(As filed January 28, 2000)
File No. 70-____
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM U-1
APPLICATION OR DECLARATION
UNDER THE
PUBLIC UTILITY HOLDING COMPANY ACT OF 1935
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Alliant Energy Corporation
Alliant Energy Resources, Inc.
222 West Washington Avenue
Madison, Wisconsin 53703
(Names of companies filing this statement and
addresses of principal executive offices)
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ALLIANT ENERGY CORPORATION
(Name of top registered holding company parent)
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Edward M. Gleason, Vice President-Treasurer
and Corporate Secretary
Alliant Energy Corporation
222 West Washington Avenue
Madison, Wisconsin 53703-0192
(Name and address of agent for service)
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The Commission is requested to send copies of all
notices, orders and communications in connection with
this Application/Declaration to:
Barbara J. Swan, General Counsel William T. Baker, Jr., Esq.
Alliant Energy Corporation Thelen Reid & Priest LLP
222 West Washington Avenue 40 West 57th Street
Madison, Wisconsin 53703-0192 New York, New York 10019
<PAGE>
ITEM 1. DESCRIPTION OF PROPOSED TRANSACTION.
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1.1 Background. Alliant Energy Corporation ("Alliant Energy") is a
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registered holding company under the Public Utility Holding Company Act of 1935,
as amended (the "Act").1 Its public-utility subsidiaries are Wisconsin Power &
Light Company, South Beloit Water, Gas and Electric Company, Interstate Power
Company, and IES Utilities Inc. (collectively, the "Operating Companies").
Together, the Operating Companies provide public-utility service to
approximately 919,000 electric and 394,000 retail gas customers in parts of
Wisconsin, Iowa, Minnesota, and Illinois. Alliant Energy's direct non-utility
subsidiaries are Alliant Corporate Services, Inc., a subsidiary service company,
and Alliant Energy Resources, Inc. ("Resources"), which serves as the holding
company for substantially all of Alliant Energy's energy-related and non-utility
investments and subsidiaries.
1.2 Summary of Proposed Transaction. Resources requests authorization
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to acquire, directly or indirectly through a subsidiary, up to 6,666,666 shares
out of a total of 25,000,000 shares of the Series G Senior Preferred Stock ,
$0.001 par value per share ("Preferred Stock") that are being offered for sale
by Capstone Turbine Corporation ("Capstone"), an unaffiliated corporation. The
aggregate purchase price to be paid by Resources would be approximately $20
million, or $3.00 per share. The Series G Preferred Stock will be issued
pursuant to and subject to the terms of a Preferred Stock Purchase Agreement,
the form of which is filed confidentially herewith as Exhibit B. In addition,
Resources would be made a party to an Investors Rights Agreement, dated as of
August 22, 1997, by and among Capstone, its preferred shareholders and certain
of its common shareholders, and would be contractually bound by the terms of an
Amended and Restated Stockholders Agreement, dated as of April 7, 1997, as
amended ("Stockholders Agreement"). Copies of the Investors Rights Agreement and
Stockholders Agreement are filed confidentially herewith as Exhibits A-2 and
A-3, respectively. The offering of the Series G Preferred Stock would be made
pursuant to an exemption from registration requirements under the Securities Act
of 1933 provided by Regulation D promulgated thereunder.
Capstone intends to use the net proceeds of the offering for working
capital and general corporate purposes, including expanding sales and marketing
activities, continuing product development efforts, and purchasing of tooling
and manufacturing equipment to expand production capabilities.
Resources will finance its purchase of the Preferred Stock using the
proceeds of investments by Alliant Energy and/or borrowings under existing
credit facilities that are guaranteed by Alliant Energy, as previously
authorized,2 and/or available cash.
1.3 Description of Capstone and its Operations. Capstone, a
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privately-held California corporation that was formed in 1988, designs,
fabricates and markets an air-bearing based microturbine that is capable of
using various fuels to generate electric power. Capstone's proprietary
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1 See WPL Holdings, Inc., et al., Holding Co. Act Release No. 26856
(Apr. 14, 1998).
2 See Interstate Energy Corporation, et al., Holding Co. Act Release
No. 26956 (Dec. 18, 1998).
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microturbine technology, referred to as the Capstone MicroTurbine(TM)
("MicroTurbine"), is designed for use as an alternative power source in the
multi-billion dollar worldwide market for distributed (or remote) power
generation. The Capstone MicroTurbine allows the user to generate electric power
on-site for use in a wide range of applications including: standby generation,
peak load shaving, resource recovery and hybrid electric vehicles.3 The primary
benefits that the Capstone MicroTurbine provide to users are: (i) low cost
electric power, (ii) minimal maintenance costs, (iii) remote operability, (iv)
high availability and reliability, (v) multi-fuel capability, (vi) flexibility
in switching among applications, (vii) ease of installation and adaptation,
(viii) scalability, and (ix) environmentally clean power.
Capstone currently markets 30 kilowatt ("kW") MicroTurbines that can
be used as stand-alone power sources or operated in parallel with the local
electric utility grid. As an alternative power source, the Capstone MicroTurbine
provides end-users with the opportunity to either replace or supplement existing
sources of electric power. Capstone MicroTurbines are marketed to end-users who
want to avoid the incremental cost of additional distribution infrastructure or
offset an unreliable power supply and instead want to generate power directly
on-site with a compact, cost-efficient, multi-fuel capable, reliable,
transportable and low emissions power source.
Capstone MicroTurbines are based on advanced turbo-engineering and
emissions designs and sophisticated control technologies that use Capstone's
patented air-bearing system and a patented Digital Power Control ("DPC") system.
The air-bearing technology utilizes only one moving part and does not require
lubrication or liquid cooling, resulting in low maintenance costs. In addition,
using the DPC system, MicroTurbines may be remotely operated and managed,
enabling users to efficiently monitor performance, fuel input, power generation
and time of operation, thereby providing end users with power generation
flexibility and cost savings. Capstone out-sources the manufacturing of most of
the MicroTurbine's components, with the exception of the proprietary
air-bearings, which it manufactures at a facility located in Woodland Hills,
California.
Currently, Capstone is targeting electric power applications requiring
less than 2 megawatts ("MW") of power. This niche market is estimated to
represent approximately 34,000 MW or $14.0 billion in worldwide sales annually.
The company's marketing strategy is to sell MicroTurbines or MicroTurbine
sub-components to end users, original equipment manufacturers ("OEMs"), electric
and gas utilities, propane distributors, energy marketing and service companies,
and manufacturers of hybrid electric vehicle drivetrains. Capstone believes that
these customers and distribution channels will, in turn, market the
MicroTurbines within a portfolio of power product offerings when servicing their
own direct customers' needs.
Capstone does not own or operate any facilities that are used for the
generation, transmission or distribution of electric energy for sale.
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3 Unlike pure electric vehicles, which utilize an energy storage device (such
as a battery) which is typically recharged at a fixed recharging station,
hybrid electric vehicles (or HEVs) use compressed natural gas to fuel an
on-board engine that generates electricity which recharges energy storage
devices on an as-needed basis while the HEV is in operation.
3
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1.4 Principal Terms of Preferred Stock. Capstone currently has
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outstanding six other series of Preferred Stock (Series A through F). The Series
G Preferred Stock will rank pari passu with the Series F Preferred Stock and
senior to Capstone's Common Stock and all other series of Capstone's Preferred
Stock in terms of dividends and liquidation preference. Under Capstone's Amended
and Restated Articles of Incorporation ("Articles of Incorporation"), a copy of
which is filed confidentially herewith as Exhibit A-1, the holders of each
series of Preferred Stock are entitled to receive, when, as and if paid, cash
dividends at an annual rate per share of 10% of the original issue price.
Assuming closing on the sale of the Series G Preferred Stock on March 31, 2000,
dividends would begin to accrue at the stated rate in February 2005. Capstone
has not heretofore declared a cash dividend on any shares of its capital stock.
The Series G Preferred Stock and the Preferred Stock of every other
series will automatically convert into Common Stock of the company (i) on a vote
of 75% of the holders of the Preferred Stock or (ii) on an initial public
offering by the company with aggregate gross proceeds of at least $30,000,000
and an initial offering price at least equal to $8.00 per share. On a fully
converted basis, based on the number of shares of Common Stock and Preferred
Stock of Capstone outstanding on January 27, 2000, and assuming no further
issuances of Preferred Stock (other than the currently approved 25,000,000
shares Series G Preferred Stock to be issued) prior to the conversion date, the
shares of Common Stock which would be received by Resources upon conversion
would represent approximately 6% of the total number of shares of Common Stock
of the company then outstanding.
Each holder of Series G Preferred Stock will have the right to that
number of votes equal to the number of shares of Common Stock issuable on
conversion of the Series G Preferred Stock into Common Stock. The Series G
Preferred Stock would vote as a single class with all other series of Preferred
Stock on all matters, except as provided in the Articles of Incorporation or as
otherwise required by law. The Investors Rights Agreement, to which Resources
will become a party, provides that, without the consent of a majority in
interest of all series of Preferred Stock voting together as a single class,
Capstone will not: (i) make dividends or distributions in respect of its Common
Stock; (ii) purchase any shares of Common Stock, Preferred Stock or warrants,
other than as provided in the Articles of Incorporation; (iii) make any
guaranties other than in the ordinary course of business on behalf of the
company or any wholly-owned subsidiary; (iv) consummate any merger, unless the
company is the survivor; or (v) mortgage, pledge, or create a security interest
in all or substantially all of the company's assets (unless unanimously
authorized by the company's board of directors).
The Investors Rights Agreement also contains anti-dilution provisions,
additional restrictions on transfers of the Preferred Stock that would apply
prior to an initial public offering by the company or the occurrence of certain
other specified events, registration rights, and rights to obtain audited and
quarterly unaudited financial statements.
The Stockholders Agreement provides for the election of directors of
the company. The holders of the Series G Preferred Stock will be contractually
bound by the Stockholders Agreement, and therefore will be obligated to vote for
directors designated by holders of the company's Common Stock and by holders of
the Series A and Series B Preferred Stock. The Stockholders Agreement terminates
on the earlier of April 9, 2007 or upon an initial public offering of the
4
<PAGE>
company meeting certain standards set forth in the company's Articles of
Incorporation.
1.5 Distribution Agreement. In conjunction with the proposed
----------------------
transaction, Resources and Capstone intend to enter into a Packaging and
Distribution Agreement ("Distribution Agreement") under which Capstone would
appoint Resources as a distributor of Capstone products, including completed
Capstone MicroTurbine assemblies, subassemblies, and parts (including controls
and software) which are used or will be used by customers in stationary electric
power generation applications. Resources would have the right under such
Distribution Agreement, directly or through subdistributors (which may be
subsidiaries of Resources),4 to promote, market, sell, install, commission and
service Capstone products on either an exclusive or non-exclusive basis. As a
condition to its appointment as a distributor of Capstone products, Resources
may also agree to purchase a specified number of completed MicroTurbine system
assemblies. It is contemplated that Resources would remarket Capstone products
to customers and/or package such products with other products and materials
manufactured or acquired by Resources (or a subsidiary) for ultimate sale to
customers. The definitive terms of the Distribution Agreement have not yet been
fully negotiated.
ITEM 2. FEES, COMMISSIONS AND EXPENSES.
-------------------------------
The fees, commissions and expenses incurred or to be incurred in
connection with the transactions proposed herein are estimated at $12,500.
ITEM 3. APPLICABLE STATUTORY PROVISIONS.
--------------------------------
Sections 9(a) and 10 of the Act are applicable to Resources'
acquisition of the Preferred Stock. Section 12(b) of the Act is applicable to
Alliant Energy's contribution of funds to or guarantee of borrowings by
Resources to finance the purchase of the Preferred Stock. The transactions are
also subject to Section 32(h)(4) and Rule 54 thereunder.
3.1 Section 10 Analysis. The transactions proposed herein involve an
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acquisition of securities, as well as an acquisition of an interest in an other
(i.e., non-utility) business, and are therefore subject to the approval of this
Commission under Section 10. The relevant standards for approval under Section
10 are set forth in subsections (b), (c) and (f). As applied to interests in
non-utility businesses, Section 10(c)(1) of the Act provides that the Commission
shall not approve an acquisition that is "detrimental to the carrying out of the
provisions of section 11." Section 11(b)(1), in turn, directs the Commission to
limit the operations of a holding company system to a single integrated
public-utility system and such non-utility businesses as are "reasonably
incidental, or economically necessary or appropriate to the operations" of its
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4 Resources has certain existing subsidiaries (among them Industrial Energy
Applications, Inc.) which are already generally engaged in the business of
designing, building and operating stand-by generation, cogeneration and
similar industrial and commercial energy facilities. Resources may also
form one or more new subsidiaries pursuant to Rule 58(b)(iv) to act as
subdistributors.
5
<PAGE>
integrated system or systems. The Commission and the courts have interpreted
these provisions as expressing a Congressional policy against non-utility
activities that bear no operating or functional relationship to the utility
operations of the registered system.5
The Commission has previously authorized relatively modest investments
by registered holding companies and their subsidiaries in companies engaged in
developing, manufacturing and marketing equipment incorporating new energy
technologies that have the potential to yield benefits for utility customers in
the form of more efficient electricity production, energy efficiency and new
uses of electricity. See e.g., GPU International, Inc., Holding Co. Act Release
No. 26631 (Dec. 17, 1996) (investment of not more than $30 million in an
enterprise formed to develop, manufacture and market stationary electric power
systems employing fuel cell technology known as "distributed generation"
systems); EUA Energy Investment Corporation, Holding Co. Act Release No. 26024
(Apr. 11, 1994 (acquisition of up to 9.9% of the common stock of a manufacturer
of uninterrupted power systems and utility interface front-end power supplies);
Entergy Corporation, et al., Holding Co. Act Release No. 25718 (Dec. 28, 1992)
(investment of $6.4 million to acquire 9.95% of the common stock of a
manufacturer of energy efficiency lighting equipment used for commercial and
industrial applications, as well as the assets of an affiliate of such
company engaged in business of marketing lighting technologies and equipment);
American Electric Power Company, Inc., et al., Holding Co. Act Release No. 25424
(Dec. 11, 1991) (investment of up to $6.5 million to acquire 9.9% of the common
stock of developer and manufacturer of energy-efficient electronic light bulbs);
and Mississippi Power Company, Holding Co. Act Release No. 24440 (Aug. 12, 1987)
(acquisition of 9.9% voting interest in manufacturer of geothermal heat pumps in
exchange for technology license).
The present proposal falls squarely within the precedents established
in these and other cases. Resources' proposed investment in Capstone will enable
Capstone to continue development work and increase manufacturing capacity for
its MicroTurbine technology. Resources' investment will have the potential to
benefit the Operating Companies and their customers by, among other things,
providing an additional source of economical, reliable and environmentally
benign power generation, thereby enabling the Operating Companies (and other
similarly situated electric utilities) to defer construction of new power
plants. Finally, Resources' investment is relatively modest in size and will not
enable Resources to control or exercise a controlling influence over Capstone.
3.2 Rule 54 Analysis. The transactions proposed herein are also
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subject to Section 32(h)(4) of the Act and Rule 54 thereunder. Rule 54 provides
that, in determining whether to approve any transaction that does not relate to
an "exempt wholesale generator" ("EWG") or "foreign utility company" ("FUCO"),
as defined in Sections 32 and 33, respectively, the Commission shall not
consider the effect of the capitalization or earnings of any subsidiary which is
an EWG or FUCO upon the registered holding company system if paragraphs (a), (b)
and (c) of Rule 53 are satisfied.
Alliant Energy is in compliance with all requirements of Rule 53(a).
Alliant Energy's "aggregate investment" (as defined in Rule 53(a)(1)(i)) in all
EWGs and FUCOs is currently $223.6 million, or about 40.9% of Alliant Energy's
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5 See Michigan Consolidated Gas Co., 44 S.E.C. 361, 363-365 (1970), aff'd
444 F.2d 913 (D.C.Cir.1971).
6
<PAGE>
"consolidated retained earnings" (as defined in Rule 53(a)(1)(ii)) for the four
quarters ended September 30, 1999 ($547.4 million). In addition, Alliant Energy
has complied and will comply with the record-keeping requirements of Rule
53(a)(2), the limitation under Rule 53(a)(3) on the use of the Operating
Companies' personnel to render services to EWGs and FUCOs, and the requirements
of Rule 53(a)(4) concerning the submission of copies of certain filings under
the Act to retail regulatory commissions. Finally, none of the circumstances
described in Rule 53(b) has occurred or is continuing. Rule 53(c) is by its
terms inapplicable, as the proposed transaction does not involve the issuance of
securities to finance an investment in any EWG.
ITEM 4. REGULATORY APPROVALS.
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The proposed transaction is subject to the pre-merger notification
filing requirements under the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended, and to the expiration or early termination of the required
waiting period thereunder. No state commission, and no other federal commission,
other than this Commission, has jurisdiction over the proposed transaction.
ITEM 5. PROCEDURE.
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The Commission is requested to publish a notice under Rule 23 with
respect to the filing of this Application/Declaration as soon as practicable.
The applicants request that the Commission's Order be issued as soon as
practicable after the notice period and in any event not later than May 15, 2000
in order to accommodate a closing on the proposed transaction before May 31,
2000. The applicants further request that there should not be a 30-day waiting
period between issuance of the Commission's order and the date on which the
order is to become effective, hereby waive a recommended decision by a hearing
officer or any other responsible officer of the Commission, and consent that the
Division of Investment Management may assist in the preparation of the
Commission's decision and/or order, unless the Division opposes the matters
proposed herein.
ITEM 6. EXHIBITS AND FINANCIAL STATEMENTS.
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A. - EXHIBITS.
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A-1 Form of Amended and Restated Articles of Incorporation
of Capstone. (To be filed confidentially by amendment
pursuant to Rule 104).
A-2 Investor Rights Agreement, dated as of August 22,
1997. (To be filed confidentially by amendment
pursuant to Rule 104).
A-3 Amended and Restated Stockholders Agreement, dated as
of April 9, 1997, as amended. (To be filed
confidentially by amendment pursuant to Rule 104).
7
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B Form of Preferred Stock Purchase Agreement between
Resources and Capstone. (To be filed confidentially
by amendment pursuant to Rule 104).
C None.
D None.
E None.
F Opinion of Counsel. (To be filed by amendment).
H Form of Federal Register Notice.
B. FINANCIAL STATEMENTS.
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1.1 Balance Sheet of Alliant Energy and consolidated
subsidiaries, as of September 30, 1999 (incorporated
by reference to the Quarterly Report on Form 10-Q of
Alliant Energy for the quarter ended September 30,
1999) (File No. 1-9894).
1.2 Statement of Income of Alliant Energy and
consolidated subsidiaries for the period ended
September 30, 1999 (incorporated by reference to the
Quarterly Report on Form 10-Q of Alliant Energy for
the quarter ended September 30, 1999) (File No.
1-9894).
8
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ITEM 7. INFORMATION AS TO ENVIRONMENTAL EFFECTS.
----------------------------------------
None of the matters that are the subject of this Application or
Declaration involve a "major federal action" nor do they "significantly affect
the quality of the human environment" as those terms are used in section
102(2)(C) of the National Environmental Policy Act. The transaction that is the
subject of this Application or Declaration will not result in changes in the
operation of the Applicants that will have an impact on the environment. The
Applicants are not aware of any federal agency that has prepared or is preparing
an environmental impact statement with respect to the transactions that are the
subject of this Application or Declaration.
SIGNATURE
Pursuant to the requirements of the Public Utility Holding Company Act
of 1935, as amended, the undersigned companies have duly caused this Application
or Declaration filed herein to be signed on their behalf by the undersigned
thereunto duly authorized.
ALLIANT ENERGY CORPORATION
By: /s/ Edward M. Gleason
--------------------------
Name: Edward M. Gleason
Title: Vice President-Treasurer
and Corporate Secretary
ALLIANT ENERGY RESOURCES, INC.
By: /s/ Edward M. Gleason
--------------------------
Name: Edward M. Gleason
Title: Vice President-Treasurer
and Corporate Secretary
Date: January 28, 2000
9
Exhibit H
PROPOSED FORM OF FEDERAL REGISTER NOTICE
SECURITIES AND EXCHANGE COMMISSION
(Release No. 35-_____)
Filings under the Public Utility Holding Company Act of 1935, as
amended ("Act")
February __, 2000
Notice is hereby given that the following filing(s) has/have been made
with the Commission pursuant to provisions of the Act and rules promulgated
thereunder. All interested persons are referred to the application(s) and/or
declaration(s) for complete statements of the proposed transaction(s) summarized
below. The application(s) and/or declaration(s) and any amendments thereto
is/are available for public inspection through the Commission's Office of Public
Reference.
Interested persons wishing to comment or request a hearing on the
application(s) and/or declaration(s) should submit their views in writing by
March __, 2000 to the Secretary, Securities and Exchange Commission, Washington,
D.C. 20549, and serve a copy on the relevant applicant(s) and/or declarant(s) at
the address(es) as specified below. Proof of service (by affidavit or, in case
of an attorney at law, by certificate) should be filed with the request. Any
request for hearing shall identify specifically the issues of fact or law that
are disputed. A person who so requests will be notified of any hearing, if
ordered, and will receive a copy of any notice or order issued in the matter.
After March __, 2000, the application(s) and/or declaration(s), as filed or as
amended, may be granted and/or permitted to become effective.
* * * * * *
ALLIANT ENERGY CORPORATION, ET AL. (70-[ ])
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Alliant Energy Corporation ("Alliant Energy"), a registered holding
company, and its wholly owned non-utility subsidiary, Alliant Energy Resources,
Inc. ("Resources"), each of whose principal executive offices are at 222 West
Washington Avenue, Madison, Wisconsin 53703, have filed an Application or
Declaration pursuant to Sections 9(a) and 10 of the Act and Rule 54 thereunder
requesting authorization to purchase certain preferred securities of Capstone
Turbine Corporation ("Capstone"), an unaffiliated corporation.
Alliant Energy's public-utility subsidiaries are Wisconsin Power &
Light Company, South Beloit Water, Gas and Electric Company, Interstate Power
Company, and IES Utilities Inc. (collectively, the "Operating Companies").
1
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Together, the Operating Companies provide public-utility service to
approximately 919,000 electric and 394,000 retail gas customers in parts of
Wisconsin, Iowa, Minnesota, and Illinois. Resources serves as the holding
company for substantially all of Alliant Energy's energy-related and non-utility
investments and subsidiaries.
Resources is seeking authority to acquire, directly or indirectly
through a subsidiary, up to 6,666,666 shares out of a total of 25,000,000 shares
of the Series G Senior Preferred Stock, $0.001 par value per share ("Preferred
Stock") that are being offered for sale by Capstone, a privately-held California
corporation. Capstone designs, fabricates and markets an air-bearing based
microturbine that is capable of using various fuels to generate electric power.
Capstone's proprietary microturbine technology, referred to as the Capstone
MicroTurbine(TM) ("MicroTurbine"), is designed for use as an alternative power
source in the multi-billion dollar worldwide market for distributed (or remote)
power generation. It is stated that the Capstone MicroTurbine allows a user to
generate electric power on-site for use in a wide range of applications
including: standby generation, peak load shaving, resource recovery and hybrid
electric vehicles.
Capstone currently markets 30 kilowatt ("kW") MicroTurbines that can
be used as stand-alone power sources or operated in parallel with the local
electric utility grid. As an alternative power source, the Capstone MicroTurbine
provides end-users with the opportunity to either replace or supplement existing
sources of electric power. Capstone MicroTurbines are marketed to end-users who
want to avoid the incremental cost of additional distribution infrastructure or
offset an unreliable power supply and instead want to generate power directly
on-site with a compact, cost-efficient, multi-fuel capable, reliable,
transportable and low emissions power source.
It is stated that Capstone is currently targeting electric power
applications requiring less than 2 megawatts ("MW") of power. This niche market
is estimated to represent approximately 34,000 MW or $14.0 billion in worldwide
sales annually. The company's marketing strategy is to sell MicroTurbines or
MicroTurbine sub-components to end-users, original equipment manufacturers,
electric and gas utilities, propane distributors, energy marketing and service
companies, and manufacturers of hybrid electric vehicle drivetrains.
Capstone does not own or operate any facilities that are used for the
generation, transmission or distribution of electric energy for sale.
The aggregate purchase price to be paid by Resources for the Preferred
Stock would be approximately $20 million, or $3.00 per share. The Series G
Preferred Stock will be issued pursuant to and subject to the terms of a
Preferred Stock Purchase Agreement. In addition, Resources would be made a party
to an existing Investors Rights Agreement by and among Capstone, its preferred
shareholders and certain of its common shareholders, and would be contractually
bound by the terms of an Amended and Restated Stockholders Agreement.
Capstone intends to use the net proceeds of the offering for working
capital and general corporate purposes, including expanding sales and marketing
2
<PAGE>
activities, continuing product development efforts, and purchasing of tooling
and manufacturing equipment to expand production capabilities.
Resources will finance its purchase of the Preferred Stock using the
proceeds of investments by Alliant Energy and/or borrowings under existing
credit facilities that are guaranteed by Alliant Energy, as previously
authorized,1 and/or available cash.
The Series G Preferred Stock and the Preferred Stock of every other
series that are currently outstanding will automatically convert into Common
Stock of the company (i) on a vote of 75% of the holders of the Preferred Stock
or (ii) on an initial public offering by the company with aggregate gross
proceeds of at least $30,000,000 and an initial offering price at least equal to
$8.00 per share. On a fully converted basis, based on the number of shares of
Common Stock and Preferred Stock of Capstone outstanding on January 27, 2000,
and assuming no further issuances of Preferred Stock (other than the currently
approved 25,000,000 shares Series G Preferred Stock to be issued) prior to the
conversion date, the shares of Common Stock which would be received by Resources
upon conversion would represent approximately 6% of the total number of shares
of Common Stock of the company then outstanding.
As indicated, Resources will be contractually bound by the terms of a
Stockholders Agreement. Among other things, the Stockholders Agreement will
obligate Resources to vote for directors designated by holders of the company's
Common Stock and by holders of certain other series of Preferred Stock. The
Stockholders Agreement terminates on the earlier of April 9, 2007 or upon an
initial public offering of the company meeting certain standards set forth in
the company's Articles of Incorporation.
In conjunction with the proposed transaction, Resources and Capstone
also intend to enter into a Packaging and Distribution Agreement ("Distribution
Agreement") under which Capstone would appoint Resources as a distributor of
Capstone products, including completed Capstone MicroTurbine assemblies,
subassemblies, and parts (including controls and software) which are used or
will be used by customers in stationary electric power generation applications.
Resources would have the right under such Distribution Agreement, directly or
through subdistributors (which may be subsidiaries of Resources),2 to promote,
market, sell, install, commission and service Capstone products on either an
exclusive or non-exclusive basis. As a condition to its appointment as a
distributor of Capstone products, Resources may also agree to purchase a
specified number of completed MicroTurbine system assemblies. It is contemplated
that Resources would remarket Capstone products to customers and/or package such
products with other products and materials manufactured or acquired by Resources
(or a subsidiary) for ultimate sale to customers. Resources states that the
definitive terms of the Distribution Agreement have not yet been fully
negotiated.
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1 See Interstate Energy Corporation, et al., Holding Co. Act Release
No. 26956 (Dec. 18, 1998).
2 Resources has certain existing subsidiaries (among them Industrial
Energy Applications, Inc.) which are already generally engaged in the business
of designing, building and operating stand-by generation, cogeneration and
similar industrial and commercial energy facilities. Resources may also form one
or more new subsidiaries pursuant to Rule 58(b)(iv) to act as subdistributors.
3
