alterations or improvements in or to any portion of the Building or the Premises or in or to fixtures, appurtenances and equipment therein. Lessee waives the right to make repairs at Lessor’s expense under any law, statute or ordinance now or hereafter in effect.

 

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HOLD HARMLESS   

15.

 

a. Lessee hereby indemnifies and holds forever harmless Lessor (for the purpose of this section only, the term “Lessor” shall include, if Lessor is an Illinois land trust, the Trustee, its agents, its beneficiary or beneficiaries and their agents, its beneficiary or beneficiaries and their respective directors, officers and employees, and any real estate broker involved in this transaction) from and against all liabilities, obligations, claims, damages, penalties, causes of action, cost and expenses, including reasonable attorneys’ fees and expenses imposed upon or incurred by or asserted against Lessor by reason of (i) any accident, injury to or death or persons or loss of or damage to property occurring on or about the leased premises or resulting from any act or omission of Lessee or anyone claiming by, through or under Lessee; (ii) any failure on the part of Lessee to perform or comply with any of the terms of this Lease; or (iii) performance of any labor or services or the finishing of any materials or other property in respect of the leased premises or any part thereof against and from any and all claims, obligations, damages, penalties, causes of action, cost and expenses imposed upon or incurred by Landlord arising from (i) Lessees’ use of the Premises or from the conduct of its business or from any activity, work or other things done, permitted or suffered by the Lessee in or about the Premises; or (ii) any breach or default in the performance of any obligation on Lessee’s part to be performed under the terms of this Lease; or (iii) from any act or negligence of the Lessee, or any officer, agent, employee, guest, or invitee of Lessee; or (iv) from all costs, attorney’s fees, and liabilities incurred in or about the defense of any such claim or any action or proceeding brought thereon and in case any action or proceeding be brought against Lessor by reason of such claim; or (v) from performance of any labor or services or the finishing of any materials or other property in respect of the leases premises or any part thereof. Lessee, upon notice from Lessor, shall defend the same at Lessee’s expense. Lessee as a material part of the consideration to Lessor hereby assumes all risk of damage to property or injury to persons in, upon or about the Premises, from any cause, except the negligence or willful acts of Lessor, and Lessee hereby waives all claims in respect thereof against Lessee. Lessor and its officers, partners, agents, affiliates and employees shall not be liable for any loss or damage to person or property resulting from fire, explosion, falling plaster, steam, gas, electricity, sprinkler, snow, ice, frost, excessive heat or cold, sewage, odors or noise, water or rain which may leak from any part of the Building or from the pipes, radiators, appliances or plumbing works therein or from the roof, street or subsurface or from any other place resulting from dampness or any other cause whatsoever, nor shall they be liable for interference with the light, air or for any latent defect in the Premises. Lessee shall give prompt notice to Lessor in case of casualty or accidents in the Premises. Lessor shall not be liable to supply heat, electric, water, or elevator service occasioned by the breaking down of machinery or equipment by strikes, accidents, unavoidable delays, or causes beyond the control of Lessor. In all events Lessor’s liability shall be limited to its equity in the Building and any available insurance proceeds.

 

b. Lessee will protect, indemnify and save harmless Lessor from and against all liabilities, obligations, claims, damages, penalties, causes of actions, costs and expenses, including reasonable attorneys’ fees and expenses, of whatever kind of nature, contingent or otherwise, know or unknown, incurred or imposed, based upon any statute, regulation or common law of Federal, state, or local government, pertaining to health, safety or environment protection and relating to, or resulting from, any environmental condition which is caused or contributed to by the use of occupancy of the leased premises by Lessee or any party claiming by, through or under Lessee. Lessor may conduct tests in and about the leased premises for the purpose of determining the presence of any environmental condition. If such tests indicate the presence of an environmental condition of caused or contributed to, Lessee shall, in addition to its other obligations hereunder, reimburse Lessor for the cost of conducting such test. The phrase “environmental condition” shall mean any adverse condition relating to surface water, ground water, drinking water supply, land, surface or pollutants, noise, vibration, light and odors. In the event of any such environmental condition, Lessee shall promptly and at its sole cost and expense, take any and all steps necessary to rectify the same, or shall, at Lessor’s election, reimburse Lessor for the cost to Lessor of performing rectifying work. The reimbursement shall be paid to Lessor in advance of Lessor performing such work. Based upon Lessor’s reasonable estimate of the cost thereof and upon completion of such work by Lessor, Lessee shall pay to Lessor any shortfall promptly after Lessor bills Lessee therefore, or Lessor shall promptly refund to Lessee any excess deposit as the case may be. Lessor will protect, indemnify, defend and save harmless Lessee from and against all liabilities, obligations, claims, damages, penalties, causes of actions, costs and expenses, including reasonable attorneys’ fees and expenses, of whatever kind of nature, contingent or otherwise, known or unknown, incurred or imposed, based upon any statute, regulation or common law of Federal, state, or local government, pertaining to health, safety or environment protection and relating to, or resulting from, any environmental condition which exists on, in or under the Premises as of the date of this Lease.

 

c. In case any action, suit or proceeding is brought against Lessor by reason of any occurrence described in this Section and for which Lessee is obligated to indemnify Lessor, Lessee will, at Lessee’s sole cost and expense, by counsel reasonably approved by Lessor, resist and defend such action, suit or proceeding, or cause the same to be resisted and defended. The obligation of Lessee under this section shall survive the expiration of earlier termination of this Lease.

SECURITY INTEREST    16. Intentionally Omitted.

 

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LIABILITY INSURANCE    17. Lessee, at Lessee’s expense, shall obtain and keep in force during the term of this Lease a policy of comprehensive public liability insurance satisfactory to Lessor insuring Lessor and Lessee against any liability arising out of the ownership, use, occupancy or maintenance of the Premises and all areas appurtenant thereto. Such insurance shall be in the amount of not less than $2,000,000.00 for injury or death of one person in any one accident or occurrence and in the amount of not less than $5,000,000.00 for injury or death of more than one person in any one accident or occurrence. Such insurance shall further insure Lessor and Lessee against liability for property damage of at least $100,000.00. The limit of any such insurance shall not, however, limit the liability of the Lessee hereunder. Lessee may provide this insurance under a blanket policy, provided that said insurance shall have a Lessor’s protective liability endorsement attached thereto. If Lessee shall fail to procure and maintain said insurance, Lessor may, but shall not be required to, procure and maintain same, but at the expense of Lessee. Lessee shall deliver to Lessor, prior to right of entry, copies of policies of liability insurance required herein or certificates evidencing the existence and amounts of such insurance with loss payable clauses satisfactory to Lessor. No policy shall be cancelable or subject to reduction of coverage without 30 days’ prior written notice to Lessor. All such policies shall be written as primary policies and not in contribution with and not in excess of coverage which Lessor may carry, and shall provide for payment of loss to Lessor notwithstanding any act or negligence of Lessee which might otherwise result in forfeiture of said insurance.
ENTRY BY LESSOR    18. Lessor reserves, and shall at any and all reasonable times with reasonable advance written notice have, the right to enter the Premises to inspect the same, to exhibit the Premises to prospective purchasers or tenants, to post notices of non-responsibility, to repair the Premises and any portion of the Building of which the Premises are a part that Lessor may deem necessary or desirable, without abatement of rent or any Additional Charges, and may for that purpose erect scaffolding and other necessary structures where reasonably required by character of the work to be performed. Provided that Lessor employs reasonable measures to minimize the disturbance to Lessee’s business, Lessee hereby waives any claim for damages or for any injury or inconvenience to or interference with Lessee’s business, any loss of occupancy or quiet enjoyment of the Premises, and any other loss occasioned thereby. For each of the aforesaid purposes, Lessor shall at all times have and retain a key with which to unlock all of the doors in, upon and about the Premises, excluding Lessee’s files, and Lessor shall have the right to use any and all means which Lessor may deem proper to open said doors, in an emergency, in order to obtain entry to the Premises without liability to Lessee, except for any failure to exercise due care for Lessee’s property and any entry to the Premises obtained by Lessor by any said means, or otherwise shall not under any circumstances be construed or deemed to be a forcible or unlawful entry into, or a detainer of the Premises, or any eviction of Lessee from the Premises or any portion thereof.
ABANDONMENT AND RELETTING    19. If Lessee shall abandon or vacate the Premises, or if Lessee’s right to occupy the Premises be terminated by Lessor by reason of Lessee’s breach of any of the covenants herein, the same may be relet by Lessor for such rent and upon such terms as Lessor may deem fit, subject to Illinois statute;; and if a sufficient sum shall not thus be realized monthly, after paying the expenses of such reletting and collecting to satisfy the rent and Additional Charges hereby reserved, Lessee agrees to satisfy and pay all deficiency monthly during the remaining period of this Lease.

HOLDING

OVER

   20. Lessee will, at the termination of this Lease by lapse of time or otherwise, yield up immediate possession to Lessor, and failing to do so, will pay as liquidated damages, for the whole time such possession is withheld, one and a half times the monthly rent prorated on a per day basis. The provisions of this clause shall not be held as a waiver by Lessor of any right of re-entry as hereinafter set forth, nor shall the receipt of said liquidated damages or any part thereof, or any other act in apparent affirmance of tenancy, operate as a waiver of the right to forfeit this Lease and the term hereby granted for the period still unexpired, for a breach of any of the covenants herein.
LESSEE’S DEFAULT   

21. The occurrence of any one or more of the following events shall constitute a default and breach of this Lease by Lessee.

 

a. The vacating or abandonment of the Premises by Lessee.

 

b. The failure by Lessee to make any payment of Rent or any other payment required to be made by Lessee hereunder, as and when due, where such failure shall continue for a period of ten days after written notice thereof by Lessor to Lessee.

 

c. The failure by Lessee to observe or perform any of the covenants, conditions or provisions of this Lease to be observed or performed by Lessee, other than Rent and those provisions described in paragraph 3 above, where such failure shall continue for a period of thirty days after written notice hereof by Lessor to Lessee; provided, however, that if the nature of Lessee’s default is such that more than thirty days are reasonably required for its cure, then Lessee shall not be deemed to be in default if Lessee commences such cure within such fourteen day period and thereafter diligently prosecutes such cure to completion.

 

d. The making by Lessee of any general assignment or general assignment for the benefit of creditors or the filing by or against Lessee of a petition to having Lessee adjudged a bankrupt, or a petition of reorganization or arrangement under any law relating to bankruptcy unless, in the case of a petition filed against Lessee, the same is dismissed within 60 days; or the appointment of a trustee or a receiver to take possession of substantially all of Lessee’s assets located at the premises or of Lessee’s interest in the Lease where possession is not restored to Lessee within 60 days; or the attachment, execution or other judicial seizures of substantially all of Lessee’s assets located at the Premises or of Lessee’s interest in this Lease, where such seizure is not discharged within 30 days.

 

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REMEDIES IN DEFAULT    22. Lessor may at any time subsequent to a default or breach of this Lease terminate Lessee’s right to possession of the Premises without terminating the Lease, and Lessee shall immediately surrender possession of the Premises to Lessor. Upon and after entry into possession without termination of this Lease, Lessor shall use reasonable efforts to relet the Premises or any part thereof for the account of Lease to any person, firm or corporation other than Lessee, for such rent, and upon such terms as Lessor in Lessor’s sole discretion shall determine. Lessor shall not be required to accept any tenant offered by Lessee or to observe any instructions given by Lessee about such reletting. Such termination or possession shall not relieve Lessee of its obligation to pay all rent and Additional Charges due under this Lease until the earlier of the expiration of the Lease term or the date upon which a substitute Lessee commences paying rent in an amount equal to or greater than Lessee’s rent. In such event, Lessor shall be entitled to recover from Lessee all damages incurred by Lessor by reason of Lessee’s default including, the cost of recovering possession of the Premises; expenses of reletting including necessary renovation and alteration of the Premises; expenses of removing any alterations, additions or improvements made by Lessee to the Premises and repairing any damage to the Premises caused by such removal, whether or not such alterations, additions or improvements where approved by Lessor; reasonable attorney’s fees; the worth at the time of judgment by which the unpaid rent and other charges and Additional Charges called for herein for the balance of the full term of the Lease exceeds the amount of such loss for the same period that Lessee proves could be reasonably avoided; and that portion of any leasing commission paid by Lessor and applicable to the unexpired term of the Lease. Unpaid installments of rent or other sums shall bear interest from the date due at a rate equal to five percent over the prime rate of interest charged from time to time by Lessor’s principal financial institution. Upon the election of the Lessor it shall pursue any other remedy or hereafter available to Lessor under the laws or judicial decisions in the State in which the Premises are located.
NO SET OFF    23. Lessee’s covenant to pay rent is and shall be independent of each and every other covenant of this Lease. Lessee agrees that any claim by Lessee against Lessor shall not be deducted from rent nor set off against any claim for rent in any action.
PAYMENT OF COSTS    24. Lessee will pay and discharge all reasonable costs, attorney’s fees and expenses that shall be made and incurred by Lessor in enforcing the covenants and agreements of this Lease.
FIRE AND CASUALTY    25. In case the Premises shall be rendered untenantable during the term of this Lease by fire or other casualty, Lessor at its option may terminate this Lease or repair the Premises within 120 days thereafter. If Lessor elects to repair, this Lease shall remain in effect provided such repairs are completed within such time with rent abated to the extent the Premises are untenantable. If Lessor shall not have repaired the Premises within said time, then at the end of such time the term hereby created shall terminate. If this Lease is terminated by reason of fire or casualty as herein specified, rent shall be apportioned and paid to the day of such fire or casualty.
SUBORDINATION    26. This Lease is subordinate to all mortgages which may now or hereafter affect the Premises. The Lessee shall execute any Subordination Agreement requested by Lessor from time to time so long as it does not give the Mortgagee the right to cancel this Lease if Lessee is not in default hereunder.
WAIVER    27. The waiver by Lessor of any term, covenant or condition herein contained shall not be deemed to be a waiver of such term, covenant or condition or any subsequent breach of the same or any other term, covenant or condition herein contained. The subsequent acceptance of Rent or Additional Charges hereunder by Lessor shall not be deemed to be a waiver of any preceding default by Lessee of any term, covenant or condition of this Lease, other than the failure of the Lessee to pay the particular rental so accepted, regardless of Lessor’s knowledge of the acceptance of such Rent or Additional Charges. It is further agreed by the parties hereto, that after the service of notice, or the commencement of a suit or after final judgment for possession of the Premises, Lessor may receive and collect any rent due, and the payment of said rent shall not waive or affect said notice, said suit, or said judgment.
HEADINGS    28. The headings are not a part of this Lease and shall have no effect upon the construction or interpretation of any part hereof.
TIME    29. Time is of the essence of this Lease and each and all of its provisions in which performance is a factor.
SUCCESSORS AND ASSIGNS    30. The words “Lessor” and “Lessee” wherever herein occurring and used shall be construed to mean “Lessors” and “Lessees” in case more than one person constitutes either party to this Lease and the covenants and conditions herein contained, subject to the provisions as to assignment, apply to and bind the heirs, successors, executors, administrators and permitted assigns of the parties hereto.
PRIOR AGREEMENTS    31. This Lease contains all of the agreements of the parties hereto with respect to any matter covered or mentioned in this Lease, and no prior agreements or understanding pertaining to any such matters shall be effective for any purpose. No provisions of this Lease may be amended or added to except by an agreement in writing signed by the parties hereto or their respective successors in interest.
SEVERABILITY    32. Any provision of this Lease which shall prove to be invalid, void, or illegal shall in no way affect, impair or invalidate any other provision hereof and such other provisions shall remain in full force and effect. This Lease and the obligations of the Lessee hereunder shall not be affected or impaired because the Lessor is unable to fulfill any of its obligations hereunder or is delayed in doing so. If such liability or delay is caused by reason of strike, labor troubles, acts of God, or any other cause beyond the reasonable control of the Lessor.
CUMULATIVE REMEDIES    33. No remedy or election hereunder shall be deemed exclusive but shall, wherever possible, be cumulative with all other remedies at law or in equity.
CHOICE OF LAW    34. This Lease shall be governed by the laws of the State of Illinois. Lessee and Lessor hereby jointly consent to the jurisdiction of the State of Illinois.

 

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SALE OF PREMISES BY LESSOR    35. In the event of any sale of the Building or the Premises by Lessor and provided that the option set forth in Section 8 shall continue to apply to the contract purchaser, Lessor shall be and is hereby entirely freed and relieved of all liability under any and all of its covenants and obligations contained in or derived from this Lease arising out of any act, occurrence or omission occurring after the consummation of such sale; and the purchaser, at such sale or any subsequent sale of the Building or the Premises shall be deemed, without any further agreement between the parties or their successors in interest or between the parties and any such purchaser, to have assumed and agreed to carry out any and all of the covenants and obligations of the Lessor under this Lease.
EMINENT DOMAIN    36. In the event that any portion of the Building is condemned, taken or appropriated by any public or quasi-public authority under governmental power of eminent domain, Lessor shall have the right to cancel this Lease or continue this Lease with the rent abated to the extent of the square footage taken. In the event of any taking or appropriation whatsoever, Lessor shall be entitled to any and all awards and/or settlements. Lessee shall have no claim against Lessor for the value of any unexpired term of this Lease, and Lessee hereby waives all right and claim against such proceeds.
NOTICES    37. All notices and demands which may or are to be required or permitted to be given by either party on the other hereunder shall be in writing and shall be deemed given when personally delivered or, five days after mailing by certified mail, postage prepaid, addressed to either party as set forth in the heading of this Lease, or the addresses set forth below, or as designated from time to time in notice pursuant to this paragraph.
PARKING    38. If parking spaces are provided as set forth in the heading hereof, Lessee hereby assumes all risks relating to use of the parking lot and shall indemnify Lessor against any claims or damages caused to Lessee or its property on or about the parking lot.
ESTOPPEL LETTER    39. Lessee shall, within five business days of Lessor’s request, deliver to Lessor a letter from Lessee affirming the enforceability by Lessor of this Lease or identifying any defaults by Lessor hereunder which might affect such enforceability.
GUARANTY    40. Intentionally Omitted.

FINANCIAL

STATEMENTS

   41. Intentionally Omitted.
AUTHORITY; BINDING EFFECT    42. Lessee represents and warrants to Lessor that, (i) Lessee is a Delaware corporation, duly organized, validly existing and in good standing under the laws of such state, and is in good standing and validly authorized to do business in the state in which the Premises are located; (ii) Lessee has all requisite power, authority and legal right to enter into and perform this Lease, and (iii) the person executing this Lease has been duly authorized by all necessary corporate action to execute this Lease on half of Lessee, and once executed by such person, shall be a binding and enforceable agreement upon Lessee, its successors and assigns. The person executing this Lease represents and warrants to Lessor that he or she is the officer of Lessee they purport to be, and that they have been duly authorized to execute this Lease on behalf of Lessee.

SPECIAL

CONDITIONS

   43. Lessor and Lessee acknowledge that, at the time of execution of this Lease, (i) the current record title owner of the Premises is Franklin Park, LLC (“Franklin”), (ii) the Premises are currently leased to Masterform Tools, Inc. (“Masterform”) pursuant to a certain Commercial Lease dated November 18, 2002 with a term expiring on November 17, 2007 (the “Master Lease”), (iii) Masterform currently subleases that portion of the Premises known as 9919-9923 Franklin Avenue to Lessee pursuant to a certain Industrial Building Lease dated December 4, 2003 with a term expiring on March 18, 2005 (the “Sublease”), (iv) Masterform, under the terms of the Master Lease, holds an option to purchase the Premises from Franklin (the “Option”), and (v) Lessor does not yet own record title to the Premises or have any leasehold interest in the Premises. Lessor and Lessee further acknowledge that, after the execution of this Lease, Masterform will be assigning its right, title and interest in the Option to Lessor, and Lessor will be exercising such Option. Therefore, Lessor and Lessee hereby agree Lessee’s right, title or interest in and to the Premises pursuant to this Lease shall be contingent upon Lessor’s acquiring record title to the Premises pursuant to its exercise of the Option. As soon as practical after execution of this Lease and prior to Lessor’s exercise of the Option, Lessor agrees to cause Masterform to execute, and Lessee agrees to also execute, an amendment to the Sublease extending the term of such Sublease until the earlier to occur of (A) Lessor acquires record title to the Premises and the Commencement Date under this Lease is established, or (B) until 30 days after Lessor has provided written notice to Lessee that Lessor has determined (in its sole discretion) not to consummate the purchase of the Premises pursuant to the Option. In the event Lessor shall notify Lessee of its election not to purchase the Premises, neither party hereto shall have any further obligation under this Lease.

IN WITNESS WHEREOF, Lessor, Lessee and the Guarantors have executed this Lease, including any exhibits or schedules attached hereto as of the day and year first above written.

LESSOR

 

BARTMANNS, PERALES & DOLTER, LLC
By:  

/s/ Bob Bartmanns

Title:   Manager

 

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LESSOR’S ACKNOWLEDGMENT

 

STATE OF Okla   )  
  )   ss.
COUNTY OF Tulsa   )  

This instrument was acknowledged before me on Dec. 30, 2004, by Bob Bartmanns as Manager of BARTMANNS, PERALES & DOLTER, LLC , an Oklahoma limited liability company.

 

  [Notary Seal]       /s/ Gloria J. Mitchell
        Notary Public

My Commission Expires:                                              

Commission No.:                                                  

 

LESSEE   LESSEE
Name: RUBICON TECHNOLOGY, INC.   Name:
Address: 9931 Franklin Avenue   Home Address:
City, State, Zip: Franklin Park, IL 60131   City, State, Zip:
Telephone: (847) 457-3610   Home Telephone:
  Signature:

 

By:  

/s/ Joe Cox

Name:  

Joe Cox IV

Title:   President/ Vice President

LESSEE’S ACKNOWLEDGMENT

 

STATE OF                         )  
  )   ss.
COUNTY OF                     )  

This instrument was acknowledged before me on Dec. 23, 2004, by Joe Cox as President / Vice President of Rubicon Technology, Inc., a(n) corporation.

 

        /s/ Scott Glickson
        Notary Public

My Commission Expires:                                              

Commission No.:                                                                                                                [Notary Seal]

 

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Exhibit 10.12(a)

AMENDMENT TO COMMERCIAL LEASE

This AMENDMENT TO COMMERCIAL LEASE (the “Amendment”) is effective as of the 6th day of May, 2005 by and between BARTMANNS, PERALES & DOLTER, LLC (“Lessor” or “BP&D”) and RUBICON TECHNOLOGY, INC. (“Lessee” or “Rubicon”).

PRELIMINARY STATEMENTS

1. Rubicon is the lessee of certain premises described as 9901-9923 Franklin Avenue, Franklin Park, Illinois (the “Premises”) pursuant to a certain Commercial Lease dated December 23, 2004 (the “Lease”) for a term of ten years commencing with the Commencement Date (as defined in the Lease).

2. Rubicon desires to extend the Commencement Date of the Term, and Rubicon has agreed to make certain monetary payments to BP&D and to perform certain repairs, at Rubicon’s expense, required by the Village of Franklin Park as consideration for BP&D’s extending of the Commencement Date.

3. BP&D and Rubicon desire to amend the Lease as set forth herein.

NOW, THEREFORE, in consideration of the foregoing, and in consideration of the mutual obligations and benefits to be derived by the parties hereto, and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto hereby agree as follows:

1. Preliminary Statements . The Preliminary Statements set forth above are hereby incorporated by reference as a material part of this Amendment and shall not be deemed mere recitals.

2. Term . BP&D and Rubicon hereby amend the Lease by deleting Paragraph 1 of the Lease in its entirety and inserting in its place as a new Paragraph 1 the following:

“1. The term of this Lease shall commence on the Commencement Date (as defined below) and end on the date immediately preceding the tenth (10 th ) anniversary of the Commencement Date. As used in this Lease, “Commencement Date” shall mean August 1, 2005. Prior to the Commencement Date, the following shall have occurred: (i) Lessor obtaining record title to the Premises, (ii) Lessee receiving a copy of the existing Phase I Environmental Report on the Property prepared by Noble & Associates, Inc., dated January 22, 2002, and the No Further Remediation Letter issued by the Illinois Environmental Protection Agency dated March 28, 2003, (iii) Lessee obtaining a temporary certificate of occupancy for that portion of the Premises known as 9901 Franklin Avenue from appropriate governmental


authorities, and (iv) Masterform Tools, Inc. vacating that portion of the Premises known as 9901 Franklin Avenue and the same are put in a “broom clean” condition ready for occupancy. In the event that the foregoing conditions (i) through (iv) is not satisfied by July 31, 2005, Lessor agrees to refund to Lessee the Security Deposit.”

3. Security Deposit . BP&D and Rubicon hereby amend Paragraph 5 of the Lease by deleting the second sentence thereof and replacing it with the following as a new second sentence of Paragraph 5:

“Lessee shall deposit the Security Deposit in the amount of $23,500 with Lessor on May 6, 2005.”

4. Repairs Required by the Village of Franklin Park . BP&D and Rubicon hereby amend the Lease by inserting as a new Paragraph 44 to the Lease the following:

“44.

a. Lessor and Lessee acknowledge that the Village of Franklin Park has required certain repairs to the Premises pursuant to its pre-sale inspection as set forth on Exhibit “A” attached hereto. In addition to Lessee’s other repair and maintenance obligations set forth elsewhere in this Lease, Lessee hereby agrees, at Lessee’s sole expense, to promptly perform those repairs set forth on Exhibit “B” attached hereto after the Commencement Date of this Lease to the satisfaction of the Village of Franklin Park (as determined by an inspection of the Premises by the Village of Franklin Park after completion of such repairs). The repairs set forth on Exhibit “B” are a portion of the repairs set forth on Exhibit “A” .

b. Lessor agrees, at Lessor’s expense, to perform those repairs to the Premises set forth on Exhibit “A” which are not set forth on Exhibit “B” by July 31, 2005.”

5. Condition Precedent . A condition precedent to the effectiveness of this Amendment is Rubicon’s payment to “BP&D” on or before May 6, 2005 the sum set forth in Paragraphs 3 of this Amendment in the amount of $23,500.

6. Remainder of Lease; Binding Effect . Except as specifically modified by this Amendment, the provisions of the Lease shall remain in full force and effect, unchanged or modified by this Amendment. This Amendment shall be binding upon and inure to the benefit of the parties hereto, their respective successors and permitted assigns.

 

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7. Counterparts . This Amendment may be executed in any number of counterparts and by the different parties hereto on separate counterparts, each of which when so executed and delivered shall be an original document, but all of which counterparts shall together constitute one and the same instrument. This Amendment shall not be effective unless and until executed by all parties hereto.

IN WITNESS WHEREOF, the parties hereto have executed this Amendment on the day and year first written above, the corporate party or parties by its or their proper officers thereto duly authorized.

 

“BP&D”

Bartmanns, Perales & Dolter, LLC.

    an Oklahoma limited liability company

By:  

/s/ Bob Bartmann

  Bob Bartmann, Manager
“RUBICON”
Rubicon Technology, Inc.
    a(n) Delaware corporation
By:  

/s/ Hap Hewes

Name:   Hap Hewes
Title:   Senior Vice-President - Operations

 

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Exhibit 10.13

INDUSTRIAL SPACE LEASE

THIS LEASE, made and entered into in Chicago, Illinois as of this 29 day of July, 2005 by and between Rubicon Technology, Inc. (“Tenant”), and Radion Mogilevsky and Nanette Mogilevsky (“Landlord”);

W I T N E S S E T H :

1. Basic Terms . This Section 1 contains the basic terms of the Lease between Landlord and Tenant. All other provisions of this Lease are to be read in accordance with the provisions herein contained.

 

A.      Commencement Date:    August 1, 2005
B.      Termination Date:    July 31, 2010
C.      Monthly Rent:    $10,000.00 (with annual increases of 6%)
D.      Use:    Office and manufacturing of crystals
E.      Tenant’s Mailing Address:    9931 Franklin Avenue
        Franklin Park, Illinois
F.      Landlord’s Mailing Address:    1491 Littlefield Court Lake Forest Illinois, 60045
        Attention: Radion Mogilevsky

2. Lease of Premises and Term . Landlord hereby leases to Tenant, and Tenant hereby accepts the premises, consisting of the land and improvements commonly known as 9931 Franklin Avenue, Franklin Park, Illinois (“Premises”), commencing on the Commencement Date set forth in Section 1 hereof and continuing for a period of five (5) years thereafter and terminating on the Termination Date (“Term”).

3. Rent . Tenant shall pay the Monthly Rent set forth in Section 1 to Landlord at the address set forth in Section 1 hereof or to such other person or at such other place as Landlord may direct in writing, in advance on or before the first day of each month of the term. Monthly Rent, together with all other amounts due hereunder, are sometimes referred to as “Rent.” In the event the Commencement Date or the Termination Date is a day other than the first day of a month, Rent shall be prorated based on the number of days remaining in such month. Except with respect to those obligations for which Landlord is specifically made responsible hereunder, this Lease is intended to be a “net lease” with Tenant responsible for all costs relating to the Premises, including but not limited to repair and maintenance costs and insurance premiums.

4. Utilities/Taxes .

A. Tenant shall pay, directly to the appropriate supplier, all costs of all natural gas, electricity, heat, light, power, sewer service, telephone, water, refuse disposal and other utilities and services supplied to the Premises. Landlord shall not in any way be liable or responsible to Tenant for any loss or damage or expense which Tenant may sustain or incur if either the quantity or character of such service is changed or is no longer available or suitable for Tenant’s requirements. Within one (1) week after Landlord’s request therefor, but in any event on a monthly basis not more often than once in any calendar quarter, Tenant shall deliver copies of the utility bills together with evidence of the full and timely payment of such utility bills.

 

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B. Tenant shall pay all real estate taxes (the “Taxes”) levied or assessed against the Premises that are due and payable during the Term. Landlord shall deliver copies of all bills for the Taxes and Tenant shall pay the Taxes prior to the due date therefore. Promptly after payment Tenant shall provide Landlord with receipts for or other satisfactory evidence of payment of the Taxes. Tenant may pay such taxes “under protest” or otherwise contest the amount of such bills so long as Tenant complies with the statutory provisions for doing so and the taxes are not considered delinquent and so long as Tenant provides Landlord with security, reasonably satisfactory to Landlord, that the unpaid taxes will be paid at the conclusion of the protest or other contest.

5. Condition of Premises . Tenant is currently in possession of the Premises and is deemed to have accepted possession of the Premises in the order and condition as now exists. No promise of Landlord to alter, remodel, decorate, clean or improve the Premises has been made by Landlord to Tenant nor has Landlord made any representation respecting the condition of the Premises.

6. Care and Maintenance . Tenant shall, at Tenant’s own expense, keep and maintain the roof and structural members of the building in which the Premises are in good order and repair and in full compliance with all laws and ordinances applicable to the Premises, ordinary wear and tear and loss by fire or other casualty excepted; provided, however, except to the extent caused by the negligence or intentional misconduct of Tenant, Tenant shall not be required to replace the roof or make structural repairs the cost of which is reasonably estimated to exceed $100,000. In addition, Tenant shall, at Tenant’s own expense, keep the Premises, parking areas, sidewalk, landscaping and all other areas associated with the Premises in good order, condition and repair. Tenant shall promptly arrange with Landlord, at Tenant’s sole expense, for the repair of all damage to the Premises and for the maintenance, replacement or repair of the Premises, with materials equal in quality and class to the materials in place as of the Commencement Date. If Tenant does not promptly make such arrangements, after fifteen (15) days of notice to Tenant specifying the work Landlord believes is required and Tenant’s continued failure to make such repairs or replacements (except in the case of an emergency when no notice shall be required), Landlord may, but need not, make such repairs and replacements and one hundred twenty-five percent (125%) of Landlord’s cost for such repairs and replacements shall be deemed Additional Rent reserved under this Lease due and payable forthwith.

7. Alterations . Tenant shall not make any structural alterations (not including ordinary repairs or replacements) to the Premises or to any of the major building systems serving the Premises without Landlord’s prior written consent in each and every instance, which will not be unreasonably withheld or delayed. When considering a request by Tenant for approval of an alteration, Landlord shall grant its approval if the alteration is necessary, in Tenant’s reasonable opinion, for the operation of Tenant’s business, will not adversely affect the structural elements or the major building systems serving the Premises, and will be removable upon a termination of the Lease, it being understood and agreed by Tenant that it must, at the termination of the Lease, remove such alterations and repair any damage caused by such alteration or the removal of the alteration. Landlord acknowledges that Tenant made alterations to the Premises during the term of the prior lease of the Premises between Landlord and Tenant and Landlord hereby accepts such alterations and waives any claim that it may have or may have had with respect to such alterations.

8. Access to Premises . Tenant shall permit Landlord, its agents and designees, to have free access to the Premises and any part thereof upon 24 hours’ notice to Tenant, except in the event of an

 

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emergency when no advance notice shall be necessary but Landlord shall use its reasonable efforts to notify (which may be verbally) Tenant of the need for such access. Landlord or Landlord’s agents shall have the right to enter upon the Premises to inspect the same and to make such repairs to the Premises that Tenant is required to make hereunder, but has not, as provided in Section 6 above, and Landlord shall be allowed to take all material into and upon said Premises as may be required therefor without the same constituting an eviction of Tenant. Rent shall not abate while said repairs are being made. Nothing herein contained, however, shall be deemed or construed to impose upon Landlord any obligations, responsibilities or liabilities whatsoever for the care, supervision or repair of the Premises or any part thereof in the exercise of any rights herein provided.

9. Insurance . During the entire Term hereof Tenant shall carry commercial general liability insurance and casualty insurance (on a full replacement cost basis) and otherwise in such amounts and with such companies as may be reasonably acceptable to Landlord and, absent a material change in Tenant’s operations, in line with the coverages maintained by Tenant with Landlord’s approval under the previous lease of the Premises between Tenant and Landlord. All such policies shall insure Tenant, and insure Landlord as an additional named insured as its interests may appear.

10. Subrogation . Tenant agrees to have all fire and extended coverage and material damage insurance which may be carried by it endorsed with a clause providing that any release from liability of or waiver of claim for recovery from Landlord entered into in writing by the insured thereunder prior to any loss or damage shall not affect the validity of said policy or the right of the insured to recover thereunder, and providing further that the insurer waives all rights of subrogation which such insurer might have against Landlord. Without limiting any release or waiver of liability or recovery contained in any other Section of this Lease, Tenant waives all claims for recovery from Landlord, any beneficiaries of Landlord and the managing agent for the Premises and their respective agents, partners and employees, for any loss or damage to any of its property insured under valid and collectible insurance policies to the extent of any recovery collectible under such insurance policies. Notwithstanding the foregoing or anything contained in this Lease to the contrary, any release or any waiver of claims shall not be operative, nor shall the foregoing endorsements be required, in any case where the effect of such release or waiver is to invalidate insurance coverage or invalidate the right of the insured to recover thereunder or increase the cost thereof (provided that in the case of increased cost the other party shall have the right, within ten (10) days following written notice, to pay such increased cost, thereby keeping such release or waiver in full force and effect).

11. Casualty . If the Premises or the Building are damaged by fire or other casualty, Tenant shall repair, restore or rehabilitate the Building or the Premises at Tenant’s expense, using, to the extent available, any insurance proceeds payable as a result of the fire or other casualty; provided, however, that if more than 25% of the Premises are rendered untenantable as a result of such fire or other casualty, then Landlord may elect to terminate this Lease by delivering written notice to Tenant within sixty (60) days of such damage. If such fire or other casualty shall render more than 25% of the Premises untenantable during the last year of the term of this Lease or if all the proceeds from insurance are not made available to Tenant by Landlord or Landlord’s mortgagee, Tenant may elect to terminate this Lease by delivering notice to Landlord within sixty (60) days of the date of such fire or casualty. If this Lease is terminated pursuant to these provisions, Rent shall be apportioned on a per diem basis and paid to the date of the fire or other casualty.

 

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12. Eminent Domain

A. If a portion of the Building or the Premises shall be lawfully taken or condemned for any public or quasi-public use or purpose, or conveyed under threat of such condemnation and as a result thereof the Premises cannot be used for the same purpose and with the same utility as before such taking or conveyance, the terms of this Lease shall end upon, and not before, the date of the taking of possession by the condemning authority, and without apportionment of the award. Tenant hereby assigns to the Landlord, Tenant’s interest in such award, if any. Current rent shall be apportioned as of the date of such termination. If any part of the Building shall be so taken or condemned, or if the grade of any street or alley adjacent to the Building is changed by any competent authority and such taking or change of grade makes it necessary or desirable to demolish, substantially remodel, or restore the Building, the Landlord shall have the right to cancel this Lease upon not less than ninety (90) days’ prior notice to the date of cancellation designed in the notice.

B. If a portion of the Premises shall be lawfully taken or condemned or conveyed under threat of condemnation but thereafter the Premises can be used by Tenant for the same purpose and with substantially the same utility, this Lease shall not be terminated and Landlord shall repair the Premises (but Landlord shall not be required to expend more on such repair than the amount of the condemnation award), and the Lease shall be amended to equitably reduce the Base Rent. No money or other consideration shall be payable by the Landlord to the Tenant for any right of cancellation or temporary taking, and the Tenant shall have no right to share in any condemnation award or to share in any judgment for damages caused by a change of grade.

13. Tenant’s Indemnity and Waiver . Tenant will protect, indemnify and save Landlord, its partners, shareholders, employees, officers, directors, agents, and their respective successors and assigns harmless from and against all liabilities, obligations, claims, damages, penalties, causes of action, costs and expenses (including without limitation, reasonable attorney’s fees and expenses) imposed upon, incurred by or asserted against Landlord by reason of: (a) any accident, injury to or death of persons or loss of or damage to property occurring on or about the Premises or any part thereof or the adjoining properties, sidewalks, curbs, streets or ways, or resulting from an act or omission of Tenant or anyone claiming by through or under Tenant; (b) any failure on the part of Tenant to perform or comply with any of the terms of this Lease or any other agreements affecting the Premises; (c) the use, occupation, condition or operation of the Premises or any part thereof; or (d) performance of any labor or services or the furnishing of any materials or other property in respect of the Premises or any part thereof. In case any action, suit or proceeding is brought against Landlord by reason of any such occurrence, Tenant will, at Tenant’s sole expense, resist and defend such action, suit or proceeding, or cause the same to be resisted and defended.

Tenant waives all claims it may have against Landlord and Landlord’s agents for damage or injury to person or property sustained by Tenant or any persons claiming through Tenant or by any occupant of the Premises, or by any other person, resulting from any part of the Premises becoming out of repair, or resulting from any accident on or about the Premises or resulting directly or indirectly from any act or neglect of any person, including Landlord to the extent permitted by law.

This Section 13 shall include, but not by way of limitation, damage caused by water, snow, frost, steam, excessive heat or cold, sewage, gas, odors or noise, or caused by bursting or leaking pipes or plumbing fixtures, and shall apply equally whether any such damage results from the act or neglect of Tenant or of any other person, including Landlord to the extent permitted by law, and whether such damage be caused or result from anything or circumstance above mentioned or referred to, or to any other thing or circumstance whether

 

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of a like nature or of a wholly different nature. All personal property belonging to Tenant or any occupant of the Premises shall be there at the risk of Tenant or of such other person only, and Landlord shall not be liable for any damage thereto or for the theft or misappropriation thereof.

14. Assignment/Subletting . Tenant shall not, without Landlord’s prior written consent, which in each instance, may be withheld at the sole discretion of Landlord: (i) assign, transfer or convey this Lease or any interest under it; (ii) allow any transfer of, or any lien upon, Tenant’s interest in this Lease by operation of law; (iii) sublet the Premises in whole or in part; or (iv) allow the use or occupancy of any portion of the Premises by anyone other than Tenant or Tenant’s employees; provided that, in the event of a sale of substantially all of the assets of Tenant to a buyer having a net worth in excess of that of Tenant and intending to use the Premises for substantially the same use as Tenant’s, Tenant shall notify Landlord of such sale and provide reasonable evidence of the buyer’s net worth but no consent by Landlord shall be required.

15. Subordination/Estoppel . Landlord may execute and deliver a mortgage (“Mortgage”) against the Premises or any interest therein. This Lease and the rights of Tenant hereunder shall be and are hereby made expressly subject and subordinate at all times to the lien of any Mortgage now or hereafter encumbering any portion of the Premises, and to all advances made or hereafter to be made upon the security thereof. Tenant agrees to execute and deliver such instruments subordinating this Lease to the lien of any such Mortgage as may be requested in writing by Landlord from time to time. Tenant further agrees to execute and deliver to Landlord (within twenty (20) days of a request therefore) an estoppel letter, in reasonable form, requested by Landlord, any lender, any potential purchaser of the Premises, or any other party reasonably requesting an estoppel letter. Tenant’s failure to execute any requested subordination instrument or estoppel letter shall be a default hereunder.

16. Certain Rights Reserved to Landlord . Landlord reserves and may exercise the following rights without affecting Tenant’s obligations hereunder:

A.

B. To retain at all times pass keys to the Premises and all areas within the Premises, it being understood and agreed by Tenant that it shall, as of the Commencement Date, provide Landlord with pass keys to the Premises and all areas within the Premises and that Tenant shall immediately provide Landlord with new pass keys if locks are added or changed after the Commencement Date; provided that Landlord shall, except where otherwise expressly provided in this Lease, in all instances where Landlord desires access to the Premises, Landlord shall provide the notice required in Section 8 of this Lease and shall use its reasonable efforts to disturb Tenant’s operations as little as possible;

C. Subject to the notice requirement in Section 8 of this Lease, to exhibit the Premises and display “For Rent” and “For Sale” signs on the Premises;

D. Subject to Sections 6 and 8 of this Lease, to take any and all measures, including inspections and repairs to the Premises, as may be necessary or desirable for the safety, protection or preservation of the Premises or Landlord’s interests in the Premises;

E. To enter upon the Premises and exercise any or all rights herein reserved without being deemed guilty of an eviction or disturbance of Tenant’s use or possession and without being

 

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liable in any manner to Tenant and without abatement of rent and without affecting any of Tenant’s obligations hereunder; and

F. To sell, assign or transfer this Lease.

17. Landlord’s Remedies .

A. Each of the following shall constitute a breach of this Lease by Tenant: (i) Tenant fails to pay any installment or other payment of Rent or any other charges required to be paid when due and such failure continues for five (5) days after notice form Landlord; (ii) Tenant fails to observe or perform any of the other covenants, conditions or provisions of this Lease to be observed or performed by Tenant and fails to cure such default within thirty (30) days after written notice thereof to Tenant; provided that, in the case of any such failure that is not reasonably curable within thirty (30) days, no breach shall have occurred so long as Tenant is diligently proceeding with its efforts to cure such failure and it is cured within sixty (60) days; (iii) the interest of Tenant in this Lease is levied upon under execution or other legal process; (iv) a petition is filed by or against Tenant to declare Tenant bankrupt or seeking a plan of reorganization or arrangement under any Chapter of the Bankruptcy Act, or any amendment, replacement or substitution therefor, or to delay payment of, reduce or modify Tenant’s debts, or any petition is filed or other action taken to reorganize or modify Tenant’s capital structure or upon the dissolution of Tenant; (v) Tenant is declared insolvent by law or any assignment of Tenant’s property is made for the benefit of creditors; a receiver is appointed for Tenant or Tenant’s property; or (vi) Tenant abandons the Premises.

B. In the event of any breach of this Lease by Tenant, Landlord may, at its option and without notice or demand to Tenant and in addition to all other rights and remedies provided in this Lease at law or in equity, terminate this Lease and Tenant’s right of possession of the Premises, and recover all damages to which Landlord is entitled under law, specifically including, without limitation, all Rent for the balance of the Term. In the event Landlord terminates this Lease or Tenant’s right to possession of the Premises, Landlord shall use its commercially reasonable efforts to procure a new tenant for the Premises so as to mitigate damages that may be suffered by Landlord or Tenant.

C. Tenant shall pay upon demand, all costs and expenses, including reasonable attorneys’ fees, incurred by Landlord in enforcing the observance and performance by Tenant of all covenants, conditions and provisions of this Lease to be observed and performed by Tenant, or resulting from Tenant’s default under this Lease. All references in this Lease to Landlord’s attorneys’ fees shall be deemed to include all legal assistants’ and paralegals’ fees and shall include all fees incurred through all post-judgment and appellate levels and in connection with bankruptcy proceedings.

18. Surrender of Possession . Upon the termination of this Lease whether by forfeiture, lapse of time or otherwise, or upon the termination of Tenant’s right to possession of the Premises, Tenant will at once surrender and deliver up the Premises to Landlord, broom clean, in good order, condition and repair, reasonable wear and tear excepted. “Broom clean” means free from all debris, dirt, rubbish, personal property of Tenant, oil, grease, tire tracks or other substances, inside and outside of the Premises. Any damage caused by removal of Tenant from the Premises, including any damages caused by removal of tenant’s equipment, shall be repaired and paid for by Tenant prior to the expiration of the Term.

 

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All alterations temporary or permanent, excluding tenant’s equipment, in or upon the Premises placed there by Tenant, shall become Landlord’s property and shall remain upon the Premises upon termination of this Lease by lapse of time or otherwise, without compensation or allowance or credit to Tenant, unless Landlord requests their removal. If Landlord so requests removal of said additions, hardware, alterations or improvements and Tenant does not make such removal by the termination of this Lease, or within ten (10) days after such request, whichever is later, Landlord may remove the same and deliver the same to any other place of business of Tenant or warehouse same, and Tenant shall pay the cost of such removal, delivery and warehousing to Landlord on demand. Tenant shall repair any injury or damage to the Premises which may result from such removal. If Tenant does not remove tenant’s equipment from the Premises prior to the end of the Term, however ended, Landlord may, at its option, remove the same and deliver the same to any other place of business of Tenant or warehouse the same, and Tenant shall pay the cost of such removal (including the repair of any injury or damage to the Premises resulting from such removal), delivery and warehousing to Landlord on demand, or Landlord may treat tenant’s equipment as having been conveyed to Landlord with this Lease as a Bill of Sale, without further payment or credit by Landlord to Tenant.

19. Holdover . If Tenant retains possession of the Premises or any part thereof after the termination of the Term, by lapse of time, termination of this Lease, termination of Tenant’s right to possession under this Lease, or otherwise then Tenant shall pay to Landlord monthly rent, at double the rate payable for the month immediately preceding said holding over, computed on a per-month basis, for each month or part thereof (without reduction for any such partial month) that Tenant thus remains in possession, and in addition thereto, Tenant shall pay Landlord all damages, consequential as well as direct, sustained by reason of Tenant’s retention of possession. The provisions of this paragraph do not exclude the Landlord’s rights of re-entry or any other right hereunder or at law, except that Landlord may not elect to treat any holding over as a renewal of this Lease for an additional term of one (1) year unless Tenant holds over for more than thirty (30) days after the termination of the Term (as provided in the first sentence of this Section 19).

20. Covenant Against Liens . Tenant has no authority or power to cause or permit any lien or encumbrance of any kind whatsoever, whether created by act of Tenant, operation of law or otherwise, to attach to or be placed upon Landlord’s title or interest in the Premises and any liens and encumbrances created by Tenant shall attach to Tenant’s interest only. Tenant covenants and agrees not to suffer or permit any lien of mechanics or materialmen or others to be placed against the Premises or the land on which the is Premises are located with respect to work or services claimed to have been performed for or materials claimed to have been furnished to Tenant or the Premises, and in case of any such lien attaching, immediately to cause it to be released.

21. Miscellaneous .

A. The words “Landlord” and “Tenant” wherever used in the Lease shall be construed to mean plural where necessary, and the necessary grammatical changes required to make the provisions hereof apply either to entities or individuals or to men or women shall in all cases be assumed as though in each case fully expressed. The term “Tenant” shall include Tenant’s agents, employees, contractors, officers, invitees, successors and others using the Premises with the express or implied permission of Tenant.

B. Each provision hereof shall extend to and shall, as the case may require, bind and inure to the benefit of Landlord and Tenant and their respective heirs, legal representatives, successors and

 

7


assigns in the event this Lease has been assigned with the express written consent of Landlord; provided, however, this provision shall not be construed to permit any assignment or subletting by Tenant. This Lease supersedes and cancels the previous lease between the parties for the Premises and each party hereby acknowledges and agrees that, as of the date of this Lease, no conditions or circumstances exist which are in violation of this Lease or which would allow the party to claim that the other party is in breach or default of any term, covenant, agreement or provision of this Lease. Further, each party waives and releases any claims it may have or ever have had against the other arising out of the previous lease between them and agrees that the execution of this Lease is, at least in part, in full and complete satisfaction of any such claims either party may have. Notwithstanding the foregoing, Tenant shall, simultaneously with the execution and delivery of this Lease, pay to Landlord the attorneys’ fees and expenses incurred by Landlord in connection with Landlord’s efforts to enforce the terms of the previous lease between Landlord and Tenant.

C. Anything to the contrary herein contained notwithstanding, there shall be no personal liability on persons, firms or entities which constitute Landlord or its agents, partners or beneficiaries with respect to any of the terms, covenants, conditions and provisions of this Lease, and Tenant shall, subject to the rights of any mortgage, look solely to the interest of Landlord, its successors and assigns in the Premises for the satisfaction of each and every remedy of Tenant in the event of default by Landlord hereunder; such exculpation of personal liability is absolute and without any exception whatsoever. Tenant further agrees that no other assets of Landlord, wherever situate, shall be subject to levy, execution or other process for the satisfaction of Tenant’s judgment and that Landlord shall not be liable for any deficiency.

D. Landlord’s title is and always shall be paramount to the title of Tenant, and nothing herein contained shall empower Tenant to do any act which can, shall or may encumber such title.

E. The laws of the State of Illinois shall govern the validity, performance and enforcement of this Lease.

F. If any term, covenant or condition of this Lease or application thereof to any person or circumstance shall, to any extent, be invalid or unenforceable, the remainder of this Lease, or the application of such term, covenant or condition to persons or circumstances other than those as to which it is held invalid or unenforceable, shall not be affected thereby and each term, covenant or condition of this Lease shall be valid and be enforced to the fullest extent permitted by law.

G. Landlord has no obligation pursuant to this Lease except as expressly provided for herein. The references to “Landlord” in this Lease shall be limited to mean and include only the owner or owners, at the time, of the fee simple interest in the Premises. In the event of a sale or transfer of such interest (except a mortgage or other transfer as security for a debt), the “Landlord” named herein, or, in the case of a subsequent transfer, the transferor, shall, after the date of such transfer, be automatically released from all liability for the performance or observance of any term, condition, covenant or obligation required to be performed or observed by Landlord hereunder; and the transferee shall be deemed to have assumed all of such terms, conditions, covenants and obligations.

H. This Lease sets forth all the covenants, promises, agreements, conditions and understandings between Landlord and Tenant concerning the Premises and there are no covenants, promises, agreements, conditions, or understandings, either oral or written, between them other than herein set forth,

 

8


except as herein otherwise provided, no subsequent alteration, amendment, change or addition to this Lease shall be binding upon Landlord or Tenant unless reduced to writing and signed by them.

I. The Premises shall be used for the Use only, and for no other purpose. Tenant shall not use or occupy the Premises or permit the Premises to be used or occupied contrary to any statute, rule, order, ordinance, requirement, regulation or restrictive covenant applicable thereto or in any manner which would violate any certificate of occupancy affecting the same or which would render the insurance thereon void or the insurance risk more hazardous, or which would cause structural injury to the improvements or cause the value or usefulness of the Premises or any part thereof to diminish or which would constitute a public or private nuisance or waste, and Tenant agrees that it will, promptly upon discovery of any such use, take all necessary steps to compel the discontinuance of such use.

J.

K. The preparation of this Lease has been a joint effort of the parties hereto and the resulting documents shall not, solely as a matter of judicial construction, be construed more severely against one of the parties than the other. Notwithstanding anything in this Lease to the contrary, with respect to any provision of this Lease which requires Landlord’s consent or approval, Tenant shall not be entitled to make, nor shall Tenant make, any claim for (and Tenant hereby waives any claim for) money damages as a result of any claim by Tenant that Landlord has unreasonably withheld or unreasonably delayed any consent or approval, but Tenant’s sole remedy shall be an action or proceeding to enforce such provision, or for specific performance, injunction or declaratory judgment.

L. Tenant agrees that it will not use, handle, generate, treat, store or dispose of, or permit the use, handling, generation, treatment, storage or disposal of any Hazardous Materials in, on, under, around or above the Premises now or at any future time other than in strict accordance with applicable law and will indemnify, defend and save Landlord harmless from any and all actions, proceedings, claims, costs, expenses and losses of any kind, including, but not limited to, those arising from injury to any person, including death, damage to or loss of use or value of real or personal property, and costs of investigation and cleanup or other environmental remedial work, which may arise in connection with the existence of Hazardous Materials on the Premises during the term hereof. The term “Hazardous Materials,” when used herein, shall include, but shall not be limited to, any substances, materials or wastes that are regulated by any local governmental authority, the state where the Premises is located, or the United States of America because of toxic, flammable, explosive, corrosive, reactive, radioactive or other properties that may be hazardous to human health or the environment, including asbestos and including any materials or substances that are listed in the United States Department of Transportation Hazardous Materials Table, as amended 49 C.F.R. 172.101, or in the Comprehensive Environmental Response, Compensation and Liability Act, as amended 42 U.S.C. subsections 9601 et   seq. , or the Resources Conservation and Recovery Act, as amended, 42 U.S.C. subsections 6901, et seq. or any other applicable governmental regulation imposing liability or standards of conduct concerning any hazardous, toxic or dangerous substances, waste or material, now or hereafter in effect.

Tenant does hereby indemnify, defend and hold harmless Landlord and its agents and their respective officers, directors, beneficiaries, shareholders, partners, agents and employees from all fines, suits, procedures, claims and actions of every kind, and all costs associated therewith (including attorneys’ and consultants’ fees) arising out of or in any way connected with any deposit, spill, discharge or other release of

 

9


Hazardous Materials that occurs during the term of this Lease, at or from the Premises, or which arises at any time from Tenant’s use or occupancy of the Premises, or from Tenant’s failure to provide all information, make all submissions, and take all steps required by all applicable governmental authorities. Tenant’s obligations and liabilities under this paragraph shall survive the expiration or termination of this Lease.

M. Tenant agrees to deposit with Landlord, upon the execution of this Lease, the amount of Thirty Thousand Dollars ($30,000.00) (the “Security Deposit”) as security for the full and faithful performance by Tenant of each and every term, provision, covenant and condition of this Lease. If Tenant defaults in respect to any of the terms, provisions, covenants and conditions of this Lease including, but not limited to, payment of all Rent required to be paid by Tenant hereunder, Landlord may use, apply or retain the whole or any part of the Security Deposit for the payment of such Rent in default, for any sum which Landlord may expend or be required to expend by reason of Tenant’s default including, without limitation, any damages or deficiency in the reletting of the Premises, whether such damages or deficiency shall have accrued before or after re-entry by Landlord. If any of the Security Deposit shall be so used, applied or retained by Landlord at any time or from time to time, Tenant shall promptly, in each such instance, on written demand therefor by Landlord, pay to Landlord such additional sums as may be necessary to restore the Security Deposit to the original amount set forth in the first sentence of this section. If Tenant shall fully and faithfully comply with all the terms, provisions, covenants and conditions of this Lease, the Security Deposit, or the balance thereof, shall be returned to Tenant after the following: (a) the time fixed as the expiration of the Term; (b) the removal of Tenant from the Premises; (c) the surrender of the Premises by Tenant to Landlord in accordance with this Lease; and (d) final determination of all amounts payable by Tenant hereunder and payment of same. Except as otherwise required by law, Tenant shall not be entitled to any interest on the aforesaid Security Deposit. In the absence of evidence satisfactory to Landlord of an assignment of the right to receive the Security Deposit or the remaining balance thereof, Landlord may return the Security Deposit to the original Tenant, regardless of one or more assignments of this Lease.

N. Tenant agrees to reimburse Landlord, upon the execution of this Lease, the amount of Landlord’s legal fees and expenses in connection with the preparation of this Lease.

22. Quiet Enjoyment . Subject to the provisions of this Lease, Landlord covenants that Tenant, on paying the rent and performing the covenants of this Lease on its part to be performed, shall and may peaceably have, hold and enjoy the Premises for the Term.

23. Notices . All notices, consents, approvals to or demands upon or by Landlord or Tenant desired or required to be given under the provisions hereof, shall be in writing. Any notices or demands required hereunder shall be deemed to have been duly and sufficiently given if a copy thereof has been personally served, forwarded by expedited messenger or recognized overnight courier service with evidence of delivery or mailed by United States registered or certified mail in an envelope properly stamped and addressed to such party at the address set forth in Section 1 of this Lease. Copies of all notices to Landlord shall be delivered to Neal J. White, McDermott Will & Emery LLP, 227 West Monroe Street, Chicago, Illinois 60606.

24. Right of First Refusal . Landlord hereby grants to Tenant a right of first refusal (the “Right of First Refusal”) to purchase the Premises on the terms of this Section 24. If Landlord receives an offer to purchase the Premises (an “Offer”) from an unrelated third party that Landlord is prepared to accept, then Landlord shall deliver a copy of the Offer to Tenant and Tenant shall have five (5) business days within which to elect to

 

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purchase the Premises on the same terms as contained in the Offer. Tenant shall make such election, if at all, by delivering written notice thereof to Landlord within said five (5) business day period. If Tenant makes such election, then Tenant shall be deemed to be the purchaser in the Offer and Landlord and Tenant shall proceed to close the purchase and sale of the Premises pursuant to the Offer. If Tenant does not make such election or fails to deliver notice of its election in a timely manner, then Tenant shall be deemed to have not exercised the Right of First Refusal and the Right of First Refusal shall terminate and be of no further force or effect. If Tenant makes the election and breaches its obligation to acquire the Premises, such breach shall constitute a breach of this Lease as well as a breach of such contract to purchase.

IN WITNESS WHEREOF, this Instrument has been duly executed by the parties hereto, as of the day and year first above written.

 

LANDLORD :     RADION MOGILEVSKY and NANETTE MOGILEVSKY
    /s/ Radion Mogilevsky
    Radion Mogilevsky
    /s/ Nanette Mogilevsky
    Nanette Mogilevsky
TENANT :     RUBICON TECHNOLOGY, INC.
    By:   /s/ Hap Hewes
    Its:   VP Operations

 

11

Exhibit 10.14

 

INDUSTRIAL BUILDING LEASE

Between:

PHILLIP J. LATORIA, JR., Lessor

and

RUBICON TECHNOLOGY, INC., Lessee

 


TABLE OF CONTENTS

 

1. Base Rent
2. Optional Lease Period
3. Security Deposit
4. Lessor’s Agent
5 Lessee: Repairs and Other Covenants Regarding Care of Premises
6. Lessor’s Repairs
7. Alterations
8. Lessee Not to Misuse; Sublet; Assignment
9. Mechanic’s Lien
10. Indemnity for Accidents
11. Non-Liability of Lessor
12. Utilities
13. Water
14. HVAC Equipment
15. Access to Premises
16. Failure to Yield Immediate Possession
17. Extra Fire Hazard
18. Default
19. Abandonment of Premises
20. Subordination; Estoppel Certificate
21. Fire and Casualty
22. Payment of Fees
23. Notice
24. Insurance
25. Parking
26. Waiver
27. Inspection
28. Environmental Compliance and Indemnification Agreement
29. Snow Removal
30. Safety and Health Compliance
31. Quiet Possession
32. Trade Fixtures
33. Signage
34. Additional Space
35. Condemnation
36. Building Rules and Regulations
37. Rite of First Refusal
38. Miscellaneous

 


DATE OF LEASE    TERM OF LEASE (“Term”)

July 18, 2007

   BEGINNING: July 12, 2007 (“Commencement Date”)
   ENDING: June 30, 2014 (“Expiration Date”)

 

 


LOCATION OF PREMISES: 900 Green Street, Bensenville, Illinois 60106, consisting of approximately _30,500_ square feet, the legal description of which is attached hereto as Exhibit A.

 

 


USE: The premises shall be used for Manufacturing and Office.

 


 

                LESSEE                    LESSOR
NAME:   Rubicon Technology, Inc.    NAME:   Philip J. Latoria, Jr.
ADDRESS:  

9931 Franklin Ave.

Franklin Park, Illinois 60131

   ADDRESS:  

3707 King George Lane

St. Charles, Illinois 60174

PHONE:   847 295 7000    PHONE:   630 587 4267
FAX:   847 295 0932    FAX:   630 587 4268

In consideration of the mutual covenants and agreements herein stated, Lessor hereby leases to Lessee and Lessee hereby leases from Lessor solely for the above purpose the premises designated above (the “Premises”), together with the appurtenances thereto and the improvement made or to be made by Lessor pursuant to Exhibit A attached hereto, for the above Term; provided, however, that, Lessee shall have access to the Premises upon execution of this lease by Lessor and may begin construction of the improvements to be made by it and the placement of its equipment and furnishings in the Premises.

BASE RENT

1. Lessee shall pay Lessor or Lessor’s agent as rent for the Premises the following amount:

 

Year

  

Monthly

  

Total

July 17, 2007 to July 31, 2007

   $10,215.80    $10,215.80

August 1, 2007 to June 30, 2008

   $22,620.84    $248,829.24

July 1, 2008 to June 30, 2009

   $23,994.42    $279,593.00

July 1, 2009 to June 30, 2010

   $23,998.33    $287,280.00

July 1, 2010 to June 30, 2011

   $24,718.25    $296,619.00

July 1, 2011 to June 30, 2012

   $25,462.42    $305,517.00

July 1, 2012 to June 30, 2013

   $26,223.50    $314,682.00

July 1, 2013 to June 30, 2014

   $27,010.17    $324,122.00

The Lessee shall pay additional Rent in the amount of all real estate taxes assessed against the subject property in excess of the greater of (i) $1.10 per foot on an annual basis and (ii) the real estate


taxes levied on the subject property for the first year in which the improvements on the property are full assessed by the DuPage County Assessor (the “Tax Stop”). Any additional rent for tax payments shall be due in full 15 days after the Lessee is in receipt of the Lessor’s request for payment, which request for payment shall also include a copy of the bill for which the additional rent is being charged. This additional rent shall be billed in May and August unless the real estate tax bills are delayed. Lessor shall promptly deliver to Lessee copies of all notices received by Lessor relating to the real estate taxes on the Premises. Lessee shall have the right to contest any assessment at its own expense but, if the taxes are reduced below the Tax Stop, the cost shall be equitably shared by Lessor.

All rent shall be paid by Lessee to Lessor monthly in advance on the first day of every calendar month, at the address shown in paragraph 4, or such other place as Lessor may designate in writing from time to time. All rent shall be paid without prior demand or notice and without any deduction or offset whatsoever. All rent shall be paid in lawful currency of the United States of America.

All rent due for any partial month shall be prorated at the rate of 1/30th of the total monthly rent per day. Lessee acknowledges that late payment by Lessee to Lessor of any rent or other sums due under the lease will cause Lessor to incur costs not contemplated by this Lease, the exact amount of such cost being extremely difficult and practical to ascertain. Such costs include, without limitation, processing and accounting charges, and late charges that may be imposed on Lessor by the terms of any encumbrance or note secured by the Premises. Therefore, if any rent or other sum due from Lessee is not received by the tenth day of the month, Lessor may charge Lessee, and Lessee shall pay, an additional sum of five hundred ($500.00) dollars. Lessor and Lessee hereby agree that such late charge represents a fair and reasonable estimate of the costs that Lessor will incur by reason of any such late payment and that the late charge is in addition to any and all remedies available to the Lessor and that the assessment and/or collection of the late charge shall not be deemed a waiver of any other default. Additionally, all such delinquent rent or other sums, plus this late charge, shall bear interest at the lesser of 12% per annum or the then maximum lawful rate permitted to be charged by Lessor, whichever is greater. Any payments of any kind returned for insufficient funds will be subject to an additional handling charge of $50.00, and thereafter, Lessor may require Lessee to pay all future payments of rent or other sums due by money order or cashier’s check.

OPTIONAL LEASE PERIOD

2. There shall be 3 one year options to extend this lease at the following rates:

 

July 1, 2014 to June 30, 2015

   $ 27,820.42    $ 333,845.00

July 1, 2015 to June 30, 2016

   $ 28,655.00    $ 343,860.00

July 1, 2016 to June 30, 2017

   $ 29,514.59    $ 354,175.00

To exercise the option to extend this lease for an additional year, the Lessee shall give written notice at least nine (9) full months before the expiration of the current lease term. All other terms of this lease shall be in full force and effect during any option period.

SECURITY DEPOSIT

3. Lessee shall deposit with Lessor the sum of $25,000, as security for the full and faithful performance of the terms of this Lease. Such amount shall be deposited in a savings or money market account at a federally insured bank in the Chicagoland area for the mutual benefit of Lessor and Lessee and, at least annually, Lessor shall pay to Lessee the amount of interest earned on the amount on deposit. In the event default shall be made in payment of rent or other sums required to be made by Lessee or default shall be made by Lessee in the performance of any of the other covenants, agreements or conditions by it to be


kept and performed hereunder, Lessor may, at its election, after notice and the expiration of any applicable cure period with such default being uncured, apply the funds so deposited in payment of Rent or other sums due hereunder or in remedying any other default hereunder. Within sixty (60) days after the expiration of the tenancy, provided Lessee shall not be in default, Lessor shall return to Lessee such portion of said deposit then remaining, with any earned but unpaid interest.

The security deposit shall not be utilized as the last month’s rental.

The Lessee shall be granted full access to the building upon the execution of this Lease and upon depositing the security deposit provided for above with the Lessor.

LESSOR’S AGENT

4. Phillip J. Latoria, Jr. is hereby designated as Lessor’s Agent for all purposes under this lease and the rent specified hereunder shall be payable to Phillip J. Latoria and shall be mailed to:

Phillip J. Latoria, Jr.

3707 King George Lane

St. Charles, Illinois 60174

LESSEE REPAIRS AND OTHER COVENANTS REGARDING CARE OF PREMISES

5. Lessor warrants and represents to Lessee that Lessor has no knowledge of any defects in construction, materials or operation of the premises, including the structure, the HVAC systems and the utilities serving the premises and that, as of the date hereof, the premises are in compliance with all applicable laws and ordinances. Lessee has examined and knows the condition of the Premises and has received the same in good order and repair, and acknowledges that no representations as to the condition and repair thereof have been made by Lessor, or his agent, prior to or at the execution of this lease that are not herein expressed; Lessee shall in addition to all other covenants and obligations specified herein keep the Premises in a clean and healthful condition according to the applicable municipal ordinances and the direction of the proper public officers during the term of this lease at Lessee’s expense, and upon the termination of this lease, in any way, will yield up the Premises to Lessor, in good condition and repair, loss by fire and ordinary wear and tear excepted, and will deliver the keys therefor at the place of payment of said rent.

Lessee shall, at its own expense and cost, keep and maintain all parts of the Premises in good condition, promptly making all necessary repairs and replacements, including but not limited to Exterior of the building, all landscaping, the parking lot, windows, window cleaning inside and outside, glass and plate glass, doors, any special office entry, interior walls and finish work, light bulbs, fluorescent lighting bulbs and ballasts, floor covering, HVAC system, hot water heater and, electrical distribution within the Premises, plumbing work and fixtures, blockages of sewer lines within the Premises, all fixtures, appurtenances, equipment and mechanical apparatus within the demised premises, daily removal of spoilable interior trash and at least one weekly exterior trash removal keeping the whole of the Premises in a clean and sanitary condition.

Lessee shall promptly comply with all laws and ordinances and lawful orders and regulations affecting the Premises and the cleanliness, safety, occupancy and use of same, including, without limitation, compliance with the Americans With Disabilities Act (“AD Act”) to the extent that the AD Act applies to Lessee’s operations within the Premises. Lessee hereby covenants and agrees not to permit, commit or suffer to exist any condition which might result in a violation of the AD Act, and if any such condition should occur, to immediately remedy any such condition.

 


Lessee shall not damage any demising wall or disturb the integrity and support provided by any demising wall and shall, at its sole cost and expense, promptly repair any damage or injury to any demising wall caused by Lessee or its employees, agents, customers, invites, and/or licensees.

All of this Section 5 is subject to Lessor’s obligations under Section 6 below.

LESSOR’S REPAIRS

6. Lessor is providing a newly constructed building and Lessee is responsible for all maintenance and repairs of any type, except for any defect in construction or equipment provided by Lessor for a period of three (3) years after the Commencement Date. After such 3 years Lessor will assign to Lessee any manufacturer or other third party warranties.

Lessor agrees to give Lessee reasonable advance notice for entry into and repairs to the demised premises and to perform such repairs with minimal disruption to Lessee’s operations.

ALTERATIONS

7. Except for (i) the improvements, alterations and additions described in Exhibit B attached hereto, which may be made by Lessee at its expense and which Lessor hereby approves and authorizes Lessee to make at its convenience without the need for any further approvals by Lessor and (ii) alterations, improvements or additions Lessee may desire to make from time to time during the Term, which are of a decorative or cosmetic nature or which do not materially affect the structure or the systems of the building. Lessee shall not make any alterations, additions or improvements to the Premises (including but not limited to roof and wall penetrations) without the prior written consent of Lessor, such consent will not be unreasonably withheld. All alterations, additions, improvements, and partitions erected by Lessee, except those permitted under (i) or (ii) above, shall be and remain the property of Lessee during the term of this lease, and Lessee shall, unless Lessor otherwise elects by written notice to Lessee to have Lessee leave any or all of such alterations, additions or improvement as hereinafter provided, remove all alterations, additions, improvements, and partitions erected by Lessee and restore the Premises to their original condition by the date of termination of this lease or upon earlier vacating of the Premises.

Lessor may impose such conditions with respect thereto as Lessor deems reasonably appropriate, including, without limitation, requiring Lessee to furnish Lessor with security for the payment of all costs to be incurred in connection with such work and insurance against liabilities which may arise out of such work. The work necessary to make any alterations, improvements or additions to the premises shall be done at Lessee’s expense by employees of or reputable contractors hired by Lessee and approved by Lessor which approval will not be unreasonably withheld or delayed. Lessor agrees that it will not unreasonably withhold consent to permit Lessee to make said alterations, improvements or additions. Lessee shall promptly pay to Lessor or to Lessee’s contractors, as the case may be, when due, the cost of all such work and of all decorating required by reason thereof, and upon completion deliver to Lessor, if payment is made directly to contractors, evidence of payment, contractors’ statements and affidavits and full and final waivers of all liens for labor, services or materials, and Lessee shall protect, defend, indemnify and hold Lessor harmless from all costs, damages, liens and expenses related thereto. All work done by Lessee or its contractors pursuant to this paragraph 7 or pursuant to paragraph 5 hereof shall be done in a first-class workmanlike manner using only good grades of materials and shall comply with all insurance requirements and all applicable laws and ordinances and rules and regulations of governmental departments or agencies.

 


LESSEE NOT TO MISUSE: SUBLET: ASSIGNMENT

8. Lessee will not allow the Premises to be used for any purpose that will increase the rate of insurance thereon, nor for any purpose other than that herein before specified, and will not load floors with machinery or goods beyond floor load rating prescribed by applicable municipal ordinances, and will not allow the Premises to be occupied in whole, or in part, by any other person, and, except as permitted hereafter, will not sublet the same or any part thereof, nor assign this lease without in each case the prior written consent of the Lessor, which consent shall not be unreasonably withheld and Lessee will not permit any transfer by operation of law of the interest in the Premises acquired through this lease, and will not permit the Premises to be used for any unlawful purpose, or for any purpose that will injure the reputation of the building of which they are a part, or increase the fire hazard of said building or disturb the Lessees of such building or the neighborhood, and will not permit the same to remain vacant or unoccupied with the rent being unpaid for more than ten consecutive days; and will not allow any signs, cards or placards to be posted, or placed thereon, except for signs identifying Lessee’s business or identifying or restricting the means of access to or exit from the Premises. All equipment in or about the Premises shall be operated solely at Lessee’s risk, except such as may be operated exclusively by Lessor. Lessor shall not unreasonably withhold its consent to sublet or assignment of Lessee’s interest under said lease. Nothing herein contained shall limit or waive Lessor’s obligation to mitigate its damages in the event of Lessee’s default.

For purposes of this Section 8, a transfer of the ownership interests controlling Lessee will be deemed an assignment of this Lease unless such ownership interests are publicly traded. Further, on the condition that Lessee is not in default of any term, covenant or condition of this Lease, Lessee will have the right, with advance written notice to but without the consent of Lessor, to sublease the Premises, or a portion thereof, or assign this Lease to:

a) any corporation or entity which controls, is controlled by or is under common control with Lessee, on the condition that (x) such sublease or assignment is for a good business purpose and not principally for the purpose of avoiding Lessor’s consent rights, (y) the proposed use of the Premises and the reputation, business, and financial responsibility of the proposed sublessee or assignee are consistent with the first-class nature of the Building, and (z) in the case of an assignment, the assignee has a net worth sufficient to perform the obligations of the Lessee under this Lease; or

b) an entity into which Lessee is merged or consolidated or to an entity to which substantially all of Lessee’s assets are transferred, on the condition that (x) such merger, consolidation or transfer of assets is for a good business purpose and not principally for the purpose of transferring Lessee’s leasehold estate, (y) the proposed use of the Premises and the reputation and business of the proposed assignee or transferee are consistent with the nature of the Building, and (z) the assignee or successor entity has a net worth at least equal to the net worth of Lessee immediately before such merger, consolidation or transfer.

Lessor will execute and deliver to Lessee, or at Lessee’s direction, a letter to Hercules Technology Growth Capital, Inc. or any other secured lender of Lessee substantially as set forth in Exhibit C attached hereto.

MECHANIC’S LIEN

9. Lessee has no authority to subject the interest of Lessor in the Premises to any mechanics’ or materialmen’s liens of any kind, nor shall any provision contained in this lease ever be construed as empowering the Lessee to encumber or cause the Lessor to encumber the title or interest of Lessor in the


Premises. However, if by reason of any alteration, repair, labor performed or materials furnished to the Premises for or on behalf of Lessee any mechanic’s or other lien shall be filed, claimed, perfected or otherwise established as provided by law against the Premises, Lessee shall discharge or remove the lien or post security therefor with Lessor in a manner satisfactory to Lessor in Lessor’s reasonable discretion within Fifteen (15) days after notice from Lessor to Lessee of the filing of same.

INDEMNITY FOR ACCIDENTS

10. Lessee shall indemnify, defend and hold Lessor harmless from and against any and all claims or liabilities, including reasonable attorney’s fees, for injuries to all persons and damage to or theft or misappropriation or loss of property occurring in or about the Premises arising from Lessee’s use of the Premises or any facilities thereto, or from the conduct of Lessee’s business or from any activity, work or things done, permitted or suffered by Lessee in or about the Premises or elsewhere and shall further indemnify and hold Lessor harmless from and against any and all claims and liabilities arising from any breach or default in the performance of any obligation on Lessee’s part to be performed under the terms of this lease, or arising from any act or omissions of Lessee, or any of Lessee’s agents, contractors, or employees, and from and against all costs, attorney’s fees, expenses and liabilities incurred in the defense of any such claim or any action or proceeding brought thereon, and in case any action or proceeding be brought against Lessor by reason of any such claim, Lessee upon notice from Lessor shall defend the same at Lessee’s expense by counsel reasonably satisfactory to Lessor, and Lessor shall cooperate with Lessee in such defense. Lessee, as a material part of the consideration to Lessor, hereby assumes all risk of damage to property of Lessee or injury to persons, in, upon or about the Premises or any facilities thereto arising from any cause, except the act or neglect of Lessor or its agents, contractors and employees, and Lessee hereby waives, to the extent not prohibited by law, all claims in respect thereof against Lessor.

NON-LIABILITY OF LESSOR

11. Except as otherwise provided in this lease or by law, Lessor shall not be liable for any damage occasioned by failure to keep the Premises in repair, nor for any damage done or occasioned by or from plumbing, gas, water, telephone lines, sprinkler, steam, or other pipes or sewerage, or the bursting, leaking or running of any pipes, tank or plumbing fixtures, in, above, upon or about Premises or any building of which Premises are a part or related improvement, nor for any damage occasioned by water, snow or ice being upon or coming through roof, skylights, trap door or otherwise, nor for any damages arising from acts, or neglect of co-Lessee, or other occupants of such building or improvement, or of any owners, or occupants, of adjacent or contiguous property.

UTILITIES

12. Lessee shall pay for all gas, heat, light, power, electricity, telephone or other services provided to the Premises after the date upon which Lessee takes possession of the Premises, including without limitation, any and all additional meter fees, installation, hook-up fees or connection fees incurred on account of Lessor’s or Lessee’s improvements after the date of this lease.

WATER

13. Lessee will furnish during the term of this lease all necessary water for sanitary purposes, used in connection with the toilets and wash basins and for any other purposes located in the Premises.

 


HVAC EQUIPMENT

14. Lessee shall have all heating equipment installed by Lessor cleaned and serviced at Lessee’s expense, by a service company approved by Lessor at least once per year on or before November1st of each year and all air conditioning equipment installed by Lessor cleaned and serviced at least once per year on or before July 1st. Lessee must provide written verification of servicing to Lessor within Thirty days after such service. If the servicing is not done by the above dates each year, Lessor shall have the equipment serviced and Lessee shall remit payment to Lessor upon receipt. Subject to Lessor’s obligations under Section 6 of this lease, Lessee, at its sole expense, shall repair and replace all HVAC equipment installed by Lessor and change its furnace filters on a regular basis. Nothing in this Section 14 shall limit Lessor’s obligations under Section 6 of this lease.

ACCESS TO PREMISES

15. Lessee will allow Lessor and its agents, during the last nine (9) months of the term of this lease, reasonable access to the Premises for the purpose of examining or exhibiting the same, or to make any repairs or alterations thereof which Lessor may see fit to make, if Lessee has vacated or abandoned the Premises, and will allow to have placed upon the Premises at all times notice of “For Sale” and “To Rent,” and will not interfere with the same. “For Sale” and “To Rent” signs shall not interfere with Lessee’s business use and enjoyment of the premises.

FAILURE TO YIELD IMMEDIATE POSSESSION

16. Lessee will, at the termination of this lease by lapse of time or otherwise, yield up immediate possession to Lessor, and failing so to do, will pay as liquidated damages for the whole time such possession is withheld, 150% of the base rental payable hereunder per day, but the provisions of this clause shall not be held as a waiver by Lessor of any right of re-entry, as hereinafter set forth, nor shall the receipt of said rent, or any part thereof, or any other act in apparent affirmance of tenancy, operate as a waiver of the right to forfeit this lease and the term hereby granted for the period still unexpired, for a breach of any of the covenants herein.

EXTRA FIRE HAZARD

17. There shall not be allowed, kept, or used on the Premises any flammable or explosive liquids or materials except such as may be necessary for use in the business of the Lessee, and in such case, any such substances shall be delivered in amount, and stored, and used, in accordance with the rules of the applicable Board of Underwriters and statutes and ordinances, now or hereafter in force. If by reason of the failure of Lessee to comply with the provision of this paragraph, any insurance coverage is jeopardized or insurance premiums are increased, Lessor shall have the right to require the Lessee to make immediate payment of the increased insurance premiums.

DEFAULT

18. Each of the following events shall constitute default or breach of this lease by Lessee:

(a) If Lessee, or any successor or assignee of Lessee, while in possession, shall file a petition in bankruptcy or insolvency or for reorganization under any Bankruptcy Act, or shall voluntarily


take advantage of any such act by answer or otherwise, or shall make an assignment for the benefit of creditors.

(b) If involuntary proceedings under any Bankruptcy Law or Insolvency Act shall be instituted against Lessee, or if a receiver or trustee shall be appointed of all or substantially all of the property of Lessee, and such proceeding shall not be dismissed with the receivership or trustee vacated within sixty (60) days after the institution or appointment.

(c) If Lessee shall fail to pay Lessor any rent or additional rent when the rent shall become due and shall not make the payment within 5 days after notice thereof by Lessor to Lessee.

(d) If Lessee shall fail to perform or comply with any of the conditions of this lease and the nonperformance shall continue for a period of thirty (30) days after the notice thereof by Lessor to Lessee or if the performance cannot be reasonably had within the thirty (30) day period, Lessee shall not in good faith have commenced performance within the thirty (30) day period and shall not diligently proceed to completion of performance.

(e) If Lessee shall vacate or abandon the demised Premises, with the rent being unpaid.

(f) If the lease or the estate of the Lessee hereunder shall be transferred to or shall pass to any other person or party herein not permitted. Lessor shall not unreasonably withhold its consent to sublet or assignment of Lessee’s rights and obligations hereunder, and Lessor acknowledges its obligation to mitigate damages in the event of Lessee’s breach or default.

In the event of any default hereunder as set forth above, the rights of Lessor shall be as follows:

(a) Lessor shall have the right to cancel and terminate this lease as well as all of the right, title and interest of the Lessee hereunder by giving to Lessee not less than 5 days notice of cancellation and termination. On the expiration of the time fixed in the notice, this lease and the right, title and interest of Lessee hereunder shall terminate in the same manner and with the same force and effect except as to Lessee’s liability as if the date fixed in the notice of cancellation and termination were the end of the term herein originally determined.

(b) Lessor may elect but shall not be obligated to make any payment required of Lessee hereunder or comply with any agreement, and Lessor shall have the right to enter the demised Premises for the purposes of correcting or remedying any such default, and to remain until the default has been corrected or remedied, but any expenditures for the correction by Lessor shall not be deemed to waive or release the default of the Lessee or the right of Lessor to take action as may be otherwise permissible under the case of default.

(c) Subject to the rights of any secured lender of Lessee under a letter agreement such as that provided for in Section 8 of this lease, Lessor may reenter the Premises immediately and remove the personal property of Lessee and store the property in a public warehouse or a place selected by Lessor at the expense of Lessee. After re-entry, Lessor may terminate the lease upon giving 5 days written notice of termination to Lessee. Without this notice, re-entry will not terminate the lease. Upon termination, Lessor may recover from Lessee all damage proximately resulting from the breach, including the cost of recovering the Premises and the worth of the balance of this lease over a reasonable rental value of the Premises for the remainder of the lease term which sum shall be immediately due Lessor from Lessee.

(d) After re-entry, subject to the last sentence of clause (f) of this Section 18 above, Lessor may relet the Premises or any part thereof for such rent for any term without terminating the liability of Lessee under this lease and on the terms Lessor may choose. Lessor may make alterations and repairs to the Premises. The duties and liabilities of the parties, if the Premises are relet as provided herein, shall be as follows:

 


(1) In addition to Lessee’s liability to Lessor for breach of the lease, Lessee shall be liable for all expenses of the reletting, including reasonable attorneys’ fees, and for the difference between the rent received from the Lessee to the new lease agreement and the rent installments that are due for the same period under this lease.

(2) Lessor shall be required to apply the rent received from reletting the Premises: (i) to reduce the indebtedness of Lessee to Lessor under the lease, not including indebtedness for rent; (ii) to expenses of reletting and alterations and repairs made; and (iii) to rent due under this lease; or (iv) to payment of future rent under this lease as it becomes due.

If the new Lessee does not pay rent installments promptly to Lessor and the rent installment has been credited in advance of payment to the indebtedness of Lessee other than rent, or if the rentals from the new lease have been otherwise applied by Lessor as provided herein and during any rent installment period or less than the rent payable for the corresponding installment period under this lease, Lessee shall pay Lessor the deficiency separately for each rent installment deficiency period, and before the end of the rent period, Lessor may, at any time after reletting, terminate the lease for the breach on which Lessor had based the re-entry and subsequently relet the Premises.

(e) Any payments made to Lessor by a secured lender of Lessor shall be credited against any liability of Lessee to Lessor as if made by Lessee.

ABANDONMENT OF PREMISES

19. Should any of Lessee’s property remain on the Premises after the termination of this lease, Lessor shall have the right to dispose or remove the property at the sole expense of Lessee. If Lessee shall vacate the Premises prior to the termination of this lease or shall be in default of the lease terms and absent from Premises or fail to conduct its business from the Premises for a continuous period of fifteen (15) days, the property shall be considered abandoned; provided, however, that so long as Lessee pays rent pursuant to this Lease, the Premises shall not be considered abandoned, regardless of Lessee’s absence or status of business use of the Premises. Any property remaining on the Premises shall be considered abandoned and Lessor shall have the right to dispose or remove the property at the sole expense of Lessee. Upon termination by breach, default or otherwise, Lessee shall be given a reasonable opportunity to remove its property. Lessor may not remove or dispose of Lessee’s property without prior notice to Lessee, and without due process of law. All of Lessor’s rights under this Section 19 shall be subject to the rights of any secured lender of Lessee as provided in any agreement made by Lessor pursuant to Section 8 of this lease.

SUBORDINATION; ESTOPPEL CERTIFICATE

20. At such time as Lessor or any mortgagee or proposed mortgagee of the Premises may in writing request, subject to the rights of quiet enjoyment, Lessee agrees that this Lease shall be and is hereby made subject and subordinate to the lien of any mortgage (which terms shall include any and all security instruments) of the Premises made by Lessor. Lessee agrees, upon demand and without cost, to execute any instrument as may be requested to additionally evidence such subordination, it being agreed by Lessee that no additional instrument or evidence is necessary for this subordination to be effective. Lessee shall not be required to execute a subordination agreement which makes material changes to the Lease or imposes additional obligations, other than an obligation to provide notices to such mortgage, on Lessee.

 


Not later than two (2) days after the execution of this lease and again whenever a new mortgage or ground encumbers the Premises, Lessor shall procure and deliver to Lessee an agreement by any current or future mortgagee or ground lessor of the Premises that, notwithstanding any breach or default by Lessor, or such mortgagee or ground lessor becomes the owner or the beneficiary of the owner of the Premises. Lessee’s possession of the Premises and its rights under this lease shall not be disturbed or terminated so long as Lessee is not in breach or default of this lease.

Lessee agrees that from time to time upon not less than ten days’ prior request by Lessor, or the holder of any mortgage or any ground lease, Lessee (or any permitted assignee, sublessee, licensee, concessionaire or other occupant of the Premises claiming by, through or under Lessee) will deliver to Lessor or the holder of any mortgage or ground lease, a statement in writing signed by Lessee certifying: (a) that this Lease is unmodified and in full force and effect (or if there have been modifications, that this Lease, as modified, is in full force and effect and identifying the modifications); (b) the date upon which Lessee began paying rent and the dates to which rent and other charges have been paid; (c) that Lessor is not in default under any provision of this Lease, or, if in default, the nature thereof in detail; (d) that the Premises have been completed in accordance with the terms hereof and Lessee is in occupancy and paying rent on a current basis with no rental offsets or claims; (e) that there has been no prepayment of rent other than that provided in this Lease; (f) that there are no actions, whether voluntary or otherwise, pending against Lessee under the bankruptcy laws of the United States or any state thereof; and (g) such other matters as may be required by Lessor, the holder of the mortgage or any ground lessor.

FIRE AND CASUALTY

21. (a) If the Premises, or any part of the building of which the Premises are a part shall be damaged by fire or other casualty and if such damage does not render all or a substantial portion of the Premises or such building untenantable in Lessor’s reasonable discretion, then Lessor shall proceed to repair and restore with reasonable promptness the Premises, subject to reasonable delays for insurance adjustments and delays caused by matters beyond Lessor’s reasonable control. If any such damage renders all or a substantial portion of the Premises or the building untenantable, Lessor shall, with reasonable promptness after the occurrence of such damage, estimate the length of time that will be required to substantially complete the repair and restoration of the damaged areas of the Premises or building and shall give notice to advise Lessee of such estimate. If it is so estimated that the amount of time required to substantially complete such repair and restoration will exceed two hundred seventy (270) days from the date such damage occurred or be beyond the end of the term, then Lessor shall have the right to terminate this Lease as of the date of such damage upon giving notice to the Lessee at any time within twenty (20) days after Lessor gives Lessee the notice containing said estimate (it being understood that Lessor may, if it elects to do so, also give such notice of termination together with the notice containing said estimate); and, if such damage or destruction shall occur during the last year of the term of this lease, Lessee may elect to terminate this lease by notice to Lessor within thirty (30) days of the date of such damage or destruction. Unless this Lease is terminated as provided in the preceding sentence, Lessor shall proceed with reasonable promptness to repair and restore the base work applicable to the Premises, subject to reasonable delays for insurance adjustments and delays caused by matters beyond Lessor’s reasonable control, and also subject to zoning laws and building codes then in effect. Lessor shall have no liability to Lessee, and


Lessee shall not be entitled to terminate this Lease (except as herein provided) if such repairs and restoration are not in fact completed within the time period estimated by Lessor, as aforesaid, or within said two hundred seventy (270) days or before the end of the term. If the Premises are not repaired or restored within twelve (12) months after the date of such fire or other casualty, then either party may terminate this Lease, effective as of the date written notice is given to the other party, if given not later than thirty (30) days after the expiration of said twelve (12) month period, but prior to substantial completion of repair or restoration; provided that such termination shall not limit or waive in any way Lessee’s rights to damages caused by Lessor’s failure to repair or restore the Premises within such two hundred seventy (270) days. Notwithstanding anything to the contrary herein set forth, (a) Lessor shall have no duty pursuant to this paragraph to repair or restore any portion of the alterations, additions, or improvements owned or made by Lessee in the Premises, or any personal property or fixtures of Lessee, and (b) Lessee shall not have the right to terminate this Lease pursuant to this paragraph if the damage or destruction was caused by the act or neglect of Lessee, its agents or employees.

(b) In the event any such fire or casualty damage not caused by the act or neglect of Lessee, its agents or employees, render the Premises untenantable and if this Lease shall not be terminated pursuant to the foregoing provisions of this paragraph 21 by reason of such damage and Lessee shall not then be in default under this Lease, then base rent and additional rental shall abate during the period beginning with the date of such damage and ending with the date when Lessor substantially completes its repair and restoration work. Such abatement shall be in an amount bearing the same ratio to the total amount of base rent for such period as the portion of the Premises that is untenantable bears to the entire Premises. In the event of termination of this Lease pursuant to this paragraph 21, base rent and additional rent shall be apportioned on a per diem basis and be paid to the date of the fire or casualty.

PAYMENT OF FEES

22. In the event that either party brings suit to enforce the terms of this lease agreement, then the prevailing party shall be entitled to an award of reasonable attorney fees payable by the party held to be in breach of its obligations under said lease.

NOTICE

23. Any notice, demand, request, consent, approval, or communication desired by either party, or required to be given, shall be in writing, duly addressed, and deemed delivered (I) when personally delivered, (ii) one (1) day after deposit with a reputable overnight courier, (iii) three (3) days after being deposited with any main or branch United States post office via certified first class mail return receipt requested, addressed as set forth below, or (iv) a facsimile transmission to the facsimile telephone number as set forth below with verification that such transmission was received by the other party. Either party may change its address by notification to the other party.

Notice to Lessee shall be sent to the following address:

Rubicon Technology, Inc.

Attn: Chief Executive Officer

9931 Franklin Avenue

Franklin Park, Illinois 60131

 


with a copy to:

Scott L. Glickson

McGuireWoods LLP

77 West Wacker Drive

Suite 4100

Chicago, Illinois 60601

 

Notice to Lessor shall be sent to the following address:

Phillip J. Latoria, Jr.

3707 King George Lane

St. Charles, Illinois 60174

With a copy to:

Otto C. Stephani

100 W. Roosevelt Road

Suite A1

Wheaton, Illinois 60187

INSURANCE

24. Lessee hereby waives any and every claim for recovery from Lessor for any and all loss of or damage to Lessee’s property, fixtures, equipment, or to the contents thereof within the demised premises unless due to the act or neglect of Lessor, his agent, contractor or employees, and Lessee hereby waives, to the extent not prohibited by law, all claims in respect thereof against Lessor. Lessor agrees to provide a fire and extended coverage insurance policy insuring the building for its full replacement cost with a reputable and substantial company or companies of his choosing rated at least “A” by A.M. Best’s Insurance Ratings.

Lessee shall carry:

(a) Public liability insurance which may be partially provided by an umbrella liability insurance policy during the entire term hereof covering both Lessee and Lessor as insured with terms and in companies satisfactory to Lessor with limits of not less than $2,000,000.00/$5,000,000.00 for personal injury and $1,000,000.00 for property damage for any one occurrence.

(b) Insurance against fire, sprinkler leakage, vandalism, and the extended coverage perils for the full insurable value of all additions, improvements and alterations to the premises made by Lessee and of all office furniture, trade fixtures, office equipment, merchandise and all other items of Lessee’s property on the premises.

 


(c) Loss of rents insurance made payable to the Lessor in the event of fire or other casualty in an amount not less than the Lease payment amounts specified in paragraphs 1 and 2 hereof.

Lessee shall, prior to the commencement of the Term, furnish to Lessor certificates evidencing such coverage, which certificates shall state that such insurance coverage may not be changed or cancelled without at least ten (10) days’ prior written notice to Lessor and Lessee.

Lessee shall comply with all applicable laws and ordinances, all orders and decrees of court and all requirements of other governmental authority, and shall not directly or indirectly make any use of the premises which may thereby be prohibited or which may jeopardize any insurance coverage, or may increase the cost of insurance or require additional insurance coverage.

All insurance policies procured by Lessee in compliance with the provisions hereinbefore set out shall be subject to the approval of Lessor as to substance and form, and evidence of such policies or duplicate of each of said policies shall be delivered to Lessor prior to Lessee’s occupancy of the Premises, and said policies or evidence thereof are to be held by Lessor during the term of this lease or any extension thereof. The said insurance policies shall be in the usual and customary form, issued by responsible insurance companies rated at least “A” by A.M. Best’s Insurance Ratings.

Lessor and Lessee agree to have all fire and extended coverage and material damage insurance which may be carried by either of them endorsed with a clause providing that any release from liability of or waiver of claim for recovery from the other party entered into in writing by the insured thereunder prior to any loss or damage shall not affect the validity of said policy or the right of the insured to recover thereunder, and providing further that the insurer waives all rights of subrogation which such insurer might otherwise have against the other party. Without limiting any release or waiver of liability or recovery contained in any other paragraph of this lease, but rather in confirmation and in furtherance thereof, each of the parties hereto waives all claims for recovery from the other party for any loss or damage to any of its property insured under valid and collectible insurance policies to the extent of any recovery collectible under such insurance policies. Notwithstanding the foregoing or anything contained in this lease to the contrary, any release or any waiver of claim shall not be operative, nor shall the foregoing endorsements be required, in any case where the effect of such release or waiver is to invalidate insurance coverage or the right of the insured to recover thereunder or increase the cost thereof (provided that in the case of increased cost the other party shall have the right, within 10 days following written notice, to pay such increased cost, keeping such release or waiver in full force and effect).

PARKING

25. Lessee and its employees, agents, customers, invitees, and/or licensees shall have the exclusive right to use parking areas.

WAIVER

26. No delay or omission in the exercise of any right or remedy by Lessor shall impair such right or remedy or be construed as a waiver of Lessor’s right to enforce such right or remedy nor shall any express waiver of any condition expressed in this lease affect any condition other than the


one specified in such waiver and that one only for the time and manner specifically stated. No act or conduct of Lessor, including without limitation, acceptance of the keys to the Premises, shall constitute an acceptance of the surrender of the Premises and accomplish termination of the lease. Lessor’s consent to or approval of any act by Lessee requiring Lessor’s consent or approval shall not be deemed to waive or render unnecessary Lessor’s consent to or approval of any subsequent act by Lessee. Any waiver by Lessor of any default must be in writing and shall not be a waiver of any other default concerning the same or any other provision of the lease.

INSPECTION

27. Lessee shall give written notice to Lessor at least thirty (30) days prior to vacating the Premises and shall arrange to meet with Lessor for a joint inspection of the Premises prior to vacating.

ENVIRONMENTAL COMPLIANCE AND INDEMNIFICATION AGREEMENT

28. During the entire term of the lease, Lessee shall fully and strictly comply with all federal, state and local laws, ordinances, rules and regulations now or at any time hereafter in effect which regulate, relate to or impose liability or standards of conduct concerning any Hazardous Substances, including without limitation the Comprehensive Environmental Response, Compensation and Liability Act, the Resource Conservation and Recovery Act, the Illinois Environmental Protection Act and the Illinois Responsible Property Transfer Act (all such laws, ordinances, rules and regulations being herein collectively referred to as the “Environmental Laws”), and which directly or indirectly affect the use or occupancy of the Premises by Lessee or anyone claiming by, through or under Lessee. Lessee shall not permit the Premises to be used to store or otherwise used to handle Hazardous Substances except where stored in sealed containers and in quantities normally associated with businesses permitted to be conducted on the Premises or for office maintenance and cleaning and, in those instances, the Hazardous Substances shall be handled or stored in compliance with all Environmental Laws. Lessee acknowledges that its compliance shall include, by way of illustration and not by way of limitation, the completion and timely filing of all reports and statements required pursuant to any Environmental Laws (copies of which shall, upon demand, be provided to Lessor) and the payment of all charges, fees and costs that may be assessed or imposed from time to time in connection therewith; and the timely disclosure to Lessor upon request of any information required pursuant to the Illinois Responsible Property Transfer Act (“Act”), as the same may be amended or replaced from time to time, in order to permit Lessor or others to make full and complete disclosures or filings as required pursuant to the Act. Lessee will provide to Lessor copies of all manifests covering the handling and disposal of anti-freeze.

Lessor at any time, and from time to time (but not more often than once in each year of the term), may at its option (but without any obligation to Lessee to do so) cause to be conducted any environmental tests, inspections or evaluations of the Premises as Lessor may deem reasonable or necessary in connection with the use and occupancy of the Premises by Lessee or anyone claiming by, through or under Lessee. The selection of the person, firm or entity retained to complete such tests, inspections or evaluations shall be within the sole and absolute discretion of Lessor. In connection therewith, Lessee shall permit Lessor and its environmental consultants or inspectors to have access to the Premises at all reasonable times and Lessee agrees to make or


cause to be made available to Lessor or any such environmental consultant or inspector any information reasonably requested regarding the nature of any Hazardous Substances used, stored or otherwise present at the Premises in connection with the use or occupancy of the Premises or any part thereof. Except as otherwise provided in this paragraph 28, any tests, inspections or evaluations conducted by or for Lessor shall be at Lessor’s sole cost and expense.

If any environmental test, inspection or evaluation of the Premises conducted by or on behalf of Lessor, Lessee, any leasehold mortgagee, any fee mortgagee or any governmental authority gives rise to liability under the Environmental Laws resulting from Lessee’s storage or use of Hazardous Substances on the Premises, then Lessee shall, at its sole cost and expense, promptly take all applicable action in response so as to comply with all Environmental Laws and eliminate or avoid any liability claim with respect thereto.

Lessee’s failure to perform such applicable action required pursuant to the previous paragraph of this section shall entitle Lessor to take such action after reasonable notice to Lessee and Lessee’s failure to cure such problem, and Lessee shall, immediately upon demand by Lessor, pay to Lessor all costs and expenses paid or incurred by Lessor as a result thereof. Lessee agrees to indemnify, defend, and hold Lessor harmless from and against any and all losses, liabilities, claims, demands, penalties, fines, judgments, causes of action of suits and expenses (including attorneys’ fees, consultants’ fees, remedial costs, removal costs and other expenses) which may arise or be asserted against Lessor in connection with (i) storage or use of Hazardous Substances on the Premises by Lessee, (ii) any personal injury (including wrongful death) or property damage (real or personal) arising out of or related to any such presence, disposal, release or threatened release of any Hazardous Substances or (iii) any violations of or failure to comply with any environmental laws; but not including any condition of which Lessor has knowledge as of the date hereof or which is caused by Lessor or any of his agents or contractors.

For purposes of this lease, the term “Hazardous Substances” shall mean and include (a) any friable asbestos or asbestos containing material, polychlorinated biphenyls, dioxins or urea formaldehyde foam insulation; (b) any petroleum products; (c) any waste, substance, material, pollutant or contaminant defined as hazardous or toxic (or for purposes of any Environmental Laws); and (d) any waste, substance, material, pollutant or contaminant the presence, disposal, release or threatened release of which on, onto or from any Premises (including the Premises) or would constitute an Environmental Event or is governed by any applicable Environmental Laws. Lessor hereby warrants to Lessee that the premises, as of the date of this lease, comply with each representation, agreement and condition made above as if made by Lessor and Lessor will indemnify and defend Lessee in the same manner and to the same extent as is provided above for Lessee to indemnify Lessor, on account of any conditions existing as of the date of this lease.

SNOW REMOVAL

29. Snow removal from sidewalks, driveways and parking areas leading to the demised Premises shall be the sole responsibility of the Lessee at its expense. Lessor shall not be held liable for any business interruptions due to failure to remove snow from parking or driveway areas.

SAFETY AND HEALTH COMPLIANCE

30. Lessee shall comply with all lawful requirements of the local Board of Health, Police and Fire Departments, and governmental authorities including, but not limited to the Occupational


Safety and Health Act of 1970 and Federal and State Environmental Protection Act representing the manner in which Lessee uses the leased Premises, applicable to Lessee’s occupancy.

QUIET POSSESSION

31. Upon Lessee paying the rent for the Premises and observing and performing all of the covenants, conditions, and provisions on Lessee’s part to be observed and performed hereunder, Lessee shall have quiet possession of the Premises for the entire term hereof subject to all of the provisions of this Lease.

FIXTURES AND EQUIPMENT

32. All fixtures and equipment installed by Lessee in the Premises shall remain the property of the Lessee. Lessee may, without the consent of Lessor, but at its own cost and expense and in a good workmanlike manner, install such fixtures and equipment as it may deem advisable, without altering the basic character of the building or improvements and without overloading or damaging such building or improvements, and in each case complying with all applicable governmental laws, ordinances, regulations, and other requirements. All fixtures and equipment installed by Lessee may be removed by Lessee prior to termination of this lease if Lessee so elects, and shall be removed by the date of expirations or earlier termination of this lease or upon earlier vacating of the Premises if required by Lessor; upon any such removal, Lessee shall restore the Premises to their original condition. All such removals and restoration shall be accomplished in a good workmanlike manner so as not to damage the primary structure or structural qualities of the buildings and other improvements situated on the Premises. Lessee shall have the right, at the termination of this Lease, to remove any and all trade fixtures, equipment and other items of personal property not constituting a part of the freehold which it may have stored or installed in the Premises including, but not limited to counters, shelving, showcases, chairs, and movable machinery purchased or provided by Lessee and which are susceptible of being moved without damage to the building and the Premises, provided this right is exercised before the Lease is terminated and provided that Lessee, at its own cost and expense, shall repair any damage to the Premises caused thereby. All such removal and restoration shall be performed in a good and workmanlike manner. The right granted Lessee in this paragraph shall not include the right to remove any plumbing or electrical fixtures or equipment, heating or air conditioning equipment, floor-coverings (including wall-to-wall carpeting) glued or fastened to the floors, or any paneling, tile or other materials fastened or attached to the walls or ceilings, all of which shall be deemed to constitute a part of the freehold, and, as a matter of course, shall not include the right to remove any fixtures or machinery that were furnished or paid for by Lessor. The Premises and the immediate areas in front, behind and adjacent to it shall be left in a broom-clean condition. Should Lessee fail to comply with this provision, Lessor may deduct the cost of cleanup from Lessee’s Security Deposit. If Lessee shall fail to remove its fixtures or other property at the termination of this Lease thereafter, such fixtures and other property not removed by Lessee shall be deemed abandoned by Lessee, and, at the option of Lessor, shall become the property of Lessor, or disposed of by Lessor at Lessee’s cost and expense, such cost and expense being additional rent payable hereunder.

All of the foregoing is subject to the terms and conditions set forth in Section 7 hereof (Alterations).

 


SIGNAGE

33. Lessee shall have the privilege of erecting a suitable business sign on the exterior of the building. Any such sign that may be erected shall conform to all regulations or ordinances of the Village of Bensenville or any other applicable municipal authority regulating the erection, size, maintenance, or location of such sign. Lessee agrees to maintain and keep any sign in good repair and condition and pay any and all fees which may become due by virtue of the location of any such sign on the subject Premises. Lessee shall remove such sign and repair any damage to the building caused thereby at its own expense at termination of said lease. All signage must be diagramed and approved in writing by Lessor before it is installed to the Premises; provided that Lessor will not withhold approval so long as such sign complies with the applicable regulations and ordinances.

ADDITIONAL SPACE

34. There is no additional space.

CONDEMNATION

35. (a) Total: In the event the entire Premises shall be appropriated or taken under the power of eminent domain by any public or quasi-public authority, this lease shall terminate and expire as of the date of title vesting in such proceeding, Lessee shall thereupon vacate the Premises and Lessee’s obligations to pay rent hereunder shall cease.

(b) Partial: If any part of the Premises shall be taken as aforesaid, and such partial taking shall render that portion not so taken unsuitable for the business of the Lessee, as reasonably determined by Lessor, then this Lease and the term herein shall cease and terminate as aforesaid. If such partial taking is not extensive enough to render the Premises unsuitable for the business of Lessee, then this Lease shall continue in effect, except that the Base rent payable pursuant to paragraph 1 shall be reduced in the same proportion that the floor area of the Premises taken bears to the original floor area leased and Lessor shall, upon and subject to receipt of the award in condemnation, make all necessary repairs or alterations to the building in which the Premises are located so as to constitute the portion of the building not taken a complete architectural unit, but such work shall not exceed the scope of the work to be done by Lessor in originally constructing said building, nor shall Lessor, in any event, be required to spend for such work an amount in excess of the amount received by Lessor as damages for the part of the Premises so taken. “Amount received by Lessor” shall mean that part of the award in condemnation which is free and clear to Lessor of any collection by mortgagee for the value of Lessor’s diminished fee interest in the property upon which the Premises are situated.

(c) Termination: Notwithstanding the foregoing, if more than Thirty Percent (30%) of the floor area of the building in which the Premises are located shall be taken as aforesaid, Lessor may, by written notice to Lessee, terminate this Lease, such termination to be effective as aforesaid.

(d) Rent on Termination: If this Lease is terminated as provided in this section, the rent shall be paid up to date that possession is so taken by public authority and Lessor shall make an equitable refund of any rent paid by Lessee in advance.

 


(e) Award: Lessee shall not be entitled to and expressly waives all claim to any condemnation award for any taking, whether whole or partial, and whether for diminution in value of the leasehold or to the fee although Lessee shall have the right, to the extent that the same shall not reduce Lessor’s award, to claim from the condemnor, but not from Lessor, such compensation as may be recoverable by Lessee in its own right for damage to Lessee’s business, fixtures and improvements installed by Lessee at its expense and for any moving expense.

MISCELLANEOUS

38. (a) Each provision of this lease shall extend to and shall bind and inure to the benefit not only of Lessor and Lessee, but also their respective heirs, legal representatives, successors and assigns, but this provision shall not operate to permit any transfer, assignment, mortgage, encumbrance, lien, charge or subletting contrary to the provisions of this Lease.

(b) All of the agreements of Lessor and Lessee with respect to the Premises are contained in this lease; and no modification, waiver or amendment of this lease or of any of its conditions or provisions shall be binding upon Lessor unless in writing signed by Lessor.

(c) Submission of this instrument for examination shall not constitute a reservation of or option for the Premises or in any manner bind Lessor, and no license or obligation of Lessor shall arise until this instrument is signed and delivered by Lessor and Lessee; provided, however, the execution and delivery by Lessee of this lease to Lessor or the agent of Lessor, or Lessor’s beneficiary, shall constitute an offer by Lessee to lease the Premises on the terms and conditions herein contained.

(d) The words “Lessee” and “Lessor” whenever used herein shall be construed to mean Lessee Lessor, respectively, or any one or more of them in all cases where there is more than one Lessee or Lessor; and the necessary grammatical changes required to make all the provisions hereof apply either to corporations or other organizations, partnerships or other entities, or individuals, shall in all cases be assumed as though in each case fully expressed. In all cases where there is more than one Lessee or Lessor, the liability of each Lessee or Lessor, respectively shall be joint and several.

(e) Time is of the essence of this lease and of each and every provision thereof.

(f) The invalidity of any provision of this lease shall not impair nor affect in any manner the validity, enforceability or effect of the remaining provisions of this lease.

(g) If Lessor fails to perform timely any of the terms, covenants and conditions of this lease on Lessor’s part to be performed, and such failure is due in whole or in part to any strike, lockout, labor trouble, civil disorder, inability to procure materials, failure of power, restrictive governmental laws and regulations, riots, insurrections, war, fuel shortages, accidents, casualties, acts of God, acts caused directly or indirectly by Lessee, or any other cause beyond the reasonable control of Lessor, then Lessor shall not be deemed in default under this lease as a result of such failure.

(h) [Deleted]

(i) [Deleted]

 


(j) Where in this instrument masculine pronouns are used, or words indicating the singular number appear, such words shall be considered as if feminine or neuter pronouns or words indicating the plural number had been used, where the context indicates the propriety of such use.

(k) Where in this instrument rights are given to either Lessor or Lessee, such rights shall extend to the agents, employees, or representatives of such persons.

(l) If this instrument is executed by a corporation, such execution has been authorized by a duly adopted resolution of the Board of Directors of such corporation.

IN TESTIMONY WHEREOF, the parties hereto have executed this instrument this 18th day of July, 2007.

 


                    LESSEE     LESSOR
RUBICON TECHNOLOGY, INC.    
   

/s/ Phillip J. Latoria, Jr.

    Phillip J. Latoria, Jr.
By:   /s/ Raja M. Parvez      
       
Title:   President      


Exhibit A

Legal Description:

That part of Lots 1, 2, 12, and 13 as taken as a Tract in Green Avenue Acres, a subdivision in Sections 13 and 24, Township 40 North, Range 11 East of the Third Principal Meridian, which lies West of a line 213.9 feet West of and parallel with the East line of said Lot 12 and which lies North of a line drawn perpendicularly to the East line of said tract through a point on said East line 224.90 feet South of the Northeast corner thereof, in DuPage County, Illinois.

Lender is:

The Private Bank

1100 Jorie Blvd.

Oak Brook, IL 60521

Lessor shall provide the following improvements (all pursuant to drawings and plans and specifications reasonably acceptable to Lessor and Lessee) which Lessor shall complete on or before July 31, 2007, unless completion is delayed by the work to be performed by Lessee:

 

Building Size:

   30,500 sq ft.

Parking:

   (60) Spaces

Truck Docks:

   (2) Interior

D.I.D:

   (1) 12’ x 14’

Sprinkler:

   ESFR

Height:

   24’ Clear Warehouse

Height:

   9’ Clear Offices

*1st Floor Offices:

   4,000 sq ft. complete

*2nd Floor Offices:

   6,000 sq ft. perimeter build-out.

*1st Floor Restrooms: 2 stall men’s room and 2 stall women’s room (the location shall be changed to the Lessee’s preferred location in warehouse).
*2nd Floor Restrooms: 2 stall men’s room and 2 stall women’s room

Exhibit 23.1

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We have issued our report dated September 4, 2007, accompanying the financial statements of Rubicon Technology, Inc. (which report expressed an unqualified opinion and contains an explanatory paragraph relating to the adoption of Statement of Financial Accounting Standards No. 123(R), Share-Based Payment , and Financial Accounting Standards Staff Position 150-5, Issuer’s Accounting under FASB Statement No. 150 for Freestanding Warrants and Other Similar Instruments on Shares that are Redeemable ) contained in the Registration Statement and Prospectus. We consent to the use of the aforementioned report in the Registration Statement and Prospectus, and to the use of our name as it appears under the caption “Experts.”

/s/ Grant Thornton LLP

Chicago, Illinois

September 4, 2007