Exhibit (a)(1)(i)
CAPSTONE TURBINE CORPORATION
OFFER TO EXCHANGE CERTAIN OUTSTANDING OPTIONS FOR NEW OPTIONS
June 25, 2003
This offer to exchange (the "OFFER") and the right to withdraw from this
Offer expire at 5:00 p.m., Pacific Time, on July 24, 2003, unless we extend the
Offer.
This document constitutes part of a prospectus relating to Capstone
Turbine Corporation's 1993 Incentive Stock Plan and its 2000 Equity Incentive
Plan covering securities that have been registered under the Securities Act of
1933, as amended (the "SECURITIES ACT").
Capstone Turbine Corporation ("CAPSTONE," "WE" or "US") is offering
eligible persons the opportunity to exchange outstanding, unexercised options to
purchase shares of Capstone common stock with exercise prices greater than or
equal to $2.00 per share for new options that Capstone will grant under its 2000
Equity Incentive Plan (the "2000 EQUITY PLAN").
"Eligible persons" are all non-executive employees of Capstone (or of any
of our subsidiaries). Our directors, executive officers/management and
consultants are not eligible to participate in this Offer.
If you elect to exchange an option in the Offer, you will receive a new
option to purchase a number of Capstone shares equal to the number of
unexercised shares subject to the old option you are tendering.
Eligible persons may only tender options for all or none of the
outstanding, unexercised shares subject to an individual option grant.
Subject to the terms and conditions of this Offer, we will grant the new
options no earlier than the first business day that is six months and one day
after the date on which we cancel the options accepted for exchange (the "NEW
OPTION GRANT DATE"). This Offer is currently scheduled to expire at 5:00 p.m.,
Pacific Time, on July 24, 2003 (the "EXPIRATION DATE"), and we expect to cancel
options on July 25, 2003, or as soon as possible thereafter (the "CANCELLATION
DATE"). The Offer commenced on June 25, 2003 (the "COMMENCEMENT DATE").
The exercise price per share of the new options will be the closing price
of our common stock reported by Nasdaq on the date of grant of the new options.
Each new option will be subject to a new vesting schedule that we describe on
page 22.
This Offer is not conditioned on a minimum number of options being
tendered. Participation in the Offer is voluntary. The Offer is subject to
conditions that we describe in Section 7 of this Offer.
Although Capstone's Board of Directors has approved making this Offer,
neither Capstone nor the Board of Directors makes any recommendation as to
whether you should tender or not tender your options for exchange. READ ALL THE
ENCLOSED DOCUMENTS CAREFULLY, ESPECIALLY "CERTAIN RISKS OF PARTICIPATING IN THE
OFFER" BEGINNING ON PAGE 8. You must evaluate the risks associated with the
Offer and make your own decision whether or not to tender your options.
Capstone common stock trades on the Nasdaq National Market under the
symbol "CPST." On June 23, 2003, the closing price of our common stock reported
on the Nasdaq National Market was $1.27 per
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share. WE RECOMMEND THAT YOU EVALUATE CURRENT MARKET QUOTES FOR OUR COMMON
STOCK, AMONG OTHER FACTORS, BEFORE DECIDING WHETHER OR NOT TO TENDER YOUR
OPTIONS.
You should direct questions about the mechanics of this Offer or requests
for additional copies of the documents relating to this Offer to Susan Cayley,
General Counsel (telephone: (818) 734-5136; e-mail: scayley@capstoneturbine.com)
or Wade Welch, VP Finance (telephone: (818) 734-5555; e-mail:
wwelch@capstoneturbine.com). For questions regarding the financial or tax
implications of this Offer, you should contact your own financial and tax
advisors.
SEE PAGES 15 through 17 FOR INSTRUCTIONS ON HOW TO TENDER YOUR OPTIONS.
THIS OFFER HAS NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION (THE "SEC") OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SEC OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF
THE INFORMATION CONTAINED IN THIS OFFER. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
We are not making this Offer to, and we will not accept any tender of
options from or on behalf of, option holders in any jurisdiction in which the
Offer or the acceptance of any tender of options would not be in compliance with
the laws, rules, regulations or policies of that jurisdiction. However, we may,
at our discretion, take any actions necessary for us to make this Offer to
option holders in any of these jurisdictions.
WE HAVE NOT AUTHORIZED ANY PERSON TO MAKE ANY RECOMMENDATION ON OUR BEHALF
AS TO WHETHER YOU SHOULD TENDER OR NOT TENDER YOUR OPTIONS THROUGH THE OFFER.
YOU SHOULD RELY ONLY ON THE INFORMATION IN THIS DOCUMENT OR IN DOCUMENTS TO
WHICH WE REFER. WE HAVE NOT AUTHORIZED ANY THIRD PARTY TO GIVE YOU ANY
INFORMATION OR TO MAKE ANY REPRESENTATION IN CONNECTION WITH THE OFFER.
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TABLE OF CONTENTS
PAGE
SUMMARY TERM SHEET ........................ ........................................................ 1
CERTAIN RISKS OF PARTICIPATING IN THE OFFER ........................................................ 8
THE OFFER
1. Eligibility ................................................................................. 13
2. Number of options; expiration date .......................................................... 13
3. Purpose of the Offer ........................................................................ 14
4. Procedures for tendering options ............................................................ 15
5. Withdrawal rights and change of election .................................................... 17
6. Acceptance of options for exchange and issuance of new options .............................. 18
7. Conditions of the Offer ..................................................................... 19
8. Price range of shares underlying the options ................................................ 21
9. Source and amount of consideration; terms of new options .................................... 22
10. Information concerning Capstone Turbine Corporation ......................................... 24
11. Interests of directors and officers; transactions and arrangements concerning the options ... 25
12. Status of options acquired by us in the Offer; accounting consequences of the Offer ......... 26
13. Legal matters; regulatory approvals ......................................................... 26
14. Material U.S. federal income tax consequences ............................................... 27
15. Extension of Offer; termination; amendment .................................................. 28
16. Fees and expenses ........................................................................... 29
17. Additional information ...................................................................... 29
18. Financial information ....................................................................... 30
19. Miscellaneous ............................................................................... 30
SCHEDULE A Information Concerning the Executive Officers
and Directors of Capstone Turbine Corporation . ........................................ A-1
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Exhibit (a)(1)(i)
SUMMARY TERM SHEET
The following are answers to some of the questions that you may have about
this Offer. We urge you to read carefully this Offer as a whole because the
information in this summary is not complete, and additional important
information is contained in the remainder of this Offer and the accompanying
documents. For your convenience, we have included in this summary page
references to the remainder of this Offer where you can find a more complete
description of the topics addressed in this summary.
Q1. WHAT SECURITIES IS CAPSTONE OFFERING TO EXCHANGE?
We are offering to exchange outstanding, unexercised options to purchase
shares of Capstone common stock with exercise prices equal to or greater than
$2.00 per share issued under our 1993 Incentive Stock Plan or our 2000 Equity
Plan in return for new options which we will grant under our 2000 Equity Plan.
Q2. WHO IS ELIGIBLE TO PARTICIPATE?
You are eligible to participate if you are a non-executive employee of
Capstone or one of our subsidiaries in the United States and remain a
non-executive employee through the Cancellation Date. Members of our board of
directors, all of our executive officers, executive management and consultants
to Capstone are not eligible to participate. (Page 13)
Q3. MAY ELIGIBLE PERSONS OUTSIDE THE UNITED STATES PARTICIPATE?
No.
Q4. ARE THERE ANY ELIGIBILITY REQUIREMENTS THAT I MUST SATISFY AFTER THE
EXPIRATION DATE OF THE OFFER TO RECEIVE THE NEW OPTIONS?
In order to receive any new options, you must have had options cancelled
in accordance with this Offer and be an employee of Capstone, one of our
subsidiaries or a successor entity on the date the new options are granted.
Accordingly, if you are no longer an employee of Capstone, one of our
subsidiaries or a successor entity for any reason on the date of grant of the
new options, you will not receive any new options or other consideration in
exchange for your tendered options that have been accepted by us for exchange.
This means that if you quit for any reason, die, or we terminate your employment
arrangement, with or without cause or notice, and you are not an employee on the
date we grant the new options, you will not receive anything for the options you
tendered and we cancelled. (Pages 8-9 and 13)
Q5. WHY IS CAPSTONE MAKING THE OFFER?
We believe that holding stock options aligns employee and stockholder
interests and motivates higher levels of performance. The Offer provides an
additional incentive for eligible persons to stay with Capstone. Some of our
outstanding options, whether or not they are currently exercisable, have
exercise prices that are significantly higher than the current market price of
our common stock. We believe these options do not provide adequate incentives
because the exercise prices of the options significantly exceed our current
market price. By making this offer to exchange outstanding options for new
options that will have an exercise price equal to the market value of the shares
on the New Option Grant Date, we intend to provide eligible persons with the
benefit of owning options that, over time, may have a greater potential to
increase in value. We
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believe this will create better performance incentives for eligible persons and
thereby enhance stockholder value. (Page 14)
Q6. WHAT ARE THE CONDITIONS TO THE OFFER?
The conditions are described in Section 7 of this Offer. This Offer is not
conditioned on a minimum number of options being tendered. Participation in this
Offer is voluntary. (Pages 19-21)
Q7. HOW MANY NEW OPTIONS WILL I RECEIVE IN EXCHANGE FOR MY TENDERED OPTIONS?
Tendered options will be exchanged on a one new share-for-one old share
basis. The number of new option shares that you receive will also be subject to
adjustment for any stock splits, reverse stock splits, subdivisions,
combinations, stock dividends and similar events that occur after the
Cancellation Date but before the New Option Grant Date. (Page 13)
Q8. WHEN WILL I RECEIVE MY NEW OPTIONS?
The Board of Directors of Capstone intends to grant the new options no
earlier than the date that is six months and one day after the Cancellation
Date. If we do not extend the Offer, the New Option Grant Date will be January
26, 2004. You must execute a new option agreement before receiving your new
option. (Page 13)
Q9. IF I TENDER OPTIONS IN THE OFFER, WILL I BE ELIGIBLE TO RECEIVE OTHER
OPTION GRANTS?
If we accept options you tender in the Offer, we will not grant you any
other options until at least six months and one day after the Cancellation Date.
(Page 13)
Q10. WILL I BE REQUIRED TO GIVE UP ALL MY RIGHTS TO THE CANCELLED OPTIONS?
Yes. Once we have accepted the options that you have tendered, your
options will be cancelled and you will no longer have any rights under those
options. (Pages 8 and 18)
Q11. WHAT WILL THE EXERCISE PRICE OF THE NEW OPTIONS BE?
The exercise price per share of the new options will be the closing price
of our common stock reported by the Nasdaq National Market on the date of grant
of the new options. We cannot predict the exercise price of the new options. The
new options may have a higher exercise price than some or all of your current
options. (Pages 22-23)
Q12. IF I CHOOSE TO TENDER AN OPTION THAT IS ELIGIBLE FOR EXCHANGE, DO I HAVE
TO TENDER ALL THE SHARES COVERED BY THAT OPTION?
Yes. We are not accepting partial tenders of options. You may only tender
all or none of the unexercised shares covered by each option. However, you may
tender the remaining portion of an option that you have partially exercised.
For example, if you hold (i) an option to purchase 1,000 shares at an
exercise price of $29.07 per share, 700 of which you have already exercised,
(ii) an option to purchase 1,000 shares at an exercise price of
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$3.33 per share and (iii) an option to purchase 2,000 shares at an exercise
price of $2.50 per share, you may tender:
- none of your options,
- your first option covering 300 remaining unexercised shares,
- your second option covering 1,000 shares,
- your third option covering 2,000 shares,
- all unexercised shares under any two of your three options, or
- all unexercised shares under all three of your options.
(Page 13)
Q13. WHEN WILL THE NEW OPTIONS VEST?
Each new option will vest based on a new 42-month vesting schedule that
will begin on the New Option Grant Date. The new vesting schedule will be as
follows:
- 6/48 (or 12.5%) of the shares subject to the new option will be
vested on the New Option Grant Date, and
- 1/48 of the shares subject to the new option will vest monthly after
the New Option Grant Date, such that each new option will be fully
vested on the 42-month anniversary of the New Option Grant Date,
subject to your continued employment with us or one of our
subsidiaries through each relevant vesting date. (Page 22)
For example, a new option to purchase 2,400 shares of our common stock
granted on the scheduled New Option Grant Date of January 26, 2004 will vest as
follows:
- 300 of the shares subject to the new option will be vested on
January 26, 2004 and
- an additional 50 shares subject to the new option will vest monthly
beginning on February 26, 2004.
The vesting of any new options will cease if you are no longer an employee
of or providing services to Capstone or one of our subsidiaries. (Page 23)
Q14. WHAT IF CAPSTONE IS ACQUIRED BY ANOTHER COMPANY?
It is possible that, prior to the grant of the new options, Capstone might
be acquired by another company. The Promise to Grant Stock Option(s) which we
will provide to you promptly after the cancellation of any options you tender
for exchange is a binding commitment, and any successor to Capstone will be
legally obligated by that commitment, subject to you meeting the conditions for
receiving a new option. If
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Capstone is acquired by another company for stock before the new options are
granted, any new stock options you receive would be for the purchase of the
acquiring company's stock (as opposed to Capstone's) based on the exchange ratio
established in connection with the acquisition, with an exercise price equal to
the fair market value of the acquiring company's stock on the grant date of the
new options, subject to you meeting the conditions for receiving the new
options. If Capstone is acquired by another company solely for cash, the
treatment of the options would be similar to a stock acquisition; however, the
number of shares subject to the new options that you would receive would be
based on the number of shares of the acquiring company's stock that you would
have been able to purchase if you had received the cash paid to Capstone's
stockholders for all of the shares subject to your cancelled options. If
Capstone is acquired by another company whose stock is not publicly traded, then
any new stock options granted by the private company would likely be exercisable
for stock that is not publicly traded, which could be difficult to sell.
Depending on the structure of the transaction, an acquisition of Capstone could
potentially result in a greater financial benefit for those option holders who
opted not to participate in this Offer and who instead retained their original
options. (Page 19)
If we are acquired by another company, that company may decide to
terminate some or all of our employees before granting new options, which would
mean that those terminated employees would not receive the new options or any
other consideration for their options that were cancelled. TERMINATION OF YOUR
EMPLOYMENT (OR MODIFICATION OF YOUR RELATIONSHIP FROM AN EMPLOYMENT ARRANGEMENT
TO A CONSULTING ARRANGEMENT) FOR THIS OR ANY OTHER REASON BEFORE THE NEW OPTIONS
ARE GRANTED MEANS THAT YOU WILL RECEIVE NEITHER NEW OPTIONS, NOR ANY OTHER
COMPENSATION FOR YOUR CANCELLED OPTIONS. (Pages 8-9)
Q15. ARE THERE CIRCUMSTANCES WHERE I WOULD NOT BE GRANTED NEW OPTIONS?
Yes. If, for any reason, you are no longer an employee of Capstone, one of
our subsidiaries or a successor entity on the date when new options are granted
(whether because you quit for any reason, die, are terminated by us (or our
subsidiaries or successor, as applicable) or your relationship changes from an
employment arrangement to a consulting arrangement), you will not receive any
new options. Your employment with Capstone or one of our subsidiaries remains
"at will" and can be terminated by you or Capstone or one of our subsidiaries at
any time, with or without notice. (Pages 8-9)
Even if we accept your tendered options, we will not grant new options to
you if we are prohibited by applicable laws, rules, regulations or policies from
doing so. (Pages 26-27)
Q16. WHAT HAPPENS TO OPTIONS THAT I CHOOSE NOT TO TENDER OR THAT ARE NOT
ACCEPTED FOR EXCHANGE?
Options that are eligible for exchange that you choose not to tender for
exchange or that we do not accept for exchange remain outstanding until you
exercise them or they expire by their terms, and they will retain their current
exercise price and vesting schedule.
Q17. WILL I HAVE TO PAY U.S. TAXES IF I EXCHANGE MY OPTIONS IN THE OFFER?
You should not be required under current law to recognize income for U.S.
federal income tax purposes at the time of the exchange or at the grant date of
the new options. (Page 27-28)
WE RECOMMEND THAT YOU CONSULT WITH YOUR OWN TAX ADVISOR TO DETERMINE THE
PERSONAL TAX CONSEQUENCES TO YOU OF PARTICIPATING IN THE EXCHANGE OFFER.
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Q18. WILL MY NEW OPTIONS BE INCENTIVE STOCK OPTIONS OR NON-STATUTORY STOCK
OPTIONS?
Regardless of whether your exchanged options under the 1993 Incentive
Stock Plan or the 2000 Equity Plan are incentive stock options or non-statutory
stock options, your new option grant will be a non-statutory stock option. We
recommend that you read the tax discussion in this Offer and discuss the
personal tax consequences of non-statutory stock options with your legal, tax
and financial advisors (Pages 27-28).
Q19. WHEN WILL MY NEW OPTIONS EXPIRE?
Your new options will expire ten years from the date of grant of the new
options. However, if your employment or consulting relationship with Capstone or
one of our subsidiaries terminates, the option will expire earlier. Note that
the terms of the Offer require that you continue to be an employee (and not a
consultant) through the New Option Grant Date in order to receive the new
options; however, once you receive the new option, it is possible that your
employment arrangement with Capstone may change to a consulting arrangement
without triggering the expiration of your new option. That is because the terms
of your new option (and not the terms of this Offer) will dictate the expiration
of that option, and most new options will continue to vest as long as you remain
a service provider to Capstone, whether as an employee, consultant or director.
(Pages 22-24)
Q20. WHEN DOES THE OFFER EXPIRE? CAN THE OFFER BE EXTENDED, AND IF SO, HOW WILL
I BE NOTIFIED IF IT IS EXTENDED?
The Offer expires on July 24, 2003, at 5:00 p.m., Pacific Time, unless we
extend it. We may, in our sole discretion, extend the Offer at any time, but we
cannot assure you that the Offer will be extended or, if extended, for how long.
If the Offer is extended, we will make a public announcement of the extension no
later than 6:00 a.m., Pacific Time, on the next business day following the
previously scheduled expiration of the Offer period. (Pages 28-29)
Q21. HOW DO I TENDER MY OPTIONS?
If you decide to tender your options, you must deliver, by 5:00 p.m.,
Pacific Time, on July 24, 2003 (or such later date and time as we may extend the
expiration of the Offer), a properly completed and executed Election Form and
any other documents required by the Election Form via facsimile or hand delivery
to Debbie Bernard in Human Resources at Capstone, whose contact information is
provided on Page 15. E-mail responses are not acceptable.
This is a one-time offer, and we will not accept late tenders of options
under any circumstances. We reserve the right to reject any or all tenders of
options that we determine are not in appropriate form or that we determine are
unlawful to accept. Subject to our rights to extend, terminate and amend the
Offer, we presently expect that promptly after the expiration of the Offer, we
will accept all properly tendered options. (Pages 18-19)
Q22. MAY I WITHDRAW PREVIOUSLY TENDERED OPTIONS?
You may withdraw your tendered options at any time before the Offer
expires at 5:00 p.m., Pacific Time, on July 24, 2003. If we extend the Offer
beyond that time, you may withdraw your tendered options at any time until the
extended expiration of the Offer. To withdraw tendered options, you must deliver
to us via facsimile or hand delivery a signed Notice to Withdraw from the Offer,
with the required information while
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you still have the right to withdraw the tendered options. Once you have
withdrawn options, you may re-tender options only by again following the
delivery procedures described above prior to the expiration of the Offer. The
Notice to Withdraw should be delivered to Debbie Bernard in Human Resources at
Capstone, whose contact information is provided on Page 15. (Pages 17-18)
PLEASE NOTE THAT IF YOU SUBMIT A NOTICE TO WITHDRAW FROM THE OFFER, YOU
WILL NO LONGER PARTICIPATE IN THE OFFER. IF YOU DO NOT WISH TO WITHDRAW ALL YOUR
TENDERED OPTIONS FROM THE OFFER, YOU SHOULD NOT SUBMIT A NOTICE TO WITHDRAW FROM
THE OFFER. IF YOU WISH TO CHANGE YOUR MIND ABOUT WHICH OPTIONS TO TENDER, YOU
MUST SUBMIT A NEW ELECTION FORM. PLEASE READ THE FOLLOWING QUESTION AND ANSWER
REGARDING A CHANGE IN ELECTION.
Q23. CAN I CHANGE MY ELECTION REGARDING PARTICULAR TENDERED OPTIONS?
Yes, you may change your election regarding particular tendered options at
any time before the Offer expires at 5:00 p.m., Pacific Time, on July 24, 2003.
If we extend the Offer beyond that time, you may change your election regarding
particular tendered options at any time until the extended expiration of the
Offer. In order to change your election and still participate in the Offer, you
must deliver to us a new Election Form via facsimile or hand delivery, which
includes the information regarding your new election, and is signed and clearly
dated after the date of your original Election Form. In order to change your
election and cease to participate in the Offer, you must deliver to us a Notice
to Withdraw from the Offer via facsimile or hand delivery, which is signed and
clearly dated after the date of your most recently submitted Election Form. Once
we receive a new Election Form or a Notice to Withdraw from the Offer submitted
by you, your previously submitted Election Form will be disregarded. A new
Election Form or a Notice to Withdraw from the Offer should be delivered to
Debbie Bernard in Human Resources at Capstone, whose contact information is
provided on Page 15. (Page 17-18)
Q24. WHY WAIT AT LEAST SIX MONTHS AND ONE DAY AFTER THE DATE WE CANCEL OPTIONS
TO GRANT THE NEW OPTIONS? WHY CAN'T CAPSTONE JUST REPRICE MY OPTIONS, AS I
HAVE SEEN DONE AT OTHER COMPANIES?
Published rules of the Financial Accounting Standards Board require
options granted within six months of cancelled options to be treated as a
variable expense to earnings. This means that we would be required to record the
non-cash accounting impact of increases in our stock price as a compensation
expense if we issued new options immediately. We would have to continue this
variable accounting for these new options until they were exercised, forfeited
or terminated. The higher the market value of our shares, the greater the
compensation expense we would have to record. By deferring the grant of the new
options for at least six months and one day, we believe that we will not have to
treat the new options as variable awards. We believe that many companies,
including many of our peer companies that have exchanged options, have followed
the same process of applying the six month and one day waiting period before
granting new options.
Q25. IS THIS A REPRICING?
No. Instead of repricing old options, this Offer is called a cancel and
regrant which includes at least a six month and one day waiting period before
obtaining a new fair market value grant. The Financial Accounting Standards
Board has adopted rules that result in unfavorable accounting consequences for
companies that reprice options. If we repriced your options, our potential for
profitability in the future would be significantly reduced because we would be
required to record a charge against earnings with respect to any future
appreciation of the repriced options.
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Q26. WHY CAN'T I JUST BE GRANTED ADDITIONAL OPTIONS?
Because of the large number of options with exercise prices that exceed
our current market price, a grant of additional options to holders of such
options would potentially dilute our stockholders by increasing our number of
outstanding shares and, in any quarter in which we are profitable, would lower
our diluted earnings per share.
Q27. WOULDN'T IT BE EASIER TO JUST TERMINATE MY EMPLOYMENT WITH CAPSTONE AND
THEN GET REHIRED?
No. The accounting rules we follow look through any change in the legal
form of your relationship with Capstone and still require a six month and one
day minimum waiting period to receive new options.
Q28. WHY WILL MY NEW OPTIONS TAKE LONGER TO FULLY VEST THAN MY OLD OPTIONS?
This is intended to balance the interests of the eligible persons and our
stockholders. Eligible persons are being offered an opportunity to exchange old
options with high exercise prices for new options with exercise prices equal to
the fair market value of our common stock at the time of grant of the new
options. The extended vesting provides the Company and our stockholders with an
additional employee retention incentive.
Q29. WHAT DO CAPSTONE AND THE BOARD OF DIRECTORS THINK OF THE OFFER?
Although our Board of Directors has approved the Offer, neither we nor our
Board of Directors makes any recommendation as to whether you should tender or
not tender your options. You must make an independent decision on whether or not
to tender options. We strongly urge you to read "Certain Risks of Participating
in the Offer" beginning on page 8 of this Offer. For questions regarding tax
implications or other investment-related questions, you should talk to your own
legal counsel, and financial and tax advisors.
Q30. TO WHOM CAN I TALK IF I HAVE QUESTIONS ABOUT THE OFFER?
For additional information or assistance on the mechanics of the Offer,
you should contact Susan Cayley, General Counsel (telephone: (818) 734-5136;
e-mail: scayley@capstoneturbine.com) or Wade Welch, VP Finance (telephone: (818)
734-5555; e-mail: wwelch@capstoneturbine.com). For questions regarding the
financial or tax implications of this Offer, you should contact your own legal,
financial and tax advisors.
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CERTAIN RISKS OF PARTICIPATING IN THE OFFER
Participation in the Offer involves a number of potential risks, including
those described below. This list and the risk factors under the heading
"Business Risks" in Capstone's annual report on Form 10-K for the year ended
December 31, 2002 and in our quarterly report on Form 10-Q for the fiscal
quarter ended March 31, 2003, both filed with the SEC, highlight the material
risks of participating in this Offer. Eligible participants should carefully
consider these risks and are encouraged to speak with their legal, financial and
tax advisors before deciding whether to participate in the Offer.
ECONOMIC RISKS
IF OUR STOCK PRICE INCREASES AFTER THE DATE YOUR TENDERED OPTIONS ARE CANCELLED,
YOUR CANCELLED OPTIONS MIGHT HAVE BEEN WORTH MORE THAN THE NEW OPTIONS THAT YOU
RECEIVE IN EXCHANGE FOR THEM.
We cannot predict the exercise price of new options. Because we will not
grant the new options for at least six months and one day after the Cancellation
Date, the new options may have a higher exercise price than some or all of your
current options.
We may engage in transactions in the future with business partners or
other companies which could significantly change our structure, ownership,
organization or management or the composition of our Board of Directors, and
which could significantly affect the price of our shares. If we engage in such a
transaction or transactions before the date we grant the new options, our shares
could increase (or decrease) in value, and the exercise price of the new options
could be higher (or lower) than the exercise price of options you elect to
tender and that are cancelled by us in connection with this Offer.
IF YOU ARE NO LONGER AN EMPLOYEE OF CAPSTONE, ONE OF OUR SUBSIDIARIES OR A
SUCCESSOR ENTITY FOR ANY REASON ON THE DATE OF GRANT OF THE NEW OPTIONS,
INCLUDING AS THE RESULT OF A REDUCTION-IN-FORCE, A CHANGE IN YOUR POSITION FROM
AN EMPLOYEE TO A CONSULTANT OR ANOTHER COMPANY'S ACQUISITION OF US, YOU WILL
NEITHER RECEIVE A NEW OPTION NOR HAVE ANY OF YOUR CANCELLED OPTIONS RETURNED TO
YOU.
Once we cancel the options that you elect to exchange, all of your rights
under those options terminate. Accordingly, if you are no longer an employee of
Capstone, one of our subsidiaries or a successor entity for any reason on the
date of grant of the new options, you will not receive any new options or other
consideration in exchange for your tendered options that have been accepted by
us for exchange. This means that if you quit for any reason, die, or we
terminate your employment arrangement, with or without cause or notice, and are
not an employee on the date we grant the new options, you will not receive
anything for the options you tendered and we cancelled.
If you tender options in the Offer, and, after the Cancellation Date but
before the New Option Grant Date, your relationship with Capstone changes from
an employment relationship to a consulting relationship, you will not receive
anything for the options you tendered and we cancelled, because you will have
ceased to be an employee of Capstone between the Cancellation Date and the New
Option Grant Date.
If you tender options in the Offer, and, after the Cancellation Date but
prior to the New Option Grant Date, you are promoted to an executive management
position at Capstone, you will remain eligible to receive new options in
exchange for your tendered options in accordance with the terms of the Offer
(even though
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you would not have been an eligible person on the Cancellation Date had you held
that position as of that date).
This Offer is not a guarantee of employment for any period. Your
employment relationship with Capstone (or one of our subsidiaries or a successor
entity, as applicable) may be terminated at any time by either you or us, with
or without cause or notice.
If the economic conditions in our end-markets remain stagnant or worsen,
the Company may undertake various additional measures to reduce its expenses
including, but not limited to, a further reduction-in-force of its employees.
Should your employment relationship be terminated as part of any such
reduction-in-force, you will not have the benefit of the cancelled option or any
new option.
If Capstone is acquired by another company, that company may, as part of
the transaction or otherwise, decide to terminate some or all of our employees
prior to the grant of new options under this option exchange program. If you do
not have an employment relationship with Capstone (or one of our subsidiaries,
or a successor entity, as applicable) due to our being acquired, or for any
other reason on the date of grant of the new options, you will neither receive
the new option, nor will you receive any other consideration for the options
that were cancelled.
OUR NASDAQ LISTING MAY BE ADVERSELY AFFECTED IF OUR STOCK PRICE DROPS AND WE ARE
UNABLE TO MEET NASDAQ'S LISTING REQUIREMENTS THROUGH OTHER ACTIONS.
In order to continue to be listed on Nasdaq, we must meet specific
quantitative standards, including a minimum bid price. On two occasions, we have
received notice from Nasdaq that the price of our stock had closed below the
minimum $1.00 per share requirement for 30 consecutive trading days. However, we
have been able to regain compliance on both occasions. If we should fail to meet
this listing requirement again and we fail to regain compliance, we may apply
for listing on the Nasdaq SmallCap Market (where we may have up to an additional
nine months to comply with the minimum bid price requirements for continued
listing) or we may pursue alternative strategies to allow our common stock to
continue to be listed. If we fail to meet the continuing listing standards for
Nasdaq (and, should we be listed on the Nasdaq SmallCap Market, if we fail to
meet its continuing listing standards), our stock may be delisted. The delisting
of our common stock would adversely affect the liquidity and trading price of
our securities, including the common stock obtainable upon exercise of our stock
options.
OUR STOCKHOLDERS HAVE AUTHORIZED OUR BOARD OF DIRECTORS TO IMPLEMENT A REVERSE
STOCK SPLIT IF NEEDED TO REGAIN COMPLIANCE WITH NASDAQ'S LISTING REQUIREMENTS,
BUT THE EFFECT OF A REVERSE STOCK SPLIT ON THE PRICE OF OUR COMMON STOCK (AND
THEREFORE ON THE NEW OPTIONS) IS UNCERTAIN. ALSO, A REVERSE STOCK SPLIT CAN
POTENTIALLY HAVE AN ANTI-TAKEOVER EFFECT BY MAKING IT MORE DIFFICULT FOR ANOTHER
COMPANY TO ACQUIRE CONTROL OF US.
At our 2003 annual meeting of stockholders, our stockholders authorized
our Board of Directors to implement a reverse stock split at any time on or
before May 30, 2004 in a ratio in the range from one-for-five to one-for-twenty,
with the exact ratio to be established by our Board. One of the primary purposes
of the reverse stock split would be to increase our common stock price in order
to regain compliance with Nasdaq's minimum price listing requirements and avoid
being delisted, as discussed above.
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If we fail to meet Nasdaq's listing requirements again, our Board may
decide to implement a reverse stock split. If the Board decides to implement a
reverse stock split before the date that the new options are granted, the number
of shares subject to your new option will be appropriately adjusted to reflect
the reverse stock split. However, it is uncertain whether a reverse stock split
would have an additional effect (beyond the initial proportional increase in our
stock price) on the market price of our common stock following its
implementation. The market price per new share of our common stock after the
reverse stock split may rise or fall due to the market's response to the terms
and timing of the reverse stock split, due to an increased interest in our
common stock by institutional investors and investment funds as a result of the
higher stock price or due to any number of other factors unrelated to the
reverse stock split. If the reverse stock split occurs before the date that the
new options are granted, our common stock price, and therefore the exercise
price of the new options, could increase as a result of the reverse stock split.
In addition, a reverse stock split could cause our common stock price eventually
to fall to a price less than the exercise price of the new options. We cannot
predict the effect that a reverse stock split will have upon the price of our
common stock beyond the initial proportional increase that occurs immediately as
part of the reverse stock split.
The increased proportion of unissued authorized shares to issued shares
resulting from the reverse stock split could, under certain circumstances, have
an anti-takeover effect (for example, by permitting issuances that would dilute
the stock ownership of a person seeking to change the composition of our Board
of Directors or trying to conduct a tender offer or other transaction with the
goal of merging Capstone with another company). However, that potential
anti-takeover effect is an ancillary result of adopting a reverse stock split,
which we proposed for reasons primarily related to our current stock price. The
reverse stock split was not proposed in response to any effort by a third party
to accumulate our common stock or obtain control of Capstone.
PARTICIPATION IN THE OFFER WILL MAKE YOU INELIGIBLE TO RECEIVE ANY NEW OPTION
GRANTS UNTIL JANUARY 26, 2004, AT THE EARLIEST.
You are generally eligible to receive option grants at any time that the
Board of Directors or a Committee appointed by the Board chooses to make them.
However, if you participate in the Offer, you will not be eligible to receive
any additional option grants until January 26, 2004, at the earliest.
IF CAPSTONE IS ACQUIRED BY OR MERGES WITH ANOTHER COMPANY, THAT TRANSACTION
COULD HAVE THE EFFECT OF INCREASING OUR STOCK PRICE BEFORE THE NEW OPTIONS ARE
GRANTED OR CHANGING THE NATURE OF THE SECURITIES OR OTHER CONSIDERATION
UNDERLYING THE NEW OPTIONS.
Capstone's merger with or sale to another company could have substantial
effects on our stock price, including potentially substantial appreciation in
the price of our stock. Depending on the structure and terms of such a
transaction, tendering option holders might be deprived of any further price
appreciation in the stock associated with the new options. For example, if our
common stock is acquired in a cash merger before the new options are granted,
the fair market value of our common stock, and hence the price at which new
options would be granted, could be at a price at or near the cash price being
paid for our common stock in the transaction, yielding limited or no financial
benefit to a recipient of the new options for that transaction.
In addition, if Capstone is acquired by another company for stock before
the new options are granted, then any new stock options you receive would be for
the purchase of the acquiring company's stock (as opposed to Capstone's) based
on the exchange ratio in the acquisition, with an exercise price equal to the
fair market value of the acquiring company's stock on the grant date of the new
options, subject to you meeting
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the conditions for receiving the new options. If Capstone is acquired by another
company solely for cash, the treatment of the options would be similar to a
stock acquisition, however the number of shares subject to the new options that
you would receive would be based on the number of shares of the acquiring
company's stock that you would have been able to purchase if you had received
the cash paid to Capstone's stockholders for all of the shares subject to your
cancelled options. If Capstone is acquired by another company whose stock is not
publicly traded, then any new stock options granted by the private company would
likely be exercisable for stock that is not publicly traded which could be
difficult to sell. Option holders who do not tender their options in the Offer
will have their outstanding options treated in accordance with the terms of the
plan they are granted under, and if their options are assumed by a successor to
our company, those options would be priced in accordance with the terms of that
transaction. This could potentially result in a greater financial benefit for
those option holders who decided not to participate in this Offer and who
instead retain their original options.
As outlined in Section 9 of this Offer, the exercise price of any new
options granted to you in return for your tendered options will be the fair
market value of the underlying shares on the date of grant of such new options.
You will be at risk of any such increase in our share price before the grant
date of the new options for these or any other reasons.
WE WILL NOT GRANT NEW OPTIONS TO YOU IF WE ARE PROHIBITED BY APPLICABLE LAWS OR
REGULATIONS.
Even if we accept your tendered options, we will not grant new options to
you if we are prohibited by applicable laws, rules, regulations or policies from
doing so. Such a prohibition could result from, among other things, changes in
U.S. laws, SEC or other similar regulatory authority's rules, regulations or
policies or Nasdaq National Market listing requirements, any delisting of our
common stock or if you move to a jurisdiction in which we are prohibited or
prevented from granting options.
BUSINESS-RELATED RISKS
For a description of risks related to Capstone's business, please see the
discussion of risks associated with our business under Item 5 of Part II ("Other
Information-Business Risks") in Capstone's quarterly report on Form 10-Q for the
fiscal quarter ended March 31, 2003, filed with the SEC.
TAX-RELATED RISKS FOR U.S. RESIDENTS
YOUR NEW OPTION WILL BE A NON-STATUTORY STOCK OPTION, WHEREAS YOUR CANCELLED
OPTION MAY HAVE BEEN AN INCENTIVE STOCK OPTION.
Regardless of whether your exchanged options under the 1993 Incentive
Stock Plan or the 2000 Equity Incentive Plan are incentive stock options or
non-statutory stock options, your new option grant will be a non-statutory stock
option. In general, non-statutory stock options may be less favorable to you
from a tax perspective. We recommend that you read the tax discussion in this
Offer in Section 14 and discuss the personal tax consequences of non-statutory
stock options with your legal, tax and financial advisors.
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EVEN IF YOU ELECT NOT TO PARTICIPATE IN THE OPTION EXCHANGE PROGRAM, YOUR
INCENTIVE STOCK OPTIONS MAY BE AFFECTED.
You should note, if you are subject to the tax laws of the United States,
that there is a risk that any of your incentive stock options that are eligible
for exchange may be affected, even if you do not participate in the exchange.
However, we believe that you will not be subject to current U.S. federal income
tax if you do not elect to participate in the option exchange program, even if
you hold eligible options. We also believe that the option exchange program will
not change the U.S. federal income tax treatment of subsequent grants and
exercises of your incentive stock options (and sales of shares acquired upon
exercises of such options) if you do not participate in this Offer.
However, the IRS may characterize this Offer as a "modification" of those
incentive stock options, even if you decline to participate. A successful
assertion by the IRS of this position could extend the options' holding period
to qualify for favorable tax treatment. In such case, if you dispose of your
incentive stock option shares before the end of this longer holding period
(which would be two years from the date the new options are granted and one year
from exercise), your incentive stock option could be taxed as a non-statutory
stock option.
In 1991, the IRS issued a private letter ruling in which another company's
option exchange program was characterized as a "modification" of all of the
incentive stock options that could be exchanged. This does not necessarily mean
that our Offer will be viewed the same way. Private letter rulings given by the
IRS contain the IRS's opinion regarding only the specific facts presented by a
specific person or company. The person or company receiving the letter may rely
on it, but no other person or company may rely on the letter ruling, nor may
they assume the same opinion would apply to their situation, even if the facts
at issue are similar. While such letters do not provide certainty, they may
indicate how the IRS will view a similar situation. We therefore do not know if
the IRS will assert the position that our Offer constitutes a "modification" of
all of the incentive stock options eligible for exchange.
YOU SHOULD REVIEW SECTION 14 CAREFULLY FOR A MORE DETAILED DISCUSSION OF
THE POTENTIAL FEDERAL INCOME TAX CONSEQUENCES OF PARTICIPATING IN THIS OFFER. WE
RECOMMEND THAT YOU CONSULT WITH YOUR PERSONAL LEGAL, FINANCIAL AND TAX ADVISORS
BEFORE DECIDING WHETHER TO PARTICIPATE IN THE OFFER WITH RESPECT TO THE LEGAL
AND TAX CONSEQUENCES RELATING TO YOUR SPECIFIC CIRCUMSTANCES.
-12-
THE OFFER
1. Eligibility.
Eligible persons may participate in this Offer. "Eligible persons" are all
holders of stock options eligible to be tendered pursuant to this Offer who (i)
reside in the United States, (ii) hold their options as of the Commencement Date
and through the Cancellation Date and (iii) are non-executive employees of
Capstone or its subsidiaries (i.e., our directors, executive officers, executive
management and consultants are not eligible to participate in this Offer).
IN ORDER TO RECEIVE A NEW OPTION, YOU MUST BE AN ELIGIBLE PERSON AS OF THE
CANCELLATION DATE WHO HAD OPTION(S) CANCELLED IN ACCORDANCE WITH THIS OFFER AND
MUST CONTINUE TO BE AN EMPLOYEE OF CAPSTONE, ONE OF OUR SUBSIDIARIES OR A
SUCCESSOR ENTITY ON THE DATE THE NEW OPTIONS ARE GRANTED, WHICH WILL NOT BE
BEFORE THE FIRST BUSINESS DAY THAT IS AT LEAST SIX MONTHS AND ONE DAY AFTER THE
CANCELLATION DATE. IF, FOR ANY REASON, YOU DO NOT MEET THESE CONDITIONS ON THE
DATE WE GRANT THE NEW OPTIONS, YOU WILL NOT RECEIVE ANY NEW OPTIONS OR OTHER
CONSIDERATION IN EXCHANGE FOR YOUR TENDERED OPTIONS THAT WE HAVE ACCEPTED FOR
EXCHANGE AND CANCELLED. If Capstone does not extend the Offer, the new options
will be granted on January 26, 2004.
Only outstanding, unexercised options granted with exercise prices greater
than or equal to $2.00 per share may be tendered for exchange by eligible
persons.
Eligible persons may only tender options for all or none of the
outstanding, unexercised shares subject to an individual option grant. IF YOU
WERE GRANTED TWO OPTIONS ON THE SAME DAY IN ORDER TO DIVIDE A GRANT INTO AN
INCENTIVE STOCK OPTION AND A NON-STATUTORY STOCK OPTION, YOU MUST TENDER EITHER
BOTH OR NEITHER OF THOSE OPTIONS. If you participate in the Offer, you will not
be eligible to receive any additional option grants until January 26, 2004, at
the earliest.
As of June 10, 2003, options to purchase 9,851,440 shares of our common
stock were issued and outstanding. Of the total options issued and outstanding,
options to purchase 1,026,013 of our shares, constituting approximately 10.41%
of the options outstanding, are eligible to be tendered in the Offer.
2. Number of options; expiration date.
If you are an eligible person and elect to exchange an option in the
Offer, you will receive a new option to purchase a number of Capstone shares
equal to the number of unexercised shares subject to the old option you are
tendering, subject to your employment status on the date of grant of the new
option. This ratio is subject to adjustments for any future stock splits, stock
dividends and similar events.
The Expiration Date is 5:00 p.m., Pacific Time, on July 24, 2003, unless
and until we, in our sole discretion, have extended the period of time during
which the Offer will remain open, in which event the term "Expiration Date"
refers to the latest time and date at which the Offer, as so extended, expires.
See Section 15 of this Offer for a description of our rights to extend, delay,
terminate or amend the Offer.
We will publish notice or otherwise inform you in writing if we:
- increase or decrease the amount of consideration offered for the
options, or
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- increase or decrease in the number of options eligible to be
tendered in the Offer.
If the Offer is scheduled to expire at any time earlier than the tenth
business day from, and including, the date that notice of any increase or
decrease of the kind described above is first published, sent or given in the
manner specified in Section 15 of this Offer, we will extend the Offer so that
the Offer is open at least ten business days following the publication, sending
or giving of such notice.
We will also notify you of any other material change in the information
contained in this Offer in the manner required by applicable law.
For purposes of the Offer, a "business day" means any day other than a
Saturday, Sunday or United States federal holiday and consists of the time
period from 12:01 a.m. through 12:00 midnight, Eastern Time.
3. Purpose of the Offer.
We issued the options outstanding to:
- provide our eligible persons with additional incentive and to
promote the success of our business,
- encourage our eligible persons to continue their employment with us,
and
- align employee and stockholder interests.
Many of our outstanding options, whether or not they are currently
exercisable, have exercise prices that are significantly higher than the current
market price of our shares. By making this offer to exchange certain outstanding
options for new options that will have an exercise price equal to the fair
market value of the shares on the grant date of the new options, we intend to
provide our eligible persons with the benefit of owning options that over time
may have a greater potential to increase in value, creating better performance
and retention incentives for eligible persons and thereby maximizing stockholder
value.
Except as otherwise disclosed in this Offer or in our filings with the SEC
(including disclosure in this Offer and in our SEC filings concerning the
reverse stock split approved by our stockholders at the 2003 annual meeting of
stockholders and the risks related to potential delisting of our common stock),
we presently have no plans or proposals that relate to or would result in:
- any extraordinary transaction, such as a merger, consolidation,
reorganization or liquidation, involving us or any of our material
subsidiaries;
- any purchase, sale or transfer of a material amount of our assets or
any of our subsidiaries;
- any material change in our present dividend rate or policy, or our
indebtedness or capitalization;
- any change in our present Board of Directors or management,
including a change in the number or term of directors or to fill any
existing board vacancies or to change any
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executive officer's material terms of employment (other than (a) the
anticipated resignation of John G. McDonald from our Board of
Directors on or before September 30, 2003 due to additional
responsibilities and time constraints imposed upon him by his
employment and other professional activities, (b) the anticipated
appointment of a new member to our Board of Directors and (c) when
we hire a new Chief Executive Officer, the expected addition of that
person to our Board as well);
- any other material change in our corporate structure or business;
- our common stock being delisted from a national securities exchange
or not being authorized for quotation in an automated quotation
system operated by a national securities association;
- our common stock becoming eligible for termination of registration
pursuant to Section 12(g)(4) of the Securities Exchange Act of 1934,
as amended (the "EXCHANGE ACT");
- the suspension of our obligation to file reports pursuant to Section
15(d) of the Exchange Act;
- the acquisition by any person of an amount of our securities or the
disposition of an amount of any of our securities; or
- any change in our charter or bylaws, or any actions which may impede
the acquisition of control of us by any person.
Neither Capstone nor Capstone's Board of Directors makes any
recommendation as to whether you should tender or not tender your options, nor
have we authorized any person to make any such recommendation. You are urged to
evaluate carefully all of the information in this Offer and to consult your own
legal, financial and tax advisors. You must make an independent decision whether
or not to tender your options for exchange.
4. Procedures for tendering options.
Proper Tender of Options.
To validly tender your options through the Offer, you must, in accordance
with the terms of the Election Form, properly complete, execute and deliver the
Election Form to us via facsimile or hand delivery (e-mail is not sufficient)
to:
Capstone Turbine Corporation
Attention: Debbie Bernard
21211 Nordhoff Street
Chatsworth, California 91311
Ph: (818) 734-5431
Fax: (818) 734-5381
We must receive all of the required documents before 5:00 p.m., Pacific
Time, on July 24, 2003, unless we extend the Offer period.
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The Election Form must be signed and dated and must specify:
- the name of the option holder who tendered the options,
- the grant number of all options to be tendered,
- the grant date of all options to be tendered,
- the exercise price of all options to be tendered, and
- the total number of unexercised option shares subject to each option
to be tendered.
Except as described in the following sentences, the Election Form must be
executed by the option holder who tendered the options exactly as the option
holder's name appears on the option agreement or agreements evidencing the
options. If the option holder's name has legally been changed since the signing
of the option agreement, the option holder must submit proof of the legal name
change. If the signature is by an attorney-in-fact or another person acting in a
fiduciary or representative capacity, the signer's full title and proper
evidence of the authority of such person to act in that capacity must be
indicated on the Election Form.
YOU MAY WITHDRAW YOUR TENDERED OPTIONS AT ANY TIME PRIOR TO THE EXPIRATION
DATE, IN ACCORDANCE WITH SECTION 5 OF THIS OFFER. THE DELIVERY OF ALL DOCUMENTS,
INCLUDING ELECTION FORMS, ANY NOTICES TO WITHDRAW FROM THE OFFER AND ANY OTHER
REQUIRED DOCUMENTS, IS AT YOUR SOLE RISK. IN ALL CASES, YOU SHOULD ALLOW
SUFFICIENT TIME TO ENSURE TIMELY DELIVERY. WE INTEND TO CONFIRM RECEIPT OF YOUR
ELECTION FORM AND ANY NOTICE TO WITHDRAW FROM THE OFFER VIA E-MAIL WITHIN TWO
BUSINESS DAYS OF RECEIPT. IF YOU DO NOT RECEIVE CONFIRMATION OF RECEIPT, IT IS
YOUR RESPONSIBILITY TO ENSURE THAT WE HAVE RECEIVED YOUR ELECTION FORM AND ANY
NOTICE TO WITHDRAW FROM THE OFFER.
Determination of Validity; Rejection of Options; Waiver of Defects; No
Obligation to Give Notice of Defects.
We will determine, in our sole discretion, all questions as to the form of
documents and the validity, form, eligibility (including time of receipt) and
acceptance of any tender of options. Our determination of these matters will be
final and binding on all parties. We reserve the right to reject any or all
tenders of options that we determine are not in appropriate form or that we
determine are unlawful to accept. We also reserve the right to waive any of the
conditions of the Offer or any defect or irregularity in any tender of any
particular options or for any particular option holder. No tender of options
will be deemed to have been properly made until all defects or irregularities
have been cured by the tendering option holder or waived by us. Neither we nor
any other person is obligated to give notice of any defects or irregularities in
tenders, nor will anyone incur any liability for failure to give any notice.
This is a one-time offer, and we will strictly enforce the Offer period.
Our Acceptance Constitutes an Agreement.
Your tender of options pursuant to the procedures described above
constitutes your acceptance of the terms and conditions of the Offer. OUR
ACCEPTANCE FOR EXCHANGE OF YOUR OPTIONS TENDERED BY YOU THROUGH THE OFFER WILL
CONSTITUTE A BINDING AGREEMENT BETWEEN CAPSTONE AND YOU UPON THE TERMS OF THE
OFFER AND SUBJECT TO THE CONDITIONS OF THE OFFER.
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Subject to our rights to extend, terminate and amend the Offer, discussed
in Section 15 of this Offer, we currently expect that we will accept promptly
after the expiration of the Offer all properly tendered options that have not
been validly withdrawn.
5. Withdrawal rights and change of election.
You may only withdraw your tendered options or change your election in
accordance with the provisions of this Section 5 of this Offer.
You may withdraw your tendered options at any time before 5:00 p.m.,
Pacific Time, on July 24, 2003. If we extend the Offer beyond that time, you may
withdraw your tendered options at any time until the extended expiration of the
Offer.
If we have not accepted your tendered options by 5:00 p.m., Pacific Time,
on July 24, 2003, you may withdraw your tendered options at any time thereafter.
To validly withdraw tendered options, you must deliver via facsimile or
hand delivery, in accordance with the procedures listed in Section 4 above, a
signed and dated Notice to Withdraw from the Offer, with the required
information, while you still have the right to withdraw the tendered options.
To validly change your election regarding the tender of particular
options, you must deliver a new Election Form via facsimile or hand delivery, in
accordance with the procedures listed in Section 4 above.
If you deliver a new Election Form that is properly signed and dated, it
will replace any previously submitted Election Form, which will be disregarded.
The new Election Form must be signed and dated and must specify:
- the name of the option holder who tendered the options,
- the grant number of all options tendered,
- the grant date of all options tendered,
- the exercise price of all options tendered, and
- the total number of unexercised option shares subject to each option
tendered.
Except as described in the following sentences, the Notice to Withdraw
from the Offer and any new or amended Election Form must be signed by the option
holder who tendered the options to be withdrawn exactly as the option holder's
name appears on the option agreement or agreements evidencing the options. If
the option holder's name has legally been changed since the signing of the
option agreement, the option holder must submit proof of the legal name change.
If the signature is by an attorney-in-fact or another person acting in a
fiduciary or representative capacity, the signer's full title and proper
evidence of the authority of such person to act in that capacity must be
indicated on the notice of withdrawal or the new election.
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You may not rescind any withdrawal. If you change your mind again, you
must re-tender those options before the Expiration Date by following the
procedures described in Section 4 of this Offer.
Neither we nor any other person is obligated to give notice of any defects
or irregularities in any Notice to Withdraw from the Offer or any new or amended
Election Form, nor will anyone incur any liability for failure to give any
notice. We will determine, in our sole discretion, all questions as to the form
and validity, including time of receipt, of Notices to Withdraw from the Offer
and new or amended Election Forms. Our determination of these matters will be
final and binding.
THE DELIVERY OF ALL DOCUMENTS, INCLUDING ELECTION FORMS, ANY NOTICES TO
WITHDRAW FROM THE OFFER AND ANY OTHER REQUIRED DOCUMENTS, IS AT YOUR SOLE RISK.
IN ALL CASES, YOU SHOULD ALLOW SUFFICIENT TIME TO ENSURE TIMELY DELIVERY. WE
INTEND TO CONFIRM RECEIPT OF YOUR ELECTION FORM AND ANY NOTICE TO WITHDRAW FROM
THE OFFER VIA E-MAIL WITHIN TWO BUSINESS DAYS OF RECEIPT. IF YOU DO NOT RECEIVE
CONFIRMATION OF RECEIPT, IT IS YOUR RESPONSIBILITY TO ENSURE THAT WE HAVE
RECEIVED YOUR ELECTION FORM AND ANY NOTICE TO WITHDRAW FROM THE OFFER.
6. Acceptance of options for exchange and issuance of new options.
Upon the terms and conditions of the Offer and promptly following the
Expiration Date, we will accept for exchange and cancel eligible options
properly tendered for exchange and not withdrawn before the Expiration Date. If
your options are properly tendered by you for exchange and accepted by us, your
options will be cancelled as of the date of our acceptance, which we anticipate
will be July 25, 2003. Our Board of Directors intends to grant the new options
on the New Option Grant Date. If we accept and cancel options properly tendered
for exchange after July 25, 2003, the period in which the new options will be
granted will be similarly delayed. Promptly after the date we accept and cancel
options tendered for exchange, we will issue to you a Promise to Grant Stock
Option(s), which will evidence our binding commitment to grant stock options to
you in accordance with the terms of this Offer on the New Option Grant Date,
provided that you are an employee of Capstone, one of our subsidiaries or a
successor entity on the date on which the grant is made. We will defer any grant
to you of other options, such as annual, bonus or promotional options, until at
least the grant date of your new options.
It is possible that, prior to the grant of the new options, Capstone might
be acquired by another company. The Promise to Grant Stock Option(s) which we
will provide to you promptly after the cancellation of any options you tender
for exchange is a binding commitment, and any successor to Capstone will be
legally obligated by that commitment, subject to you meeting the conditions for
receiving a new option.
All eligible persons who meet the conditions for receiving new options
will receive non-statutory stock options.
We will not accept partial tenders of an unexercised portion of an
eligible option grant. However, you may tender the remaining portion of an
option that you have partially exercised. Accordingly, eligible persons may
tender one or more of their option grants, but may only tender all of the
unexercised shares subject to that option or none of those shares. If you were
granted two options on the same day in order to divide a grant into an incentive
stock option and a non-statutory stock option, you must tender either both or
neither of those options.
-18-
If Capstone is acquired by another company for stock, the acquiring
company would be obligated to grant you a new stock option on the New Option
Grant Date (assuming that Capstone does not extend the Offer), subject to you
being an employee of Capstone, one of our subsidiaries or a successor entity on
the date the new options are granted. Such a stock option would be for the
purchase of the acquiring company's stock (as opposed to Capstone's) and as a
result, the number of shares subject to your new option would be adjusted based
on the exchange ratio that was used in the merger. Your new option to purchase
such acquiring company's stock would have an exercise price equal to the fair
market value of the acquiring company's stock on the grant date of the new
options. If Capstone is acquired by another company solely for cash, the
treatment of the options would be similar to a stock acquisition; however, the
number of shares subject to the new options that you would receive would be
based on the number of shares of the acquiring company's stock that you would
have been able to purchase if you had received the cash paid to Capstone's
stockholders for all of the shares subject to your cancelled options. If
Capstone is acquired by another company whose stock is not publicly traded, then
any new stock options granted by the private company would likely be exercisable
for stock that is not publicly traded and which could be difficult to sell.
Within two business days of the receipt of your Election Form or your
Notice to Withdraw from the Offer, Capstone intends to e-mail a confirmation of
receipt to you. However, this is not by itself an acceptance of your options for
exchange. For purposes of the Offer, we will be deemed to have accepted options
for exchange that are validly tendered and not properly withdrawn as of the time
when we give oral or written notice to the option holders of our acceptance for
exchange of such options, which notice may be made by press release,
inter-office memorandum or e-mail.
7. Conditions of the Offer.
Notwithstanding any other provision of the Offer, we will not be required
to accept any options tendered for exchange, and we may terminate or amend the
Offer, or postpone our acceptance and cancellation of any options tendered for
exchange, in each case subject to Rule 13e-4(f)(5) under the Exchange Act, if at
any time on or after the Commencement Date, and prior to the Expiration Date,
any of the following events has occurred, or has been determined by us to have
occurred:
- there shall have been threatened or instituted or be pending any
action, proceeding or litigation seeking to enjoin, make illegal or
delay completion of the Offer or otherwise relating in any manner to
the Offer;
- any order, stay, judgment or decree is issued by any court,
government, governmental authority or other regulatory or
administrative authority and is in effect, or any statute, rule,
regulation, governmental order or injunction shall have been
proposed, enacted, enforced or deemed applicable to the Offer, any
of which might restrain, prohibit or delay completion of the Offer
or impair the contemplated benefits of the Offer to us;
- there shall have occurred:
- any general suspension of trading in, or limitation on prices
for, securities on any national securities exchange or in the
over-the-counter market in the United States;
- the declaration of a banking moratorium or any suspension of
payments in respect of banks in the United States;
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- any limitation, whether or not mandatory, by any governmental,
regulatory or administrative agency or authority on, or any event
that, in our reasonable judgment, might affect the extension of
credit to us by banks or other lending institutions in the United
States;
- in our reasonable judgment, any extraordinary or material adverse
change in U.S. financial markets generally, including, without
limitation, a decline of at least 10% in either the Dow Jones
Industrial Average, the Nasdaq Market Index or the Standard & Poor's
500 Index from the date of commencement of the Offer;
- the commencement of a war or other national or international
calamity directly or indirectly involving the United States, which
would reasonably be expected to affect materially or adversely, or
to delay materially, the completion of the Offer; or
- if any of the situations described above existed at the time of
commencement of the Offer and that situation, in our reasonable
judgment, deteriorates materially after commencement of the Offer;
- - as the term "group" is used in Section 13(d)(3) of the Exchange Act:
- any person, entity or group acquires more than 5% of our outstanding
shares of common stock, other than a person, entity or group which
had publicly disclosed such ownership with the SEC prior to the
Commencement Date;
- any such person, entity or group which had publicly disclosed such
ownership prior to such date shall acquire additional common stock
constituting more than 2% of our outstanding shares; or
- any new group shall have been formed that beneficially owns more
than 5% of our outstanding shares of common stock that in our
judgment in any such case, and regardless of the circumstances,
makes it inadvisable to proceed with the Offer or with such
acceptance for exchange of eligible options;
- - there shall have occurred any change, development, clarification or
position taken in generally accepted accounting standards that could or
would require us to record for financial reporting purposes compensation
expense against our earnings in connection with the Offer;
- - a tender or exchange offer, other than this Offer by us, for some or all
of our shares of outstanding common stock, or a merger, acquisition or
other business combination proposal involving us, shall have been
proposed, announced or made by another person or entity or shall have been
publicly disclosed;
- - any event or events occur that have resulted or may result, in our
reasonable judgment, in an actual or threatened material adverse change in
our business, financial condition, assets, income, operations, prospects
or stock ownership; or
- - any event or events occur that have resulted or may result, in our
reasonable judgment, in a material impairment of the contemplated benefits
of the Offer to us.
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If any of the above events occur, we may:
- terminate the Offer and promptly return all tendered eligible
options to tendering holders;
- complete and/or extend the Offer and, subject to your withdrawal
rights, retain all tendered eligible options until the extended
Offer expires;
- amend the terms of the Offer; or
- waive any unsatisfied condition and, subject to any requirement to
extend the period of time during which the Offer is open, complete
the Offer.
The conditions to the Offer are for Capstone's benefit. We may assert them
in our sole discretion regardless of the circumstances giving rise to them
before the Expiration Date. We may waive them, in whole or in part, at any time
and from time to time prior to the Expiration Date, in our discretion, whether
or not we waive any other condition to the Offer. Our failure at any time to
exercise any of these rights will not be deemed a waiver of any such rights. The
waiver of any of these rights with respect to particular facts and circumstances
will not be deemed a waiver with respect to any other facts and circumstances.
Any determination we make concerning the events described in this Section 7 will
be final and binding upon all persons.
8. Price range of shares underlying the options.
The shares underlying your options are currently traded on the Nasdaq
National Market under the symbol "CPST." The following table shows, for the
periods indicated, the high and low closing sales prices per share of our common
stock as reported by the Nasdaq National Market.
HIGH LOW
---- ---
FISCAL YEAR 2003
Quarter ended March 31, 2003 ... $ 1.18 $ 0.71
FISCAL YEAR 2002
Quarter ended December 31, 2002 $ 1.26 $ 0.56
Quarter ended September 30, 2002 $ 1.74 $ 0.59
Quarter ended June 30, 2002 .... $ 3.82 $ 1.52
Quarter ended March 31, 2002 ... $ 5.98 $ 2.76
FISCAL YEAR 2001
Quarter ended December 31, 2001 $ 6.55 $ 3.20
Quarter ended September 30, 2001 $ 23.53 $ 4.45
Quarter ended June 30, 2001 .... $ 38.25 $ 18.50
Quarter ended March 31, 2001 ... $ 47.38 $ 21.68
As of June 10, 2003, the last reported sale price during regular trading
hours of our common stock, as reported by the Nasdaq National Market, was $1.40
per share.
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WE RECOMMEND THAT YOU EVALUATE CURRENT MARKET QUOTES FOR OUR COMMON STOCK,
AMONG OTHER FACTORS, BEFORE DECIDING WHETHER OR NOT TO TENDER YOUR OPTIONS.
9. Source and amount of consideration; terms of new options.
Consideration.
If we receive and accept tenders from eligible persons of all options
eligible to be tendered, subject to the terms and conditions of this Offer, we
will grant new options to purchase a total of 1,026,013 shares of common stock.
The shares issuable upon exercise of these new options would equal approximately
1.26% of the total shares of our common stock outstanding as of June 10, 2003.
Terms of New Options.
For every new option granted, a new option agreement will be entered into
between Capstone and each option holder who has tendered options in the Offer.
You must sign the new option agreement before receiving your new options. The
terms and conditions of the new options may vary from the terms and conditions
of the options that you tendered for exchange, but such changes generally will
not substantially and adversely affect your rights. However, (a) the exercise
price of your new option will be the closing price of our common stock reported
by the Nasdaq National Market on the date of grant, (b) your new option will be
a non-statutory stock option, even if your tendered option was an incentive
stock option and (c) the vesting schedule of your new option will differ from
the vesting schedule of your old option. Each new option will vest based on a
new 42-month vesting schedule that will begin on the New Option Grant Date. The
new vesting schedule will be as follows:
- 12.5% of the shares subject to the new option will be vested on the
New Option Grant Date, and
- 1/48 of the shares subject to the new option will vest monthly after
the New Option Grant Date, such that each new option will be fully
vested on the 42-month anniversary of the New Option Grant Date,
subject to your continued employment with us or one of our
subsidiaries through each relevant vesting date.
DESCRIPTION OF 2000 EQUITY PLAN.
Our statements in this Offer concerning our 2000 Equity Plan and the new
options are merely summaries. To receive a copy of our 2000 Equity Plan and the
form of option agreement, please contact Debbie Bernard in Human Resources at
Capstone, whose contact information is provided on Page 15. We will promptly
furnish you copies of these documents at our expense.
Number and Type of Shares in Plan.
The maximum number of shares reserved for issuance through the exercise of
options granted under our 2000 Equity Plan is 6,200,000 shares of common stock,
plus the number of shares previously authorized and remaining available under
our 1993 Incentive Stock Plan, plus any shares covered by options granted under
the 1993 Incentive Stock Plan that are forfeited or expire unexercised. Our 2000
Equity Plan permits the granting of incentive stock options and non-statutory
stock options.
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Administration.
The 2000 Equity Plan is administered by the Board of Directors or a
committee appointed by the Board of Directors (the "ADMINISTRATOR"). Subject to
the other provisions of the 2000 Equity Plan, the Administrator has the power to
determine the terms and conditions of the options granted, including the
exercise price, the number of shares subject to the option and the
exercisability of the options.
Term.
Options generally have a term of ten years. Incentive stock options
granted to an employee who, at the time the incentive stock option is granted,
owns stock representing more than 10% of the voting rights of all classes of
stock of Capstone or an affiliate company have a term of no more than five
years.
Termination.
Unless your option agreement otherwise provides, your options will
terminate following the termination of your employment or consulting
relationship, unless the options are exercised within the time frame permitted
by your stock option agreement, which is typically within three months following
your termination. In the event that the termination of your employment or
consulting relationship is by reason of permanent or total disability or death,
you, or your executors, administrators, legatees or distributees of your estate,
may exercise any option held by you at the date of your termination, to the
extent that it was exercisable before such termination, generally within 12
months following your death or disability.
Your option may terminate, together with our stock option plans and all
other outstanding options issued to other employees and consultants, following
the occurrence of certain corporate events, as described in "Adjustments Upon
Certain Events" below.
Exercise Price.
Generally, the Administrator determines the exercise price at the time the
option is granted. For all eligible persons, the exercise price per share for
the new options will equal the fair market value of our common stock on the date
of grant, as determined by the closing price reported by the Nasdaq National
Market on the date of grant.
Vesting.
The vesting of any new options will cease if you are no longer an employee
or consultant of Capstone, one of our subsidiaries or a successor entity.
Adjustments Upon Certain Events.
Under the terms of the 1993 Incentive Stock Plan and the 2000 Equity Plan,
in the event there is a sale of all or substantially all of our assets, or if we
merge with or into another corporation, the successor corporation may assume
each outstanding option or substitute equivalent options, without accelerating
the vesting of the outstanding options. If the successor corporation does not
assume or substitute for outstanding options, then (i) with respect to
participants whose status as an employee, director or consultant has not
terminated prior to the merger or asset sale, the vesting of awards will be
accelerated and made fully exercisable and all restrictions on those awards
shall lapse at least ten days before the merger or asset sale
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closes, and (ii) with respect to other participants, outstanding awards will
terminate if not exercised before the merger or asset sale closes. In the event
that the successor corporation does assume or substitute for outstanding awards,
and, within nine months after the merger or asset sale, the successor
corporation terminates a participant's employee or director status without cause
or an employee terminates employment either because the employee's principal
work location moves more than 50 miles from the existing work location or
because there is a material reduction in the employee's responsibilities, then
that participant's awards shall become immediately fully vested and exercisable.
If there is a change in our capitalization, such as a stock split, reverse
stock split, stock dividend or other similar event, and the change results in an
increase or decrease in the number of issued shares without receipt of
consideration by us, an appropriate adjustment will be made to the price of each
option and the number of shares subject to each option.
If Capstone liquidates or dissolves, your outstanding options will
terminate immediately prior to the consummation of the liquidation or
dissolution. The Administrator may, however, provide for the acceleration of the
exercisability of any outstanding option.
Transferability of Options.
New options may not be transferred, other than by will or the laws of
descent and distribution. In the event of your death, options may be exercised
by a person who acquires the right to exercise the option by bequest or
inheritance.
Registration of Option Shares.
All the shares issuable upon exercise of all new options to be granted by
Capstone pursuant to this Offer will be registered under the Securities Act.
10. Information concerning Capstone Turbine Corporation.
Our principal executive offices are located at 21211 Nordhoff Street.
Chatsworth, California 91311, and our telephone number is (818) 734-5300.
Questions regarding the mechanics of this option exchange should be directed to
Susan Cayley, our General Counsel (telephone: (818) 734-5136; e-mail:
scayley@capstoneturbine.com) or Wade Welch, our VP Finance (telephone: (818)
734-5555; e-mail: wwelch@capstoneturbine.com). For questions regarding the
legal, financial or tax implications of this Offer, you should contact your own
legal, financial and tax advisors.
Capstone develops, manufactures and markets microturbine technology for
use in stationary distributed power generation applications such as combined
heat and power, resource recovery and power quality and reliability, as well as
hybrid electric vehicles. We sell complete microturbine units, subassemblies and
components and perform limited service work, such as product refurbishments. The
primary stationary markets to which we have sold products include (i)
micro-cogeneration/combined heat and power, (ii) resource recovery, (iii) power
quality and reliability, including back-up and standby power/peak shaving and
(iv) developing countries and other stationary power applications.
Please review our Annual Report on Form 10-K for the fiscal year ended
December 31, 2002 and our Quarterly Report on Form 10-Q for the fiscal quarter
ended March 31, 2003, both of which are being delivered to eligible persons with
this Offer for important financial and other information about us. Also, see
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"Additional information" in Section 17 of this Offer for instructions on how you
can obtain copies of our SEC filings, including filings that contain our
financial statements.
11. Interests of directors and officers; transactions and arrangements
concerning the options.
A list of our directors and executive officers is attached to this Offer as
Schedule A. As of June 10, 2003, options to purchase 4,935,749 of our shares,
which represented approximately 50% of the shares subject to all options
outstanding as of that date (including options granted under the eligible plans
and options granted outside of the eligible plans), were owned by certain of our
directors and executive officers. Our directors and executive officers are not
eligible to participate in the Offer.
The table below sets forth the beneficial ownership of each of our
executive officers and directors of options under (i) the eligible plans and
(ii) the eligible option agreements issued outside of the plans, in each case
outstanding as of June 10, 2003. The percentages in the table below are based on
the total number of outstanding options (i.e., whether or not eligible for
exchange) to purchase shares of our common stock under the eligible plans and
eligible agreements, which was 5,661,440 as of June 10, 2003. None of the
executive officers or directors listed in the following table are eligible to
participate in the Offer.
NUMBER OF SHARES PERCENTAGE OF
COVERED BY TOTAL
OUTSTANDING OUTSTANDING
OPTIONS GRANTED OPTIONS UNDER
UNDER THE THE ELIGIBLE
NAME POSITION ELIGIBLE PLANS PLANS
---- -------- -------------- -----
Emily Liggett(1) ................... Chief Executive Officer (Interim) 0 *
Susan Cayley ....................... Vice President, General Counsel and 125,000 2.21%
Secretary
Karen Clark(2) ..................... Chief Financial Officer 50,000 *
Harol Koyama ....................... Senior Vice President of Sales and Marketing 235,000 4.15%
Jeffrey Willis ..................... Senior Vice President of Engineering 93,937 1.66%
David McShane ...................... Vice President of Quality and Service 73,812 1.30%
Eliot Protsch ...................... Chairman of the Board 31,600 *
Richard Donnelly ................... Director 31,600 *
John Jaggers ....................... Director 31,600 *
Jean-Rene Marcoux .................. Director 31,600 *
John McDonald ...................... Director 10,000 *
Eric Young ......................... Director 31,600 *
* Less than 1%
(1) Ms. Liggett holds options to purchase 3,840,000 shares of our common
stock, which options were not granted under either our 1993
Incentive Stock Plan or our 2000 Equity Plan and are therefore not
reported in the table above.
(2) Ms. Clark holds options to purchase an additional 350,000 shares of
our common stock, which options were not granted under either our
1993 Incentive Stock Plan or our 2000 Equity Plan and are therefore
not reported in the table above.
Except as described below, neither we, nor, to the best of our knowledge,
any of our directors or executive officers, nor any affiliates of ours, engaged
in transactions involving options to purchase our
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common stock under the plans, or in transactions involving our common stock,
during the past 60 days before and including June 10, 2003:
- On May 30, 2003, Eliot Protsch, Richard Donnelly, John Jaggers,
Jean-Rene Marcoux, John McDonald and Eric Young were each granted a
stock option to purchase 10,000 shares of our common stock at an
exercise price of $1.40 per share.
- We granted options under our 2000 Equity Plan to purchase an
aggregate of 9,500 shares of our common stock with exercise prices
ranging from $0.90 to $1.48.
- Individuals exercised options under our 1993 Incentive Stock Plan
and our 2000 Equity Plan to acquire an aggregate of 11,446 shares of
our common stock with an average exercise price per share of $1.27.
- We cancelled options under our 1993 Incentive Stock Plan and our
2000 Equity Plan to purchase an aggregate of 144,176 shares of our
common stock with an average exercise price per share of $10.30.
Our Board of Directors is currently seeking to hire a permanent Chief
Executive Officer for the Company. When we hire a permanent Chief Executive
Officer, it is anticipated that the individual selected will also be appointed
as a member of our Board of Directors.
12. Status of options acquired by us in the Offer; accounting consequences of
the Offer.
Options we acquire through the Offer will be cancelled, and the shares
subject to those options will be returned to the pool of shares available for
grants of options under our 2000 Equity Plan. To the extent the number of shares
subject to options cancelled pursuant to the Offer exceeds the number of shares
subject to the new options to be granted in connection with the Offer, the
excess shares will be available for future awards to employees, consultants and
other eligible plan participants without further stockholder action, except as
required by applicable law or the rules of the Nasdaq National Market or any
other securities quotation system or any stock exchange on which our shares are
then quoted or listed.
We believe that we will not incur any employee compensation expense solely
as a result of the transactions contemplated by the Offer because:
- we will grant new options no earlier than the first business day
that is six months and one day after the date that we cancel options
tendered for exchange, and
- the exercise price of all new options will equal the fair market
value of the shares of common stock on the date we grant the new
options.
13. Legal matters; regulatory approvals.
We are not aware of any license or regulatory permit that appears to be
material to our business that might be adversely affected by our exchange of
options and issuance of new options as contemplated by the Offer, or of any
approval or other action by any government or governmental, administrative or
regulatory authority or agency, domestic or foreign, that would be required for
the acquisition or ownership of our
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options as contemplated herein. Should any such approval or other action be
required, we intend to seek such approval or take such other action. We cannot
assure you that any such approval or other action, if needed, could be obtained
or what the conditions imposed in connection with such approvals would entail or
whether the failure to obtain any such approval or other action would result in
adverse consequences to our business. Our obligation under the Offer to accept
tendered options for exchange and to issue new options for tendered options is
subject to the conditions described in Section 7 of this Offer.
If we are prohibited by applicable laws, rules, regulations or policies
from granting new options on the New Option Grant Date, we will not grant any
new options. Such a prohibition could result from, among other things, changes
in applicable laws, SEC or other similar securities regulatory authority's
rules, regulations or policies or Nasdaq National Market listing requirements or
if you move to a jurisdiction in which we are prohibited or prevented from
granting new options. We will use reasonable efforts to effect the grant, but if
the grant is prohibited throughout the period, we will not grant any new options
and you will not receive any other consideration for the options you tendered.
14. Material U.S. federal income tax consequences.
The following is a general summary of the material U.S. federal income tax
consequences of the exchange of options pursuant to the Offer. This discussion
is based on the Internal Revenue Code, its legislative history, Treasury
Regulations thereunder and administrative and judicial interpretations thereof
as of the date of the Offer, all of which are subject to change, possibly on a
retroactive basis. This summary does not discuss all of the tax consequences
that may be relevant to you in light of your particular circumstances, nor is it
intended to be applicable in all respects to all categories of option holders.
Option holders who exchange outstanding options for new options should not
be required to recognize income for federal income tax purposes at the time of
the exchange. We believe that the exchange will be treated as a non-taxable
exchange. WE STRONGLY ADVISE ALL OPTION HOLDERS CONSIDERING EXCHANGING THEIR
OPTIONS TO MEET WITH THEIR OWN LEGAL, FINANCIAL AND TAX ADVISORS WITH RESPECT TO
THE TAX CONSEQUENCES OF PARTICIPATING IN THE OFFER, AS THE TAX CONSEQUENCES TO
YOU OF PARTICIPATING IN THE OFFER DEPEND ON YOUR INDIVIDUAL TAX CIRCUMSTANCES.
All new options will be granted as non-statutory stock options. Under
current law, as with an incentive stock option, an option holder will not
realize taxable income upon the grant of an option at fair market value on the
date of the grant of a non-statutory stock option. However, when an option
holder exercises the option, the difference between (a) the exercise price of
the option and (b) the fair market value of the shares subject to the option on
the date of exercise, will be compensation income taxable to the option holder
and is subject to withholding if the option holder is an employee. We will be
entitled to a deduction equal to the amount of compensation income taxable to
the option holder if we comply with eligible reporting requirements.
The tax treatment of non-statutory stock options is different from the
treatment of incentive stock options in several ways. One difference is that an
option holder generally will not incur taxable income upon the exercise of an
incentive stock option, though an option holder's alternative minimum taxable
income will be increased by the amount that the aggregate fair market value of
the shares underlying the option (generally determined as of the date of
exercise) exceeds the aggregate exercise price of the option. Instead, the
holder of an incentive stock option is taxed upon the disposition of the option
shares, with the tax treatment depending upon compliance with certain holding
periods. Another difference is that we are not entitled to a
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deduction in connection with the grant of an incentive stock option unless the
option shares are sold without complying with the holding periods referred to in
the preceding sentence.
THE OPTIONS YOU CURRENTLY HOLD MAY BE INCENTIVE STOCK OPTIONS, BUT ALL NEW
OPTIONS WILL BE NON-STATUTORY STOCK OPTIONS. THE TAX TREATMENT OF NON-STATUTORY
STOCK OPTIONS DIFFERS IN CERTAIN RESPECTS FROM THE TAX TREATMENT OF INCENTIVE
STOCK OPTIONS, INCLUDING, BUT NOT LIMITED TO, THE DIFFERENCES DESCRIBED IN THE
PRECEDING PARAGRAPH. WE RECOMMEND THAT YOU CONSULT YOUR OWN LEGAL, FINANCIAL AND
TAX ADVISORS WITH RESPECT TO THE FEDERAL, STATE AND LOCAL TAX CONSEQUENCES OF
PARTICIPATING IN THE OFFER, AS THE TAX CONSEQUENCES TO YOU OF PARTICIPATING IN
THE OFFER ARE DEPENDENT ON YOUR INDIVIDUAL TAX SITUATION.
15. Extension of Offer; termination; amendment.
We expressly reserve the right, in our sole discretion, at any time and
from time to time, and regardless of whether or not any event listed in Section
7 of this Offer has occurred or is deemed by us to have occurred, to extend the
period of time during which the Offer is open and thereby delay the acceptance
for exchange of any options by giving oral or written notice of such extension
to the option holders or making a public announcement thereof.
We also expressly reserve the right, in our reasonable judgment, prior to
the Expiration Date to terminate or amend the Offer and to postpone our
acceptance and cancellation of any options tendered for exchange, regardless of
whether any event listed in Section 7 of this Offer has occurred or is deemed by
us to have occurred, by giving oral or written notice of such termination or
postponement to you or by making a public announcement thereof. Our reservation
of the right to delay our acceptance and cancellation of options tendered for
exchange is limited by Rule 13e-4(f)(5) under the Exchange Act, which requires
that we must pay the consideration offered or return the options tendered
promptly after termination or withdrawal of a tender offer.
Subject to compliance with applicable law, we further reserve the right,
in our sole discretion, and regardless of whether any event listed in Section 7
of this Offer has occurred or is deemed by us to have occurred, to amend the
Offer in any respect, including, without limitation, by decreasing or increasing
the consideration offered in the Offer to option holders or by decreasing or
increasing the number of options being sought in the Offer.
Amendments to the Offer may be made at any time and from time to time by
publicly announcing the amendment or otherwise communicating the amendment in
writing to all eligible participants. In the case of an extension, the amendment
must be issued no later than 6:00 a.m., Pacific Time, on the next business day
after the last previously scheduled or announced expiration date. Any
announcement made through the Offer will be disseminated promptly to option
holders in a manner reasonably designated to inform option holders of the
change. Without limiting the manner in which we may choose to make a public
announcement, except as required by applicable law, we have no obligation to
publish, advertise or otherwise communicate any such public announcement other
than by disseminating a press release through a national wire service.
If we materially change the terms of the Offer or the information
concerning the Offer, or if we waive a material condition of the Offer, we will
extend the Offer to the extent required by Rules 13e-4(d)(2) and 13e-4(e)(3)
under the Exchange Act. These rules require that the minimum period during which
an offer must remain open following material changes in the terms of the Offer
or information concerning the Offer, other
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than a change in price or a change in percentage of securities sought, will
depend on the facts and circumstances, including the relative materiality of
such terms or information.
If we decide to take any of the following actions, we will publish notice
or otherwise inform you in writing of these actions:
- we increase or decrease the amount of consideration offered for the
options, or
- we increase or decrease the number of options eligible to be tendered in
the Offer.
If the Offer is scheduled to expire at any time earlier than the tenth
(10th) business day from, and including, the date that notice of any increase or
decrease of the kind described above is first published, sent or given in the
manner specified in this Section 15, we will extend the Offer so that the Offer
is open at least ten (10) business days following the publication, sending or
giving of notice.
For purposes of the Offer, a "business day" means any day other than a
Saturday, Sunday or U.S. federal holiday and consists of the time period from
12:01 a.m. through 12:00 midnight, Eastern Time.
16. Fees and expenses.
We will not pay any fees or commissions to any broker, dealer or other
person for soliciting tenders of options pursuant to this Offer.
17. Additional information.
This Offer is part of a Tender Offer Statement on Schedule TO that we have
filed with the SEC. This Offer does not contain all of the information contained
in the Schedule TO and the exhibits to the Schedule TO. We recommend that you
review the Schedule TO, including its exhibits, and the following materials that
we have filed with the SEC before making a decision on whether to tender your
options:
1. Capstone's annual report on Form 10-K for our fiscal year ended
December 31, 2002, filed with the SEC on March 31, 2003.
2. Capstone's quarterly report on Form 10-Q for our fiscal quarter ended
March 31, 2003, filed with the SEC on May 15, 2003.
3. Capstone's definitive proxy statement on Schedule 14A for our 2003
annual meeting of stockholders, filed with the SEC on April 28, 2003.
4. Any document that we filed with the SEC under Sections 13(a), 13(c), 14
or 15(d) of the Exchange Act after the date of this Offer and before the
expiration of this Offer. Information in these filings will be deemed to be
incorporated by reference as of the date we make the filing.
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These filings, our other annual, quarterly and current reports, our proxy
statements and our other SEC filings may be examined, and copies may be
obtained, at the following SEC public reference rooms:
450 Fifth Street, N.W. 500 West Madison Street
Room 1024 Suite 1400
Washington, D.C. 20549 Chicago, Illinois 60661
You may obtain information on the operation of the public reference rooms
by calling the SEC at 1-800-SEC-0330.
Our SEC filings are also available to the public on the SEC's Internet
site at http://www.sec.gov.
Our common stock is quoted on the Nasdaq National Market under the symbol
"CPST" and our SEC filings can be read at the following Nasdaq address:
Nasdaq Operations
1735 K Street, N.W.
Washington, D.C. 20006
Each person to whom a copy of this Offer is delivered may obtain a copy of
any or all of the documents to which we have referred you, other than exhibits
to such documents (unless such exhibits are specifically incorporated by
reference into such documents) at no cost, by writing to us or telephoning the
individual listed in Section 4.
As you read the foregoing documents, you may find some inconsistencies in
information from one document to another. If you find inconsistencies between
the documents, or between a document and this Offer, you should rely on the
statements made in the most recent document.
The information contained in this Offer about Capstone should be read
together with the information contained in the documents to which we have
referred you, in making your decision as to whether or not to participate in
this Offer.
18. Financial information.
Please review our Annual Report on Form 10-K for the fiscal year ended
December 31, 2002 and our Quarterly Report on Form 10-Q for the fiscal quarter
ended March 31, 2003, both of which are being delivered to eligible persons with
this Offer for important financial and other information about us. Also, see
"Additional information" in Section 17 of this Offer for instructions on how you
can obtain copies of our SEC filings, including filings that contain our
financial statements. 19. Miscellaneous.
This Offer and our SEC reports referred to above include "forward-looking
statements." When used in this Offer, the words "anticipate," "believe,"
"estimate," "expect," "intend" and "plan" as they relate to Capstone or our
management are intended to identify these forward-looking statements. All
statements by us regarding our expected future financial position and operating
results, our business strategy, our financing plans and expected capital
requirements, forecasted trends relating to our services or the markets in which
we
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operate and similar matters are forward-looking statements. The documents we
file with the SEC discuss some of the risks that could cause our actual results
to differ from those contained or implied in the forward-looking statements.
These risks include, but are not limited, to the risk factors set forth under
Item 5 of Part II ("Other Information-Business Risks") in Capstone's quarterly
report on Form 10-Q for the fiscal quarter ended March 31, 2003.
We are not aware of any jurisdiction where the making of the Offer is not
in compliance with applicable law. If we become aware of any jurisdiction where
the making of the Offer is not in compliance with any valid applicable law,
rule, regulation or policy, we will make a good faith effort to comply with such
law. If, after such good faith effort, we cannot comply with such law, the Offer
will not be made to, nor will tenders be accepted from or on behalf of, the
option holders residing in such jurisdiction.
-31-
SCHEDULE A
INFORMATION CONCERNING THE EXECUTIVE OFFICERS AND DIRECTORS OF CAPSTONE TURBINE
CORPORATION
The executive officers and directors of Capstone Turbine Corporation and
their positions as of June 10, 2003 are set forth in the following table:
NAME POSITION
---- --------
Emily Liggett* Chief Executive Officer (Interim)
Karen Clark* Chief Financial Officer
Susan Cayley* Vice President, General Counsel and Secretary
Harol Koyama* Senior Vice President of Sales and Marketing
Jeffrey Willis* Senior Vice President of Engineering
David McShane* Vice President of Quality and Service
Eliot Protsch Chairman of the Board of Directors
Richard Donnelly Director
John Jaggers Director
Jean-Rene Marcoux Director
John McDonald Director
Eric Young Director
* Corporate officer
The address of each executive officer and director is: c/o Capstone
Turbine Corporation, 21211 Nordhoff Street, Chatsworth, California 91311.
None of the directors or executive officers listed on this Schedule A are
eligible to participate in this option exchange program.
A-1