SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934
Filed by the Registrant |X|
Filed by a Party other than the Registrant |_|
Check the appropriate box:
|_| Preliminary Proxy Statement |_| Confidential, For Use of the
|X| Definitive Proxy Statement Commission Only (as permitted by
|_| Definitive Additional Materials Rule 14a-6(e)(2))
|_| Soliciting Material under
Rule 14a-12
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Capstone Turbine Corporation
(Name of Registrant as Specified in Its Charter)
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Board of Directors of Registrant
--------------------------------
(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
|X| No fee required.
|_| Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined): N/A
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|_| Check box if any part of the fee is offset as provided by Exchange Act Rule
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[LOGO]
CAPSTONE TURBINE CORPORATION
21211 Nordhoff Street
Chatsworth, California 91311
April 30, 2002
Dear Capstone Turbine Stockholder:
You are cordially invited to attend the 2002 Annual Meeting of
Stockholders (the "Annual Meeting") of Capstone Turbine Corporation to be held
at the Radisson Hotel Chatsworth, 9777 Topanga Canyon Blvd., Chatsworth,
California 91311, on May 30, 2002, at 9:00 a.m., Pacific Daylight Time. We look
forward to greeting as many of our stockholders at the Annual Meeting as
possible.
Details of the business to be conducted at the Annual Meeting are given in
the attached Notice of Annual Meeting of Stockholders and the attached Proxy
Statement.
Whether or not you attend the Annual Meeting, it is important that your
shares be represented and voted at the meeting. Therefore, I urge you to sign,
date, and promptly return the enclosed proxy card in the enclosed postage-paid
envelope. If you decide to attend the Annual Meeting, you will of course be
able to vote in person, even if you have previously submitted your proxy.
On behalf of the Board of Directors, I would like to express our
appreciation for your continued interest in the affairs of Capstone.
Sincerely,
/s/ Ake Almgren
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Ake Almgren
President and Chief Executive Officer
Chatsworth, California
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YOUR VOTE IS IMPORTANT
In order to assure your representation at the Annual Meeting, you are requested
to complete, sign and date the enclosed proxy as promptly as possible and
return it in the enclosed envelope (no postage required on the envelope if
mailed in the United States). Please reference the "Voting Electronically
via the Internet or by Telephone" section on page 2 of the Proxy Statement
for alternative voting methods.
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CAPSTONE TURBINE CORPORATION
21211 Nordhoff Street
Chatsworth, California 91311
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To Be Held May 30, 2002
The Capstone Turbine Corporation ("Capstone") Annual Meeting of
Stockholders (the "Annual Meeting") will be held at Radisson Hotel Chatsworth,
9777 Topanga Canyon Blvd., Chatsworth, California, 91311, on May 30, 2002, at
9:00 a.m., Pacific Daylight Time for the following purposes:
1. To elect seven members of Capstone's Board of Directors to serve until
the next Annual Meeting and until their successors have been elected and
qualified;
2. To approve an amendment to Capstone's 2000 Equity Incentive Plan to
increase the number of authorized shares of Common Stock by 400,000
shares; and
3. To transact any other business that is properly brought before the
Annual Meeting or any adjournment or postponement thereof.
The foregoing items of business are more fully described in the
accompanying Proxy Statement. The Board of Directors has fixed the close of
business on April 10, 2002 as the record date for determining stockholders
entitled to notice of, and to vote at, the Annual Meeting or any adjournments
or postponements thereof. We will make a list of stockholders available for
examination for the ten days prior to the Annual Meeting at Capstone's
principal executive offices.
Whether or not you plan to attend the Annual Meeting, please complete,
sign, date and return the enclosed proxy promptly in the accompanying reply
envelope. We are soliciting the enclosed proxy on behalf of the Board of
Directors of Capstone for use at our 2002 Annual Meeting of Stockholders. The
Board of Directors of Capstone recommends that stockholders vote FOR the
matters listed above. If your shares are held in a bank or brokerage account,
you may be eligible to vote your proxy electronically or by telephone. Please
refer to the attached Proxy Statement, which forms a part of this Notice and is
incorporated herein by reference, for further instructions and information with
respect to the business to be transacted at the Annual Meeting.
Please note that space limitations make it necessary to limit attendance
to stockholders. Admission to the meeting will be on a first-come, first-serve
basis. Registration will begin at 8:00 a.m., and seating will begin at 9:00
a.m. Each stockholder maybe asked to present valid picture identification, such
as a driver's license or passport. Stockholders holding stock in brokerage
accounts will need to bring a copy of a brokerage statement reflecting stock
ownership as of the record date. Cameras, recording devices and other
electronic devices will not be permitted at the Annual Meeting.
All stockholders are cordially invited to attend the Annual Meeting.
By Order of the Board of Directors
/s/ Susan N. Cayley
------------------------------------------
Susan N. Cayley
Secretary
Chatsworth, California
April 30, 2002
CAPSTONE TURBINE CORPORATION
21211 Nordhoff Street
Chatsworth, California 91311
PROXY STATEMENT
FOR ANNUAL MEETING OF STOCKHOLDERS
To Be Held May 30, 2002
Information About the 2002 Annual Meeting
On behalf of our Board of Directors, we are soliciting proxies from
holders of Capstone Turbine Corporation's ("Capstone") issued and outstanding
shares of common stock, par value $.001 per share ("Common Stock"), for use at
our 2002 Annual Meeting of Stockholders (the "Annual Meeting"), which will be
held at Radisson Hotel Chatsworth, 9777 Topanga Canyon Blvd., Chatsworth,
California 91311, at 9:00 a.m. Pacific Daylight Time on May 30, 2002, and any
adjournment or postponements thereof. The specific proposals to be considered
and acted upon at the Annual Meeting are summarized in the accompanying Notice
of Annual Meeting of Stockholders. Each proposal is described more fully in
this Proxy Statement.
Voting Procedures
If you were a stockholder of record at the close of business on April 10,
2002, you are entitled to notice of, and to vote at, the Annual Meeting. At
that date, 77,407,593 shares of Common Stock were outstanding. Each stockholder
of record on April 10, 2002 is entitled to one vote for each share of Common
Stock held by such stockholder on that date. All other matters submitted for
stockholder approval at the Annual Meeting will be decided by the affirmative
vote of a majority of shares present in person or represented by proxy at the
Annual Meeting and entitled to vote on each matter. With regard to the election
of directors, votes may be cast in favor of or withheld for each nominee; votes
that are withheld will be excluded entirely from the vote and will have no
effect.
A majority of the Company's Common Stock entitled to vote will constitute
a quorum for the transaction of business at the Annual Meeting. Abstentions may
be specified on all proposals except the election of directors. Abstentions and
broker non-votes are counted as being present for purposes of determining a
quorum. If shares are not voted by the broker who is the record holder of the
shares, or if shares are not voted in other circumstances in which proxy
authority is defective or has been withheld with respect to any matter, these
non-voted shares are not deemed to be present or represented for purposes of
determining whether stockholder approval of that matter has been obtained.
A copy of Capstone's fiscal 2001 Annual Report to stockholders and this
Proxy Statement and accompanying proxy card will be first mailed to
stockholders on or about April 30, 2002. The 2001 Annual Report to stockholders
includes Capstone's audited financial statements.
Voting Rights and Procedures
A proxy card is enclosed for your use. You are solicited on behalf of the
Board of Directors to sign, date and return the proxy card at or before the
meeting. Concerning the election of directors, you may: (a) vote for all of the
director nominees as a group; (b) withhold authority to vote for all director
nominees as a group; or (c) vote for all director nominees as a group except
those nominees you identify on the appropriate line.
Your vote is important. Accordingly, you are urged to sign, date and
return the accompanying proxy card whether or not you plan to attend the Annual
Meeting in person.
You may revoke your proxy at any time before it is actually voted at the
Annual Meeting by: (a) delivering written notice of revocation to the Secretary
of Capstone at our address above, (b) submitting a later dated proxy, or (c)
attending the Annual Meeting and voting in person. Attendance at the Annual
Meeting will not, by itself, constitute revocation of the proxy. You may also
be represented by another person present at the Annual Meeting by executing a
form of proxy designating such person to act on your behalf.
1
Each unrevoked proxy card properly signed and received prior to the close
of the Annual Meeting will be voted as indicated. Unless otherwise specified on
the proxy or if no instruction is given on the proxy, the shares represented by
a signed proxy card will be voted FOR each of the nominees of the Board of
Directors (Proposal No. 1), FOR the amendment to increase the number of
authorized shares of Common Stock of the 2000 Equity Incentive Plan by 400,000
shares (Proposal No. 2) and in the discretion of the proxy holders as to any
other matters that may properly come before the Annual Meeting.
We are not aware of any matter that will be brought before the Annual
Meeting other than those described in this proxy statement. If any other matter
is properly brought before the Annual Meeting or any adjournment or
postponement of the Annual Meeting in accordance with our bylaws, the persons
named as your proxy will be authorized by the proxy card to vote the shares
represented by that proxy card in accordance with their best judgment.
Votes cast at the Annual Meeting will be tabulated by the persons
appointed by Capstone to act as inspectors of election for the Annual Meeting.
Voting Electronically via the Internet or by Telephone
Stockholders whose shares are registered in their own names may choose to
vote either via the Internet or by telephone. Specific instructions to be
followed by any registered stockholder interested in voting via Internet or by
telephone are set forth on the enclosed proxy card. Submitting your proxy via
the Internet will not affect your right to vote in person should you decide to
attend the Annual Meeting. The Internet and telephone voting procedures are
designed to authenticate the stockholder's identity and to allow stockholders
to vote their shares and confirm that their voting instructions have been
properly recorded. Votes submitted by telephone or the Internet must be
received by 1:00 p.m. Pacific Daylight Time (4:00 p.m. Eastern Standard Time)
on May 29, 2002.
A large number of banks and brokerage firms are participating in the ADP
Investor Communication Services online program. This program provides eligible
stockholders the opportunity to vote via the Internet or by telephone. If your
bank or brokerage firm is participating in ADP's program, your proxy card will
provide instructions and you may vote such shares via the Internet at ADP's
voting web site (www.proxyvote.com). If your proxy card does not reference the
Internet or telephone information, please complete and return the proxy card in
the self-addressed, postage paid envelope provided.
Solicitation of Parties
We will pay the expense of soliciting proxies and the cost of preparing,
assembling and mailing material in connection with the solicitation of proxies.
In addition to the use of the mail, our directors, officers or employees may
solicit proxies by telephone, facsimile or other means. These individuals will
not receive any additional compensation for these efforts.
Capstone's executive offices are located at 21211 Nordhoff Street,
Chatsworth, California 91311, telephone (818) 734-5300.
Independent Public Accountants
Representatives of Deloitte & Touche LLP, independent public accountants
for Capstone for fiscal year 2001 and the current fiscal year, will be present
at the Annual Meeting, will have an opportunity to make a statement should they
wish to do so, and will be available to respond to appropriate questions.
Proposals of Stockholders for 2003 Annual Meeting
Stockholder proposals or nominations for director intended to be presented
at the 2003 Annual Meeting of stockholders must be received at Capstone's
executive offices no later than the close of business on December 31, 2002 to
be considered for inclusion in Capstone's proxy statement and form of proxy
used in connection with the 2003 Annual Meeting.
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In addition to the above requirement, stockholders who wish to present
proposals or nominations for director at next year's or any other Annual
Meeting must comply with our bylaws. Among other requirements, our bylaws
provide that any stockholder intending to present their proposal or nomination
for director at the 2003 Annual Meeting must provide the appropriate notice of
any proposal or nomination to our executive offices no later than the close of
business on December 31, 2002. The chairman of the meeting may refuse to
acknowledge the introduction of any stockholder proposal or nomination not made
in compliance with these procedures, our bylaws or any applicable laws. A copy
of our bylaws may be obtained by submitting a request to the Secretary at our
executive offices.
In accordance with Security and Exchange Commission rules, the person
named as your proxy will be permitted to vote the shares represented by that
proxy in his or her discretion if the appropriate notice of such proposal or
nomination is not received at Capstone's executive offices by December 31,
2002.
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The date of this proxy statement is April 30, 2002.
3
PROPOSAL NO. 1
ELECTION OF DIRECTORS TO THE BOARD OF DIRECTORS
Capstone's Board of Directors currently consists of seven members.
Pursuant to Capstone's certificate of incorporation, bylaws and resolutions
adopted by Capstone's Board of Directors, at each Annual Meeting each of the
seven directors are to be elected to hold office until the next Annual Meeting
of stockholders and until their respective successors are elected and
qualified.
Absent any instructions to the contrary, the accompanying proxy will be
voted in favor of the persons named below to serve as directors. The seven
nominees for director receiving the highest number of votes will be elected to
our Board of Directors. Management expects that each of the nominees will be
available for election, but if for unforeseen reasons (such as death or
disability) any of them is not a candidate at the time the election occurs,
your proxy may be voted for the election of another substitute nominee to be
designated by the Board of Directors.
The nominees for election are Ake Almgren, Richard Aube, Eliot Protsch,
John Jaggers, Jean-Rene Marcoux, John G. McDonald and Eric Young.
We will vote your shares as you specify when providing your proxy. If you
do not specify how you want your shares voted when you provide your proxy, we
will vote them for the election of all nominees.
The information below relating to the nominees for election as director
has been furnished to Capstone by the respective individuals.
Director
Nominees Age Since Positions and Offices Currently Held With Capstone
- -------- --- -------- ---------------------------------------------------
Ake Almgren .................. 55 2000 President, CEO and Chairman of the Board
Richard Aube(1) .............. 33 2000 Director
Eliot G. Protsch ............. 48 2002 Director
John Jaggers(2) .............. 51 1993 Director
Jean-Rene Marcoux(2) ......... 57 2000 Director
John G. McDonald(1) .......... 64 2001 Director
Eric Young(1) ................ 46 1993 Director
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(1) Member of Audit Committee.
(2) Member of Compensation Committee.
Ake Almgren. Dr. Almgren joined us in July 1998 as President and Chief
Executive Officer after a 26-year career at ASEA Brown Boveri Limited ("ABB"),
a worldwide power solutions company. While at ABB, Dr. Almgren held the
position of worldwide Business Area Manager for Distribution Transformers and
managed the operation of 36 plants in 28 countries. He also was President of
ABB Power T&D Company, President of ABB Power Distribution, and President of
ABB Power Systems during his tenure at ABB. In addition, Dr. Almgren has also
been President of Autoliv, an automotive restraint company. Dr. Almgren holds a
Ph.D. in Engineering from Linkopings Tekniska Hogskola in Sweden and a Masters
of Mechanical Engineering from the Royal Institute of Technology in Stockholm,
Sweden. He is a citizen of Sweden and has worked and lived in the United States
during the last ten years.
Richard Aube. Mr. Aube became our director in 2000. Mr. Aube is currently
a principal at JP Morgan Partners. From 1993 until 2000, Mr. Aube was a partner
at The Beacon Group, focusing on the firm's investment activities in the energy
sector. Prior to joining The Beacon Group, Mr. Aube was an investment banker in
the Natural Resources Group at Morgan Stanley & Co. Incorporated. Mr. Aube is a
director of Proton Energy Systems, a public company that designs, develops and
manufactures proton exchange membrane technology, and STM Power and Powercell
Corporation, each a private power technology company.
John Jaggers. Mr. Jaggers has been our director since 1993. Mr. Jaggers is
also a general partner of Sevin Rosen Funds, a venture capital firm managing a
several hundred million dollar portfolio. Mr. Jaggers joined Sevin Rosen Funds,
a current stockholder, in 1988 and is responsible for all legal, financial and
administrative aspects of the firm. Prior to joining Sevin Rosen Funds, Mr.
Jaggers spent eight years in the venture capital and corporate
4
financing activities of Rotan Mosle Inc., where he specialized in new
technologies and small, rapidly growing companies. Mr. Jaggers received his
Bachelors and Masters degrees in Electrical Engineering from Rice University.
He received his MBA from Harvard University.
Eliot G. Protsch. Mr. Protsch became our director in 2002. Mr. Protsch is
currently the President of Interstate Power and Light Co. for Alliant Energy
Corporation ("Alliant"). Mr. Protsch has been employed with Alliant, in various
capacities, since 1978. Mr. Protsch received his MBA and received his B.B.A. in
Economics and Finance from University of South Dakota and is a Chartered
Financial Analyst. He serves on the Board of Directors for American Family
Insurance Company (a Mutual Insurance Company), Nuclear Management Company (an
affiliate of Alliant Energy Corporation), the Iowa Utilities Association,
Cargill/Alliant LLC (a Joint Venture between Cargill, Incorporated and Alliant
Energy Corporation) and is Vice Chairman of the Iowa Business Council.
Jean-Rene Marcoux. Mr. Marcoux became our director in 2000. Mr. Marcoux
first joined Hydro-Quebec in 1969 and for over ten years occupied several
positions in IREQ, its research institute. Mr. Marcoux left IREQ in 1997 to
serve as President and Chief Executive Officer of Hydro-Quebec CapiTech and
General Manager Technology Marketing and Affiliates. Prior to that, he held
positions related to business development with GEC-Althom and ABB. Mr. Marcoux
serves on the Board of two publicly held companies, H. Power Canada and Azure
Dynamics, both companies develop and manufacture hybrid electric fuel systems
for commercial vehicles.
John G. McDonald. Mr. McDonald became our director in 2001. Mr. McDonald
is The IBJ Professor of Finance in the Graduate School of Business at Stanford
University. Since 1968 he has taught MBA courses and executive programs in
three broad subject areas: investment management, entrepreneurial
finance/private equity, and corporate finance all with a global perspective.
Professor McDonald serves as an independent director on the boards of directors
of Varian, Inc., Scholastic Corporation, Plum Creek Timber Co. Inc. and iStar
Financial Inc. He also serves as a director or trustee of eight investment
companies managed by Capital Research & Management Company.
Eric Young. Mr. Young has been our director since 1993. Mr. Young is a
cofounder of Canaan Partners, a venture capital investment firm, and has served
as a general partner since its inception in 1987. From 1979 to 1987, Mr. Young
held various management positions with General Electric Co. and G.E. Venture
Capital, a venture capital investment firm and subsidiary of General Electric.
Mr. Young is also a director of Filanet, Inc., eBates Shopping, Inc., OnDemand,
Inc., and Notiva Corporation. Mr. Young holds an MBA from Northwestern
University and a Bachelor of Science in Mechanical Engineering from Cornell
University.
Board of Directors and Committees
Board of Directors
The Board of Directors of Capstone met five (5) times during fiscal year
2001. No incumbent director attended fewer than 75% of the total number of
meetings of the Board of Directors and committees of the Board of Directors on
which he served. We have an Audit Committee and a Compensation Committee of our
Board of Directors. We do not have a Nominating Committee.
Audit Committee
The Audit Committee consists of Messrs. Aube, McDonald and Young. Pursuant
to the charter of the Audit Committee, the functions of the Audit Committee
include: (a) monitoring and overseeing Capstone's financial reports and
accounting practices, (b) annually recommending to the Board of Directors the
independent public accountants as auditors of the books, records and accounts
of Capstone, and (c) monitoring the scope of audits made by the independent
public accountants and the audit reports submitted by the independent public
accountants. During fiscal year 2001, the Audit Committee held five (5)
meetings. Each member of the Audit Committee is considered an "independent
director" as defined by the National Association of Securities Dealers rules.
Mr. Aube serves as the chair of the Audit Committee.
5
Compensation Committee
The Compensation Committee consists of Messrs. Jaggers and Marcoux. As
directed by the Board of Directors, the functions of the Compensation Committee
include ensuring that the officers and management personnel of Capstone are
compensated in terms of salaries, supplemental compensation and benefits in a
manner that is internally equitable and externally competitive, and
administering the following benefit plans of Capstone: the 1993 Incentive Stock
Option Plan, 2000 Employee Stock Purchase Plan, and 2000 Equity Incentive Plan.
During fiscal year 2001, the Compensation Committee held one (1) meeting. Mr.
Jaggers is the chair of the Compensation Committee. In October, 2001 Mr. Ben
Rosen resigned from the Compensation Committee and Mr. Marcoux was appointed to
the Compensation Committee.
Compensation Committee Interlocks and Insider Participation
During 2001, Messrs. Jaggers, Marcoux and Rosen served on our Compensation
Committee. None of the members were, or have been an officer or employee of
Capstone or any of its subsidiaries. None of the members have had a direct or
indirect interest in any transaction or series of transactions with Capstone or
any of its subsidiaries where the amount involved exceeds $60,000. None of the
members are or have been a director or member of the compensation committee of
another entity, one of whose executive officers serves or has served on the
Compensation Committee of Capstone. In addition, none of the members are or
have been a member of the compensation committee of another entity, one of
whose executive officers is or has been a director of Capstone.
Director Compensation
Directors who are non-employee directors receive compensation for their
services as directors as set forth below. Dr. Almgren, our sole employee
director, receives no separate compensation for his service on our Board of
Directors. In addition, all directors are reimbursed for the expenses they
incur in attending the board or committee meetings.
Non-employee directors are eligible to participate in our 2000 Equity
Incentive Plan, as amended (the "2000 Equity Plan"). Under the 2000 Equity
Plan, our non-employee directors were granted initial stock options to purchase
21,600 shares of our Common Stock on the date of our initial public offering.
The 2000 Equity Plan provides that the Board may grant to a non-employee
director who joins the Board of Directors after our initial public offering, on
his or her initial election to the Board of Directors, an initial stock option
to purchase 21,600 shares of our Common Stock. The 2000 Equity Plan further
provides that the Board of Directors may grant subsequent stock options to our
non-employee directors to purchase 21,600 shares of our Common Stock on the
date of the first Annual Meeting of our stockholders that occurs in every third
year after the non-employee director's initial grant and at which the
non-employee director is reelected to our Board of Directors. The initial and
subsequent stock options granted to our non-employee directors vest, in three
equal installments over three years, based upon continuing service as a
director.
The 2000 Equity Plan provides that a non-employee director may elect, in
advance of being granted an initial or a subsequent stock option, to receive in
lieu of the option (or any portion of the option) cash compensation in the
amount of $5.56 for each share of Common Stock that the non-employee director
elects not to receive, with the aggregate amount of this cash compensation to
be paid in quarterly installments, in arrears, over three years, subject to
continuing service as a director. Any such election made by a non-employee
director to receive cash compensation must be made in writing, must be
delivered to the Board of Directors, and will be irrevocable once made.
Mr. McDonald elected to be compensated with cash compensation in lieu of
options. Mr. McDonald's period of Board service commenced on April 4, 2001, and
therefore he was paid the pro-rated amount of $30,000 during fiscal 2001.
Mr. Protsch's period of Board service commenced on April 9, 2002, and Mr.
Protsch received an initial stock option grant to purchase 21,600 shares of our
Common Stock on that date at an exercise price of $3.35. The fair market value
of such Common Stock on the date of grant was equal to the exercise price per
share.
6
Employee directors are eligible to participate in our 2000 Employee Stock
Purchase Plan (the "2000 Purchase Plan"), as long as they meet eligibility
requirements, including not owning, immediately after an option is granted
under the 2000 Purchase Plan, 5% or more of the voting power of all classes of
stock.
Required Vote for Approval and Recommendation of the Board of Directors
The seven nominees for director receiving the highest number of votes will
be elected to our Board of Directors.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE FOR
THE ELECTION OF THE CANDIDATES NOMINATED BY THE BOARD OF DIRECTORS. A PROPERLY
EXECUTED PROXY WILL BE VOTED FOR THE ELECTION OF THESE NOMINEES UNLESS YOU
DESIGNATE OTHERWISE.
7
PROPOSAL NO. 2
AN AMENDMENT TO CAPSTONE'S 2000 EQUITY INCENTIVE PLAN
General
On March 5, 2002, the Board of Directors approved an amendment to the
Capstone Turbine Corporation 2000 Equity Incentive Plan, as amended (the "2000
Equity Plan"), to increase the number of shares of Capstone's Common Stock
available for grant under the 2000 Equity Plan by 400,000 (the "Amendment").
The 2000 Equity Plan was adopted by the Board of Directors on June 19, 2000,
was approved by Capstone's stockholders as a successor to Capstone's 1993
incentive stock plan (the "1993 Plan"), and to date has been amended twice. In
general, the 2000 Equity Plan provides incentives to selected employees,
directors and consultants of Capstone. Currently, the 2000 Equity Plan provides
for awards of up to 3,300,000 shares of common stock, plus the number of shares
previously authorized and that remained available under the 1993 Plan as of the
closing of our initial public offering, plus any shares covered by options
granted under the 1993 Plan that are forfeited or expire unexercised. As of
April 10, 2002, options to purchase an aggregate of 5,676,277 shares of Common
Stock at prices ranging from $0.17 to $45.06 were outstanding under the 2000
Equity Plan, leaving only 1,909,315 shares available for future grants. On
April 10, 2002, the closing price of a share of Capstone's Common Stock on the
Nasdaq National Market was $3.33. The Board of Directors believes that to
continue to attract and retain qualified employees, directors and consultants,
Capstone will need to continue to grant options and other awards to these
individuals to help align their interests with those of Capstone's stockholders
generally.
The Stockholders are being asked to approve the 2000 Equity Plan as modified by
the Amendment. If Proposal 2 is not approved, the 2000 Equity Plan will
continue in effect without the modifications contained in the Amendment.
The following is a description of the material provisions of the 2000
Equity Plan. The summary that follows is not intended to be complete and
reference should be made to the 2000 Equity Plan for a complete statement of
its terms and provisions. A copy of the 2000 Equity Plan may be obtained by
writing to the Secretary of Capstone at 21211 Nordhoff Street, Chatsworth,
California 91311, telephone (818) 734-5300.
Purposes of the 2000 Equity Plan
The purposes of the 2000 Equity Plan are to attract and retain the best
available personnel for positions of substantial responsibility, to provide
additional incentive to employees, directors and consultants and to promote the
success of Capstone's business.
Eligibility and Awards Under the Plan
The 2000 Equity Plan provides for the discretionary grant of awards to
employees, consultants and members of the Board of Directors. These awards can
be incentive stock options (as defined in Section 422 of the Internal Revenue
Code), nonstatutory stock options (that is, options that do not meet the
definition of incentive stock options), stock purchase rights, stock bonus
rights and grants of Common Stock in the form of stock bonuses.
Director Options
Under the 2000 Equity Plan, our non-employee directors were granted
initial stock options to purchase 21,600 shares of our Common Stock on the date
of our initial public offering. The 2000 Equity Plan provides that the Board
may grant to a non-employee director who joins the Board of Directors after our
initial public offering, on his or her initial election to the Board of
Directors, an initial stock option to purchase 21,600 shares of our Common
Stock.
The 2000 Equity Plan further provides that the Board of Directors may
grant subsequent stock options to our non-employee directors to purchase 21,600
shares of our Common Stock on the date of the first Annual Meeting of our
stockholders that occurs in every third year after the non-employee director's
initial grant and at which the non-employee director is reelected to our Board
of Directors. The initial and subsequent stock options granted to
8
our non-employee directors vest, in three equal installments over three years,
based upon continuing service as a director. These options will have an
exercise price equal to the fair market value of the common stock on the grant
date, and a term of 10 years, subject to earlier expiration in connection with
termination of service.
The 2000 Equity Plan provides that a non-employee director may elect, in
advance of being granted an initial or a subsequent stock option, to receive in
lieu of the option (or any portion of the option) cash compensation in the
amount of $5.56 for each share of common stock that the non-employee director
elects not to receive, with the aggregate amount of this cash compensation to
be paid in quarterly installments, in arrears, over three years, subject to
continuing service as a director. Any such election made by a non-employee
director to receive cash compensation must be made in writing, must be
delivered to the Board of Directors, and will be irrevocable once made.
Administration
Our Board of Directors or a committee of board members may administer the
2000 Equity Plan. The 2000 Equity Plan is administered by a committee composed
of two or more independent directors. The administrator determines the terms of
the options or other awards granted, including when they vest or may be
exercised, the exercise price, the number of shares subject to each option or
other award (but not to exceed 3,000,000 per year per participant), and the
forms of payment permitted upon exercise.
Amendment and Termination
The Board of Directors may amend, suspend or terminate the 2000 Equity
Plan, except that no action may affect any share of Common Stock previously
issued and sold or any option previously granted under the 2000 Equity Plan
without the holder's consent. In addition, stockholder approval is generally
required for the Board of Directors to increase the number of shares that may
be issued under the 2000 Equity Plan. However, no stockholder approval is
required in case of a merger, recapitalization, spin-off, stock split,
dissolution, disposition of substantially all of our assets, or other
transaction or event involving a change in our capital structure. In these
cases, the board also has discretion to adjust the exercise price of any option
or stock purchase right, as well as, to adjust the number and kind of shares
for which options or stock purchase rights may be granted or which are subject
to outstanding options, stock purchase rights or restricted stock.
Payment for Shares and Other Terms and Conditions of Awards
For any participant who owns stock possessing more than 10% of the voting
power of all classes of our outstanding capital stock, the per share exercise
price of a stock option must equal at least 110% of the fair market value of a
share of Common Stock on the grant date. However, the maximum term of a stock
option granted to such a participant differs depending upon the type of option:
If it is an incentive stock option the term must not exceed five years, but if
it is a nonstatutory stock option the term may not exceed 10 years. For all
other participants, the term of all other options granted under the 2000 Equity
Plan may not exceed 10 years, and the per share exercise price must equal
o at least 100% of the fair market value of a share of Common Stock on the
grant date, if the option is an incentive stock option, or
o at least 85% of the fair market value of a share on the grant date if the
option is a nonstatutory stock option. However, pursuant to a merger or
other corporate transaction, options may be granted with an exercise price
different from those set forth above.
The consideration to be paid for the shares to be issued upon exercise of
an option, including the method of payment, will be determined by the
administrator (and, in the case of an incentive stock option, will be
determined at the time of grant). Such consideration may consist of cash or
check, or, in certain circumstances and with the consent of the administrator,
with shares of Common Stock owned by the optionee or issuable to the optionee
upon exercise of the option, or a full recourse promissory note of the
optionee, or other property which constitutes good and valuable consideration,
or a combination of such forms of consideration as provided in the 2000 Equity
Plan.
9
Each share received by Capstone in payment of the purchase price will be valued
at its fair market value on the date of surrender.
Options and other awards granted under the 2000 Equity Plan generally are
subject to vesting conditions relating to continued service to Capstone.
Vesting conditions customarily provide that the award becomes exercisable over
time in stages corresponding to length of service as an employee, director or
consultant. Options and other awards generally are not transferable by the
optionee. Options granted under the 2000 Equity Plan generally must be
exercised within three months after the end of the optionee's status as an
employee, director or consultant, or within one year in case of disability or
death. If an optionee's status as an employee, director or consultant is
terminated for cause, the option terminates immediately.
The 2000 Equity Plan provides for the grant of stock purchase rights and
stock bonus rights. Stock purchase rights permit the grantee to enter into an
agreement with us to purchase restricted stock, subject to vesting conditions
relating to continued service. Unless the plan administrator determines
otherwise, the restricted stock purchase agreement will give us the option to
repurchase the restricted shares upon the voluntary or involuntary termination
of the purchaser's employment or consulting relationship with our company for
any reason, including death or disability. We intend that the restricted stock
purchase agreement will provide that this repurchase right would apply only to
the shares covered by the unvested portion of the purchaser's stock purchase
right. The purchase price for shares repurchased pursuant to a restricted stock
purchase agreement, and the rate at which the repurchase right lapses will be
determined by the administrator and set forth in the restricted stock purchase
agreement. We intend that the restricted stock purchase agreement provide that
the purchase price for such repurchased shares would be the original price paid
by the purchaser.
The 2000 Equity Plan also provides for stock bonuses, which are grants of
Common Stock that may be granted as compensation or as bonuses. A person who is
offered a stock purchase right, stock bonus right or stock bonus under the 2000
Equity Plan will be advised in writing of the terms and conditions related to
the offer, including the number of shares that the person will be entitled to
receive, the price to be paid (if any), the time within which the person must
accept the offer. An offer of a stock purchase right or stock bonus right will
be accepted by execution of a restricted stock purchase agreement. In the case
of a stock bonus, the offeree will be advised of the manner of acceptance of
the offer.
Mergers
If we merge with another corporation, the administrator may, but is not
required to, elect to accelerate the vesting of each outstanding option and
other award. In a merger, the surviving corporation may assume any outstanding
options or other awards or may substitute similar stock awards, without
accelerating the vesting of outstanding awards. If the surviving corporation
does not assume or substitute for outstanding options and other awards, then:
(1) for participants whose service has not been terminated prior to the
merger, awards will become fully vested and exercisable and all
restrictions on those awards will lapse at least 10 days before the
merger closes, and
(2) for other participants, outstanding awards will terminate if not
exercised before the merger closes.
If the surviving corporation does assume or substitute for outstanding
awards, then a participant's awards will become immediately fully vested and
exercisable if, within nine months after the merger one of the following
occurs:
(1) the surviving corporation terminates the participant's employee or
director status without cause, or
(2) an employee terminates employment either because the employee's
principal work location moves more than 50 miles from the employee's
existing work location or because there is a material reduction in the
employee's responsibilities.
10
General Federal Income Tax Consequences
In general under current federal laws, participants in the 2000 Equity
Plan who receive nonstatutory stock options and stock payments (such as in the
form of stock bonuses) generally are taxable upon receipt of common stock with
respect to those awards or grants. Subject to limitations under section 162(m)
of the Internal Revenue Code ("the Code"), discussed further below, we will be
entitled to a corporate income tax deduction for the amounts taxable to those
recipients. There are no tax consequences to the recipient or to us upon the
grant of a nonstatutory stock option. If a recipient of incentive stock options
exercises those options and then holds those options and option stock for
certain minimum holding periods, he generally has no taxable income on the
receipt of common stock, and we are not entitled to a deduction. A recipient of
restricted stock generally will not recognize taxable income upon the issuance
of the restricted stock and we generally will not then be entitled to a
deduction, unless an election is made under Section 83(b) of the Code. If no
election is made under Section 83(b), then when restrictions on the shares
lapse, such that the shares are no longer subject to a substantial risk of
forfeiture, the recipient generally will recognize ordinary income, and we
generally will be entitled to a deduction, for an amount equal to the excess of
the fair market value of the shares at the date such restrictions lapse over
the purchase price. However, if an election is made under Section 83(b), the
recipient generally will recognize ordinary income at the date of issuance
equal to the excess, if any, of the fair market value of the shares at that
date over the purchase price, and we will be entitled to a deduction for the
same amount. Participants in the 2000 Equity Plan will be provided with
detailed information regarding the tax consequences relating to the various
types of awards and grants under the plan.
Section 162(m) Limitation
In general, under section 162(m) of the Internal Revenue Code, income tax
deductions of publicly held corporations may be limited to the extent total
compensation for certain executive officers in any one year exceeds $1,000,000
(less any excess parachute payments as defined in section 280G of the Internal
Revenue Code). For purposes of this general rule, total compensation includes
base salary, annual bonus, stock option exercises and non-qualified benefits
paid. However, under section 162(m), the deduction limit does not apply to
certain performance-based compensation established by an independent
compensation committee which is adequately disclosed to, and approved by,
stockholders. In particular, stock options will satisfy the performance-based
compensation exception if the awards are made by a qualifying compensation
committee, the plan sets the maximum number of shares any person can be granted
within a specified period, and the compensation is based solely on an increase
in the stock price after the grant date (that is, the option exercise price is
at least equal to the fair market value of the stock subject to the award on
the grant date). Rights or awards other than options will not qualify as
performance-based compensation for these purposes unless the rights or awards
are granted or vest upon preestablished objective performance goals whose
material terms are disclosed to and approved by the stockholders.
Under a transition rule for compensation plans of corporations which are
privately held and which become publicly held in an initial public offering,
the 2000 Equity Plan will not be subject to section 162(m) until the earlier of
(1) the material modification of the 2000 Equity Plan; (2) the issuance of all
employer stock and other compensation that has been allocated under the 2000
Equity Plan; or (3) the first meeting of stockholders at which directors are to
be elected that occurs after December 31, 2003. The Amendment constitutes a
material modification of the 2000 Equity Plan for purposes of this rule.
Accordingly, other than stock options granted under the conditions described in
the preceding paragraph, future grants under the 2000 Equity Plan as amended by
the Amendment will not qualify as performance-based compensation under section
162(m).
Based on current law, we have attempted to structure the 2000 Equity Plan
so that after December 31, 2003, the remuneration attributable to stock options
which meet the other requirements of section 162(m) will not be subject to the
$1,000,000 limitation. We have not, however, requested a ruling from the IRS or
an opinion of counsel regarding this issue.
11
Reason for the Amendment to the 2000 Equity Plan
As of April 10, 2002, approximately 1,900,000 shares remained available
for future awards under the 2000 Equity Plan. The Board has determined that it
is advisable to continue to provide stock-based incentive compensation to
selected Capstone employees, directors and consultants to continue to align
their interests with those of the stockholders generally, that awards under the
2000 Equity Plan are an effective means of providing such compensation, and
that this will require the addition of shares to the 2000 Equity Plan as
provided for by the Amendment.
New Plan Benefits
The future number, amount and type of awards to be received by or
allocated to eligible participants under the 2000 Equity Plan, as amended by
this proposal, cannot be determined at this time. Awards with respect to the
400,000 shares proposed to be added to the 2000 Equity Plan will be made in the
future based on decisions made by the Compensation Committee at such time.
Capstone believes that the awards that were made in 2001 would not have been
different had these additional 400,000 shares then been available under the
2000 Equity Plan.
Required Vote for Approval and Recommendation of the Board of Directors
Approval of the Amendment requires the affirmative vote of a majority of
the shares of Common Stock present or represented and voting.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE FOR
THE APPROVAL OF THE AMENDMENT. A PROPERLY EXECUTED PROXY WILL BE VOTED FOR THE
APPROVAL OF THE AMENDMENT UNLESS YOU DESIGNATE OTHERWISE.
12
EXECUTIVE OFFICERS
The following information with respect to the executive officers of
Capstone as of March 28, 2002 was supplied by the respective individuals:
Name Age Position
- ---- --- --------
Ake Almgren ........... 55 President, Chief Executive Officer and Chairman of the Board
Norman Chambers ....... 52 Chief Operating Officer
Karen Clark ........... 41 Chief Financial Officer
William Treece ........ 61 Senior Vice President, Strategic Technology Development
Ake Almgren's biography appears under "Proposal No. 1 -- Election of
Directors to the Board of Directors."
Norman Chambers. Mr. Chambers joined us in 2001 as our Chief Operating
Officer. Previously, Mr. Chambers was at Petrocosm Corporation, a privately
held e-commerce business, serving as President and Chief Executive Officer from
April 2000 until he joined Capstone. Before joining Petrocosm, Mr. Chambers had
a 15-year career at the Halliburton Companies, a group of energy and oil
service companies, serving in several positions, including, Senior Vice
President of Halliburton Company. Mr. Chambers received his B.A. from
Springfield College and his M.B.A. from Boston College.
Karen Clark. Ms. Clark joined us in January 2002 as our Chief Financial
Officer. Prior to joining us, Ms. Clark was the Chief Financial Officer of
PacifiCorp. From 1998 to 2000, she served as Senior Vice President of Finance
at Sunbeam Corporation, a consumer products company. Before Sunbeam, Ms. Clark
was the VP of Finance at the Coleman Company, Inc., a consumer products
company. Ms. Clark is a Certified Public Accountant and Certified Management
Accountant. Ms. Clark has a B.S. from Montana State University.
William Treece. Mr. Treece joined us in 1997 as our Vice President of
Engineering and in 1998 became our Senior Vice President of Engineering. Mr.
Treece became our Senior Vice President, Strategic Technology Development, in
March 2000. Prior to joining us, Mr. Treece had a 24-year career with
Sundstrand Aerospace, a large aerospace company, where he held a number of
positions including Director of Engineering, Director of Operations, and
Director of Commercial Programs. During his career, Mr. Treece has worked on
all aspects of turbine development, manufacturing and marketing. He holds a
B.S. in Mechanical Engineering from Indiana Institute of Technology and has
done graduate work in engineering and business at the University of Southern
California and San Diego State University.
13
EXECUTIVE OFFICER COMPENSATION
The following table discloses compensation received for the prior three
fiscal years ended December 31, 2001, by the Chief Executive Officer and our
executive officers (the "Named Executive Officers").
Summary Compensation Table
Long-Term
Compensation
Awards
Annual Compensation(1) Securities
-------------------------- Underlying All Other
Name and Principal Position Year Salary ($) Bonus ($)(2) Options(3) Compensation
- --------------------------- ---- ----------- -------------- ------------- -------------
Ake Almgren ....................... 2001 351,346 -- 100,000 --
President, Chief Executive Officer 2000 275,000 150,000 150,000 --
and Chairman of the Board 1999 200,000 100,000 1,245,000 --
Jeffrey Watts (4) ................. 2001 192,072 -- 55,000 --
Senior Vice President Finance and 2000 164,000 -- 90,000 --
Administration, CFO and Secretary 1999 153,462 -- 285,300 --
William Treece .................... 2001 153,740 -- 25,000 --
Senior Vice President Strategic 2000 150,000 -- -- --
Technology Development 1999 146,338 -- 120,000 --
Norman Chambers (5) ............... 2001 49,615 -- 800,000 20,000
Chief Operating Officer
- ------------
(1) The aggregate amount of the perquisites and other personal benefits,
securities and property for each of the Named Executive Officers is less
than the lesser of $50,000 or 10% of such officer's total salary and
bonus.
(2) Unless otherwise noted, the amount for any year represents the amount
earned in that year, whether or not paid in a subsequent year. The amount
of any bonus was determined by the Compensation Committee of the Board of
Directors.
(3) Options to purchase an aggregate of 6,612,741 shares of Common Stock have
been granted to directors, executive officers and other employees of
Capstone and are currently outstanding. An additional 1,975,750 shares of
Common Stock are reserved for issuance under Capstone's 2000 Equity
Incentive Plan as of December 31, 2001.
(4) Mr. Watts resigned from Capstone in December 2001. As part of his
Separation and Consulting Agreement, 198,850 unvested options were vested
on January 4, 2002. The 198,850 options are included in the number of
securities underlying unexercisable options at December 31, 2001.
(5) Mr. Chambers joined Capstone on November 1, 2001. Mr. Chambers' other
compensation consisted of a relocation allowance.
14
Compensation Pursuant to Stock Options
The following table sets forth information relating to option grants in
fiscal year 2001 to the Named Executive Officers. No stock appreciation rights
were granted to the Named Executive Officers during the fiscal year.
Option Grants in Fiscal Year 2001
Individual Grants Potential Realizable
--------------------------------------------------------- Value at Assumed
Number of Percentage of Annual Rates of Stock
Securities Total Options Price Appreciation for
Underlying Granted to Exercise Option Term(2)
Options Employees Price Expiration --------------------------
Name Granted(#)(1) in Fiscal Year ($/Share) Date 5%($) 10%($)
- --------------------------- --------------- ---------------- ----------- ------------ ------------ ------------
Ake Almgren ............ 100,000 3.15 29.07 05/16/2011 1,828,197 4,633,009
Norman C. Chambers ..... 800,000 25.23 4.74 11/29/2011 2,384,768 6,043,471
Jeffrey Watts .......... 55,000 1.73 29.07 05/16/2011 1,005,508 2,548,155
William Treece ......... 25,000 0.79 29.07 05/16/2011 457,049 1,158,252
- ------------
(1) All options listed were granted pursuant to the 2000 Equity Incentive Plan.
Option exercise prices were at the fair market value per share when the
options were granted. The options have a term of 10 years and vest over 4
years. The exercise price and federal tax withholding may be paid in cash
or with shares of Capstone Common Stock already owned.
(2) Potential realizable values are based on assumed annual rates of return and
are included pursuant to the rules of the Securities and Exchange
Commission and do not represent a prediction of future stock price. Actual
stock prices will vary from time to time based upon market factors and
Capstone's financial performance. No assurances can be given that these
appreciation rates will be achieved.
Option Exercises and Fiscal Year End Option Values
The following table provides information on option exercises in fiscal
year 2001 by the Named Executive Officers and the value of such officers'
unexercised options at December 31, 2001. No stock appreciation rights were
exercised during the fiscal year, and no stock appreciation rights were
outstanding at the end of the fiscal year.
Number of Securities
Underlying Unexercised Value of Unexercised
Options at Fiscal In-the-Money Options
Shares Value Year End(#) at Fiscal Year End($)(2)
Acquired on Realized ----------------------------- -----------------------------
Name Exercise(#) ($)(1) Exercisable Unexercisable Exercisable Unexercisable
- ------------------------------- ------------- ------------ ------------- --------------- ------------- --------------
Ake Almgren ................ 50,000 154,000 1,365,938 739,062 6,326,704 2,915,348
Norman C. Chambers ......... 0 0 0 800,000 0 536,000
Jeffrey Watts (3) .......... 246,131 5,175,874 7,500 206,669 15,575 618,435
William Treece ............. 77,500 1,756,392 31,875 67,500 155,569 215,758
- ------------
(1) The value realized of shares acquired on exercise was determined by
subtracting the exercise price from the fair market value of the Common
Stock on the exercise date multiplied by the number of shares acquired on
exercise.
(2) Based upon the market price of $5.41 per share, which was the closing price
per share of Common Stock on the Nasdaq National Market on the last day of
Capstone's 2001 fiscal year, less the option exercise price per share.
(3) Mr. Watts resigned from Capstone in December 2001. As part of his
Separation and Consulting Agreement, 198,850 unvested options were vested
on January 4, 2002. The 198,850 options are included in the number of
securities underlying unexercisable options at December 31, 2001.
15
Termination of Employment and Change of Control Agreements
As of the end of fiscal year 2001, none of Capstone's executive officers
had employment agreements with the Company, and their employment could be
terminated at any time at the discretion of the Board of Directors. Dr. Almgren,
upon the termination of his employment, will be entitled to receive an amount
equaling the monthly rate of his base salary for the twenty-four months
following termination. Dr. Almgren's base salary is $350,000. Mr. Chambers, upon
termination of his employment, will be entitled to receive an amount equaling
the monthly rate of his base salary for the six month period following
termination. Mr. Chambers' base salary is $300,000.
The Board of Directors has adopted an accelerated vesting schedule with
respect to options granted to Dr. Almgren, our Chief Executive Officer and
Chairman of the Board of Capstone such that his options immediately vest upon
an acquisition of Capstone or an acquisition of 50% of the voting power or
economic interest of Capstone.
16
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information regarding the beneficial
ownership of Capstone's shares of Common Stock by: (i) each person known by
Capstone to be the beneficial owner of five percent or more of Capstone's
Common Stock, (ii) each director and each Named Executive Officer and (iii)
directors and such Named Executive Officers as a group as of April 10, 2002.
Capstone has relied upon information supplied by its directors and Named
Executive Officers and upon information contained in filings with the
Securities and Exchange Commission. The information set forth regarding the
owners of five percent or more of Capstone's Common Stock is based on Forms 13F
and 13G filed with the Securities and Exchange Commission, as of December 31,
2001.
Number of Shares
Names** Beneficially Owned (1) Percent Owned (2)
- ------------------------------------------------------------------ ------------------------ ------------------
Dr. Ake Almgren(3) ............................................... 1,735,391 2.19
Norman C. Chambers ............................................... 0 *
Karen Clark ...................................................... 1,096 *
William Treece(4) ................................................ 178,306 *
Richard Aube(5) .................................................. 1,663,118 2.10
John Jaggers(6) .................................................. 387,505 *
Jean-Rene Marcoux(7) ............................................. 1,122,676 1.42
John G. McDonald ................................................. 2,000 *
Eliot G. Protsch(8) .............................................. 1,466,486 1.85
Eric Young(9) .................................................... 60,430 *
Executive Officers and Directors as a group (10 persons) ......... 6,617,008 8.36
- ------------
* Less than 1%.
** Unless otherwise indicated, the address of each person listed is c/o
Capstone Turbine Corporation, 21211 Nordhoff Street, Chatsworth, California
91311.
(1) Except as indicated in the footnotes to this table and pursuant to
applicable community property laws, the persons named have sole voting and
investment power with respect to all shares of Common Stock. The number of
shares of Common Stock that such person or group had the right to acquire
on or within 60 days after April 10, 2002, including, but not limited to,
upon exercise of options.
(2) For each individual and group included in the table, percentage ownership
is calculated by dividing the number of shares beneficially owned by such
person or groups as described above by the sum of the 79,155,057 shares of
Common Stock outstanding on April 10, 2002 and the number of shares of
Common Stock that such person or group had the right to acquire on or
within 60 days of April 10, 2002, including but not limited to upon
exercise of options.
(3) Includes 1,662,813 shares that may be acquired upon exercise of stock
options.
(4) Includes 53,125 shares that may be acquired upon exercise of stock options.
(5) Includes 7,200 shares that may be acquired upon exercise of stock options.
(6) Includes 377,805 shares held by various venture capital partnerships
managed by Sevin Rosen Funds. Mr. Jaggers disclaims beneficial ownership of
such shares except to the extent of his pecuniary interest therein. Amount
also includes 2,500 shares held in a trust by Mr. Jaggers and 7,200 shares
that may be acquired upon exercise of stock options.
(7) Includes 1,115,476 shares held by Hydro-Quebec CapiTech, Inc. Mr. Marcoux
disclaims beneficial ownership of such shares except to the extent of his
pecuniary interest therein. Amount also includes 7,200 shares that may be
acquired upon exercise of stock options.
(8) Includes 1,464,286 shares held by Alliant Energy. Mr. Protsch disclaims
beneficial ownership of such shares except to the extent of his pecuniary
interest therein.
(9) Includes 53,230 shares held by the Canaan Partnership Funds. Mr. Young
disclaims beneficial ownership of such shares except to the extent of his
pecuniary interest therein. Amount also includes 7,200 shares that may be
acquired upon exercise of stock options.
17
AUDIT COMMITTEE REPORT*
The Audit Committee of our Board of Directors is composed of three
independent directors as required by the listing standards of the Nasdaq Stock
Market. The Audit Committee operates under a written charter adopted by the
Board of Directors. The members of the Audit Committee as of the date of the
Annual Meeting are Messrs. Richard Aube, John G. McDonald and Eric Young.
Our management is responsible for the integrity of the Company's financial
statements, as well as its accounting and financial reporting process,
principles and internal controls to assure compliance with accounting standards
and applicable laws and regulations. Our independent accountants have the
primary responsibility for performing an independent audit of our financial
statements and expressing an opinion as to the conformity of such financial
statements with generally accepted auditing standards and to issue a report on
its audit. Members of the Audit Committee are not professionally engaged in the
practice of auditing or accounting and are not experts in the fields of
accounting or auditing, including in respect of auditor independence. Members
of the Committee rely without independent verification on the information
provided to them and on the representations made by management and the
independent auditors. Accordingly, the Audit Committee's oversight does not
provide an independent basis to determine that management has maintained
appropriate accounting and financial reporting principles or appropriate
internal applicable laws and regulations. Furthermore, the Audit Committee's
considerations and discussions referred to below do not assure that the audit
of Capstone's financial statements are presented in accordance with generally
accepted accounting principles or that Deloitte & Touche LLP is in fact
'independent.' The role of the Audit Committee is to monitor and oversee those
processes on behalf of the Board of Directors. In addition, the Audit Committee
recommends to the Board of Directors the selection of our independent
accountants.
In this context, the Audit Committee has reviewed and discussed the
audited financial statements of Capstone contained in Capstone's Annual Report
on Form 10-K as of and for the year ended December 31, 2001 with management and
the independent auditors. The Audit Committee has discussed with the
independent auditors the matters required to be discussed by Statement on
Auditing Standards No. 61 (Communication with Audit Committees), as currently
in effect. In addition, the Audit Committee has received the written
disclosures and the letter from the independent auditors required by
Independence Standards Board Standard No. 1 (Independence Discussions with
Audit Committees), as currently in effect, and it has discussed with the
auditors their independence from Capstone.
In the performance of their oversight function, the members of the Audit
Committee necessarily relied upon the information, opinions, reports and
statements presented to them by management of the Company and by the
independent auditors. Based on the reports and discussions described above, the
Audit Committee recommended to the Board of Directors that the audited
financial statements be included in the Company's Annual Report on Form 10-K as
of and for the year ended December 31, 2001, for filing with the Securities and
Exchange Commission.
Submitted by the Audit Committee:
Richard Aube, Chairman
Eric Young
John G. McDonald
- ------------
* Notwithstanding anything to the contrary set forth in any of our filings
under the Securities Act of 1933 or the Securities Exchange Act of 1934, the
following report of the Audit Committee of our Board of Directors shall not
be incorporated by reference into any such filing and shall not otherwise be
deemed filed under either Act.
18
Fees Paid to Independent Auditor
The aggregate fees for professional services rendered by Deloitte & Touche
LLP, Capstone's independent auditor, are as follows:
2001
-------
Audit fees .................................................... $357,000(1)
Financial Information Design and Implementation Fees .......... 0(2)
All Other Fees ................................................ 273,000(3)
--------
$630,000
========
- ------------
(1) Includes the aggregate fees for professional services rendered by Deloitte
& Touche LLP for the audit of Capstone's annual financial statements for
the 2001 fiscal year and the reviews of the financial statements included
in Capstone's Quarterly Reports on Form 10-Q for the 2001 fiscal year.
(2) Includes the aggregate fees for professional services rendered by Deloitte
& Touche LLP for the provision of information technology services of the
type described in Rule 2-01(c)(4)(ii) of Regulation S-X during the 2001
fiscal year.
(3) Includes the aggregate fees for services rendered by Deloitte & Touche LLP,
other than fees for the services which must be reported under "Audit Fees"
and "Financial Information Systems Design and Implementation Fees," during
the 2001 fiscal year, including audit related services of approximately
$12,000. Audit related services include fees for consent required to be
filed with the Securities and Exchange Commission in connection with
registration statements and for the audit of employee benefit plan.
Non-audit services include primarily fees for tax consultations and tax
preparation.
The Audit Committee of our Board of Directors has considered whether the
provision of the information technology services and non-audit services is
compatible with maintaining the independence of Deloitte & Touche LLP.
19
COMPENSATION COMMITTEE
REPORT ON EXECUTIVE COMPENSATION*
Capstone's executive compensation policy is to offer a package including a
competitive salary, an incentive bonus based upon Company and individual
performance goals and a competitive benefits package. The Compensation
Committee's goal is to develop, administer and monitor the executive
compensation plans and programs of Capstone and to determine the appropriate
executive compensation levels that will enable Capstone to attract and retain
qualified executives.
General Policies Regarding Compensation of Executive Officers
In establishing compensation for executive officers, the Committee seeks
to:
o Attract and retain individuals of superior ability and managerial
talent;
o Ensure senior officer compensation is aligned with Capstone's corporate
strategies, business objectives as well as the long-term interests of
Capstone's stockholders;
o Increase the incentive to achieve key strategic and financial performance
measures by linking annual incentive award opportunities to the
achievement of specific performance goals in these areas; and
o Enhance the incentive to maximize stockholder value, as well as enhance
the opportunities for retention of key people, through providing a portion
of the total compensation opportunities for senior officers in the form of
restricted stock or stock options.
Determination of Compensation of Executive Officers for the Year 2001
Capstone's 2001 compensation decisions were made with a view toward
furthering the foregoing compensation objectives and in light of Capstone's
2001 performance. In determining the total amount of cash compensation paid to
its senior executive officers, the Committee evaluated the following in
determining the desired positioning of Capstone relative to the market, as well
as the desired mix of base salary, annual incentives and long-term compensation
opportunities:
o Performance of Capstone for 2001 as compared to other high technology
companies;
o Performance of Capstone for 2001 as compared to its performance targets;
o The current economic environment of the distributed power generation
industry in general.
To these ends, Capstone's executive compensation package consists of a
fixed base salary and incentive compensation, including cash bonuses and
stock-based long-term incentive awards.
Base Salary. Salary levels of executive officers are established after a
review of companies comparable to Capstone. Individual base salaries are
reviewed at least annually and salary increases are granted based on each
executive's performance. Other subjective features are considered, such as the
individual's experience and performance.
Incentive Compensation. Capstone's incentive compensation includes annual
bonuses and long-term compensation and is designed to motivate all employees by
linking such compensation awards to the achievement of performance benchmark
goals. An executive officer's annual bonus is based upon a combination of
performance factors, primarily overall corporate performance.
For 2001, overall corporate goals were measured on the basis of achieving
targeted operations, development, financing and stockholder return objectives.
These objectives included completed research and development,
- ------------
* Notwithstanding anything to the contrary set forth in any of our filings
under the Securities Act of 1933 or 1934 Act, the following report of the
Compensation Committee of our Board of Directors shall not be incorporated
by reference into any such filing and shall not otherwise be deemed filed
under either Act.
20
execution of specific operations and marketing strategies and contributions to
total stockholder return. Individual performance measures are assessed in a
subjective manner based upon each individual's annual goals.
Long-term compensation comprised of stock options gives key employees the
opportunity to participate in the appreciation of Capstone's Common Stock. The
members of the Committee believe that share performance, over the long term,
will reflect executive performance and that such arrangements further reinforce
management goals and incentives to achieve stockholder objectives, including
increasing Capstone's stock price and, therefore, the return to Capstone's
stockholders.
In granting stock-based awards, the Committee takes into account such
factors as it determines to be appropriate under the circumstances, including
an assessment of the senior officer's achieved performance goals and
objectives, the extent of an executive officer's equity ownership in Capstone
and the amount and value of long-term compensation and stock-based compensation
received by similarly situated executive officers at similar and competitor
companies. Stock options are granted at 100% of the stock's fair market value
on the grant date. Capstone granted stock options to its executive officers
during 2001.
Chief Executive Officer Compensation. The compensation of Dr. Ake Almgren
for the year ended December 31, 2001 was determined on the same general basis
as discussed above. In determining the total amount of cash compensation paid
to Dr. Almgren, the Committee evaluated the following:
o Performance of Capstone for 2001 as compared to other high technology
companies;
o Performance of Capstone for 2001 as compared to its performance targets;
o The current economic environment of the distributed power generation
industry in general.
Specifically, the Compensation Committee established Dr. Almgren's total
compensation to be commensurate with the compensation of CEO's of comparable
high technology companies. Dr. Almgren's compensation, therefore, included a
fixed and a variable portion. Dr. Almgren's base salary was set at $350,000, and
he was eligible to receive a $175,000 performance bonus, which was tied to
financial, operational and organizational targets. However, because the targets
were not met, Dr. Almgren did not earn any bonus for fiscal year 2001. In
addition for the 2001 fiscal year, Dr. Almgren received an option grant to
purchase 100,000 shares of Capstone's Common Stock.
Limitation on Deductibility of Executive Compensation
Section 162(m) of the Internal Revenue Code of 1986, as amended, limits
the deductibility of compensation paid to certain executive officers of
Capstone to the extent that the compensation exceeds $1.0 million in any
taxable year. Compensation in excess of $1.0 million per year paid to those
persons who are executive officers at the end of the fiscal year generally must
be "performance-based" compensation as determined under Section 162(m) in order
to be fully deductible by Capstone. The Committee generally intends to comply
with the requirements for full deductibility of executive compensation under
Section 162(m). However, the Compensation Committee will balance the costs and
burdens involved in such compliance against the value to Capstone and its
stockholders of the tax benefits to be obtained by Capstone. The Compensation
Committee may, in some circumstances, pay compensation that is not fully
deductible if in its determination such costs and burdens outweigh such
foregone benefits.
COMPENSATION COMMITTEE
John Jaggers, Chairman
Jean-Rene Marcoux
21
PERFORMANCE GRAPH*
The graph below compares the cumulative total stockholder return on
Capstone's Common Stock with the cumulative total return of the Nasdaq Index
and the Merrill Lynch Energy Technology Index ("MLET") from June 29, 2000, the
day Capstone's shares of Common Stock commenced trading on the Nasdaq Stock
Market, to December 30, 2001. The stock price performance shown in the graph
below is provided pursuant to the rules of the Securities and Exchange
Commission and should not be considered indicative of potential future stock
price performance. The Company believes that the Nasdaq Index and the MLET
provide an appropriate measure of the Company's stock price performance as the
Nasdaq Index and the MLET listed companies are comparable to the Company in
size and/or industry focus.
The graph assumes an initial investment of $100 and, as required by the
rules of the Securities and Exchange Commission, reinvestment of quarterly
dividends.
[THE FOLLOWING INFORMATION WAS REPRESENTED AS A LINE CHART IN THE PRINTED
MATERIAL]
CPST Nasdaq ML Energy Tech
---- ------ --------------
Jun-00 100 100 100
Dec-00 62 62 79
Jun-01 49 54 94
Dec-01 12 49 53
CPST Nasdaq ML Energy Tech
------ -------- ---------------
Jun-00 .......... 100 100 100
Dec-00 .......... 62 62 79
Jun-01 .......... 49 54 94
Dec-01 .......... 12 49 53
- ------------
* Notwithstanding anything to the contrary set forth in any of our filings
under the Securities Act of 1933 or the Securities Exchange Act of 1934, the
following stock performance graph shall not be incorporated by reference
into any such filing and shall not ohterwise be ddemed filed under either
act.
22
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Transactions with Management and Others
In December 2001, the Company entered into a Separation and Consulting
Agreement with Mr. Jeffrey Watts, its then Chief Financial Officer. The
agreement provides, among other items, an acceleration of vesting of his
unvested options and consulting fees through June 30, 2002. Capstone recognized
stock-based compensation of $548,000 in 2001 based upon the intrinsic value of
the unvested options that became vested. During the consulting term that will
end on June 30, 2002, Mr. Watts shall be paid a total consulting fee of
$98,558.
Mr. Eliot G. Protsch is a member of Capstone's Board of Directors and
President of Alliant Energy-Interstate Power and Light and Executive
Vice-President, Energy Delivery at Alliant Energy Corporation. Alliant Energy
Resources, Inc. is a subsidiary of Alliant Energy Corporation and a distributor
of Capstone. Sales to Alliant Energy Resources in 2001 was approximately $1.9
million.
OTHER INFORMATION
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the 1934 Act requires Capstone's directors and officers,
and persons who own more than ten percent of a registered class of Capstone's
equity securities (collectively, "Insiders"), to file with the Securities and
Exchange Commission initial reports of ownership and reports of changes in
ownership of Capstone's common stock. Insiders are required by the Securities
and Exchange Commission's regulations to furnish Capstone with copies of all
Section 16(a) reports filed by such persons.
To Capstone's knowledge, based on its review of the copies of such reports
furnished to Capstone and written representations from the Insiders that no
other reports were required, during the fiscal year ended December 31, 2001,
all holdings and reportable transactions by Insiders in Company securities,
other than those transactions described below, were reported on a timely basis
pursuant to Section 16(a) filing requirements.
Mr. McDonald, director of Capstone, filed his Form 3 after the deadline
pursuant to the Section 16(a) filing requirements. The Form 3 was due April 4,
2001 and was filed with the SEC on June 21, 2001.
Mr. Jaggers filed an amendment in April 2002 to his Form 4 filed for
February 2001 to report 16 additional shares held by SRB Associates VII, L.P.
Available Information
Capstone is subject to the informational requirements of the Exchange Act
and, in accordance therewith, files reports, proxy statements and other
information with the Commission. Reports, proxy statements and other
information filed by Capstone may be inspected without charge and copies
obtained upon payment of prescribed fees from the Public Reference Section of
the Commission at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C.
20549, or at one of the Commission's regional offices. Information on the
operation of the Public Reference Room may be obtained by calling (800)
SEC-0330. In addition, regional office information as well as the filings made
by Capstone with the Commission may be accessed by way of the Commission's
Internet address, http://www.sec.gov.
Capstone will provide without charge to each person to whom a copy of the
proxy statement is delivered, upon the request of any such person, additional
copies of Capstone's Form 10-K for the period ended December 31, 2001,
including the related financial statements and a list of exhibits to the Form
10-K. Requests for such copies should be addressed to: Capstone Turbine
Corporation, 21211 Nordhoff Street, Chatsworth, California 91311, Attn:
Investor Relations Officer, telephone (818) 734-5300.
DATED: Chatsworth, California, April 10, 2002.
23
Please mark your votes as indicated in this example |X|
This proxy will be voted as directed. If no contrary direction is indicated,
this proxy will be voted FOR the election of the directors listed below in
Proposal 1 and for the amendment to the 2000 Equity Incentive Plan in
Proposal 2.
1. ELECTION OF DIRECTORS; FOR all nominees WITHHOLD
listed AUTHORITY
(except as indicated) to vote for all
nominees listed
Instruction: To WITHHOLD authority to vote |_| |_|
for any individual nominee listed below,
WRITE that nominee's name in the lined
section provided below.
Nominees: 01 Ake Almgren 05 John G. McDonald
02 Richard Aube 06 Eliot G. Protsch
03 John Jaggers 07 Eric Young
04 Jean-Rene Marcoux
- -----------------------------------------------------
FOR AGAINST ABSTAIN
2. To approve an amendment to Capstone's |_| |_| |_|
2000 Equity Incentive Plan to increase
the authorized Common Stock; and
3. In their discretion, upon any and all such other matters as may properly
come before the meeting or any adjournment or postponement thereof.
YES NO
I plan to attend the meeting: |_| |_|
STOCKHOLDERS ARE URGED TO MARK, DATE, SIGN AND RETURN THIS PROXY PROMPTLY IN THE
ENVELOPE PROVIDED, WHICH REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES.
Signature Date
-------------------------------------------------- --------------
The signature should correspond exactly with the name appearing on the
certificate evidencing your Common Stock. If more than one name appears, all
should sign. Joint owners should each sign personally.
- --------------------------------------------------------------------------------
/\ FOLD AND DETACH HERE /\
Vote by Internet or Telephone or Mail
24 Hours a Day, 7 Days a Week
Internet and telephone voting is available through 4PM Eastern Time
the business day prior to annual meeting day.
----------------------------
Your telephone or Internet vote authorizes the named proxies to vote your shares
in the same manner as if you marked, signed and returned your proxy card.
- --------------------------------------------------------------------------------
Internet
http://www.eproxy.com/cpst
Use the Internet to vote your proxy. Have your proxy card in hand when you
access the web site. You will be prompted to enter your control number, located
in the box below, to create and submit an electronic ballot.
- --------------------------------------------------------------------------------
OR
- --------------------------------------------------------------------------------
Telephone
1-800-435-6710
Use any touch-tone telephone to vote your proxy. Have your proxy card in hand
when you call. You will be prompted to enter your control number, located in the
box below, and then follow the directions given.
- --------------------------------------------------------------------------------
OR
- --------------------------------------------------------------------------------
Mail
Mark, sign and date
your proxy card
and
return it in the
enclosed postage-paid
envelope.
- --------------------------------------------------------------------------------
If you vote your proxy by Internet or by telephone,
you do NOT need to mail back your proxy card.
You can view the Annual Report and Proxy Statement
on the internet at: http://www.microturbine.com/ir
PROXY
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF
CAPSTONE TURBINE CORPORATION
PROXY FOR ANNUAL MEETING OF STOCKHOLDERS MAY 30, 2002
The undersigned stockholder of CAPSTONE TURBINE CORPORATION (the "Company")
acknowledges receipt of a copy of the Annual Report and the proxy statement and,
revoking any proxy heretofore given, hereby appoints Ake Almgren and Karen
Clark, or any of them, with full power of substitution, as proxies and
attorneys-in-fact of the undersigned, to attend the Annual Meeting of
Stockholders of the Company to be held at Radisson Hotel Chatsworth, 9777
Topanga Canyon Blvd., Chatsworth, California, on May 30, 2002, at 9:00 A.M., and
any adjournment or postponement thereof, and authorizes each of them to vote all
the shares of common stock of the Company held of record by the undersigned on
April 10, 2002 that such undersigned would be entitled to vote if personally
present.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS AND MAY BE REVOKED
PRIOR TO ITS EXERCISE. THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED AS
DIRECTED HEREIN BY THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS INDICATED,
THIS PROXY WILL BE VOTED FOR (I) THE NOMINEES FOR DIRECTOR LISTED IN THE PROXY
STATEMENT AND (II) THE AMENDMENT TO INCREASE THE COMMON STOCK AUTHORIZED UNDER
THE COMPANY'S 2000 EQUITY INCENTIVE PLAN BY 400,000 SHARES.
(Continued, and to be marked, dated and signed, on the reverse side.)
- --------------------------------------------------------------------------------
/\ FOLD AND DETACH HERE /\
CAPSTONE TURBINE CORPORATION
21211 Nordhoff Street
Chatsworth, California 91311
2002 ANNUAL MEETING
May 30, 2002
YOUR VOTE IS IMPORTANT TO CAPSTONE
PLEASE SIGN, DATE AND RETURN YOUR PROXY CARD BY TEARING OFF THE
TOP PORTION OF THIS SHEET AND RETURNING IT IN THE ENCLOSED
POSTAGE-PAID ENVELOPE.
THE PROXY CARD MUST BE SIGNED AND DATED.