content_image/242009.jpg content_image/242011.jpg content_image/242012.jpg
## NOTE 3. ACQUISITION AND DISPOSITION 

## Acquisition of Renewable Energy Developers 

On October 1, 2013, Capstone acquired 100% of the issued and outstanding shares of ReD in exchange for common shares of Capstone issued pursuant to a plan of arrangement (the "Arrangement"). At closing, ReD shareholders received 0.26 of a Capstone common share ("Capstone Share") and $0.001 dollars in cash in exchange for each share of ReD. Capstone issued 19,699 common shares to acquire ReD. 

In addition, each outstanding option to purchase ReD shares ("ReD Option") was exchanged for an option to acquire Capstone Shares ("Replacement Option"). Each Replacement Option entitles the holder thereof to purchase 0.26026 of a Capstone Share. The obligations of ReD with respect to its outstanding common share purchase warrants have been assumed by Capstone in accordance with the terms of the warrant indenture whereby each warrant is now exercisable to receive 0.26 of a Capstone Share and $0.001 dollars in cash. 

Also pursuant to the Arrangement, on October 1, 2013, the 6.75% convertible unsecured subordinated debentures of ReD due December 31, 2017 (the "ReD Debentures") became convertible into Capstone Shares and a nominal amount of cash pursuant to the terms of the debenture indenture, while remaining outstanding obligations of ReD. The Corporation has agreed to provide credit support for the ReD Debentures (TSX: CPW.DB) and ReD has agreed to provide credit support for the obligations of Capstone under its 6.50% convertible unsecured subordinated debenture (TSX: CSE.DB.A) due December 31, 2016. 

The acquisition was accounted for using the acquisition method of accounting, which requires that Capstone recognize the identifiable assets acquired and liabilities assumed at their fair values on the date of acquisition. As at October 1, 2013, the non-controlling interest was calculated on the fair value of the net identifiable assets. Transaction costs on acquisition of $4,278 were expensed in the consolidated statement of income as part of project development costs and $192 were capitalized to equity as part of the share issuance. 

The allocation of the purchase price is preliminary and may be revised up to 12 months after the acquisition date. 

<img src='content_image/242009.jpg'>

(1) The fair value of theshares is calculated with reference to the quoted price of theshares of Capstone at the date of acquisition, October 1, 2013, which was $3.84 per share. 

<img src='content_image/242011.jpg'>

(1) Working capital includes $3,286 of accounts receivable, no allowance for doubtful debts are recorded. 

IFRS requires disclosure as though the acquisition date for the business combination had been at the beginning of the reporting period, as of January 1, 2013. The pro forma consolidated financial information of Capstone for the year ended December 31, 2013, was as follows: 

<img src='content_image/242012.jpg'>

Since acquisition on October 1, 2013, ReD contributed revenue of $5,714 and a net loss of $1,062 to Capstone's financial results. 

