|
|
|
|
|
|
|
|
|
|
|
|
|
Per Share of
Common Stock
|
|
Per Pre-Funded
Series B Warrant
|
|
Total
|
|
Public offering price
|
|
$
|
1.20
|
|
$
|
1.19
|
|
$
|
7,533,000
|
|
Placement agent fees(1)
|
|
$
|
0.08
|
|
$
|
0.08
|
|
$
|
504,000
|
|
Proceeds, before expenses, to us
|
|
$
|
1.12
|
|
$
|
1.11
|
|
$
|
7,029,000
|
|
-
(1)
-
See "Plan of Distribution" on page S-29 of this prospectus supplement for a complete description of fees payable to the placement agents.
The
above summary of offering proceeds to us does not give effect to any exercise of the Series B warrants being issued in this offering or any sale or exercise of the Series A warrants
being issued in the concurrent private placement. We estimate the total expenses of this offering, excluding the placement agent fees, will be approximately $215,000. We expect that delivery of the
shares of common stock and pre-funded Series B warrants being offered pursuant to this prospectus supplement and the accompanying prospectus will be made on or about October 21, 2016.
Oppenheimer & Co.
ROTH Capital Partners, LLC
Prospectus Supplement dated October 18, 2016.
Table of Contents
TABLE OF CONTENTS
Prospectus Supplement
Prospectus
S-i
Table of Contents
You should rely only on the information contained or incorporated by reference in this prospectus supplement, the accompanying prospectus and any free writing prospectuses we
may provide to you in connection with this offering. We have not, and the placement agents have not, authorized any other person to provide you with any information that is different. If anyone
provides you with different or inconsistent information, you should not rely on it. We are not making an offer to sell these securities in any jurisdiction where the offer or sale is not permitted.
The information contained in this prospectus supplement, the accompanying prospectus, the documents incorporated by reference herein and any free writing prospectuses we may provide to you in
connection with this offering is accurate only as of their respective dates. Our business, financial condition, results of operations and prospects may have changed since those dates. You should not
consider this prospectus supplement or the accompanying prospectus to be an offer or solicitation relating to the securities in any jurisdiction in which such an offer or solicitation relating to the
securities is not authorized. Persons outside the United States who come into possession of this prospectus supplement must inform themselves about, and observe any restrictions relating to, the
offering of the securities and the distribution of this prospectus supplement outside the United States. Furthermore, you should not consider this prospectus supplement or the accompanying prospectus
to be an offer or solicitation relating to the securities if the person making the offer or solicitation is not qualified to do so, or if it is unlawful for you to receive such an offer or
solicitation.
S-ii
Table of Contents
ABOUT THIS PROSPECTUS SUPPLEMENT
This prospectus supplement and the accompanying prospectus are part of a registration statement that we filed with the Securities and Exchange
Commission (the "SEC") utilizing a "shelf" registration process. We are providing information to you about this offering in two parts. The first part is this prospectus supplement, which describes the
specific terms of the securities we are offering and also adds to and updates information contained in the accompanying prospectus and the documents incorporated by reference into the accompanying
prospectus. The second part is the accompanying prospectus, including the documents incorporated by reference, which provides you with more general information, some of which may not apply to this
offering and some of which may have been supplemented or superseded by information in this prospectus supplement or documents incorporated or deemed to be incorporated by reference in this prospectus
supplement that we filed with the SEC subsequent to the date of the prospectus.
Generally,
when we refer to this prospectus, we are referring to both parts of this document combined. To the extent there is a conflict between the information contained in this prospectus
supplement, on the one hand, and the information contained in the accompanying prospectus or in any document incorporated by reference that was filed with the SEC before the date of this prospectus
supplement, on the other hand, you should rely on the information in this prospectus supplement. If any statement in one of these documents is inconsistent with a statement in another document having
a later date for example, a document incorporated by reference in the accompanying prospectus the statement in the document having the later date modifies or
supersedes the earlier statement. You should read both this prospectus supplement and the accompanying prospectus, the documents incorporated by reference in this prospectus supplement and the
accompanying prospectus and any related free writing prospectus that we authorized to be delivered to you when making your investment decision. You should also read and consider the information in the
documents we have referred you to in the section of this prospectus supplement entitled "Where You Can Find More Information."
No action is being taken in any jurisdiction outside the United States to permit a public offering of the securities or possession or distribution of this prospectus supplement
or the accompanying prospectus in that jurisdiction. Persons who come into possession of this prospectus supplement or the accompanying prospectus in jurisdictions outside the United States are
required to inform themselves about and to observe any restrictions as to this offering and the distribution of this prospectus supplement or the accompanying prospectus applicable to that
jurisdiction.
S-iii
Table of Contents
PROSPECTUS SUPPLEMENT SUMMARY
This summary highlights certain information about us and this offering and appearing elsewhere in this
prospectus supplement, the accompanying prospectus and the documents incorporated by reference herein and does not contain all of the information that may be important to you and does not contain all
of the information that you should consider before investing in our securities. For a more complete understanding of our business and the securities we are offering, you should read this prospectus
supplement, the accompanying prospectus and the documents incorporated by reference herein in their entirety, including the risk factors beginning on page S-6 and the financial statements and
related notes. Unless otherwise expressly stated or the context otherwise requires, references in this prospectus supplement to "Capstone," "we," "us," or "our" or similar references refer to Capstone
Turbine Corporation and its subsidiaries, and references to our fiscal years refer to our fiscal years ending March 31.
Capstone Turbine Corporation
We develop, manufacture, market and service microturbine technology solutions for use in stationary distributed power generation applications, including
cogeneration (combined heat and power ("CHP"), integrated combined heat and power ("ICHP") and combined cooling, heat and power ("CCHP")), renewable energy, natural resources and critical power
supply. In addition, our microturbines can be used as battery charging generators for hybrid electric vehicle applications. Microturbines allow customers to produce power on-site in parallel with the
electric grid or stand alone when no utility grid is available. Several technologies are used to provide "on-site power generation" (also called "distributed generation") such as reciprocating
engines, solar power, wind powered systems and fuel cells. For customers who do not have access to the electric utility grid, microturbines provide clean, on-site power with fewer scheduled
maintenance intervals and greater fuel flexibility than competing technologies. For customers with access to the electric grid, microturbines provide an additional source of continuous duty power,
thereby providing additional reliability and potential cost savings. With our stand-alone feature, customers can produce their own energy in the event of a power outage and can use microturbines as
their primary source of power for extended periods. Because our microturbines also produce clean, usable heat energy, they provide economic advantages to customers who can benefit from the use of hot
water, chilled water, air conditioning and heating. Our microturbines are sold, installed and serviced primarily through our global distribution network. Together we offer new and remanufactured parts
as well as a comprehensive Factory Protection Plan ("FPP"). Successful implementation of microturbines relies on the quality of the microturbine, marketability for appropriate applications, and the
quality of the installation and support.
We
believe we were the first company to offer a commercially available power source using microturbine technology. Capstone offers microturbines designed for commercial, industrial and utility users
with product offerings ranging from 30 kilowatts ("kW") to one megawatt in electric power output. Our 30 kW ("C30") microturbine can produce enough electricity to power a small convenience store. The
65 kW ("C65") microturbine can produce enough heat to provide hot water to a 100-room hotel while also providing about one-third of its electrical requirements. Our 200 kW ("C200") microturbine is
well suited for larger hotels, office buildings and wastewater treatment plants, among others. By packaging the C200 microturbine power modules into an International Organization for Standardization
("ISO") sized container, Capstone has created a family of microturbine offerings from 600 kW up to one megawatt in a compact footprint. Our 600 kW, 800 kW and 1000 kW ("C1000 Series") microturbines
are well suited for utility substations, larger commercial and industrial facilities and remote oil and gas applications. Our microturbines combine patented air-bearing technology,
S-1
Table of Contents
advanced
combustion technology and sophisticated power electronics to form efficient and ultra-low emission electricity and cooling and heat production systems. Because of our air-bearing technology,
our microturbines do not require liquid lubricants. This means they do not require routine maintenance to change and dispose of oil or other liquid lubricants, as do the most common competing
products. Capstone microturbines can be fueled by various sources, including natural gas, propane, sour gas, renewable fuels such as landfill or digester gas, kerosene, diesel and biodiesel. The C65
and C200 microturbines are available with integrated heat exchangers, making them easy to engineer and install in applications where hot water is used. Our products produce exceptionally clean power.
Our natural gas-fueled C65 and C200 microturbines were certified by the California Air Resources Board ("CARB") as meeting its stringent 2007 emissions requirements the same
emissions standard used to certify fuel cells and the same emissions levels as a state-of-the-art central power plant. Our C65 and C200 Landfill and Digester Gas systems were certified by the CARB as
meeting its 2008 waste gas emissions requirements for landfill and digester gas applications.
We
sell complete microturbine units, subassemblies, components and various accessories. We also remanufacture microturbine engines and provide after-market parts and services. Our microturbines are
sold primarily through distributors and Original Equipment Manufacturers ("OEMs"). Distributors purchase our products for sale to end users and also provide application engineering and installation
support. Distributors are also required to provide a variety of additional services, including engineering the applications in which the microturbines will be used, installation support of the
products at the end users' sites, commissioning the installed applications and providing post-commissioning service,
including a comprehensive FPP. Our distributors perform as value-added resellers. OEMs integrate Capstone's products into their own product solutions.
To
assure proper installation of our microturbine systems, we have instituted a Factory Trained Installer ("FTI") training and certification program. Personnel from our distributors and OEMs, as well
as design engineering firms, contractors and end users attend this FTI training. We offer to assist all customers by reviewing their installation designs to confirm that the technical requirements for
proper operation have been met, such as electrical interconnections, load requirements, fuel type and pressure, cooling air flow and turbine exhaust routing. As part of the microturbine commissioning
process, we also receive a checklist to confirm that the final installation adheres to Capstone technical requirements before we accept any warranty obligations. This is aimed at providing the end
user with a proper installation that will operate as expected for the life of the equipment.
Through
our global distribution network, we offer a comprehensive FPP for a fixed annual fee to perform regularly scheduled and unscheduled maintenance as needed. We provide factory and on-site
training to certify all personnel that are allowed to perform service on our microturbines. Individuals who are certified are called Authorized Service Providers ("ASPs") and must be employed by a
distributor in order to perform work pursuant to a Capstone FPP. The majority of our distributors provide these services.
Recent Developments
Below is a summary of certain preliminary estimates regarding the Company's financial results for the quarter ended September 30, 2016. This
preliminary financial information is based upon our estimates and is subject to completion of our financial closing procedures. Moreover, this preliminary financial information has been prepared
solely on the basis of information that is currently available to, and that is the responsibility of, management. Our independent registered public accounting firm has not audited or reviewed, and
does not express an opinion with respect to, this information. This preliminary financial information is not a comprehensive statement of our financial results for the quarter ended
September 30, 2016 and remains subject to, among other things, the completion of our financial closing
S-2
Table of Contents
procedures,
final adjustments, and completion of our internal review and the review by our independent registered public accounting firm of our financial statements for the quarter ended
September 30, 2016, which may materially impact the results and expectations set forth below.
-
-
The Company's estimated revenue for the quarter ended September 30, 2016 is approximately $15 million compared to
$17.9 million for the quarter ended September 30, 2015. We estimate that our gross margin for the quarter ended September 30, 2016 will be less than our gross margin of 11% of
revenue for the quarter ended September 30, 2015.
-
-
The Company is estimated to have received and booked new product orders totaling approximately $8 million during the quarter ended
September 30, 2016, representing a 1:1 book-to-bill ratio, compared to $8.4 million of new product orders received and booked during the quarter ended September 30, 2015 which
represented a 0.7:1 book-to-bill ratio.
-
-
The Company's estimated cash and cash equivalents, including restricted cash, as of September 30, 2016 are approximately
$16 million compared to $16.7 million as of March 31, 2016.
-
-
The Company's estimated outstanding borrowings under its revolving credit facility as of September 30, 2016 were approximately
$6 million compared to $9.5 million as of March 31, 2016.
Capstone
was incorporated in California in 1988. On June 22, 2000, we reincorporated as a Delaware corporation. Our principal executive offices are located at 21211 Nordhoff Street,
Chatsworth, California 91311. Our telephone number is (818) 734-5300. Our Internet address is
www.capstoneturbine.com
. Information
contained on our website is not part of this prospectus supplement or the accompanying prospectus or any document incorporated or deemed to be incorporated by reference herein.
S-3
Table of Contents
The Offering
|
|
|
Issuer
|
|
Capstone Turbine Corporation
|
Public offering price
|
|
$1.20 per share of common stock
|
|
|
$1.19 per pre-funded Series B warrant to purchase one share of common stock
|
Common stock offered by us
|
|
3,600,000 shares
|
Pre-funded Series B warrants offered by us
|
|
Pre-funded Series B warrants to purchase up to 2,700,000 shares of common stock at an aggregate exercise price of $1.20
per share of common stock, all of which will be pre-funded except for a nominal exercise price of $0.01 per share of common stock. The pre-funded Series B warrants will be exercisable, subject to certain limitations, upon issuance and will
expire nine months from the date of issuance, subject to extension under certain circumstances. There is currently no market for the pre-funded Series B warrants, and none is expected to develop after this offering. The pre-funded Series B
warrants will be issued in certificated form. This prospectus also relates to the offering of the shares of common stock issuable upon exercise of the pre-funded Series B warrants.
|
Common stock to be outstanding after the offering
|
|
33,729,019 shares (36,429,019 shares if the pre-funded Series B warrants offered in this offering are exercised in
full)
|
Limitation on exercise of pre-funded Series B warrants
|
|
A holder will not have the right to exercise any portion of the pre-funded Series B warrants if the holder (together
with its affiliates) would beneficially own in excess of 9.99% of the number of shares of common stock outstanding immediately after giving effect to the exercise, as such percentage ownership is determined in accordance with the terms of the
pre-funded Series B warrants.
|
Use of proceeds
|
|
We intend to use the net proceeds from this offering to fund working capital requirements and for other general corporate
purposes. See "Use of Proceeds" on page S-24 of this prospectus supplement.
|
Nasdaq Capital Market symbol of our common stock
|
|
"CPST"
|
Risk factors
|
|
Investing in our securities involves a high degree of risk. You should consider carefully each of the risks described in
this prospectus supplement and the accompanying prospectus under the caption "Risk Factors" and the other information contained and incorporated by reference in this prospectus supplement and the accompanying prospectus before deciding to purchase
our securities.
|
S-4
Table of Contents
|
|
|
Concurrent private placement of Series A warrants
|
|
In a concurrent private placement, we are offering Series A warrants to purchase up to 6,300,000 shares of our common stock to the
purchasers of shares of our common stock and the purchasers of the pre-funded Series B warrants in this offering. The Series A warrants and the shares of our common stock issuable upon the exercise of the Series A warrants are not
being registered under the Securities Act, are not being offered pursuant to this prospectus supplement and the accompanying prospectus and are being offered pursuant to the exemption provided in Section 4(a)(2) under the Securities Act and
Rule 506(b) promulgated thereunder. Each Series A warrant will have an initial exercise price of $1.34 per share of common stock. The Series A warrants will be exercisable, subject to certain limitations, during the period commencing
six months after the date of the issuance and will expire five years after the first day they are exercisable. There is currently no market for the Series A warrants, and none is expected to develop after the concurrent private placement. The
Series A warrants will be issued in certificated form. See "Private Placement of Series A Warrants" on page S-28.
|
Except
as otherwise indicated herein, the information above and elsewhere in this prospectus supplement regarding outstanding shares of our common stock is based on 30,129,019 shares of common stock
outstanding as of June 30, 2016, and excludes the following shares of common stock:
-
-
459,195 shares of common stock issuable upon the exercise of outstanding stock options with a weighted-average exercise price of $22.61 per
share;
-
-
223,668 shares of common stock issuable upon vesting of outstanding restricted stock units;
-
-
262,942 shares of common stock reserved for future issuance under our stock incentive plans and our employee stock purchase plans;
-
-
5,993,750 shares of common stock issuable upon the exercise of outstanding warrants with a weighted-average exercise price of $1.75 per share;
-
-
2,700,000 shares of common stock issuable upon the exercise of the pre-funded Series B warrants issued hereunder; and
-
-
6,300,000 shares of common stock issuable upon the exercise of the Series A warrants being issued in the concurrent private placement
discussed on page S-28 of this prospectus supplement.
S-5
Table of Contents
RISK FACTORS
Investing in our securities involves a high degree of risk. You should consider carefully each of the
following risks and all other information contained or incorporated by reference in this prospectus supplement and the accompanying prospectus before deciding to purchase our securities. Additional
risks of which we may not be aware or that we currently believe are immaterial may also adversely affect our business. If any of these risks actually occurs, our business, financial condition and
operating results could be adversely affected. As a result, the trading price of our common stock could decline, perhaps significantly, and you could lose all or part of your investment. In assessing
these risks, you should refer to the other information included in this prospectus supplement, the accompanying prospectus and the documents incorporated by reference herein.
Risks Related to Our Business and Industry
Our operating history is characterized by net losses. We anticipate further losses and we may never become
profitable.
Since inception, we have incurred annual operating losses. We expect this trend to continue until such time that we can sell a sufficient number of units and
achieve a cost structure to become profitable. Our business is such that we have relatively few customers and limited repeat business. As a result, we may not maintain or increase revenue. We may not
have adequate cash resources to reach the point of profitability, and we may never become profitable. Even if we do achieve profitability, we may be unable to increase our sales and sustain or
increase our profitability in the future.
We may be unable to fund our future operating requirements, which could force us to curtail our operations.
To the extent that the funds we now have on hand are insufficient to fund our future operating requirements, we would need to raise additional funds, through
further public or private equity or debt financings depending upon prevailing market conditions. These financings may not be available or, if available, may be on terms that are not favorable to us
and could result in dilution to our stockholders and reduction of the trading price of our stock. The state of worldwide capital markets could also impede our ability to raise additional capital on
favorable terms or at all. If adequate capital were not available to us, we likely would be required to significantly curtail our operations or possibly even cease our operations.
We
maintain two Credit and Security Agreements (the "Credit Agreements"), with Wells Fargo Bank, National Association, ("Wells Fargo"), that provide us with a credit facility up to
$20.0 million in the aggregate. At March 31, 2016, we had $9.5 million in borrowings outstanding under this line of credit. Under this credit facility, we are required to satisfy
specified financial and restrictive covenants. Failure to comply with these covenants could cause an event of default which, if not cured or waived, could require us to repay substantial indebtedness
immediately or allow Wells Fargo to terminate the credit facility. In addition, we have pledged our accounts receivable, inventories, equipment, patents and other assets as collateral under the Credit
Agreements which would be subject to seizure by Wells Fargo if we were in default and unable to repay the indebtedness.
Several
times since entering into the Credit Agreements, we have not been in compliance with certain covenants under the Credit Agreements. In connection with each event of noncompliance, Wells Fargo
waived the event of default and, on several occasions, we amended the Credit Agreements in response to the default. If we had not obtained the default waivers, or if we are ever again in
noncompliance, we
S-6
Table of Contents
would
not be able to draw additional funds under the credit facility. The Credit Agreements also define an event of default to include a material adverse effect on our business, as determined by Wells
Fargo. An event of default for this or any other reason, if not waived, would have a material adverse effect on the Company.
Our
obligations under the credit facility could have important consequences, including the following:
-
-
We may have difficulty obtaining additional financing at favorable interest rates to meet our requirements for operations, capital
expenditures, general corporate or other purposes.
-
-
We will be required to dedicate a substantial portion of our cash flow to the payment of principal and interest on indebtedness, which will
reduce the amount of funds available for operations, capital expenditures and future acquisitions.
-
-
We may be required to repay our indebtedness immediately if we default on any of the numerous financial or other restrictive covenants
contained in the Credit Agreements. It is not certain whether we will have, or will be able to obtain, sufficient funds to make these accelerated payments. If any outstanding indebtedness under the
credit facility is accelerated, our assets may not be sufficient to repay such indebtedness.
If we are unable to either substantially improve our operating results or obtain additional financing, we may
be unable to continue as a going concern.
Our business strategy is focused on profitability-oriented initiatives such as reducing operating expenses, diversifying and increasing revenue, improving
gross margin and utilizing the Capstone Energy Finance joint venture to capture lost orders. We may not be able to execute successfully the business strategy. Moreover, the business strategy is based
upon projections, which are in turn based upon estimates and assumptions. There can be no assurance as to the accuracy of the projections, estimates and assumptions which underlie the business
strategy or as to the Company's ability to successfully execute the business strategy.
Should
we be unable to execute our plans to build sales and margins while controlling costs, we may be unable to continue as a going concern on a longer-term basis. In particular, we must generate
positive cash flow from operations and net income and otherwise improve our results of operations substantially on a longer-term basis. Our available cash and proceeds from future financings, if any,
that we may be able to obtain, may not be sufficient to fund our operating expenses, capital expenditures and other cash requirements. Any such lack of funds would affect our ability to continue as a
going concern. These events and circumstances could have a material adverse effect on our ability to raise additional capital and on the market value of our common stock and our ability to maintain a
credit facility acceptable to the Company. Moreover, should we experience a cash shortage that requires us to curtail or cease our operations, or should we be unable to continue as a going concern,
you could lose all or part of your investments in our securities.
Impairment charges on our long-lived assets, including intangible assets with finite lives would adversely
affect our financial position and results of operations.
We evaluate the carrying value of long-lived assets, including intangible assets with finite lives, for impairment whenever events or changes in circumstances
indicate that the carrying value of such assets may not be recoverable. To determine whether impairment has occurred, we compare the undiscounted cash flows of the long-lived asset group with its
carrying value. The estimation of future cash flows requires significant estimates of factors that include future sales growth, gross margin performance, including our estimates of reductions in our
direct material costs, and reductions in operating expenses.
S-7
Table of Contents
If
our sales growth, gross margin performance or other estimated operating results are not achieved at or above our forecasted level, or inflation exceeds our forecast, the carrying value of our asset
group may prove to be unrecoverable and we may incur impairment charges in the future. In addition, significant and unanticipated changes in circumstances, such as significant adverse changes in
business climate, unanticipated competition, loss of key customers or changes in technology or markets, could require a charge for impairment that can materially and adversely affect our reported net
loss and our stockholders' equity.
A sustainable market for microturbines may never develop or may take longer to develop than we anticipate
which would adversely affect our results of operations.
Our products represent an emerging market, and we do not know whether our targeted customers will accept our technology or will purchase our products in
sufficient quantities to allow our business to grow. To succeed, demand for our products must increase significantly in existing markets, and there must be strong demand for products that we introduce
in the future. In addition, as part of our business strategy, we are focusing our marketing efforts on the oil and gas, renewable energy and combined heat and power markets. We may be unable to grow
our business in these target markets. If a sustainable market fails to develop or develops more slowly than we anticipate, we may be unable to recover the losses we have incurred to develop our
products, we may have further impairment of assets, and we may be unable to meet our operational expenses. The development of a sustainable market for our systems may be hindered by many factors,
including some that are out of our control. Examples include:
-
-
consumer reluctance to try a new product;
-
-
regulatory requirements;
-
-
the cost competitiveness of our microturbines;
-
-
costs associated with the installation and commissioning of our microturbines;
-
-
maintenance and repair costs associated with our microturbines;
-
-
the future costs and availability of fuels used by our microturbines;
-
-
economic downturns and reduction in capital spending;
-
-
consumer perceptions of our microturbines' safety and quality;
-
-
the emergence of newer, more competitive technologies and products; and
-
-
decrease in domestic and international incentives.
Our operating results are dependent, in large part, upon the successful commercialization of our products.
Failure to produce our products as scheduled and budgeted would materially and adversely affect our business and financial condition.
We cannot be certain that we will deliver ordered products in a timely manner. Any reliability or quality issues that may arise with our products could
prevent or delay scheduled deliveries or adversely impact the performance of our products. Any such delays or costs could significantly impact our business, financial condition and operating results.
S-8
Table of Contents
We may not be able to produce our products on a timely basis if we fail to correctly anticipate product
supply requirements or if we suffer delays in production resulting from issues with our suppliers. Our suppliers may not supply us with a sufficient amount of components or components of adequate
quality, or they may provide components at significantly increased prices.
Some of our components are currently available only from a single source or limited sources. We may experience delays in production if we fail to identify
alternative suppliers, or if any parts supply is interrupted, each of which could materially adversely affect our business and operations. In order to reduce manufacturing lead times and ensure
adequate component supply, we enter into agreements with certain suppliers that allow them to procure inventories based upon criteria defined by us. If we fail to anticipate customer demand properly,
an oversupply of parts could result in excess or obsolete inventories, which could adversely affect our business. Additionally, if we fail to correctly anticipate our internal supply requirements, an
undersupply of parts could limit our production capacity. Our inability to meet volume commitments with suppliers could affect the availability or pricing of our parts and components. A reduction or
interruption in supply, a significant increase in price of one or more components or a decrease in demand of products could materially adversely affect our business and operations and could materially
damage our customer relationships. Financial problems of suppliers on whom we rely could limit our supply of components or increase our costs. Also, we cannot guarantee that any of the parts or
components that we purchase will be of adequate quality or that the prices we pay for the parts or components will not increase. Inadequate quality of products from suppliers could interrupt our
ability to supply quality products to our customers in a timely manner. Additionally, defects in materials or products supplied by our suppliers that are not identified before our products are placed
in service by our customers could result in higher warranty costs and damage to our reputation. We also outsource certain of our components internationally. As a result of outsourcing internationally,
we may be subject to delays in delivery because of regulations associated with the import/export process, delays in transportation or regional instability.
We may not be able to manage our growth effectively, expand our production capabilities or improve our
operational, financial and management information systems, which would impair our results of operations.
If we are successful in executing our business plan, we will experience growth in our business that could place a significant strain on our business
operations, management and other resources. Our ability to manage our growth will require us to expand our production capabilities, continue to improve our operational, financial and management
information systems, and to motivate and effectively manage our employees. We cannot provide assurance that our systems, procedures and controls or financial resources will be adequate, or that our
management will keep pace with this growth. We cannot provide assurance that our management will be able to manage this growth effectively.
Adverse economic conditions may have an impact on our business and financial condition, including some
effects we may not be able to predict.
Adverse economic conditions may prevent our customers from purchasing our products or delay their purchases, which would adversely affect our business,
financial condition and results of operations. In addition, our ability to access the capital markets may be severely restricted or made very expensive at a time when we need, or would like, to do so,
which could have a material adverse impact on our liquidity and financial resources. Certain industries in which our customers do business and certain geographic areas have been and could continue to
be adversely affected by adverse economic conditions.
S-9
Table of Contents
Product quality expectations may not be met, causing slower market acceptance or warranty cost exposure.
In order to achieve our goal of improving the quality and lowering the total costs of ownership of our products, we may require engineering changes. Such
improvement initiatives may render existing inventories obsolete or excessive. Despite our continuous quality improvement initiatives, we may not meet customer expectations. Any significant quality
issues with our products
could have a material adverse effect on our rate of product adoption, results of operations, financial condition and cash flow. Moreover, as we develop new configurations for our microturbines and as
our customers place existing configurations in commercial use, our products may perform below expectations. Any significant performance below expectations could adversely affect our operating results,
financial condition and cash flow and affect the marketability of our products.
We
sell our products with warranties. There can be no assurance that the provision for estimated product warranty will be sufficient to cover our warranty expenses in the future. We cannot ensure that
our efforts to reduce our risk through warranty disclaimers will effectively limit our liability. Any significant incurrence of warranty expense in excess of estimates could have a material adverse
effect on our operating results, financial condition and cash flow. Further, we have at times undertaken programs to enhance the performance of units previously sold. These enhancements have at times
been provided at no cost or below our cost. If we choose to offer such programs again in the future, such actions could result in significant costs.
We operate in a highly competitive market among competitors who have significantly greater resources than we
have and we may not be able to compete effectively.
Capstone microturbines compete with several technologies, including reciprocating engines, fuel cells and solar power. Competing technologies may receive
certain benefits, like governmental subsidies or promotion, or be able to offer consumer rebates or other incentives that we cannot receive or offer to the same extent. This could enhance our
competitors' abilities to fund research, penetrate markets or increase sales. We also compete with other manufacturers of microturbines.
Our
competitors include several well-known companies with histories of providing power solutions. They have substantially greater resources than we do and have established worldwide presence. Because
of greater resources, some of our competitors may be able to adapt more quickly to new or emerging technologies and changes in customer requirements, to devote greater resources to the promotion and
sale of their products than we can or lobby for governmental regulations and policies to create competitive advantages vis-à-vis our products. We believe that developing and maintaining
a competitive advantage will require continued investment by us in product development and quality, as well as attention to product performance, our product prices, our conformance to industry
standards, manufacturing capability and sales and marketing. In addition, current and potential competitors have established or may in the future establish collaborative relationships among themselves
or with third parties, including third parties with whom we have business relationships. Accordingly, new competitors or alliances may emerge and rapidly acquire significant market share.
Overall,
the market for our products is highly competitive and is changing rapidly. We believe that the primary competitive factors affecting the market for our products, including some that are
outside of our control, include:
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name recognition, historical performance and market power of our competitors;
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product quality and performance;
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operating efficiency;
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product price;
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availability, price and compatibility of fuel;
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development of new products and features; and
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emissions levels.
There
is no assurance that we will be able to successfully compete against either current or potential competitors or that competition will not have a material adverse effect on our business,
operating results, financial condition and cash flow.
If we do not effectively implement our sales, marketing and service plans, our sales will not grow and our
results of operations will suffer.
Our sales and marketing efforts may not achieve intended results and, therefore, may not generate the revenue we anticipate. As a result of our corporate
strategies, we have decided to focus our resources on selected vertical markets. We may change our focus to other markets or applications in the future. There can be no assurance that our focus or our
near term plans will be successful. If we are not able to address markets for our products successfully, we may not be able to grow our business, compete effectively or achieve profitability.
Our sales and results of operations could be materially and adversely impacted by risks inherent in
international markets.
As we expand in international markets, customers may have difficulty or be unable to integrate our products into their existing systems or may have difficulty
complying with foreign regulatory and commercial requirements. As a result, our products may require redesign. Any redesign of the product may delay sales or cause quality issues. In addition, we may
be subject to a variety of other risks associated with international business, including import/export restrictions, fluctuations in currency exchange rates and economic or political instability.
The current geopolitical instability in Russia and Ukraine and related sanctions by the U.S. government
against certain companies and individuals may hinder our ability to conduct business with potential or existing customers and vendors in these countries.
We derived approximately 2% and 11% of our revenue from Russia during our fiscal years ended March 31, 2016 and 2015, respectively. The continuation or
escalation of the current geopolitical instability in Russia and Ukraine could negatively impact our operations, sales, and future growth prospects in that region. The U.S. government imposed
sanctions through several executive orders restricting U.S. companies from conducting certain oil and gas production related business activities with specified Russian and Ukrainian individuals and
companies and requiring export licenses for certain of such activities. While we believe that the executive orders currently do not preclude us
from conducting business with our current customers in Russia, the sanctions imposed by the U.S. government could be expanded in the future to restrict us from engaging with them. If we are unable to
conduct business with new or existing customers or pursue opportunities in Russia or Ukraine or elsewhere, our business, including revenue, profitability and cash flows, could be materially adversely
affected. If we are unable to conduct business with certain vendors, our operations in Russia and Ukraine could be materially adversely affected.
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We cannot be certain of the future effectiveness of our internal controls over financial reporting. If we are
unable to maintain effective internal controls over our financial reporting, investors may lose confidence in our ability to provide reliable and timely financial reports and the value of our common
stock may decline.
Pursuant to Section 404 of the Sarbanes-Oxley Act of 2002, we are required to include in our annual reports on Form 10-K our assessment of the
effectiveness of our internal controls over financial reporting. This assessment includes disclosure of any material weaknesses identified by our management in our internal controls over financial
reporting, as well as a statement that our independent registered public accounting firm has issued an attestation report on the effectiveness of our internal controls over financial reporting. Our
management concluded that our internal controls over financial reporting were ineffective as of March 31, 2014 because a material weakness was detected which related to our risk assessment
process. Management determined that this material weakness was remediated during the 2015 fiscal year. We may in the future identify further material weaknesses in our internal controls over financial
reporting that we have not discovered to date. If we cannot adequately maintain the effectiveness of our internal controls over financial reporting, we might be subject to sanctions or investigation
by regulatory authorities, such as the SEC. Any such action could adversely affect our financial results and the market price of our securities.
We may not be able to retain or develop relationships with OEMs or distributors in our targeted
markets, in which case our sales would not increase as expected.
In order to serve certain of our targeted markets, we believe that we must ally ourselves with companies that have particular expertise or better access to
those markets. We believe that retaining or developing relationships with strong OEMs (which to date have typically resold our products under their own brands or packaged our products with
other products as part of an integrated unit) or distributors in these targeted markets can improve the rate of adoption as well as reduce the direct financial burden of introducing a new technology
and creating a new market. Because of OEMs'
and distributors' relationships in their respective markets, the loss of an OEM or distributor could adversely impact the ability to penetrate our target markets. We offer our OEMs and
distributors stated discounts from list price for the products they purchase. In the future, to attract and retain OEMs and distributors we may provide volume price discounts or otherwise incur
significant costs that may reduce the potential revenue from these relationships. We may not be able to retain or develop appropriate OEMs and distributors on a timely basis, and we cannot
provide assurance that the OEMs and distributors will focus adequate resources on selling our products or will be successful in selling them. In addition, some of the relationships may require
that we grant exclusive distribution rights in defined territories. These exclusive distribution arrangements could result in our being unable to enter into other arrangements at a time when the OEM
or distributor with whom we form a relationship is not successful in selling our products or has reduced its commitment to market our products. We cannot provide assurance that we will be able
to negotiate collaborative relationships on favorable terms or at all. Our inability to have appropriate distribution in our target markets may adversely affect our financial condition, results of
operations and cash flow.
Activities necessary to integrate any future acquisitions may result in costs in excess of current
expectations or be less successful than anticipated.
During our fiscal year ended March 31, 2010, we completed the acquisition of certain assets relating to the microturbine business of Calnetix Power
Solutions, Inc., and we may acquire other businesses in the future. The success of these transactions will depend on, among other things, our ability to develop productive relationships with
the corresponding distributors and to integrate assets and personnel, if
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any,
acquired in these transactions and to apply our internal controls processes to these acquired businesses. The integration of any acquired businesses or significant assets may require significant
attention from our management, and the diversion of management's attention and resources could have a material adverse effect on our ability to manage our business. Furthermore, we may not realize the
degree or timing of benefits we anticipated when we first enter into these transactions. If actual integration costs are higher than amounts assumed, if we are unable to integrate the assets and
personnel acquired in an acquisition as anticipated, or if we are unable to fully benefit from anticipated synergies, our business, financial condition, results of operations, and cash flows could be
materially adversely affected.
We have substantial accounts receivable, and increased bad debt expense or delays in collecting accounts
receivable could have a material adverse effect on our cash flows and results of operations.
Our accounts receivable balance, net of allowances, was $13.6 million and $13.1 million as of March 31, 2016 and March 31, 2015,
respectively. Days sales outstanding in accounts receivable (DSO) at the end of our 2016 fiscal year was 66 days, compared with 40 days at the end of our 2015 fiscal year. We recorded
bad debt recovery of approximately $1.5 million and bad debt expense of approximately $10.1 million during our fiscal years ended March 31, 2016 and 2015, respectively. No
assurances can be given that future bad debt expense will not increase above current operating levels. Increased bad debt expense or delays in collecting accounts receivable could have a material
adverse effect on cash flows and results of operations.
Loss of a significant customer could have a material adverse effect on our results of operations.
Horizon Power Systems ("Horizon"), one of the Company's domestic distributors, E-Finity Distributed Generation, LLC ("E-Finity"), one of the Company's
domestic distributors, Dtc Soluciones Inmobiliarias S.A. de C.V. ("DTC"), one of the Company's Mexican distributors, and Optimal Group Australia Pty Ltd ("Optimal"), one of the Company's
Australian distributors, accounted for approximately 15%, 11%, 10% and 10%, respectively, of our revenue for our fiscal year ended March 31, 2016. Additionally, DTC, Optimal, Reliable Secure
Power Systems, one of the Company's domestic distributors, and Regale Energy Zrt, the Company's Hungarian distributor, accounted for 28%, 11%, 10% and 10%, respectively, of net accounts receivable as
of March 31, 2016. The loss of Horizon, E-Finity, DTC, Optimal or any other significant customer could adversely affect our results of operations.
We may not be able to develop sufficiently trained applications engineering, installation and service support
to serve our targeted markets.
Our ability to identify and develop business relationships with companies who can provide quality, cost-effective application engineering, installation and
service can significantly affect our success. The application engineering and proper installation of our microturbines, as well as proper maintenance and service, are critical to the performance of
the units. Additionally, we need to reduce the total installed cost of our microturbines to enhance market opportunities. Our inability to improve the quality of applications, installation and service
while reducing associated costs could affect the marketability of our products.
Changes in our product components may require us to replace parts held at distributors.
We have entered into agreements with some of our distributors requiring that if we render parts obsolete in inventories they own and hold in support of their
obligations to serve fielded microturbines,
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we
are required to replace the affected stock at no cost to the distributors. It is possible that future changes in our product technology could involve costs that have a material adverse effect on
our results of operations, cash flow or financial position.
We operate in a highly regulated business environment, and changes in regulation could impose significant
costs on us or make our products less economical, thereby affecting demand for our microturbines.
Our products are subject to federal, state, local and foreign laws and regulations, governing, among other things, emissions and occupational health and
safety. Regulatory agencies may impose special requirements for the implementation and operation of our products or that may significantly affect or even eliminate some of our target markets. We may
incur material costs or liabilities in complying with government regulations. In addition, potentially significant expenditures could be required in order to comply with evolving environmental and
health and safety laws, regulations and requirements that may be adopted or imposed in the future. Furthermore, our potential utility customers must comply with numerous laws and regulations. The
deregulation of the utility industry may also create challenges for our marketing efforts. For example, as part of electric utility deregulation, federal, state and local governmental authorities may
impose transitional charges or exit fees, which would make it less economical for some potential customers to switch to our products. We can provide no assurances that we will be able to obtain these
approvals and changes in a timely manner, or at all. Non-compliance with applicable regulations could have a material adverse effect on our operating results.
The
market for electricity and generation products is heavily influenced by federal and state government regulations and policies. The deregulation and restructuring of the electric industry in the
United States and elsewhere may cause rule changes that may reduce or eliminate some of the advantages of such deregulation and restructuring. We cannot determine how any deregulation or restructuring
of the electric utility industry may ultimately affect the market for our microturbines. Changes in regulatory standards or policies could reduce the level of investment in the research and
development of alternative power sources, including microturbines. Any reduction or termination of such programs could increase the cost to our potential customers, making our systems less desirable,
and thereby adversely affect our revenue and other operating results.
Utility companies or governmental entities could place barriers to our entry into the marketplace, and we may
not be able to effectively sell our products.
Utility companies or governmental entities could place barriers on the installation of our products or the interconnection of the products with the electric
grid. Further, they may charge additional fees to customers who install on-site generation or have the capacity to use power from the grid for back-up or standby purposes. These types of restrictions,
fees or charges could hamper the ability to install or effectively use our products or increase the cost to our potential customers for using our systems. This could make our systems less desirable,
thereby adversely affecting our revenue and other operating results. In addition, utility rate reductions can make our products less competitive which would have a material adverse effect on our
operations. The cost of electric power generation bears a close relationship to natural gas and other fuels. However, changes to electric utility tariffs often require lengthy regulatory approval and
include a mix of fuel types as well as customer categories. Potential customers may perceive the resulting swings in natural gas and electric pricing as an increased risk of investing in on-site
generation.
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We depend upon the development of new products and enhancements of existing products.
Our operating results depend on our ability to develop and introduce new products, enhance existing products and reduce the costs to produce our products. The
success of our products is dependent on several factors, including proper product definition, product cost, timely completion and introduction of the products, differentiation of products from those
of our competitors, meeting changing customer requirements, emerging industry standards and market acceptance of these products. The development of new, technologically advanced products and
enhancements is a complex and uncertain process requiring high levels of innovation, as well as the accurate anticipation of technological and market trends. There can be no assurance that we will
successfully identify new product opportunities, develop and bring new or enhanced products to market in a timely manner, successfully lower costs and achieve market acceptance of our products, or
that products and technologies developed by others will not render our products or technologies obsolete or noncompetitive.
Operational restructuring may result in asset impairment or other unanticipated charges.
As a result of our corporate strategy, we have identified opportunities to outsource to third-party suppliers certain functions which we currently perform. We
believe outsourcing can reduce product costs, improve product quality and increase operating efficiency. These actions may not yield the expected results, and outsourcing may result in production
delays or lower quality products. Transitioning to outsourcing may cause certain of our affected employees to leave before the outsourcing is complete. This could result in a lack of the experienced
in-house talent necessary to successfully implement the outsourcing. Further, depending on the nature of operations outsourced and the structure of agreements we reach with suppliers to perform these
functions, we may experience impairment in the value of manufacturing assets related to the outsourced functions or other unanticipated charges, which could have a material adverse effect on our
operating results.
We may not achieve production cost reductions necessary to competitively price our products, which would
adversely affect our sales.
We believe that we will need to reduce the unit production cost of our products over time to maintain our ability to offer competitively priced products. Our
ability to achieve cost reductions will depend on our ability to develop low cost design enhancements, to obtain necessary tooling and favorable supplier contracts and to increase sales volumes so we
can achieve economies of scale. We cannot provide assurance that we will be able to achieve any such production cost reductions. Our failure to achieve such cost reductions could have a material
adverse effect on our business and results of operations.
Commodity market factors impact our costs and availability of materials.
Our products contain a number of commodity materials from metals, which include steel, special high temperature alloys, copper, nickel and molybdenum, to
computer components. The availability of these commodities could impact our ability to acquire the materials necessary to meet our production requirements. The cost of metals has historically
fluctuated. The pricing could impact the costs to manufacture our products. If we are not able to acquire commodity materials at prices and on terms satisfactory to us or at all, our operating results
may be materially adversely affected.
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Our products involve a lengthy sales cycle and we may not anticipate sales levels appropriately, which could
impair our results of operations.
The sale of our products typically involves a significant commitment of capital by customers, with the attendant delays frequently associated with large
capital expenditures. For these and other reasons, the sales cycle associated with our products is typically lengthy and subject to a number of significant risks over which we have little or no
control. We expect to plan our production and inventory levels based on internal forecasts of customer demand, which is highly unpredictable and can fluctuate substantially. If sales in any period
fall significantly below anticipated levels, our financial condition, results of operations and cash flow would suffer. If demand in any period increases well above anticipated levels, we may have
difficulties in responding, incur greater costs to respond, or be unable to fulfill the demand in sufficient time to retain the order, which would negatively impact our operations. In addition, our
operating expenses are based on anticipated sales levels, and a high percentage of our expenses are generally fixed in the short term. As a result of these factors, a small fluctuation in timing of
sales can cause operating results to vary materially from period to period.
Our
total backlog as of March 31, 2016, was $109.6 million. However, because our backlog represents only the estimated amount of future product revenue to be recognized under negotiated
contracts as shipments convert backlog to recognized revenue for accounting purposes, we may not be able to fully realize the revenue value reported in our backlog, and our backlog may not be
indicative of future revenues. A significant portion of our backlog is concentrated in the international oil and gas market, which may impact the overall timing of shipments and the conversion of
backlog to such revenue. The timing of the backlog is based on the requirement date indicated by our customers. Based on historical experience, management expects that a significant portion of our
backlog may not be shipped within the next 18 months. The timing of shipments is subject to change based on several variables (including customer deposits, payments, availability of credit and
customer delivery schedule changes), most of which are not in our control and can affect the timing of our revenue.
During
the second quarter of our fiscal year ended March 31, 2016, we removed approximately $51.6 million, for 186 units, representing 63.8 megawatts, of backlog from BPC Engineering,
one of the Company's Russian distributors. This removal aligned the backlog to management's expectations based on the global macroeconomic environment during our fiscal year ended March 31,
2015, such as the volatility of the global oil and gas market, a substantially stronger U.S. dollar (making our products more expensive overseas) and on-going geopolitical tensions involving Russia.
In addition, we removed a portion of our 100 kW microturbine ("TA100") backlog of approximately $2.4 million, for 17 units representing 1.7 megawatts, from Calnetix Power Solutions, Inc.
during the first quarter of our fiscal year ended March 31, 2016. This removal aligned our TA100 backlog with management's decision to limit future production of TA100 systems on a case-by-case
basis for key customers.
Potential intellectual property, labor, product liability, stockholder or other litigation may adversely
impact our business.
From time to time, we may face litigation relating to intellectual property, labor, product liability, stockholder and other matters. An adverse judgment
could negatively impact our financial position and results of operations, the trading price of our common stock and our ability to obtain future financing on favorable terms or at all. Whether or not
resolved in a manner adverse to us, any litigation could be costly, divert management attention or result in increased costs of doing business. Further, our insurance coverage is limited for these and
other claims against us, and we may not have adequate insurance or financial resources to pay for our liabilities or losses from any such claims.
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Our business could be negatively impacted if we fail to adequately protect our intellectual property rights
or if third parties claim that we are in violation of their intellectual property rights.
We view our intellectual property rights as important assets. We seek to protect our intellectual property rights through a combination of patent, trademark,
copyright and trade secret laws, as well as licensing and confidentiality agreements. These protections may not be adequate to prevent third parties from using our intellectual property without our
authorization, breaching any confidentiality agreements with us, copying or reverse engineering our products, or developing and marketing products that are substantially equivalent to or superior to
our own. The unauthorized use of our intellectual property by others could reduce our competitive advantage and harm our business. If it became necessary for us to litigate to protect these rights,
any proceedings could be burdensome and costly and we may not prevail. We cannot guarantee that any patents, issued or pending, will provide us with any competitive advantage or will not be challenged
by third parties. Moreover, the expiration of our patents may lead to increased competition with respect to certain products. In addition, we cannot be certain that we do not or will not infringe
third parties' intellectual property rights. Any such claim, even if it is without merit, may be expensive and time-consuming to defend, subject us to damages, cause us to cease making, using or
selling certain products that incorporate the disputed intellectual property, require us to redesign our products, divert management time and attention and/or require us to enter into costly royalty
or licensing arrangements.
Our results of operations could be materially and adversely affected by risks related to cyber security
threats.
As a manufacturer of high technology commercial products, we face cyber security threats, as well as the potential for business disruptions associated with
information technology failures or cyber security attacks. We routinely experience cyber security threats, threats to our information technology infrastructure and attempts to gain access to our
sensitive information. Because of the evolving nature of these security threats, the impact of any future incident cannot be predicted. The occurrence of any of these events could adversely affect our
results of operations, the services we provide to customers, the competitive advantages derived from our research and development efforts, the usefulness of our products and services, our reputation
or our stock price.
We may incur costs and liabilities as a result of product liability claims.
We face a risk of exposure to product liability claims in the event that the use of our products is alleged to have resulted in injury or other damage.
Although we currently maintain product liability insurance coverage, we may not be able to obtain such insurance on acceptable terms in the future, if at all, or obtain insurance that will provide
adequate coverage against potential claims. Product liability claims can be expensive to defend and can divert the attention of management and other personnel for long periods of time, regardless of
the ultimate outcome. A significant unsuccessful product liability defense could have a material adverse effect on our financial condition and results of operations. In addition, we believe our
business depends on the strong brand reputation we have developed. If our reputation is damaged, we may face difficulty in maintaining our market share and pricing with respect to some of our
products, which could reduce our sales and profitability.
We have significant tax assets, usage of which may be subject to limitations in the future.
At March 31, 2016, we had federal and state net operating loss carryforwards of approximately $652 million and $181 million,
respectively, which may be utilized to reduce future taxable income, subject to limitations under Section 382 of the Internal Revenue Code of 1986. These deferred tax
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assets
have been fully offset by a valuation allowance. Any subsequent accumulations of common stock ownership leading to a change of control under Section 382 of the U.S. Internal Revenue Code
of 1986, including through sales of stock by large stockholders, all of which are outside of our control, could limit and defer our ability to utilize our net operating loss carryforwards to offset
future federal income tax liabilities.
Our success depends in significant part upon the continuing service of management and key employees.
Our success depends in significant part upon the continuing service of our executive officers, senior management and sales and technical personnel. The
failure of our personnel to execute our strategy or our failure to retain management and personnel could have a material adverse effect on our business. Our success will be dependent on our continued
ability to attract, retain and motivate highly skilled employees. There can be no assurance that we can do so.
Our
internal control systems rely on people trained in the execution of the controls. Loss of these people or our inability to replace them with similarly skilled and trained individuals or new
processes in a timely manner could adversely impact our internal control mechanisms.
Our operations are vulnerable to interruption by fire, earthquake and other events beyond our control.
Our operations are vulnerable to interruption by fire, earthquake and other events beyond our control. Our executive offices and manufacturing facilities are
located in southern California. Because the southern California area is located in an earthquake-sensitive area, we are particularly susceptible to the risk of damage to, or total destruction of, our
facilities in southern California and the surrounding transportation infrastructure, which could affect our ability to make and transport our products. If an earthquake, fire or other natural disaster
occurs at or near our facilities, our business, financial condition, operating results and cash flow could be materially adversely affected.
If we fail to meet all applicable Nasdaq Capital Market requirements and Nasdaq determines to delist our
common stock, the delisting could adversely affect the market liquidity of our common stock, impair the value of your investment and adversely affect our ability to raise needed funds.
Our common stock is listed on the Nasdaq Capital Market. In order to maintain that listing, we must satisfy minimum financial and other requirements. On
December 19, 2014, when our common stock was listed on the Nasdaq Global Market, we received a notice from the Nasdaq Listing Qualifications Department stating that, for 30 consecutive business
days preceding the notice date, the closing bid price for our common stock had been below the minimum $1.00 per share requirement for continued listing on the Nasdaq Global Market as set forth in
Nasdaq Listing Rule 5450(a)(1). On June 22, 2015, we transferred the listing of our common stock from the Nasdaq Global Market to the Nasdaq Capital Market and were afforded an
additional 180-day grace period to regain compliance with the minimum bid price requirement. We subsequently regained compliance with the minimum bid price requirement by effecting a 1-for-20 reverse
stock split. However, there can be no assurance that we will be able to comply with the continued listing standards in the future.
If
we fail to meet all applicable Nasdaq Capital Market requirements in the future and Nasdaq determines to delist our common stock, the delisting could adversely affect the market liquidity of our
common stock and adversely affect our ability to obtain financing for the continuation of our operations. This delisting could also impair the value of your investment.
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Our business could be negatively affected as a result of a proxy contest.
If we were to become engaged in a proxy contest with an activist stockholder, such proxy contest and any related litigation would require us to incur
significant legal and advisory fees, proxy solicitation expenses and administrative and associated costs and require significant time and attention by management, our board of directors and employees,
and would divert the attention of our board of directors and senior management from the pursuit of our business strategy, which could adversely affect our results of operations and financial
condition. Any perceived uncertainties as to our future direction and control, our ability to execute on our strategy, or changes to the composition of our board of directors or senior management team
arising from a proxy contest could lead to the perception of a change in the direction of our business, instability or lack of continuity which may be exploited by our competitors and may result in
the loss of potential business opportunities and may make it more difficult to pursue our strategic initiatives or attract and retain qualified personnel and business partners, any of which could
adversely affect our business and operating results. We may
choose to initiate, or may become subject to, litigation as a result of the proxy contest or matters arising from the proxy contest, which would serve as a further distraction to our board of
directors, management and employees and would require us to incur significant additional costs. In addition, the market price of our common stock could be subject to significant fluctuation or
otherwise be adversely affected by the uncertainties described above or the outcome of a proxy contest or any related litigation.
A
proxy contest with an activist investor could result in the turnover of a majority of our board of directors. If such a change in the composition of our board of directors were to occur, it could
trigger the change of control provisions of certain agreements and arrangements to which the Company is a party, including the Credit Agreements, the Company's Amended and Restated Change of Control
Severance Plan and the Amended and Restated Change in Control Severance Agreement, as amended, between the Company and Darren Jamison, our President and Chief Executive Officer.
Under
the Credit Agreements, a change of control constitutes an event of default that would entitle Wells Fargo to, among other remedies, declare all of our outstanding borrowings under the Credit
Agreements immediately due and payable. Under the Amended and Restated Change of Control Severance Plan and the Amended and Restated Change in Control Severance Agreement, as amended, following a
change of control, upon the occurrence of a qualifying termination of Mr. Jamison or certain of the Company's other executive officers and employees, the Company will be obligated to make
specified severance payments to the terminated employee.
If
such a change in our board composition were to occur, and if our board of directors were unable to take certain mitigating action to avoid triggering, or if the Company were unable to obtain a
waiver of, these and other similar change of control provisions to which the Company is subject, the resulting payments and other obligations required of the Company could have a material adverse
effect on our liquidity and ability to conduct our business or could otherwise materially and adversely affect our business, results of operations and financial condition.
Provisions in our certificate of incorporation, bylaws and our stockholder rights plan, as well as Delaware
law, may discourage, delay or prevent a merger or acquisition at a premium price.
Provisions of our second amended and restated certificate of incorporation, as amended, amended and restated bylaws and our stockholder rights plan, as well
as provisions of the General Corporation Law of the State of Delaware, could discourage, delay or prevent unsolicited proposals to merge with or acquire us, even though such proposals may be at a
premium price or otherwise beneficial to you. These provisions include our board's authorization to issue shares of preferred stock, on terms the
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board
determines in its discretion, without stockholder approval, and the following provisions of Delaware law that restrict many business combinations.
We
are subject to the provisions of Section 203 of the General Corporation Law of the State of Delaware, which could prevent us from engaging in a business combination with a 15% or greater
stockholder for a period of three years from the date such stockholder acquired such status unless appropriate board or stockholder approvals are obtained.
On
May 6, 2016, the Company and Computershare Inc., as rights agent, entered into a Rights Agreement (the "NOL Rights Agreement") designed to diminish the risk that the Company's ability
to use its net operating losses and certain other tax assets to reduce potential future federal income tax obligations would become subject to limitations by reason of the Company experiencing an
"ownership change," as defined in Section 382 of the Internal Revenue Code of 1986, as amended. While this NOL Rights Agreement is intended to preserve our net operating losses, it effectively
deters current and future purchasers from becoming 4.99% stockholders. The NOL Rights Agreement could also make it more difficult for a third party to acquire us, even if doing so would benefit our
stockholders.
Risks Related to this Offering
The market price of our common stock has been and may continue to be highly volatile and you could lose all
or part of your investment in our securities.
An investment in our securities is risky, and stockholders could lose their investment in our securities or suffer significant losses and wide fluctuations in
the market value of their investment. The market price of our common stock is highly volatile and is likely to continue to be highly volatile. Given the continued uncertainty surrounding many
variables that may affect our business and the industry in which we operate, our ability to foresee results for future periods is limited. This variability could affect our operating results and
thereby adversely affect our stock price. Many factors that contribute to this volatility are beyond our control and may cause the market price of our common stock to change, regardless of our
operating performance. Factors that could cause fluctuation in our stock price may include, among other things:
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actual or anticipated variations in quarterly operating results;
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market sentiment toward alternative energy stocks in general or toward Capstone;
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changes in financial estimates or recommendations by securities analysts;
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conditions or trends in our industry or the overall economy;
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loss of one or more of our significant customers;
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errors, omissions or failures by third parties in meeting commitments to us;
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changes in the market valuations or earnings of our competitors or other technology companies;
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the trading of options on our common stock;
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announcements by us or our competitors of significant acquisitions, strategic partnerships, divestitures, joint ventures or other strategic
initiatives;
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announcements of significant market events, such as power outages, regulatory changes or technology changes;
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changes in the estimation of the future size and growth rate of our market;
-
-
future equity financings;
S-20
Table of Contents
-
-
the failure to produce our products on a timely basis in accordance with customer expectations;
-
-
the inability to obtain necessary components on time and at a reasonable cost;
-
-
litigation or disputes with customers or business partners;
-
-
capital commitments;
-
-
additions or departures of key personnel;
-
-
sales or purchases of our common stock;
-
-
the trading volume of our common stock;
-
-
developments relating to litigation or governmental investigations; and
-
-
further decreases in or continued low levels of oil, natural gas and electricity prices.
In
addition, the stock market in general, and the Nasdaq Capital Market and the market for technology companies in particular, have experienced extreme price and volume fluctuations that have often
been unrelated or disproportionate to the operating performance of particular companies affected. The market prices of securities of technology companies and companies servicing the technology
industries have been particularly volatile. These broad market and industry factors may cause a material decline in the market price of our common stock, regardless of our operating performance. In
the past, following periods of volatility in the market price of a company's securities, securities class action litigation has often been instituted against that company. This type of
litigation, regardless of whether we prevail on the underlying claim, could result in substantial costs and a
diversion of management's attention and resources, which could materially harm our financial condition, results of operations and cash flow.
Investors in this offering will experience immediate and substantial dilution.
After giving effect to the sale of 3,600,000 shares of our common stock in this offering at the public offering price of $1.20 per share, and the sale of
2,700,000 shares of our common stock underlying the pre-funded Series B warrants offered hereunder at the public offering price of $1.19 (which equals the public offering price of the common
stock less the nominal $0.01 per share exercise price of each pre-funded Series B warrant offered hereunder), and after deducting the placement agent fees and other estimated offering expenses
payable by us, and excluding the proceeds to us, if any, from the exercise of the pre-funded Series B warrants issued pursuant to this offering or from the sale or exercise of the
Series A warrants being issued in the concurrent private placement discussed on page S-28 of this prospectus supplement, based on our net tangible book value as of June 30, 2016,
if you purchase shares of common stock in this offering you will suffer substantial and immediate dilution of $0.11 per share in the net tangible book value of the common stock. The future exercise of
outstanding options and warrants, including the pre-funded Series B warrants issued hereunder and the Series A warrants being issued in the concurrent private placement, will result in
further dilution of your investment. See "Dilution" on page S-25 of this prospectus supplement for a more detailed discussion of the dilution you will incur in this offering.
Sales of substantial amounts of our common stock or the perception that such sales may occur could cause the
market price of our common stock to drop significantly, even if our business is performing well.
Future sales of substantial amounts of our common stock, or securities convertible or exchangeable into shares of our common stock, into the public market,
including shares of our common stock issued upon
S-21
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exercise
of options and warrants, or perceptions that those sales could occur, could adversely affect the prevailing market price of our common stock and our ability to raise capital in the future.
Additionally, the market price of our common stock could decline as a result of sales by, or the perceived possibility of sales by, our existing stockholders of shares of our common stock in the
market after this offering. These sales might also make it more difficult for us to sell equity securities at a time and price that we deem appropriate.
We will have broad discretion in how we use the proceeds of this offering, and we may not use these proceeds
effectively, which could adversely affect our results of operations and cause our common stock price to decline.
We will have considerable discretion in the application of the net proceeds of this offering. Our management has broad discretion over how these proceeds are
used and could spend the proceeds in ways with which you may not agree. We may not invest the proceeds of this offering effectively or in a manner that yields a favorable or any return and,
consequently, this could result in further financial losses that could have a material and adverse effect on our business, cause the market price of our common stock to decline or delay the
development of our products.
The pre-funded Series B warrants have no established trading market.
The pre-funded Series B warrants have no established trading market. The pre-funded Series B warrants will not be listed on any securities
exchange or quotation system. There can be no assurance that a trading market for the pre-funded Series B warrants will develop or as to the liquidity of any trading market for the pre-funded
Series B warrants that may develop. The absence of a trading market or liquidity for the pre-funded Series B warrants may adversely affect their value.
Holders of our pre-funded Series B warrants will have no rights as a common stockholder until such
holders exercise their pre-funded Series B warrants and acquire our common stock.
Until holders of pre-funded Series B warrants acquire shares of our common stock upon exercise of the pre-funded Series B warrants, holders of
pre-funded Series B warrants will have no rights with respect to the shares of our common stock underlying such pre-funded Series B warrants. Upon exercise of the pre-funded
Series B warrants, the holders thereof will be entitled to exercise the rights of a common stockholder only as to matters for which the record date occurs after the exercise date.
Significant holders or beneficial holders of our common stock may not be permitted to exercise pre-funded
Series B warrants that they hold.
The terms of the pre-funded Series B warrants offered hereby prohibit a holder from exercising its pre-funded Series B warrants if doing so
would result in such holder (together with such holder's affiliates) beneficially owning more than 9.99% of the number of shares of common stock outstanding immediately after giving effect to the
exercise, as such percentage ownership is determined in accordance with the terms of the pre-funded Series B warrants. As a result, you may not be able to exercise your pre-funded
Series B warrants for shares of our common stock at a time when it would be financially beneficial for you to do so. In such circumstance you could seek to sell your pre-funded Series B
warrants to realize value, but you may be unable to do so.
S-22
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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus supplement and the accompanying prospectus (including the information incorporated by reference) contains "forward-looking
statements" within the meaning of Section 27A of the Securities Act and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act. Forward-looking statements
include statements concerning, among other things, compliance with and availability of our line of credit, our future results of operations, sales expectations, research and development activities,
our ability to develop markets for our products, our ability to produce products on a timely basis in a high quality manner, sources for and costs of component parts, federal, state and local
regulations, general business, industry and economic conditions applicable to us, customer uses of our microturbines, closing of the offering, net proceeds from and expenses related to the offering,
our use of proceeds from the offering, dilution resulting from the offering, exercise of the additional sale options offered hereby. When used in this prospectus supplement, the words "estimates,"
"expects," "anticipates," "projects," "plans," "intends," "believes," "should," "could," "may" and variations of such words or similar expressions are intended to identify
forward-looking statements. All forward-looking statements, including, without limitation, our examination of historical operation trends, are based upon our current expectations and various
assumptions.
In
addition, we have included in this prospectus supplement certain preliminary estimates of our financial results for the quarter ended September 30, 2016. We are currently in the process of
finalizing our financial results for the quarter ended September 30, 2016, and these preliminary estimates are based on the most current information available to management. Our actual results
may differ materially from these preliminary estimates due to the completion of our financial closing procedures, final adjustments and other developments that may arise between now and the time the
financial results for the quarter ended September 30, 2016 are finalized.
There
are a number of risks and uncertainties that could cause our actual results to differ materially from the forward-looking statements contained in this prospectus supplement and the accompanying
prospectus and the documents incorporated by reference herein, including those risks described above. We caution you that these factors, as well as the risk factors included and incorporated by
reference in this prospectus supplement, may not be exhaustive. Our actual results, performance or achievements could differ materially from the results expressed in, or implied by, these
forward-looking statements. We operate in a continually changing business environment, and new risk factors emerge from time to time. We cannot accurately predict such future risk factors, nor can we
assess the impact, if any, of such possible future risk factors on our businesses or the extent to which any factor or combination of factors may cause actual results to differ materially from those
expressed or implied by any forward-looking statements. You are advised to review any further disclosures we make on related subjects in reports we file with the SEC. All forward-looking statements
are based on expectations, assumptions and other facts and circumstances as of the respective dates of the documents in which those forward-looking statements appear and are expressly qualified in
their entirety by the cautionary statements included in this prospectus supplement and the accompanying prospectus and the documents incorporated by reference herein. We undertake no obligation to
publicly update or revise forward-looking statements, which may be made to reflect events or circumstances after the date made or to reflect the occurrence of unanticipated events.
S-23
Table of Contents
USE OF PROCEEDS
We estimate that the net proceeds to us from this offering, after deducting placement agent fees and estimated offering expenses payable by
us, will be approximately $6.8 million. This amount does not give effect to any exercise of the pre-funded Series B warrants being offered and issued in this offering or any sale or
exercise of the Series A warrants being issued in the concurrent private placement.
We
intend to use the net proceeds from the securities sold by us in the offering to fund working capital requirements and for general corporate purposes. While we have estimated the particular uses
for the net proceeds of this offering, we cannot specify these uses with certainty. Accordingly, our management will have broad discretion in the application of the net proceeds from this offering,
and investors will be relying on the judgment of our management with regard to the use of these net proceeds.
Pending
application of the net proceeds, the net proceeds of this offering will be deposited in interest bearing accounts or invested in certificates of deposit, United States government obligations
or other short-term debt instruments selected at our discretion.
S-24
Table of Contents
DILUTION
Our net tangible book value as of June 30, 2016 was $32.7 million, or $1.09 per share of common stock. Net tangible book value
per share represents our total tangible assets as of June 30, 2016 (which excludes goodwill and other intangible assets), less our total liabilities as June 30, 2016 divided by the
aggregate number of shares of our common stock outstanding as of June 30, 2016.
After
giving effect to the sale of 3,600,00 shares of our common stock in this offering at the public offering price of $1.20 per share, and the sale of 2,700,000 shares of our common stock underlying
the
pre-funded Series B warrants offered hereunder at the public offering price of $1.19 (which equals the public offering price of the common stock less the nominal $0.01 per share exercise price
of each pre-funded Series B warrant offered hereunder), and after deducting the placement agent fees and other estimated offering expenses payable by us, and excluding the proceeds to us, if
any, from the exercise of the pre-funded Series B warrants issued pursuant to this offering or from the sale or exercise of the Series A warrants being issued in the concurrent private
placement discussed on page S-28 of this prospectus supplement, our as adjusted net tangible book value as of June 30, 2016 would have been approximately $39.5 million, or $1.09
per share. This amount represents an immediate dilution of approximately $0.11 per share to new investors. The following table illustrates this per share dilution:
|
|
|
|
|
|
|
|
|
|
Public offering price per share
|
|
|
|
|
$
|
1.20
|
|
|
Net tangible book value per share as of June 30, 2016 (unaudited)
|
|
$
|
1.09
|
|
|
|
|
|
Increase in net tangible book value per share attributable to new investors
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As adjusted net tangible book value per share after this offering
|
|
|
|
|
$
|
1.09
|
|
|
|
|
|
|
|
|
|
|
|
Dilution per share to new investors participating in this offering
|
|
|
|
|
$
|
0.11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
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|
|
|
|
|
|
The
per share data appearing above is based on 30,129,019 shares of common stock outstanding as of June 30, 2016, and excludes the following shares of common
stock:
-
-
459,195 shares of common stock issuable upon the exercise of outstanding stock options with a weighted-average exercise price of $22.61 per
share;
-
-
223,668 shares of common stock issuable upon vesting of outstanding restricted stock units;
-
-
262,942 shares of common stock reserved for future issuance under our stock incentive plans and our employee stock purchase plans;
-
-
5,993,750 shares of common stock issuable upon the exercise of outstanding warrants with a weighted-average exercise price of $1.75 per share;
and
-
-
6,300,000 shares of common stock issuable upon the exercise of the Series A warrants being issued in the concurrent private placement
discussed on page S-28 of this prospectus supplement.
To
the extent that outstanding options or warrants, including the Series A warrants being issued in the concurrent private placement, are exercised or outstanding restricted stock units vest,
you will experience further dilution. In addition, we may choose to raise additional capital as a result of market conditions or strategic considerations, even if we believe that we have sufficient
funds for our current or future operating plans. To the extent that additional capital is raised through the sale of equity or convertible debt securities, the issuance of these securities could
result in further dilution to our stockholders.
S-25
Table of Contents
DESCRIPTION OF SECURITIES WE ARE OFFERING
We are offering up to 3,600,000 shares of our common stock, par value $0.001 per share. We are also offering to certain investors whose
purchase of shares of common stock in this offering would result in the investor, together with its affiliates and certain related parties, beneficially owning more than 9.99% of our outstanding
common stock following the consummation of this offering the opportunity to purchase, in lieu of shares of our common stock, warrants, which we refer to as pre-funded Series B warrants, to
purchase up to 2,700,000 shares of our common stock. Each pre-funded Series B warrant will have an aggregate exercise price of $1.20 per share of common stock, all of which will be pre-funded
except for a nominal exercise price of $0.01 per share of common stock.
In
a concurrent private placement, we are offering Series A warrants to purchase up to 6,300,000 shares of our common stock to the purchasers of shares of our common stock and the purchasers of
the pre-funded Series B warrants in this offering. See "Private Placement of Series A Warrants" on page S-28 for more information on the private placement of these Series A
warrants.
Common Stock
The material terms and provisions of our common stock and each other class of our securities which qualifies or limits our common stock are described under
the caption "Description of Common Stock" starting on page 6 of the accompanying prospectus.
Pre-Funded Series B Warrants
The material terms and provisions of the pre-funded Series B warrants being issued in this offering are summarized below. The following description is
subject to, and qualified in its entirety by, the form of pre-funded Series B warrant to purchase common stock that will be included as an exhibit to a Current Report on Form 8-K that is to be
filed by us with the SEC in connection with this offering. You should review the form of pre-funded Series B warrant to purchase common stock for a complete description of the terms and
conditions of the pre-funded Series B warrants being issued in this offering.
Exercisability.
Holders of the pre-funded Series B warrants may exercise the pre-funded Series B warrants at any time or times during the period
commencing upon issuance and ending nine months from the date of issuance, subject to extension under certain circumstances. The pre-funded Series B warrants will be exercisable, at the option
of each holder, in whole or in part by delivering to us a duly executed exercise notice accompanied by payment in full of the applicable exercise price (except in the case of a cashless exercise as
discussed below).
Exercise Price.
The aggregate exercise price per share of common stock purchasable upon exercise of the pre-funded Series B warrants is $1.20. The exercise
price is subject to appropriate adjustment upon the occurrence of certain events as set forth in the pre-funded Series B warrants, including in the event of stock dividends and distributions,
recapitalization, stock splits, stock combinations, reclassifications or
similar events affecting our common stock. The exercise price of the pre-funded Series B warrants, except for the nominal exercise price of $0.01 per share of common stock, will have been
pre-funded to the Company and, consequently, no additional consideration (other than the nominal exercise price of $0.01 per share of common stock) shall be required to be paid by the holders to any
person to effect any exercise of the pre-funded Series B warrants. The holder shall not be entitled to the return or refund of all, or any portion, of such pre-funded exercise price under any
circumstance or for any reason whatsoever, including in the event a pre-funded Series B warrant shall not have been exercised prior to its expiration.
Cashless Exercise.
If at any time during the pre-funded Series B warrant exercisability period a registration statement covering the shares of common stock
issuable upon exercise of pre-funded
S-26
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Series B
warrants that are the subject of such exercise notice is not available for the resale of such shares and the pre-funded Series B warrant holder so elects, then in lieu of making
the cash payment otherwise contemplated to be made to us upon such exercise, elect instead to receive upon such exercise the "net number" of shares of common stock determined according to a formula
set forth in the pre-funded Series B warrant.
Exercise Limitation.
Unless otherwise specified in the applicable pre-funded Series B warrant, the holder will not have the right to exercise any portion of
the pre-funded Series B warrant if the holder (together with its affiliates) would beneficially own in excess of 9.99% of the number of shares of our common stock outstanding immediately after
giving effect to the exercise, as such percentage ownership is determined in accordance with the terms of the pre-funded Series B warrants.
Transferability.
Subject to applicable laws, the pre-funded Series B warrants may be transferred at the option of the holders upon surrender of the
pre-funded Series B warrants to us.
Insufficient Authorized Shares.
So long as any of the pre-funded Series B warrants remain outstanding, we are required to maintain a number of authorized
and unreserved shares of common stock equal to at least 100% of the maximum number of shares of common stock issuable upon the exercise of all of
the pre-funded Series B warrants then outstanding. If we fail to maintain such a number of authorized and unreserved shares of common stock, we must take all necessary action to increase our
authorized shares of common stock to an amount sufficient to allow the immediate exercise of the pre-funded Series B warrants then outstanding, including holding a meeting of our stockholders
in order to approve an increase in the number of authorized shares of our common stock within 90 days after such failure.
Exchange Listing.
We do not plan on making an application to list the pre-funded Series B warrants on the Nasdaq Capital Market, any other national
securities exchange or other nationally recognized trading system.
Fundamental Transactions.
In the event of any fundamental transaction, or any public announcement or disclosure of the potential occurrence of a fundamental
transaction, as described in the pre-funded Series B warrants and generally including any merger with or into another entity, sale of all or substantially all of our assets, tender offer or
exchange offer, or reclassification of our common stock, then unless otherwise elected by the pre-funded Series B warrant holder, we must cause the successor entity to assume in writing all of
the Company's obligations under each non electing holder's pre-funded Series B warrants.
Rights as a Stockholder.
Except as otherwise provided in the pre-funded Series B warrants or by virtue of a holder's ownership of shares of our common
stock, the holders of the pre-funded Series B warrants do not have the rights or privileges of holders of our common stock, including any voting rights, until they exercise their pre-funded
Series B warrants.
Waivers and Amendments.
In no event may the provisions of any pre-funded Series B warrant be amended or waived without the written consent of the holder of
that pre-funded Series B warrant.
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PRIVATE PLACEMENT OF SERIES A WARRANTS
Concurrently with the offering of common stock and pre-funded Series B warrants pursuant to this prospectus supplement and the
accompanying prospectus, we are conducting a private placement of Series A warrants to purchase up to 6,300,000 shares of our common stock to the purchasers of shares of our common stock and
the purchasers of the pre-funded Series B warrants in this offering.
Each
Series A warrant will have an initial exercise price of $1.34 per share of common stock. The Series A warrants will be exercisable, subject to certain limitations, during the period
commencing six months after the date of the issuance and will expire five years after the first day they are exercisable. A holder will not have the right to exercise any portion of any
Series A warrant if the holder (together with its affiliates) would beneficially own in excess of 9.99%, or such lesser percentage as may be initially agreed upon between the Company and the
holder (which percentage threshold may be decreased or increased, but not above 9.99%, at the election of the holder upon prior written notice to the Company), of the number of shares of common stock
outstanding immediately after giving effect to the exercise, as such percentage ownership is determined in accordance with the terms of the Series A warrants.
The
exercise price of the Series A warrants is subject to adjustment for stock splits, combinations or similar events, and, in this event, the number of shares issuable upon the exercise of the
Series A warrants will also be adjusted so that the aggregate exercise price shall be the same immediately before and immediately after the adjustment. In addition, the exercise price (but not
the number of underlying shares of common stock) is also subject to a "full ratchet" anti-dilution adjustment if we issue or are deemed to have issued securities during the two and one-half year
period following the issuance of the Series A warrants at a price lower than the then-applicable exercise price.
The
Series A warrants and the shares of our common stock issuable upon the exercise of the Series A warrants are not being registered under the Securities Act, are not being offered
pursuant to this prospectus supplement and the accompanying prospectus and are being offered pursuant to the exemption provided in Section 4(a)(2) under the Securities Act and
Rule 506(b) promulgated thereunder. Accordingly, holders of the Series A warrants may sell or exercise those Series A warrants or sell the shares of common stock issuable upon the
exercise of such Series A warrants only pursuant to an effective registration statement under the Securities Act covering the resale of those shares, an exemption under Rule 144 under
the Securities Act, or another applicable exemption under the Securities Act.
S-28
Table of Contents
PLAN OF DISTRIBUTION
We have entered into a placement agent agreement, dated as of October 18, 2016, with Oppenheimer & Co. Inc., as
lead placement agent, and ROTH Capital Partners, LLC, as co-placement agent. Subject to the terms and conditions contained in the placement agent agreement, the placement agents agreed to act as
placement agents in connection with the sale of the common stock and pre-funded Series B warrants offered pursuant to this prospectus supplement and the accompanying prospectus. The placement
agents are not purchasing or selling any shares of common stock or pre-funded Series B warrants offered pursuant to this prospectus supplement or the accompanying prospectus, nor are they
required to arrange the purchase or sale of any specific number or dollar amount of such securities, but they have agreed to use their reasonable efforts to solicit purchasers for the securities in
this offering. There is no required minimum number of securities that must be sold as a condition to completion of the offering, and there can be no assurance that we will sell all or any of
securities being offered.
We
have agreed to indemnify the placement agents against certain liabilities, including liabilities under the Securities Act.
We
will enter into a securities purchase agreement directly with investors in connection with this offering, and we will only sell to investors that have entered into the securities purchase
agreement. Our obligation to issue and sell securities to investors is subject to the conditions set forth in the securities purchase agreement, which may be waived by us in our discretion. An
investor's obligation to purchase securities is subject to conditions set forth in the securities purchase agreement, which may be waived by the investor.
The
placement agents are also acting as placement agents for the concurrent private placement of Series A warrants discussed on page S-28 of this prospectus supplement.
Unless
investors instruct us otherwise, we will deliver the shares of common stock being issued to the investors electronically upon receipt of investor funds for the purchase of the securities
offered pursuant to this prospectus supplement, and we will issue the pre-funded Series B warrants to investors. We expect to deliver the shares of our common stock and the pre-funded
Series B warrants being offered pursuant to this prospectus supplement on or about October 21, 2016.
Our
common stock is listed on the Nasdaq Capital Market under the symbol "CPST." We do not intend to list the pre-funded Series B warrants being issued in this offering or the Series A
warrants being issued in the concurrent private placement on the Nasdaq Capital Market or any other national securities exchange or other nationally recognized trading system.
Fees and Expenses.
We have agreed to pay the placement agents a placement agent fee equal to 6.7% of the aggregate purchase price of the shares of our common stock
and pre-funded Series B warrants sold in this offering.
The
following table shows the public offering price, placement agent fees and proceeds, before expenses to us. These amounts are shown without giving effect to any exercise of the pre-funded
Series B warrants being issued in this offering or any sale or exercise of the Series A warrants being issued in the concurrent private placement.
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Per Share of
Common Stock
|
|
Per Pre-Funded
Series B Warrant
|
|
Total
|
|
|
Public offering price
|
|
$
|
1.20
|
|
$
|
1.19
|
|
$
|
7,533,000
|
|
|
Placement agent fees
|
|
$
|
0.08
|
|
$
|
0.08
|
|
$
|
504,000
|
|
|
Proceeds, before expenses, to us
|
|
$
|
1.12
|
|
$
|
1.11
|
|
$
|
7,029,000
|
|
S-29
Table of Contents
However,
because there is no minimum offering amount required as a condition to closing of this offering, the actual total offering fees, if any, may be substantially less than the total offering
amounts set forth above. We have also agreed to reimburse the placement agents for certain of their expenses, in an amount equal to $10,000, as set forth in the placement agent agreement.
We
estimate that the total expenses of this offering, excluding the placement agent fees, will be approximately $215,000.
The
placement agents may be deemed to be underwriters within the meaning of Section 2(a)(11) of the Securities Act, and any commissions received by them and any profit realized on the resale of
the securities sold by them while acting as principals might be deemed to be underwriting discounts or commissions under the Securities Act. As underwriters, the placement agents would be required to
comply with the requirements of the Securities Act and the Exchange Act, including, without limitation, Rule 415(a)(4) under the Securities Act and Rule 10b-5 and Regulation M
under the Exchange Act.
These rules and regulations may limit the timing of purchases and sales of shares by the placement agents acting as principals. Under these rules and regulations, a placement
agent:
-
-
may not engage in any stabilization activity in connection with our securities; and
-
-
may not bid for or purchase any of our securities or attempt to induce any person to purchase any of our securities, other than as permitted
under the Exchange Act, until it has completed its participation in the distribution.
A
copy of the placement agent agreement, the form of securities purchase agreement we enter into with the investors and the forms of Series A warrant and pre-funded Series B warrant will
be included as exhibits to our current report on Form 8-K that will be filed with the SEC in connection with the consummation of this offering, and will be incorporated by reference into the
registration statement of which this prospectus supplement forms a part.
Lock-up agreements.
Pursuant to certain "lock-up" agreements, we and our executive officers and directors have agreed, subject to certain exceptions, not to,
directly or indirectly, offer, sell, assign, transfer, pledge, contract to sell, or otherwise dispose of, or enter into any swap, hedge or other agreement or arrangement that transfers, in whole or in
part, the economic risk of ownership of, or make any demand or request or exercise any right with respect to the registration of, or file with the SEC a registration statement under the Securities Act
relating to, any common stock or securities convertible into or exchangeable or exercisable for any common stock without the prior written consent of Oppenheimer & Co. Inc., as
lead placement agent, for a period of 90 days after the date of filing of the final prospectus supplement.
This
lock-up provision applies to common stock and to securities convertible into or exchangeable or exercisable for common stock. It also applies to common stock owned now or acquired later by the
person executing the agreement or for which the person executing the agreement later acquires the power of disposition. The exceptions permit parties to the "lock-up" agreements, among other things
and subject to restrictions, to make certain gifts. In addition, the lock-up provision will not restrict broker-dealers from engaging in market making and similar activities conducted in the ordinary
course of their business.
Leak-Out Agreements.
Certain of the investors in the offering may be required to enter into leak-out agreements with the Company pursuant to which each such
investor would agree that, prior to the day that is 60 days after the closing date of the offering, neither it nor any of its affiliates will sell, directly or indirectly, on any single trading
day more than 3% of the trading volume of our common stock on the Nasdaq Capital Market as of such date of determination.
Electronic offer, sale and distribution of securities.
A prospectus in electronic format may be made available on the websites maintained by one or more of the
placement agents participating in this
S-30
Table of Contents
offering,
and one or more of the placement agents participating in this offering may distribute prospectuses electronically. Other than the prospectus in electronic format, the information on these
websites is not part of this prospectus or the registration statement of which this prospectus forms a part, has not been approved or endorsed by us or any placement agent in its capacity as
placement agent, and should not be relied upon by investors.
Other relationships.
Certain of the placement agents and their affiliates have provided, and may in the future provide, various investment banking, commercial
banking and other financial services for us and our affiliates for which they have received, and may in the future receive, customary fees.
S-31
Table of Contents
LEGAL MATTERS
Waller Lansden Dortch & Davis, LLP, Nashville, Tennessee, will pass upon the validity of the shares of common stock and
pre-funded Series B warrants offered by this prospectus supplement on our behalf. Proskauer Rose LLP, New York, New York, will act as counsel to the placement agents in connection with
this offering.
EXPERTS
The consolidated financial statements and schedule of Capstone Turbine Corporation as of March 31, 2016 and 2015, and for each of the
years in the three-year period ended March 31, 2016, and management's assessment of the effectiveness of internal control over financial reporting as of March 31, 2016, have been
incorporated by reference herein and in the registration statement in reliance upon the reports of KPMG LLP, independent registered public accounting firm, incorporated by reference herein, and
upon the authority of said firm as experts in accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and current reports, proxy statements and other information with the SEC. You may read and copy any materials we
file with the SEC at the SEC's Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549. You may obtain information on the operation of the Public Reference Room by
calling the SEC at 1-800-SEC-0330. The SEC maintains an Internet site that contains reports, proxy and information statements and other information regarding issuers that file electronically with the
SEC at the SEC's website at
www.sec.gov
.
This
prospectus supplement and the accompanying prospectus constitute part of a registration statement on Form S-3 that we filed with the SEC under the Securities Act with respect to the
securities offered hereby. As permitted by the rules and regulations of the SEC, this prospectus supplement and the accompanying prospectus omit some of the information, exhibits and undertakings
included in the registration statement. You may read and copy the information omitted from this prospectus supplement and the accompanying prospectus but contained in the registration statement, as
well as the periodic reports and other information we file with the SEC, at the public reference facilities maintained by the SEC in Washington, D.C.
This
prospectus supplement and the accompanying prospectus summarize provisions of contracts and other documents that we refer you to. Since those summaries are not complete and this prospectus
supplement and the accompanying prospectus do not contain all the information that you may find important, you should review the full text of those documents. You should rely only on the information
contained and incorporated by reference in this prospectus supplement and the accompanying prospectus and any free writing prospectuses we may provide to you in connection with the offering.
S-32
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INCORPORATION OF DOCUMENTS BY REFERENCE
We are incorporating by reference information we file with the SEC, which means:
-
-
incorporated documents are considered part of this prospectus supplement;
-
-
we can disclose important information to you by referring you to those documents; and
-
-
information that we file later with the SEC automatically will update and supersede information contained in this prospectus supplement.
We
are incorporating by reference the following documents, which we have previously filed with the SEC:
(a) our
Annual Report on Form 10-K for the fiscal year ended March 31, 2016;
(b) our
Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 2016;
(c) our
Definitive Proxy Statement for the 2016 annual meeting of stockholders;
(d) our
Current Reports on Form 8-K, filed with the SEC on April 4, 2016, April 21, 2016, May 9, 2016, August 5, 2016 and September 1, 2016;
provided that this prospectus supplement does not incorporate any information that we furnished to the SEC under Item 2.02 or Item 7.01 of such Current Reports on Form 8-K;
(e) the
description of our Common Stock contained in our Registration Statement on Form 8-A, filed with the SEC on June 22, 2000 including any subsequent amendment or report
filed for the purpose of amending such description and the description of our Preferred Stock purchase rights contained in our Registration Statement on Form 8-A, filed with the SEC on
May 9, 2016, including any subsequent amendment or report filed for the purpose of amending such description; and
(f) any
future filings with the SEC under Section 13(a), 13(c), 14 or 15(d) of the Exchange Act until our offering is completed; provided that this prospectus supplement will not
incorporate any information we may furnish to the SEC under Item 2.02 or Item 7.01 of Form 8-K.
The
information incorporated by reference is deemed to be a part of this prospectus supplement, except for information incorporated by reference that is superseded by information contained in this
prospectus supplement or any other document we subsequently file with the SEC that is incorporated or deemed to be incorporated by reference in this prospectus supplement. Likewise, any statement
contained in this prospectus supplement, the accompanying prospectus or in a document incorporated or deemed to be incorporated by reference herein will be deemed to have been modified or superseded
for purposes of this prospectus supplement and the accompanying prospectus to the extent that any statement contained in this prospectus supplement or any document that we subsequently file with the
SEC that is incorporated or deemed to be incorporated by reference herein modifies or supersedes the statement.
You
can obtain copies of the documents incorporated by reference in this prospectus supplement but not delivered with this prospectus supplement without charge through our website
(www.capstoneturbine.com) as soon as reasonably practicable after we electronically file the material with, or furnish it to, the SEC, or by requesting them in writing or by telephone at the following
address. Information contained on our website is not a part of this prospectus supplement or the accompanying prospectus.
Capstone
Turbine Corporation
21211 Nordhoff Street
Chatsworth, California 91311
Attention: Chief Financial Officer
(818) 734-5300
S-33
Table of Contents
PROSPECTUS
Capstone Turbine Corporation
$100,000,000
Common Stock
Common Stock Warrants
Preferred Stock
Debt Securities
We may from time to time offer, issue and sell, in one or more series, together or separately, the following:
-
-
shares of our Common Stock;
-
-
warrants to purchase shares of our Common Stock;
-
-
shares of our Preferred Stock;
-
-
debt securities, which may be either senior debt securities or subordinated debt securities, in each case consisting of notes or other evidence
of indebtedness;
-
-
rights to purchase the foregoing securities (see "Plan of Distribution"); or
-
-
any combination of these securities.
We
will offer such securities at an aggregate public offering price of up to $100,000,000, or an equivalent amount in U.S. dollars if any securities are denominated in a currency other
than U.S. dollars, on terms determined at the time we offer such securities. We may offer such securities separately or together, in separate classes or series, in amounts, at prices and on terms set
forth in an applicable supplement to this prospectus. The applicable prospectus supplement will also contain information about any listing on a securities exchange of the securities covered by such
prospectus supplement.
We
may sell the securities to one or more underwriters for public offering and sale by them, through agents or dealers, directly to purchasers or through a combination of any of these
methods of sale. We reserve the sole right to accept, and together with our agents, dealers and underwriters reserve the right to reject, in whole or in part, any proposed purchase of securities to be
made directly or through agents, dealers or underwriters. If any agents, dealers or underwriters are involved in the sale of any of the securities, their names, and any applicable purchase price, fee,
commission or discount arrangement between or among them, will be set forth, or will be calculable from the information set forth, in the applicable prospectus supplement. See "Plan of Distribution."
Our estimated net proceeds from the sale of securities also will be set forth in the relevant prospectus supplement. No securities may be sold without delivery of the applicable prospectus supplement
describing the method and terms of the offering of such securities.
Our
Common Stock is listed on the Nasdaq Global Market under the symbol "CPST."
Investing in these securities involves risks. You should carefully review the discussion under the heading "Risk Factors" on page 4
regarding information included and incorporated by reference in the prospectus and the applicable prospectus supplement.
Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these
securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
The
date of this prospectus is June 23, 2015.
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ABOUT THIS PROSPECTUS
This prospectus is part of a registration statement on Form S-3 that we filed with the Securities and Exchange Commission ("SEC") using a
"shelf" registration process. Under this shelf process, we may, from time to time, sell the securities described in this prospectus in one or more offerings up to an aggregate offering price of
$100,000,000. This prospectus provides you with a general description of the securities we may offer. Each time we sell securities, we will provide a prospectus supplement that will contain specific
information about the terms of that offering. The prospectus supplement may also add, update or change information contained in this prospectus. You should read both the prospectus and any prospectus
supplement together with the additional information described under the heading "Where You Can Find More Information" and "Incorporation of Certain Documents by Reference."
You
should rely only on the information contained or incorporated by reference in this prospectus. We have not authorized any person to provide you with information different from or in
addition to that
contained in this prospectus. If anyone provides you with different or inconsistent information, you should not rely on it. We are not making an offer to sell these securities in any jurisdiction
where their offer or sale is not permitted. You should assume that the information appearing in this prospectus or any other documents incorporated by reference is accurate only as of the date on the
front cover of the applicable document. Our business, financial condition, results of operations and prospects may have changed since that date.
References
in this prospectus to "Capstone," "the Company," "we," "us" and "our" refer to Capstone Turbine Corporation, a Delaware corporation, unless the context otherwise requires.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus (including the information incorporated by reference) contains "forward-looking statements" within the meaning of
Section 27A of the Securities Act and Section 21E of the Securities Exchange Act of 1934. Forward-looking statements include statements concerning, among other things, our future results
of operations, research and development activities, sales expectations, our ability to develop markets for our products and to produce products at a pace commensurate with demand, sources for parts,
federal, state and local regulations and general business, industry and economic conditions applicable to us. When used in this prospectus, the words "estimates," "expects," "anticipates," "projects,"
"plans," "intends," "believes," "should," "could," "may" and variations of such words or similar expressions are intended to identify forward-looking statements. All forward-looking statements,
including, without limitation, our examination of historical operation trends, are based upon our current expectations and various assumptions.
There
are a number of risks and uncertainties that could cause our actual results to differ materially from the forward-looking statements contained in this prospectus. Factors that
could cause our actual results to differ materially from the forward-looking statements include:
-
-
Our operating history is characterized by net losses. We anticipate further losses and we may never become profitable;
-
-
We may be unable to fund our future operating requirements, which could force us to curtail our operations;
-
-
If we are unable to either substantially improve our operating results or obtain additional financing, we may be unable to continue as a going
concern;
-
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Impairment charges on our long-lived assets, including intangible assets with finite lives, would adversely affect our financial position and
results of operations;
-
-
A sustainable market for microturbines may never develop or may take longer to develop than we anticipate which would adversely affect our
results of operations;
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-
Our operating results are dependent, in large part, upon the successful commercialization of our products. Failure to produce our products as
scheduled and budgeted would materially and adversely affect our business and financial condition;
-
-
We may not be able to produce our products on a timely basis if we fail to correctly anticipate product supply requirements or if we suffer
delays in production resulting from issues with our suppliers. Our suppliers may not supply us with a sufficient amount of components or components of adequate quality, or they may provide components
at significantly increased prices;
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We may not be able to effectively manage our growth, expand our production capabilities or improve our operational, financial and management
information systems, which would impair our results of operations;
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Adverse economic conditions may have an impact on our business and financial condition, including some effects we may not be able to predict;
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Product quality expectations may not be met, causing slower market acceptance or warranty cost exposure;
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We operate in a highly competitive market among competitors who have significantly greater resources than we have and we may not be able to
compete effectively;
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If we do not effectively implement our sales, marketing and service plans, our sales will not grow and our results of operations will suffer;
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Our sales and results of operations could be materially and adversely impacted by risks inherent in international markets;
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The current geopolitical instability in Russia and Ukraine and related sanctions by the U.S. government against certain companies and
individuals may hinder our ability to conduct business with potential or existing customers and vendors in these countries;
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We cannot be certain of the future effectiveness of our internal controls over financial reporting. If we are unable to maintain effective
internal controls over our financial reporting, investors may lose confidence in our ability to provide reliable and timely reports and the value of our common stock may decline;
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We may not be able to retain or develop relationships with original equipment manufacturers or distributors in our targeted markets, in which
case our sales would not increase as expected;
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Activities necessary to integrate any future acquisitions may result in costs in excess of current expectations or be less successful than
anticipated;
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We have substantial accounts receivable, and increased bad debt expense or delays in collecting accounts receivable could have a material
adverse effect on our cash flows and results of operations;
-
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Loss of a significant customer could have a material adverse effect on our results of operations;
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We may not be able to develop sufficiently trained applications engineering, installation and service support to serve our targeted markets;
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Changes in our product components may require us to replace parts held at distributors;
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We operate in a highly regulated business environment, and changes in regulation could impose significant costs on us or make our products less
economical, thereby affecting demand for our microturbines;
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-
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Utility companies or governmental entities could place barriers to our entry into the marketplace, and we may not be able to effectively sell
our products;
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We depend upon the development of new products and enhancements of existing products;
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Operational restructuring may result in asset impairment or other unanticipated charges;
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We may not achieve production cost reductions necessary to competitively price our products, which would adversely affect our sales;
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Commodity market factors impact our costs and availability of materials;
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Our products involve a lengthy sales cycle and we may not anticipate sales levels appropriately, which could impair our results of operations;
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Potential litigation may adversely impact our business;
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Our business could be negatively impacted if we fail to adequately protect our intellectual property rights or if third parties claim that we
are in violation of their intellectual property rights;
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Our results of operations could be materially and adversely affected by risks related to cyber security threats;
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We may incur costs and liabilities as a result of product liability claims;
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We have significant tax assets, usage of which may be subject to limitations in the future;
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Our success depends in significant part upon the continuing service of management and key employees;
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Our operations are vulnerable to interruption by fire, earthquake and other events beyond our control;
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If we continue to fail to meet all applicable Nasdaq Global Market requirements and Nasdaq determines to delist our Common Stock, the delisting
could adversely affect the market liquidity of our Common Stock, impair the value of your investment and adversely affect our ability to raise needed funds;
-
-
The market price of our Common Stock has been and may continue to be highly volatile and you could lose all or part of your investment in our
securities; and
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Provisions in our certificate of incorporation, bylaws and our stockholder rights plan, as well as Delaware law, may discourage, delay or
prevent a merger or acquisition at a premium price.
We
caution you that these factors, as well as the risk factors included or incorporated by reference in this prospectus or any prospectus supplement, may not be exhaustive. Our actual
results, performance or achievements could differ materially from the results expressed in, or implied by, these forward-looking statements. We operate in a continually changing business environment,
and new risk factors emerge from time to time. We cannot predict such new risk factors, nor can we assess the impact, if any, of such new risk factors on our businesses or the extent to which any
factor or combination of factors may cause actual results to differ materially from those expressed or implied by any forward-looking statements. You should review any further disclosures we make on
related subjects in reports we file with the SEC. All forward-looking statements attributable to us or persons acting on our behalf apply only as of the date of this prospectus and are expressly
qualified in their entirety by the cautionary statements included in this prospectus. We undertake no obligation to update publicly or revise forward-looking statements, which may be made to reflect
events or circumstances after the date made or to reflect the occurrence of unanticipated events, except as required by applicable securities laws.
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RISK FACTORS
An investment in our securities involves a high degree of risk. In addition to the other information included and incorporated by reference in
this prospectus, you should carefully review the risk factors and other information included and incorporated by reference in the applicable prospectus supplement when determining whether or not to
purchase the securities offered under this prospectus and the applicable prospectus supplement.
THE COMPANY
We develop, manufacture, market and service microturbine technology solutions for use in stationary distributed power generation applications,
including cogeneration (combined heat and power, integrated combined heat and power, and combined cooling, heat and power), resource recovery and secure power. In addition, our microturbines can be
used as battery charging generators for hybrid electric vehicle applications. Microturbines allow customers to produce power on-site in parallel with the electric grid or stand-alone when no utility
grid is available. There are several technologies which are used to provide "on-site power generation" (also called "distributed generation"), such as reciprocating engines, solar power, wind powered
systems and fuel cells. For customers who do not have access to the electric utility grid, microturbines can provide clean, on-site power with lower scheduled maintenance intervals and greater fuel
flexibility than competing technologies. For customers with access to the electric grid, microturbines can provide an additional source of continuous duty power, thereby providing additional
reliability and potential cost savings. With our stand-alone feature, customers can produce their own energy in the event of a power outage and can use the microturbines as their primary source of
power for extended periods. Because our microturbines also produce clean, usable heat energy, they provide economic advantages to customers who can benefit from the use of hot water, chilled water,
air conditioning and heating. Our microturbines are sold primarily through our distributors. Our distributors install the microturbines. Service is provided directly by us through our Factory
Protection Plan or by our distributors. Successful implementation of microturbines relies on the quality of the microturbine, marketability for appropriate applications, and the quality of the
installation and support.
Our
principal executive offices are located at 21211 Nordhoff Street, Chatsworth, California 91311 and our telephone number at that address is: (818) 734-5300. Our web site
address is
www.capstoneturbine.com
. Information on our web site is not part of this prospectus.
USE OF PROCEEDS
Unless we indicate otherwise in an accompanying prospectus supplement, we intend to use the net proceeds from the sale of the securities offered
by this prospectus for general corporate purposes, which may include, but are not limited to, working capital, capital expenditures, acquisitions and repurchases or redemptions of securities. When
particular securities are offered, a prospectus supplement related to that offering will set forth our intended use of the net proceeds received from the sale of those securities. We will have
significant discretion in the use of any net proceeds. The net proceeds may be invested temporarily in short-term marketable securities or applied to repay indebtedness outstanding at that time until
they are used for their stated purpose.
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RATIO OF EARNINGS TO FIXED CHARGES
The following table sets forth our consolidated ratio of earnings to fixed charges for the periods indicated:
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|
|
|
|
|
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Fiscal Year Ended March 31,
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2011
|
|
2012
|
|
2013
|
|
2014
|
|
2015
|
Ratio of earnings to fixed charges(1)
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|
N/A
|
|
N/A
|
|
N/A
|
|
N/A
|
|
N/A
|
Ratio of combined fixed charges and preference dividends to earnings(1)
|
|
N/A
|
|
N/A
|
|
N/A
|
|
N/A
|
|
N/A
|
-
(1)
-
For
the fiscal years ended March 31, 2011, 2012, 2013, 2014 and 2015, our earnings were inadequate to cover fixed charges. The coverage deficiencies were
$38.3 million, $18.6 million, $21.9 million, $16.1 million and $31.4 million, respectively.
For
purposes of calculating the ratios of earnings to fixed charges, (i) fixed charges consist of interest expensed and capitalized, amortized premiums, discounts and capitalized expenses
related to indebtedness, and an estimate of the interest within rental expense; and (ii) earnings consist of pre-tax income from operations and fixed charges (excluding capitalized interest).
GENERAL DESCRIPTION OF SECURITIES WE MAY SELL
We, directly or through agents, dealers or underwriters that we may designate, may offer and sell, from time to time, up to $100,000,000 (or the
equivalent in one or more foreign currency units) aggregate initial offering price of:
-
-
shares of our Common Stock;
-
-
warrants to purchase shares of our Common Stock;
-
-
shares of our Preferred Stock;
-
-
debt securities, which may be either senior debt securities or subordinated debt securities, in each case consisting of notes or other evidence
of indebtedness;
-
-
rights to purchase the foregoing securities (see "Plan of Distribution"); or
-
-
any combination of these securities.
We
may offer and sell these securities separately or together, in separate classes or series, each on terms to be determined at the time of the offering. We may issue debt securities
and/or shares of Preferred Stock that are exchangeable for and/or convertible into Common Stock or any of the other securities that may be sold under this prospectus. When particular securities are
offered, a supplement to this prospectus will be delivered with this prospectus, which will describe the terms of the offering and sale of the offered securities.
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DESCRIPTION OF COMMON STOCK
Our authorized capital stock consists of 515,000,000 shares of Common Stock, $0.001 par value. As of June 8, 2015 there were 330,689,556
shares of our Common Stock outstanding.
This
section summarizes the general terms of the Common Stock that we may offer. A prospectus supplement relating to the Common Stock offered will state the number of shares offered, the
initial offering price and the market price, dividend information and any other relevant information. The summaries in this section and the prospectus supplement do not describe every aspect of the
Common Stock. When evaluating the Common Stock, you should also refer to our second amended and restated certificate of incorporation, our amended and restated bylaws and the General Corporation Law
of the State of Delaware ("DGCL").
Terms of the Common Stock
The holders of our Common Stock are entitled to receive ratably, from funds legally available for the payment thereof, dividends when and as
declared by resolution of our board of directors, subject to any preferential dividend rights granted to the holders of any outstanding series of Preferred Stock. We currently intend to retain any
earnings for use in our business and, therefore, we do not anticipate paying any cash dividends in the foreseeable future. We have never declared or paid any cash dividends on our capital stock. In
the future, the decision to pay any cash dividends will depend upon our results of operations, financial condition and capital expenditure plans, as well as such other factors as our board of
directors, in its sole discretion, may consider relevant. In the event of our liquidation or dissolution, holders of our Common Stock are entitled to share equally in all assets remaining after
payment of liabilities and the liquidation preference of any outstanding series of Preferred Stock. The holders of our Common Stock are entitled to one vote for each share held of record on all
matters submitted to a vote of the stockholders. Cumulative voting for directors is not permitted, which means the holder or holders of more than one-half of the shares voting for the election of
directors can elect all of the directors then being elected. Our board of directors is not divided into classes. Our second amended and restated certificate of incorporation and amended and restated
bylaws contain no provisions that would require greater than a majority of stockholders to approve mergers, consolidations, sales of a substantial amount of assets, or other similar transactions.
Holders of our Common Stock do not have preemptive rights to purchase shares of our Common Stock. The issued and outstanding shares of our Common Stock are not subject to any redemption provisions and
are not convertible into any other shares of our capital stock. All outstanding shares of our Common Stock are, and any shares of Common Stock issued will be, upon payment therefor, fully paid and
nonassessable, which means that holders of our Common Stock will have paid their purchase price in full and we may not require them to pay additional funds. The rights, preferences and privileges of
holders of our Common Stock are subject to those of the holders of any Preferred Stock that we may issue in the future.
Anti-Takeover Considerations and Special Provisions of Delaware Law, our Second Amended and Restated
Certificate of Incorporation and our Amended and Restated Bylaws
Stockholder Rights Plan
On July 7, 2005, we entered into a rights agreement with BNY Mellon Investor Services LLC, as rights agent.
Computershare Inc. subsequently became rights agent as successor-in-interest to BNY Mellon Investor Services LLC. The rights agreement was subsequently amended on July 3, 2008,
June 9, 2011, July 1, 2014, and August 5, 2014. In connection with the rights agreement, our board of directors authorized and declared a dividend distribution of one Preferred
Stock purchase right for each share of our Common Stock authorized and outstanding at the close of business on July 18, 2005. Each right entitles the registered holder to purchase from us a
unit consisting of one one-hundredth of
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a
share of Series A Junior Participating Preferred Stock, par value $0.001 per share, at a purchase price of $10.00 per unit, subject to adjustment. The description and terms of the rights are
set forth in the rights agreement. The rights are attached to all Common Stock certificates. Subject to certain exceptions specified in the rights agreement, the rights will separate from the Common
Stock and will be exercisable upon the earlier of (i) 10 days following a public announcement that a person or group of affiliated or associated persons (the "Acquiring Person") has
acquired, or obtained the right to acquire, beneficial ownership of 20% or more of the outstanding shares of Common Stock, other than as a result of repurchases of stock by the Company or certain
inadvertent actions by institutional or certain other stockholders, or (ii) 10 days (or such later date as our board of directors shall determine) following the commencement of a tender
offer or exchange offer (other than certain permitted offers described in the rights agreement) that would result in a person or group beneficially owning 20% or more of the outstanding shares of our
Common Stock.
In
the event that we receive a qualifying offer (that has not been terminated prior thereto and which continues to be a qualifying offer), stockholders representing at least 10% of the
shares of Common Stock then outstanding may request that the board of directors call a special meeting of stockholders to vote to exempt the qualifying offer from the operation of the rights agreement
not earlier than 90, nor later than 120, business days following the commencement of such offer. The board of directors must then call and hold such a meeting to vote on exempting such offer from the
terms of the rights agreement within the 90th business day following receipt of the stockholder demand for the meeting; provided that such period may be extended if, prior to the vote, we enter
into an agreement (that is conditioned on the approval by the holders of not less than a majority of the outstanding shares of Common Stock) with respect to a merger, recapitalization, share exchange
or a similar transaction involving the Company or the direct or indirect acquisition of more than 50% of our consolidated total assets, until the time of the meeting at which the stockholders will be
asked to vote on such agreement. If no Acquiring Person has emerged, the offer continues to be a qualifying offer and stockholders representing at least a majority of the shares of Common Stock
represented at the meeting at which a quorum is present vote in favor of redeeming the rights, then such qualifying offer shall be deemed
exempt from the rights agreement on the date that the vote results are certified. If no Acquiring Person has emerged and no special meeting is held by the date required, the rights will be redeemed,
without the need for action by the board of directors, at the close of business on the tenth business day following that date.
Pursuant
to the "sunset provision," the rights agreement will expire on the 30th day after the 2017 annual meeting of stockholders unless continuation of the rights agreement is
approved by the stockholders at that meeting. The rights are intended to protect our stockholders in the event of an unfair or coercive offer to acquire the Company. The rights, however, should not
affect any prospective offeror willing to make an offer at a fair price and otherwise in the best interests of the Company and its stockholders, as determined by the board of directors. The rights
should also not interfere with any merger or other business combination approved by the board of directors.
Delaware Anti-Takeover Law
We are subject to the provisions of Section 203 of the DGCL, which regulates corporate takeovers. This section prevents Delaware
corporations, under certain circumstances, from engaging in a "business combination" with:
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a stockholder who owns 15% or more of our outstanding voting stock (otherwise known as an interested stockholder);
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an affiliate of an interested stockholder; or
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an associate of an interested stockholder,
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for
three years following the date that the stockholder became an interested stockholder.
Section 203
of the DGCL defines "business combination" to include:
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any merger or consolidation involving the corporation and the interested stockholder;
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-
any sale, transfer, pledge or other disposition of 10% or more of the assets of the corporation involving the interested stockholder;
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subject to certain exceptions, any transaction that results in the issuance or transfer by the corporation of any stock of the corporation to
the interested stockholder;
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any transaction involving the corporation that has the effect of increasing the proportionate share of the stock of any class or series of the
corporation beneficially owned by the interested stockholder; or
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the receipt by the interested stockholder of the benefit of any loans, advances, guarantees, pledges or other financial benefits provided by or
through the corporation.
However,
the above provisions of Section 203 do not apply if:
-
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our board of directors approves the transaction that made the stockholder an interested stockholder, prior to the date of that transaction;
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upon consummation of the transaction that resulted in the stockholder becoming an interested stockholder, that stockholder owned at least 85%
of our voting stock outstanding at the time the transaction commenced, excluding for purposes of determining the voting stock outstanding shares owned by persons who are directors and also officers;
or
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-
on or subsequent to the date of the transaction, the business combination is approved by our board of directors and authorized at a meeting of
our stockholders by an affirmative vote of at least two-thirds of the outstanding voting stock not owned by the interested stockholder.
This
statute could prohibit or delay mergers or other change in control attempts, and thus may discourage attempts to acquire us.
Second Amended and Restated Certificate of Incorporation and Amended and Restated Bylaws
A number of provisions of our second amended and restated certificate of incorporation and our amended and restated bylaws concern matters of
corporate governance and the rights of our stockholders. Provisions that grant our board of directors the ability to issue shares of Preferred Stock and to set the voting rights, preferences and other
terms thereof may discourage takeover attempts that are not first approved by our board of directors, including takeovers that may be considered by some stockholders to be in their best interests,
such as those attempts that might result in a premium over the market price for the shares held by stockholders. Certain provisions could delay or impede the removal of incumbent directors even if
such removal would be beneficial to our stockholders. These provisions also could discourage or make more difficult a merger, tender offer or proxy contest, even if they could be favorable to the
interests of stockholders, and could potentially depress the market price of our Common Stock. Our board of directors believes that these provisions are appropriate to protect our interests and the
interests of our stockholders.
Meetings of and Actions by Stockholders.
Our amended and restated bylaws provide that annual meetings of our stockholders may take place
at the time
and place designated by our board of directors. A special meeting of our stockholders may be called at any time by the chairman of the board of directors, or by a majority of the directors or by a
committee of the board of directors that has been granted the power to call such meetings. Stockholders may take action only at a regular or special meeting of stockholders and not by written consent
without a meeting.
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Cumulative Voting.
Our amended and restated bylaws expressly deny stockholders the right to cumulative voting in the election of
directors.
Advance Notice Requirements for Stockholder Proposals and Director Nominations.
Our amended and restated bylaws provide that
stockholders seeking to
bring business before an annual meeting of stockholders or to nominate candidates for election as directors at an annual meeting of stockholders must provide timely notice in writing. To be timely, a
stockholder's notice must be delivered to our principal executive offices not less than 120 days prior to the first anniversary of the date Capstone's proxy statement was released to security
holders in connection with the preceding year's annual meeting. If no annual meeting was held in the previous year or the date of the annual meeting has been changed by more than 30 days from
the date contemplated at the time of the previous year's proxy statement, notice by the stockholder in order to be timely must be received by Capstone no later than the close of business on the tenth
day following the day on which notice of the date of the meeting was mailed or public announcement of the date the meeting was made, whichever comes first. Our amended and restated bylaws also specify
requirements as to the form and content of a stockholder's notice. These provisions may preclude stockholders from bringing matters before an annual meeting of stockholders or from making nominations
for directors at an annual meeting of stockholders.
Filling of Board Vacancies.
Our second amended and restated certificate of incorporation and our amended and restated bylaws provide
that vacancies
in the board of directors may be filled until the next annual meeting of stockholders by a majority of the directors remaining in office, even though that number may be less than a quorum of the board
of directors, or by a sole remaining director.
Amendment of the Certificate of Incorporation.
Our second amended and restated certificate of
incorporation may be amended, altered, changed or repealed in the manner prescribed by the DGCL. However, no amendment, alteration, change or repeal may be made with respect to Article V
(amendment of the bylaws by the stockholders), Article VI (number of directors), Article VII (term of office of directors after an increase or decrease in the number of directors),
Article IX (action by stockholders), Article X (calling of special meetings of the stockholders) or Article XI (amending the second amended and restated certificate of
incorporation) without the affirmative vote of the holders of at least sixty-six and two-thirds percent (66-2/3%) of the outstanding voting stock of the corporation, voting together as a single class.
Amendment of the Bylaws.
Our amended and restated bylaws may be rescinded, altered, amended or repealed, and new bylaws may be made
(i) by the
board of directors, by vote of a majority of the number of directors then in office as directors, acting at any meeting of the board of directors, or (ii) by the stockholders, by the
affirmative vote of the holders of sixty-six and two-thirds percent (66-2/3%) of the outstanding voting stock of the corporation, voting together as a single class, at any annual or special meeting of
stockholders, provided that notice of such proposed amendment, modification, repeal or adoption is given in the notice of the annual or special meeting. The bylaws can only be amended if such
amendment would not conflict with the certificate of incorporation. Any bylaw made or altered by the requisite number of stockholders may be altered or repealed by the board of directors or by the
requisite number of stockholders.
Limitations on Liability and Indemnification of Officers and Directors
We have adopted provisions in our second amended and restated certificate of incorporation and amended and restated bylaws which require us, to
the fullest extent permitted by the DGCL, to indemnify all directors and officers of Capstone against any liability and to advance indemnification expenses on behalf of all directors and officers of
Capstone. In addition, our amended and restated bylaws provide that we may, at the discretion of the board of directors, indemnify any person who is a party to any threatened, pending or completed
action, suit or proceeding or threatened to be made
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such
a party by reason of the fact that such person is or was an employee or agent of Capstone or is or was serving at Capstone's request as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise. To the full extent permitted by law, the indemnification provided under the amended and restated bylaws shall include expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement, and, in the manner provided by law,
any such expenses may be paid by Capstone in advance of the final disposition of such action, suit or proceeding. The indemnification provided under the amended and restated bylaws shall not be deemed
to limit our right to indemnify any other person for any such expenses to the full extent permitted by law, nor shall it be deemed exclusive of any other rights to which any person seeking
indemnification from Capstone may be entitled under any agreement, vote of stockholders or disinterested directors or otherwise, both as to action in his official capacity and as to action in another
capacity while holding such office.
The
second amended and restated certificate of incorporation further requires us to limit, to the fullest extent permitted by the DGCL, the liability for monetary damages of directors of
Capstone for actions or inactions taken by them as directors. Our second amended and restated certificate of incorporation and amended and restated bylaws also empower us, to the fullest extent
permitted by the DGCL, to purchase and maintain insurance on behalf of any such person against any liability which may be asserted.
The
limitation of liability and indemnification provisions in our second amended and restated certificate of incorporation and amended and restated bylaws may discourage stockholders
from bringing a lawsuit against directors for breaches of their fiduciary duty. They may also have the effect of reducing the likelihood of derivative litigation against directors and officers, even
though an action of this kind, if successful, might otherwise benefit us and our stockholders. Furthermore, a stockholder's investment may be adversely affected to the extent we pay the costs of
settlement and damage awards against directors and officers pursuant to these indemnification provisions. However, we believe that these indemnification provisions are necessary to attract and retain
qualified directors and officers.
Transfer Agent and Registrar
Computershare Inc. is the transfer agent and registrar for our Common Stock.
DESCRIPTION OF COMMON STOCK WARRANTS
We may issue warrants for the purchase of Common Stock. Common Stock warrants may be issued independently or together with any other securities
pursuant to any prospectus supplement and may be attached to or separate from such securities. Each series of Common Stock warrants will be issued under a separate warrant agreement between us and the
warrant recipient or, if the recipients are numerous, a warrant agent identified in the applicable prospectus supplement. The warrant agent, if engaged, will act solely as our agent in connection with
the Common Stock warrants of such series and will not assume any obligation or relationship of agency or trust for or with any
holders or beneficial owners of Common Stock warrants. Further terms of the Common Stock warrants and the applicable warrant agreements will be set forth in the prospectus supplement.
The
applicable prospectus supplement will describe the terms of any Common Stock warrants in respect of which this prospectus is being delivered, including, where applicable, the
following:
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the title of such Common Stock warrants;
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the aggregate number of such Common Stock warrants;
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the price or prices at which such Common Stock warrants will be issued;
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the designation, number and terms of the shares of Common Stock purchasable upon exercise of such Common Stock warrants;
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the date, if any, on and after which such Common Stock warrants and the related Common Stock will be separately transferable;
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the price at which each share of Common Stock purchasable upon exercise of such Common Stock warrants may be purchased;
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the minimum or maximum amount of such Common Stock warrants that may be exercised at any one time;
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any provisions for adjustment of the number or amount of shares of Common Stock receivable upon exercise of the Common Stock warrants or the
exercise price of the Common Stock warrants;
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the dates or periods during which the Common Stock warrants are exercisable;
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the designation and terms of any securities with which the Common Stock warrants are issued;
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the rights, if any, we have to redeem the Common Stock warrants;
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if the exercise price is not payable in U.S. dollars, the foreign currency, currency unit or composite currency in which the exercise price is
denominated;
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any terms, procedures and limitations relating to the transferability, exchange or exercise of the Common Stock warrants;
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the name of the warrant agent;
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information with respect to book-entry procedures, if any;
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a discussion of certain federal income tax considerations applicable to the Common Stock warrants; and
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any other material terms of such Common Stock warrants.
Each
Common Stock warrant will entitle the holder of warrants to purchase the number of shares of Common Stock at the exercise price stated or determinable in the prospectus supplement
for the Common Stock warrants. Common Stock warrants may be exercised at any time up to the close of business on the expiration date shown in the applicable prospectus supplement, unless otherwise
specified in such prospectus supplement. After the close of business on the expiration date, unexercised Common Stock warrants will become void. Common Stock warrants may be exercised as described in
the applicable prospectus supplement. When the warrant holder makes the payment and properly completes, signs and delivers the warrant agreement and notice of exercise at the corporate trust office of
the warrant agent or any other office indicated in a prospectus supplement, we will, as soon as possible, forward the shares of Common Stock that the warrant holder has purchased. If the warrant
holder exercises the Common Stock warrant for less than all of the shares of Common Stock represented by the warrant, we will issue a new warrant to purchase the remaining shares of Common Stock.
You
should review the section captioned "Description of Common Stock" for a general description of the Common Stock that may be issued upon the exercise of the Common Stock warrants.
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DESCRIPTION OF PREFERRED STOCK
General
We are authorized to issue 10,000,000 shares of Preferred Stock, and no shares of Preferred Stock are currently issued and outstanding. Pursuant
to and in accordance with the Stockholder Rights Plan, 5,150,000 shares of our Preferred Stock have been designated as Series A Junior Participating Preferred Stock pursuant to a Certificate of
Designation, Preferences and Rights, as amended. Our Preferred Stock may be issued from time to time, in one or more series, each series
to be appropriately designated by a distinguishing letter or title, prior to the issue of any shares of Preferred Stock.
The
following description of Preferred Stock sets forth some of the general terms and provisions of the Preferred Stock that may be specified in any prospectus supplement. Certain other
terms of any series of Preferred Stock (which terms may be different than those stated below) will be described in the prospectus supplement to which such series relates. The statements below
describing the Preferred Stock are in all respects subject to and qualified in their entirety by reference to the applicable provisions of the prospectus supplement, our Second amended and restated
certificate of incorporation (including the amendment describing the designations, rights, and preferences of each series of Preferred Stock) and amended and restated bylaws.
Subject
to limitations prescribed by the DGCL and our second amended and restated certificate of incorporation, our board of directors is authorized to fix or alter the dividend rights,
dividend rate, conversion rights, voting rights, rights and terms of redemption (including sinking fund provisions, if any), the redemption price or prices, the liquidation preferences, any other
designations, preferences and relative, participating, optional or other special rights, and any qualifications, limitations or restrictions of any series of Preferred Stock, and the number of shares
constituting any such series and the designation thereof. The Preferred Stock will, when issued, be fully paid and nonassessable and will have no preemptive rights.
The
applicable prospectus supplement will contain the specific terms relating to the Preferred Stock being offered, including:
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the title and stated value of such Preferred Stock;
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-
the number of shares of such Preferred Stock offered, the liquidation preference per share and the offering price of such Preferred Stock;
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-
the dividend rate or rate(s), period(s) or method of calculating the rates and the dates on which dividends will be payable applicable to such
Preferred Stock;
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whether dividends will be cumulative or noncumulative, and, if cumulative, the date from which dividends on such Preferred Stock shall
accumulate, if applicable;
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the provision for a sinking fund, if any, and the provisions for redemption, if applicable, of such Preferred Stock;
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any listing of such Preferred Stock on any securities exchange;
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the terms and conditions, if applicable, upon which such Preferred Stock will be convertible into our Common Stock, including the conversion
price (or manner of calculating the conversion price) and the conversion period;
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the terms and conditions, if applicable, upon which the Preferred Stock being offered will be exchangeable for debt securities, including the
exchange price, or the manner of calculating the exchange price, and the exchange period;
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the voting rights, if any, of the holders of shares of the Preferred Stock being offered;
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a discussion of certain federal income tax considerations applicable to such Preferred Stock;
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the relative ranking and preferences of such Preferred Stock as to dividend rights and rights upon our liquidation, dissolution or winding up
of affairs;
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any limitations on issuance of any class or series of Preferred Stock ranking senior to or on a parity with such series of Preferred Stock as
to dividend rights and rights upon liquidation, dissolution or winding up of affairs;
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any limitations on our ability to take certain actions without the consent of a specified number of holders of Preferred Stock; and
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any other additional material terms, preferences, rights, qualifications limitations or restrictions of such Preferred Stock.
Ranking
Unless otherwise specified in the prospectus supplement, the Preferred Stock will, with respect to dividend rights and rights upon our
liquidation, dissolution or winding up, rank:
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senior to all existing and future classes or series of Common Stock, and to all equity securities and any future series of Preferred Stock
ranking junior to such Preferred Stock;
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on a parity with all equity securities the terms of which specifically provide that such equity securities rank on a parity with the Preferred
Stock; and
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junior to all equity securities the terms of which specifically provide that such equity securities rank senior to the Preferred Stock.
Dividends
Holders of Preferred Stock of each series shall be entitled to receive, when, as and if declared by our board of directors, out of our assets
legally available for payment, cash dividends (or dividends in additional shares of Preferred Stock or in other property if expressly permitted and described in the applicable prospectus supplement)
at the rates and on the dates set forth in the applicable prospectus supplement. Dividend rates may be fixed or variable or both. Different series of Preferred Stock may be entitled to dividends at
different dividend rates or based upon different methods of determination. Each dividend shall be payable to holders of record as they appear on our stock transfer books on such record dates as shall
be fixed by the board of directors.
Dividends
on any series of Preferred Stock may be cumulative or non-cumulative, as provided in the applicable prospectus supplement. Dividends, if cumulative, will be cumulative from and
after the date set forth in the prospectus supplement. If the board of directors fails to declare a dividend payable on a dividend payment date on any series of Preferred Stock for which dividends are
non-cumulative, then the holders of such series of Preferred Stock will have no right to receive a dividend in respect of the dividend period ending on such dividend payment date, and we will have no
obligation to pay the dividend accrued for such period, whether or not dividends on such series are declared payable on any future dividend payment date.
Unless
otherwise specified in the applicable prospectus supplement, if any Preferred Stock of any series is outstanding, no full dividends shall be declared or paid or set apart for
payment on the Preferred Stock of any other series ranking, as to dividends, on a parity with or junior to the Preferred Stock of such series for any period unless full dividends (which include all
unpaid dividends in the case of cumulative dividend Preferred Stock) have been or contemporaneously are declared and paid or declared and a sum sufficient for the payment thereof set apart for such
payment on the Preferred Stock of such series.
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When
dividends are not paid in full (or a sum sufficient for such full payment is not so set apart) upon the Preferred Stock of any series and the shares of any other series of Preferred
Stock ranking on a parity as to dividends with the Preferred Stock of such series, all dividends declared upon shares of Preferred Stock of such series and any other series of Preferred Stock ranking
on a parity as to dividends with such Preferred Stock shall be declared pro rata among the holders of such series, so that the amount of dividends declared per share on that series of Preferred Stock
and on each other series of Preferred Stock having the same rank as that series of Preferred Stock will bear the same ratio to each other that accrued dividends per share on that series of Preferred
Stock and the other series of Preferred Stock bear to each other. No interest, or sum of money in lieu of interest, shall be payable in respect of any dividend payment or payments on Preferred Stock
of such series which may be in arrears.
Until
required dividends are paid, no dividends (other than in Common Stock or other capital stock ranking junior to the Preferred Stock of such series as to dividends and upon
liquidation) shall be declared or paid or set aside for payment or other distribution shall be declared or made upon the Common Stock or any other capital stock ranking junior to or on a parity with
the Preferred Stock of such series as to dividends or upon liquidation. In addition, no Common Stock or any other capital stock ranking junior to or on a parity with the Preferred Stock of such series
as to dividends or upon liquidation shall be redeemed, purchased or otherwise acquired for any consideration (or any moneys be paid to or made available for a sinking fund for the redemption of any
shares of any such stock) by us (except by conversion into or exchange for other capital stock ranking junior to the Preferred Stock of such series as to dividends and upon liquidation).
Any
dividend payment made of a series of Preferred Stock shall first be credited against the earliest accrued but unpaid dividend due with respect to shares of Preferred Stock of such
series which remains payable.
Redemption
If so provided in the applicable prospectus supplement, any series of Preferred Stock may be subject to mandatory redemption or redemption at
our option, as a whole or in part, in each case upon the terms, at the times and at the redemption prices set forth in such prospectus supplement.
The
prospectus supplement relating to a series of Preferred Stock that is subject to redemption will specify the number of shares of such Preferred Stock that we shall redeem in each
year commencing after a date to be specified, at a redemption price per share to be specified, together with an amount equal to all accrued and unpaid dividends thereon (which shall not, if such
Preferred Stock does not have a cumulative dividend, include any accumulation in respect of unpaid dividends for prior dividend periods) to the date of redemption. We may pay the redemption price in
cash, stock or other securities of third parties, or other property, as specified in the prospectus supplement. If the redemption price for Preferred Stock of any series is payable only from the net
proceeds of our issuance of capital stock, the terms of such Preferred Stock may provide that, if no such capital stock shall have been issued or to the extent the net proceeds from any issuance are
insufficient to pay in full the aggregate redemption price then due, such Preferred Stock shall automatically be converted into shares of the applicable capital stock pursuant to conversion provisions
specified in the applicable prospectus supplement.
So
long as any dividends on any series of Preferred Stock ranking on a parity as to dividends and distributions of assets with such series of the Preferred Stock are in arrears, no
shares of any such series of the Preferred Stock will be redeemed (whether by mandatory or optional redemption) unless all such shares are simultaneously redeemed, and we will not purchase or
otherwise acquire any such shares. Unless the full cumulative dividends on all outstanding shares of any cumulative Preferred Stock of such series and any other stock of Capstone ranking on a parity
with such series as to dividends and
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upon
liquidation shall have been paid or contemporaneously are declared and paid for all past dividend periods, we shall not purchase or otherwise acquire directly or indirectly any Preferred Stock of
such series (except by conversion into or exchange for stock ranking junior to the Preferred Stock of such series as to dividends and upon liquidation). However, this will not prevent the purchase or
acquisition of such Preferred Stock pursuant to a purchase or exchange offer made on the same terms to holders of all outstanding shares of Preferred Stock of such series.
If
we are to redeem fewer than all of the outstanding Preferred Stock of any series, whether by mandatory or optional redemption, our board of directors will determine the number of
shares to be redeemed and the method for selecting shares to be redeemed, which may be by lot or pro rata from the holders of record of such shares in proportion to the number of such shares held by
such holders (with adjustments to avoid redemption of fractional shares) or any other equitable method determined by us that will not result in the issuance of any excess shares.
We
will mail a notice of redemption at least 30 days but not more than 60 days before the redemption date to each holder of record of Preferred Stock of any series to be
redeemed. If notice of redemption of any Preferred Stock has been given and we have set aside the funds necessary for such redemption in trust for the benefit of the holders of any Preferred Stock so
called for redemption, then from and after the redemption date, dividends will cease to accrue on shares of Preferred Stock called for
redemption, such Preferred Stock shall no longer be deemed outstanding and all rights of the holders of such shares will terminate, except the right to receive the redemption price (without interest).
Liquidation Preference
Upon any voluntary or involuntary liquidation, dissolution or winding up of our affairs, after distributions or payment to holders of any equity
securities ranking senior to such series of Preferred Stock, before any distribution or payment shall be made to the holders of Common Stock, or any other class or series of our capital stock ranking
junior to a series of the Preferred Stock in the distribution of assets upon any liquidation, dissolution or winding up, the holders of such series of Preferred Stock will be entitled to receive out
of our assets legally available for distribution to stockholders liquidating distributions in the amount of the liquidation preference per share (set forth in the applicable prospectus supplement),
plus an amount equal to all dividends accrued and unpaid thereon (which shall not include any accumulation in respect of unpaid dividends for prior dividend periods if such Preferred Stock does not
have a cumulative dividend). After payment of the full amount of the liquidating distributions to which they are entitled, the holders of Preferred Stock will have no right or claim to any of our
remaining assets. In the event that, upon any such voluntary or involuntary liquidation, dissolution or winding up, our legally available assets are insufficient to pay the amount of the liquidating
distributions on all outstanding Preferred Stock and the corresponding amounts payable on all shares of other classes or series of capital stock ranking on a parity with the Preferred Stock in the
distribution of assets upon liquidation, dissolution or winding up, then the holders of the Preferred Stock and all other such classes or series of capital stock shall share ratably in any such
distribution of assets in proportion to the full liquidating distributions to which they would otherwise be respectively entitled.
If
liquidating distributions have been made in full to all holders of Preferred Stock, our remaining assets shall be distributed among the holders of any other classes or series of
capital stock ranking junior to the Preferred Stock upon liquidation, dissolution or winding up, according to their respective rights and preferences and in each case according to their respective
number of shares. After the holders of each series of Preferred Stock having the same rank are paid in full, they will have no right or claim to any of our remaining assets.
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Voting Rights
Holders of Preferred Stock may have voting rights as are set forth below or as otherwise from time to time required by law or as indicated in
the applicable prospectus supplement.
Unless
otherwise indicated in the prospectus supplement, if we issue full shares of any series of Preferred Stock, each share will be entitled to one vote on matters on which holders of
that series of Preferred Stock are entitled to vote. The voting power of that series will depend on the number of shares in that series of Preferred Stock and not on the aggregate liquidation
preference or initial offering price of the shares of that series. Unless otherwise indicated in a prospectus supplement, holders of our Preferred Stock do not vote on matters submitted for a vote of
our common shareholders.
Any
series of Preferred Stock may provide that, so long as any shares of such series remain outstanding, the holders of such series may vote as a separate class on certain specified
matters, which may include changes in our capitalization, amendments to our second amended and restated certificate of incorporation, our amended and restated bylaws and mergers and dispositions. The
foregoing voting provisions may not apply if, at or prior to the time when the act with respect to which such vote would otherwise be required shall be effected, all outstanding shares of such series
of Preferred Stock shall have been redeemed or called for redemption upon proper notice and sufficient funds shall have been irrevocably deposited in trust to effect such redemption.
The
provisions of a series of Preferred Stock may provide for additional rights, remedies, and privileges if dividends on such series are in arrears for specified periods, which rights
and privileges will be described in the applicable prospectus supplement.
Conversion Rights
The terms and conditions, if any, upon which shares of any series of Preferred Stock are convertible into Common Stock will be set forth in the
prospectus supplement relating thereto. Such terms will include the number of shares of Common Stock or any other series of Preferred Stock or other securities or property into which the Preferred
Stock is convertible, the conversion price (or manner of calculation thereof), the conversion period, provisions as to whether conversion will be at the option of the holders of the Preferred Stock or
us, the events requiring an adjustment of the conversion price and provisions affecting conversion in the event of the redemption of such Preferred Stock.
Permanent Global Preferred Securities
A series of Preferred Stock may be issued in whole or in part in the form of one or more global securities that will be deposited with a
depositary or its nominee identified in the related prospectus supplement. For most series of Preferred Stock, the depositary will be The Depository Trust Company. A global security may not be
transferred except as a whole to the depositary, a nominee of the depositary or their successors unless it is exchanged in whole or in part for Preferred Stock in individually certificated form. Any
additional terms of the depositary arrangement with respect to any series of Preferred Stock and the rights of and limitations on owners of beneficial interests in a global security representing a
series of Preferred Stock may be described in the related prospectus supplement.
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DESCRIPTION OF DEBT SECURITIES
We may issue, from time to time, debt securities in one or more series that will consist of either our senior debt or our subordinated debt
under one or more trust indentures to be executed by us and a specified trustee. The terms of the debt securities will include those stated in the indenture and those made a part of the indenture (and
may be amended by supplements) by reference to the Trust Indenture Act of 1939. The indentures will be qualified under the Trust Indenture Act. Debt securities, whether senior or subordinated, may be
issued as convertible debt securities or exchangeable debt securities.
The
following description sets forth certain anticipated general terms and provisions of the debt securities to which any prospectus supplement may relate. The particular terms of the
debt securities offered by any prospectus supplement (which terms may be different than those stated below) and the extent, if any, to which such general provisions may apply to the debt securities so
offered will be described in the prospectus supplement relating to such debt securities. Accordingly, for a description
of the terms of a particular issue of debt securities, investors should review both the prospectus supplement relating thereto and, except to the extent it conflicts with any prospectus supplement,
the following description. Forms containing terms we anticipate would be similar to the senior indenture (as discussed herein) and the subordinated indenture (as discussed herein) are included as
exhibits to the registration statement of which this prospectus is a part.
General
The debt securities will be our direct obligations and may be either senior debt securities or subordinated debt securities. The indebtedness
represented by subordinated securities will be subordinated in right of payment to the prior payment in full of our senior debt (as defined in the applicable indenture). Senior securities and
subordinated securities will be issued pursuant to separate indentures (respectively, a senior indenture and a subordinated indenture), in each case between us and a trustee. Debt securities issued by
us will be structurally subordinated to all indebtedness and other liabilities of our subsidiaries, except to the extent any such subsidiary guarantees or is otherwise obligated to make payment on
such debt securities.
Except
as set forth in the applicable indenture and described in a prospectus supplement relating thereto, the debt securities may be issued without limit as to aggregate principal
amount, in one or more series, secured or unsecured, in each case as established from time to time in or pursuant to authority granted by a resolution of our board of directors or as established in
the applicable indenture. All debt securities of one series need not be issued at the time and, unless otherwise provided, a series may be reopened, without the consent of the holders of the debt
securities of such series, for issuance of additional debt securities of such series. The indentures provide that we may issue debt securities in any currency or currency unit designated by us. Except
for the limitations on consolidation, merger and sale of all or substantially all of our assets contained in the indentures, the terms of the indentures do not contain any covenants or other
provisions designed to afford holders of any debt securities protection with respect to our operations, financial condition or transactions involving us.
The
prospectus supplement relating to any series of debt securities being offered will contain the specific terms thereof, including, without
limitation:
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the title of such debt securities and whether such debt securities are senior securities or subordinated securities and the terms of any such
subordination;
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the aggregate principal amount of such debt securities and any limit on such aggregate principal amount;
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the percentage of the principal amount at which such debt securities will be issued and, if other than the principal amount thereof, the
portion of the principal amount thereof payable upon
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declaration
of acceleration of the maturity thereof, or (if applicable) the portion of the principal amount of such debt securities which is convertible into Common Stock or Preferred Stock, and the
method by which any such portion shall be determined;
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the date or dates, or the method for determining the date or dates, on which the principal of such debt securities will be payable;
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the rate or rates (which may be fixed or variable), or the method by which the rate or rates shall be determined, at which such debt securities
will bear interest, if any;
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the date or dates, or the method for determining such date or dates, from which any interest will accrue, the dates on which any such interest
will be payable, the regular record dates for such interest payment dates, or the method by which any such date shall be determined, the person to whom such interest shall be payable, and the basis
upon which interest shall be calculated if other than that of a 360-day year of twelve 30-day months;
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the right, if any, to extend the interest payment periods and the duration of the extensions;
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the place or places where the principal of (and premium, if any) and interest, if any, on such debt securities will be payable, where such debt
securities may be surrendered for conversion or registration of transfer or exchange and notices or demands to or upon us in respect of such debt securities and where the applicable indenture may be
served;
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the period or periods within which, the price or prices at which and the terms and conditions upon which such debt securities may be redeemed,
as a whole or in part, at our option, if we have such an option;
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our obligation, if any, to redeem, repay or purchase such debt securities pursuant to any sinking fund or analogous provision or at the option
of a holder thereof, and the period or periods within which, the price or prices at which and the terms and conditions upon which such debt securities will be redeemed, repaid or purchased, as a whole
or in part, pursuant to such obligation;
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the currency or currencies in which such debt securities are denominated and payable, which may be a foreign currency or units of two or more
foreign currencies or a composite currency or currencies, and the terms and conditions relating thereto;
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whether the amount of payments of principal of (and premium, if any) or interest, if any, on such debt securities may be determined with
reference to an index, formula or other method (which index, formula or method may, but need not be, based on a currency, currencies, currency unit or units or composite currencies) and the manner in
which such amounts shall be determined;
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any additions to, modifications of or deletions from the terms of such debt securities with respect to the events of default or covenants set
forth in the indenture;
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any provisions for collateral security for repayment of such debt securities;
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-
whether such debt securities will be issued in certificated and/or book-entry form;
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whether such debt securities will be in registered or bearer form and, if in registered form, the denominations thereof and any integral
multiple thereof and, if in bearer form, the denominations thereof and terms and conditions relating thereto;
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whether issued in the form of one or more global securities and whether all or a portion of the principal amount of the debt securities is
represented thereby;
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if other than the entire principal amount of the debt securities when issued, the portion of the principal amount payable upon acceleration of
maturity, and the terms and conditions of any acceleration;
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if applicable, covenants affording holders of debt protection with respect to our operations, financial condition or transactions involving us;
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the applicability, if any, of defeasance and covenant defeasance provisions of the applicable indenture;
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-
the terms, if any, upon which such debt securities may be convertible into our Common Stock or Preferred Stock and the terms and conditions
upon which such conversion will be effected, including, without limitation, the initial conversion price or rate and the conversion period;
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-
if convertible, any applicable limitations on the ownership or transferability of the Common Stock or Preferred Stock into which such debt
securities are convertible;
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whether and under what circumstances we will pay additional amounts as contemplated in the indenture on such debt securities in respect of any
tax, assessment or governmental charge and, if so, whether we will have the option to redeem such debt securities in lieu of making such payment; and
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any other material terms of such debt securities.
The
debt securities may provide for less than the entire principal amount thereof to be payable upon declaration of acceleration of the maturity thereof. Special federal income tax,
accounting and other considerations applicable to these original issue discount securities will be described in the applicable prospectus supplement. The applicable prospectus supplement will set
forth material U.S. federal income tax considerations for holders of any debt securities and the securities exchange or quotation system on which any debt securities are listed or quoted, if any.
The
applicable indenture may contain provisions that would limit our ability to incur indebtedness or that would afford holders of debt securities protection in the event of a highly
leveraged or similar transaction involving us or in the event of a change of control.
Senior Debt Securities
Payment of the principal of premium, if any, and interest on senior debt securities will rank on parity with all of our other senior unsecured
and unsubordinated debt.
Subordinated Debt Securities
Payment of the principal of, premium, if any, and interest on subordinated debt securities will be subordinated and junior in right of payment
to the prior payment in full of all of our senior debt. We will set forth in the applicable prospectus supplement relating to any subordinated debt securities the subordination terms of such
securities as well as the aggregate amount of outstanding indebtedness, as of the most recent practicable date, that by its terms would be senior to the subordinated debt securities. We will also set
forth in such prospectus supplement limitations, if any, on issuance of additional senior debt.
Merger, Consolidation or Sale
The applicable indenture will provide that we may consolidate with, or sell, lease or convey all or substantially all of our assets to, or merge
with or into, any other corporation, provided that:
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either we shall be the continuing corporation, or the successor corporation (if other than the Company) formed by or resulting from any such
consolidation or merger or which shall have
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received
the transfer of such assets shall expressly assume payment of the principal of (and premium, if any), and interest on, all of the applicable debt securities and the due and punctual
performance and observance of all of the covenants and conditions contained in the applicable indenture;
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immediately after giving effect to such transaction and treating any indebtedness which becomes our obligation or an obligation of one of our
subsidiaries as a result thereof as having been incurred by us or such subsidiary at the time of such transaction, no event of default under the applicable indenture, and no event which, after notice
or the lapse of time, or both, would become such an event of default, shall have occurred and be continuing; and
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an officer's certificate and legal opinion covering such conditions shall be delivered to the applicable trustee.
Covenants
The applicable indenture will contain covenants requiring us to take certain actions and prohibiting us from taking certain actions. The
covenants with respect to any series of debt securities will be described in the prospectus supplement relating thereto.
Events of Default, Notice and Waiver
Each indenture will describe specific "events of default" with respect to any series of debt securities issued thereunder. Such "events of
default" are likely to, but may not, include (with grace and cure periods):
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default in the payment of any installment of interest on any debt security of such series;
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default in the payment of principal of (or premium, if any, on) any debt security of such series at its maturity or upon any redemption, by
declaration or otherwise;
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default in making any required sinking fund payment for any debt security of such series;
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default in the performance or breach of any other covenant or warranty of the Company contained in the applicable indenture (other than a
covenant added to the indenture solely for the benefit of a series of debt securities issued thereunder other than such series), continued for a specified period of days after written notice as
provided in the applicable indenture;
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default in the payment of specified amounts of indebtedness (subject in some instances to a minimum threshold amount) of the Company or any
mortgage, indenture or other instrument under which such indebtedness is issued or by which such indebtedness is secured, such default having occurred after the expiration of any applicable grace
period and having resulted in the acceleration of the maturity of such indebtedness, but only if such indebtedness is not discharged or such acceleration is not rescinded or annulled;
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certain events of bankruptcy, insolvency or reorganization, or court appointment of a receiver, liquidator or trustee of the Company or any of
our significant subsidiaries or their property; and
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any other event of default provided in the applicable resolution of our board of directors or the supplemental indenture under which we issue
series of debt securities.
An
event of default for a particular series of debt securities does not necessarily, but may, constitute an event of default for any other series of debt securities issued under the
indenture. Unless otherwise indicated in the applicable prospectus supplement, if an event of default under any indenture with respect to debt securities of any series at the time outstanding occurs
and is continuing, then the applicable trustee or the holders of not less than a majority of the principal amount of the outstanding debt securities of that series may declare the principal amount
(or, if the debt securities of that series
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are
original issue discount securities or indexed securities, such portion of the principal amounts may be specified in the terms thereof) of all the debt securities of that series to be due and
payable immediately by written notice thereof to us (and to the applicable trustee if given by the holders). However, at any time after such a declaration of acceleration with respect to debt
securities of such series (or of all debt securities then outstanding under any indenture, as the case may be) has been made, but before a judgment or decree for payment of the money due has been
obtained by the applicable trustee, the holders of not less than a majority in principal amount of outstanding debt securities of such series (or of all debt securities then outstanding under the
applicable indenture, as the case may be) may rescind and annul such declaration and its consequences if:
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we shall have deposited with the applicable trustee all required payments of the principal of (and premium, if any) and interest on the debt
securities of such series (or of all debt securities then outstanding under the applicable indenture, as the case may be), plus certain fees, expenses, disbursements and advances of the applicable
trustee; and
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all events of default, other than the non-payment of accelerated principal (or specified portion thereof), with respect to debt securities of
such series (or of all debt securities then outstanding under the applicable indenture, as the case may be) have been cured or waived as provided in such indenture.
If
an event of default relating to events of bankruptcy, insolvency or reorganization of the Company occurs and is continuing, then the principal amount of all of the debt securities
outstanding, and any accrued interest, will, subject to applicable law, automatically become due and payable immediately, without any declaration or other act by the trustee or any holder.
Each
indenture may also provide that the holders of not less than a majority in principal amount of the outstanding debt securities of any series (or of all debt securities then
outstanding under the applicable indenture, as the case may be) may waive any past default with respect to such series and its consequences, except, unless otherwise noted, a
default:
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-
in the payment of the principal of (or premium, if any) or interest on any debt security of such series; or
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in respect of a covenant or provision contained in the applicable indenture that cannot be modified or amended without the consent of the
holder of each outstanding debt security affected thereby.
Each
trustee may be required to give notice to the holders of debt securities within a certain number of days of a default under the applicable indenture unless such default shall have
been cured or waived; provided, however, that such trustee may withhold notice to the holders of any series of debt securities of any default with respect to such series (except a default in the
payment of the principal of (or premium, if any) or interest on any debt security of such series or in the payment of any sinking fund installment in respect of any debt security of such series) if
specified responsible officers of such trustee consider such withholding to be in the interest of such holders.
Each
indenture may provide that no holders of debt securities of any series may institute any proceedings, judicial or otherwise, with respect to such indenture or for any remedy
thereunder, except in the case of failure of the applicable trustee, for a certain period, to act after it has received a written request to institute proceedings in respect of an event of default
from the holders of not less than 25% in principal amount of the outstanding debt securities of such series, as well as an offer of indemnity reasonably satisfactory to it. This provision will not
prevent, however, any holder of debt securities from
instituting suit for the enforcement of payment of the principal of (and premium, if any) and interest on such debt securities at the respective due dates thereof.
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Each
indenture may provide that in case an event of default shall occur and be known to any trustee and not be cured, the trustee must use the same degree of care as a prudent person
would use in the conduct of his or her own affairs in the exercise of the trustee's power. Subject to provisions in each indenture relating to its duties in case of default, no trustee will be under
any obligation to exercise any of its rights or powers under an indenture at the request or direction of any holders of any series of debt securities then outstanding under such indenture, unless such
holders shall have offered to the trustee thereunder reasonable security or indemnity. The holders of not less than a majority in principal amount of the outstanding debt securities of any series (or
of all debt securities then outstanding under an indenture, as the case may be) may have the right to direct the time, method and place of conducting any proceeding for any remedy available to the
applicable trustee, or of exercising any trust or power conferred upon such trustee. However, a trustee may refuse to follow any direction which is in conflict with any law or the applicable
indenture, which may involve such trustee in personal liability or which may be unduly prejudicial to the holders of debt securities of such series not joining therein.
Within
a certain period after the close of each fiscal year and at various other times, we will be required to deliver to each trustee a certificate, signed by one of several specified
officers, stating whether or not such officer has knowledge of any default under the applicable indenture and, if so, specifying each such default and the nature and status thereof.
Modification of the Indenture
Each indenture may provide that we and the trustee may enter into supplemental indentures without the consent of the holders of debt securities
to:
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secure any debt securities;
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evidence the assumption by a successor corporation of our obligations;
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add covenants for the protection of the holders of debt securities;
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cure any ambiguity or correct any inconsistency in the indenture;
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establish the forms or terms of debt securities of any series; and
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evidence and provide for the acceptance of appointment by a successor trustee.
It
is anticipated that modifications and amendments of an indenture may be made by us and the trustee, with the consent of the holders of, unless otherwise noted in such indenture, not
less than a majority in principal amount of each series of the outstanding debt securities issued under the indenture that are affected by the modification or amendment, provided that no such
modification or amendment may, without the consent of each holder of such debt securities affected thereby:
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change the stated maturity date of the principal of (or premium, if any) or any installment of interest, if any, on any such debt security;
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reduce the principal amount of (or premium, if any) or the interest, if any, on any such debt security or the principal amount due upon
acceleration of an original issue discount security;
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change the time or place or currency of payment of principal of (or premium, if any) or interest, if any, on any such debt security;
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impair the right to institute suit for the enforcement of any such payment on or with respect to any such debt security;
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reduce any amount payable on redemption;
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modify any of the subordination provisions or the definition of senior indebtedness applicable to any subordinated debt securities in a manner
adverse to the holders of those securities;
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reduce the above-stated percentage of holders of debt securities necessary to modify or amend the indenture; or
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modify the foregoing requirements or reduce the percentage of outstanding debt securities necessary to waive compliance with certain provisions
of the indenture or for waiver of certain defaults.
A
record date may be set for any act of the holders with respect to consenting to any amendment. Unless otherwise set forth in any applicable indenture, the holders of not less than a
majority in principal amount of outstanding debt securities of each series affected thereby will have the right to waive our compliance with certain covenants in such indenture. Each indenture will
contain provisions for convening meetings of the holders of debt securities of a series to take permitted action.
A
prospectus supplement may set forth modifications or additions to these provisions with respect to a particular series of debt securities.
Conversion or Exchange Rights
A prospectus supplement will describe the terms, if any, on which a series of debt securities may be convertible into or exchangeable for our
Common Stock, Preferred Stock or other securities. These terms will also include provisions as to whether conversion or exchange is mandatory, at the option of the holder or at our option. Such
provisions will also include the conversion or exchange price (or manner or calculation thereof), the conversion or exchange period, the events requiring an adjustment of the conversion or exchange
price, and provisions affecting conversion or exchange in the event of the redemption of such series of debt securities.
Registered Global Securities
We may issue the debt securities of a series in whole or in part in the form of one or more fully registered global securities that we will
deposit with a depositary or with a nominee for a depositary identified in the applicable prospectus supplement and registered in the name of such depositary or nominee. In such case, we will issue
one or more registered global securities denominated in an amount equal to the aggregate principal amount of all of the debt securities of the series to be issued and represented by such registered
global security or securities.
Unless
and until it is exchanged in whole or in part for debt securities in definitive registered form, a registered global security may not be transferred except as a
whole:
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by the depositary for such registered global security to its nominee;
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by a nominee of the depositary to the depositary or another nominee of the depositary; or
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by the depositary or its nominee to a successor of the depositary or a nominee of the successor.
The
prospectus supplement relating to a series of debt securities will describe the specific terms of the depositary arrangement with respect to any portion of such series represented by
a registered global security. We anticipate that the following provisions will apply to all depositary arrangements for debt securities:
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ownership of beneficial interests in a registered global security will be limited to persons that have accounts with the depositary for the
registered global security, those persons being referred to as "participants," or persons that may hold interests through participants;
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upon the issuance of a registered global security, the depositary for the registered global security will credit, on its book-entry
registration and transfer system, the participants' accounts with the respective principal amounts of the debt securities represented by the registered global security beneficially owned by the
participants;
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any dealers, underwriters, or agents participating in the distribution of the debt securities will designate the accounts to be credited; and
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ownership of any beneficial interest in the registered global security will be shown on, and the transfer of any ownership interest will be
effected only through, records maintained by the depositary for the registered global security (with respect to interests of participants) and on the records of participants (with respect to interests
of persons holding through participants).
The
laws of some states may require that certain purchasers of securities take physical delivery of the securities in definitive form. These laws may limit the ability of those persons
to own, transfer or pledge beneficial interests in registered global securities.
So
long as the depositary for a registered global security, or its nominee, is the registered owner of the registered global security, the depositary or the nominee, as the case may be,
will be considered the sole owner or holder of the debt securities represented by the registered global security for all purposes under the indenture. Except as set forth below, owners of beneficial
interests in a registered global security:
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will not be entitled to have the debt securities represented by a registered global security registered in their names;
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will not receive or be entitled to receive physical delivery of the debt securities in the definitive form; and
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will not be considered the owners or holders of the debt securities under the indenture.
Accordingly,
each person owning a beneficial interest in a registered global security must rely on the procedures of the depositary for the registered global security and, if the person
is not a participant, on the procedures of a participant through which the person owns its interest, to exercise any rights of a holder under the indenture.
We
understand that under existing industry practices, if we request any action of holders or if an owner of a beneficial interest in a registered global security desires to give or take
any action that a holder is entitled to give or take under the indenture, the depositary for the registered global security would authorize the participants holding the relevant beneficial interests
to give or take the action, and those participants would authorize beneficial owners owning through those participants to give or take the action or would otherwise act upon the instructions of
beneficial owners holding through them.
We
will make payments of principal and premium, if any, and interest, if any, on debt securities represented by a registered global security registered in the name of a depositary or its
nominee to the depositary or its nominee, as the case may be, as the registered owners of the registered global security. None of the Company, the trustee or any other agent of the Company or the
trustee will be responsible or liable for any aspect of the records relating to, or payments made on account of, beneficial ownership interests in the registered global security or for maintaining,
supervising or reviewing any records relating to the beneficial ownership interests.
We
expect that the depositary for any debt securities represented by a registered global security, upon receipt of any payments of principal and premium, if any, and interest, if any, in
respect of the registered global security, will immediately credit participants' accounts with payments in amounts proportionate to their respective beneficial interests in the registered global
security as shown on the records of the depositary. We also expect that standing customer instructions and customary practices
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will
govern payments by participants to owners of beneficial interests in the registered global security held through the participants, as is now the case with the securities held for the accounts of
customers in bearer form or registered in "street name." We also expect that any of these payments will be the responsibility of the participants.
If
the depositary for any debt securities represented by a registered global security is at any time unwilling or unable to continue as depositary or ceases to be a clearing agency
registered under the Exchange Act, we will appoint an eligible successor depositary. If we fail to appoint an eligible successor depositary within 90 days, we will issue the debt securities in
definitive form in exchange for the registered global security. In addition, we may at any time and in our sole discretion decide not to have any of the debt securities of a series represented by one
or more registered global securities. In
such event, we will issue debt securities of that series in a definitive form in exchange for all of the registered global securities representing the debt securities. The trustee will register any
debt securities issued in definitive form in exchange for a registered global security in such name or names as the depositary, based upon instructions from its participants, shall instruct the
trustee.
We
may also issue bearer debt securities of a series in the form of one or more global securities, referred to as "bearer global securities." We will deposit these bearer global
securities with a common depositary for Euroclear System and Clearstream Bank Luxembourg, Societe Anonyme, or with a nominee for the depositary identified in the prospectus supplement relating to that
series. The prospectus supplement relating to a series of debt securities represented by a bearer global security will describe the specific terms and procedures, including the specific terms of the
depositary arrangement and any specific procedures for the issuance of debt securities in definitive form in exchange for a bearer global security, with respect to the position of the series
represented by a bearer global security.
Discharge, Defeasance and Covenant Defeasance
We will be able to discharge or defease our obligations pursuant to the terms of the indenture, which we anticipate will include those
requirements set forth below. Unless otherwise set forth in the applicable prospectus supplement, the subordination provisions applicable to any subordinated debt securities will be expressly subject
to the discharge and defeasance provisions of the indenture.
We
may discharge some of our obligations to holders of any series of debt securities that have not already been delivered to the trustee for cancellation and that have either become due
and payable or are by their terms to become due and payable within one year (or are scheduled for redemption within one year). We may effect a discharge by irrevocably depositing with the trustee cash
or U.S. government obligations, as trust funds, in an amount certified to be sufficient to pay when due, whether at maturity, upon redemption or otherwise, the principal of, premium, if any, and
interest on the debt securities and any mandatory sinking fund payments.
Unless
otherwise provided in the applicable prospectus supplement, we may also discharge any and all of our obligations to holders of any series of debt securities at any time
("defeasance"). We also may be released from the obligations imposed by any covenants of any outstanding series of debt securities and provisions of the indenture, and we may omit to comply with those
covenants without creating an event of default ("covenant defeasance"). We may effect defeasance and covenant defeasance only if, among other things:
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we irrevocably deposit with the trustee cash or U.S. government obligations, as trust funds, in an amount certified to be sufficient to pay at
maturity (or upon redemption) the principal, premium, if any, and interest on all outstanding debt securities of the series; and
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we deliver to the trustee an opinion of counsel from a nationally recognized law firm to the effect that the holders of the series of debt
securities will not recognize income, gain or loss for U.S. federal income tax purposes as a result of the defeasance or covenant defeasance and that
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defeasance
or covenant defeasance will not otherwise alter the holders' U.S. federal income tax treatment of principal, premium, if any, and interest payments on the series of debt securities, which
opinion, in the case of legal defeasance, must be based on a ruling of the Internal Revenue Service issued, or a change in U.S. federal income tax law.
Although
we may discharge or defease our obligations under the indenture as described in the two preceding paragraphs, we may not avoid, among other things, our duty to register the
transfer or exchange of any series of debt securities, to replace any temporary, mutilated, destroyed, lost or stolen series of debt securities or to maintain an office or agency in respect of any
series of debt securities.
Redemption of Securities
Debt securities may also be subject to optional or mandatory redemption on terms and conditions described in the applicable prospectus
supplement.
From
and after notice has been given as provided in the applicable indenture, if funds for the redemption of any debt securities called for redemption shall have been made available on
such
redemption date, such debt securities will cease to bear interest on the date fixed for such redemption specified in such notice, and the only right of the holders of the debt securities will be to
receive payment of the redemption price.
Notices
Holders of our debt securities will receive notices pursuant to the terms of the indenture at their addresses as they appear in the security
register.
Title
We may treat the person in whose name a debt security is registered on the applicable record date as the owner of the debt security for all
purposes, whether or not it is overdue.
Governing Law
We anticipate that New York law will govern the indentures and the debt securities, without regard to its conflicts of law principles.
Concerning the Trustee
Each indenture provides that there may be more than one trustee under the indenture, each with respect to one or more series of debt securities.
If there are different trustees for different series of debt securities, each trustee will be a trustee of a trust under the indenture separate and apart from the trust administered by any other
trustee under the indenture. Except as otherwise indicated in this prospectus or any prospectus supplement, any action permitted to be taken by a trustee may be taken by such trustee only with respect
to the one or more series of debt securities for which it is the trustee under the indenture. Any trustee under the indenture may resign or be removed
with respect to one or more series of debt securities. All payments of principal of, premium, if any, and interest on, and all registration, transfer, exchange, authentication and delivery (including
authentication and delivery on original issuance of the debt securities) of, the debt securities of a series will be effected by the trustee with respect to that series at an office designated by the
trustee pursuant to the terms of the indenture.
Each
indenture contains limitations on the right of the trustee, should it become a creditor of the Company, to obtain payment of claims in some cases or to realize on certain property
received in respect of any such claim as security or otherwise. The trustee may engage in other transactions. If it acquires any conflicting interest relating to any duties with respect to the debt
securities, however, it must eliminate the conflict or resign as trustee.
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PLAN OF DISTRIBUTION
We may sell the securities to one or more underwriters for public offering and sale by them, through agents or dealers, directly to purchasers
or through a combination of any of these methods of sale. Any underwriter, agent or dealer involved in the offer and sale of the securities will be named in the applicable prospectus supplement. The
distribution of securities may be effected from time to time in one or more transactions at a fixed price or prices, which may be changed, or from time to time at market prices prevailing at the time
of sale, at prices related to prevailing market prices or at negotiated prices.
We
may, from time to time, authorize underwriters acting as our agents to offer and sell the securities upon the terms and conditions set forth in any prospectus supplement. In
connection with the sale of the securities, underwriters may be deemed to have received compensation from us in the form of underwriting discounts or commissions and may also receive commissions from
purchasers of the securities for whom they may act as agent. Any underwriting compensation paid by us to underwriters
or agents in connection with the offering of the securities, and any discounts, concessions or commissions allowed by underwriters to participating dealers, will be set forth in an applicable
prospectus supplement. If a dealer is utilized in the sale of the securities in respect of which this prospectus is delivered, we may sell the securities to the dealer, as principal. The dealer may
then resell the securities to the public at varying prices to be determined by the dealer at the time of resale. Underwriters, dealers and agents participating in the distribution of the securities
may be deemed to be underwriters under the Securities Act, and any discounts and commissions received by them and any profit realized by them on resale of the securities may be deemed to be
underwriting discounts, concessions and commissions under the Securities Act. Underwriters, dealers and agents may be entitled under agreements with us to indemnification against and contribution
toward certain civil liabilities, including liabilities under the Securities Act, and to reimbursement by us for certain expenses.
If
so indicated in an applicable prospectus supplement, we may authorize dealers acting as our agents to solicit offers by institutions to purchase the securities from us at the public
offering price set forth in the prospectus supplement pursuant to delayed delivery contracts providing for payment and delivery on the date or dates stated in the prospectus supplement. Each delayed
delivery contract will be for an amount not less than, and the aggregate principal amount or offering price of the securities sold pursuant to delayed delivery contracts will not be less nor more
than, the respective amounts stated in the prospectus supplement. Institutions with whom delayed delivery contracts, when authorized, may be entered into include commercial and savings banks,
insurance companies, pension funds, investment companies, educational and charitable institutions and other institutions, but will in all cases be subject to approval by us. Contracts will not be
subject to any conditions except (1) the purchase by an institution of the securities covered by its contracts will not at the time of delivery be prohibited under the laws of any jurisdiction
in the United States to which the institution is subject, and (2) if the securities are being sold to underwriters, we will have sold to them the total principal amount of the securities less
the principal amount of the securities covered by contracts. Agents and underwriters will have no responsibility in respect of the delivery or performance of contracts.
Direct
sales to investors or our stockholders may be accomplished through subscription offerings or through stockholder purchase rights distributed to stockholders. In connection with
subscription offerings or the distribution of stockholder purchase rights to stockholders, if all of the underlying securities are not subscribed for, we may sell any unsubscribed securities to third
parties directly or through underwriters or agents. In addition, whether or not all of the underlying securities are subscribed for, we may concurrently offer additional securities to third parties
directly or through underwriters or agents. If securities are to be sold through stockholder purchase rights, the stockholder purchase rights will be distributed as a dividend to the stockholders for
which they will pay no separate
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consideration.
The prospectus supplement with respect to the offer of securities under stockholder purchase rights will set forth the relevant terms of the stockholder purchase rights,
including:
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whether Common Stock will be offered under the stockholder purchase rights;
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-
the number or amount of those securities or warrants that will be offered under the stockholder purchase rights;
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the period during which and the price at which the stockholder purchase rights will be exercisable;
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the number of stockholder purchase rights then outstanding;
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any provisions for changes to or adjustments in the exercise price of the stockholder purchase rights, and
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any other material terms of the stockholder purchase rights.
The
securities also may be offered and sold, if so indicated in the prospectus supplement, in connection with a remarketing upon their purchase, in accordance with a redemption or
repayment pursuant to their terms, or otherwise, by one or more firms ("remarketing firms"), acting as principals for their own accounts or as agents for us. Any remarketing firm will be identified
and the terms of its agreement, if any, with us will be described in the applicable prospectus supplement. Remarketing firms may be deemed to be underwriters in connection with the securities
remarketed thereby. Remarketing firms may be entitled under agreements which may be entered into with us to indemnification by us against certain liabilities, including liabilities under the
Securities Act.
We
may enter into derivative transactions with third parties, or sell securities not covered by this prospectus to third parties in privately negotiated transactions. If the applicable
prospectus supplement indicates, in connection with those derivatives, the third parties may sell securities covered by this prospectus and the applicable prospectus supplement, including in short
sale transactions. If so, the third party may use securities pledged by us or borrowed from us or others to settle those sales or to close out any related open borrowings of stock, and may use
securities received from us in settlement of those derivatives to close out any related open borrowings of stock. The third parties in such sale transactions will be underwriters and will be
identified in the applicable prospectus supplement (or a post-effective amendment).
Securities
offered may be a new issue of securities with no established trading market. Any underwriters to whom or agents through whom these securities are sold by us for public
offering and sale may make a market in these securities, but such underwriters or agents will not be obligated to do so and may discontinue any market making at any time without notice. No assurance
can be given as to the liquidity of or the trading market for any such securities.
To
facilitate the offering of securities, certain persons participating in the offering may engage in transactions that stabilize, maintain, or otherwise affect the price of the
securities. These may include over-allotment, stabilization, syndicate short covering transactions and penalty bids. Over-allotment involves sales in excess of the offering size, which creates a short
position. Stabilizing transactions involve bids to purchase the underlying security so long as the stabilizing bids do not exceed a specified maximum. Syndicate short covering transactions involve
purchases of securities in the open market after the distribution has been completed in order to cover syndicate short positions. Penalty bids permit the underwriters to reclaim selling concessions
from dealers when the securities originally sold by the dealers are purchased in covering transactions to cover syndicate short positions. These transactions, if commenced, may be discontinued by the
underwriters at any time.
During
such time as we may be engaged in a distribution of the securities covered by this prospectus we are required to comply with Regulation M promulgated under the Securities
Exchange
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Act
of 1934. With certain exceptions, Regulation M precludes us, any affiliated purchasers, and any broker-dealer or other person who participates in such distribution from bidding for or
purchasing, or attempting to induce any person to bid for or purchase, any security which is the subject of the distribution until the entire distribution is complete. Regulation M also
restricts bids or purchases made in order to stabilize the price of a security in connection with the distribution of that security.
Some
of the underwriters and their affiliates may engage in transactions with or perform services for us in the ordinary course of business.
LEGAL MATTERS
Certain legal matters with respect to the validity of the securities being offered hereby will be passed upon for us by Waller Lansden
Dortch & Davis, LLP, Nashville, Tennessee. If the validity of any securities is also passed upon by counsel for the underwriters of an offering of those securities, that counsel will be
named in the prospectus supplement relating to that offering.
EXPERTS
The consolidated financial statements and schedule of Capstone Turbine Corporation as of March 31, 2015 and 2014 and for each of the
years in the three-year period ended March 31, 2015, and management's assessment of the effectiveness of internal control over financial reporting as of March 31, 2015, have been
incorporated by reference herein and in the registration statement in reliance upon the reports of KPMG LLP, independent registered public accounting firm, incorporated by reference herein, and
upon the authority of said firm as experts in accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the SEC a registration statement on Form S-3 under the Securities Act of 1933 with respect to the securities offered
hereby. This prospectus does not contain all of the information set forth in the registration statement and its exhibits. Statements made by us in this prospectus as to the contents of any contract,
agreement or other document referred to in this prospectus are not necessarily complete. For a more complete description of these contracts, agreements or other documents, you should carefully read
the exhibits to the registration statement and the documents that we reference under the caption "Incorporation of Certain Documents by Reference."
We
file annual, quarterly and current reports, proxy statements and other information with the SEC. You may read and copy any materials we file with the SEC at the SEC's Public Reference
Room at 100 F Street, N.E., Washington, D.C. 20549. You may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains an Internet
site that contains reports, proxy and information statements and other information regarding issuers that file electronically with the SEC at the SEC's web site at
http://www.sec.gov
.
We
make available free of charge through our web site, which you can find at
http://www.capstoneturbine.com
, our Annual Report on
Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and amendments to these reports filed or furnished pursuant to Section 13(a) or 15(d) of the
Securities Exchange Act of 1934, as amended, as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC.
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INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
We are incorporating by reference information we file with the SEC, which means:
-
-
incorporated documents are considered part of this prospectus;
-
-
we can disclose important information to you by referring you to those documents; and
-
-
information that we file later with the SEC automatically will update and supersede information contained in this prospectus.
We
are incorporating by reference the following documents, which we have previously filed with the SEC:
(a) our
Annual Report on Form 10-K for the fiscal year ended March 31, 2015;
(b) the
description of our Common Stock contained in our Registration Statement on Form 8-A, filed with the SEC on June 22, 2000 including any subsequent
amendment or report filed for the purpose of amending such description and the description of our Preferred Stock purchase rights contained in our Registration Statement on Form 8-A, filed with
the SEC on July 8, 2005, including any subsequent amendment or report filed for the purpose of amending such description; and
(c) any
future filings with the SEC under Section 13(a), 13(c), 14 or 15(d) of the Exchange Act until all offerings of any securities registered hereby are completed;
provided that this prospectus will not incorporate any information we may furnish to the SEC under Item 2.02 or Item 7.01 of Form 8-K.
Any
statement contained in this prospectus or any prospectus supplement or in a document incorporated or deemed to be incorporated by reference into this prospectus will be deemed to be
modified or superseded for purposes of this prospectus to the extent that a statement contained in this prospectus or any other subsequently filed document that is deemed to be incorporated by
reference into this prospectus modifies or supersedes the statement. Any statement so modified or superseded will not be deemed, except as so modified or superseded, to constitute a part of this
prospectus.
You
can obtain copies of the documents incorporated by reference in this prospectus but not delivered with this prospectus without charge through our web site
(
http://www.capstoneturbine.com
) as soon as reasonably practicable after we electronically file the material with, or furnish it to, the SEC, or by
requesting them in writing or by telephone at the following address:
Capstone
Turbine Corporation
21211 Nordhoff Street
Chatsworth, California 91311
Attention: Chief Financial Officer
(818) 734-5300
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Capstone Turbine Corporation
3,600,000 Shares of Common Stock
Pre-Funded Series B Warrants to purchase up to 2,700,000 Shares of Common Stock
2,700,000 Shares of Common Stock underlying the Pre-Funded Series B Warrants
PROSPECTUS SUPPLEMENT
Oppenheimer & Co.
ROTH Capital Partners, LLC
October 18, 2016
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