UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

SCHEDULE 14A

Proxy Statement Pursuant to Section 14(a) of

the Securities Exchange Act of 1934 (Amendment No.  )1)

PRELIMINARY COPY - SUBJECT TO COMPLETION

CAPSTONE TURBINE CORPORATION

21211 Nordhoff Street

Chatsworth, California 91311

July 15, 2015[_], 2017

Dear Capstone Turbine Stockholder:

You are cordially invited to attend the 2015 Annual Meeting2017 annual meeting of Stockholdersstockholders (the "Annual Meeting"“Annual Meeting”) of Capstone Turbine Corporation (the "Company"“Company”) to be held at the Company's corporate offices located at 21211 Nordhoffof Goodwin Procter LLP, 601 South Figueroa Street, Chatsworth, California, 9131141st Floor, Los Angeles, CA 90017, on August 27, 2015,31, 2017, at 10:9:00 a.m., Pacific Time. We look forward to meeting you and discussing the accomplishments of the Company for the fiscal year ended March 31, 2015.

Details of the business to be conducted at the Annual Meeting are provided in the attached Notice of Annual Meeting of Stockholders and Proxy Statement.

In accordance with rules adopted by the Securities and Exchange Commission, we are mailing to our stockholders a Notice of Internet Availability instead of a paper copy of the Proxy Statement and our 20152017 Annual Report to Stockholders. The Notice of Internet Availability contains instructions on how stockholders can access the documents over the Internet as well as how stockholders can receive a paper copy of our proxy materials, including the Proxy Statement, the 20152017 Annual Report to Stockholders and a proxy card.

Whether or not you attend the Annual Meeting, it is important that your shares be represented and voted. Therefore, I urge you to vote by proxy as soon as possible over the Internet or by phone as instructed in the Notice of Internet Availability or, if you receive paper copies of the proxy materials by mail, you can also vote by mail by following the instructions on the proxy card. If you attend the Annual Meeting, you may withdraw your proxy and vote your shares personally.

On behalf of the Board of Directors, I would like to express our appreciation for your continued interest in the Company.

Chatsworth, California

YOUR VOTE IS IMPORTANT

PLEASE VOTE OVER THE INTERNET OR BY TELEPHONE AS INSTRUCTED IN THESE

MATERIALS OR COMPLETE, DATE, SIGN AND RETURN ATHE ENCLOSED WHITE CAPSTONE PROXY CARD AS PROMPTLY
AS POSSIBLE.

PRELIMINARY COPY - SUBJECT TO COMPLETION

CAPSTONE TURBINE CORPORATION

21211 Nordhoff Street

Chatsworth, California 91311

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS

To Be Held August 27, 201531, 2017

The Capstone Turbine Corporation (the "Company"“Company” or "Capstone"“Capstone”) 2015 Annual Meeting2016 annual meeting of Stockholdersstockholders (the "Annual Meeting"“Annual Meeting”) will be held at the Company's corporate offices located at 21211 Nordhoffof Goodwin Procter LLP,  601 South Figueroa Street, Chatsworth, California, 91311,41st Floor,  Los Angeles, CA 90017, on August 27, 2015,31, 2017, at 10:9:00 a.m., Pacific Time, for the following purposes:

1.

To

1.To elect eightseven members to Capstone'sCapstone’s Board of Directors to serve until the next annual meeting or until their successors have been elected and qualified;



2.

To

2.To approve an amendment to Capstone'sCapstone’s Second Amended and Restated Certificate of Incorporation, as amended, to effect a reverse stock split of our outstanding shares of Common Stock by a ratio in the range of 1-for-5 and 1-for-20,1-for-10, as determined in the sole discretion of our Board of Directors;



3.

To

3.To approve an amendmentthe NOL Rights Agreement, dated as of May 6, 2016, with Computershare Inc., as amended;

4.To approve, for purposes of complying with applicable NASDAQ Listing Rules, the potential issuance of more than 20% of the Company’s Common Stock pursuant to the Company’s October 2016 offering of securities;

5.To approve the Capstone Turbine Corporation 20002017 Equity Incentive Plan;



4.

To

6.To approve the amended and restated Capstone Turbine Corporation Employee Stock Purchase Plan;

7.To hold a non-bindingnon‑binding advisory vote on compensation of named executive compensation;



5.

Toofficers;

8.To hold an advisory vote with respect to the frequency of advisory votes on the compensation of our named executive officers;

9.To ratify the selection of KPMGMarcum LLP as our independent registered public accounting firm for the fiscal year ending March 31, 2016;2018; and



6.

To

10.To transact any other business that is properly brought before the Annual Meeting or any adjournments or postponements 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 July 1, 20153, 2017 as the record date for determining stockholders entitled to notice of, and to vote at, the Annual Meeting and any adjournments or postponements thereof. Only holders of record of the Company'sCompany’s Common Stock at the close of business on that date will be entitled to notice of, and to vote at, the Annual Meeting and any adjournments or postponements thereof. In the event there are not sufficient shares to be voted in favor of any of the foregoing proposals at the time of the Annual Meeting, the Annual Meeting may be adjourned in order to permit further solicitation of proxies.

Whether or not you plan to attend the Annual Meeting, please vote over the Internet or by telephone as instructed in these materials or complete, sign, date and return athe white Capstone proxy card promptly. The proxy is being solicited on behalf of the Board of Directors of Capstone for use at the Annual Meeting.

Please note that space limitations make it necessary to limit attendance at the Annual Meeting to stockholders. Registration will begin at 8:3000 a.m. and the Annual Meeting will begin at 10:9:00 a.m. Each stockholder may be asked to present valid picture identification, such as a driver'sdriver’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.

 Directions to the Company's corporate offices can be obtained by contacting the Company at (818) 734-5300.

		By Order of the Board of Directors,
	Clarice Hovsepian Secretary

Chatsworth, California

July 15, 2015
[_], 2017

PRELIMINARY COPY - SUBJECT TO COMPLETION

CAPSTONE TURBINE CORPORATION

21211 Nordhoff Street

Chatsworth, California 91311

PROXY STATEMENT

For Annual Meeting Of Stockholders

To Be Held August 27, 201531, 2017

QUESTIONS AND ANSWERS ABOUT THE ANNUAL MEETING AND PROXY MATERIALS

Who is soliciting my vote?

Information AboutThe Board of Directors of the 2015Company is soliciting your vote for the 2017 Annual Meeting of Stockholders.

When is the 2017 Annual Meeting and how do I attend?

This proxy statement (the "Proxy Statement"“Proxy Statement”) is furnished in connection with the solicitation of proxies by the Board of Directors of Capstone Turbine Corporation (the "Company"“Company” or "Capstone"“Capstone”) from holders of issued and outstanding shares of Common Stock, par value $.001 per share, ("Common Stock"), to be voted at the 2015 Annual Meeting2017 annual meeting of Stockholdersstockholders (the "Annual Meeting"“Annual Meeting”), to be held at the Company's corporate offices located at 21211 Nordhoffof Goodwin Procter LLP,  601 South Figueroa Street, Chatsworth, California, 91311,41st Floor,  Los Angeles, CA 90017, on August 27, 2015,31, 2017, at 10:9:00 a.m., Pacific Time, for the purposes set forth in the accompanying notice and herein, and any adjournments or postponements thereof.

How can I obtain the proxy materials?

A copy of Capstone's 2015Capstone’s 2017 Annual Report to Stockholders (the "2015“2017 Annual Report"Report”) and the Proxy Statement and accompanying proxy card were first mailed or made available to stockholders on or about July 15, 2015.[_], 2017. The 20152017 Annual Report includes Capstone'sCapstone’s audited consolidated financial statements.

        The

Why did I receive a one-page notice in the mail regarding the internet availability of proxy materials instead of a full set of proxy materials?

Pursuant to rules adopted by the Securities and Exchange Commission (“SEC”), the Company willhas elected to provide access to its proxy materials via the Internet. Accordingly, the Company is sending a listen-only live audio webcastNotice of the Annual Meeting. The listen-only live audio webcastInternet Availability of Proxy Materials (“Notice”) to its stockholders. All stockholders will be available viaable to access the Company's website underwww.capstoneturbine.com/investor. A replay of the webcast will be availableproxy materials on the website followingreferred to in the live eventNotice or request to receive a printed set of the proxy materials. Instructions on how to access the proxy materials over the Internet or to request a printed copy may be found in the Notice. In addition,

stockholders may request to receive proxy materials in printed form by mail or electronically by email on an ongoing basis. The Company encourages stockholders to take advantage of the availability of the proxy materials on the Internet to help reduce the cost of printing and mailing documents to you and will reduce the environmental impact of its annual meetings.

How can I obtain electronic access to the proxy materials?

The Notice will provide you with instructions regarding how to:

The Company’s proxy materials also are available on its investor relations website at http://ir.capstoneturbine.com/investor-kit for 30 days.

Voting Procedures“Investor Kit.”

Choosing to receive future proxy materials by email will save the Company the cost of printing and mailing documents to you and will reduce the impact of the Company’s annual meetings on the environment. If you choose to receive future proxy materials by email, you will receive an email message next year with instructions containing a link to those materials and a link to the proxy voting website. Your election to receive proxy materials by email will remain in effect until you terminate it.

How many votes can be cast by all stockholders?

If you were a stockholder of record of the Company'sCompany’s Common Stock at the close of business on July 1, 2015,3, 2017, you are entitled to notice of, and to vote at, the Annual Meeting. As of the record date, 330,698,61242,264,625 shares of Common Stock were outstanding.

        Proxies properly executed, duly returned to us and not revoked will be voted in accordance with the instructions given. Where no instructions are given, subject to the requirements described below, such proxies will be voted: FOR the election as directors of the nominees listed in this Proxy Statement; FOR the approval of an amendment to Capstone's Second Amended and Restated Certificate of Incorporation, as amended, to effect a reverse stock split of our outstanding shares of Common Stock by a ratio in the range of 1-for-5 and 1-for-20, as determined in the sole discretion of our Board of Directors; FOR the approval of an amendment to the Company's 2000 Equity Incentive Plan; FOR the approval of the compensation of our Named Executive Officers (as described in the "Compensation Discussion and Analysis" section of this Proxy Statement); and FOR the ratification of

the selection of KPMG LLP as the Company's independent registered public accounting firm for the fiscal year ending March 31, 2016. If any matter not described in this Proxy Statement is properly presented for action at the Annual Meeting, the persons named on the proxy card will have discretionary authority to vote on the action according to their best judgment. Each stockholder of record on July 1, 20153, 2017, is entitled to one vote for each share of Common Stock held by such stockholder on that date.

How is the quorum reached?

The required quorum for the transaction of business at the Annual Meeting is a majority of the shares entitled to vote at any meeting of our Common Stock eligible to be voted onstockholders, present in person or represented by proxy as of the record date.

Abstentions and broker non-votesnon votes will be counted for purposes of determining the presence or absence of a quorum for the transaction of business at the Annual Meeting, and abstentions, but not broker non-votes,non votes, as to particular proposals will be treated as shares entitled to vote. A broker non-votenon vote occurs when a broker holding shares for a beneficial holder does not have discretionary voting power with respect to that proposal and has not received instructions from the beneficial owner. Without your instructions, your broker or nominee is permitted to use its own discretion and vote your shares on certain matters (such as Proposals 2 and 5)Proposal 9), but it is not permitted to use discretion and vote your shares on other matters (such as Proposals 1, 2, 3, 4, 5, 6, 7 and 4)8). We urge you to give voting instructions to your broker on all fivenine proposals. Broker non-votesnon votes will have no direct impact on any proposal except with respect to ProposalProposals 2, 5, and 6, which requires the approval of the majority of shares of Common Stock issued and outstanding, in which case broker non-votesnon votes will have the same effect as a vote against the proposal. Concerning the election of directors, you may: (a) vote for all 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. For Proposals 2, 3, 4, 5, 6, 7, and 5,8, abstentions will have the same effect as a vote against these proposals. For Proposal 1, abstentions will have no effect on the outcome of the vote.

What if I return, but do not provide instructions, for my proxy?

Proxies properly executed, duly returned to us and not revoked will be voted in accordance with the instructions given. Where no instructions are given, subject to the requirements described below, such proxies will be voted: FOR the election of the seven members to Capstone’s Board of Directors listed in this Proxy Statement to serve until the next annual meeting or until their successors have been elected and qualified; FOR the approval of an amendment to Capstone’s Second Amended and Restated Certificate of Incorporation, as amended, to effect a reverse stock split of our outstanding shares of Common Stock by a ratio in the range of 1-for-5 and 1-for-10, as determined in the sole discretion of our Board of Directors; FOR the approval of the NOL Rights Agreement, dated as of May 6, 2016 with

Computershare Inc., as amended; FOR the approval, for purposes of complying with applicable NASDAQ Listing Rules, the potential issuance of more than 20% of the Company’s Common Stock pursuant to the Company’s October 2016 offering of securities; FOR the approval of the Capstone Turbine Corporation 2017 Equity Incentive Plan; FOR the approval of the amended and restated Capstone Turbine Corporation Employee Stock Purchase Plan; FOR the approval of the non binding advisory vote on compensation of named executive officers; FOR the approval of the advisory vote with respect to the frequency of advisory votes on the compensation of our Named Executive Officers every one (1) year; and FOR the ratification of the selection of Marcum LLP as the Company’s independent registered public accounting firm for the fiscal year ending March 31, 2018. If any matter not described in this Proxy Statement is properly presented for action at the Annual Meeting, the persons named on the proxy card will have discretionary authority to vote on the action according to their best judgment. Each stockholder of record on July 3, 2017 is entitled to one vote for each share of Common Stock held by such stockholder on that date. The required quorum for the transaction of business at the Annual Meeting is a majority of the shares of our Common Stock eligible to be voted on the record date.

Can I change my vote?

You may revoke your proxy at any time before it is actually voted at the Annual Meeting by: (i) delivering written notice of revocation to the Secretary of Capstone at our address above; (ii) submitting a later dated proxy; or (iii) attending the Annual Meeting and voting in person. Attendance at the Annual Meeting will not, by itself, constitute revocation of the proxy.

Voting Electronically via the Internet or by Telephone

How do I vote my shares?

Whether you hold shares directly as the stockholder of record or through a broker, trustee or other nominee, as the beneficial owner you may direct how your shares are voted without attending the Annual Meeting. Stockholders are encouraged to vote their proxies by the Internet, by telephone or by completing, signing, dating and returning a proxy card, but not by more than one method. If you vote by Internet or telephone, you do not need to return a proxy card. If you vote by more than one method, only the last vote that is submitted will be counted and each previous vote will be disregarded. Please refer to the instructions provided in the Notice of Internet Availability or proxy card provided to you for information on the available voting methods.

Solicitation

Who pays for the cost of Proxiessoliciting proxies?

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, we have retained Morrow & Co.,engaged The Proxy Advisory Group, LLC, to assist in the solicitation. We will pay Morrow & Co., LLC approximately $12,000 for their assistance in the solicitation of proxies.proxies and provide related advice and informational support, for a services fee, plus customary disbursements, which are not expected to exceed $12,500 in total. Our directors, officers or employees may solicit proxies by mail, e-mail, telephone, facsimile or other means. These individuals will not receive any additional compensation for these efforts.

Proposals of Stockholders

What is the deadline to propose actions for consideration or to nominate individuals to serve as directors at the 20162018 Annual Meeting of StockholdersMeeting?

Stockholder proposals or nominations for directors intended to be presented at the 20162018 annual meeting of stockholders (the "2016“2018 Annual Meeting"Meeting”) must be in writing and received at Capstone'sCapstone’s executive offices no later than the date listed below and must comply with Capstone'sCapstone’s bylaws, the policy of the Company’s nominating and corporate governance policy (as more fully described in the “Director Recommendation and Nomination Process” section elsewhere in this Proxy Statement), and the proxy rules of the Securities and Exchange Commission (the "SEC"“SEC”). If appropriate notice of a stockholder proposal is not received at Capstone'sCapstone’s principal executive offices prior to the close of business on March 17, 2016,[_], 2018, the proposal will be deemed untimely. Pursuant to Rule 14a-814a‑8 under the Securities Exchange Act of 1934, as amended (the "Exchange Act"“Exchange Act”), and the Company'sCompany’s bylaws, an untimely proposal will not be included in the Company'sCompany’s proxy statement or proxy card for the 20162018 Annual Meeting and cannot be brought before the 20162018 Annual Meeting by the proponent. If the date of our annual meeting is moved by more than 30 days from the from the date of the previous year’s annual meeting, then notice must be received within a reasonable time before we begin to

print and send proxy materials. If that happens, we will publicly announce the deadline for submitting a proposal in a press release or in a document filed with the SEC. Nothing in this paragraph shall be deemed to require us to include in our proxy statement and proxy card for such meeting any stockholder proposal which does not meet the requirements of the SEC in effect at the time. Any such proposal will be subject to Rule 14a-8 of the Exchange Act.

In addition to stockholder nominations made in accordance with the procedures described above, Capstone'sCapstone’s Nominating and Corporate Governance Committee will consider stockholder recommendations of candidates for election to the Board of Directors if such recommendations are submitted by the date and in accordance with the policies described in the "Director“Director Recommendation and Nomination Process"Process” section elsewhere in this Proxy Statement.

The date of this Proxy Statement is July 15, 2015.[_], 2017.

PROPOSAL 1

ELECTION OF DIRECTORS TO THE BOARD OF DIRECTORS

Introduction

At the Annual Meeting, seven Directors will be elected, each to serve until the Annual Meeting of Stockholders in 2018 and until such Director’s successor is duly elected and qualified or until such Director’s earlier resignation or removal. Upon the recommendation of the Nominating and Corporate Governance Committee, the Board of Directors has nominated Holly A. Van Deursen, Paul DeWeese, Gary J. Mayo, Eliot G. Protsch, Yon Y. Jorden, Noam Lotan and Darren R. Jamison for re-election as Directors. Shares represented by each properly executed proxy will be voted for the re-election of Holly A. Van Deursen, Paul DeWeese, Gary J. Mayo, Eliot G. Protsch, Yon Y. Jorden, Noam Lotan and Darren R. Jamison as Directors, unless contrary instructions are set forth on such proxy. Proxies cannot be voted for a greater number of individuals than the number of nominees. Each nominee has agreed to stand for re-election and to serve, if elected, as a Director. However, if any nominee fails to stand for re-election or is unable to accept election, the proxies will be voted for the election of such other person as the Board of Directors may recommend.

Information About Our Directors

 Capstone's

The number of Directors of the Company is presently fixed at eight (8) and the Board of Directors currently consists of nine members, eight (8) members. Immediately following the Annual Meeting, the number of whomDirectors of the Company proposesshall be fixed at seven (7) and the Board of Directors shall consist of seven (7) members. Gary Simon has informed the Board of Directors that he will not stand for re-election and will retire from the Board of Directors upon the expiration of his current term at the Annual Meeting. 

The Board of Directors has nominated Holly A. Van Deursen, Paul DeWeese, Gary J. Mayo, Eliot G. Protsch, Yon Y. Jorden, Noam Lotan and Darren R. Jamison for re-election as Directors. The Board of Directors has determined that Ms. Van Deursen, Mr. DeWeese, Mr. Mayo, Mr. Protsch, Ms. Jorden and Mr. Lotan are independent Directors as defined in Rule 5605(a)(2) under the Marketplace Rules of the National Association of Securities Dealers, Inc. (the “NASDAQ Rules”).

The positions of Chief Executive Officer and Chair of the Board are currently each filled by a different individual, Mr. Jamison and Ms. Van Deursen, respectively. If the position of Chair of the Board is vacant, or if he or she is absent, the Chief Executive Officer presides, when present, at meetings of stockholders. Ms. Van Deursen has extensive experience with and knowledge of the energy and chemical industries, unique perspective on the Asian and European markets and substantial experience in strategic and annual planning, corporate governance and risk management. Furthermore, our Board believes that Ms. Van Deursen’s qualifications to be our chairperson include her diverse experience on other boards of both public and private companies.

Additionally, the structure of our Board of Directors also consists of the Compensation, Audit and Nominating and Corporate Governance Committees. Mr. Mayo, Mr. Protsch, and Mr. DeWeese each serve as Committee Chairs, respectively. Mr. Mayo brings to the Board of Directors more than two decades of expertise in strategic planning and the development of complex corporate initiatives along with extensive experience in sustainability and environmental issues, as well as distributed power generation, sales, marketing, operations management and government affairs. Mr. Protsch brings to the Board of Directors his unique perspective as a former executive officer of a utilities company, financial expertise and insight into sales, marketing and corporate governance. Mr. DeWeese brings to the Board of Directors over 20 years in the oil and gas field services industry as a senior executive with vast experience running both public and private equity backed companies which were domestic and internationally headquartered.

With the above background and experience, the Chair of the Board, Chairs of the committees, as well the remaining members of the Board of Directors, each have relevant experience and background to provide leadership and guidance to the Company and the Company’s management. Specifically, the members of the Board of Directors have relevant leadership, technology, finance, industry and market experience necessary for the Company and provide for a leadership structure that is appropriate for the Company.

Set forth below is certain information regarding the Directors of the Company, including the Directors who have been nominated for re-election at the Annual Meeting. John V. Jaggers, a director since 1993, will be retiring atThe ages of and biographical information regarding the Annual Meeting. Mr. Jaggers has indicated his willingnessnominees for re-election and each Director who is not standing for election is based on information furnished to continue to serve the Company as a consultant on strategic matters, if so requested.

        The Nominatingby each nominee and Corporate Governance Committee has been engaged in a formal search process for Mr. Jaggers' replacement for the past several monthsDirector and is targeting candidates with specific work experience. The committee had hoped to find a replacement candidate to nominate for election at the Annual Meeting, but it has yet to find the right candidate. The committee expects to nominate a replacement candidate to the Board for election during the current fiscal year. If the committee is successful in doing so, the new director would serve until the 2016 annual meetingas of stockholders.July 3, 2017.

 Each

*  Chair of the nominees possesses unique qualifications, skills and attributes that complement the performanceBoard. 

(1a) Current Member of the full Board of Directors. The experiences that each has obtained from their respective professional backgrounds have qualified them to serve on Capstone's Board of Directors. EachAudit Committee. 

(1b) Proposed Member of the nominees has been evaluated and recommended for nomination toAudit Committee Post-Annual Meeting. 

(2a) Current Member of the BoardCompensation Committee. 

(2b) Proposed Member of Directors bythe Compensation Committee Post-Annual Meeting. 

(3a) Current Member of the Nominating and Corporate Governance Committee.

(3b) Proposed Member of the Nominating and Corporate Governance Committee Post-Annual Meeting.

The proxies cannot voteprincipal occupation and business experience for a greater numberat least the last five years for each Director of persons than the numberCompany is set forth below. The biographies of nominees named. If any nominee is unable or declines to serveeach of the Directors below contains information regarding the person’s service as a director, business experience, director positions held currently or at any time during the time oflast five years, information regarding the Annual Meeting,experiences, qualifications, attributes or skills that caused the proxies will be voted for any nominee designated byNominating and Corporate Governance Committee and the present Board of Directors to filldetermine that the vacancy. The Company does not expect that any nominee will be unable or decline toperson should serve as a director. The term of office of each person elected as a director will continue until the next annual meeting of stockholders or until the director's successor has been elected and qualified, or the earlier of the director's resignation or removal. The table and text below set forth information about each nominee as of July 1, 2015.Director.

        Gary D. Simon.Holly A. Van Deursen.  Mr. SimonMs. Van Deursen has been a director since August 2005October 2007 and has served as ChairmanChair of the Board of Directors since August 2010. Mr. Simon has served as the President of Sigma Energy Group, a clean energy investment and business development firm, since October 2003. He has also served as the Chairman of CleanStart, a business accelerator associated with the nonprofit Sacramento Regional Technology Alliance, since October 2005. Since 2003 he has served on the Board of Directors of SmartPower, a non-profit green energy marketing organization, and as Chairman since 2011. Previously, Mr. Simon served as the Chairman, President and Chief Executive Officer of Acumentrics Corporation ("Acumentrics"), a privately held manufacturer of innovative power supply equipment. He continued to serve as a member of the Acumentrics board of directors and then was reappointed Chief Executive Officer in April 2014. Since July 2006, Mr. Simon has been a limited partner in Velocity

Venture Capital and a director of Jadoo Power, a privately held manufacturer of small (less than 1,000 watt) portable power generators and solar hot water heaters. Since January 2014, he has been a director of Oorja Fuel Cells, a privately held manufacturer of small (less than 5,000 watt) portable methanol-fueled power generators. Mr. Simon2016. Ms. Van Deursen has served as a consultantdirector for Actuant Corporation (NYSE: ATU) since 2008, Bemis Company, Inc. (NYSE: BMS) since 2008, Anson Industries (private) since 2006 and Petroleum Geo Services (OSE: PGS) since 2006. Prior to several start-up businesses involved with clean energy technologiesher current roles, Ms. Van Deursen was employed by BP plc/Amoco Corporation through 2005 and served on the Top Forty Executive Team as an advisor to the Connecticut and Massachusetts clean energy funds. Mr. Simon has served as SeniorGroup Vice President, StrategyPetrochemicals and Development at Northeast Utilities (NYSE: NU) and as a member of the Board of Directors of Northeast Optic Network, a public company that operated a high speed fiber optic network from Boston to Washington, D.C. Mr. Simon holds aGroup Vice President, Strategy. Ms. Van Deursen received her Bachelor of Arts degree in Microbiology from Indiana University and a Master of Science degree in EcologyChemical Engineering from the University of California, Davis.Kansas and her Master of Business Administration degree from the University of Michigan.

 Mr. Simon

Among her other skills and expertise, Ms. Van Deursen brings to the Board of Directors decades of experience in the energy and chemical industries, a unique perspective on the Asian and European markets and substantial executiveexperience in strategic and annual planning, corporate governance and risk management. In addition, her diverse experience along with expertise in marketing, sales, management consulting and raising capital inon other boards of both public and private markets. Mr. Simon also assistscompanies is of significant benefit to the Board of Directors in the areas of strategy and corporate governance.Company.

        Richard K. Atkinson.Yon Y. Jorden.      Mr. AtkinsonMs. Jorden has been a director since December 2005. Mr. AtkinsonApril 2017. Ms. Jorden has served as Chief Financial Officerdirector for Maxwell Technologies (NASDAQ: MXWL), a leader in development and manufacturing of Gradient Resources, a company engaged in the explorationenergy storage and development of geothermal resources as wellpower delivery solutions since May 2008 and serves as the construction, ownershipchairperson of the compensation committee and operationis also a member of geothermalthe audit committee and the governance and nominating committee, the latter of which she has previously served on as chairperson. Ms. Jorden, however, will not be standing for re-election to the Maxwell Technologies Board, and her term as director will conclude upon the annual shareholder meeting of Maxwell Technologies. Ms. Jorden also currently serves as a director and finance committee member of Methodist Health System, a not for profit Texas-based hospital system. Prior to her current roles, Ms. Jorden also served as a director and chairperson of the audit committee of Magnatek, Inc., (NASDAQ: MAG) manufacturer of digital power plants, from May 2010 through March 2014. Mr. Atkinson was formerly Seniorcontrol systems, U.S. Oncology, a privately-held oncology services company, and BioScrip, (NASDAQ: BIOS) national provider of infusion and home care management solutions. During a business career spanning more than 25 years, she has served as chief financial officer of four publicly traded companies, most recently as Executive Vice President and Chief Financial Officer of US BioEnergy Corporation (Nasdaq: USBE)AdvancePCS (NASDAQ:

ADVP), a pharmacy benefits management company from 2002 to 2004. Previously she was chief financial officer of Informix, a NASDAQ-listed technology company, Oxford Health Plans, a NASDAQ-listed provider of managed health care services, and WellPoint, Inc., a NYSE-listed managed care company. Ms. Jorden received her Bachelor of Science degree in Accounting from the California State University, Los Angeles. Earlier in her career, she was a senior auditor with Arthur Andersen & Co., where she became a Certified Public Accountant (inactive) in the State of California.

Among her other skills and expertise, Ms. Jorden brings to the Board of Directors decades of extensive experience as both a chief financial officer as well as a board member in all areas of corporate governance and finance including mergers and acquisitions, structuring IPOs, restructurings, and managing public debt and equity offerings. Ms. Jorden is a board leadership fellow of the National Association of Corporate Directors, demonstrating her commitment and leadership as a board member.

Paul DeWeese.    Mr. DeWeese has been a director since August 2016. Currently, he is the Chief Executive Officer of Epic International, LLC, a company that builtprovides parts and operated large, efficient ethanol plants. He previously servedservices for industrial engines and compressors in the positionsoil and gas and industrial markets. He has held this position since May 2015. Prior to Epic International, Mr. DeWeese served as Chief Executive Officer of Vice President, Chief Financial OfficerSouthwest Oilfield Products, Inc., an aftermarket supplier for drilling rigs in the upstream oil and Corporate Secretary of Pope & Talbot, a wood and pulp products business.gas industry, from May 2012 through April 2015. Before joining Pope & Talbot,Southwest Oilfield Products, Mr. AtkinsonDeWeese worked for Sierra Pacific ResourcesSocotherm S.p.a., a publicly traded pipe coating company based in Italy as its ViceChief Executive Officer. Socotherm S.p.a was subsequently acquired by ShawCor after Mr. DeWeese’s employment. Prior to Socotherm, Mr. DeWeese served as President of CRC-Evans Automatic Welding, a world leader in welding systems for onshore and Chief Financial Officer.offshore pipeline construction projects, providing an extensive range of equipment for a variety of project applications. Mr. AtkinsonDeWeese spent 13 years with Cameron International Corporation in various leadership roles handling their centrifugal compressor and reciprocating compressor aftermarket business. Mr. DeWeese received his Bachelor of Science in Business Administration degree from theRegis University, of Oregon and his Master of Business Administration degree from the University of Nevada, Reno.Michigan.

 Among his other skills and expertise,

Mr. Atkinson's financial expertise, decades of experience in corporate governance and ongoing executive experience aidDeWeese brings to the Board of Directors over 20 years in matters of finance, accountingthe oil and risk management.gas field services industry as a senior executive with vast experience running both public and private equity backed companies which were domestic and internationally headquartered.

Darren R. Jamison.    Mr. Jamison joined Capstone in December 2006 as President and Chief Executive Officer and has been a director since December 2006. He also has served as a director for Endurance Wind Power, a privately held Canadian-headquartered wind turbine manufacturer, since December 2015. Mr. Jamison joined Capstone from Northern Power Systems, Inc., a company that designs, manufactures and sells wind turbines into the global marketplace, where he served as President and Chief Operating Officer and Executive Vice President of Operations. Prior to joining Northern Power Systems, Inc., Mr. Jamison was Vice President and General Manager of Distributed Energy Solutions for Stewart & Stevenson Services, Inc., a leading designer, manufacturer and marketer of specialized engine-drivenengine‑driven power generation equipment to the oil and gas, renewable and energy efficiency markets. He holds a Bachelor of Arts degree in Business Administration and Finance from Seattle University.

Among his other skills and expertise, Mr. Jamison brings to the Board of Directors his unique perspective as President and Chief Executive Officer of the Company and substantial executive and industry experience within the Company'sCompany’s major market verticals.

Noam Lotan.    Mr. Lotan has been a director since June 2005. Mr. Lotan was formally a Venture Partner with OurCrowd Management Ltd from July 2016 to February 2017. OurCrowd is one of the world’s leading accredited investors-only crowdfunding platforms. From November 2010 to December 2015, Mr. Lotan was President, Chief Executive Officer and a directorDirector of Resonate Industries, a development stage company in the clean energy sector. He has held his position since November 2010. Prior to Resonate, Mr. Lotan served as Chief Executive Officer and a director of MRV Communications, Inc. (Nasdaq:(NASDAQ: MRVC), a global supplier of optical communications solutions to the telecommunications industry. Mr. Lotan also served as President and Chief Financial Officer of MRV. Mr. Lotan served as a Director of the European Operations of Fibronics International Inc., a manufacturer of fiber optic communication networks

(Nasdaq: (NASDAQ: FBRX) and as Managing Director of Fibronics (UK) Ltd., the United Kingdom subsidiary of Fibronics. Prior to such time, Mr. Lotan held a variety of sales and marketing positions with Fibronics and the Hewlett-PackardHewlett Packard Company. Mr. Lotan served as an

officer in the Israeli Defense Forces. Mr. Lotan holds a Bachelor of Science degree in Electrical Engineering from Technion, the Israel Institute of Technology, and a Master'sMaster’s of Business Administration degree from INSEAD (the European Institute of Business Administration, Fontainebleau, France).

Among his other skills and expertise, Mr. Lotan brings to the Board of Directors decades of executive experience with a publicly traded technology company and a unique perspective on the Asian and European markets.

Gary J. Mayo.    Mr. Mayo has been a director since October 2007. He is a Founding Director and Chief Operating Officer of Education Resource Strategies, Inc., a privately held company that provides web-based marketing services to educational institutions since November 2010. Mr. Mayo is the Foundingformer Managing Principal of Sustainability Excellence Associates, LLC, a consulting firm specializing in strategic planning for sustainability and environmental strategy development. He is also Chief Operating Officer and a Founding Director of Education Resource Strategies, Inc., a privately held company that provides web-based marketing services to educational institutions. Mr. Mayo is the former Vice President of Corporate Sustainability Strategies in the Energy and Environmental Services Division of MGM Resorts International (NYSE: MGM), one of the world'sworld’s leading global hospitality companies. Mr. Mayo also held a number ofseveral senior leadership positions with Ford Motor Company (NYSE: F) and its spun-offit’s spun off subsidiary Visteon Corporation (NYSE: VC), including Director of the Distributed Power Generation Strategic Business Unit and Global Director of Corporate Responsibility and Government Affairs. Mr. Mayo holds a Bachelor of Science degree in Marketing from C.W. Post College of Long Island University and a Master of Business Administration degree from the Fuqua School of Business at Duke University. He also successfully completed the UCLA Anderson Graduate School of Management, Director Education and Certification Program in May 2009.

Mr. Mayo brings to the Board of Directors more than a decadetwo decades of expertise in strategic planning and the development of complex corporate initiatives along with extensive experience in sustainability and environmental issues, as well as distributed power generation, sales, marketing, operations management and government affairs.

Eliot G. Protsch.    Mr. Protsch has been a director since April 2002 and served as ChairmanChair of the Board of Directors from October 2002 through August 2010. Mr. Protsch served as Senior Executive Vice President, Chief Operating Officer, Chief Financial Officer, and Executive Vice President Energy Delivery of Alliant Energy Corporation (NYSE: LNT), an energy holding company from January 2004 through Jauary 2010, and President of Interstate Power and Light Company, a subsidiary of Alliant. Mr. Protsch currently serves on the Board of Directors for American Family Insurance, Universal Acoustic and Emissions Technologies and Green Companies, Inc..Inc. Mr. Protsch is an active angel investor in energy technology and is President of Wapsie Investment and Advisory, LLC; a personal investment and advisory vehicle specializing in energy technology investments and advisory services. He received his Master of Business Administration degree and his Bachelor of Business Administration degree in Economics and Finance from the University of South Dakota. Mr. Protsch is a Chartered Financial Analyst.

Mr. Protsch brings to the Board of Directors his unique perspective as a former executive officer of a utilities company, financial expertise and insight into sales, marketing and corporate governance.

        Holly A. Van Deursen.    Ms. Van Deursen has been

Vote Required

A quorum being present, Directors shall be elected by a director since October 2007. Ms. Van Deursen has served as a director for Actuant Corporation (NYSE: ATU) since 2008, Bemis Company, Inc. (NYSE: BMS) since 2008, Anson Industries (private) since 2006 and Petroleum Geo-Services (OSE: PGS) since 2006. Prior to her current roles, Ms. Van Deursen was employed by BP plc/Amoco Corporation and served on the Top-Forty Executive Team as Group Vice President, Petrochemicals and Group Vice President, Strategy. Ms. Van Deursen received her Bachelor of Science

degree in Chemical Engineering from the University of Kansas and her Master of Business Administration degree from the University of Michigan.

        Among her other skills and expertise, Ms. Van Deursen brings to the Board of Directors decades of experience in the energy and chemical industries, a unique perspective on the Asian and European markets and substantial experience in strategic and annual planning, corporate governance and risk management. In addition, her diverse experience on other boards of both public and private companies is of significant benefit to the Company.

        Darrell J. Wilk.    Mr. Wilk has been a director since June 2006. Mr. Wilk has been President of Ace Label Systems, a company that manufactures custom prime and durable labels, since 2007. Mr. Wilk has taught an executive sales seminar at the University of Wisconsin—Madison since 2005. Previously, Mr. Wilk was a Strategic Planning and Marketing Instructor at Concordia University and Argosy University. Mr. Wilk was Vice President and Director of Sales and Marketing Worldwide for the Electronics Components Division of ITT Industries (NYSE: ITT), a global engineering and manufacturing company. Mr. Wilk also held the position of Vice President and Director of Marketing and Sales Worldwide for the Switch Products division of ITT Industries. Mr. Wilk served in sales and marketing manager roles at 3M Company (NYSE: MMM), a diversified technology company, and as Application Engineer of North America. Mr. Wilk holds a Bachelor of Science degree in Physics from Loyola University of Chicago and a Master of Business Administration degree from the University of Detroit.

        Mr. Wilk's substantial executive experience and expertise in sales and marketing provide a unique perspective to the Board of Directors.

Required Vote for Approval; Recommendationplurality of the Board of Directors

        Assumingvotes cast (meaning that the presence of a quorum, the eightseven Director nominees for director receivingwho receive the highest number of votesshares voted “FOR” their election are elected). You may vote “FOR” all nominees, “WITHHOLD” for all nominees, or “WITHHOLD” for any nominee(s) by specifying the name of the nominee(s) on your proxy card. Votes that are withheld will be elected to Capstone's Boardexcluded entirely from the vote and will have no effect on the vote. Broker non-votes will also have no effect on the outcome of Directors. Information regarding the method by which votes will be counted appears on page oneelection of this Proxy Statement under the heading "Voting Procedures."directors.

Recommendation

THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE "FOR"“FOR” THE ELECTION OF EACH OF THE CANDIDATES NOMINATED BY THE BOARDNOMINEES OF DIRECTORS.

PROPOSAL 2: TO APPROVE AN AMENDMENT TO THE COMPANY'S SECOND
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION TO EFFECT A
REVERSE SPLIT OF OUR OUTSTANDING SHARES OF COMMON STOCK, AS
DETERMINED IN THE SOLE DISCRETION OF OUR BOARD OF DIRECTORS

Summary

        Our Board of Directors has unanimously approved a proposal to effect a reverse stock split of all of our outstanding shares of Common Stock by a ratio in the range of 1-for-5 and 1-for-20. The proposal provides that our Board of Directors shall have sole discretion pursuant to Section 242(c) of the Delaware General Corporation Law to elect, as it determines to be in the Company's best interest, whether or not to effect the reverse stock split. Should the Board of Directors proceed with a reverse stock split, the exact ratio shall be set at a whole number within the above range as determined by our Board of Directors in its sole discretion. Our Board of Directors believes that the availability of alternative reverse stock split ratios will provide it with the flexibility to implement the reverse stock split in a manner designed to maximize the anticipated benefits for the Company and its stockholders. In determining whether to implement the reverse stock split following the receipt of stockholder approval, our Board of Directors may consider, among other things, factors such as:

•

our ability to have our shares of Common Stock remain listed on Nasdaq;



•

the historical trading price and trading volume of our Common Stock;



•

the then-prevailing trading price and trading volume of our Common Stock and the anticipated impact of the reverse stock split on the trading market for our Common Stock;



•

the impact of the reverse stock split on our ability to obtain additional financing; and



•

prevailing general market and economic conditions.

        If the Board of Directors determines that effecting the reverse stock split is in our best interest, the reverse stock split will become effective upon filing of an amendment to our Second Amended and Restated Certificate of Incorporation (the "Certificate of Incorporation") with the Secretary of State of the State of Delaware. The amendment filed thereby will set forth the number of shares to be combined into one share of our Common Stock within the limits set forth in this proposal. Except for adjustments that may result from the treatment of fractional shares as described below, each stockholder will hold the same percentage of our outstanding Common Stock immediately following the reverse stock split as such stockholder holds immediately prior to the reverse stock split.

        Certain of our officers and directors have an interest in the reverse stock split as a result of their ownership of Common Stock, as set forth in the section entitled "Security Ownership of Certain Beneficial Owners and Management."

        The text of the form of amendment to the Certificate of Incorporation, which would be filed with the Secretary of State of the State of Delaware to effect the reverse stock split, is set forth inAppendix A to this proxy statement. The text of the form of amendment accompanying this proxy statement is, however, subject to change to reflect the exact ratio for the reverse stock split and any changes that may be required by the office of the Secretary of State of the State of Delaware or that the Board of Directors may determine to be necessary or advisable ultimately to comply with applicable law and to effect the reverse stock split.

        Our Board of Directors believes that approval of the amendment to the Certificate of Incorporation to effect the reverse stock split is in the best interests of the Company and our stockholders and has unanimously recommended that the proposed amendment be presented to our stockholders for approval.

Effective Date

        If the proposed amendment to the Certificate of Incorporation to give effect to the reverse stock split is approved at the Annual Meeting and the Board of Directors determines to effect the reverse stock split, the reverse stock split will become effective as of 4:30 p.m. Eastern Standard Time on the effective date of the certificate of amendment to our Certificate of Incorporation with the office of the Secretary of State of the State of Delaware, which we would expect to be the date of filing. We refer to this time and date as the "Effective Date." Except as explained below with respect to fractional shares, each issued share of Common Stock immediately prior to the Effective Date will automatically be changed, as of the Effective Date, into a fraction of a share of Common Stock based on the exchange ratio within the approved range determined by the Board of Directors.

Purpose of the Reverse Stock Split

        The Board of Directors believes that a reverse stock split is desirable for three reasons. First, the Board of Directors believes that a reverse stock split will likely be necessary to maintain the listing of our Common Stock on the Nasdaq Capital Market. Second, the Board of Directors believes that a reverse stock split could improve the marketability and liquidity of the Common Stock. Third, the Board of Directors believes that it will further facilitate potential future financings.

        Maintain our listing on the Nasdaq Capital Market.    Our Common Stock is traded on the Nasdaq Capital Market. On December 19, 2014, the Company was notified by Nasdaq that it no longer satisfied the minimum bid price requirement for continued listing of $1.00 per share, as set forth in Nasdaq Listing Rule 5450(a)(1). In anticipation of not meeting the minimum bid price requirement by the end of its initial 180-day grace period, which ended on June 17, 2015, the Company applied to transfer the listing of its stock from the Nasdaq Global Market to the Nasdaq Capital Market. The Company's Common Stock was approved for listing on the Nasdaq Capital Market and has been traded on that market since June 22, 2015. The transfer provided the Company with an additional 180-day grace period to regain compliance with Nasdaq's minimum bid price requirement. In order to regain compliance, the minimum bid price per share of Common Stock must be at least $1.00 for at least ten consecutive business days during the 180-day grace period, which will end on December 14, 2015. If the Company fails to regain compliance during this second grace period, our Common Stock will be subject to delisting by Nasdaq. The Company has provided written notice to Nasdaq of its intention to cure the minimum bid price deficiency during the second grace period by effecting a reverse stock split.

        The Board of Directors has considered the potential harm to the Company and its stockholders should Nasdaq delist our Common Stock from the Nasdaq Capital Market. Delisting could adversely affect the liquidity of our Common Stock because alternatives, such as the OTC Bulletin Board and the pink sheets, are generally considered to be less efficient markets. An investor likely would find it less convenient to sell, or to obtain accurate quotations in seeking to buy, our Common Stock on an over-the-counter market. Many investors likely would not buy or sell our Common Stock because of difficulty in accessing over-the-counter markets, policies preventing them from trading in securities not listed on a national exchange or other reasons. The Board of Directors believes that a reverse stock split is a potentially effective means for us to maintain compliance with the rules of Nasdaq and to avoid, or at least mitigate, the likely adverse consequences of our Common Stock being delisted from the Nasdaq Capital Market by producing the immediate effect of increasing the bid price of our Common Stock.

        Improve the marketability and liquidity of the Common Stock.    We also believe that the increased market price of our Common Stock expected as a result of implementing the reverse stock split will improve the marketability and liquidity of our Common Stock and will encourage interest and trading in our Common Stock. A reverse stock split could allow a broader range of institutions to invest in our stock (namely, funds that are prohibited from buying stocks whose price is below a certain threshold), potentially increasing the liquidity of our Common Stock. A reverse stock split could help increase analyst and broker interest in our stock as their policies can discourage them from following or recommending companies with low stock prices. Because of the trading volatility often associated with low-priced stocks, many brokerage houses and institutional investors have internal policies and practices that either prohibit them from investing in low-priced stocks or tend to discourage individual brokers from recommending low-priced stocks to their customers. Some of those policies and practices may make the processing of trades in low-priced stocks economically unattractive to brokers. Additionally, because brokers' commissions on low-priced stocks generally represent a higher percentage of the stock price than commissions on higher-priced stocks, the current average price per share of our Common Stock can result in individual stockholders paying transaction costs representing a higher percentage of their total share value than would be the case if the share price were substantially higher. It should be noted, however, that the liquidity of our Common Stock may in fact be adversely affected by the proposed reverse stock split given the reduced number of shares that would be outstanding after the reverse stock split.

        Facilitate Potential Future Financings.    By preserving our Nasdaq Capital Market listing, we can continue to consider and pursue a wide range of future financing options to support our business. We believe being listed on a national securities exchange, such as the Nasdaq Capital Market, is valued highly by many long-term investors. A listing on a national securities exchange also has the potential to create better liquidity and reduce volatility for buying and selling shares of our stock, which benefits our current and future stockholders.

        For the above reasons, we believe that providing the Board of Directors with the ability to effect the reverse stock split will help us regain and maintain compliance with the Nasdaq listing requirements and could improve the marketability and liquidity of our Common Stock and is therefore in the best interests of the Company and our stockholders. However, the Board of Directors reserves its right to abandon the reverse stock split if it determines, in its sole discretion, that it would no longer be in our and our stockholders' best interests.

Risks of the Proposed Reverse Stock Split

        We cannot assure you that the proposed reverse stock split will increase our stock price and have the desired effect of maintaining compliance with the rules of Nasdaq.    The Board of Directors expects that a reverse stock split of our Common Stock will increase the market price of our Common Stock so that we are able to regain and maintain compliance with the Nasdaq minimum bid price listing standard. However, the effect of a reverse stock split upon the market price of our Common Stock cannot be predicted with any certainty, and the history of similar reverse stock splits for companies in like circumstances is varied. Under applicable Nasdaq rules, in order to regain compliance with the $1.00 minimum closing bid price requirement and maintain our listing on the Nasdaq Capital Market, the $1.00 closing bid price must be maintained for a minimum of ten consecutive business days. In determining whether to monitor bid price beyond ten business days, Nasdaq will consider the following factors: (1) margin of compliance (the amount by which the price is above the $1.00 minimum standard); (2) trading volume (a lack of trading volume may indicate a lack of bona fide market interest in the security at the posted bid price); (3) the market maker montage (the number of market makers quoting at or above $1.00 and the size of their quotes); and (4) the trend of the stock price. Accordingly, we cannot assure you that we will be able to maintain our Nasdaq listing after the reverse

stock split is effected or that the market price per share after the reverse stock split will exceed or remain in excess of the $1.00 minimum bid price for a sustained period of time.

        It is possible that the per share price of our Common Stock after the reverse stock split will not rise in proportion to the reduction in the number of shares of our Common Stock outstanding resulting from the reverse stock split, and the market price per post-reverse stock split share may not exceed or remain in excess of the $1.00 minimum bid price for a sustained period of time, and the reverse stock split may not result in a per share price that would attract brokers and investors who do not trade in lower priced stocks. Even if we effect a reverse stock split, the market price of our Common Stock may decrease because of factors unrelated to the stock split. In any case, the market price of our Common Stock may also be based on other factors which may be unrelated to the number of shares outstanding, including our future performance. If the reverse stock split is consummated and the trading price of the Common Stock declines, the percentage decline as an absolute number and as a percentage of our overall market capitalization may be greater than would occur in the absence of the reverse stock split. Even if the market price per post-reverse stock split share of our Common Stock remains in excess of $1.00 per share, we may be delisted because of a failure to meet other continued listing requirements, including Nasdaq requirements related to the minimum stockholder's equity, the minimum number of shares that must be in the public float, the minimum market value of the public float and the minimum number of round lot holders.

        The proposed reverse stock split may decrease the liquidity of our stock.    The liquidity of our Common Stock may be harmed by the proposed reverse stock split given the reduced number of shares that would be outstanding after the reverse stock split, particularly if the stock price does not increase as a result of the reverse stock split. In addition, the proposed amendment to the Certificate of Incorporation does not decrease the number of authorized shares of our Common Stock, and investors might consider the resulting increased proportion of unissued authorized shares to issued shares to have an anti-takeover effect under certain circumstances, because the proportion allows for dilutive issuances which could prevent certain stockholders from changing the composition of the Board of Directors or render tender offers for a combination with another entity more difficult to complete successfully. The Board of Directors does not intend for the reverse stock split to have any anti-takeover effects.

Principal Effects of the Reverse Stock Split

        Common Stock.    If this proposal is approved by the stockholders at the Annual Meeting and the Board of Directors determines to effect the reverse stock split and thus amend the Certificate of Incorporation, the Company will file a certificate of amendment to the Certificate of Incorporation with the Secretary of State of the State of Delaware. Each issued share of Common Stock immediately prior to the Effective Date will automatically be changed, as of the Effective Date, into a fraction of a share of Common Stock based on the exchange ratio within the approved range determined by the Board of Directors. In addition, proportional adjustments will be made to the maximum number of shares issuable under, and other terms of, our stock plans, as well as to the number of shares issuable under, and the exercise price of, our outstanding options.

        Because the reverse stock split would apply to all issued shares of our Common Stock, the proposed reverse stock split would not alter the relative rights and preferences of existing stockholders nor affect any stockholder's proportionate equity interest in the Company (except for the effect of eliminating fractional shares). For example, a holder of 2% of the voting power of the outstanding shares of our Common Stock immediately prior to the effectiveness of the reverse stock split will continue to hold 2% of the voting power of the outstanding shares of our Common Stock immediately after the reverse stock split. Moreover, the number of stockholders of record will not be affected by the reverse stock split.

        Effect on Outstanding Stock Options and Restricted Stock Units.    Under the terms of the Incentive Plan, the Compensation Committee will make appropriate adjustments to outstanding awards to reflect the effect of the reverse stock split. Appropriate adjustments will also be made to the maximum number of shares that may be issued under the Incentive Plan. This includes new shares that are proposed under Proposal 3, requesting approval of an amendment to increase the number of shares available under the Incentive Plan.

        Listing.    Our shares of Common Stock currently trade on the Nasdaq Capital Market. The reverse stock split will not directly affect the listing of our Common Stock on the Nasdaq Capital Market, although we believe that a reverse stock split could potentially increase our stock price, facilitating compliance with Nasdaq's minimum bid price listing requirement. Following the reverse stock split, our Common Stock will continue to be listed on the Nasdaq Capital Market under the symbol "CPST," although our Common Stock would have a new committee on uniform securities identification procedures ("CUSIP") number, a number used to identify our Common Stock.

        "Public Company" Status.    Our Common Stock is currently registered under Section 12(b) and 12(g) of the Exchange Act and we are subject to the periodic reporting and other requirements of the Exchange Act. The proposed reverse stock split will not affect our status as a reporting company or this registration under the Exchange Act. The reverse stock split is not intended as, and will not have the effect of, a "going private transaction" covered by Rule 13e-3 under the Securities Exchange Act of 1934.

        Odd Lot Transactions.    It is likely that some of our stockholders will own "odd-lots" of less than 100 shares following a reverse stock split. A purchase or sale of less than 100 shares (an "odd lot" transaction) may result in incrementally higher trading costs through certain brokers, particularly "full service" brokers, and generally may be more difficult than a "round lot" sale. Therefore, those stockholders who own less than 100 shares following a reverse stock split may be required to pay somewhat higher transaction costs and may experience some difficulties or delays should they then determine to sell their shares of Common Stock.

        Authorized but Unissued Shares; Potential Anti-Takeover Effects.    Our Certificate of Incorporation authorizes 515,000,000 shares of Common Stock and 10,000,000 shares of Preferred Stock. The reverse stock split would not change the number of authorized shares of the Common Stock or Preferred Stock as designated. Therefore, because the number of issued and outstanding shares of Common Stock would decrease, the number of shares remaining available for issuance by us in the future would increase.

        These additional shares would be available for issuance from time to time for corporate purposes such as issuances of Common Stock in connection with capital-raising transactions and acquisitions of companies or other assets, as well as for issuance upon conversion or exercise of securities such as convertible preferred stock, convertible debt, warrants or options convertible into or exercisable for Common Stock. We believe that the availability of the additional shares will provide us with the flexibility to meet business needs as they arise, to take advantage of favorable opportunities and to respond effectively in a changing corporate environment. For example, we may elect to issue shares of Common Stock to raise equity capital, to make acquisitions through the use of stock, to establish strategic relationships with other companies, to adopt additional employee benefit plans or reserve additional shares for issuance under such plans, where the Board of Directors determines it advisable to do so, without the necessity of soliciting further stockholder approval, subject to applicable stockholder vote requirements under the Delaware General Corporation Law and the Nasdaq rules. If we issue additional shares for any of these purposes, the aggregate ownership interest of our current stockholders, and the interest of each such existing stockholder, would be diluted, possibly substantially.

        The additional shares of our Common Stock that would become available for issuance upon an effective reverse stock split could also be used by us to oppose a hostile takeover attempt or delay or prevent a change of control or changes in or removal of our management, including any transaction that may be favored by a majority of our stockholders or in which our stockholders might otherwise receive a premium for their shares over then-current market prices or benefit in another manner. Although the increased proportion of authorized but unissued shares to issued shares could, under certain circumstances, have an anti-takeover effect, the reverse stock split is not being proposed in order to respond to a hostile takeover attempt or to an attempt to obtain control of the Company.

        The following table contains approximate information relating to our Common Stock under certain of the possible exchange ratios, based on share information as of July 1, 2015:

Board Discretion to Implement or Abandon Reverse Stock Split

        The reverse stock split will be effected, if at all, only upon a determination by our Board of Directors that the reverse stock split (with an exchange ratio determined by our Board as described above) is in the Company's best interest. Such determination shall be based upon certain factors, including, but not limited to our ability to have our shares of Common Stock remain listed on the Nasdaq Capital Market, the historical trading price and trading volume of our Common Stock, the then prevailing trading price and trading volume of our Common Stock and the anticipated impact of the reverse split on the trading market for our Common Stock, the anticipated impact of the reverse split on our ability to obtain additional financing, and prevailing general market and economic conditions. No further action on the part of stockholders would be required to either implement or abandon the reverse stock split. If the stockholders approve the proposal and the Board of Directors determines to effect the reverse stock split, we would communicate to the public, prior to the Effective Date, additional details regarding the reverse split, including the specific ratio selected by the Board of Directors. The Board of Directors reserves its right to elect not to proceed with the reverse stock split if it determines, in its sole discretion, that this proposal is no longer in the Company's best interests.

Fractional Shares

        Stockholders will not receive fractional post-reverse stock split shares in connection with the reverse stock split. Instead, stockholders of record who otherwise would be entitled to receive fractional shares will be entitled to rounding up of the fractional share to the nearest whole number.

No Dissenters' Rights

        Under Delaware law, our stockholders would not be entitled to dissenters' rights or rights of appraisal in connection with the implementation of the reverse stock split, and we will not independently provide our stockholders with any such rights.

Accounting Consequences

        Following the Effective Date of the reverse stock split, if any, the net income or loss and net book value per share of Common Stock will be increased because there will be fewer shares of the Common Stock outstanding. We do not anticipate that any other accounting consequences would arise as a result of the reverse stock split.

Exchange of Stock Certificates

        As of the Effective Date, each certificate representing shares of our Common Stock outstanding before the reverse stock split will be deemed, for all corporate purposes, to evidence ownership of the reduced number of shares of our Common Stock resulting from the reverse stock split. All shares underlying options and other securities exchangeable or exercisable for or convertible into Common Stock also automatically will be adjusted on the Effective Date.

        Our transfer agent, Computershare Inc., will act as the exchange agent for purposes of exchanging stock certificates subsequent to the reverse stock split. Shortly after the Effective Date, stockholders of record will receive written instructions requesting them to complete and return a letter of transmittal and surrender their old stock certificates for new stock certificates reflecting the adjusted number of shares as a result of the reverse stock split. Certificates representing shares of Common Stock issued in connection with the reverse stock split will continue to bear the same restrictive legends, if any, that were borne by the surrendered certificates representing the shares of Common Stock outstanding prior to the reverse stock split. No new certificates will be issued until such stockholder has surrendered any outstanding certificates, together with the properly completed and executed letter of transmittal, to the exchange agent. Until surrendered, each certificate representing shares of Common Stock outstanding before the reverse stock split would continue to be valid and would represent the adjusted number of shares, based on the ratio of the reverse stock split.

        Any stockholder whose stock certificates are lost, destroyed or stolen will be entitled to a new certificate or certificates representing post-reverse stock split shares upon compliance with the requirements that we and our transfer agent customarily apply in connection with lost, destroyed or stolen certificates. Instructions as to lost, destroyed or stolen certificates will be included in the letter of instructions from the exchange agent.

        Upon the reverse stock split, we intend to treat stockholders holding our Common Stock in "street name", through a bank, broker or other nominee, in the same manner as registered stockholders whose shares are registered in their names. Banks, brokers and other nominees will be instructed to effect the reverse stock split for their beneficial holders holding our Common Stock in "street name." However, such banks, brokers and other nominees may have different procedures than registered stockholders for processing the reverse stock split. If you hold your shares in "street name" with a bank, broker or other nominee, and if you have any questions in this regard, we encourage you to contact your bank, broker or nominee.

        YOU SHOULD NOT DESTROY YOUR STOCK CERTIFICATES AND YOU SHOULD NOT SEND THEM NOW. YOU SHOULD SEND YOUR STOCK CERTIFICATES ONLY AFTER YOU HAVE RECEIVED INSTRUCTIONS FROM THE EXCHANGE AGENT AND IN ACCORDANCE WITH THOSE INSTRUCTIONS.

        If any certificates for shares of Common Stock are to be issued in a name other than that in which the certificates for shares of Common Stock surrendered are registered, the stockholder requesting the reissuance will be required to pay to us any transfer taxes or establish to our satisfaction that such taxes have been paid or are not payable and, in addition, (a) the transfer must comply with all applicable federal and state securities laws, and (b) the surrendered certificate must be properly endorsed and otherwise be in proper form for transfer.

Book-Entry

•

If you hold registered shares of the Company's Common Stock in book-entry form, you do not need to take any action to receive your post-reverse stock split shares of the Company's Common Stock in registered book-entry form.



•

If you are entitled to post-reverse stock split shares of the Company's Common Stock, a transaction statement will automatically be sent to your address of record by our transfer agent as soon as practicable after the Effective Date of the reverse stock split indicating the number of shares of the Company's Common Stock you hold.

Vote Required and Recommendation

        The Delaware General Corporation Law and our Certificate of Incorporation require that, in order for us to amend the Certificate of Incorporation to give effect to the reverse stock split, such amendment must be approved by our Board of Directors and approved by the affirmative vote of a majority of the outstanding shares of stock entitled to vote on such an amendment.

        Our Board of Directors adopted resolutions on June 4, 2015, approving the reverse stock split and the amendment to our Certificate of Incorporation and declaring that the amendment to the Certificate of Incorporation to effect the reverse stock split is advisable and in the best interests of the Company and its stockholders.

THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE "FOR"AS A DIRECTOR OF THE PROPOSAL TO APPROVE THE AMENDMENT TO THE COMPANY'S SECOND AMENDED AND RESTATED CERTIFICATE OF INCORPORATION TO EFFECT A REVERSE SPLIT OF OUR OUTSTANDING SHARES OF COMMON STOCK, AS DETERMINED IN THE SOLE DISCRETION OF OUR BOARD OF DIRECTORS.

PROPOSAL 3
APPROVAL OF AN AMENDMENT TO THE 2000 EQUITY INCENTIVE PLAN

        Our Board of Directors has adopted, subject to approval of the stockholders, an amendment of the Capstone Turbine Corporation 2000 Equity Incentive Plan (the "Incentive Plan"). Our Board of Directors believes that stock-based incentives have been and will continue to be crucial to Capstone's ability to attract and retain outstanding employees.

General Description of the Incentive Plan

        Below is a summary of the Incentive Plan, as amended. This summary is qualified in its entirety by reference to the full text of the amendment to the Incentive Plan, a copy of which is attached hereto asAppendix BCOMPANY.

Key Change in Amendment

        The amended Incentive Plan is substantially similar to the Incentive Plan prior to the amendment, except that the number of shares available for awards is increased. An additional 9,000,000 shares are added to the pool available for awards. This increase in authorized shares is needed because the current pool of shares is substantially depleted, with only 4,194,450 shares available for grant as of July 1, 2015.

General

        The Incentive Plan authorizes the Compensation Committee to award stock incentives to employees, consultants and members of the Board of Directors. The purpose of the Incentive Plan is to allow the Company to recruit, hire and retain the best available personnel for various positions throughout the Company, which is intended to enhance the long-term value of our stockholders' equity. The Incentive Plan, as amended, provides for an aggregate of 36,980,000 authorized shares of Common Stock, of which 13,194,450 shares will be available for future grant. Shares that are forfeited under existing awards can be reissued under new award grants. No individual may receive awards that provide more than 3,000,000 shares of Common Stock, in the aggregate, during a calendar year. Shares of Common Stock available under the Incentive Plan are authorized but unissued shares.

Types of Awards

        The Incentive Plan provides for awards of stock options, restricted stock units, restricted stock and stock bonus awards. Awards are generally earned or become "vested" upon specific conditions specified in the grant. Awards are immediately forfeited if service with the Company is terminated for cause. Some types of awards under the Incentive Plan may be issued to our executive officers as "performance based compensation" under Section 162(m) of the Internal Revenue Code (the "Code"). Stock options generally provide performance based compensation. Otherwise, payment under an award should be conditioned on achievement of certain performance goals in order to satisfy Section 162(m) of the Code. The Compensation Committee will determine at the time that an award is made if it is intended to be performance based compensation.

        Restricted Stock Units.    A restricted stock unit award is the right to receive a specified number of shares of Common Stock in the future after vesting conditions specified in the award are satisfied. Restricted stock units will be forfeited if the participant terminates employment prior to vesting or if any performance vesting conditions are not satisfied within the performance period specified in the award. The participant does not become a stockholder until the vesting conditions are satisfied.

        Restricted Stock.    Restricted stock is an award of a specified number of shares of Common Stock that are transferred to a participant at the time of the award. The shares are subject to forfeiture until

vesting conditions specified in the award are satisfied. Restricted stock will be forfeited if the participant terminates employment prior to vesting or if any performance vesting conditions are not satisfied within the performance period specified in the award. The participant is a stockholder at the time the award is granted.

        Stock Bonus Awards.    A stock bonus is an award of Common Stock that may be subject to certain vesting conditions and/or the payment of a purchase price, as determined by the Compensation Committee in its discretion. The Incentive Plan permits our directors to elect to receive a stock bonus equal in value to directors fees that otherwise would be paid in cash.

        Stock Options.    A stock option permits the participant to purchase Common Stock at a fixed price. Options awarded to employees of Capstone may be "incentive stock options," as defined in Section 422 of the Code, which provide certain tax advantages to employees (described below). Options become exercisable after a specified "vesting" period or upon achievement of performance goals established by the Compensation Committee. Payment of the exercise price may be in cash to Capstone, which may be provided through a broker-assisted trade, or, if approved by the Compensation Committee, a "cashless" exercise method such as surrendering previously acquired shares of Common Stock. The participant does not become a stockholder until the option is exercised.

        The maximum term of an incentive stock option granted under the Incentive Plan is generally 10 years (five years for an incentive stock option granted to a 10% stockholder). The exercise price must be no less than the fair market value of our Common Stock on the grant date (110% for an incentive stock option granted to a 10% stockholder). Fair market value is determined by reference to the trading price of our Common Stock. Options generally must be exercised within three months following termination of service with the Company, or within one year in case of disability or death.

Plan Benefits

        The following information about the Incentive Plan is as of July 1, 2015:

•

There were options outstanding to purchase 12,001,194 shares of Common Stock under the Incentive Plan. The exercise price of these options is the fair market value of our Common Stock on the date of grant. Based on the closing sale price of our Common Stock on July 1, 2015, the aggregate market value of the 12,001,194 shares of Common Stock underlying outstanding options granted pursuant to the Incentive Plan was approximately $4.8 million.



•

There were 1,601,255 restricted stock units outstanding. Based on the closing sale price of our Common Stock on July 1, 2015, the aggregate market value of the 1,601,255 shares of Common Stock underlying outstanding restricted stock units granted pursuant to the Incentive Plan was approximately $0.6 million.



•

4,194,450 shares were remaining for future grant under the Incentive Plan. 232 employees and all of our directors were eligible to participate in the Incentive Plan.

Administration

        The Compensation Committee administers the Incentive Plan in accordance with its charter. Members must be "independent" as determined by the Board under Nasdaq standards as well as the requirements under SEC Rule 16b-3 and Section 162(m) of the Code. The Compensation Committee determines the terms of all awards, including conditions for vesting or exercise, the exercise price, the number of shares subject to each award and the forms of payment permitted upon exercise. The Compensation Committee may delegate to the Chief Executive Officer the authority to grant awards under the Incentive Plan to eligible persons who are not officers or directors of the Company.

Amendment and Termination

        The Board of Directors may amend, suspend or terminate the Incentive Plan, provided that stockholder approval is required for any material amendment to the Incentive Plan. Material amendments include an increase in the number of shares that may be issued under the Incentive Plan and certain changes to the types of awards or class of persons eligible to receive awards. No amendment to the Incentive Plan can adversely affect a participant's rights under an award without the participant's consent.

Effect of Reverse Stock Split

        Under the terms of the Incentive Plan, the Compensation Committee will make appropriate adjustments to outstanding awards to reflect the effect of the reverse stock split. The number of shares authorized under the Incentive Plan will be adjusted by the Compensation Committee proportionately for the reverse stock split. See "Effect on Outstanding Stock Options and Restricted Stock Units" under Proposal 2 for a description of the effects of the reverse stock split on outstanding awards under the Incentive Plan.

Change in Control

        Outstanding awards will become fully vested in certain circumstances following a change in the control of the Company for participants whose service is terminated in connection with the change in control.

General Federal Income Tax Consequences

        Tax consequences to the Company and to individuals receiving awards will vary with the type of award. Generally, a participant will not recognize income, and the Company is not entitled to take a deduction, upon the grant of an award, other than a stock bonus award that is fully vested when granted. A participant who exercises incentive stock options will not recognize income on exercise. The exercise of an incentive stock option, however, gives rise to a preference under the alternative minimum tax rules. If Common Stock acquired on exercise of an incentive stock option is held for at least two years after the option is granted and one year after the date of exercise, the participant will be subject to capital gains tax on the difference between the price paid on exercise and the fair market value of the Common Stock at the time it is sold. However, if the Common Stock is sold before the end of this holding period, the sale is treated as a "disqualifying disposition" and the participant is taxed at ordinary income rates on the difference between the exercise price and the fair market value of Common Stock at the time of exercise.

        A participant is subject to ordinary income tax upon the exercise of a nonqualified option on the difference between the exercise price and the fair market value of Common Stock. Any subsequent gain on the sale of the Common Stock will be taxed as a capital gain.

        There is generally no tax upon the receipt of restricted stock units, restricted stock or a stock bonus award, unless the stock bonus award is fully vested at the time of grant. A participant will recognize ordinary income on the fair market value of the Common Stock at the time the award becomes vested, less any purchase amount paid to acquire the Common Stock under the award. However, an individual may elect to be taxed at the time restricted stock or a stock bonus is granted under Section 83(b) of the Code. The individual's tax basis in Common Stock acquired through a stock bonus, restricted stock or restricted stock units is the amount paid under the award plus the amount of ordinary income that is recognized. Any subsequent gain or loss on the sale of Common Stock is subject to capital gains tax treatment.

        The Company generally obtains a tax deduction that is equivalent to the amount of ordinary income recognized by a participant upon the exercise of options or the vesting of restricted stock units, restricted stock or a stock bonus. The Company's tax deduction may be limited in some circumstances for awards that qualify under Section 162(m) of the Code as "performance based compensation." See "General Description of the Incentive Plan—Types of Awards" for a discussion of performance based compensation.

        The federal income tax consequences described in this section are based on the laws and regulations of the United States of America currently in effect, and there is no assurance that the laws and regulations will not change in the future and affect the tax consequences of the matters discussed in this section.

Required Vote for Approval; Recommendation of the Board of Directors

        Assuming the presence of a quorum, the affirmative vote of the holders of a majority of the shares present in person or represented by proxy and entitled to vote at the Annual Meeting will be required for approval of this proposal. Information regarding the method by which votes will be counted appears on page one of this Proxy Statement under the heading "Voting Procedures."

THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE "FOR" THE PROPOSAL TO APPROVE THE AMENDMENT TO THE 2000 EQUITY INCENTIVE PLAN.

PROPOSAL 4
NON-BINDING ADVISORY VOTE ON EXECUTIVE COMPENSATION

        The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 enables the Company's stockholders to vote to approve, on an advisory basis, the compensation of the Company's Named Executive Officers as described in the "Compensation Discussion and Analysis" section and the executive compensation tables contained in this Proxy Statement. The stockholders elected to hold this vote annually at the Company's 2011 annual meeting of stockholders. Because your vote is advisory, it will not be binding on the Board of Directors or the Compensation Committee; however, the Compensation Committee will review the voting results and take them into consideration when making future decisions regarding executive compensation. The Board of Directors is requesting that the stockholders hold this vote pursuant to Section 14A of the Exchange Act, as amended.

        As described in the "Compensation Discussion and Analysis" section beginning on page 31 of this Proxy Statement, the Company's executive compensation program for its Named Executive Officers is designed to attract, motivate and retain a highly qualified group of executives and maintain a close correlation between the rewards to the Company's executives and the strategic success of the Company and the performance of its stock. The Company believes that its executive compensation programs have been effective at promoting the achievement of positive results in its performance criteria, appropriately aligning pay and performance and enabling the Company to attract and retain talented executives within its industry.

        The Company is asking its stockholders to indicate their support for the compensation of the Named Executive Officers disclosed in this Proxy Statement, which is described in the Summary Compensation Table on page 46 of this Proxy Statement and under "Compensation Discussion and Analysis." The disclosures in the Proxy Statement are made in accordance with SEC regulations (including Item 402 of SEC Regulation S-K). This proposal, commonly known as the "say-on-pay" proposal, gives our stockholders the opportunity to express their views on the Company's executive compensation. This vote is not intended to address any specific item of compensation, but rather the overall compensation of the Named Executive Officers and the policies and practices described in this Proxy Statement. Accordingly, the Company is asking its stockholders to vote "FOR" the following resolution:

        RESOLVED, that the Company's stockholders approve, on an advisory basis, the compensation of the Company's Named Executive Officers, as disclosed pursuant to SEC regulations in the Company's Proxy Statement for the 2015 annual meeting of stockholders.

Required Vote for Approval; Recommendation of the Board of Directors

        Although the results of this vote are not binding on the Board of Directors or the Compensation Committee, the Compensation Committee will review the voting results and take them into consideration when making future decisions regarding executive compensation. Information regarding the method by which votes will be counted appears on page one of this Proxy Statement under the heading "Voting Procedures."

THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE "FOR" THE RESOLUTION TO APPROVE THE COMPENSATION OF THE COMPANY'S NAMED EXECUTIVE OFFICERS.

PROPOSAL 5

RATIFICATION OF SELECTION OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

        The Audit Committee has selected KPMG LLP as the Company's independent registered public accounting firm for the fiscal year ending March 31, 2016 (the "2016 Fiscal Year"). KPMG LLP is considered by management to be well-qualified. Representatives of KPMG LLP are expected to be present at the Annual Meeting and will have an opportunity to make any statement they consider appropriate and to respond to any appropriate stockholders' questions at that time.

Required Vote for Ratification; Recommendation of the Board of Directors

        Stockholder ratification of the Audit Committee's selection of KPMG LLP as the Company's independent registered public accounting firm is not required by the Company's bylaws or otherwise; however, the Board of Directors has elected to submit the selection of KPMG LLP to the Company's stockholders for ratification. The Company is seeking an affirmative vote of the holders of a majority of the shares present in person or represented by proxy and entitled to vote at the Annual Meeting, if a quorum is present, in order to ratify the selection of the independent registered public accounting firm. If the appointment of KPMG LLP is not ratified by the stockholders, the matter will be referred to the Audit Committee for further review. Information regarding the method by which votes will be counted appears on page one of this Proxy Statement under the heading "Voting Procedures."

THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE "FOR" THE PROPOSAL TO RATIFY THE SELECTION OF KPMG LLP AS THE COMPANY'S INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM.

GOVERNANCE OF THE COMPANY AND PRACTICES OF THE BOARD OF DIRECTORS

Board of Directors; Leadership Structure

 As of the date hereof, the Board of Directors consists of nine directors: Gary D. Simon (Chair), Richard K. Atkinson, John V. Jaggers, Darren R. Jamison, Noam Lotan, Gary J. Mayo, Eliot G. Protsch, Holly A. Van Deursen and Darrell J. Wilk. As noted above, Mr. Jaggers will be retiring at the Annual Meeting. The Board of Directors has determined that all of the members of the Board of Directors, other than Mr. Jamison, are "independent directors" as defined by Nasdaq rules.

The Board of Directors met ten (10)fifteen (15) times during the fiscal year ended March 31, 20152017 (the "2015“2017 Fiscal Year"Year”).  The Board of Directors has established an Audit Committee (the “Audit Committee”), a Compensation Committee (the “Compensation Committee”), and a Nominating and Corporate Governance Committee (the “Nominating and Corporate Governance Committee”). During Fiscal 2017, each of the directorsdirector attended or participated in more thanat least 75% of the aggregate of (i)(1) the total number of meetings of the Board of Directors of the Company (held during the period for which he or she has been a director) and (ii)(2) the total number of meetings held byof all committees of the Board of Directors of the Company on which suchthe director served.served (during the periods that he or she served). The Company strongly encourages each member of the Board of Directors to attend each annual meeting of stockholders. EightAll of the nine directors serving on the Board of Directors at the time attended the 2014 annual meeting of stockholders.2016 Annual Meeting. The Company'sCompany’s independent directors met in executive session, without members of the Company'sCompany’s management present, at all of the in-person meetings of the Board of Directors in the 2015 Fiscal Year.2017.

The Board of Directors is committed to having a sound governance structure that promotes the best interests of all of the Company'sCompany’s stockholders. To that end, the Board of Directors has evaluated and actively continues to examine emerging corporate governance trends and best practices. Stockholder perspectives play an important role in that process. The level of importance afforded to stockholder perspectives by the Board of Directors is evident upon a closer review of the Board of Directors'Directors’ governance structure. Some key points regarding that structure are as follows:

•

The Board of Directors is predominantly independent. Of our nine directors, only one (our President and Chief Executive Officer) is an employee of the Company. Further, the Board of Directors has affirmatively determined that eight of our nine directors are independent under SEC and Nasdaq corporate governance rules, as applicable.



•

All members of the Board of Directors are elected annually to one-year terms.



•

Our board committees are comprised exclusively of independent directors.



•

Our independent directors meet in executive session at every in-person board meeting.



•

We have separated the roles of Chairman of the Board of Directors and Chief Executive Officer. Our Chairman focuses on board oversight responsibilities, strategic planning, setting board agendas and mentoring company officers, as well as facilitating communications between the Board of Directors and management.



•

Our Board of Directors is very active. As noted above, each of our directors attended more than 75% of the 2015 Fiscal Year board meetings and meetings of the committees on which such director served.

We believe our Board of Directors structure serves the interests of stockholders by balancing board continuity and the promotion of long-termlong‑term thinking with the need for director accountability.

Board Committees

Risk Oversight

The Board of Directors oversees an enterprise‑wide approach to risk management designed to support the achievement of organizational objectives, including strategic objectives, to improve long‑term organizational performance and to enhance stockholder value. A fundamental part of risk management is not only understanding the risks the Company faces and what steps management is taking to manage those risks, but also understanding what level of risk is appropriate for the Company. The involvement of the full Board of Directors in setting the Company’s business strategy is a key part of its assessment of management’s appetite for risk and also a determination of what constitutes an appropriate level of risk for the Company. The full Board of Directors participates in an annual enterprise risk management assessment.

While the Board of Directors has designated anthe ultimate oversight responsibility for the risk management process, various committees of the Board of Directors also have responsibility for risk management. In particular, the Audit Committee afocuses on financial risk, including internal controls, and receives an annual risk assessment report from the Company’s internal auditors. In setting compensation, the Compensation Committee strives to create incentives that encourage a level of risk‑taking behavior consistent with the Company’s business strategy and a Nominatingis responsible for oversight with respect to compensation and Corporate Governance Committee.succession planning risks.

Audit Committee

The Audit Committee currently consists of Messrs. AtkinsonProtsch (Chair), Lotan Protsch and Simon. Effective as of the Annual Meeting, the Audit Committee will consist of Messrs. Protsch (Chair) and Lotan and Ms. Jorden. Each member of the Audit Committee is an "independent director"“independent director” pursuant to NasdaqNASDAQ rules and is "financially literate"“financially literate” within the meaning of NasdaqNASDAQ rules. The Audit Committee is constituted to comply with Section 3(a)(58)(A) of the Exchange Act and is responsible, among other items, for: (i) monitoring the Company'sCompany’s financial reporting and overseeing accounting practices; (ii) annually retaining the independent public accountants as auditors of the books, records, financial statements and accounts of the Company; (iii) monitoring the scope of audits made by the independent public accountants and the audit reports submitted by the independent public accountants; (iv) overseeing the systems of internal control which management and the Board of Directors have established; and (v) discussing with management and the independent and internal auditors the Company'sCompany’s major financial risk exposure and the steps taken to monitor and control such exposure. In addition, the Audit Committee has the duties of a "qualified“qualified legal compliance committee,"” including monitoring and reviewing stockholder complaints, and also reviews and approves all related-partyrelated party transactions. The Audit Committee operates under a written charter adopted by the Board of Directors, a copy of which is available on the Company'sCompany’s website atwww.capstoneturbine.com. Pursuant to its written charter, the Audit Committee reviews its charter on an annual basis for compliance, best practices and any other needed updates or changes. During the 2015 Fiscal Year,2017, the Audit Committee held six (6)seven meetings. The Board of Directors has determined that each member of the Audit Committee is an "audit“audit committee financial expert,"” as that term is defined by applicable rules adopted by the SEC. The Board of Directors has further determined that each member of the Audit Committee is independent as defined by NasdaqNASDAQ rules.

Audit Committee Report

In performing its functions, the Audit Committee acts primarily in an oversight capacity. 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. The Company’s independent registered public accountants have the primary responsibility for performing an independent audit of the Company’s financial statements and expressing an opinion as to the conformity of such financial statements with generally accepted auditing principals. Members of the Audit Committee are not professionally engaged in the practice of auditing or accounting, and all members are not experts in the fields of accounting or auditing, including auditor independence. The Audit Committee relies on the work and assurances of the Company’s management, which has the primary responsibility for preparing financial statements and reports and implementing internal controls over financial reporting. In addition, the Audit Committee selects the Company’s independent registered public accountants and has the authority to engage independent counsel and other advisors as it deems necessary.

In this context, the Audit Committee has reviewed and discussed the audited consolidated financial statements of the Company contained in the Company’s Annual Report on Form 10‑K as of and for the year ended March 31, 2017 with management and Marcum LLP, the Company’s independent registered public accounting firm for the year ended March 31, 2017. The Audit Committee has discussed with Marcum LLP the matters required to be discussed by the Statement on Auditing Standards No. 61, as amended (AICPA, Professional Standards, Vol. 1. AU section 380), as adopted by the Public Company Accounting Oversight Board in Rule 3200T, both with and without management present. In addition, the Audit Committee has received and reviewed the written disclosures and the letter from Marcum LLP required by applicable requirements of the Public Company Accounting Oversight Board regarding Marcum LLP’s communications with the Audit Committee concerning independence and has discussed with Marcum LLP their independence from the Company.

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 the management of the Company and by the independent auditors. Based on the review and discussions described above, the Audit Committee recommended to the Board of Directors that the audited consolidated financial statements be included in the Company’s Annual Report on Form 10‑K as of and for the year ended March 31, 2017 for filing with the SEC.

The information contained in this report shall not be deemed to be “soliciting material” or “filed” with the SEC or subject to Regulation 14A other than as provided in SEC Regulation S‑K, Item 407 or subject to the liabilities of Section 18 of the Securities Exchange Act of 1934, as amended, except to the extent that the Company specifically requests that the information be treated as soliciting material or specifically incorporates it by reference into a document filed under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended.

Compensation Committee

Compensation Committee

The Compensation Committee currently consistsduring Fiscal 2017 consisted of Messrs. Mayo (Chair) and Simon and Ms. Van Deursen. Effective as of the Annual Meeting, the Compensation Committee will consist of Mr. Mayo (Chair), Jaggers and WilkMs. Jorden and Ms. Van Deursen. The Compensation Committee is comprised solely of directors who qualify as independent for purposes of NasdaqNASDAQ rules, SEC Rule 16b-316b‑3 and Section 162(m) of the Code in conformance with the committee'sCompensation Committee’s charter. The functions of the Compensation Committee include: (i) for the purposes of compensation, reviewing the performance and development of the Company'sCompany’s senior management in achieving corporate goals and objectives; (ii) determining the salary, benefits and other compensation of the executive officers and reviewing the compensation programs for the Company; and (iii) administering the following benefit plans of Capstone: the 2000 Employee Stock Purchase Plan as amended and restated in 2010, the 2000 Equity Incentive Plan (the “Incentive Plan”) and the Executive Performance Incentive Plan (the "Executive Plan"“Executive Plan”). The Compensation Committee operates under a written charter adopted by the Board of Directors, a copy of which is available on the Company'sCompany’s website atwww.capstoneturbine.com. Pursuant to its written charter, the Compensation Committee reviews its charter on an annual basis for compliance, best practices and any other needed updates or changes. During the 2015 Fiscal Year,2017, the Compensation Committee held eighteen (18)seven meetings. Processes and procedures for determining executive and director compensation, including authority and delegation, and the role of executive officers, if any, are discussed elsewhere in this Proxy Statement in the section entitled "Compensation Discussion and Analysis."

Proposal 7.

Nominating and Corporate Governance Committee

The Nominating and Corporate Governance Committee currently consists of Ms. Van DeursenMessrs. DeWeese (Chair), Mayo and Protsch. Effective as of the Annual Meeting, the Nominating and Corporate Governance Committee will consist of Messrs. DeWeese (Chair), Mayo Protsch and Wilk.Protsch. The Nominating and Corporate Governance Committee is comprised solely of "independent directors"“independent directors” as defined by NasdaqNASDAQ rules in conformance with the committee'sNominating and Corporate Governance Committee’s charter. The Nominating and Corporate Governance Committee is responsible for, among other things, (i) monitoring corporate governance matters; (ii) recommending to the full Board of Directors candidates for election to the Board of Directors and committees of the Board of Directors; and (iii) coordinating the Board of Directors evaluation process. The Nominating and Corporate Governance Committee operates under a written charter adopted by the Board of Directors, a copy of which is available on the Company'sCompany’s website atwww.capstoneturbine.com. Pursuant to its written charter, the Nominating and Corporate Governance Committee reviews its charter on an annual basis for compliance, best practices and any other needed updates or changes. During the 2015 Fiscal Year,2017, the Nominating and Corporate Governance Committee held fourteen (14)seven meetings. The Nominating and Corporate Governance Committee met subsequent to the end of the 2015 Fiscal Year2017 to recommend to the full Board of Directors each of the nominees for election to the Board of Directors as presented herein.

Risk Oversight

        The Board of Directors oversees an enterprise-wide approach to risk management designed to support the achievement of organizational objectives, including strategic objectives, to improve long-term organizational performance and to enhance stockholder value. A fundamental part of risk management is not only understanding the risks the Company faces and what steps management is taking to manage those risks, but also understanding what level of risk is appropriate for the Company. The involvement of the full Board of Directors in setting the Company's business strategy is a key part of its assessment of management's appetite for risk and also a determination of what constitutes an appropriate level of risk for the Company. The full Board of Directors participates in an annual enterprise risk management assessment.

        While the Board of Directors has the ultimate oversight responsibility for the risk management process, various committees of the Board of Directors also have responsibility for risk management. In particular, the Audit Committee focuses on financial risk, including internal controls, and receives an annual risk assessment report from the Company's internal auditors. In setting compensation, the Compensation Committee strives to create incentives that encourage a level of risk-taking behavior consistent with the Company's business strategy and is responsible for oversight with respect to compensation and succession planning risks. Also, the Company's Nominating and Corporate Governance Committee conducts an annual assessment of the risk management process and reports its findings to the full Board of Directors.

Board of Directors and Committee Performance Evaluations

The charter of each of the Audit Committee, the Compensation Committee and the Nominating and Corporate Governance Committee requires an annual performance evaluation, and the Company'sCompany’s Corporate Governance Principles also mandate an annual evaluation of the Board of Directors. Such performance evaluations are designed to assess whether the Board of Directors and its committees function effectively and make valuable contributions to the Company. In April 2015,2017, all members of the Company'sCompany’s Board of Directors were asked to assess the performance of the Board of Directors as well as assess each member’s skill sets and each committee on which they serveexperience and identify areas for improvement throughhow such skill sets and experience aligned with the completionneeds of a detailed questionnaire for each such committee and the Board of Directors. Counsel for the Company reviewedin reaching the Company’s strategic objectives. Each member completed questionnaires, consolidated the responsesassessment and delivered summaries of theprovided their responses to the Nominating and Corporate Governance Committee whichin April 2017. The Committee then reviewed the summaries in consultationand discussed said assessments with counsel for the CompanyCounsel and reported the findings to the Board of Directors inDirectors. In June

a right to vote or transfer any shares of any security of the corporation, or pursuant to which any shares held directly or indirectly by each such party may be voted or transferred by another party, (D) any short interest in any security of the corporation (for purposes of this requirement a person shall be deemed to have a short interest in a security if such person directly or indirectly, through any contract, arrangement, understanding, relationship or otherwise, has the opportunity to profit or share in any profit derived from any decrease in the value of the subject security), (E) any rights to dividends on the shares of the corporation owned beneficially by each such party that stockholder; (ii) a statementare separated or separable from the prospective candidate consentingunderlying shares of the corporation, (F) any proportionate interest in shares of the corporation or Derivative Instruments held, directly or indirectly, by a general or limited partnership in which such party is a general partner or, directly or indirectly, beneficially owns an interest in a general partner, (G) any performance-related fees (other than an asset-based fee) that such stockholder is or may be entitled to being namedbased on any increase or decrease in the proxy and proxy card if selected as a nominee and to serving on the Boardvalue of Directors if elected; (iii) a statement explaining whether the prospective candidate is "independent" under applicable laws, Nasdaq rules and otherwise; (iv) biographical datashares of the prospective candidate,corporation or Derivative Instruments, if any, as of the date of such notice, including formerwithout limitation any such interests held by members of such party’s immediate family sharing the same household (which information shall be supplemented by such stockholder and current service on other boardsbeneficial owner, if any, not later than ten (10) days after the record date for the meeting to disclose such ownership as of directors, business experiencethe record date) and current occupation, and(H) any direct or indirect equity interest, short interest, or Derivative Instrument, or any material contract or agreement of such party in or with any principal competitor of the corporation, (iii) any other information relating to such party that would be required to be disclosed in a proxy statement or other filings required to be made in connection with solicitations of proxies for, as applicable, the prospective candidateproposal and/or for the election of directors in a contested election pursuant to Section 14 of the Exchange Act and the recommendingrules and regulations promulgated thereunder (whether or not such party intends to deliver a proxy statement or conduct its own proxy solicitation), (iv) a statement as to whether or not each such party will deliver a proxy statement and form of proxy to holders of, in the case of a proposal, at least the percentage of voting power of all of the shares of the capital stock of the corporation required under applicable law to carry the proposal, or, in the case of a nomination or nominations for election of directors, at least the percentage of voting power of all of the shares of capital stock of the corporation reasonably believed by the such stockholder of record or beneficial owner or owners, as the case may be, to be sufficient to elect the persons proposed to be nominated by the stockholder of record; (v) the written consent of each such party to the public disclosure of information provided pursuant to this requirement; (vi) the investment strategy or objective, if any, of the stockholder and each such party; and (vii) an undertaking that each such stockholder agrees to indemnify and hold harmless the corporation against any liability, loss or damages incurred as a result of false or misleading information submitted by the stockholder pursuant to Section 14 of our bylaws. Additionally, the stockholder’s notice must set forth, as to each person whom the stockholder proposes to nominate for election or reelection to the Board of Directors (i) all information relating to such person that would be required to be disclosed in a proxy statement or other filings required to be made in connection with solicitations of proxies for election of directors; (v) transactionsdirectors in a contested election pursuant to Section 14 of the Exchange Act and the rules and regulations promulgated thereunder (including such person’s written consent to being named in the proxy statement as a nominee and to serving as a director if elected) and (ii) a description of all direct and indirect compensation and other material monetary agreements, arrangements and understandings during the past three years, and any other material relationships, between the recommended candidateor among such stockholder and the recommending stockholder,beneficial owner, if any, and their respective affiliates and associates, or others acting in concert therewith, on the one hand, and the Companyeach proposed nominee, and his or Company management,her respective affiliates and associates, or others acting in concert therewith, on the other hand, as well as a description ofincluding, without limitation all arrangements or understandings betweeninformation that would be required to be disclosed pursuant to Rule 404 promulgated under Regulation S-K if the recommending stockholder andmaking the prospective candidatenomination and any other person pursuant to whichbeneficial owner on whose behalf the nomination is being made, if any, or any affiliate or associate thereof or person acting in concert therewith, were the “registrant” for purposes of such rule and the nominee were a director or executive officer of such registrant; and include a completed and signed questionnaire, representation and agreement as more fully described in our bylaws. The corporation may require any proposed nominee to furnish such other information as may reasonably be required by the stockholder; (vi)corporation to determine the prospective candidate's Company stock trading history; (vii) anyeligibility of such proposed nominee to serve as an independent director of the corporation or that could be material proceedings to whicha reasonable stockholder’s understanding of the prospective candidateindependence, or his or her associateslack thereof, of such nominee.

The above does not purport to provide in detail the requirements for a stockholder’s nomination of the director. A stockholder interested in nominating a director to our Board of Directors is a party that are adverseencouraged to the Company; (viii) the prospective candidate's involvement in any past or present legal proceedings, including any involvement in legal proceedings involving the Company; (ix) information regarding whether the recommending stockholder or the recommended candidate, or affiliates of either of those parties, have any plans or proposals for the Company; (x) an explanation as to whether the recommending stockholderreview our bylaws and the prospective candidate intend to use the nomination to redress personal claims or grievances against the Company or others or to further personal interests or special interests not shared by the Company's stockholders at large; (xi) whether the prospective candidate is proposed to be nominated at the annual meeting of stockholders or is provided solelySEC’s proxy rules, as a recommendation for consideration by the committee; and (xii) any other relevant information

The Nominating and Corporate Governance Committee reviews the composition and size of the Board of Directors and determines the criteria for Board of Directors membership. In addition, the Nominating and Corporate Governance Committee reviews the qualifications, qualities, skills and other expertise of prospective candidates to determine whether they will make good candidates for membership on the Company'sCompany’s Board of Directors. This consideration includes, at a minimum, a review of each prospective candidate'scandidate’s character, judgment, experience, expertise, age, diversity, independence under applicable law and freedom from other conflicts, as well as other factors that the Nominating and Corporate Governance Committee deems relevant in light of the needs of the Board of Directors and the Company and/or that are in the best interests of the Company, including relevant experience, the ability to dedicate sufficient time, energy and attention to performance of Board of Directors duties, financial expertise, experience with a company that has introduced a new, technologically advanced product or service to the marketplace and existing relationships within target industries or public policy institutions that may benefit the Company and whether the prospective candidate is a Nominating and Corporate Governance Committee-selectedCommittee selected prospective candidate or a stockholder-recommendedstockholder recommended prospective candidate. The Nominating and Corporate Governance Committee selects qualified candidates and recommends those candidates to the Board of Directors, and the Board of Directors then decides if it will invite the candidates to be nominees for election to the Board of Directors.

The Nominating and Corporate Governance Committee also considers issues of diversity, such as diversity of education, professional experience and differences in viewpoints and skills. The Nominating and Corporate Governance Committee does not have a formal diversity policy in terms of considering nominees for directors, but it actively considers all relevant factors, including the factors outlined above, when evaluating potential nominees to the Board of Directors. The Nominating and Corporate Governance Committee developed a matrix of all relevant qualifications, skills and experience possessed by the incumbent members of the Board of Directors and identified certain areas where the Board of Directors needed additional attributes including, but not limited to, diversity. The Board of Directors and the Nominating and Corporate Governance Committee believe that it is essential that members of the Board of Directors represent diverse viewpoints.

The Nominating and Corporate Governance Committee uses the following process described herein to identify prospective candidates for the Board of Directors and to evaluate all candidates, including candidates recommended by stockholders in accordance with the Company'sCompany’s policy regarding stockholder recommendations and the director nominations process. The Nominating and Corporate Governance Committee: (i) reviews the composition and size of the Board of Directors and determines the criteria for Board of Directors membership; (ii) evaluates the Board of Directors for effectiveness and makes a verbal presentation of its findings to the Board of Directors; (iii) determines whether the current members of the Board of Directors who satisfy the criteria for Board of Directors membership are willing to continue in service; if the current members of the Board of Directors are willing to continue in service, the committeeNominating and Corporate Governance Committee evaluates the performance of such board members and considers those current members for re-nomination, and if the current members of the Board of Directors are not willing to continue in service or if there will be an increase in the number of directors on the Board of Directors, the Nominating and Corporate Governance Committee considers candidates who meet the criteria for Board of Directors membership; (iv) if necessary, engages a search firm to assist with the identification of potential candidates; (v) compiles a list of potential candidates; (vi) evaluates the prospective candidates, including candidates recommended by stockholders, to determine which of

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and indicating prominently on the outside of any envelope that the communication is intended for: (i) the Board of Directors; (ii) the ChairmanChair of the Board of Directors; (iii) a specific committee of the Board of Directors; (iv) the non-managementnon‑management directors; or (v) any director or subset of directors of the Board of Directors. The Secretary of the Board of Directors reviews all correspondence and regularly forwards to the appropriate director, directors or the Board of Directors, copies of all communications that, in the opinion of the Secretary, deal with the functions of or otherwise require the attention of individual directors, the Board of Directors or committees or subsets thereof. Unless, in the opinion of the Secretary, a communication is improper or irrelevant, a communication will not be withheld from its intended recipient(s) without the approval of the ChairmanChair of the Board of Directors, the Chair of the appropriate committee or the director who presides during non-managementnon‑management executive sessions.

Compensation Committee Interlocks and Insider Participation

        During the 2015 Fiscal Year, the Compensation Committee consisted of Messrs. Mayo (Chair), Jaggers and Wilk and Ms. Van Deursen. None of the committee members have Directors may, at any time, been an officer or employeereview a log of the Company nor did any of the members have any relationship with the Company requiring disclosureall correspondence received by the Company during the 2015 Fiscal Year. During the 2015 Fiscal Year, none of the Company's executive officers served as a member of the compensation committee of another entity, an executive officer of which served on the Compensation Committee of Capstone; none of the Company's executive officers served as a director of another entity, an executive officer of which served on the Compensation Committee of Capstone; and none of the Company's executive officers served as a member of the compensation committee of another entity, an executive officer of which served as a director of Capstone.

COMPENSATION DISCUSSION AND ANALYSIS

Executive SummaryEXECUTIVE OFFICERS OF THE COMPANY

The Compensation Committee reviewsnames and administers the process and substanceages of the Company's executive compensation program, including compensation of the Named Executive Officers (i.e., thoseall executive officers who appear in the Summary Compensation Table on page 46).

        During the 2015 Fiscal Year, the Company continued to execute its strategic plan while maintaining its compensation policies to align performance incentives with the interests of the Company's stockholders. Certain highlights from the 2015 Fiscal Year include the following:

•

The Compensation Committee maintained a Performance Restricted Stock Unit Program (the "PRSU Program") to link executive compensation with Company performance;



•

The Compensation Committee reviewed and maintained the peer group established for the 2015 Fiscal Year that the Company uses to benchmark the compensation of its Named Executive Officers;



•

There were no cash incentive payments to Named Executive Officers for the 2015 Fiscal Year as a result of performance goals not being achieved; and



•

The Compensation Committee modified the executive annual incentive program to strengthen the link between executive pay and performance.

Compensation Philosophy

Executive Compensation Philosophy and Objectives

        The Compensation Committee believes that the Company's executive compensation program should:

•

Attract and retain individuals of superior ability and managerial talent by offering total compensation that is competitive with a group of companies that are of comparable size within similar industries and other companies with which the Company competes for executive talent;



•

Establish goals and objectives that link incentive compensation to achievement of specific key strategic and financial performance goals;



•

Provide compensation that aligns the financial interests of executives with those of the Company's stockholders through long-term equity incentives that take into account the Company's performance;



•

Comply with all applicable laws and Nasdaq rules and guidelines, and ensure that compensation is appropriate in light of reasonable and sensible standards of good corporate governance; and



•

Be straightforward and easy to understand and administer.

Goal Alignment and Performance

        The Compensation Committee believes that the Company's compensation program should encourage and reward outstanding financial and strategic performance. In the 2009 Fiscal Year, the stockholders approved the Executive Plan pursuant to which the Compensation Committee may pay performance-based cash incentives to our executive officers upon the achievement of specific performance goals. The Compensation Committee also believes that the Named Executive Officers should receive a significant portion of their compensation in the form of equity, with a significant portion of grants conditioned on performance, thereby putting this portion of their compensation at risk and further aligning their long-term interests with the Company's strategic objectives and

stockholders' interests. With this structure, the Company's compensation program is designed to maintain a close correlation between the rewards to the Company's executives and the strategic success of the Company and the performance of its stock price.

        The Compensation Committee believes that a mix of stock options, time-based restricted stock units ("RSUs")principal occupation and performance-based restricted stock units ("PRSUs") is most appropriatebusiness experience for aligningat least the goals of senior executives with those of the Company's stockholders. Stock options provide a financial reward only in the event that stockholder values are increased. RSUs additionally provide value upon completion of service or other performance requirements, but are tied to stock price, impose less dilution of stockholder value and cause less volatility of the Company's stock price than do stock options. The Compensation Committee further believes that the PRSU Program discussed below will provide additional incentives to the participating Named Executive Officers and other senoir employees to increase stockholder value.

        The Compensation Committee reviews each component of compensationlast five years for each are set forth below. The age of our Named Executive Officers, but places more emphasis on the comparative value ofand biographical information regarding each Named Executive Officer's total direct compensation, rather than each compensation component. The Compensation Committee seeks to provide total direct compensation that is within the range of compensation of executives of comparable companies. Effective with the start of the 2015 Fiscal Year, we changed the peer group we use to benchmark executive compensation. The Compensation Committee believes that a significant portion of compensation should be at risk; therefore, the actual compensation realized by the Named Executive Officers depends on the level of performance achieved over both the short-term and long-term.

Peer Group

        The Compensation Committee relies on compensation information about comparable companies in consultation with an independent international compensation consulting firm (the "Compensation Consultant"). For the 2015 Fiscal Year, Towers Watson provided comprehensive compensation information to the Compensation Committee. The information provided by Towers Watson is described below under "Role of Compensation Consultant." The data included the levels of compensation paid at the 50th percentile and 75th percentile of a peer group of comparable companies. The Compensation Committee used this data for benchmarking to assess the competitiveness of our compensation arrangements for the Named Executive Officers.

        In setting compensation, the Compensation Committee reviews information provided by the Compensation Consultant regarding comparative market data, including comprehensive analyses of total compensation and compensation components based on published survey data appropriate to our annual revenue. The Compensation Committee historically used Radford's Global Technology Survey for the executive assessment with a focus on companies with $50 - $200 million in revenue; however, for pay decisions with respect to the 2015 Fiscal Year, the Compensation Committee revised its competitive pay market assessment methodology by including a peer group of 16 companies generally based on the following selection criteria:

•

Industry focus—Heavy Electrical Equipment; Industrial Machinery; Electrical Components & Equipment;



•

A target revenue range of 0.5x - 2.0x the Company's annual revenue; and



•

A target market capitalization range of 0.5x - 3.0x the Company's current market capitalization.

The resulting 16 peer group companies are listed below, and their data will be used by the Compensation Committee to supplement published survey data going forward:

Fuel Systems Solutions, Inc.		LSI Industries Inc.		Vicor Corporation		Enphase Energy, Inc.
Power Solutions International, Inc.		SL Industries, Inc.		FuelCell Energy, Inc.		Powersecure International, Inc.
Maxwell Technologies, Inc.		Westport Innovations Inc.		Key Technology, Inc.		PMFG, Inc.
Magnetek, Inc.		Allied Motion Technologies Inc.		Active Power, Inc.		Plug Power Inc.

Components of Compensation

        The basic components of compensation applicable to the executive officers are base salary, annual performance-based incentives and long-term incentives. The executive officers also receive employee benefits consistent with those offered to other employees of the Company. The Compensation Committee believes the Company is well served by a compensation structure that is easy to monitor, implement and disclose to its officers, employees and stockholders.

Base Salary

        The base salary for each of the Named Executive Officersofficer is based on historic long-term individual performance and is compared to base salaries for executives at comparable companies. The Compensation Committee believes that base salaries should also reflect other relevant factors, such as unique roles, responsibilities and experience.

Annual Performance-Based Cash Incentives

        Performance-based cash incentive payments to Named Executive Officers can be awarded by the Compensation Committee based on performance, achievement of specific goals and other relevant factors determined in advance by the Compensation Committee. Cash incentive awards are generally made pursuant to our Executive Plan. Payments under the awards are based on performance goals that are selected from the criteria described in the Executive Plan. Each objective is determined in reference to our financial statements and annual budget. The Compensation Committee retains discretion to reduce awards earned under the Executive Plan.

Long-Term Equity Incentives

        Policy.    The Compensation Committee has a policy regarding the granting of equity-based compensation awards. The policy generally provides that the Compensation Committee shall not backdate any equity grant or manipulate the timing of the public release of material information with the intent of benefiting a grantee under an equity award. Generally, grants of equity-based compensation awards are to be approved by the Compensation Committee on the date of a regularly scheduled quarterly meeting of the Compensation Committee. Inducement grants may be approved at a special meeting of the Compensation Committee and are generally effective as of the commencement of employment. The date the Compensation Committee acts to approve an award shall be the grant date of the award for purposes of the Company's equity compensation plans, except that grants made after the close of business may be deemed to be granted on the following day. No grants may be made by action on written consent, except in extraordinary circumstances. In no event shall the exercise price or value of an award be determined by referencefurnished to the fair market value of the Company's Common Stock on a day other than the grant date of the award. The Compensation Committee does not grant options with reload features and is prohibited from re-pricing stock options under the terms of the Incentive Plan.

        In discharging its responsibility for administering the Company's stock-based compensation programs, the Compensation Committee regularly monitors and evaluates the total cost of such programs, based on information provided annuallyCompany by and in consultation with, the Compensation

Consultant. This information includes share utilization and annual grant levels. The Compensation Committee determines the appropriate award to each Named Executive Officer by assessing equity incentive awards made to officers of comparable companies and evaluating the level of equity incentives that have been previously awarded to each Named Executive Officer.

        Options and RSUs.    The Compensation Committee determined several years ago that equity-based incentive compensation should include RSU awards and stock options. The inclusion of RSUs in the equity grant mix was determined because they are less dilutive than stock options, provide retention incentive and are linked to Company stock price.

        PRSU Program.    In May 2014, the Compensation Committee approved the PRSU Program that commenced effective as of the beginning of the 2015 Fiscal Year. Full details of the PRSU Program can be found later in this Compensation Discussion and Analysis. The PRSU Program was designed to:

•

Focus on the long-term performance of the Company;



•

Motivate participants to maximize the Company's performance by aligning their compensation with the achievement of multi-year, long-term Company objectives and long-term Company growth;



•

Incorporate performance metrics that link externally to Total Stockholder Return (TSR) measured over a three-year period, as well as internal financial performance metrics also measured over a three-year period; and



•

Provide a vesting period for awards that extends beyond the end of the 3-year performance measurement period.

Change of Control Benefits

        The Company maintains the Capstone Turbine Corporation Change of Control Severance Plan (the "Change of Control Plan"), which provides certain payments and benefits to designated employees, including the Named Executive Officers. Severance benefits are provided to participants whose employment is terminated or otherwise adversely impacted within 12 months of a change of control of the Company. Upon becoming eligible, participants receive a lump sum cash payment under the Change of Control Plan that is equal to their annual base salary and continuation coverage in our medical and dental benefit plans at no cost for a period of 12 months. Mr. Jamison has an agreement that provides for a severance payment equal to his base compensation for a period of 18 months. Effective June 14, 2015, Mr. Jamison's agreement was amended to extend the term of the agreement to June 14, 2018. The Board adopted the Change of Control Plan to increase the likelihood that key management personnel are retained during any pending transactions involving a change of control of the Company. In addition, certain awards under the Incentive Plan become fully vested in the event of a change of control. The Compensation Committee believes that these change of control benefits are similar to and consistent with those offered by the companies included in the peer industry group described above.

Employee Benefits

        Executive officers are generally entitled only to benefits consistent with those offered to other employees of the Company. The Company offers group life, disability, medical, dental and vision insurance and an employee stock purchase program.

2015 Fiscal Year Performance and Compensation

Financial and Operating Highlights

        During the 2015 Fiscal Year:

•

Revenue decreased $17.6 million, or 13%, to $115.5 million from $133.1 million for the 2014 Fiscal Year.



•

Revenue from our accessories, parts and service increased $1.8 million, or 7%, to $26.1 million from $24.3 million for the 2014 Fiscal Year.



•

Cash used in operating activities increased $7.6 million to $23.0 million from $15.4 million cash used during the 2014 Fiscal Year.



•

The Company's net loss increased by 93% to $31.5 million and its net loss per share increased by 100% to $0.10 compared to the prior year.



•

The Company's year-end backlog decreased 3% to $165.7 million compared to the prior year.



•

The Company's year-end comprehensive factory protection plan (FPP) backlog increased 30% to $61.2 million compared to the prior year.

Named Executive Officer Compensation

        CEO Compensation.    Mr. Jamison's total direct compensation (i.e., base salary, performance-based cash incentive and long-term incentives) was established and is reviewed and adjusted by the Compensation Committee with market analysis provided by the Compensation Consultant. Mr. Jamison's total direct compensation is, and is expected to remain, within the range of the compensation paid to chief executive officers by comparable companies reflected in the published survey data and the peer group data.

        For the 2015 Fiscal Year, Mr. Jamison was eligible for a performance-based cash incentive equivalent to 100% of his base salary at target performance levels under the Executive Plan. However, the Company did not achieve the threshold performance objectives required by the executive annual incentive program and, therefore, based on performance certified by the Compensation Committee, described below under "2015 Fiscal Year Performance and Compensation—Performance-Based Cash Incentives," a cash payment to Mr. Jamison was not approved.

        A summary of Mr. Jamison's compensation for the 2015 Fiscal Year and the 2016 Fiscal Year follows:

2015 Fiscal Year

•

No base salary increase.



•

The annual incentive target remained at 100% of base pay or $464,000.



•

No annual incentive payment (as compared to a target of $464,000 or 100% of base salary, and an incentive payment of $19,843 for the 2014 Fiscal Year).



•

Long-term equity incentive award mix of 153,800 stock options, 100,000 RSUs, and 200,000 target PRSUs to be earned over a multi-year period.

2016 Fiscal Year

•

Base salary was increased from $464,000 to $487,200, his first salary increase since April 2013.



•

The annual incentive target remained at 100% of base pay or $487,200.

•

Long-term equity incentive award mix of 153,800 stock options, 100,000 RSUs, and 200,000 target PRSUs to be earned over a multi-year period.



•

Target direct compensation value mix will consist of 63% cash and 37% equity, of which a substantial portion is tied to the PRSU Program implemented in the 2015 Fiscal Year.

*

Estimated LTI value for stock options using a Black-Scholes methodology and RSUs and PRSUs using a face value methodology.

(1)

Based on Company projections, it is unlikely that the performance criteria will be met for the applicable PRSU performance measurement period.

(2)

Calculated as fair market value on date of grant.

        Compensation of the Other Named Executive Officers.    The Compensation Committee set the 2015 Fiscal Year compensation for the remaining Named Executive Officers based on updated information provided by, and in consultation with, Towers Watson. The Compensation Committee determined that compensation paid to our Named Executive Officers is within the range of compensation paid to executive officers of comparable companies reflected in the peer group data. Consideration was also given to internal pay equity with emphasis on long-term incentives to encourage the long-term success of the Company.

        Base Salary.    The base salary for each of the Named Executive Officers is based on long-term individual performance and is compared to base salaries for executives at comparable companies. The Compensation Committee believes that base salaries should also reflect other relevant factors, such as unique roles, responsibilities and experience. Accordingly, the base salary of any particular individual

may be above or below the median of the applicable range of base salaries paid by comparable companies. To better align his compensation plan with that of the executive leadership team, effective April 2015 Mr. Crouse was moved from a sales commission plan to the executive annual incentive program described below and, concurrently, his base salary was increased from $250,000 to $280,000. On April 10, 2015, Ms. Brooks, the Vice President of Finance and Chief Accounting Officer of the Company, was promoted to Chief Financial Officer in addition to her role as Chief Accounting Officer of the Company. In connection with her appointment, the Company's Compensation Committee increased Ms. Brooks' annual salary from $225,000 to $247,500.

        Performance-Based Cash Incentives.    A target cash incentive equal to a stated percentage of annual base salary is established for each Named Executive Officer. In June 2014, the Compensation Committee approved performance goals based on revenue and cash and other terms of awards for our Named Executive Officers for the 2015 Fiscal Year under the Executive Plan. Both goals must be achieved above a threshold level of performance for a cash incentive to be paid under the plan. The actual performance objectives for the 2015 Fiscal Year were (amounts in millions):

Objective		Threshold			Intermediate			Target			Maximum
Revenue		$	128.2		$	135.7		$	150.8		$	173.4
Adjusted Operating Cash Flow(1)		$	(1.6	)	$	(3.2	)	$	1.4		$	4.4

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(1)

Adjusted Operating Cash Flow is a non-GAAP measurement calculated in accordance with the Executive Plan.

        Awards for Mr. Jamison, Mr. Crouse, Ms. Brooks and Mr. Lewis provide a target cash incentive that is similar to the target cash incentive for the 2015 Fiscal Year. Awards earned under the Executive Plan are based on a sliding scale formula that is weighted to emphasize the cash performance goal and is designed to reward performance that exceeds target. This incentive provides a moderate award for performance that is above the threshold level but below the intermediate level, an intermediate award of approximately 40% of the target incentive for performance that is 90% of the target cash incentive, and a maximum award of 150% of the target cash incentive. The potential cash incentives that could be paid to each executive officer for the 2015 Fiscal Year are summarized in the table below. No cash incentive is paid for performance at the threshold level or below.

2015 Fiscal Year Executive Plan Incentive Opportunity

		Target Cash Incentive Percentage of Salary			Incentive Opportunity(1)
Executive Officer					Intermediate			Target			Maximum
Darren R. Jamison			100	%	$	143,840		$	473,280		$	696,000
Edward I. Reich			55	%		48,081			158,202			232,650
Jayme L. Brooks			30	%		20,925			68,850			101,250
Richard B. Lewis			45	%		29,993			98,685			145,125

---

(1)

Potential payouts are approximate because of interpolation.

        The Compensation Committee met in June 2015 to determine if the performance objectives were met under the terms of the 2015 Fiscal Year awards and determined that we had achieved revenue of $115.5 million and operating cash flow of $(11.1) million. Both performance objectives were below the threshold level. As a result, cash incentive payments pursuant to the Executive Plan were not authorized.

        The award for Mr. Crouse for the 2015 Fiscal Year was based on a percentage of revenue that exceeds the revenue achieved during the 2014 Fiscal Year. Mr. Crouse did not receive an award in accordance with his commission schedule, which was based on the following percentages of revenue:

Revenue (millions)		Cash Incentive Payment
Less than $133.1		No cash incentive payment
$133.1 to $150.8		Cash incentive payment equal to 0.75% of revenue over $133.1 million but not more than $150.8 million
$150.9 to $173.4		Cash incentive payment equal to 2.00% of revenue between $150.9 million and $173.4 million
$173.4 or more		Cash incentive payment equal to 3.50% of revenue over $173.4 million

        Long-Term Equity Incentives.    In April 2015, the Compensation Committee granted long-term equity incentives under the Incentive Plan as follows: Mr. Crouse received options to purchase 143,600 shares of Common Stock and 40,000 RSUs; Ms. Brooks received options to purchase 107,700 shares of Common Stock and 40,000 RSUs. Mr. Lewis received options to purchase 89,700 shares of Common Stock and 25,000 RSUs. All options granted in April 2015 to Named Executive Officers vest 25% on the first anniversary date and monthly thereafter on a pro rata basis over the next 36 months and expire ten years from the grant date. The RSUs vest in increments of 25% on each anniversary of the date of grant.

Stock Ownership Guidelines

        In 2012 the Board of Directors established stock ownership guidelines applicable to senior executives (including the Named Executive Officers) and non- employee directors in order to further align the interests of executives and directors with the interests of stockholders. These ownership guidelines provide that the subject persons should own Common Stock equal in value to a multiple of their annual salary (or, in the case of directors, their annual retainer) as follows:

Chief Executive Officer		4 times annual base salary
Executive Vice Presidents		2 times annual base salary
Senior Vice Presidents and other Named Executive Officers		1 times annual base salary
Non-employee members of the Board		4 times annual retainer

        Covered persons will be expected to hold the specified amount of stock within five years from the later of June 6, 2012 or the date they become subject to the ownership guidelines. The Board of Directors considered implementing a stock retention or holding period requirement in connection with the ownership guidelines, but decided that such requirements were not necessary at this early stage of the program, given that subject persons would need to accumulate stock in compliance with the new guidelines. The Board of Directors will continue to monitor the need for stock retention or holding period requirements.

Stockholder Engagement

        At our 2014 annual meeting of stockholders, we sought an advisory vote on our executive compensation. This proposal, commonly known as the "say-on- pay" proposal, received more votes in favor than against, with 76% of votes cast approving the proposal.

        The Compensation Committee values the perspectives and concerns of our stockholders regarding executive compensation. The Compensation Committee has in the past and intends to continue to maintain in the future an open dialogue with stockholders to foster greater communication and transparency.

Actions Taken for the 2016 Fiscal Year and Beyond

        Following the 2014 annual meeting of stockholders, the Compensation Committee reviewed the results of the say-on-pay vote and the feedback received from stockholders. As outlined below, the compensation decisions we made with respect to the 2016 Fiscal Year are reflective of our ongoing pay-for-performance philosophy.

        Base Salary.    In April 2015, the other Named Executive Officers received the following salary adjustments:

Named Executive Officer		Base Salary for 2016 Fiscal Year
Darren R. Jamison		$	487,200
Jayme L. Brooks		$	247,500
James Crouse		$	280,000
Richard Lewis		$	221,450

        On April 10, 2015, Ms. Brooks, the Vice President of Finance and Chief Accounting Officer of the Company, was promoted to Chief Financial Officer in addition to her role as Chief Accounting Officer of the Company. In connection with her appointment, the Company's Compensation Committee increased Ms. Brooks' annual salary from $225,000 to $247,500. Effective April 2015, Mr. Crouse was moved from a sales commission plan to the executive annual incentive program described below to better align his compensation plan with that of the executive leadership team; concurrently his base salary was increased from $250,000 to $280,000.

Annual Incentives for the 2016 Fiscal Year

        In June 2015, the Compensation Committee approved performance goals and other terms of awards for our executive officers for the 2016 Fiscal Year under the Executive Plan. Both goals must be achieved above a threshold level of performance for a cash incentive to be paid under the plan. The actual performance objectives for the 2016 Fiscal Year are (amounts in millions):

Objective		Threshold			Intermediate			Target			Maximum
Revenue		$	116.64		$	123.50		$	137.22		$	157.80
Cash(1)		$	19.69		$	20.84		$	23.16		$	26.63

---

(1)

Cash is calculated as of the end of the fiscal year.

        Awards earned under the Executive Plan are based on a sliding scale formula that is weighted to emphasize the cash performance goal and is designed to reward performance that exceeds target. This incentive provides a moderate award for performance that is above the threshold level but below the intermediate level, an intermediate award of approximately 40% of the target incentive for performance that is 90% of the target cash incentive, and a maximum award of 150% of the target cash incentive. The potential cash incentives that could be paid to each executive officer for the 2016 Fiscal Year are summarized in the table below.

2016 Fiscal Year Executive Annual Incentive Program Opportunity

					Incentive Opportunity(1)
		Target Incentive Percentage of Salary
Executive Officer					Intermediate			Target			Maximum
Darren R. Jamison			100	%	$	195,000		$	487,500		$	731,250
James Crouse			55	%		61,600			157,080			231,000
Jayme L. Brooks			45	%		44,550			113,603			167,063
Richard B. Lewis			45	%		39,870			101,669			149,513

---

(1)

Potential payouts are approximate because of interpolation.

        Following the end of the 2016 Fiscal Year, the Compensation Committee will determine whether and the extent to which the applicable performance targets were satisfied. The Compensation Committee will determine if an award payout is earned based on the achievement of the applicable performance targets. No payments will be made for performance below specified threshold levels. The Compensation Committee has discretion to reduce any payments that would otherwise be made under the awards based on the achievement of the performance goals. For example, a payment could be reduced if the Compensation Committee determined that the executive officer failed to achieve individual or departmental goals that are unrelated to the Company's overall performance.

        Clawbacks.    If it is determined after the payment of a cash incentive pursuant to an award that individual or Company performance upon which the payment was based was fraudulently represented, or was based on the Company's non-compliance with applicable laws or listing standards or based on any other circumstances giving rise to a legal requirement that compensation be returned to the Company, the Company reserves the right to require the return of that payment. In addition, if it is determined after the payment of any award under the PRSU Program described below that individual and department performance upon which the award was based was fraudulently represented, the Company reserves the right to require the return of the award. The Compensation Committee will consider similar clawback policies with respect to other compensation plans in connection with future rule-making under the Dodd- Frank Wall Street Reform and Consumer Protection Act of 2010 ("Dodd-Frank").

        Equity Awards in the 2016 Fiscal Year.    Pursuant to the Compensation Committee's increased emphasis on performance-based compensation, the target long-term incentive mix for Mr. Jamison for the 2016 Fiscal Year is 25% stock options, 25% RSUs and 50% PRSUs. The Compensation Committee intends to incorporate PRSUs into the long-term incentive mix for the Named Executive Officers other than Mr. Jamison in future years. Accordingly, in April 2015, the Compensation Committee granted long-term equity incentives under the Incentive Plan as follows:

Executive Officer		Stock Options			RSUs			PRSUs
Darren R. Jamison			153,800			100,000			200,000
James R. Crouse			143,600			40,000			—
Jayme L. Brooks			107,700			40,000			—
Richard B. Lewis			89,700			25,000			—

        All options granted in April 2015 to Named Executive Officers vest 25% on the first anniversary date and monthly thereafter on a pro rata basis over the next 36 months and expire ten years from the grant date. The RSUs vest in increments of 25% on each anniversary of the date of grant. The PRSUs granted to Mr. Jamison vest based upon meeting performance criteria; any earned awards vest 50% at the end of the performance measurement period and 50% one year thereafter. Additional information regarding equity awards is set forth above under "—Components of Compensation—Long-Term Equity

Incentives." Towers Watson provided comments and considerations and survey data that was relied on by the Compensation Committee in making these determinations.

        PRSU Program.    In May 2014, the Compensation Committee approved the PRSU Program, which is applicable to certain senior employees (including the Named Executive Officers). The PRSU Program will focus on two financial objectives with equal weighting: three-year cumulative gross margin as a percent of three-year cumulative revenue and total shareholder return ("TSR") relative to the TSR performance of companies in the Ardour Global Alternative Energy Index North America. The PRSU Program will have a three-year performance measurement period. The performance measurement period will begin on April 1 of the first fiscal year and end on March 31 of the third fiscal year. The program is intended to have overlapping performance measurement periods (e.g., a new three-year cycle begins each year on April 1), subject to Compensation Committee approval. The Chief Executive Officer is the only participant for the 2015 and 2016 Fiscal Years. At the end of each performance measurement period, the Compensation Committee will determine the achievement against the performance objectives. Any earned PRSU awards will vest 50% after the end of the performance measurement period and 50% one year thereafter. Remaining eligible employees will be considered for participation in future years.

        Anti-Hedging Policy.    The Company's insider trading policy directs officers and directors of the Company to obtain clearance from the Company's Compliance Officer prior to engaging in short sales of the Company's common stock prohibited by Section 16(c) of the Exchange Act, i.e., sales of shares which the insider does not own at the time of sale, or sales of common stock against which the insider does not deliver the shares within 20 days after the sale involving the Company's securities, including the Company's common stock, options or warrants. The insider trading policy further directs officers, directors, and employees designated by the Company's executive officers as more likely to have access to material, nonpublic information (and their family members, including spouses, minor children, or any other family members living in the same household) not to directly or indirectly participate in transactions involving trading activities which by their aggressive or speculative nature may give rise to an appearance of impropriety (such as the purchase of put or call options or the writing of such options).

Role of Compensation ConsultantJuly 3, 2017.  

 The Compensation Committee focuses on attracting, retaining and motivating a highly qualified group of executive officers. They believe that doing so is in the best interests of the Company, its stockholders and other constituencies. In the near-term, the Compensation Committee has engaged Towers Watson, an international compensation consulting firm, as its consultant in determining appropriate compensation for our executive officers, including our Named Executive Officers. As a part of its consulting services, Towers Watson collects and analyzes competitive pay data, trends and market practices. They also provide compensation consulting services to the Company for individuals who are not executive officers.

        In setting compensation, the Compensation Committee reviews information from its Compensation Consultant regarding comparative market data, including comprehensive analyses of total compensation and compensation components based on published survey data sized to our annual revenue.

        The Compensation Committee has determined that the competitive analysis provided by its Compensation Consultant includes a sufficiently large and relevant group of companies for purposes of comparing compensation data. The Compensation Committee considers all relevant information from compensation surveys and does not exclude data in determining compensation for our executive officers. The compensation reports provided by the Compensation Consultant include detailed information regarding base salary, target cash incentive, target total cash, actual total cash, estimated value of long-term incentive compensation and target total direct compensation for individuals deemed

to be comparable to our executive officers in the peer group. The Compensation Committee uses this information to assess the levels of compensation that are appropriate for our executive officers, including the Named Executive Officers.

        The Compensation Committee has determined that the Compensation Consultant's work as our compensation consultant in the 2015 Fiscal Year did not raise any conflicts of interest.

Risk Assessment

        To determine the level of risk arising from our compensation policies and practices, the Company conducted an executive compensation risk assessment during the 2015 Fiscal Year under the oversight of the Compensation Committee. The Compensation Committee reviewed the assessment following the 2015 Fiscal Year and determined that it remained relevant. This assessment examined the Company's compensation programs. Several areas of potential compensation risk were reviewed, including affordability of compensation packages; Board and Compensation Committee practices; compensation philosophy; the design of our compensation programs; elements of compensation and retention exposure. The Compensation Committee noted that the Company's compensation programs contain many provisions designed to mitigate risk and protect stockholder interests, including, but not limited to, the following:

•

Long-term incentive awards are in the form of stock options and restricted stock units with no payout holdbacks or payment in cash in lieu of stock;



•

Under the performance-based cash incentive program discussed above, payments to the Named Executive Officers are predicated on achieving threshold performance on two predetermined metrics and are limited to a maximum total payout;



•

The performance-based cash incentive program for all executives is based on strategic financial and operational business objectives that are aligned with the Company's long-term strategy and stockholder interests;



•

No employees are subject to an employment agreement other than Mr. Jamison's change of control agreement;



•

The Compensation Committee reviews information from other publicly-traded technology and manufacturing industry companies of similar size and reviews the composition of the peer group annually;



•

Payments to Named Executive Officers may be subject to clawback if it is determined after the payment of a cash incentive pursuant to an award that individual or Company performance upon which the payment was based was fraudulently represented, or was based on the Company's non-compliance with applicable laws or listing standards or based on any other circumstances giving rise to a legal requirement that compensation be returned to the Company, and may additionally be subject to clawback pursuant to policies to be determined by the Compensation Committee in connection with future rule-making under Dodd-Frank; and



•

Stock ownership guidelines are in place for senior executives (including the Named Executive Officers) and Board Members in order to further align their interests with those of stockholders.



•

The provisions of the Company's insider trading policy with respect to hedging transactions discussed above.

        Based upon the assessment, the Compensation Committee concluded that the risks arising from our compensation policies and practices are not reasonably likely to have a material adverse effect on the Company.

Tax and Accounting Considerations

        Section 162(m) of the Internal Revenue Code generally limits the corporate tax deduction for compensation in excess of $1 million that is paid to our Named Executive Officers. Qualifying performance-based compensation, however, is fully deductible without regard to the general Section 162(m) limits if certain requirements are met. Section 162(m) also permits full deductibility for certain employee benefit plan contributions, sales commissions and other payments. The Compensation Committee intends that our incentive compensation programs qualify for an exception to the limitations of Section 162(m) whenever possible so that we may fully deduct compensation paid to our Named Executive Officers under these programs. Cash incentive and stock option awards generally are granted under the Executive Plan or the Incentive Plan so that they may be fully deductible as "performance-based compensation" under Section 162(m). Payments to Named Executive Officers are limited under the Executive Plan to an aggregate $4 million under any award.

        We have made equity incentive awards to certain of our Named Executive Officers as an inducement for them to commence employment with the Company that will not qualify as performance-based compensation under Section 162(m). If amounts realized under these awards exceed the Section 162(m) limitation, they may not be deductible from the Company's taxable income, if any, at that time. Payments under these equity incentives are generally conditioned on long-term increases in stockholder value. In making these equity incentive awards, the Compensation Committee determined that the need to attract capable individuals to the Company through a meaningful inducement outweighed the potential inability to deduct a portion of the compensation for federal income tax purposes.

Compliance

        The responsibilities and authority of the Compensation Committee are set forth in its charter, which is intended to set forth best practices for compensation. The members of the Compensation Committee are all "independent directors," as defined under Nasdaq rules. Change of control equity incentive awards are granted by the Compensation Committee in a manner that is intended to satisfy SEC Rule 16b-3 under the Exchange Act. As further discussed below, incentive compensation is awarded in a manner that is intended to qualify the payments as "performance-based compensation" within the meaning of Section 162(m) of the Code.

Conclusion

        The Compensation Committee believes that its decisions with respect to compensation paid to the Named Executive Officers for the 2015 Fiscal Year and the prospective compensation structure for the 2016 Fiscal Year and beyond are consistent with the goals outlined at the beginning of this Compensation Discussion and Analysis.

EXECUTIVE OFFICERS OF THE COMPANY

The following list identifies the name, age and position(s) of the executive officers of the Company:

Name		Age			Position
Name		Age		Position
Darren R. Jamison		51	49		President & Chief Executive Officer
Jayme L. Brooks		46		Chief Financial Officer & Chief Accounting Officer
James D. Crouse		53	52		Executive Vice President of Sales & Marketing
Jayme L. Brooks			44		Chief Financial Officer & Chief Accounting Officer
Richard B. Lewis			57		Vice President of Operations

 

The term of each executive officer runs until his or her successor is elected and qualified, or until his or her earlier death, resignation or removal. The following is a biographical summary of the experience of the executive officers of the Company who are not members of the Company'sCompany’s Board of Directors:

        James D. Crouse.Darren R. Jamison.     Mr. Crouse joined us in February 2007 as Executive Vice PresidentSee “Proposal 1—Election of Sales & Marketing. He leads Capstone's Sales, Marketing and Product Development efforts globally. Since joining Capstone, Mr. Crouse has helped us bring several new clean energy and renewable microturbine productsDirectors to market. Mr. Crouse is a member of the board of the World Alliance for Decentralized Energy (WADE), a business accelerator associated with the worldwide development of high efficiency cogeneration, onsite power and decentralized renewable energy systems that deliver substantial economic and environmental benefits. He most recently served as the Chairman of the Board of WADE. WADE's membership includes more than 200 corporate leaders in the decentralized-energy industry and national cogeneration and decentralized energy associations worldwide. In December 2010, U.S. Secretary of Commerce Gary Locke namedDirectors—Information About Our Directors for information” pertaining to Mr. Crouse to the Renewable Energy and Energy Efficiency Advisory Committee, a national advisory committee of leading U.S. renewable energy and energy efficiency companies. Mr. Crouse was re-appointed in 2012 and is one of 37 members on this committee which will advise the Secretary of Commerce on the development and implementation of programs and policies to help expand the global competitiveness of the U.S. renewable energy and energy efficiency industries. Mr. Crouse has testified before Congress on a number of issues. Most recently, he testified on Capstone's innovative technology and opportunities for combined heat and power in the energy efficiency sector. Prior to joining Capstone, Mr. Crouse was President of Navitas Consulting, where he specialized in assisting client companies with growing their businesses. Prior to his employment with Navitas Consulting, Mr. Crouse was General Manager of the Gas Engine Group for Valley Power Systems, the GE Jenbacher distributor. Additionally, Mr. Crouse served as President of JST Energy and Vice President of Crown Engineering & Construction. Mr. Crouse is a member of the California Association of Building Energy Consultants, and he is a licensed General Engineering Contractor "A" in California.Jamison.

Jayme L. Brooks.  Ms. Brooks has served as our Chief Financial Officer and Chief Accounting Officer since April 2015. She most recently served as Vice President of Finance and Chief Accounting Officer from November 2008 to April 2015. She previously served as Vice President of Financial Planning and Analysis, Interim Chief Accounting Officer and Director of Financial Reporting of the Company. Previously, she served as Vice President and Controller of Computer Patent Annuities North America LLC, a company providing solutions for intellectual property management needs, technology renewal services, software tools and portfolio management. Ms. Brooks holds a Bachelor of Arts degree in Business Economics from the University of California at Santa Barbara and a Master of Business Administration degree from the Fuqua School of Business at Duke University. Ms. Brooks is a Certified Public Accountant licensed in California and a member of Financial Executives International.

        Richard B. Lewis.James D. Crouse.  Mr. Lewis has servedCrouse joined us in February 2007 as our Vice President, Operations since May 2014. Most recently, Mr. Lewis served asExecutive Vice President of OperationsSales & Marketing. He leads Capstone’s Sales, Marketing and Product Development efforts globally. Since joining Capstone, Mr. Crouse has helped us bring several new clean energy and renewable microturbine products to market. Mr. Crouse is a member of Meggitt Safety Systems, Inc. ("MSSI")the board of the World Alliance for Decentralized Energy (WADE), a

producer business accelerator associated with the worldwide development of aircrafthigh-efficiency cogeneration, onsite power and industrial fire protectiondecentralized renewable energy systems that deliver substantial economic and safety systems, fromenvironmental benefits. He served as the Chair of the Board of WADE. WADE’s membership includes more than 200 corporate leaders in the decentralized‑energy industry and national cogeneration and decentralized energy associations worldwide. In December 2010, U.S. Secretary of Commerce Gary Locke named Mr. Crouse to the Renewable Energy and Energy Efficiency Advisory Committee, a national advisory committee of leading U.S. renewable energy and energy efficiency companies. Mr. Crouse was reappointed in 2012 and is one of 37 members on this committee which will advise the Secretary of Commerce on the development and implementation of programs and policies to 2014.help expand the global competitiveness of the U.S. renewable energy and energy efficiency industries. Mr. Crouse has testified before Congress on a number of issues. He testified on Capstone’s innovative technology and opportunities for combined heat and power in the energy efficiency sector. Prior to joining Capstone, Mr. Crouse was President of Navitas Consulting, where he specialized in assisting client companies with growing their businesses. Prior to his employment with MSSI,Navitas Consulting, Mr. LewisCrouse was an independent global supply chain consultant from 2009 to 2012. Prior to his timeGeneral Manager of the Gas Engine Group for Valley Power Systems, the GE Jenbacher distributor. Additionally, Mr. Crouse served as a consultant, Mr. Lewis spent 12 years with AeroVironment, Inc. ("AV"), a publicly- traded designerPresident of JST Energy and manufacturer of energy systems, electric vehicle systems and unmanned aerial vehicles. Mr. Lewis held positions of increasing responsibility with AV, culminating with his appointment as Vice President of Global Supply ChainCrown Engineering & Construction. Mr. Crouse is a member of the California Association of Building Energy Consultants, and Procurement. Mr. Lewis holdshe is a Bachelorlicensed General Engineering Contractor “A” in California.

PROPOSAL 2

AUTHORIZATION OF CAPSTONE TURBINE CORPORATION

BOARD OF DIRECTORS TO EFFECT A REVERSE STOCK SPLIT

Introduction

The Board of Arts in EconomicsDirectors is recommending that the stockholders approve the Company’s Second Certificate of Amendment of Amended and Restated Certificate of Incorporation (the “Charter”) to effect a reverse stock split of the Company’s outstanding shares of Common Stock at a ratio within a range of 1-to-5 to 1-to-10. If this proposal is approved, Jayme L. Brooks and Darren R. Jamison (the “Authorized Officers”) will have the authority to decide, within 12 months from the UniversityAnnual Meeting, whether to implement the split and the exact amount of Massachusetts.the split within this range, if it is to be implemented. If the Authorized Officers decide to implement the split, it will become effective upon the filing of the amendment to the Charter with the Secretary of State of the State of Delaware (the “Effective Date”). If the reverse split is implemented, the number of issued and outstanding shares of Common Stock would be reduced in accordance with the exchange ratio selected by the Authorized Officers. The total number of authorized shares of Common Stock will be proportionally reduced in connection with the reverse stock split from our current total of 515,000,000.

Purpose and Background of the Reverse Split

The Board of Directors’ primary objectives in proposing the reverse split are to raise the per share trading price of our Common Stock. The Board of Directors believes that the reverse split would, among other things, (i) better enable the Company to maintain the listing of its Common Stock on The NASDAQ Capital Market and (ii) facilitate higher levels of institutional stock ownership, where investment policies generally prohibit investments in lower-priced securities.

The Company’s Common Stock is listed on The NASDAQ Capital Market. On December 12, 2016, the Company received a notice from the NASDAQ Listing Qualifications Department stating that for 30 consecutive business days preceding the notice date, the closing bid price for our common stock had been below the minimum $1.00 per share requirement for continued listing on the NASDAQ Capital Market as set forth in NASDAQ Listing Rule 5550(a)(2). In accordance with NASDAQ Listing Rule 5810(c)(3)(A), we were provided 180 calendar days, or until June 12, 2017, to regain compliance with the minimum bid price requirement. On June 13, 2017, the Company was afforded an additional 180-day grace period to regain compliance with the minimum bid price requirement. In order to regain compliance, the bid price of the Company’s common stock must close at $1.00 per share or more for a minimum of ten consecutive business days, at which time NASDAQ Listing Qualifications Department would provide written confirmation of the Company’s compliance. The Company may need to implement a reverse stock split to regain compliance with the NASDAQ Listing Rules. If at any time before December 12, 2017, the closing bid price of the Company's common stock is $1.00 per share or more for a minimum of 10 consecutive business days, NASDAQ will notify the Company that it has regained compliance with the minimum bid price rule.

If a delisting from The NASDAQ Capital Market were to occur, the Common Stock would then likely trade on the OTC Bulletin Board or in the “pink sheets.” These alternative markets are generally considered to be less efficient than, and not as broad as, The NASDAQ Capital Market.

The closing sale price of the Company’s Common Stock on July 3, 2017 was $0.72 per share. The Board of Directors has considered the potential harm to the Company of a delisting from The NASDAQ Capital Market and believes that a reverse stock split would help the Company regain compliance with NASDAQ’s minimum bid price listing standard.

The Board of Directors further believes that an increased stock price may encourage investor interest and improve the marketability of the Company’s Common Stock to a broader range of investors, and thus improve liquidity. Because of the trading volatility often associated with low-priced stocks, many brokerage firms and institutional investors have internal policies and practices that either prohibit them from investing in low-priced

stocks or tend to discourage individual brokers from recommending low-priced stocks to their customers. The Board of Directors believes that the anticipated higher market price resulting from a reverse stock split would enable institutional investors and brokerage firms with policies and practices such as those described above to invest in the Company’s Common Stock. Furthermore, the Board of Directors believes that the reverse split would better enable the Company’s to raise capital to fund its planned operations if necessary.

The purpose of seeking stockholder approval of a range of exchange ratios from 1-to-5 to 1-to-10 (rather than a fixed exchange ratio) is to provide the Company with the flexibility to achieve the desired results of the reverse stock split. If the stockholders approve this proposal, the Authorized Officers would effect a reverse stock split only upon the Authorized Officers’ determination that a reverse stock split would be in the best interests of the Company at that time. If the Company were to effect a reverse stock split, the Authorized Officers would set the timing for such a split and select the specific ratio within the range of 1-to-5 to 1-to-10. No further action on the part of stockholders would be required to either implement or abandon the reverse stock split. If the stockholders approve the proposal, and the Authorized Officers determine to effect the reverse stock split, we would communicate to the public, prior to the Effective Date, additional details regarding the reverse split, including the specific ratio selected by the Authorized Officers. If the Authorized Officers do not implement the reverse stock split within 12 months from the Annual Meeting, the authority granted in this proposal to implement the reverse stock split will terminate. The Board of Directors reserves its right to elect not to proceed with the reverse stock split if it determines, in its sole discretion, that this proposal is no longer in the best interests of the Company.

Material Effects of Proposed Reverse Stock Split

The Board of Directors believes that the reverse split will increase the price level of the Company’s Common Stock in order to, among other things, ensure continued compliance with The NASDAQ Capital Market’s minimum bid price listing standard and generate interest in the Company among investors. The Board of Directors cannot predict, however, the effect of the reverse split upon the market price for the Common Stock, and the history of similar reverse stock splits for companies in like circumstances is varied. The market price per share of Common Stock after the reverse split may not rise in proportion to the reduction in the number of shares of Common Stock outstanding resulting from the reverse split, which would reduce the market capitalization of the Company. The market price per post-reverse split share may not remain in excess of the $1.00 minimum bid price as required by The NASDAQ Capital Market, or the Company may not otherwise meet the additional requirements for continued listing on The NASDAQ Capital Market. The market price of the Common Stock may also be based on our performance and other factors, the effect of which the Board of Directors cannot predict.

The reverse split will affect all stockholders of the Company uniformly and will not affect any stockholder’s percentage ownership interests or proportionate voting power, except to the extent that the reverse split results in any of stockholders owning a fractional share. In lieu of issuing fractional shares, the Company may either (i) directly pay each stockholder who would otherwise have been entitled to a fraction of a share an amount in cash equal to the closing sale price of the Common Stock, as quoted on The NASDAQ Capital Market on the Effective Date, multiplied by the fractional share amount, (ii) make arrangements with the Company’s transfer agent or exchange agent to aggregate all fractional shares otherwise issuable in the reverse stock split and sell these whole shares as soon as possible after the Effective Date at then prevailing market prices on the open market on behalf of those holders, and then pay each such holder his, her or its pro rata portion of the sale proceeds, or (iii) stockholders of record who otherwise would be entitled to receive fractional shares will be entitled to rounding up of the fractional share to the nearest whole number.

The principal effects of the reverse split will be that (i) the number of shares of Common Stock issued and outstanding will be reduced from 42,264,625 shares as of July 3, 2017 to a range of 8,452,925 to 4,226,463 shares, depending on the exact split ratio chosen by the Authorized Officers, (ii) all outstanding options and warrants entitling the holders thereof to purchase shares of Common Stock will enable such holders to purchase, upon exercise of their options or warrants, 1/5 to 1/10 of the number of shares of Common Stock which such holders would have been able to purchase upon exercise of their options or warrants immediately preceding the reverse split, at an exercise price equal to 1-to-5 to 1-to-10 times the exercise price specified before the reverse split, resulting in the same aggregate price being required to be paid upon exercise thereof immediately preceding

the reverse split, (iii) all outstanding restricted stock units and performance based restricted stock units entitling the holders thereof to purchase shares of Common Stock will enable such holders to purchase, upon exercise of their restricted stock units and performance based restricted stock units, 1/5 to 1/10 of the number of shares of Common Stock which such holders would have been able to purchase upon exercise of their restricted stock units and performance based restricted stock units immediately preceding the reverse split, at an exercise price equal to 1-to-5 to 1-to-10 times the exercise price specified before the reverse split, resulting in the same aggregate price being required to be paid upon exercise thereof immediately preceding the reverse split; (iv) the number of shares reserved for issuance pursuant to the Company’s 2000 Equity Incentive Plan will be reduced from 1,849,000 shares to 1/5 to 1/10 of the number of shares currently included in each such plan, and (v) the number of shares reserved for issuance pursuant to the Company’s 2017 Equity Incentive Plan will be reduced from 3,000,000 shares to 1/5 to 1/10 of the number of shares currently included in each such plan.

The reverse split will not affect the par value of the Common Stock. As a result, on the effective date of the reverse split, the stated capital on the Company’s balance sheet attributable to the Common Stock will be reduced to 1/5 to 1/10 of its present amount, depending on the exact amount of the split, and the additional paid-in capital account will be credited with the amount by which the stated capital is reduced. The per share net income or loss and net book value of the Common Stock will be retroactively increased for each period because there will be fewer shares of Common Stock outstanding.

The amendment will not change the terms of the Common Stock. After the reverse split, the shares of common stock will have the same voting rights and rights to dividends and distributions and will be identical in all other respects to the Common Stock now authorized. Each stockholder’s percentage ownership of the new Common Stock will not be altered except for the effect of eliminating fractional shares. The Common Stock issued pursuant to the reverse split will remain fully paid and non-assessable. The reverse split is not intended as, and will not have the effect of, a “going private transaction” covered by Rule 13e-3 under the Securities Exchange Act of 1934. Following the reverse split, the Company will continue to be subject to the periodic reporting requirements of the Securities Exchange Act of 1934.

As noted above, if the reverse split is implemented, the number of issued and outstanding shares of Common Stock would be reduced will be proportionally reduced. Any future issuances will have the effect of diluting the percentage of stock ownership and voting rights of the present holders of Common Stock.

The reverse stock split would result in some stockholders owning “odd-lots” of less than 100 shares of our Common Stock. Brokerage commissions and other costs of transactions in odd-lots are generally higher than the costs of transactions in “round-lots” of even multiples of 100 shares.

Procedure for Effecting Reverse Split and Exchange of Stock Certificates

If the reverse split is approved by the Company’s stockholders, and the Authorized Officers determine it is in the best interests of the Company to effect the split, the reverse stock split would become effective at such time as the amendment to the Charter is filed with the Secretary of State of the State of Delaware. Upon the filing of the amendment, all of the Company’s existing Common Stock will be converted into new Common Stock as will be set forth in the amendment.

As soon as practicable after the Effective Date, stockholders will be notified that the reverse split has been effected. Computershare Trust Company, N.A., the Company’s transfer agent, will act as exchange agent for purposes of implementing the exchange of stock certificates. Holders of pre-reverse split shares will be asked to surrender to the exchange agent certificates representing pre-reverse split shares in exchange for certificates representing post-reverse split shares in accordance with the procedures to be set forth in a letter of transmittal that will be delivered to the Company’s stockholders. No new certificates will be issued to a stockholder until the stockholder has surrendered to the exchange agent his, her or its outstanding certificate(s) together with the properly completed and executed letter of transmittal. STOCKHOLDERS SHOULD NOT DESTROY ANY STOCK CERTIFICATES AND SHOULD NOT SUBMIT ANY CERTIFICATES UNTIL REQUESTED TO DO SO. Stockholders whose shares are held by their stockbroker do not need to submit old share certificates for

exchange. These shares will automatically reflect the new quantity of shares based on the reverse split. Beginning on the Effective Date, each certificate representing pre-reverse split shares will be deemed for all corporate purposes to evidence ownership of post-reverse split shares.

Fractional Shares

The Company will not issue fractional certificates for post-reverse split shares in connection with the reverse split. In lieu of issuing fractional shares, the Company may either (i) directly pay each stockholder who would otherwise have been entitled to a fraction of a share an amount in cash equal to the closing sale price of the Common Stock, as quoted on The NASDAQ Capital Market on the Effective Date, multiplied by the fractional share amount, (ii) make arrangements with the Company’s transfer agent or exchange agent to aggregate all fractional shares otherwise issuable in the reverse stock split and sell these whole shares as soon as possible after the Effective Date at then prevailing market prices on the open market on behalf of those holders, and then pay each such holder his, her or its pro rata portion of the sale proceeds, or (iii) stockholders of record who otherwise would be entitled to receive fractional shares will be entitled to rounding up of the fractional share to the nearest whole number.

If the stockholders approve the proposal and the Board of Directors determines to effect the reverse stock split, we would communicate to the public, prior to the Effective Date, additional details regarding the reverse split, including the specific ratio selected by the Board of Directors and the treatment of fractional shares.

Criteria to Be Used for Decision to Apply the Reverse Stock Split

If the stockholders approve the reverse stock split, the Authorized Officers will be authorized to proceed with the reverse split. In determining whether to proceed with the reverse split and setting the exact amount of split, if any, the Authorized Officers will consider a number of factors, including market conditions, existing and expected trading prices of the Company’s Common Stock, The NASDAQ Capital Market listing requirements, the Company’s additional funding requirements and the amount of the Company’s authorized but unissued Common Stock.

No Dissenter’s Rights

Under the Delaware General Corporation Law, stockholders will not be entitled to dissenter’s rights with respect to the proposed amendment to the Charter to effect the reverse stock split, and the Company does not intend to independently provide stockholders with any such right.

Certain Material U.S. Federal Income Tax Considerations

The following is a summary of certain U.S. federal income tax consequences relating to the reverse stock split as of the date hereof. Except where noted, this summary deals only with a U.S. holder (as defined below) who holds common stock as a capital asset.

For purposes of this summary, a “U.S. holder” means a beneficial owner of common stock who is any of the following for U.S. federal income tax purposes: (i) a citizen or resident of the United States, (ii) a corporation created or organized in or under the laws of the United States, any state thereof, or the District of Columbia, (iii) an estate the income of which is subject to U.S. federal income taxation regardless of its source, or (iv) a trust if (1) its administration is subject to the primary supervision of a court within the United States and one or more U.S. persons have the authority to control all of its substantial decisions, or (2) it has a valid election in effect under applicable U.S. Treasury regulations to be treated as a U.S. person. A non-U.S. holder of common stock is a stockholder who is not a U.S. holder.

This summary is based upon provisions of the Internal Revenue Code of 1986, as amended (the “Code”), and regulations, rulings and judicial decisions as of the date hereof. Those authorities may be changed, perhaps retroactively, so as to result in U.S. federal income tax considerations different from those summarized below.

This summary does not represent a detailed description of the U.S. federal income tax consequences to a stockholder in light of his, her or its particular circumstances. In addition, it does not represent a description of the U.S. federal income tax consequences to a stockholder who is subject to special treatment under the U.S. federal income tax laws and does not address the tax considerations applicable to stockholders who may be subject to special tax rules, such as:

Moreover, this description does not address the U.S. federal estate and gift tax, alternative minimum tax or other tax consequences of the reverse stock split.

If an entity classified as a partnership for U.S. federal income tax purposes holds common stock, the tax treatment of a partner will generally depend on the status of the partner and the activities of the partnership.

Each stockholder should consult his, her or its own tax advisers concerning the particular U.S. federal tax consequences of the reverse stock split, as well as the consequences arising under the laws of any other taxing jurisdiction, including any state, local or foreign income tax consequences.

Tax Consequences to the Company

The Company will not recognize gain or loss as a result of the reverse stock split.

Tax Consequences to U.S. Holders of the Reverse Stock Split

A U.S holder generally will not recognize gain or loss on the reverse stock split, except in respect of cash, if any, received in lieu of a fractional share interest. In general, the aggregate tax basis of the post-split shares received will be equal to the aggregate tax basis of the pre-split shares exchanged therefor (excluding any portion of the U.S. holder’s basis allocated to fractional shares), and the holding period of the post-split shares received will include the holding period of the pre-split shares exchanged.

A U.S. holder of the pre-split shares who receives cash generally will be treated as having exchanged a fractional share interest for cash in a redemption that is subject to Section 302 of the Code, assuming the fractional share interest is purchased directly by the Company. If the redemption is treated as a sale, the U.S. holder will recognize capital gain or loss equal to the difference between the portion of the tax basis of the post-split shares allocated to the fractional share interest and the cash received. However, it is possible that, depending on the amount of cash received by a U.S. holder in exchange for its fractional share interest in connection with the reverse stock split relative to the amount of cash received by other holders in exchange for their fractional share interests, the exchange of a U.S holder’s fractional share interest for cash could be treated as a distribution subject to Section 301 of the Code rather than a sale, under U.S. federal income tax law. In such a case, the cash distribution will be treated as a dividend to the extent of our current and accumulated earnings and profits allocable to the distribution, and then as a recovery of basis to the extent of the U.S. holder’s tax basis in his or her shares (which, for these purposes, may include the holder’s tax basis in all of his or her shares rather than only the holder’s tax basis in his or her fractional share interest, although the law is not entirely clear), and finally as gain from the sale of stock. Such potential dividend treatment will not apply if the fractional shares interests are aggregated and sold by the Company on the open market, in which case the proceeds will be treated as received in connection with a sale of stock.

We recommend that U.S. holders consult their own tax advisors to determine the extent to which the sale of their fractional share interest is treated as a sale of the fractional share or as a distribution under Section 301 of the Code and the tax consequences thereof. 

A U.S. holder whose fractional shares resulting from the reverse stock split are rounded up to the nearest whole share may recognize gain for U.S. federal income tax purposes equal to the value of the additional fractional share. The treatment of the exchange of a fractional share for a whole share in the reverse stock split is not clear. We intend to treat the issuance to a holder of a whole share in exchange for a fractional share as a non-recognition event, but there can be no assurance that the Internal Revenue Service or a court would not successfully assert otherwise.

Other Tax Considerations for U.S. Holders

The state and local tax consequences of the reverse stock split may vary significantly as to each U.S. holder depending upon the jurisdiction in which such holder resides. U.S. holders are urged to consult their own tax advisors regarding the specific tax consequences to them of the reverse stock split, including the applicable federal, state, local and foreign tax consequences, if any.

Information Reporting and Backup Withholding

Payment of cash in lieu of fractional shares within the United States or conducted through certain U.S. related financial intermediaries is subject to both backup withholding and information reporting unless the beneficial owner certifies under penalties of perjury that he or she is not a U.S. holder (and the payor does not have actual knowledge or reason to know that the beneficial owner is a U.S. holder) or the stockholder otherwise establishes an exemption. Any amounts withheld under the backup withholding rules may be allowed as a refund or a credit against such holder’s U.S. federal income tax liability provided the required information is furnished to the IRS.

TAX MATTERS ARE COMPLICATED, AND THE TAX CONSEQUENCES OF THE REVERSE STOCK SPLIT DEPEND UPON THE PARTICULAR CIRCUMSTANCES OF EACH U.S. HOLDER. ACCORDINGLY, EACH U.S. HOLDER IS ADVISED TO CONSULT THE HOLDER’S TAX ADVISOR WITH RESPECT TO ALL OF THE POTENTIAL TAX CONSEQUENCES TO THE HOLDER OF A REVERSE STOCK SPLIT.

Vote Required

A quorum being present, the affirmative vote of a majority of outstanding shares of stock entitled to vote as of the record date is required to approve the amendment of the Second Amended and Restated Certificate of Incorporation to effect a reverse split of the Common Stock in the range of 1-to-5 to 1-to-10. You may vote “FOR”, “AGAINST”, or “ABSTAIN” from voting on this proposal. For purposes of determining whether this proposal has passed, both abstentions and broker non-votes will have the effect of a vote AGAINST the reverse stock split.

Recommendation

THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE “FOR” THE AMENDMENT TO THE COMPANY’S CHARTER TO EFFECT A REVERSE STOCK SPLIT OF THE COMPANY’S COMMON STOCK.

PROPOSAL 3

APPROVAL OF THE 2016 NOL RIGHTS AGREEMENT

Background and Purpose of the 2016 NOL Rights Agreement

On May 6, 2016, we entered into the Rights Agreement with Computershare Inc., as rights agent (the “2016 NOL Rights Agreement”).  The 2016 NOL Rights Agreement is intended to help preserve our substantial tax assets associated with net operating loss carryforwards and certain other deferred tax assets.

Our business operations have generated significant net operating losses and unrealized tax losses (collectively, “NOLs”), and we may generate additional NOLs in future years. Under federal tax laws, we generally can use our NOLs and certain related tax credits to offset ordinary income tax paid in our prior two tax years or on our future taxable income for up to 20 years, when they “expire” for such purposes. Until they expire, we can “carry forward” NOLs and certain related tax credits that we do not use in any particular year to offset taxable income in future years. As of March 31, 2017, we had approximately $678.0 million of federal NOL carryforwards and up to $160.2 million of state operating loss carryforwards. While we cannot estimate the exact amount of NOLs that we can use to reduce our future income tax liability because we cannot predict the amount and timing of our future taxable income, we believe our NOLs are very valuable assets.

Our ability to utilize our NOLs to offset future taxable income may be significantly limited if we experience an “ownership change,” as determined under Section 382 (“Section 382”) of the Internal Revenue Code of 1986, as amended (the “Code”). Under Section 382, an “ownership change” occurs if a stockholder or a group of stockholders that is deemed to own at least 5% of our outstanding stock increases its ownership by more than 50 percentage points over its lowest ownership percentage within a rolling three-year period. If an ownership change occurs, Section 382 would impose an annual limit on the amount of our NOLs that we can use to offset taxable income equal to the product of the total value of our outstanding equity immediately prior to the ownership change (reduced by certain items specified in Section 382) and the federal long‑term tax-exempt interest rate in effect for the month of the ownership change. A number of complex rules apply in calculating this annual limit.

If an ownership change were to occur, the limitations imposed by Section 382 could result in a material amount of our NOLs expiring unused and, therefore, significantly impair the value of our NOLs. While the complexity of Section 382’s provisions and the limited knowledge any public company has about the ownership of its publicly traded stock make it difficult to determine whether an ownership change has occurred, we do not currently believe that an ownership change has occurred. Accordingly, the 2016 NOL Rights Agreement is intended to reduce the likelihood of an ownership change. However, if no action is taken, we believe it is possible that we could experience an ownership change in the future.

In connection with the 2016 NOL Rights Agreement, the Board of Directors authorized and declared a dividend distribution of one preferred stock purchase right (a “New Right”) for each share of our common stock authorized and outstanding. Each New Right entitles the registered holder to purchase from us a unit consisting of one one-thousandth of a share of Series B Junior Participating Preferred Stock, par value $0.001 per share, at a purchase price of $8.76 per unit, subject to adjustment. The description and terms of the New Rights are set forth in the 2016 NOL Rights Agreement.

The New Rights will not be exercisable until the earlier to occur of (i) the close of business on the tenth business day after a public announcement or filing that a person has, or group of affiliated or associated persons or persons acting in concert have, become an “Acquiring Person,” which is defined as a person or group of affiliated or associated persons or persons acting in concert who, at any time after the date of the 2016 NOL Rights Agreement, have acquired, or obtained the right to acquire, beneficial ownership of 4.99% or more of our outstanding shares of common stock, subject to certain exceptions or (ii) the close of business on the tenth business day after the commencement of, or announcement of an intention to commence, a tender offer or exchange offer the consummation of which would result in any person becoming an Acquiring Person (the earlier of such dates being called the “Distribution Date”). Certain synthetic interests in securities created by derivative positions, whether or not such interests are considered to be ownership of the underlying common

stock or are reportable for purposes of Regulation 13D of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), are treated as beneficial ownership of the number of shares of common stock equivalent to the economic exposure created by the derivative position, to the extent actual shares of the common stock are directly or indirectly held by counterparties to the derivatives contracts.

The New Rights, which are not exercisable until the Distribution Date, will expire prior to the earliest of (i) May 6, 2019 or such later day as may be established by the Board prior to the expiration of the New Rights, provided that the extension is submitted to the Company’s stockholders for ratification at the next annual meeting of stockholders of the Company succeeding such extension; (ii) the time at which the New Rights are redeemed pursuant to the NOL Rights Agreement; (iii) the time at which the New Rights are exchanged pursuant to the NOL Rights Agreement; (iv) the time at which the New Rights are terminated upon the occurrence of certain transactions; (v) the close of business on the first day after the Company’s 2017 annual meeting of stockholders, if approval by the stockholders of the Company of the NOL Rights Agreement has not been obtained on or prior to the close of business on the first day after the Company’s 2017 annual meeting of stockholders; (vi) the close of business on the effective date of the repeal of Section 382 of the Tax Code, if the Board determines that the NOL Rights Agreement is no longer necessary or desirable for the preservation of Tax Benefits; and (vii) the close of business on the first day of a taxable year of the Company to which the Board determines that no Tax Benefits are available to be carried forward,  (the earliest of (i), (ii), (iii), (iv), (v), (vi) and (vii) is referred to as the “Expiration Date”). As such, the Company is soliciting stockholder approval to ratify the 2016 NOL Rights Plan. If stockholders do not ratify the 2016 NOL Rights Plan, the New Rights will expire on the first day after the Annual Meeting.  

Certain Considerations Related to the 2016 NOL Rights Agreement

Our Board of Directors believes that attempting to protect the tax benefits of our NOLs as described above is in our and our stockholders’ best interests; however, we cannot eliminate the possibility that an ownership change will occur even if the 2016 NOL Rights Agreement is approved. Please consider the items discussed below in voting on Proposal 3.

The IRS could challenge the amount of our NOLs or claim we experienced an ownership change, which could reduce the amount of our NOLs that we can use or eliminate our ability to use them altogether.

The IRS has not audited or otherwise validated the amount of our NOLs. The IRS could challenge the amount of our NOLs, which could limit our ability to use our NOLs to reduce our future taxable income. In addition, the complexity of Section 382’s provisions and the limited knowledge any public company has about the ownership of its publicly traded stock make it difficult to determine whether an ownership change has occurred. Therefore, we cannot assure you that the IRS will not claim that we experienced an ownership change and attempt to reduce or eliminate the benefit of our NOLs even if the NOL Amendment is in place.

Continued Risk of Ownership Change

Although the 2016 NOL Rights Agreement is intended to reduce the likelihood of an ownership change, we cannot assure you that it would prevent any transfers of our common stock that could result in such an ownership change.

Potential Anti‑Takeover Impact

The reason our Board of Directors approved the 2016 NOL Rights Agreement and is recommending that it be approved by our stockholders is to preserve the long‑term value of our NOLs. However, the 2016 NOL Rights Agreement could also be deemed to have an anti‑takeover effect because, among other things, it restricts the ability of a person, entity or group to accumulate more than 4.99% of our common stock and the ability of persons, entities or groups now owning more than 4.99% of our common stock to acquire additional shares of our common stock without the prior approval of our Board and because an Acquiring Person may be diluted upon the occurrence of a triggering event. Accordingly, the overall effects of the 2016 NOL Rights Agreement may render more difficult, or discourage, a merger, tender offer, proxy contest or assumption of control by a substantial holder of our securities.

The foregoing description of the terms of the 2016 NOL Rights Agreement summarizes only the material terms of the 2016 NOL Rights Agreement, does not purport to be complete and is qualified in its entirety by reference to the 2016 NOL Rights Agreement, which was filed as Exhibit 4.2 to our Current Report on Form 8-K filed with the SEC on May 6, 2016.

Vote Required

A quorum being present, the affirmative vote of a majority of the votes represented at the Annual Meeting and entitled to vote is required to approve the 2016 NOL Rights Agreement. You may vote “FOR”, “AGAINST” or “ABSTAIN” from voting on this proposal. For purposes of determining whether this proposal has passed, abstentions will have the effect of a vote AGAINST the proposal. Broker non-votes will have no effect on the proposal.  

Recommendation

THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE “FOR” THE APPROVAL OF THE 2016 NOL RIGHTS AGREEMENT TO HELP PRESERVE THE VALUE OF THE OUR OPERATING LOSS CARRYFORWARDS AND CERTAIN OTHER DEFERRED TAX ASSETS.

PROPOSAL 4

STOCKHOLDER APPROVAL OF THE POTENTIAL ISSUANCE

OF MORE THAN 20% OF THE COMPANY’S COMMON STOCK

PURSUANT TO THE COMPANY’S OCTOBER 2016 OFFERING OF SECURITIES

Background

On October 18, 2016, the Company entered into a securities purchase agreement (the “Purchase Agreement”) with certain accredited investors (the “Purchasers”), pursuant to which the Company agreed to sell to the Purchasers (i) in a registered offering, 3,600,000 shares of the Company’s common stock, $0.001 par value per share (“Common Stock”), and pre-funded Series B warrants to purchase up to 2,700,000 shares of Common Stock, which were sold in lieu of Common Stock to those Purchasers whose purchase of Common Stock in the offering otherwise would result in the Purchaser beneficially owning more than 9.99% of the Company’s outstanding Common Stock following the completion of the offering (“Series B Warrants”) (as exercised, collectively, the “Series B Warrant Shares”); and (ii) in a concurrent private placement, Series A warrants to purchase up to 6,300,000 shares of Common Stock (“Series A Warrants,” and together with the Series B Warrants, the “Warrants”) (as exercised, collectively, the “Series A Warrant Shares”, and together with the Series B Warrant Shares, the “Warrant Shares”). The Series A Warrants and the Series A Warrant Shares are collectively referred to herein as the “Placement Securities.”  The Common Shares, the Series B Warrants and the Series B Warrant Shares are collectively referred to herein as the “RD Securities.”  The Placement Securities and the RD Securities are collectively referred to herein as the “Securities.”  We refer to the offering of the Securities, collectively, as the Offering. 

The exercise of the Series A Warrants is a potential additional source of capital for the Company. Each Series A Warrant has an initial exercise price of $1.34 per share of Common Stock, which if exercised in full would result in gross proceeds to the Company of approximately $8.4 million.  However, as of the close of the NASDAQ Capital Market on July 3, 2017, the price of our Common Stock was $0.72, causing the Series A Warrants to be “out-of-the-money” and unlikely to be exercised.

In compliance with the rules and regulations of The NASDAQ Capital Market, we are not permitted to reduce the exercise price of the Series A Warrants below $1.34 per share, subject to adjustment for stock splits, stock dividends and similar events (“Floor Price”). If our stockholders approve this Proposal 4, as of July 3, 2017, the Series A Warrant exercise price per share of Common Stock will automatically be adjusted from $1.34 to $0.65, which reflects the “full ratchet” anti-dilution adjustment for sales of our Common Stock under at-the-market offerings subsequent to the closing of the Offering. The Series A Warrants will also be subject to further “full ratchet” adjustments until April 22, 2019 if we sell Common Stock at a price lower than the exercise price of the Series A Warrants then in effect. If exercised in full based on the price of our Common Stock on July 3, 2017, the Company could obtain up to $4.1 million in additional capital based on an adjusted price per share of $0.65. However, we can provide no assurance that the Series A Warrants will be exercised in whole, or in part, following obtaining the approval of this Proposal No. 4. The number of shares of Common Stock issuable upon the exercise of the Series A Warrants, however, is not subject to such adjustment and will not be increased as a result of our stockholders approval of this Proposal No. 4.

The Purchase Agreement requires the Company to submit the issuance of all of the Securities contemplated by the Purchase Agreement in compliance with the rules and regulations of The NASDAQ Capital Market at the first annual meeting of stockholders of the Company immediately following the closing date of the Offering (the “Stockholder Approval”).

The terms of the Purchase Agreement, the Placement Securities and the RD Securities are complex and only briefly summarized above. For further information regarding these agreements and the Financing, please refer to our Current Report on Form 8-K filed with the SEC on October 18, 2016. The discussion herein is qualified in its entirety by reference to such filed transaction documents.

Reasons for Requesting Stockholder Approval

Because our common stock is traded on The NASDAQ Capital Market, we are subject to the NASDAQ Listing Rules, including Listing Rule 5635(d). Pursuant to Listing Rule 5635(d), stockholder approval is required prior to the issuance of securities in connection with a transaction (or a series of related transactions) other than a public offering involving the sale, issuance or potential issuance of common stock (or securities convertible into or exercisable for common stock) equal to 20% or more of the common stock or 20% or more of the voting power outstanding before the issuance for less than the greater of book or market value of the stock.

As the Series A Warrants include a Floor Price until stockholder approval is obtained, the Placement Securities were considered securities issued for greater than the book or market value of our Common Stock at the time of the Offering and were not included in the calculation of the 20% beneficial ownership limitation cap set forth in Listing Rule 5635(d). If our stockholders approve this Proposal 4, the Company will not be subject to the issuance of beneficial ownership limitation cap set forth in Listing Rule 5635(d) and we would be able to adjust the exercise price of the Series A Warrants below the Floor Price.

We are seeking stockholder approval to permit adjustments to the exercise price of the Series A Warrants and to allow us to make such issuances of our common stock described above in accordance with NASDAQ Listing Rule 5635(d).

Possible Effects if Proposal No. 4 is Approved

If Proposal No. 4 is approved by our stockholders, then the Company will not be subject to the issuance of beneficial ownership limitation cap set forth in NASDAQ Listing Rule 5635(d). As a result, the Series A Warrant exercise price per share of Common Stock will be automatically reduced to $0.65 based on the adjusted price per share as of July 3, 2017, and will be subject to further reductions if we sell shares of Common Stock at a lower price in the future. If the Series A Warrants are exercised in full based on the adjusted price per share as of July 3, 2017, the Company may receive up to $4.1 million in additional capital. However, we can provide no assurance that the Series A Warrants will be exercised in whole, or in part, following obtaining the approval of this Proposal No. 4.

Possible Effects if Proposal No. 4 is Not Approved

If Proposal No. 4 is not approved by the stockholders, the Series A Warrants are unlikely to be exercised at current market prices and the Company will be unlikely to utilize the Series A Warrants as a source of additional capital. Further, the Company has agreed in the Purchase Agreement to hold an additional stockholder meeting every four months thereafter until either (x) such approval is obtained or (y) the Company fails to obtain the approval at the annual stockholder meeting of the Company in 2019. These efforts would be costly and time-consuming, and would also divert management time and attention away from managing the business. If Proposal No. 4 has not been approved following the annual stockholder meeting of the Company in 2019, then the Securities will remain subject to the issuance of beneficial ownership limitation cap set forth in NASDAQ Listing Rule 5635(d).

In addition, our failure to obtain the approval of our stockholders for this Proposal No. 4 and fulfill our obligations to the investors as described in the Purchase Agreement, could adversely affect our ability to raise capital in the future and have a detrimental impact on the Company’s capital raising efforts. It is also possible that investors or potential new investors may be unwilling to participate in such future transactions. 

Accordingly, the Board believes approval of Proposal No. 4 will allow the Company to potentially raise up to $4.1 million in additional capital from potential exercises of the Series A Warrants based on the adjusted price per share as of July 3, 2017, meet its obligations under the Purchase Agreement and simultaneously help to preserve its cash resources for its planned operating activities.  

Vote Required

A quorum being present, under NASDAQ Listing Rule 5635, the affirmative vote of a majority of the shares of our common stock present in person or by proxy at the Annual Meeting and entitled to vote thereon is required for stockholder approval of the proposal to approve for purposes of complying with applicable NASDAQ Listing Rules, the potential issuance of more than 20% of the Company’s issued and outstanding common stock pursuant to the Company’s financing in October 2016 including issuance of shares of the Company’s common stock upon the exercise of the Warrants without the need for any limitation or cap on issuances. Abstentions will have the effect of a vote AGAINST the proposal. Broker non-votes will have no effect on the proposal.

Recommendation

THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE “FOR” THE APPROVAL OF THE POTENTIAL ISSUANCE OF MORE THAN 20% OF THE COMPANY’S COMMON STOCK PURSUANT TO THE COMPANY’S OCTOBER 2016 OFFERING OF SECURITIES.

PROPOSAL 5

APPROVAL OF CAPSTONE TURBINE CORPORATION

2017 EQUITY INCENTIVE PLAN

Proposal

The Board of Directors believes that stock options and other stock-based incentive awards can play an important role in the success of the Company by encouraging and enabling the employees, officers, non-employee directors and consultants of the Company and its subsidiaries upon whose judgment, initiative and efforts the Company largely depends for the successful conduct of its business to acquire a proprietary interest in the Company. The Board of Directors believes that providing such persons with a direct stake in the Company assures a closer identification of the interests of such individuals with those of the Company and its stockholders, thereby stimulating their efforts on the Company’s behalf and strengthening their desire to remain with the Company.

On June 30, 2017, the Board of Directors adopted, subject to stockholder approval, the Capstone Turbine Corporation 2017 Equity Incentive Plan (the “2017 Plan”). The 2017 Plan is designed to enhance the flexibility to grant equity awards to our officers, employees, non-employee directors and consultants and to ensure that we can continue to grant equity awards to eligible recipients at levels determined to be appropriate by the Board of Directors and/or the Compensation Committee. A copy of the 2017 Plan is attached as Appendix A to this proxy statement and is incorporated herein by reference.

As of July 3, 2017, there were stock options to acquire 312,037 shares of common stock outstanding under our equity compensation plans, with a weighted average exercise price of $15.39 and a weighted average remaining term of 5.2 years. In addition, as of July 3, 2017, there were 334,803 unvested full value awards with time-based vesting and no unvested full value awards with performance vesting outstanding under our equity compensation plans. Other than the foregoing, no awards under our equity compensation plans were outstanding as of July 3, 2017.

Shareholder approval of the 2017 Plan under this Proposal 5 will also serve to approve the performance measures set forth in the 2017 Plan, as further described below under the section entitled “Qualified Performance-Based Compensation under Code Section 162(m).”  

Summary of Material Features of the 2017 Plan

The material features of the 2017 Plan are:

Based solely on the closing price of our common stock as reported by NASDAQ Capital Market on July 3, 2017 and the maximum number of shares that would have been available for awards as of such date under the 2017 Plan, the maximum aggregate market value of the common stock that could potentially be issued under the 2017 Plan is approximately $79,023.00. The shares of Stock underlying any Awards that are forfeited, canceled or otherwise terminated (other than by exercise) shall be added back to the shares of Stock available for issuance under the 2017 Plan. Notwithstanding the foregoing, the following shares shall not be added to the shares authorized for grant under the 2017 Plan: (i) shares tendered or held back upon exercise of an option or settlement of an award to cover the exercise price or tax withholding, and (ii) shares subject to a stock appreciation right that are not issued in connection with the stock settlement of the stock appreciation right upon exercise thereof. In the event the Company repurchases shares of stock on the open market, such shares shall not be added to the shares of stock available for issuance under the Plan.

The 2017 Plan provides for awards during the term thereof with respect to a maximum of 3,000,000 shares, plus any shares that are available for issuance under the Company’s 2000 Equity Incentive Plan (the “Prior Plan”) as of the date on which the 2017 Plan is approved by shareholders at the Company’s Annual Meeting (or that become available under the Prior Plan on or after such date). Upon shareholder approval of the 2017 Plan, no further awards will be made under the Prior Plan. If any award granted under the Prior Plan (or, if approved, after the date on which the 2017 Plan is approved by shareholders at the Company’s Annual Meeting) is canceled, terminates, expires or lapses for any reason, any shares subject to the award will again be available for the grant of an award under the 2017 Plan.

If any award granted under the 2017 Plan or under the Prior Plan is canceled, terminates, expires or lapses for any reason, any shares subject to the award will again be available for the grant of an award under the 2017 Plan.

Qualified Performance-Based Compensation under Code Section 162(m)

To ensure that certain awards granted under the 2017 Plan to a “Covered Employee” (as defined in the Code) qualify as “performance-based compensation” under Section 162(m) of the Internal Revenue Code of 1986, as amended (the “Code”), the 2017 Plan provides that the Compensation Committee may require that the vesting of such awards be conditioned on the satisfaction of performance criteria that may include any or all of the following: (1) total shareholder return; (2) earnings before interest, taxes, depreciation and amortization; (3) net income (loss) (either before or after interest, taxes, depreciation and/or amortization); (4) changes in the market price of the common stock; (5) economic value-added; (6) funds from operations or similar measure; (7) sales or revenue; (8) acquisitions or strategic transactions; (9) operating income (loss); (10) cash flow (including, but not limited to, operating cash flow and free cash flow); (11) return on capital, assets, equity, or investment; (12) return on sales; (13) gross or net profit levels; (14) productivity; (15) expense; (16) margins; (17) operating efficiency; (18) customer satisfaction; (19) working capital; (20) earnings (loss) per share of common stock; (21) sales or market shares and (22) number of customers, any of which may be measured either in absolute terms or as compared to any incremental increase or as compared to results of a peer group. The Compensation Committee will select the particular performance criteria within 90 days following the commencement of a performance cycle. Subject to adjustments for stock splits and similar events, the maximum award granted to any one individual that is intended to qualify as “performance-based compensation” under Section 162(m) of the Code will not exceed 3,000,000 shares of common stock for any performance cycle and options or stock appreciation rights with respect to no more than 2,000,000 shares of common stock may be granted to any one individual during any calendar year period. If a performance-based award is payable in cash, it cannot exceed $3,000,000 for any performance cycle.  

Rationale for the New 2017 Plan

Equity incentive awards are an important component of our executive and non-executive employees’ compensation. The Compensation Committee and the Board of Directors believe that we must continue to offer a

competitive equity compensation program in order to attract, retain and motivate the talented and qualified employees necessary for the Company’s continued growth and success. According, the Compensation Committee and Board of Directors are seeking to get approval for the new 2017 Plan in its ongoing efforts to modernize the plan and add additional features that that better align with stockholder concerns. Among the new features contained in the 2017 Plan are the following:

Grant Rate

The following table sets forth information regarding historical awards granted and earned for the 2014 through 2016 period, and the corresponding grant rate, which is defined as the number of shares subject to equity-based awards granted in a year divided by the weighted average number of shares of common stock outstanding for that year, for each of the Company’s last three fiscal years:

(1) Total Awards Granted represents the sum of Stock Options Granted and Full-Value Awards Granted.

Our Compensation Committee determined the size of reserved pool under the 2017 Plan based on projected equity awards to anticipated new hires, projected annual equity awards to existing employees and an assessment of the magnitude of increase that our institutional investors and the firms that advise them would likely find acceptable. 

Summary of the 2017 Plan

The following description of certain features of the 2017 Plan is intended to be a summary only. The summary is qualified in its entirety by the full text of the 2017 Plan, which is attached hereto as Exhibit A. 

Administration  The 2017 Plan will be administered by the Compensation Committee. The Compensation Committee has full power to select, from among the individuals eligible for awards, the individuals to whom awards will be granted, to make any combination of awards to participants, and to determine the specific terms and conditions of each award, subject to the provisions of the 2017 Plan. The Compensation Committee may delegate to our Chief Executive Officer the authority to grant awards to employees who are not subject to the reporting and other provisions of Section 16 of the Exchange Act and not subject to Section 162(m) of the Code, subject to certain limitations and guidelines.

Eligibility; Plan Limits  All full-time and part-time officers, employees, non-employee directors and consultants are eligible to participate in the 2017 Plan, subject to the discretion of the administrator. As of July 3, 2017, approximately 175 individuals would have been eligible to participate in the 2017 Plan had it been effective on such date, which includes 3 executive officers, 157 employees who are not executive officers, 7 non-employee directors and 8 consultants. There are certain limits on the number of awards that may be granted under the 2017 Plan. For example, no more than 2,000,000 shares of common stock may be granted in the form of stock options or stock appreciation rights to any one individual

during any one calendar year period. The maximum performance-based award payable to any grantee in a performance cycle is 2,000,000 shares of common stock or $3,000,000 for cash-based awards. These limits are intended to comply with Section 162(m) of the Code. In addition, no more than 3,000,000 shares of common stock may be granted in the form of incentive stock options.

Director Compensation Limit  The 2017 Plan provides that the value of all awards awarded under the 2017 Plan and all other cash compensation paid by the Company to any non-employee director in any calendar year shall not exceed $300,000.

Stock Options  The 2017 Plan permits the granting of (1) options to purchase common stock intended to qualify as incentive stock options under Section 422 of the Code and (2) options that do not so qualify. Options granted under the 2017 Plan will be non-qualified options if they fail to qualify as incentive options or exceed the annual limit on incentive stock options. Incentive stock options may only be granted to employees of the Company and its subsidiaries. Non-qualified options may be granted to any persons eligible to receive incentive options and to non-employee directors and consultants. The option exercise price of each option will be determined by the Compensation Committee but may not be less than 100% of the fair market value of the common stock on the date of grant. Fair market value for this purpose will be the last reported sale price of the shares of common stock on the NASDAQ Capital Market on the date immediately preceding the grant date. The exercise price of an option may not be reduced after the date of the option grant, other than to appropriately reflect changes in our capital structure.

The term of each option will be fixed by the Compensation Committee and may not exceed ten years from the date of grant. The Compensation Committee will determine at what time or times each option may be exercised. Options may be made exercisable in installments and the exercisability of options may be accelerated by the Compensation Committee. In general, unless otherwise permitted by the Compensation Committee, no option granted under the 2017 Plan is transferable by the optionee other than by will or by the laws of descent and distribution or pursuant to a domestic relations order, and options may be exercised during the optionee’s lifetime only by the optionee, or by the optionee’s legal representative or guardian in the case of the optionee’s incapacity.

Upon exercise of options, the option exercise price must be paid in full either in cash, by certified or bank check or other instrument acceptable to the Compensation Committee or by delivery (or attestation to the ownership) of shares of common stock that are beneficially owned by the optionee and that are not subject to risk of forfeiture. Subject to applicable law, the exercise price may also be delivered to the Company by a broker pursuant to irrevocable instructions to the broker from the optionee. In addition, the Compensation Committee may permit non-qualified options to be exercised using a net exercise feature which reduces the number of shares issued to the optionee by the number of shares with a fair market value equal to the exercise price.

To qualify as incentive options, options must meet additional federal tax requirements, including a $100,000 limit on the value of shares subject to incentive options that first become exercisable by a participant in any one calendar year.

Stock Appreciation Rights   The Compensation Committee may award stock appreciation rights subject to such conditions and restrictions as the Compensation Committee may determine provided, that the vesting period applicable to any Stock Appreciation Rights may not be less than one year except in the case of a “sale event,” as defined in the 2017 Plan. Stock appreciation rights entitle the recipient to shares of common stock equal to the value of the appreciation in the stock price over the exercise price. The exercise price is the fair market value of the common stock on the date of grant. The term of a stock appreciation right may not exceed ten years.  

Restricted Stock   The Compensation Committee may award shares of common stock to participants subject to such conditions and restrictions as the Compensation Committee may determine. These conditions and restrictions may include the achievement of certain performance goals and/or continued employment with us through a specified restricted period; provided, that the vesting period applicable to any restricted stock may not be less than one year except in the case of a “sale event,” as defined in the 2017 Plan. During the vesting period, restricted stock awards may be credited with dividend equivalent rights (but dividend equivalents payable with respect to restricted stock awards with vesting tied to the attainment of performance criteria shall not be paid unless and until such performance conditions are attained).

Restricted Stock Units  The Compensation Committee may award restricted stock units to participants. Restricted stock units are ultimately payable in the form of shares of common stock subject to such conditions and restrictions as the Compensation Committee may determine. These conditions and restrictions may include the achievement of certain performance goals and/or continued employment with the Company through a specified vesting period; provided, that the vesting period applicable to any Restricted Stock Units may not be less than one year except in the case of a “sale event,” as defined in the 2017 Plan. In the Compensation Committee’s sole discretion, it may permit a participant to make an advance election to receive a portion of his or her future cash compensation otherwise due in the form of a restricted stock unit award, subject to the participant’s compliance with the procedures established by the Compensation Committee and requirements of Section 409A of the Code. During the deferral period, the deferred stock awards may be credited with dividend equivalent rights.  

Unrestricted Stock Awards   The Compensation Committee may also grant shares of common stock which are free from any restrictions under the 2017 Plan. Unrestricted stock may be granted to any participant in recognition of past services or other valid consideration and may be issued in lieu of cash compensation due to such participant.

Dividend Equivalent Rights  The Compensation Committee may grant dividend equivalent rights to participants, which entitle the recipient to receive credits for dividends that would be paid if the recipient had held specified shares of common stock. Dividend equivalent rights granted as a component of another award (other than a stock option or stock appreciation right) may be paid only if the related award becomes vested. Dividend equivalent rights may be settled in cash, shares of common stock or a combination thereof, in a single installment or installments, as specified in the award.

Cash-Based Awards  The Compensation Committee may grant cash bonuses under the 2017 Plan to participants. The cash bonuses may be subject to the achievement of certain performance goals.

Change of Control Provisions  The 2017 Plan provides that upon the effectiveness of a “sale event,” as defined in the 2017 Plan, except as otherwise provided by the Compensation Committee in the award agreement, all awards with time-based conditions will become vested and exercisable upon the sale event, unless the parties to the sale event agree that such awards will be assumed or continued by the successor entity.  Awards with conditions and restrictions relating to the attainment of performance goals may become vested and non-forfeitable in connection with a sale event in the Compensation Committee’s discretion or to the extent specified in the relevant award agreement. In addition, the Company may make or provide for payment, in cash or in kind, to participants holding options and stock appreciation rights equal to the difference between the per share cash consideration and the exercise price of the options or stock appreciation rights. The Compensation Committee shall also have the option to make or provide for a payment, in cash or in kind, to grantees holding other awards in an amount equal to the per share cash consideration multiplied by the number of vested shares under such awards. All awards will terminate in connection with a sale event unless they are assumed by the successor entity.

Adjustments for Stock Dividends, Stock Splits, Etc  The 2017 Plan requires the Compensation Committee to make appropriate adjustments to the number of shares of common stock that are subject to the 2017 Plan, to certain limits in the 2017 Plan, and to any outstanding awards to reflect stock dividends, stock splits, extraordinary cash dividends and similar events.

Tax Withholding  Participants in the 2017 Plan are responsible for the payment of any federal, state or local taxes that the Company is required by law to withhold upon the exercise of options or stock appreciation rights or vesting of other awards. Subject to approval by the Compensation Committee, participants may elect to have the minimum tax withholding obligations satisfied by authorizing the Company to withhold shares of common stock to be issued pursuant to exercise or vesting; provided that, to the extent necessary to avoid adverse accounting treatment, such share withholding may be limited to the minimum required tax withholding obligation.  

Amendments and Termination  The Board may at any time amend or discontinue the 2017 Plan and the Compensation Committee may at any time amend or cancel any outstanding award for the purpose of satisfying changes in the law or for any other lawful purpose. However, no such action may adversely affect any rights under any outstanding award without the holder’s consent. To the extent required under the rules of the NASDAQ Capital Market, any

amendments that materially change the terms of the 2017 Plan will be subject to approval by our stockholders. Amendments shall also be subject to approval by our stockholders if and to the extent determined by the Compensation Committee to be required by the Code to preserve the qualified status of incentive options or to ensure that compensation earned under the 2017 Plan qualifies as performance-based compensation under Section 162(m) of the Code.

Effective Date of Plan  The 2017 Plan was approved by our board of directors on June 30, 2017. Awards of incentive options may be granted under the 2017 Plan until the tenth anniversary of June 30, 2017. No other awards may be granted under the 2017 Plan after the date that is ten years from the date of stockholder approval.

New Plan Benefits

Because the grant of awards under the 2017 Plan is within the discretion of the Compensation Committee, the Company cannot determine the dollar value or number of shares of common stock that will in the future be received by or allocated to any participant in the 2017 Plan. As noted above, the Compensation Committee did not grant equity awards to any named executive offer in the fiscal year ending March 31, 2017. 

Tax Aspects Under the Code

The following is a summary of the principal federal income tax consequences of certain transactions under the 2017 Plan. It does not describe all federal tax consequences under the 2017 Plan, nor does it describe state or local tax consequences.

Incentive Options  No taxable income is generally realized by the optionee upon the grant or exercise of an incentive option. If shares of common stock issued to an optionee pursuant to the exercise of an incentive option are sold or transferred after two years from the date of grant and after one year from the date of exercise, then (i) upon sale of such shares, any amount realized in excess of the option price (the amount paid for the shares) will be taxed to the optionee as a long-term capital gain, and any loss sustained will be a long-term capital loss, and (ii) the Company will not be entitled to any deduction for federal income tax purposes. The exercise of an incentive option will give rise to an item of tax preference that may result in alternative minimum tax liability for the optionee.

If shares of common stock acquired upon the exercise of an incentive option are disposed of prior to the expiration of the two-year and one-year holding periods described above (a “disqualifying disposition”), generally (i) the optionee will realize ordinary income in the year of disposition in an amount equal to the excess (if any) of the fair market value of the shares of common stock at exercise (or, if less, the amount realized on a sale of such shares of common stock) over the option price thereof, and (ii) we will be entitled to deduct such amount. Special rules will apply where all or a portion of the exercise price of the incentive option is paid by tendering shares of common stock.

If an incentive option is exercised at a time when it no longer qualifies for the tax treatment described above, the option is treated as a non-qualified option. Generally, an incentive option will not be eligible for the tax treatment described above if it is exercised more than three months following termination of employment (or one year in the case of termination of employment by reason of disability). In the case of termination of employment by reason of death, the three-month rule does not apply.

Non-Qualified Options  No income is realized by the optionee at the time the option is granted. Generally (i) at exercise, ordinary income is realized by the optionee in an amount equal to the difference between the option price and the fair market value of the shares of common stock on the date of exercise, and we receive a tax deduction for the same amount, and (ii) at disposition, appreciation or depreciation after the date of exercise is treated as either short-term or long-term capital gain or loss depending on how long the shares of common stock have been held. Special rules will apply where all or a portion of the exercise price of the non-qualified option is paid by tendering shares of common stock. Upon exercise, the optionee will also be subject to Social Security taxes on the excess of the fair market value over the exercise price of the option.

Other Awards  The Company generally will be entitled to a tax deduction in connection with an award under the 2017 Plan in an amount equal to the ordinary income realized by the participant at the time the participant recognizes such

income. Participants typically are subject to income tax and recognize such tax at the time that an award is exercised, vests or becomes non-forfeitable, unless the award provides for a further deferral.

Parachute Payments  The vesting of any portion of an option or other award that is accelerated due to the occurrence of a change in control (such as a sale event) may cause a portion of the payments with respect to such accelerated awards to be treated as “parachute payments” as defined in the Code. Any such parachute payments may be non-deductible to the Company, in whole or in part, and may subject the recipient to a non-deductible 20% federal excise tax on all or a portion of such payment (in addition to other taxes ordinarily payable).

Limitation on Deductions  Under Section 162(m) of the Code, the Company’s deduction for certain awards under the 2017 Plan may be limited to the extent that the Chief Executive Officer or other executive officer whose compensation is required to be reported in the summary compensation table (other than the Principal Financial Officer) receives compensation in excess of $1 million a year (other than performance-based compensation that otherwise meets the requirements of Section 162(m) of the Code). The 2017 Plan is structured to allow certain awards to qualify as performance-based compensation.

SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS

The following table sets forth information regarding securities authorized for issuance under equity compensation plans as of March 31, 2017:

Vote Required

A quorum being present, the affirmative vote of a majority of outstanding shares of stock entitled to vote as of the record date is required for the approval of the 2017 Plan. You may vote “FOR”, “AGAINST” or “ABSTAIN” from voting on this proposal.  For purposes of determining whether this proposal has passed, abstentions and broker non-votes will have the effect of a vote AGAINST the proposal. 

RECOMMENDATION

THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE “FOR” THE APPROVAL OF THE CAPSTONE TURBINE CORPORATION 2017 EQUITY INCENTIVE PLAN. 

PROPOSAL 6

EXECUTIVE COMPENSATION
APPROVAL OF THE AMENDED AND RESTATED

CAPSTONE TURBINE CORPORATION EMPLOYEE STOCK PURCHASE PLAN

Introduction

Our stockholders are being asked to approve an amendment and restatement to our Employee Stock Purchase Plan (the “ESPP”). Effective June 30, 2017, the Board of Directors unanimously approved, subject to stockholder approval, an amendment and restatement the ESPP.

The ESPP is being submitted for stockholder approval in order to ensure that the ESPP meets the requirements of Section 423 of the Internal Revenue Code (the “Code”). If the ESPP is not approved by our stockholders, the ESPP will have no further force and effect, the existing ESPP will continue in full force and effect, and we may continue to grant awards under the ESPP, subject to its terms, conditions and limitations, using the shares available for issuance thereunder.

Overview of Proposed Amendments

IncreaseinShare Reserve  We strongly believe that an employee stock purchase program is a necessary and important incentive and retention tool. The ESPP was initially adopted by the Company’s Board of Directors and approved by the stockholders in 2000 and has been amended to modify the exercise price to be used on the date the shares are exercised. In June 2010, the ESPP was amended to increase the number shares of Common Stock available under the ESPP by 70,000 shares and extended the term of the ESPP for a period of ten years through June 30, 2020, unless terminated sooner.

Prior to the current amendment, 70,000 shares of Common Stock had been reserved for issuance. Of this number, there were only 4,757 shares of Common Stock remaining as of March 31, 2017. As amended, the ESPP will continue by its terms and will increase the number of shares of Common Stock available by 500,000 shares which will reserve for issuance a total of 570,000 shares of Common Stock.

The ESPP is not being amended in any material respect other than to reflect the changes described above.

Determination to Approve the ESPP

The ESPP and our 2017 Equity Incentive Plan, are the only equity incentive plans we currently have in place pursuant to which awards may be granted.  

In determining whether to approve the ESPP, including the proposed increase to the share reserve under the ESPP over the share reserve under the existing ESPP, our Board of Directors considered the following:

In light of the factors described above, and the fact that the ability to continue to grant equity compensation is vital to our ability to continue to attract and retain employees in the extremely competitive labor markets in which we compete, our Board of Directors has determined that the size of the share reserve under the ESPP is reasonable and appropriate at this time. Our Board of Directors will not create a subcommittee to evaluate the risk and benefits for

issuing shares under the ESPP. The Compensation Committee of the Board of Directors oversees and administers the ESPP.

Summary of the ESPP

The principal features of the ESPP are summarized below, but the summary is qualified in its entirety by reference to the ESPP itself, which is attached as Appendix B to this proxy statement.

Purpose

The purpose of the ESPP is to assist our eligible employees in acquiring a stock ownership interest in our company and to help our eligible employees provide for their future security and to encourage them to remain in our employment.

Securities Subject to the ESPP

A total of 570,000 shares of our common stock are authorized for issuance under the ESPP (after taking into account the increase of 500,000 shares added in connection with this amendment and restatement).  

Administration

The ESPP is administered by the Compensation TableCommittee of the Board of Directors, which has the right to determine any questions which may arise regarding the interpretation and application of the provisions of the ESPP and to make, administer, and interpret such rules and regulations as it deems necessary. Any determinations will be made by the Compensation Committee in its sole discretion and will be final and binding.

Eligibility

Eligibility for participation is limited to employees of the Company or its affiliated subsidiaries who are customarily employed for at least 20 hours per week and more than 5 months or more in a calendar year. As of March 31, 2017, approximately 168 employees were eligible to participate in the ESPP.

Eligible employees become participants in the ESPP by enrolling and authorizing payroll deductions by the deadline established by the administrator prior to the relevant offering date. Directors who are not employees are not eligible to participate. Employees who choose not to participate, or are not eligible to participate at the start of an offering period but who become eligible thereafter, may enroll in any subsequent offering period.

Participation in an Offering

OptionPeriods  The ESPP provides six-month option periods from January 1 to June 30 and July 1 to December 31 of each year. A participant must be employed at the beginning of an option period to participate in the ESPP for that six-month option period.

ParticipationbyEmployees  Eligible employees can participate in the ESPP by authorizing the Company to deduct from payroll up to 15% of their compensation. The table below sets forthdeductions are accumulated without interest through the option period and used to fund the purchase of Common Stock at the end of the option period. A participant may discontinue or decrease participation in the ESPP during the option period. If a participant elects to discontinue participation during an option period, the amounts accumulated through payroll deductions are returned to the participant in cash without interest. An employee’s participation election is automatically continued for subsequent option periods until the employee makes a new election or becomes ineligible to participate.

Purchase Common Stock is purchased from the Company for 95% of its fair market value on the last day of the option period. Fair market value is determined by reference to the closing sales price on the NASDAQ Global Market. The balance of funds accumulated for each participant is applied to acquire the greatest number of whole shares of Common Stock at the purchase price determined for each option period. Any balance of funds is returned to the participant. No fractional shares are delivered under the ESPP.

SharePurchaseLimits  The maximum number of shares that a participant may purchase during any option period is 2,500. Each participant’s acquisition of Common Stock is limited to $25,000 per year, based on the fair market value of the Common Stock on the date of acquisition, which is the last day of each option period. In addition, an employee will become ineligible to participate in the ESPP if he or she owns or could acquire 5% or more of the combined voting power or value of all classes of stock of the Company or of any of its subsidiaries (including stock that may be purchased under the ESPP or pursuant to any other options).

Termination of Employment;  Death  The right to participate in the ESPP terminates immediately upon termination of employment. Generally, a participant will receive a refund of amounts withheld through payroll deduction during the option period without interest. However, if termination of employment is due to the participant’s death, the participant’s estate is entitled to apply the amounts that were withheld from payroll during the option applied to the purchase of Common Stock at the end of the option period.

Adjustment or Changes in Capitalization In the event of any change in the outstanding Common Stock of the Company by reason of a stock split, stock dividend, recapitalization, partial or complete liquidation, reclassification, merger, consolidation, reorganization, extraordinary cash dividend, spin-off, split-up, combination or other corporate event or distribution of stock or property affecting the Common Stock, the number of shares available under the ESPP and subject to purchase during the option period, as well as the purchase price, will be appropriately adjusted in a manner consistent with Section 423 of the Internal Revenue Code.

AmendmentandTerminationofthePlan The ESPP may be amended by the Board of Directors for any reason, subject to applicable law. However, an amendment that increases the number of outstanding shares of Common Stock available for issuance, extends the expiration date of the ESPP or changes the class of employees eligible to participate must be approved by the Company’s stockholders within twelve months thereof. If approved by stockholders, the plan will remain in effect until June 30, 2020, unless terminated earlier by the Board of Directors.

Federal Income Tax Consequences Associated with the ESPP

The material federal income tax consequences of the ESPP under current federal income tax law are summarized in the following discussion, which deals with the general tax principles applicable to the ESPP. The following discussion is based upon laws, regulations, rulings and decisions now in effect, all of which are subject to change. Foreign, state and local tax laws, and employment, estate and gift tax considerations are not discussed due to the fact that they may vary depending on individual circumstances and from locality to locality.

The ESPP, and the right of participants to make purchases thereunder, is intended to qualify under the provisions of Section 423 of the Code. Under the applicable Code provisions, no income will be taxable to a participant until the sale or other disposition of the shares purchased under the ESPP. This means that an eligible employee will not recognize taxable income on the date the employee is granted an option under the ESPP (i.e., the first day of the offering period). In addition, the employee will not recognize taxable income upon the purchase of shares. Upon such sale or disposition, the participant will generally be subject to tax in an amount that depends upon the length of time such shares are held by the participant prior to disposing of them. If the shares are sold or disposed of more than two years from the first day of the offering period during which the shares were purchased and more than one year from the date of purchase, or if the participant dies while holding the shares, the participant (or his or her estate) will recognize ordinary income measured as the lesser of (1) the excess of the fair market value of the shares at the time of such sale or disposition over the purchase price or (2) an amount equal to 15% of the fair market value of the shares as of the first day of the offering period. Any additional gain will be treated as long-term capital gain. If the shares are held for the holding periods described above but are sold for a price that is less than the purchase price, there is no ordinary income and the participating employee has a long-term capital loss for the difference between the sale price and the purchase price.

If the shares are sold or otherwise disposed of before the expiration of the holding periods described above, the participant will recognize ordinary income generally measured as the excess of the fair market value of the shares on the date the shares are purchased over the purchase price and we will be entitled to a tax deduction for compensation expense in the amount of ordinary income recognized by the employee. Any additional gain or loss on such sale or disposition will be long-term or short-term capital gain or loss, depending on how long the shares were held following

the date they were purchased by the participant prior to disposing of them. If the shares are sold or otherwise disposed of before the expiration of the holding periods described above but are sold for a price that is less than the purchase price, the participant will recognize ordinary income equal to the excess of the fair market value of the shares on the date of purchase over the purchase price (and we will be entitled to a corresponding deduction), but the participant generally will be able to report a capital loss equal to the difference between the sales price of the shares and the fair market value of the shares on the date of purchase.

New Plan Benefits

Benefits under the ESPP will depend on the employees’ enrollment and contribution elections, and the fair market value of the shares at various future dates. Therefore, it is not possible to determine the benefits that will be received in the future by participants in the ESPP.

Vote Required

A quorum being present, the affirmative vote of a majority of outstanding shares of stock entitled to vote as of the record date is required to approve the amendment of the Capstone Turbine Corporation Employee Stock Purchase Plan. You may vote “FOR”, “AGAINST”, or “ABSTAIN” from voting on this proposal. For purposes of determining whether this proposal has passed, abstentions and broker non-votes will have the effect of a vote AGAINST the proposal.

Recommendation

THE BOARD OF DIRECTORS UNANIMOUSLY  RECOMMENDS THAT STOCKHOLDERS VOTE “FOR” THE PROPOSAL TO APPROVE THE AMENDED AND RESTATED CAPSTONE TURBINE CORPORATION EMPLOYEE STOCK PURCHASE PLAN.

PROPOSAL 7

NON-BINDING ADVISORY VOTES ON EXECUTIVE COMPENSATION

Background

Section 14A of the Exchange Act, put in place by Section 951 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) requires the Company to seek a non-binding advisory vote from its stockholders to approve the compensation of the Company's principalits named executive officer, principal financial officerofficers (“Say-on-Pay” vote) as disclosed pursuant to Item 402(m) through (q) of Regulation S-K, and accompanying compensation tables and the threerelated narrative disclosure in this Proxy Statement. Because the required vote is advisory, the result of the vote is not binding upon the Board of Directors.

We believe that executive compensation should be linked to the Company’s performance and aligned with the interests of the Company’s stockholders. In addition, executive compensation is designed to allow the Company to recruit, retain and motivate employees who play a significant role in the organization’s current and future success.

As a focus on the Company’s long-term performance, we believe that long-term equity awards are effective tools for aligning management and stockholder interests in order to increase overall stockholder value. In addition, the executive officers are often asked to implement long-term initiatives for the Company that, by definition, take more than one fiscal year to accomplish. Stability and continuity among the executive officers aid the Company in its implementation of such long-term initiatives. However, a portion of the executive officers’ annual compensation is also linked to the short-term success of the Company in order to motivate and reward executives to achieve Company objectives and to attract and retain talented executives.

The Compensation Committee values the perspectives and concerns of our stockholders regarding executive compensation. The Compensation Committee has in the past and intends to continue to maintain in the future an open dialogue with stockholders to foster greater communication and transparency.

At the 2016 Annual Meeting, we sought an advisory vote on our Company’s executive compensation program.  This proposal, commonly known as the Say on Pay proposal, was approved by slightly more than two-thirds of the votes cast. Our research further determined that only about 5% of the Company’s total outstanding shares were voted against last year’s Say on Pay proposal.  The Company also believes that none of the five largest stockholders voted in protest on Say on Pay last year.

During the last twelve months, Company executives regularly held meetings with stockholders and participated in professional investor conferences, to hear stockholder views on the Company’s financial performance, strategic business plans, corporate governance, executive compensation, and related subjects. Based upon stockholder feedback reported to the Compensation Committee by Company executives, the Compensation Committee decided to seek ways to restructure its compensation program to further link executive compensation to stockholder interests.

Given that one of the main stockholder concerns relates to the Company’s ability to reach EBITDA (earnings before interest, taxes, depreciation and amortization) breakeven, the Compensation Committee decided to further align its compensation program to stockholder interests by restructuring it to further link executive compensation to EBITDA breakeven. As a result, the Compensation Committee implemented the Leadership Incentive Program as further described below.

During Fiscal 2017, given the various challenges that the Company faced, the Compensation Committee determined not to increase base pay, forgo an executive annual incentive program, and not to grant long-term equity awards. For Fiscal 2018, the Compensation Committee approved increases to base pay for the Company’s named executive officers (excluding the CEO), implemented a Leadership Incentive Program pursuant to which payment is made only upon the Company reaching EBIDTA breakeven for two consecutive quarters in Fiscal 2018, but did not grant any long-term equity awards.

The Compensation Committee felt that stockholder’s interests would best be served by the implementation of

the Leadership Incentive Program given that payment would only be made upon the Company reaching EBITDA breakeven for two consecutive quarters in Fiscal 2018. By having EBITDA breakeven as the performance criteria to receive pay out under this program, executive compensation is directly tied to improving Company performance and more directly aligns the efforts of the Company’s executives to increase overall stockholder value which furthers the interests of the Company’s stockholders.  Consequently, our Compensation Committee took the feedback that it received from stockholders into account with the implementation of the Leadership Incentive Program that directly links executive compensation to EBITDA breakeven.

In addition to the responsive actions described above, the Compensation Committee, in an effort to further align executive compensation and stockholder interests, voluntarily adopted a clawback policy.  The clawback policy applies to both cash and equity-based performance-based compensation the payment of which is predicated upon the Company’s achievement of financial performance or metrics and which may be clawed back by the Company in connection with a restatement of the Company’s financials.

Proposal

The Company is presenting this proposal, which gives you as a stockholder the opportunity to express your view on our executive compensation by voting for or against the following resolution:

“RESOLVED, that the compensation paid to the Company’s named executive officers, as disclosed pursuant to Item 402 (m) through (q) of Regulation S-K, including the compensation tables and other narrative executive compensation disclosures contained in the Company’s 2017 Proxy Statement, is hereby APPROVED.”

Position of Board of Directors

As discussed in this proxy statement under the “Compensation of Officers and Directors” Section, the Compensation Committee of the Board of Directors believes that the executive compensation for the year ended March 31, 2017, is reasonable and appropriate, is justified by the performance of the Company and is the result of a carefully considered approach.  Our executive compensation program is designed to attract, motivate and retain a highly qualified group of executives and maintain a close correlation between the rewards to the Company’s executives and the strategic success of the Company and the performance of its stock.

Effect of Vote

Because your vote is advisory, it will not be binding upon the Company, the Compensation Committee or the Board of Directors; however, we value stockholders’ opinions, and we will consider the outcome of the Say-on-Pay vote when determining future executive compensation arrangements. 

Vote Required

A quorum being present, the affirmative vote of a majority of the shares present in person or represented by proxy at the Annual Meeting and entitled to vote is required to approve this resolution. Even though this vote will neither be binding on the Company or the Board nor will it create or imply any change in the fiduciary duties of, or impose any additional fiduciary duty on, the Company or the Board, the Compensation Committee will take into account the outcome of the vote when considering future executive compensation decisions. For purposes of determining whether this proposal has passed, abstentions will be treated as votes cast against this proposal, while broker non-votes will not be treated as votes cast on this proposal and those non-votes will have will have no effect on the proposal.  

RECOMMENDATION

THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE “FOR” THE RESOLUTION TO APPROVE THE COMPENSATION OF THE COMPANY’S NAMED EXECUTIVE OFFICERS.

COMPENSATION OF OFFICERS AND DIRECTORS

The Company is a “smaller reporting company” under Item 10 of Regulation S-K promulgated under the Securities Exchange Act of 1934, as amended, and has elected to comply with certain of the requirements applicable to smaller reporting companies in connection with this Proxy Statement.

Summary Compensation Table

The following table sets forth information regarding the compensation paid to or earned by the Company’s Chief Executive Officer (“CEO”) and the other most highly compensated executive officers duringfor services rendered to the 2015 Fiscal Year.Company and its subsidiaries for the fiscal years ended March 31, 2017 and 2016. These individuals, including the Chief Executive Officer, are collectively referred to in this Proxy Statementproxy statement as the "NamedNamed Executive Officers."Officers (“NEO”). The table illustrates that the base pay did not increase from our 2016 fiscal year or our 2017 fiscal year for any of the Named Executive Officers, and, in respect of the fiscal year ended March 31, 2017, these individuals did not receive an annual incentive payment or any long-term equity awards.