SCHEDULE 14A
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 ( Amendment No. )
Filed by the registrant [ X ]
Filed by a party other than the registrant [ ]
Check the appropriate box:
[ X ] Preliminary proxy statement [ ] Confidential, for Use
of the Commission Only
(as permitted by Rule
14a-6(e)(2))
[ ] Definitive proxy statement
[ ] Definitive additional materials
[ ] Soliciting material pursuant to Rule 14a-11(c) or Rule 14a-12
MECHANICAL TECHNOLOGY INCORPORATED
(NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
Payment of filing fee (Check the appropriate box):
[ X ] $125 per Exchange Act Rule 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(i)(2)
or Item 22(a)(2) of Schedule 14A.
[ ] $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and
0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:1
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the form or schedule and the date of its filing,
(1) Amount previously paid:
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(2) Form, schedule or registration statement no.:
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(3) Filing party:
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(4) Date filed:
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PRELIMINARY COPY
MECHANICAL TECHNOLOGY INCORPORATED
968 ALBANY-SHAKER ROAD LATHAM, NEW YORK 12110
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO THE SHAREHOLDERS:
A Special Meeting of Shareholders of Mechanical Technology Incorporated will
be held at the Company's corporate offices, 968 Albany-Shaker Road, Latham,
New York 12110, on Friday, December 20, 1996, at 10:00 A.M. local time for
the purpose of considering and voting on a proposal to adopt and approve the
Company's Stock Incentive Plan, as described in the accompanying Proxy
Statement.
Shareholders of record at the close of business on November 8, 1996, are
entitled to notice of and to vote at the meeting or any adjournment.
Whether or not you expect to attend the meeting in person, kindly mark, sign,
date and return the enclosed Proxy in the envelope provided so that your
stock will be represented. Since approval of the Plan requires the
affirmative vote of the holders of a majority of the outstanding shares of
the Company's Common Stock, shares that are not voted on such proposal have
the same effect as shares voted against the proposed plan; it is therefore
important that you sign and return your proxy so that your shares are voted
as you want them voted. Your Proxy is revocable up to the time it is voted,
and you may vote in person at the Special Meeting even though you have
previously submitted your Proxy.
By Order of the Board of Directors
John Recupero Latham, New York
Secretary November 20, 1996
YOUR VOTE IS IMPORTANT
YOU ARE URGED TO MARK, DATE, SIGN, AND PROMPTLY
RETURN YOUR PROXY IN THE ENCLOSED ENVELOPE
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PRELIMINARY COPY
MECHANICAL TECHNOLOGY INCORPORATED
968 ALBANY-SHAKER ROAD
LATHAM, NEW YORK 12110
PROXY STATEMENT
November 20, 1996
This Proxy Statement, first being mailed to shareholders on approximately
November 20, 1996, is furnished in connection with the solicitation by the
Board of Directors of proxies to be voted at the Special Meeting of
Shareholders to be held on December 20, 1996, and at any adjournment thereof.
A proxy is enclosed for use at the meeting. The proxy may be revoked at any
time before it is exercised. If a shareholder specifies in this proxy how it
is to be voted on approval of the Stock Incentive Plan, the proxy will be
voted in accordance with such specification. If no specification is made,
the proxy will be voted for the adoption and approval of the Stock Incentive
Plan.
OUTSTANDING SHARES AND VOTING RIGHTS
All holders of Common Stock of record at the close of business on November 8,
1996, are entitled to notice of and to vote at the Special Meeting of
Shareholders to be held on December 20, 1996, at the Corporate offices, 968
Albany-Shaker Road, Latham, New York 12110. At the close of business on
November 8, 1996, the Company had outstanding 4,899,201 shares of Common
Stock, which is the only class of securities entitled to vote at the meeting.
Each share of Common Stock entitles the holder thereof to one vote on the
matter to be voted upon by such shareholders at the meeting. The number of
shares voted "for" or "against" the adoption and approval of the Stock
Incentive Plan, as well as the number of shares as to which shareholders
abstain from voting on such matter and the number of shares held for
customers by brokers (or their nominees) and represented at the meeting but
not voted with respect to such matter, will be tabulated by inspectors of
election appointed in accordance with the applicable provisions of the New
York Business Corporation Law
Shareholder approval of the Stock Incentive Plan requires the affirmative
vote, in person or by proxy, of the holders of at least a majority of the
outstanding shares of the Company's Common Stock; therefore, regardless of
how many or how few shares of Common Stock are represented and voted at the
Meeting, the Plan will not be approved unless it receives the favorable
vote, in person or by proxy, of the holders of at least 2,449,601 shares of
the Company's Common Stock. As a result, any shares of Common Stock which
are not voted either "for" or "against" such matter at the Meeting (whether
because the shareholder did not return a proxy card or his broker's request
for voting instructions (in which case his shares cannot be voted), or
because the shareholder abstained from voting on such matter) automatically
have the same effect as votes against the adoption of the Plan.
Shareholders whose shares are held by a bank, broker or other nominee
should know that the record holder of their shares is not permitted to vote
their shares on the proposal to approve the Stock Incentive Plan unless
written instructions to do so are received from the shareholder; thus,
unless such shareholders execute and return the request for voting
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instructions they receive with respect to their shares, their shares will
not be voted on this matter, which has the same effect as if they voted
their shares against adoption of the Plan.
To avoid having his shares in effect counted as votes against adoption of
the Plan, a shareholder must either
* Attend and vote his shares in person,
* Execute and submit a proxy (such as the accompanying form of proxy)
authorizing the voting of his shares at the Meeting on his behalf, or
* In the case of shareholders whose shares are held by a bank, broker or
other nominee, complete and return the request for voting instructions
he receives with respect to his shares.
THE COMPANY WANTS ALL SHAREHOLDERS TO BE HEARD. YOU SHOULD SIGN, DATE AND
PROMPTLY RETURN THE ENCLOSED PROXY (OR THE REQUEST FOR VOTING INSTRUCTIONS
THAT ACCOMPANIES THIS PROXY STATEMENT), SO THAT YOUR SHARES ARE VOTED AS
YOU DECIDE ON THIS IMPORTANT MATTER.
PROPOSAL TO ADOPT AND APPROVE THE
MECHANICAL TECHNOLOGY INCORPORATED
STOCK INCENTIVE PLAN
Stock options, restricted stock, stock appreciation rights, and other
compensation programs based on company stock play a major role in executive
and employee compensation at many public corporations; it is generally
believed that such programs benefit both the corporation and its
shareholders, since the equity-based incentives they create, serve to more
closely align the interests of executives and employees with those of the
owners of the corporation, its shareholders. However, for several years
the Company has not had any plan under which it could offer incentives
based on an equity interest in the Company (such as stock options or
restricted stock grants) to its executives and employees; the Company's
last stock option plan expired in 1992, and its Restricted Stock Incentive
Plan expired in 1994. Management and the Board of Directors of the Company
believe this situation is undesirable, since it denies the Company the
opportunity to use awards under such a program to recruit and retain the
talented executives and employees the Company will need to grow and prosper
in the future, and precludes the Company and its shareholders from
realizing the benefits of the powerful incentives that such programs can
produce.
To remedy this shortcoming, the Board of Directors adopted the Mechanical
Technology Incorporated Stock Incentive Plan on October 17, 1996, subject
to approval by the Company's shareholders. The Board of Directors believes
that it is in the best interests of the Company and its shareholders to be
able to offer stock options, stock appreciation rights, restricted stock,
and other stock-based incentives to officers, employees and others in
accordance with the terms of the Plan in order to provide increased
incentives for such persons to make significant contributions to the long-
term performance and growth of the Company and its subsidiaries, to join
the interests of such persons with the interests of the shareholders of the
Company, and to help the Company and its subsidiaries attract and retain
key personnel. The Board of Directors therefore proposes that the
shareholders adopt and approve the Company's Stock Incentive Plan (the
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"Plan"), and have called the Special Meeting for this purpose.
A copy of the complete text of the Plan is attached as Appendix A to this
Proxy Statement. The principal features of the Plan are summarized below,
but the following discussion is only a summary and is qualified in its
entirety by reference to the actual text of the Plan. Capitalized terms not
otherwise defined herein have the meanings given them in the Plan.
General
To allow the incentives offered under the Plan to be tailored to fit changing
circumstances, and thus enable the Company to remain competitive in its
efforts to attract and retain talented executives and employees, the Plan
authorizes the grant or issuance of almost any imaginable kind of award or
incentive using or based on the Company's Common Stock. Without limitation
thereby, the Plan authorizes:
* Incentive stock options ("Incentive Options") intended to satisfy the
requirements of Section 422 of the Internal Revenue Code, as amended
("Code");
* Stock options not intended to qualify as Incentive Options ("Nonqualified
Options"), and other rights to purchase shares of the Company's Common
Stock, including such rights under a "stock purchase plan" or similar
program available to broad classes of employees and other eligible
persons ("Stock Purchase Rights"); Incentive Options, Nonqualified
Options, and Stock Purchase Rights are sometimes referred to collectively
as "Options";
* Stock Appreciation Rights ("SARs"), under which the participant has the
right to receive the difference, in cash or stock, between a per-share
value specified in the SAR and the value of the Common Stock on the date
of exercise;
* Stock bonuses, restricted stock, and other arrangements in which shares
of Common Stock are issued (generally in respect of services rendered to
or for the Company or its subsidiaries) without any cash payment by the
recipient; and
* Performance units, phantom stock, and other rights to receive cash or
shares of Common Stock in amounts that are based on various statistical
measures relating to the Common Stock such as market value, book value,
earnings per share, return on equity, or similar criteria.
In addition, the Plan permits the Board to authorize the issuance of shares
of Common Stock to satisfy an election by a participant in a Company-
sponsored or other retirement plan maintained for the benefit of the
participant that a portion of such participant's account under such
retirement plan be invested in the Company's Common Stock.
Administration
The Plan will generally be administered by the Board of Directors. The Board
may, subject to any applicable legal limitations or restrictions, delegate
all, or any specified portion, of its power and authority with respect to the
Plan and/or awards under the Plan to either one or more committees of the
Board or one or more other persons or groups of persons (who need not be
officers or employees); the Board may also permit the re-delegation by such
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committee or person(s) of any of its delegated powers under the Plan. As
used herein, references to the "Board" shall also be deemed to include any
such committee, person or group of persons to whom any of the Board's power
and authority with respect to the Plan and/or awards under the Plan may have
been delegated.
Subject to the provisions of the Plan, the Board will determine the persons
to be granted awards under the Plan, the amount of each award, and the terms
and conditions of all awards. In addition, the Board is authorized to
interpret the Plan, to make, amend and rescind rules and regulations relating
to the Plan and to make all other determinations necessary or advisable for
its administration, all subject to the provisions of the Plan.
Participation in the Plan
In addition to officers and employees of the Company (or of a subsidiary or
affiliate of the Company), the Plan permits grants and awards to be made to
the Directors of the Company, to any consultant to the Company or its
subsidiaries or affiliates, and to any other person having a similar relation
to the Company and its subsidiaries and affiliates whose participation in the
Plan the Board determines is in the best interests of the Company and its
subsidiaries and affiliates. Subject to applicable legal requirements (such
as the requirement of the Code that Incentive Options may only be granted to
persons who are employees of the Company or a subsidiary of the Company), the
selection of persons who are eligible to participate in the Plan and the
amounts of grants and awards to those persons are determined by the Board, in
its sole discretion. As of October 31, 1996, the Company and its
subsidiaries had approximately 232 employees, in the aggregate.
Shares Subject to Grant or Award under the Plan
The Plan does not specify a fixed maximum number of shares of the Company's
Common Stock with respect to which awards may be granted or which may be
issued pursuant to the Plan. Instead, the Plan provides that the aggregate
number of shares of Common Stock which may be awarded or issued under the
Plan shall be the sum of (a) 500,000 shares plus (b) 10% of any future
increase in the number of outstanding shares of the Common Stock (other than
increases resulting from the issuance or distribution of shares as a result
of awards under the Plan). Although there is no specific maximum number of
shares issuable pursuant to the Plan, the Plan does provide that Incentive
Options may not be granted under the Plan for more than 500,000 shares.
Shares subject to awards that expire or terminate without issuance of shares
may again be the subject of awards under the Plan; and, in the event of the
surrender of already-owned shares by a participant to pay the exercise price
of an award, the number of shares available under the Plan will only be
reduced by the net number of shares issued in such transaction (i.e., by the
increase in the outstanding shares that results therefrom).
Shares issued upon the grant or exercise of any award under the Plan may be
shares of authorized and unissued Common Stock, shares of issued Common Stock
held in the Company's treasury, or both.
The number of shares subject to each outstanding award, the exercise price
with respect to an award, and the aggregate number of shares remaining
available at any time under the Plan, will be subject to adjustment by the
Board to reflect events such as stock dividends, stock splits,
recapitalizations, mergers, consolidations, or reorganizations of or by the
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Company.
As of October 31, 1996, the closing price of the Company's Common Stock, as
quoted on NASDAQ's electronic OTC Bulletin Board, was $2.50 per share.
Terms and Conditions of Awards under the Plan
Generally, the terms and conditions of awards under the Plan, including the
exercise or purchase price to be paid by the participant (which may not be
less than the par value ($1.00 per share) of the Common Stock), the form and
method of payment of same, the conditions on which the award may be
exercised, any provisions relating to the vesting or exercisability of the
award, and to expiration or termination of the award, the effect of
termination of employment or other events on the participant's rights with
respect to the award, and all other terms, conditions and provisions of the
Award, shall be determined by the Board in its discretion, subject only to
the terms of the Plan and to any limitations imposed by applicable law. Thus,
for example, the Board may, in its discretion, permit a participant to pay
the exercise price for shares subject to an award under the Plan by
surrendering to the Company shares of Common Stock already owned by the
participant; may provide that the vesting of an award is accelerated in
certain circumstances; or may permit an award to be transferable by the
participant on such terms and conditions as the Board deems appropriate.
Except as limited by applicable law or the terms of the Plan, the Board may
include any term, condition or other provision it deems appropriate in any
award under the Plan, including such terms or conditions as it deems
necessary or prudent to comply with securities laws and other applicable
legal requirements affecting grants or awards under the Plan.
Each grant or award under the Plan will be evidenced by a written agreement
or other appropriate document containing such terms, conditions and
provisions, not inconsistent with the Plan, as may be approved by the Board.
Stock Options and Stock Appreciation Rights
Grant and Exercise of Stock Options
Both Incentive Options and Nonqualified Options may be granted under the
Plan. An Incentive Option is intended to qualify as an incentive stock option
within the meaning of Section 422 of the Code. Any Incentive Option granted
under the Plan will have an exercise price of not less than 100% of the fair
market value of the Common Stock on the date on which such Option is granted.
The exercise price of a Nonqualified Option granted under the Plan (i.e., an
option to purchase the Common Stock that does not meet the Code's
requirements for Incentive Options) may be equal to, or greater or less than,
the fair market value of the shares subject to the Option on the date on
which the Option is granted, as determined by the Board at the time of the
grant of such Option; however, under the Plan the exercise or purchase price
of an award may not be less than the par value ($1.00 per share) of the
Common Stock.
The Board will specify, at the time of its grant of any Options under the
Plan, the time or times at or after which such Options will be exercisable.
At the time of exercise of any Option granted under to the Plan, the
participant must pay the full option price of all shares purchased in cash
or, if permitted by the Board in the participant's award agreement, (i) in
shares of Common Stock of the Company (which may include a portion of the
shares of Common Stock to be acquired by the participant pursuant to his
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exercise of the Option), (ii) by a promissory note payable to the order of
the Company on terms acceptable to the Board, or (iii) in such other manner
as the Board determines is appropriate, in its sole discretion. The fair
market value of the stock with respect to which Incentive Options are first
exercisable in any one year by a participant under the Plan cannot exceed
$100,000.
Grant and Exercise of Stock Appreciation Rights
Stock appreciation rights ("SAR") may be granted in conjunction with the
grant of an Incentive or Nonqualified Option under the Plan, or independently
of any such Option. A stock appreciation right granted in conjunction with
an Option may be an alternative right. In such case, the exercise of the
Option terminates the SAR to the extent of the shares purchased upon exercise
of the Option and, correspondingly, the exercise of the SAR terminates the
Option to the extent of the shares with respect to which such right is
exercised. Alternately, a stock appreciation right granted in conjunction
with an Option may be an additional right, in which case both the SAR and the
Option may be exercised. A stock appreciation right may not, however, be
granted in conjunction with an Incentive Option under circumstances in which
the exercise of the SAR affects the right to exercise the Incentive Option or
vice versa, unless certain terms and conditions are met.
The Board will specify, at the time of its grant of any SARs, the time or
times at or after which SARs or Options granted in conjunction with such
rights are exercisable. Upon exercise of a stock appreciation right, a
participant is not required to make any payment to the Company (except for
applicable withholding taxes) and is entitled to receive an amount equal to
the difference between a per-share value specified in the SAR (which may be
the exercise price of an Option granted in tandem therewith), and the fair
market value of the Common Stock on the date of exercise. This amount is
payable by the Company in cash, in shares of the Common Stock, or any
combination thereof, as determined either in the sole discretion of the
Board, at the election of the participant, or as otherwise provided in the
award agreement relating to the SAR.
Terms of Stock Options and Stock Appreciation Rights
The terms and conditions of stock options or stock appreciation right granted
under the Plan shall be specified by the Board at the time of the grant of
each award of Options or SAR's, subject to compliance with the Plan and any
other applicable legal requirements. Generally, Options or SARs granted
under the Plan will become exercisable at such time or upon such event, and
will remain exercisable for such period or until such event, as the Board may
specify at the time of the grant (which will be set forth in the award
agreement relating to the grant); however, Incentive Options may not be
exercisable for more than 10 years from the date of grant.
Options and SARs granted under the Plan may be exercised at any time after
they become exercisable and prior to their expiration, but may be exercised
after the participant's death, or the termination of the participant's
employment (or other relationship) with the Company, only during such period
and on such terms as may be provided by the Board in the participant's award
agreement. Incentive Options may only be exercised while a participant is an
employee of the Company or a subsidiary, except that they may be exercisable
during a period of not more than 1 year after the participant's death and may
be exercisable not more than 90 days after termination of a participant's
employment other than upon death.
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Generally, Options or SARs granted under the Plan may not be transferred by a
participant other than by will or by the laws of descent and distribution,
and an Option or SAR may be exercisable, during the lifetime of the
participant, only by the participant; however, under the Plan the Board may
permit a participant to transfer Nonqualified Options or SAR's during his
lifetime subject to such conditions and restrictions as the Board may impose.
The Code imposes certain additional requirements with respect to an Incentive
Option granted to a participant who, at the time of the grant, owns more than
10% of the total combined voting stock of all classes of stock of the Company
or of any parent or subsidiary.
Restricted Stock
Subject to the terms of the Plan, the Board may award shares of Common Stock
to participants as "restricted stock". Generally, a restricted stock award
will not require the payment of any purchase price by the participant but
will provide for the issuance of shares to the participant subject to
forfeiture of the shares, without payment of any consideration by the
Company, if the participant's employment terminates during a "restricted
period" specified in the award of the restricted stock. In connection with
any award of restricted stock under the Plan, the Board may determine that
some or all of the shares will not be forfeited in certain circumstances
(e.g., if the participant's employment terminates as a result of his or her
death or permanent disability or if his or her employment is terminated by
action of the Company without cause or by mutual agreement). Although the
participant is generally not permitted to sell, transfer, or otherwise
encumber shares acquired upon the grant of restricted stock during the
restricted period, the participant has the right to vote, and receive any
dividends payable with respect to, such shares; moreover, under the Plan the
Board may permit a participant to use shares of restricted stock to pay the
purchase or exercise price for shares to be acquired pursuant to another
award under the Plan (but any shares so acquired shall be subject to the same
restrictions as the restricted shares surrendered in such payment). The
Board may also prescribe other terms and conditions in connection with the
award of restricted stock.
Any stock, securities or other property which a participant receives or is
entitled to receive by reason of his ownership of restricted stock, including
as a result of stock dividends, stock splits, recapitalizations, mergers,
consolidations or reorganizations of or by the Company, will, unless
otherwise determined by the Board, be subject to the same restrictions as
those applicable to the restricted shares.
Other Awards
The terms and conditions applicable to other awards under the Plan will be
determined by the Board at the time of the grant of such awards. To the
extent such other awards are similar to Options, SARs or restricted stock,
the terms and conditions of such awards will generally be similar to those
applicable to comparable awards, as discussed above, with such variations and
changes therefrom as the Board deems necessary or appropriate to reflect the
nature of such other awards and the circumstances and purpose of such other
awards.
Shareholder Rights of Participants
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Generally, no shares of Common Stock may be issued or distributed pursuant to
an award under the Plan (and the participant receiving such award shall not
have any voting, dividend or other rights as a shareholder of the Company)
until payment in full of the purchase or exercise price of such shares
pursuant to the award. The Board may, however, permit the exercise or
purchase price, for shares to be issued pursuant to an award under the Plan,
to be paid in installments or over time, or by borrowing from the Company, on
such terms as the Board in its discretion deems appropriate; in such
circumstances, the Plan provides that the Board may authorize the issuance of
a certificate for such shares upon the participant's exercise of the award,
and that the participant shall have and may exercise the rights of a
shareholder with respect to such shares upon the issuance of such
certificate, even though the exercise or purchase price of the shares has not
yet been paid in full, provided that the certificate for such shares is
retained by the Company until full payment and the participant agrees in
writing that the shares represented thereby may not be sold or transferred by
the participant until such payment.
Amendment and Termination of the Plan
The Plan does not have any fixed expiration or termination date, and will
remain in effect until terminated by action of the Board; however, no
Incentive Options may be granted more than 10 years after the effective date
of the Plan. The Board may terminate or amend the Plan at any time, subject
to such approval of the Company's shareholders as may be required by
applicable law, but the Board may not, without the consent of the holder of
an award, change the exercise price or alter any other term or condition of
any award which has been previously granted under the Plan.
Federal Income Tax Consequences
The rules governing the tax treatment of Options, SARs, restricted stock
and shares acquired upon the exercise of Options and SARs are quite
technical. Therefore, the description of federal income tax consequences
set forth below is necessarily general in nature and does not purport to be
complete. Moreover, the applicable statutory provisions, the rules and
regulations adopted thereunder, and prevailing interpretations thereof, are
subject to change at any time, and their application may vary in individual
circumstances. Finally, the tax consequences under applicable state and
local income tax laws may not be the same as under the federal income tax
laws.
Incentive Options
Incentive Options granted pursuant to the plan are intended to qualify as
"Incentive Stock Options" within the meaning of Section 422 of the Code. If
the participant makes no disposition of the shares acquired pursuant to
exercise of an Incentive Option within one year after the transfer of such
shares to the participant and within two years from grant of the Option,
the participant will realize no taxable income as a result of the grant or
exercise of such Option, and any gain or loss that is subsequently realized
may be treated as long-term capital gain or loss, as the case may be. Under
these circumstances, the Company will not be entitled to a deduction for
federal income tax purposes with respect to either the issuance of such
Incentive Options or the transfer of shares upon their exercise.
If shares acquired upon exercise of Incentive Options are disposed of prior
to the expiration of the above time periods (a "disqualifying
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disposition"), the participant will recognize ordinary income in the year
in which the disqualifying disposition occurs, the amount of which will
generally be the lesser of (i) the excess of the market value of the shares
on the date of exercise over the option price, or (ii) the gain recognized
on such disposition. Such amount will ordinarily be deductible by the
Company for federal income tax purposes in the same year, provided that the
amount constitutes reasonable compensation and the Company satisfies
certain federal income tax withholding requirements. In addition, the
excess, if any, of the amount realized on a disqualifying disposition over
the market value of the shares on the date of exercise will be treated as
capital gain.
Nonqualified Options
Participants generally realize no taxable income upon the grant of
Nonqualified Options, provided the exercise price of such Options is at
least equal to the fair market value of the Common Stock on the date of
grant. A participant who exercises a Nonqualified Option generally realizes
as taxable ordinary income, at the time of exercise, the difference between
the exercise price and the fair market value of the shares on the date of
exercise. Such amount will ordinarily be deductible by the Company in the
same year, provided that the amount constitutes reasonable compensation and
the Company satisfies certain federal income tax withholding requirements.
Subsequent appreciation or decline in the value of the shares on the sale
or other disposition of the shares will generally be treated as capital
gain or loss.
Stock Appreciation Rights
A participant generally will recognize ordinary income upon the exercise of
a stock appreciation right in an amount equal to the amount of cash
received and the fair market value of any shares received at the time of
exercise (determined in each case without reduction for the amount of any
taxes withheld therefrom). Such amount will ordinarily be deductible by
the Company in the same year, provided that the amount constitutes
reasonable compensation and that the Company satisfies certain federal
income tax withholding requirements.
Restricted Stock
A participant granted shares of restricted stock under the Plan generally
is not required to include the value of such shares in ordinary income
until the first time such participant's rights in the shares are
transferable or are not subject to a substantial risk of forfeiture,
whichever occurs earlier, unless such participant timely files an election
under Section 83(b) of the Code to be taxed on the date of receipt of the
shares. In either case, the amount of such income will be equal to the
excess of the fair market value of the stock at the time the income is
recognized over the amount (if any) paid for the stock. The Company will
ordinarily be entitled to a deduction, in the amount of the ordinary income
recognized by the participant, for the Company's taxable year in which the
participant recognizes such income, provided that the amount constitutes
reasonable compensation and that the Company satisfies certain federal
income tax withholding requirements.
Other Awards
The tax effects, for the participant and the Company, of other awards under
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the Plan are generally comparable to those discussed above, with such
differences as may arise due to tax rules specifically applicable to such
other awards or to differences in the circumstances and effects of such
other awards. Generally, the participant will realize taxable income at
the time of his receipt or exercise of an award in the amount of the excess
of any cash, Common Stock, or other property transferred to the participant
over the exercise or purchase price paid by the participant, and the
Company will be entitled to a corresponding compensation deduction for the
amount of taxable income realized by the participant, provided that the
amount constitutes reasonable compensation and that the Company satisfies
certain federal income tax withholding requirements.
Withholding Payments
Generally, the Company will be required to pay amounts for tax
withholding, in respect of the income realized by the participant, upon a
participant's exercise of a Nonqualified Option or SAR, or upon the award
of restricted stock or the expiration of restrictions applicable to
restricted stock, or upon a disqualifying disposition of shares acquired
upon exercise of an Incentive Option. To satisfy such obligation, either
the Company will appropriately reduce the amount of stock or cash to be
delivered or paid to the participant, or the participant must pay such
amount to the Company to reimburse the Company for such payment. The Board
may permit a participant to satisfy such withholding obligations by
electing to reduce the number of shares of Common Stock delivered or
deliverable to the participant upon exercise of a stock option or SAR or
award of restricted stock or by electing to tender an appropriate number of
shares of the Common Stock back to the Company subsequent to exercise of a
stock option or SAR or award of restricted stock, on such terms and subject
to such conditions as the Board may provide.
Accounting Treatment
The Financial Accounting Standards Board ("FASB") recently issued Statement
No. 123 "Accounting for Stock-Based Compensation". This statement, which is
applicable to all transactions occurring after December 8, 1995,
establishes financial accounting and reporting standards for stock-based
employee compensation plans. Those plans include all arrangements by which
employees and non-employees receive shares of stock or other equity
instruments of the Company or the Company incurs liabilities to employees
in amounts based on the price of the Company's stock. The Statement
establishes a fair value method of accounting for stock-based compensation
as it applies for employees. Stock-based benefits covered by the Statement
must be valued using established methods and recognized either by a charge
to income or by disclosure in notes to the financial statements. The
Company expects to elect the disclosure requirements of the Statement and
accordingly, for stock issued or options granted under the plan which have
an exercise or purchase price not less than fair market value at the date of
issuance or grant, there will be no income statment impact although the
estimated value of the benefit will be disclosed. Options granted to
non-employees will result in a charge to operations equal to value of the
option as calculated under FASB No. 123.
SARs will require a charge against the earnings of the Company each year in
the amount of the appreciation in the value of such rights during such year
(based on the difference between the market value on the date of grant of
the Common Stock with respect to which the SAR is granted and the current
market price of such Common Stock). In the event of a decline in market
<PAGE>
price of the Common Stock subsequent to a charge against earnings related
to the estimated costs of SARs, reversal of prior charges is made in the
amount of such decline (but not to exceed aggregate prior increases).
Restricted stock will require a charge against income representing the
value of the benefit conferred (based on the market value of the Common
Stock at the time the shares are transferred to the participant), which may
be spread over the restricted period.
The accounting treatment of other awards under the Plan will generally
follow the same principles as apply to Options, SARs and restricted stock:
to the extent that property or a benefit is transferred to a participant as
a result of an award under the Plan, the Company will record a charge
against earnings in the amount by which the value of the property or
benefit transferred to the participant exceeds the amount paid by the
participant to the Company in respect thereof.
Resale of Common Stock by Participants
Subject to any limitations or restrictions imposed in their award agreement
on the transfer of shares of Common Stock issued pursuant to an award under
the Plan, and to compliance with applicable securities laws in connection
with any such sales, participants in the Plan will generally be free to
resell shares of the Company's Common Stock acquired pursuant to awards
under the Plan. The Company expects to file a registration statement under
the Securities Act of 1933, as amended (the "Securities Act"), covering
shares to be issued as a result of awards under the Plan; in the absence of
such a registration statement, participants would have to resell their
shares pursuant to Rule 144 under the Securities Act (which requires a
minimum holding period before shares can be sold, and imposes restrictions
on the manner and amount of sales), or pursuant to another applicable
exemption under the Securities Act. Persons who are deemed to be affiliates
of the Company (i.e., persons who directly or indirectly through one or
more intermediaries control, or are controlled by, or are under common
control with, the Company), must resell securities acquired under the Plan
pursuant to a registration statement under the Securities Act covering such
resales, or pursuant to Rule 144 or another applicable exemption under the
Securities Act.
Awards under the Plan
To date, no awards have been made under the Plan, nor have any decisions
been made by the Board with respect to the persons to whom, or when, awards
will be made under the Plan, or the number of shares to be subject to or
the terms and conditions of awards that might be granted under the Plan. It
is anticipated that, at a future Board meeting, Options (and perhaps other
awards) will be granted, primarily to employees who are executive officers
of or hold managerial positions with the Company and its subsidiaries
(including officers who may be Directors of the Company), but no decisions
have yet been made on those matters. Any awards that might be made by the
Board prior to shareholder approval of the Plan at the Meeting will be void
ab initio unless the Plan is approved by shareholders, and no shares of
Common Stock may be issued under the Plan unless and until the Plan is
approved by shareholders.
Vote required for adoption and approval of the Plan
To obtain shareholder approval at the Meeting, the Plan must be adopted and
<PAGE>
approved by the affirmative vote, in person or by proxy, of the holders of
at least a majority of the outstanding shares of the Company's Common
Stock; if not approved by shareholders, the Plan will be void and of no
force or effect.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ADOPTION AND APPROVAL OF THE
PROPOSED STOCK INCENTIVE PLAN, AND YOUR PROXY WILL BE SO VOTED UNLESS YOU
SPECIFY OTHERWISE.
ADDITIONAL INFORMATION
EXECUTIVE COMPENSATION
The following table sets forth information with respect to the compensation
for services to the Company and its subsidiaries, during the Company's fiscal
year ended September 30, 1996 (and during the Company's two prior fiscal
years), of each person who served as Chief Executive Officer during such
year, and of all other persons who served as executive officers of the
Company during such year whose total annual compensation exceeded $100,000.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
- -------------------------------------------------------------------------------
Annual Long-Term
Compensation Compen-
sation
- -------------------------------------------------------------------------------
Name & Principal Fiscal Salary Bonus(1) Other Restricted All
Position Year Annual Stock Other
Compen- Awards(2) Compen-
sation sation
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
R. Wayne Diesel 1996 $200,000 $ - - $ - $ 8,000(3)
President & CEO 1995 $190,764 $ - - $ 12,500 $ 4,452(3)
1994 $129,744 $ - - $ 12,500 $ -
- -------------------------------------------------------------------------------
Stephen Sullivan 1996 $130,310 $ - - $ - $ 4,840(3)
President, Ling 1995 $139,617 $ - - $ - $ 5,306(3)
Electronics, Inc. 1994 $118,927 $ - - $ - $ 4,838(3)
- -------------------------------------------------------------------------------
Douglas McCauley 1996 $110,807 $ - - $ - $ -
Vice-President 1995 $100,152 $ 5,000 - $ 625 $ 1,669(3)
Technology Group 1994 $105,000 $ - - $ 6,250 $ 4,200(3)
- -------------------------------------------------------------------------------
Stephen T. Wilson 1996 $107,903 $ - - $ - $ 2,620(3)
Chief Financial 1995 $ 60,846 $ - - $ - $ -
Officer 1994 $ - $ - - $ - $ -
- -------------------------------------------------------------------------------
Denis P. Chaves 1996 $ 99,167 $ - - $ - $ 3,966(3)
Vice-President, 1995 $ 95,000 $10,000 - $ 625 $ 3,800(3)
LAB and Advanced 1994 $ 93,500 $ 7,500 - $ - $ 3,800(3)
Products Divisions
- -------------------------------------------------------------------------------
</TABLE>
(1)The amount, if any, of bonuses to be paid to executive officers in respect
of services during fiscal year 1996 has not yet been determined; that issue
is to be considered at a future meeting of the Company's Board of Directors,
and the amount(s) of any such bonuses will be reported in the Company's proxy
statement for its 1997 Annual Meeting of Shareholders.
<PAGE>
(2) This column shows the market value on the date of grant of shares of the
Company's Common Stock awarded under the Company's Restricted Stock Incentive
Plan. The Plan expired on December 31, 1994. The restrictions on these
shares lapse on a scheduled basis as determined by the Board of Directors at
the time of grant or upon death. The recipient has voting and dividend rights
to the shares from the date of award. The aggregate holdings/value of shares
of Restricted Stock, as to which the restrictions have not lapsed, on
September 30, 1996, (based on a price on that date of $1.75 per share) by the
individuals listed in this table, including the awards shown in this column,
are: Mr. Diesel, 28,000 shares/$49,000; Mr. Sullivan, 1,000 shares/$1,750;
Mr. McCauley, 6,000 shares/$10,500 and Mr. Chaves, 2,000 shares/$3,500.
(3) Represents Company matching contributions of $1.00 for each $1.00
contributed by the named individual to the 401(k) Savings Plan up to a
maximum of 4% of base pay.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee of the Board of Directors ("Committee") approves
all of the policies under which compensation is paid or awarded to the
Company's officers and employee directors. The Committee consists of two
non-employee Directors (Mr. Landgraf and Mr. Goldberg) and one employee
Director (Mr. Apkarian). Mr. Lawrence A. Shore, formerly a Director of the
Company who was not re-elected at the Company's 1996 Annual Meeting of
Shareholders on May 16, 1996, also served on the Compensation Committee while
he was a member of the Board.
Mr. Shore and Mr. Apkarian are both former Chief Executive Officers of the
Company. Mr. Shore had served as the Company's Chief Executive Officer from
July 1992 until February 1993. Mr. Apkarian was Chief Executive Officer of
the Company from 1961 until 1991 and was Chairman of the Board of Directors
from 1984 until his resignation from this position in August 1993. Mr.
Apkarian does not vote on matters pertaining to his own compensation.
Mr. Goldberg is Co-Chief Executive Officer of First Albany Companies, Inc.
("FAC") (see "Security Ownership of Certain Beneficial Owners"). During
fiscal 1996, First Albany Corporation, a wholly-owned subsidiary of FAC,
acted as placement agent in connection with a private placement of 1,333,333
shares of the Company's Common Stock, pursuant to which the Company raised
approximately $1.9 million of additional capital (net of expenses of the
offering), for which First Albany Corporation was paid a fee.
In addition, in connection with FAC's purchase of approximately 25% of the
Company's then outstanding Common Stock (see "Security Ownership of Certain
Beneficial Owners"), FAC acquired certain rights relating to an obligation of
the Company's creditor on the Company's note payable which matures on
December 31, 1996; the outstanding balance of the note payable, including
accrued interest, is in excess of $4.0 million. FAC subsequently proposed to
exchange its rights to the creditor's obligation for 1 million additional
shares of the Company's Common Stock (which would increase FAC's holding of
shares of the Company's Common Stock to approximately 2,035,698 shares, or
34.5% of the shares of the Company's Common Stock that would be outstanding
after consummation of such exchange of the rights to the creditor's
obligation). The purpose of the proposed exchange of rights is to permit the
Company to offset the creditor's obligation it acquires from FAC against the
Company's liability to its creditor under the note payable, and thereby
effectively convert the Company's liability under the note payable into
<PAGE>
1 million shares of Common Stock.
The creditor has not indicated a willingness to accept the proposal and the
Company is not optimistic that the creditor's position will change in the
near future. Therefore, at the present time there is substantial doubt
whether the proposed exchange will be consummated.
Until his resignation from such positions in March 1996, Mr. R. Wayne Diesel,
President, Chief Executive Officer and a Director of the Company, was a
member of the Board of Directors of Lawrence Insurance Group, Inc., and
served on the Compensation Committee of the Lawrence Insurance Group, Inc.
Board; Mr. Albert W. Lawrence, formerly a Director of the Company who was not
re-elected at the Company's 1996 Annual Meeting of Shareholders on May 16,
1996, is Chairman of the Board of Lawrence Insurance Group, Inc. (see
"Security Ownership of Certain Beneficial Owners").
EMPLOYMENT AGREEMENTS
The Company has an agreement with Mr. Diesel which provides that Mr. Diesel
will receive an annual base salary of $200,000 and is eligible to receive
incentive compensation at the discretion of the Compensation Committee. Per
this agreement, Mr. Diesel was awarded an initial grant under the Company's
Restricted Stock Incentive Plan of 10,000 shares; in December 1994, the
Committee awarded Mr. Diesel an additional 25,000 shares under such Plan. The
agreement also states that if Mr. Diesel is removed from the position of
President and CEO for reasons other than cause during his first three years
of employment, the Company will pay him severance payments equivalent to a
maximum of one year's base salary plus insurance benefits.
The Company also has an agreement with Mr. Apkarian terminating on September
30, 1997 or upon Mr. Apkarian's retirement, whichever occurs first. This
agreement provides that Mr. Apkarian will continue as an employee and a
Director of the Company at an annual salary of $130,000. The agreement also
provides an annual bonus of $10,000 which he will use to purchase $250,000 of
term life insurance. Upon his retirement, an annual pension supplement of
$50,000 will be paid until September 30, 1997, and if Mr. Apkarian dies
during this period, a survivor's benefit payment of $25,000 per year will be
paid to his spouse, if then living, for the remainder of the payment period.
In addition, the agreement provides for the payment of club dues and the use
of a Company automobile for which Mr. Apkarian pays 50% of the lease
payments.
DIRECTORS COMPENSATION
Directors who are not officers or employees receive Director's fees of $750
for each Board meeting attended. Directors also are reimbursed for travel
expenses incurred in attending meetings.
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table sets forth information as of October 31, 1996 in respect
of each person known by the Company to be the beneficial owner of more than
5% of its outstanding Common Stock.
<TABLE>
<CAPTION>
Amount of
Beneficial Percent
Name Address Ownership of Class
- ------------------ -------------------- ------------ --------
<S> <C> <C> <C>
First Albany 30 South Pearl St. 1,035,698(A) 21.1%
Companies Inc. Albany, N.Y. 12207
Lawrence Insurance 500 Fifth Avenue 820,909(B) 16.8%
Group, Inc. New York, N.Y. 10110
Harry Apkarian 968 Albany-Shaker Road 288,001(C) 5.9%
Latham, N.Y. 12110
</TABLE>
(A) On May 7, 1996, First Albany Companies, Inc. ("FAC") purchased 909,091
shares of the Company's Common Stock previously owned by United Community
Insurance Company ("UCIC"), (a subsidiary of Lawrence Insurance Group, Inc.
("LIG")) which is undergoing a court-ordered liquidation. According to the
Schedule 13D Amendment No. 3, dated May 8, 1996, filed by FAC with respect to
the purchase of these shares, FAC paid $1.50 per share (a total of
$1,363,637) for the shares previously owned by UCIC, and also agreed to pay
an additional amount to the seller if FAC purchases any shares of the
Company's Common Stock from Lawrence Group, Inc., or any of its subsidiaries
or affiliates, at a price greater than $1.50 per share, at any time within 6
months after FAC's purchase of the shares previously owned by UCIC; also
according to FAC's Schedule 13D Amendment No. 3, the funds for its purchase
of the 909,091 shares previously owned by UCIC came from working capital. In
addition, in connection with FAC's purchase of the shares previously owned by
UCIC, FAC was granted an irrevocable proxy to vote those shares at the
Company's Annual Meeting of Shareholders held on May 16, 1996; and, as
described in Item 6 of FAC's Schedule 13D Amendment No. 3 (and as discussed
under "Compensation Committee Interlocks and Insider Participation" above),
FAC and UCIC's court-appointed liquidator have entered into an agreement
whereby FAC has acquired certain rights with respect to an obligation of a
creditor of the Company (to whom the Company is indebted in an amount in
excess of $4.0 million), and has proposed to exchange that obligation for an
additional 1 million shares of the Company's Common Stock; however, the
Company's creditor has not yet approved such exchange, and it is uncertain
whether the proposed exchange will be consummated.
The purchase by FAC of the shares previously owned by LIG's UCIC subsidiary,
when combined with shares previously purchased by FAC in open-market
transactions, gave FAC ownership of 1,035,698 shares of the Company's Common
Stock (approximately 29% of the then outstanding shares), and resulted in FAC
becoming the Company's largest shareholder.
At the Company's Annual Shareholders' Meeting held on May 16, 1996 Messrs.
George C. McNamee and Alan P. Goldberg, Co-Chief Executive Officers of FAC,
were elected to the Company's Board of Directors. Incumbent Directors Albert
W. Lawrence and Lawrence A. Shore (who were among the nominees for re-
election to the Board proposed in the Proxy Statement for the Meeting
prepared by the Company's management but whose re-election was opposed by FAC
in its Proxy Statement for solicitation of proxies in opposition to
<PAGE>
management's solicitation) were not re-elected to the Board, and accordingly
their terms as Directors of the Company expired at the Meeting; all other
incumbent Directors (i.e., Messrs. R. Wayne Diesel, Harry Apkarian, Stanley
I. Landgraf, and E. Dennis O'Connor), whose re-election was supported by FAC
in its Proxy Statement, were re-elected to the Board.
At its organizational meeting following the Shareholders' Meeting, the newly-
constituted Board elected George C. McNamee as its Chairman, and re-elected
R. Wayne Diesel as President and Chief Executive Officer. In addition, the
Board voted to increase the number of Directors from 6 to 7, and elected Dr.
Beno Sternlicht, a co-founder of the Company, to fill the newly-created
position.
As a result of the foregoing share purchases and elections, a change in
control of the Company may be deemed to have occurred.
Messrs. McNamee and Goldberg may be deemed the beneficial owners of at least
a portion of the shares owned by FAC. However, Messrs. McNamee and Goldberg
disclaim such beneficial ownership.
(B) 363,636 of these shares are owned of record by United Republic Insurance
Company (URIC), and the balance are owned of record by wholly-owned
subsidiaries of URIC as follows: Global Insurance Company (Global) - 349,068
shares; and Senate Insurance Company (Senate) - 108,205 shares. 78.6% of the
outstanding stock of URIC is owned by Lawrence Insurance Group, Inc. ("LIG");
the remaining 21.4% is owned by United Community Insurance Company, another
subsidiary of LIG which is under the control of the Superintendent of
Insurance of the State of New York and is undergoing a court ordered
liquidation. While the shares of the Company's Common Stock owned by URIC and
its subsidiaries are still held of record as set forth previously, the SEC
Form 10-Q Report of LIG for the quarter ended March 31, 1996 discloses that
LIG disposed of those shares during that quarter by selling them to Lawrence
Group, Inc.; to date, however, no transfer of such shares on the Company's
records has been made, nor has such a transfer been requested.
According to the April 22, 1996 Proxy Statement of Lawrence Insurance Group,
Inc. for its May 23, 1996 Annual Meeting of Stockholders, Lawrence Group,
Inc. is the beneficial owner of approximately 93% of the outstanding shares
of the common stock of Lawrence Insurance Group, Inc. The Company understands
that Albert W. Lawrence (formerly a Director of the Company) is, along with
Barbara C. Lawrence, his wife, the owner of 100% of the common stock of
Lawrence Group, Inc.; as a result, Mr. and Mrs. Lawrence may be deemed to be
the beneficial owners of the shares of the Company's Common Stock held of
record by URIC and its subsidiaries and referred to in the preceding
paragraph.
(C)Includes 2,000 shares issued under the Company's Restricted Stock
Incentive Plan which are still subject to forfeiture.
SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth certain information with respect to the
beneficial ownership of shares of the Company's Common Stock by (i) each
Director of the Company (ii) each named executive officer described in the
section of this Proxy Statement captioned "Executive Compensation", and (iii)
all present Directors and Officers of the Company as a group, as of October
31, 1996.
<PAGE>
<TABLE>
<CAPTION>
Amount
Name of and Nature of
Beneficial Beneficial Percent of
Owner Ownership(1) Class
------------------- ------------- ----------
<S> <C> <C>
Harry Apkarian 288,001(2) 5.9%
Denis P. Chaves 2,600(2) *
R. Wayne Diesel 35,000(2),(3) *
Allan P. Goldberg 1,097,364(4) 22.4%
Stanley I. Landgraf 1,000 *
Douglas McCauley 8,000(2) *
George C. McNamee 1,135,698(4) 23.2%
E. Dennis O'Connor -0- *
Dr. Beno Sternlicht 126,250(5) 2.6%
Stephen Sullivan 5,000(2) *
Stephen T. Wilson -0- *
All present Directors and 1,663,215(2),(3),(4),(5)
Officers as a group (11 persons)
- -------------------------------------
* Percentage is less than 1.0% of the outstanding Common Stock.
</TABLE>
(1)To the best of the Company's knowledge, based on information reported by
such Directors and officers or contained in the Company's shareholder
records. Except as otherwise indicated, each of the named persons is
presumed to have sole voting and investment power with respect to all shares
shown. None of the Company's present Directors or officers other than
Messrs. Apkarian, Goldberg, and McNamee (see "Security Ownership of Certain
Beneficial Owners," above) and Dr. Sternlicht beneficially own more than 1%
of the Company's outstanding Common Stock; all present Directors and officers
as a group beneficially own, in the aggregate, approximately 33.9% of the
Company's outstanding Common Stock.
(2)Includes shares granted under the Company's Restricted Stock Incentive
Plan which are still subject to forfeiture as follows: Mr. Apkarian, 3,000
shares; Mr. Chaves, 2,000 shares; Mr. Diesel, 28,000 shares; Mr. McCauley,
6,000 shares; and Mr. Sullivan, 1,000 shares. All present Directors and
officers as a group, 40,000 shares.
(3)Does not include 100 shares held by Mr. Diesel's wife as custodian for
their minor child; Mr. Diesel disclaims beneficial ownership of such shares.
(4)Includes 1,035,698 shares owned by First Albany Companies Inc.; see
"Security Ownership of Certain Beneficial Owners," however Messrs. McNamee
and Goldberg disclaim beneficial ownership of such shares.
(5)Does not include 26,650 shares owned by Dr. Sternlicht's wife or 18,150
shares held by Dr. Sternlicht's wife as custodian for their children; Dr.
Sternlicht disclaims beneficial ownership of such shares.
PROPOSALS OF SECURITY HOLDERS
Proposals by security holders intended to be presented at the Company's
Annual Meeting of Shareholders to be held in 1997 must have already been
received by the Company to qualify for inclusion in the Company's Proxy
Statement relating to that meeting. Any such proposals by security holders
intended to be presented at the Company's Annual Meeting of Shareholders to
<PAGE>
be held in 1998 must be received by the Company before October 18, 1997 to
qualify for inclusion in the Company's Proxy Statement relating to that
meeting.
OTHER MATTERS
Under applicable provisions of the New York Business Corporation Law ("BCL"),
the only matter which may be brought before the Special Meeting is the
proposal for adoption and approval of the Stock Incentive Plan described
above.
In June 1996 the Board of Directors adopted amendments to the Company's By-
Laws relating to the indemnification of the Company's officers and
Directors against claims asserted against them in their capacities as such.
As amended, the By-Laws require the Company to indemnify its Directors and
officers against such claims to the fullest extent permitted by the BCL,
obligate the Company to advance such persons the costs of their defense
against such claims, and contain other provisions designed to ensure for
such persons the maximum protection possible against such claims. Prior to
these amendments, the By-Laws contained only limited indemnity protection
for such persons. In addition to indemnification by the Company under
these By-Law provisions, the Company continues to maintain indemnification
insurance covering all officers and Directors of the Company and its
subsidiaries, as permitted by BCL Section 726. The current policy has an
annual premium cost of $88,000, and is written by Continental Casualty
Company and Royal Indemnity Company.
All expenses incurred in connection with this solicitation of proxies will
be borne by the Company.
By Order of the Board of Directors
John Recupero
Secretary
Latham, New York
November 20, 1996
<PAGE>
Appendix A - Stock Incentive Plan
MECHANICAL TECHNOLOGY, INCORPORATED
STOCK INCENTIVE PLAN
--------------------
1. Purpose. The purposes of the Mechanical Technology Inc. Stock
Incentive Plan (the "Plan") are to secure for the Company and its
subsidiaries and affiliates the benefits of the additional incentive
inherent in the ownership of the Company's Common Stock, $1.00 par
value (the "Common Stock") by officers, Directors and employees of the
Company and its subsidiaries and affiliates and by consultants and
other persons having a similar relation to the Company and its
subsidiaries and affiliates who are important to the success and the
growth of the business of the Company, to help the Company secure and
retain the services of all such persons, and to provide a means for
the Company to compensate and reward such persons for past services to
the Company.
2. Awards. Awards under the Plan ("Awards") may be such grants, awards,
issuances, contributions or payments of shares of the Common Stock, or
rights or interests in or to such shares, or other rights (including
rights to receive cash) that relate to or are based on such shares, as
the Board of Directors of the Company may from time to time approve or
authorize, including, by way of illustration only and without
limitation thereby: (a) incentive stock options ("Incentive Options")
intended to satisfy the requirements of Section 422 of the Internal
Revenue Code, as amended ("Code"), (b) stock options not intended to
qualify as Incentive Options ("Nonqualified Options"), and other
rights to purchase shares of Common Stock from time to time at such
prices and on such terms and conditions as the Board of Directors of
the Company may from time to time approve or authorize, including such
rights under a so-called "stock purchase plan" or similar program made
available to broad classes of employees and other eligible persons
("Stock Purchase Rights"), (c) Stock Appreciation Rights ("SARs")
granted either in tandem with Options or on a "stand-alone" basis, (d)
shares of Common Stock issued as compensation for or in respect of
services rendered to or for the Company, or any of its subsidiaries or
affiliates, but without any other payment by the recipient in respect
thereof, including so-called "stock bonuses" and "restricted stock"
("Stock Grants"), and (e) rights to receive cash or shares of Common
Stock in amounts that are determined by or derived from the amount of,
or from changes over time in, various statistical measures relating to
the Common Stock such as market value, book value, earnings per share,
return on equity, or similar criteria, including so-called
"performance units" and "phantom stock" ("Stock-Based Units"). In
addition, the Board may in its discretion, and on such terms as it
deems prudent, permit shares of Common stock to be issued under the
Plan to satisfy an election, by a participant in a Company-sponsored
or other retirement plan or program maintained for the account and
benefit of such participant, that a portion of such participant's
account under such plan or program be invested in shares of the
Company's Common Stock. Incentive Options, Nonqualified Options, and
Stock Purchase Rights are occasionally referred to herein collectively
as "Options. An SAR is a right to receive the difference, in cash or
stock, between a per-share value specified in the SAR (which may be
the exercise price of an Option granted in tandem therewith), and the
fair market value of the Common Stock on the date of exercise.
<PAGE>
3. Administration. The Plan shall be administered by the Board of
Directors of the Company (the "Board"). Except as is otherwise
limited or restricted by applicable law, the Board may, either with
respect to any particular Award or with respect to specified groups or
classes of Awards generally, delegate all (or any specified portion)
of its power and authority with respect to the Plan and/or such Awards
to either one or more committees of the Board or one or more other
persons or groups of persons (who need not be officers or employees of
the Company or its affiliates or subsidiaries); any of the Board's
power and authority with respect to the Plan and/or Awards under the
Plan that is delegated by the Board may be successively re-delegated
unless such re-delegation is limited or restricted by the Board's
grant of such power and authority or by applicable law.
The Board (or any such committee, person or group of persons) may,
from time to time, adopt rules and regulations for carrying out the
provisions and purposes of the Plan and Awards hereunder. The
interpretation and construction of any provision of the Plan or of an
Award under the Plan by the Board, or by any such applicable
committee, person or group of persons, as the case may be, shall be
final and conclusive (unless otherwise determined by the Board, in the
case of any such interpretation or construction that is initially made
by any such applicable committee, person or group of persons, as the
case may be).
The Board (or any such committee, person or group of persons) shall
have the authority and responsibility, within the limitations of the
Plan and applicable law (and, in the case of any such committee,
person or group of persons, within the limitations of the Board's
delegation to such committee, person or group of persons of all (or
any specified portion of) the Board's power and authority with respect
to the Plan and/or Awards under the Plan), to determine (1) the
persons to whom Awards are to be granted, (2) the nature and type of
Awards to be granted, (3) the number of shares that are the subject of
each Award, and (4) all other terms and conditions (not inconsistent
with the Plan) of each Award under the Plan (including but not limited
to restrictions and limitations upon any shares of Common Stock
issuable upon the grant or exercise of an Award, or upon the
recipient's rights to or interest in the Award).
The Board (or any such committee, person or group of persons) shall
maintain a written record of its proceedings. A majority of any
committee or other group of persons shall constitute a quorum. Any
determination or action of a committee or group may be made or taken
by a majority of the members present at any meeting thereof, or
without a meeting by a resolution or written memorandum concurred in
by a majority of the members of such committee or group at such time
(except that written action by the Board or any committee thereof
without a meeting shall be effective only if all members of the Board
or such committee consent thereto in writing).
4. Stock Subject to Awards. Subject to the provisions of Section 10
hereof, the aggregate number of shares of Common Stock for which
Awards may be granted or which may be issued under the Plan shall be
the sum of (a) 500,000 shares plus (b) an additional number of shares
equal to 10% of any increase, after the effective date of this Plan,
in the number of outstanding shares of the Common Stock (other than
<PAGE>
(i) increases therein resulting from the issuance or distribution of
shares as a result of Awards under the Plan and (ii) increases therein
that result in an adjustment of the number of shares under the Plan
pursuant to Section 10 hereof); for such purposes, an increase in the
outstanding shares during any year shall equal the excess of (x) the
difference between the number of shares outstanding at the end of the
Company's fiscal year and the number outstanding at the end of the
prior fiscal year, over (y) the number issued or distributed during
such year as a result of Awards under the Plan. Notwithstanding the
foregoing, Incentive Options may not be granted under the Plan for
more than 500,000 shares of Common Stock.
If, and to the extent that, Awards granted under the Plan terminate or
expire without having been exercised or without any shares of Common
Stock having been issued in respect thereof, the shares covered by
such terminated or expired Awards, or the portion (if any) of the
shares subject thereto which have not been issued in respect thereof,
may be the subject of further Awards under the Plan. For purposes of
determining from time to time the number of shares remaining available
for the grant of Awards under the Plan, in the event of any "stock for
stock" exercise of an Award or similar transaction in which the
Recipient surrenders rights to shares of Common Stock upon exercise or
issuance of an Award, only the net shares issued in such transaction
(i.e., the net increase in the Company's outstanding shares as a
result thereof) shall be treated as shares issued under this Plan, and
the available shares under this Plan shall only be reduced by such net
amount.
Shares issued upon the grant or exercise of any Award under the Plan
may be shares of authorized and unissued Common Stock, shares of
issued Common Stock held in the Company's treasury, or both.
5. Persons Eligible. Under the Plan, Awards may be granted to any
officer, Director, or employee of the Company or of a subsidiary or
affiliate of the Company, to any consultant to the Company or a
subsidiary or affiliate of the Company, and to any other person having
a similar relation to the Company and its subsidiaries and affiliates
whose participation in the Plan the Board (or any committee, person,
or group of persons to whom such power may have been delegated)
determines is in the best interests of the Company and its
subsidiaries and affiliates.
In determining the persons to whom Awards are to be granted and the
number of shares to be covered by an Award, the Board (or any
committee, person, or group of persons to whom such power may have
been delegated) may take into consideration the person's present and
potential contribution to the success of the Company and such other
factors as the Board (or such committee, person or group of persons)
may deem proper and relevant. A person receiving an Award under the
Plan is hereinafter referred to as a "Recipient".
6. Provisions Applicable to Awards.
(a) Generally. Except as otherwise limited or restricted herein or by
applicable law, the purchase or exercise price of each share of Common
Stock (or right or interest therein or relating thereto) purchasable
or issuable under or as a result of any Award granted under the Plan,
the exercise, grant or issuance date thereof, the expiration or
<PAGE>
termination thereof, and all other terms and conditions of the Award,
shall be as determined by the Board (or any committee, person, or
group of persons to whom such power may have been delegated) in its
discretion at the time of the grant of the Award; any such purchase or
exercise price may be equal to, greater than or less than the "fair
market value" of the Common Stock (as determined under Section 7
hereof) at the time of grant of the Award, but not less than the par
value of the Common Stock. Awards shall be set forth in or evidenced
by agreements or other documents (collectively, "Award Agreements"),
setting forth the terms and conditions thereof, in such form as the
Board (or any committee, person, or group of persons to whom such
power may have been delegated) shall in its discretion and upon the
advice of counsel determine to be necessary or appropriate (taking
into account the nature of the Award and the terms and conditions
applicable thereto).
Except as otherwise limited or restricted by applicable law or by
Section 4 hereof, there is no limit to the number of shares of Common
Stock which may be subject to Awards hereunder granted to any one
person, nor to the number of Awards that may be granted to any one
person.
Any Award under the Plan (or any shares of Common Stock issued or
distributed in respect thereof) may be non-transferable, or may be
transferable in whole or in part subject to such limitations, or
without limitation, may be subject to possible forfeiture of the
Recipient's rights to or interest in the Award (or any shares of
Common Stock issued or distributed in respect thereof) in certain
circumstances, and to the vesting of the Recipient's rights thereto,
and may expire or terminate upon the Recipient's death, or be
exercisable or issuable thereafter by or to the successor, under the
laws of descent and distribution, to the Recipient's interest therein,
in each case as the Board (or any committee, person, or group of
persons to whom such power may have been delegated) shall in its
discretion determine to be appropriate upon the granting thereof.
Furthermore, the Board (or any committee, person, or group of persons
to whom such power may have been delegated) may in its discretion in
connection with any Award (or class or group of Awards) under the
Plan, and on such terms as it deems appropriate:
(i) Permit the Recipient to borrow funds from the Company, on
such terms as the Board (or any committee, person, or group of
persons to whom such power may have been delegated) in its
discretion deems appropriate, to pay the purchase or exercise
price of any Award;
(ii) Permit the Recipient to pay the purchase or exercise price
of any Award in installments or over time (which may include
permitting payment by payroll withholding), or by surrendering to
the Company, in part or full payment thereof, shares of the
Company's Common Stock then owned by the Recipient or shares to
be acquired by the Recipient pursuant to the Award (which shall
be valued for such purpose at "fair market value", determined as
provided in Section 7 hereof), including shares then owned by the
Recipient that are subject to restrictions on transfer imposed in
connection with another Award hereunder or under another plan of
the Company or to possible risk of forfeiture thereof as a result
of conditions imposed in connection with another Award hereunder
<PAGE>
or under another plan of the Company;
(iii) Permit accelerated vesting, exercise, issuance or
distribution of an Award, or of shares or cash issuable or
distributable in respect thereof, upon specified events or in
certain circumstances, and either at the option of the Recipient
or at the option of the Board (or any committee, person, or group
of persons to whom such power may have been delegated);
(iv) Permit the deferred issuance or distribution of shares or
cash in respect of any Award;
(v) Establish formulae on the basis of which and specify events
or circumstances upon or in which an Award (or class or group of
Awards) under the Plan shall be issued or distributed
automatically and without further action by the Board (or the
committee, person, or group of persons to whom such power may
have been delegated); and
(vi) Grant additional cash payments to the Recipient in
connection with any Award, or with the exercise of any Award or
the issuance or distribution of cash or shares as a result of an
Award, in such amount and for such purpose as the Board (or the
committee, person, or group of persons to whom such power may
have been delegated) in its discretion deems appropriate.
In connection with any Award hereunder, the Board (or the committee,
person, or group of persons to whom such power may have been
delegated) may impose such limitations and restrictions on the
Recipient's rights with respect to the Award (or any shares of Common
Stock issuable or distributable as a result thereof) as it considers
necessary to comply with the Code, Section 16 of the Securities
Exchange Act of 1934 (the "1934 Act"), or other applicable law, or as
it in its discretion otherwise deems necessary or appropriate.
(b) Options. Any Option granted under the Plan shall become
exercisable in whole or in part after the expiration of such period of
time, if any, following the date on which such Option was granted, or
after the occurrence of such event or events, as the Board (or any
committee, person, or group of persons to whom such power may have
been delegated) determines in its discretion upon the granting
thereof. Options shall expire or terminate after the expiration of
such period of time, or after the occurrence of such event or events,
if any, as the Board (or any committee, person, or group of persons to
whom such power may have been delegated) determines in its discretion
upon the granting thereof; without limitation thereby, any Option
granted under the Plan may provide for continued exercisability (or
that previously unexercisable portions of the Option become
exercisable), in whole or in part, following the death or termination
of employment of the Recipient, for or during such period, at such
time, or upon the occurrence of such event, if any, as the Board (or
any committee, person, or group of persons to whom such power may have
been delegated) determines in its discretion upon the granting
thereof. Options granted under the Plan may be exercised by the
Recipient, as to all or part of the shares covered thereby, in
accordance with the terms, conditions and provisions of the Option
(including necessary notice and the manner of payment for same) set
forth in the Award Agreement issued in respect thereof.
<PAGE>
(c) Limitations Relating to Incentive Options. In the case of an
award of Incentive Options:
(i) the exercise price shall not be less than the fair market
value of the Common Stock on the date of grant or such other
price (if any) as may be required by the Code, as in effect at
the time of such grant, to permit the Option to qualify for
Incentive Option treatment under the Code,
(ii) the Award Agreement relating thereto shall contain such
terms and conditions (which may include limitations on
transferability and other restrictions) as may be required by the
Code, as in effect at the time of such grant, to permit the
Option to qualify for Incentive Option treatment under the Code,
and
(iii) the aggregate fair market value, determined on the date of
grant, of the shares of the Company's Common Stock with respect
to which Incentive Options granted under the Plan are exercisable
for the first time by any employee during any calendar year shall
not exceed $100,000 or such other limitation (if any) as may be
required by the Code, as in effect at the time of such grant, to
permit the Option to qualify for Incentive Option treatment under
the Code.
Furthermore, except as may otherwise be permitted by the Code, as in
effect at the time of any such grant, no Incentive Option may be
granted more than 10 years after the effective date of the Plan.
(d) Stock Appreciation Rights. SARs may be granted in tandem with
related Options granted under the Plan, or may be granted on a "stand-
alone" basis. At the time of exercise of an SAR granted in tandem
with related Options, the Recipient surrenders the privilege of
exercising the related Option to the extent that he exercises the SAR.
Upon exercise of an SAR (and surrender of the related Option or
portion thereof, in the case of the exercise of an SAR granted in
tandem with an Option), the Recipient shall be entitled to receive an
amount equal to the excess of the fair market value of one share at
the time of such surrender over the per-share value specified in such
SAR times the number of such shares called for by the SAR (or portion
thereof) which is so surrendered. Such payment shall be made either
in (i) cash or (ii) shares of Common Stock valued at fair market value
as of the date of exercise or (iii) partly in cash and partly in
shares of Common Stock, as provided in the Recipient's Award
Agreement.
The Board (or any committee, person, or group of persons to whom such
power may have been delegated), in its discretion, may impose
additional conditions and limitations upon the exercise of SARs,
including the maximum amount per share which may be paid upon the
exercise of the SAR and such limitations as it, on the advice of
counsel, deems necessary or appropriate in the case of SAR's granted
to Recipients who are subject to the requirements of Section 16 of the
1934 Act.
(e) Rights of Recipient. The Recipient shall have none of the rights
<PAGE>
of a shareholder of the Company with respect to any shares of Common
Stock subject to an Award granted under the Plan until a certificate
for such shares has been issued to the Recipient upon the exercise or
issuance of such Award and, except as otherwise permitted by the next
sentence of this Section 6(e), the Recipient has paid in full the
purchase or exercise price for such shares. Notwithstanding the
foregoing, the Board may authorize the issuance of a certificate for
shares in the name of a Recipient who is paying the purchase or
exercise price of an award over time or in installments, or by
borrowing from the Company, in accordance with sub-paragraphs (i) and
(ii) of Section 6(a) hereof, prior to payment of the exercise or
purchase price in full, provided that the certificate for such shares
is retained by the Company until full payment and the Recipient agrees
in writing that the shares represented thereby may not be sold or
transferred by the Recipient until such payment; in any such case, the
Board may determine that the Recipient shall have and may exercise the
rights of a shareholder with respect to such shares upon the issuance
of such certificate in his name, even though the exercise or purchase
price of the shares has not yet been paid in full. The Board (or any
committee, person, or group of persons to whom such power may have
been delegated), in its discretion, may impose such additional
limitations and restrictions upon the Recipient's exercise of the
rights of a shareholder with respect to the shares subject to an Award
as it deems appropriate.
7. Market Value of Common Stock. For all purposes for which such value
shall be necessary in connection with Awards under and the operation
of this Plan, the "fair market value" of a share of the Company's
Common Stock as of any date shall mean:
A. If the Common Stock is listed for trading on a national
securities exchange pursuant to Section 12(b) of the 1934 Act, is
a "national market system security" (as defined in Rule 11Aa2-1
under the 1934 Act) and is listed for trading on a national
market system, or is otherwise listed for trading pursuant to an
arrangement and subject to regulatory requirements comparable to
those relating to securities traded on national securities
exchanges or national market systems, "fair market value" shall
mean the closing sale price of the Common Stock on such exchange
or system on such date (or, if the Common Stock did not trade on
that date, on the last previous date on which the Common Stock
traded);
B. If paragraph A is not applicable, and if bid and asked quotations
for the Common Stock are reported on a regular and continuous
basis on an electronic inter-dealer quotation system operated by
a national association of securities dealers or brokers, "fair
market value" shall mean the average of the closing bid and asked
quotations for the Common Stock on such system on such date; or
C. If neither paragraph A nor paragraph B is applicable, "fair
market value" shall mean such value for the Common Stock on such
date as the Board of Directors (or any committee, person or group
of persons to whom the Board may have delegated such authority)
shall reasonably and in good faith determine, on the basis of
such factors as the Board (or any such committee, person or group
of persons) may consider relevant to such determination and in
accordance with all applicable legal requirements.
<PAGE>
8. Tax Withholding. Each Recipient receiving or exercising an Award in
circumstances in which, under applicable federal, state, and local
income tax and employment tax laws and regulations, the Company is
obligated to withhold income taxes in respect of the income the
Recipient is deemed to have realized as a result of his receipt or
exercise of the Award shall pay to the Company the minimum amount
required to be withheld from the cash or shares of Common Stock
resulting from such receipt or exercise under applicable federal,
state, and local income tax and employment tax laws and regulations.
In addition, the Recipient may elect to pay to the Company an amount
which, when aggregated with the minimum withholding amount, does not
exceed the Recipient's total estimated federal, state and local income
and employment tax liability with respect to such receipt or exercise.
The minimum withholding amount and any additional amount that the
Recipient elects to pay pursuant to this Section 8 shall be referred
to herein as "Withholding Taxes."
Payment of such Withholding Taxes shall be subject to the following
terms and conditions:
(a) The Withholding Taxes shall be payable as of the date income
from the receipt or exercise is includable in the Recipient's gross
income for federal income tax purposes (the "Tax Date").
(b) The Recipient shall satisfy the Withholding Tax payment
obligation in such manner as shall be provided or permitted in the
Recipient's Award Agreement. Unless otherwise limited or restricted
in such Agreement:
(i) If the Recipient is exercising a Nonqualified Option or
exercising an SAR for shares, the Recipient may satisfy his
Withholding Tax payment obligations in one of the following
methods (or a combination thereof), at his election:
(A) by remitting to the Company a check in the amount of the
Withholding Taxes;
(B) by remitting to the Company a number of shares of Common
Stock having an aggregate fair market value at the Tax Date
equal to the amount of the Withholding Taxes; or
(C) by electing to have the Company withhold from the
resulting stock distribution to the Recipient either (I) if
the Tax Date is the same as the exercise date, the number of
shares of Common Stock having an aggregate fair market value
at the Tax Date equal to the amount of the Withholding
Taxes, or (II) if the Tax Date will be at a time subsequent
to the exercise date, the number of shares of Common Stock
having an aggregate fair market value at the exercise date
equal to the amount of Withholding Taxes that would be
payable if the Tax Date were the same as the exercise date.
In the situation described in clause (C)(II), if at the Tax
Date the amount of Withholding Taxes payable is greater than
the amount previously withheld from the stock distribution,
the Recipient shall remit the difference in cash or in
shares of the Common Stock having an aggregate fair market
value at the Tax Date equal to the difference.
<PAGE>
(ii) If the Recipient is exercising an SAR for cash, the Company
shall withhold from the resulting cash distribution the minimum
amount of Withholding Taxes required by law. If such Recipient
elects to pay an additional amount of Withholding Taxes pursuant
to this Section 8, he may elect to have the Company withhold from
the cash distribution such additional amount, or he may elect
either of the payment methods described in clauses (A) or (B) of
Section 8(b)(i) or a combination thereof with respect to such
additional amount.
(iii) Any election by the Recipient of a Withholding Tax payment
method described in Clauses (B) or (C) of Section 8(b)(i), above,
must be made on or prior to the Tax Date and will be irrevocable.
Furthermore, such payment shall be made solely in whole shares
(and not fractional shares) of such Common Stock. Any balance of
Withholding Taxes shall be paid by the Recipient by remitting to
the Company a check for such balance.
(iv) If the Recipient is subject to the requirements of Section
16 of the 1934 Act, any election to pay Withholding Taxes in the
manner described in clauses (B) or (C) of Section 8(b)(i), above,
shall be subject to such additional conditions and limitations as
the Board (or any committee, person, or group of persons to whom
such power may have been delegated), in its discretion and on the
advice of counsel, deems necessary or appropriate and determines
to impose with respect thereto.
9. Right to Terminate Employment. Nothing in the Plan or in any Award
granted under the Plan shall confer upon any Recipient the right to
continue in the employment of the Company or affect the right of the
Company to terminate a Recipient's employment at any time, nor cause
any Award granted to vest as a result of the exercise by the Company
of its right to terminate at any time the employment of a Recipient
subject, however, to the provisions of any agreement of employment
between the Company and the Recipient.
10. Dilution and Other Adjustments. The total number of shares of Common
Stock for which Awards may be granted under the Plan shall be
appropriately adjusted for any increase or decrease in the number of
outstanding shares of Common Stock resulting from payment of a stock
split or a stock dividend on the Common Stock (or other distribution
of additional shares to holders of outstanding shares of Common Stock
that is on a substantially pro rata basis), a subdivision, combination
or exchange of shares of Common Stock, or a reclassification of Common
Stock. Furthermore, in the event of an acquisition by the Company (or
a subsidiary or affiliate of the Company) in connection with which the
Company assumes the obligations of the acquired company to issue
shares under an option or other stock-based plan of the acquired
company and converts participant's rights under such assumed plan into
Awards hereunder, the number of shares for which Awards may be granted
under the Plan shall be increased by the number of shares for which
Awards are granted in connection with such assumption to participant's
in the acquired company's plan. The foregoing adjustments, and their
application to particular circumstances, shall be determined by the
Board in its sole discretion.
In the event of any change in the outstanding shares of the Common
<PAGE>
Stock of the Company by reason of any stock split, stock dividend,
recapitalization, merger, consolidation, reorganization, subdivision,
combination or exchange of shares or other similar event, or in the
event of a spin-off, spin-out, or other distribution of a material
portion of the assets of the Company to the holders of outstanding
shares of Common Stock, if the Board shall determine, in its sole
discretion, that such event equitably requires an adjustment in the
number or kind of shares of Common Stock subject to, or the exercise
or other price per share under, any outstanding Award, such adjustment
shall be made by the Board in its sole discretion and shall be
conclusive and binding for all purposes of the Plan.
If the Company is not the surviving corporation in the event of a
merger, or if the Company is the surviving corporation in a "reverse
triangular" merger, or if the Company is a party to a consolidation,
or if the Company sells or transfers substantially all of its assets
and liquidates, then, at the Board's discretion, it may make
appropriate adjustments in substitution for the Recipients'
outstanding Awards or arrange for assumption thereof in a transaction
which provides substantially equivalent value to Recipients and meets
all requirements of applicable law.
11. Securities Laws. Anything to the contrary herein notwithstanding, the
Company's obligation to issue, sell and deliver any shares of Common
Stock pursuant to an Award hereunder is subject to such compliance
with federal and state laws, rules and regulations relating to the
authorization, issuance or sale of securities as the Company, on the
advice of counsel, deems necessary or appropriate. The Company shall
not be required to issue, sell or deliver any shares of Common Stock
unless and until it receives satisfactory assurance that the sale,
issuance or delivery of such shares will not violate any of the
provisions of the Securities Act of 1933 or the 1934 Act, or the rules
and regulations of the Securities and Exchange Commission promulgated
thereunder, or those of any stock exchange or other organization on
which the Common Stock may be listed or quoted, or the provisions of
any state law governing the authorizations, issuance and sale of
securities, and that there has been compliance with the provisions of
all such acts, rules, regulations and laws.
12. Legend on Certificates. The Company may, to the extent deemed
necessary or advisable, endorse an appropriate legend referring to the
restrictions imposed by the terms of any Award hereunder or required
under applicable law (including federal and state securities laws)
upon the certificate or certificates representing any shares of Common
Stock issued or transferred to the Recipient upon the issuance or
exercise of any Award granted under the Plan.
13. Amendment and Termination of the Plan. Awards may be granted under
the Plan at any time and from time to time until such time as the
Board shall take appropriate action to terminate the Plan, in which
case the Plan will terminate on the date so specified by the Board in
such action, except as to Awards then outstanding. The Plan will
remain in effect with respect to outstanding Awards until such Awards
have been issued or exercised or have expired. The Plan may be
amended or modified at any time by the Board (except with respect to
any Awards then outstanding under the Plan), subject to such approval
(if any) of the Company's shareholders as may be required by
applicable law or as the Board may deem appropriate. No amendment of
<PAGE>
the Plan shall adversely affect any right of any Recipient with
respect to any Award theretofore granted under the Plan.
14. Shareholder Approval and Effective Date. The Plan shall be effective
on October 17, 1996, subject to the adoption and approval of the Plan
by the Company's shareholders, as required by Section 505 of the New
York Business Corporation Law, within 12 months after such effective
date (which approval will be sought at the next meeting of such
shareholders held after such effective date). Until so approved by
shareholders, no shares of Common Stock may be issued or otherwise
distributed under the Plan, and no Award granted under the Plan may be
exercised; if not approved by shareholders as aforesaid, this Plan and
all Awards granted hereunder shall be deemed void ab initio and of no
effect.
15. Governing Law. The Plan and any Award Agreement entered into under
the Plan with a Recipient pursuant to Section 6 hereof shall be
governed by and construed in accordance with the internal substantive
laws, and not the choice of law rules, of the State of New York.
16. Use of Proceeds. The proceeds received from the sale of Common Stock
pursuant to the Plan will be used for the Company's general corporate
purposes.
<PAGE>
Appendix B - Proxy Card PRELIMINARY COPY
MECHANICAL TECHNOLOGY INCORPORATED
968 Albany-Shaker Road Latham, New York 12110
PROXY
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby revokes any proxy heretofore given to vote such
shares, and hereby ratifies and confirms all that said proxies may do by
virtue hereof.
THIS PROXY WILL BE VOTED AS SPECIFIED BY THE SHAREHOLDER. IF NO CHOICE IS
SPECIFIED WITH RESPECT TO ITEM 1, THE PROXY WILL BE VOTED FOR THIS PROPOSAL.
The undersigned hereby appoints George C. McNamee and R. Wayne Diesel, or
either of them, as proxies to vote all the stock of the undersigned with all
the powers which the undersigned would possess if personally present at the
Special Meeting of the Shareholders of Mechanical Technology Incorporated, to
be held at the Company's corporate offices, 968 Albany-Shaker Road, Latham,
New York 12110, at 10:00 a.m. on December 20, 1996, or any adjournment
thereof, as follows:
1.PROPOSAL TO ADOPT AND APPROVE THE STOCK INCENTIVE PLAN.
FOR AGAINST ABSTAIN
Date-----------,1996 -------------------------------------------
Please sign exactly as name appears on
this proxy. When shares are held by joint
tenants, both should sign. When signing as
attorney, executor, administrator, trustee,
or guardian, please give full title as such.
If a corporation, please sign in full
corporate name by President or other
authorized officer. If a partnership, please
sign in partnership name by authorized person.
---------------------------------------------
Please provide Social Security Number or Tax
Identification Number
Attendance at Meeting:
No---- Yes---- Number attending----
