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.
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.
“ 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
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:
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;
(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.
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
(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 dissolu