The following items were subject of a Form 12b-25 and are included
herein: Item 8 and portions of Items 6 and 7.
==============================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K/A-1
/X/ Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the fiscal year ended September 30, 1996
or
/ / Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the period from __________ to __________
Commission file number 0-6890
MECHANICAL TECHNOLOGY INCORPORATED
(Exact name of registrant as specified in its charter)
New York 14-1462255
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
968 Albany-Shaker Rd, Latham, New York 12110
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (518)785-2211
Securities Registered Pursuant to Section 12(b) of the Act: NONE
Securities Registered Pursuant to Section 12(g) of the Act
$1.00 Par Value Common Stock
(Title of Class)
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-K or any amendment to this form 10-K. [ ]
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes X No
--- ---
The aggregate market value of the registrant's Common Stock held by
nonaffiliates of the registrant on December 13, 1996 (based on the last
sale price of $2.00 per share for such stock reported by NASDAQ for that
date) was approximately $6,503,372.
As of December 13, 1996, the registrant had 4,899,301 shares of Common
Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Document Where Incorporated into Form 10-K Report
------------ ------------------------------------------
Proxy Statement for Part III
Annual Meeting of Shareholders
to be held on April 16, 1997
<PAGE>
PART I
ITEM 1: BUSINESS
Mechanical Technology Incorporated and its subsidiaries produce products
and render services in two business segments:
* Test and Measurement
* Technology
The major markets for these products and services are the electronics,
aerospace, capital goods, and defense industries. 72% of the Company's
revenues from operations were derived from product sales in the Company's
fiscal year ended September 30, 1996; the remaining 28% of revenues were
derived from technology support and research and development contracts.
Mechanical Technology Incorporated was incorporated in New York in 1961.
Unless the context otherwise requires, the "registrant", "Company",
"Mechanical Technology", and "MTI" refers to Mechanical Technology
Incorporated and its subsidiaries. The Company's principal executive
offices are located at 968 Albany-Shaker Road, Latham, New York 12110 and
its telephone number is (518) 785-2211.
Significant Developments in the Business
- ----------------------------------------
During the third quarter of fiscal 1996 the Company announced it had
reached an agreement in principle to sell its wholly owned subsidiary,
Ling Electronics Inc. ("Ling"), of Anaheim, California, for an amount, to
be paid in cash at closing, approximating Ling's net book value. A
definitive agreement was negotiated and executed; however the buyer
failed to obtain funding prior to the expiration date of the agreement.
The Company has now discontinued efforts to sell Ling.
In June 1996, the Company successfully raised $1.9 million (net of $100
thousand in expenses) in new capital through a private placement of 1.3
million shares of Common Stock, which was sold at an offering price of
$1.50 per share. The proceeds of this placement were applied to the
Company's line of credit.
The Company's wholly owned subsidiary, United Telecontrol Electronics,
Inc. ("UTE") of Asbury Park, New Jersey, filed a voluntary bankruptcy
under Chapter 11 of the Federal Bankruptcy Code in April 1994. During
October 1994, UTE commenced an orderly liquidation and final court
approval occurred during the third quarter of fiscal 1996. Accordingly,
the Company no longer includes Defense/Aerospace amongst its reportable
business segments and UTE has been classified as a "discontinued
operation" in the Company's Financial Statements. (See Note 13 to the
accompanying Consolidated Financial Statements).
During November 1994, the Company sold all of the outstanding capital
stock of its subsidiary, ProQuip Inc. ("ProQuip") of Santa Clara, CA for
approximately $13.3 million. The sale resulted in a gain of approximately
$6.8 million in fiscal 1995 and $750 thousand, as a result of the release
of escrow funds, in fiscal 1996. (See Note 14 to the accompanying Consol-
<PAGE>
idated Financial Statements). ProQuip's financial results are included as
part of the Company's Test and Measurement segment for prior fiscal year
periods covered by this Form 10-K until November 22, 1994 (the date of
its sale).
Business Segments
- -----------------
The Company currently conducts business in two business segments: Test
and Measurement and Technology. (Certain financial information regarding
the Company's business segments is included in Note 16 to the
accompanying Consolidated Financial Statements and is incorporated herein
by reference.) In the Test and Measurement segment, the Company primarily
produces products for sale, while in the Technology segment the Company
primarily performs technology support and research and development under
contract. The Company believes its technology support and research and
development activities provide a competitive advantage to the product
segments through the performance of related research which, for the most
part, is funded by outside parties.
Test and Measurement
The Company derived 71% of its revenues from the Test and Measurement
segment in 1996. Test and Measurement offers a wide range of technology-
based equipment and systems for improved manufacturing, product testing,
and inspection for industry. Business units in this segment include Ling
Electronics Inc., Advanced Products Division, and L.A.B. Division.
ProQuip Inc. was also included in this segment prior to its sale on
November 22, 1994.
Ling Electronics Inc., of Anaheim, California, designs, manufactures, and
markets electrodynamic shakers, high-intensity-sound transducers, and
power amplifliers used to perform reliability testing and stress
screening during product development and quality control. This mode of
testing is used by industry and the military to reveal design and
manufacturing flaws in a broad range of precision products, from
satellite parts to computer components. Recent Ling products for power
and frequency conversion and "clean power" applications include systems
capable of output up to 432 kVA.
The Advanced Products Division designs, manufactures, and markets high-
performance test and measurement instruments and systems. These products
are categorized in two general product families: noncontact sensing
instrumentation and computer-based balancing systems. The noncontact
sensing instrumentation products utilize fiber optic, laser and
capacitance technology to perform high precision position measurements
for product design and quality control inspection requirements. Computer-
based balancing systems include an on-wing jet engine balancing system
used by both commercial and military aircraft fleet maintenance
personnel.
The L.A.B. Division designs, manufactures, and markets mechanically- and
hydraulically-driven test systems for package and product reliability
testing. Among other uses, this equipment simulates the conditions a
product will encounter during transportation and distribution including
<PAGE>
shock, compression, vibration, and impact. This type of testing is
widely conducted by businesses involved in product design, packaging, and
distribution.
The business units in the Test and Measurement segment have numerous
customers and are not dependent upon a single or a few customers.
Technology
The Technology segment includes the Technology Division and Turbonetics
Energy, Inc. The Company derived 29% of its revenues from the
Technology segment in 1996. The Technology segment engages in
technology commercialization/product development, provides technical
support to the Company's other divisions, has initiated several
strategic/teaming relationships with other companies, and performs
contract research, development, engineering, and technical services for
government and commercial customers.
The Technology Division is structured into two business areas:
Measurement & Diagnostics and Power & Energy Systems.
The Measurement & Diagnostics business area provides hardware and
software for machine monitoring; develops sensor technology for
imaging, control, and measurement; and is developing new applications
for biomedical markets. This business area develops hardware and
software that determines physical parameters, the health of machines,
and the quality of products that machines produce. Key markets include
the U.S. Air Force and several major utilities. Measurement &
Diagnostics employs proprietary fiber-optic, capacitance, and laser
sensors and software technology for imaging, control, and measurement.
The Technology Division currently deploys an integrated structured-
light mapping and 3D visualization system to support DOE environmental
remediation. In partnership with a major clinic, Measurement &
Diagnostics is capitalizing on the Company's strengths in sensors,
instrumentation, software, and machinery dynamics to create new
applications for the biomedical market.
The Power & Energy Systems business area is a leader in fuel cell
development, develops electronic controls for hybrid vehicles, markets
high-efficiency turbines, and develops advanced technology for rotating
machinery systems. Power & Energy currently is developing fuel cell
technology for both automotive and utility industry applications. This
business area is developing prototype hybrid electric vehicle controls
which support the introduction of fuel cell technology into the
automotive market. The business area is capable of producing high-
efficiency turbines, ranging in size from one to ten megawatts, in the
event that deregulation of utility markets triggers demand. Power &
Energy Systems also has expertise in magnetic bearings, hybrid
bearings, and high-efficiency compressors.
Finally, Turbonetics Energy Inc. ("Turbonetics") previously manufactured
and sold a commercial line of high efficiency steam turbines for electric
power generation in the 1 to 10 MW range, through waste heat recovery
application. Turbonectics is presently inactive, and activities related
<PAGE>
to this product line are being conducted within the Technology Division.
The Technology segment, either directly or as a subcontractor, received
approximately 73% of its 1996 revenues (versus 77% in 1995) from various
agencies of the U.S. Government; approximately 69% of the segment's
revenues were derived from two agencies, the Departments of Defense and
Energy. Contracts with the U.S. Government are subject to termination,
at any time, by the Government either for convenience or for other causes
as determined by the contracts. The Technology segment has had no
government contracts terminated which when terminated resulted in a
material adverse effect on the Company.
Backlog
- -------
The backlog of orders believed to be firm as of September 30, 1996 and
1995 is as follows:
1996 1995
------ ------
(In thousands)
Technology $ 1,572 $ 2,809
Test and Measurement 6,970 4,502
------ ------
Total $ 8,542 $ 7,311
====== ======
All amounts shown above have been awarded by government agencies or
released to manufacture by commercial customers; however, approximately
$40 thousand of the orders included in the September 30, 1996 backlog may
not be filled during the Company's current fiscal year (as compared to
approximately $70 thousand not expected to be so filled at the end of the
prior year).
Marketing and Sales
- -------------------
The Company sells its products and services through a combination of a
direct sales force, manufacturer's representatives, distributors and
commission salesmen. Each business unit is responsible for its own sales
organization. Typically, the Company's product businesses employ regional
manufacturer's representatives on an exclusive geographic basis to form a
nationwide or worldwide distribution organization; the business unit is
responsible for marketing and sales management and provides the
representatives with sales and technical expertise on an "as-required"
basis. To a great extent, the marketing and sales of the Company's larger
products and systems consist of a joint effort by the business unit's
senior management, its direct sales force, and manufacturer's representa-
tives to sophisticated customers. The manufacturer's representatives are
compensated on a commission basis.
The Company's technology support and research and development services
are sold on a direct basis. Reputation and personal contacts within the
specialized technical areas are critical to the identification and
receipt of support contracts. The Company believes it has an excellent
<PAGE>
reputation within the technical areas in which it operates.
Research and Development
- ------------------------
The Company conducts considerable research and development. The following
table summarizes company- and customer-sponsored expenditures on
technology support, research and development, and product development for
the last three years:
1996 1995 1994
------ ------ ------
(In thousands)
Company-Sponsored $ 1,263 $ 1,425 $ 3,270
Customer-Sponsored 5,946 8,492 7,742
------ ------ ------
Total $ 7,209 $ 9,917 $11,012
====== ====== ======
While the amount estimated above as customer-sponsored research
activities is often not directly related to the development of new
products or the improvement of existing products, it is the belief of the
Company that these expenditures contribute to the growth of the Company's
technological base.
Product Protection
- ------------------
The Company holds numerous patents and rights in various fields of
technology. However, these patents, either individually or collectively,
are not believed to be material to the success of any of the Company's
business segments. The technology of the Company is generally an
advancement of the "state of the art", and the Company expects to
maintain a competitive position by continuing such advances rather than
relying on patents. Licenses to other companies to use Company-developed
technology have been granted. Licenses which have been granted or agreed
to be granted have been and are expected to be of benefit to the Company,
though royalty income received in recent years has not been material in
amount and is not expected to be material in the foreseeable future.
Competition
- -----------
The Company and each of its business segments are subject to intense
competition. In each of its business segments, the Company faces
competition from at least several companies, many of which are larger
than MTI and have greater financial resources. While the business units
in the Company's Test and Measurement segment each have a major share of
their respective markets, the Company does not consider any of them to be
dominant within its industry. The Company's Technology Division has a
negligible share of its respective market and competes with dozens (and
perhaps hundreds) of competing providers of similar products and
services, many of whom have greater financial and technical resources.
<PAGE>
The primary competitive considerations in the business segments in which
the Company operates are: product quality and performance, price, and
timely delivery. The Company believes that its research and development
skills and reputation are competitive advantages.
Employees
- ---------
The total number of employees of the Company and its subsidiaries was 233
as of September 30, 1996, compared to 232 as of the beginning of the
fiscal year.
Executive Officers
- ------------------
The executive officers of the registrant (all of whom serve at the
pleasure of the Board of Directors), their ages, and the position or
office held by each, are as follows:
Position or Office Name Age
------------------ ---- -----
Chief Executive Officer R. Wayne Diesel 51
and a Director
President and Chief Martin J. Mastroianni 52
Operating Officer
Chief Financial Officer Stephen T. Wilson 44
Vice-President and General Manager Douglas McCauley 48
Technology Division
President and Chief Operating Officer, Stephen F. Sullivan 62
Ling Electronics Inc.
Vice-President and General Manager, Denis P. Chaves 56
LAB Division and Advanced
Product Division
Mr. Diesel was elected Chief Executive Officer of the Company in February
1994, and prior to December 1996, also held the title of President. Prior
to February 1994, he had been Chief Financial Officer since 1991 and
President since March 1993 of Lawrence Management Group, and Treasurer of
the Lawrence Insurance Group, Inc. since March 1993. From 1988 until his
association with Lawrence Group, Inc., Mr. Diesel was Administrative Vice
President responsible for corporate administration, human resources and
strategic planning at KeyCorp. Previously, he held various executive
positions with the State of New York.
Mr. Mastroianni was appointed President and Chief Operating Officer of
the Company in December 1996. Prior to joining the Company, he served
<PAGE>
most recently as Director, Transmission Power Delivery for the Electric
Power Research Institute (EPRI) where he was employed since 1992.
Previously, between 1973 to 1992, he held senior management positions in
the technology driven test and measurement industries with Vacuum
Components, Inc., Tenney Engineering, Inland Vacuum Industries,
Halocarbon Products, Inc., and Allied Signal Corporation.
Mr. Wilson joined the Company in March 1995 and was appointed Chief
Financial Officer. Prior to joining the Company, he had been the Manager-
Corporate Accounting/Banking of Lawrence Management Group since January
1991. Prior to 1991, he held various management positions with Fleet
Financial Group.
Mr. McCauley has been Vice-President and General Manager of the
Technology Group since August 1994. He was previously Director of
Business Development from January 1989 to September 1991 and from October
1993 to August 1994. From October 1991 to October 1993 he had been Vice
President of Corporate Development for Chamberlain Manufacturing
Corporation, responsible for business conversion from defense to
commercial products. Prior to 1989, he held various management positions
with the General Electric Company.
Mr. Sullivan has been President and Chief Operating Officer of Ling
Electronics Inc., a wholly owned subsidiary of the Company, since August
1992. Mr. Sullivan was previously Executive Vice President of Ling
Electronics Inc. from January 1990 through August 1992. Prior to 1990,
he held various management positions with Ling Electronics Inc. since his
employment in 1977.
Mr. Chaves has been Vice-President and General Manager of the Company's
Advanced Products Division since 1987 and Vice-President and General
Manager of the Company's LAB Division since January 1994. Previously, he
served as Manager of Corporate Marketing for the Company from 1981 to
1987.
ITEM 2: PROPERTIES
The Company and its subsidiaries presently own or lease real estate
principally in New York and California. In management's opinion, these
facilities are generally well maintained and are adequate to meet the
Company's current and anticipated future needs.
Owned Properties
The Company's corporate headquarters and certain of its research and
development and manufacturing facilities are located in a three-building
complex of approximately 103,000 square feet on 38 acres in Latham, New
York, which is owned by the Company. This complex is divided
approximately equally between office and laboratory-manufacturing areas.
Corporate staff, the Technology segment, and the Advanced Products
Division (part of the Test and Measurement segment) are located at the
Latham facility.
<PAGE>
The property referred to in the preceding paragraph is subject to
mortgages to secure the Company's indebtedness described in Note 7 to the
accompanying Consolidated Financial Statements.
Leased Properties
The Company and its subsidiaries lease the following facilities in which
its various business units conduct operations; generally, these are
stand-alone low-rise buildings containing primarily manufacturing space,
with some portion of each used for office space.
Approximate Lease
Location Square feet Segment Used By Expires
-------- ----------- --------------- -------
Anaheim, CA 85,000 Test and Measurement June,1998
Malta, NY 18,000 Technology Dec.,1999
Skaneateles, NY 18,000 Test and Measurement June,1998
In addition to the above properties, the Company and its subsidiaries
lease several small offices for field engineering and/or marketing
personnel at various locations in the United States and United Kingdom.
ITEM 3: LEGAL PROCEEDINGS
At any point in time, the Company and its subsidiaries may be involved in
various lawsuits or other legal proceedings; these could arise from the
sale of products or services or from other matters relating to its
regular business activities, could relate to compliance with various
governmental regulations and requirements, or could be based on other
transactions or circumstances. The Company does not believe there are any
such proceedings presently pending which, if ultimately resolved in a
manner adverse to the Company, could have a material adverse effect on
the Company's financial position except for the matters described in Note
11 to the accompanying Consolidated Financial Statements (which
description is incorporated herein by reference),and the matter discussed
below (as to which matter the Company considers the likelihood of a
material adverse outcome to be remote).
In October 1989, the Environmental Protection Agency (EPA) issued an
Order alleging that there has been a release of hazardous materials into
the environment at a site in Malta, New York (the "Site") at which the
Company leased a facility and directing the "potentially responsible
parties" ("PRPs"), including the Company, to undertake a remedial
investigation and feasibility study (RI/FS) of the Site. The Company,
however, believes that it is not responsible for any release of hazardous
<PAGE>
substances that may have occurred at the Site, and has denied any
liability for the matter.
In August 1996, after the Site investigation was completed, EPA demanded
that a remedial plan be undertaken by the PRPs and that EPA be reimbursed
for cost it incurred with respect to the Site. Efforts have been underway
between the PRPs and EPA to negotiate a settlement of all claims; a
tentative settlement has been negotiated among the PRPs but has not yet
been approved by EPA. There is no assurance that the proposed settlement
will be completed, however the Company considers the likelihood of a
material adverse outcome to be remote and does not expect that any
expense or liability it may incur as a result of this matter in the
future will be material.
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of the registrant's security
holders during the fourth quarter of fiscal 1996.
PART II
ITEM 5: MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
Price Range of Common Stock
- ---------------------------
Since August 1994, the Company's Common Stock has been traded on the
over-the-counter market and is listed under the symbol MKTY on NASD's
electronic OTC Bulletin Board. Set forth below are the highest and lowest
prices at which shares of the Company's Common Stock have been traded
during each of the Company's last two fiscal years.
High Low
Fiscal Year 1996 ------ ------
First Quarter 1-1/8 3/8
Second Quarter 3-1/2 5/16
Third Quarter 3-1/4 1-1/2
Fourth Quarter 2-7/8 1-3/4
Fiscal Year 1995
First Quarter 3/8 1/16
Second Quarter 1-3/8 3/8
Third Quarter 2 1-1/4
Fourth Quarter 1-5/8 15/16
Number of Equity Security Holders
- ---------------------------------
Approximate Number of Record
Title of Class Holders* (as of December 13,1996)
-------------- ---------------------------------
Common Stock, $1.00 Par Value 535
- ---------------------------------
<PAGE>
*In addition, there are approximately 505 beneficial owners holding stock
in "street" name.
Dividends
- ---------
The Company has never paid cash dividends on its Common Stock. Subject to
the terms of the Company's loan agreements (described in Note 7 to the
accompanying Consolidated Financial Statements), under which the payment
of cash dividends is currently prohibited, the payment of dividends is
within the discretion of the Company's Board of Directors and will
depend, among other factors, on earnings, capital requirements, and the
operating and financial condition of the Company. The Company does not
anticipate paying dividends in the foreseeable future.
ITEM 6: SELECTED FINANCIAL DATA
The following table sets forth summary financial information regarding
Mechanical Technology Incorporated for the years ended September 30, as
indicated:
(In thousands, except per share amounts)
1996 1995 1994 1993 1992
------ ------ ------ ------ ------
Net Sales $31,901 $29,748 $40,234 $41,500 $42,462
Income (Loss) from
Continuing Operations 509(1) 2,922(2) 141 1,162 (335)
Net Income (Loss) 3,748 2,922 (24,378) 1,056 57
Earnings (Loss) Per
Share:
From Continuing
Operations .13 .82 .04 .33 (.09)
Net Income (Loss) .96 .82 (6.91) .30 .02
As of September 30:
Total Assets 14,452 14,483 25,317 42,428 38,890
Long-term Obligations 3,806 6,222 2,144(3) 11,699 13,142
- -------------
(1) Includes $750 thousand gain from the sale of ProQuip resulting from
the release of escrow funds. (See Note 14 to the accompanying
Consolidated Financial Statements).
(2) Includes ProQuip (sold in November 1994) results through the sale
date and the $6.8 million gain on its sale. All prior periods include the
results of ProQuip. (See Note 14 to the accompanying Consolidated
Financial Statements).
<PAGE>
(3) Does not include approximately $8.0 million classified as a current
liability and paid in the first quarter of fiscal year 1995 from the net
proceeds received from the sale of ProQuip in November 1994.
Consistent with 1996 data, prior years have been restated to reflect the
Defense/Aerospace segment as a discontinued operation. (See Note 13 to
the accompanying Consolidated Financial Statements).
There were no cash dividends on common stock declared for any of the
periods presented.
ITEM 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
As described in Note 13 to the accompanying Consolidated Financial
Statements, the Company's United Telecontrol Electronics, Inc. ("UTE")
subsidiary filed for voluntary bankruptcy under Chapter 11 of the Federal
Bankruptcy Code in April 1994 and commenced an orderly liquidation in
October 1994. In June 1996 the Bankruptcy Court confirmed UTE's plan of
liquidation under which the Company was released from all remaining
liabilities related to UTE's bankruptcy. Accordingly, UTE's results and
the impact of the liquidation on the Company's results have been
classified as "discontinued operations" in the Consolidated Financial
Statements.
The Company recorded the effect of the final liquidation of UTE during
fiscal year 1996. Final adjustments to the Company's financial statements
as a result of the UTE bankruptcy are reflected in income from
discontinued operations. For 1996, income from discontinued operations of
$3.2 million was recorded as a result the Company's release from all
remaining liabilities . No income (loss) from discontinued operations was
recorded for fiscal year 1995, and a $24.5 million net loss was recorded
in 1994 for discontinued operations, including $15.4 million to write
down all assets to net realizable value and establish a reserve for
estimated future termination and liquidation cost.
In November 1994, the Company sold its ProQuip Inc. ("ProQuip")
subsidiary for approximately $13.3 million, of which $750 thousand was
placed in escrow for fifteen months to provide a fund for indemnity
payments. As of February 22, 1996 (the escrow expiration date), no claim
had been filed, nor was the company aware of any circumstances which
might give rise to future claims. Accordingly, the Company recognized the
remaining $750 thousand gain from the sale during the second quarter of
fiscal 1996. Prior year information contains ProQuip results through its
sale date (November 22, 1994) and the $6.8 million gain on its sale. (See
Note 14 to the accompanying Consolidated Financial Statements).
Results of Operations: 1996 in Comparison with 1995
- ---------------------------------------------------
The following is management's discussion and analysis of certain
significant factors which have affected the Company's results of
<PAGE>
operations for 1996 compared to 1995. This discussion relates only to the
Company's continuing operations, which included ProQuip in fiscal year
1995 prior to its sale in November 1994:
Sales for fiscal year 1996 totaled $31.9 million compared to $29.7
million for the prior year. Prior year sales include $2.6 million from
the Company's former subsidiary, ProQuip; excluding ProQuip, sales
increased $4.7 million or 17.4% in fiscal 1996 compared to fiscal 1995.
Selling, general and administrative expenses for fiscal 1996 were 30.7%
of sales, as compared to 27.2% in 1995 (28.6% excluding ProQuip). Product
development and research costs during fiscal 1996 were 4.0% of sales,
compared to 4.8% for 1995 (4.5% excluding ProQuip). Higher levels of
general/administrative expenses for fiscal 1996 resulted primarily from
increased divisional profit sharing accruals, expenses incurred in
connection with the now-discontinued efforts to sell Ling, and expenses
attributable to several legal matters.
Company 1996 operating income totaled $956 thousand compared to a $2.5
million operating loss for fiscal 1995, or an improvement of $3.4
million. The significant improvement in operating income is primarily due
to results in the Test and Measurement segment.
The Test and Measurement segment reported fiscal 1996 sales of $22.8
million compared to $18.1 million in the prior period or a 25.4%
increase. Prior year sales include $2.6 million from ProQuip; excluding
ProQuip, sales increased 46.3%. All divisions within this segment
reported higher levels of orders and shipments in fiscal 1996 as compared
to 1995. Operating income for fiscal 1996 amounted to $1.4 million, an
increase of $3.4 million over the $2.0 million operating loss in 1995.
The prior year's results included a $1.6 million impairment loss on the
Company's investment in Ling, which was partially offset by operating
income from ProQuip of $607 thousand before the date of its sale. All
divisions reported significant improvements, primarily from the higher
level of sales, however Ling continued to experience an operating loss.
The Technology segment recorded a $2.5 million or 21.2% decline in sales
to $9.1 million for fiscal 1996 as compared to $11.6 million in fiscal
1995. The operating loss for 1996 was $434 thousand, a slight improvement
over the $463 thousand operating loss in 1995. The lower level of sales
resulted from completion of a major program in the Power and Energy
business area. Margins improved which resulted from a higher yielding
sales mix, however this benefit was substantially offset by higher levels
of product development and other expenses.
The Technology segment continues to be dependent on government-funded R&D
contracts for the bulk of its business. However, fiscal constraints at
all levels of government have reduced the level of funding available for
these programs, and securing additional such contracts has become more
difficult and competitive; no improvement in this situation is
anticipated in the foreseeable future. For the second year in a row , the
Technology segment has an historically low level of backlog, and any
improvement in the segment's results in fiscal 1997 will depend on
success in procuring and fulfilling orders within the fiscal year. The
<PAGE>
future growth and profitability of the segment will depend on its success
in identifying and exploiting new markets for its products and services.
In addition to the matters noted above, the Company's results for fiscal
1996 were further enhanced by decreased interest expense, due to reduced
indebtedness and a lower prime rate, and by recognition of a $750
thousand contingency gain on the sale of ProQuip. Moreover, the Company
continues to benefit from net operating loss carryforwards and therefore
has no federal income tax provision (exclusive of minimum taxes).
Results of Operations: 1995 in Comparison with 1994
- ---------------------------------------------------
The following discussion and analysis relates only to the Company's
continuing operations which included ProQuip prior to its sale in
November 1994:
Sales for 1995 of $29.7 million were $10.5 million or 26.1% lower than
1994. The decrease in sales was entirely attributable to the sale of
ProQuip. Excluding ProQuip, sales increased $2.2 million or 8.6% in 1995
as compared to 1994.
Selling, general and administrative expenses for 1995 were 27.2% of
sales, versus 24.7% in 1994. Product development and research costs for
1995 were 4.8% of sales versus 8.1% in 1994. The Company continued to
narrow the focus of its internal research and development activities. Due
to continuing operating and cash flow losses at Ling Electronics, Inc.
("Ling"), a $1.6 million impairment loss was recognized in 1995 to reduce
the carrying value of the Company's investment in that subsidiary.
As reported in Note 14 to the accompanying Consolidated Financial
Statements, the Company sold its ProQuip subsidiary for $13.3 million
which resulted in a gain of $6.8 million before income taxes.
1995 income from continuing operations of $2.9 million was $2.8 million
higher than 1994. The increase is attributed to the $6.8 million gain on
the sale of ProQuip reduced by the $1.6 million impairment loss on Ling;
in addition, 1994 included a $1.9 million gain on the sale of a building.
The Test and Measurement segment's financial results include ProQuip
until November 22, 1994, the date of its sale. The Test and Measurement
segment recorded sales of $18.1 million in 1995, $11.6 million lower than
the $29.7 million in 1994. The decrease in sales was entirely attribut-
able to the sale of ProQuip. Excluding ProQuip, the Test and Measurement
segment reported a sales increase of $1.1 million or 7.4%. LAB, Advanced
Products, and Ling divisions reported sales increases of 28%, 11%, and
3%, respectively. The Operating results of the Test and Measurement
segment for 1995 were a $2.0 million loss (including an impairment loss
of $1.6 million; see Note 15 to the accompanying Consolidated Financial
Statements) as compared to a $2.2 million profit in the prior year.
Excluding ProQuip and the impairment loss, the operating results were a
$1.1 million loss as compared to a $1.9 million loss or a $800 thousand
reduction in operating losses, 1995 compared to 1994. All divisions
reported improvements, however, Ling reported an operating loss of $2.0
<PAGE>
million (excluding impairment loss) for 1995 compared to $2.6 million
loss for 1994. Ling's poor results reflect continued inadequate margins,
unfavorable adjustments to inventory, account receivable write-offs, and
severance cost associated with work force reductions. Export license
restrictions on certain of Ling's products, imposed in the first quarter
of the fiscal year 1995, caused numerous inefficiencies and delays in
shipments.
The Technology segment recorded sales of $11.6 million in 1995, $1.1
million or 10% higher than the $10.5 million recorded in 1994. The
operating loss for 1995 was $463 thousand or a $1.4 million improvement
from the $1.9 million loss recorded in 1994. The segment's performance
was favorably impacted by work completed on a major new order along with
lower product development and selling expenses, partially offset by a
contract cost overrun of $243 thousand, and inventory write-offs of $160
thousand on a contract with performance contingencies and $150 thousand
on the unsuccessful funding of an anticipated project.
Liquidity and Capital Resources
- -------------------------------
In November 1994, the Company sold its ProQuip subsidiary for approxi-
mately $13.3 million, of which $750 thousand was placed in escrow for
fifteen months to provide a fund for indemnity payments. As of February
22, 1996 (the escrow expiration date), no claim had been filed, nor was
the company aware of any circumstances which might give rise to future
claims. Accordingly, the escrow monies were released to the Company and
an additional $750 thousand gain was recognized during the second quarter
of fiscal 1996.
In June 1996, the Bankruptcy Court confirmed UTE's plan of liquidation
under which the Company was released from all remaining liabilities
related to UTE's bankruptcy. The final settlement of the UTE related
matters resulted in eliminating the remaining "Net liabilities of
discontinued operations" and recording $3.2 million in income from
discontinued operations.
Also in June 1996, the Company successfully raised $1.9 million (net of
$100 thousand in expenses) in new capital through a private placement of
1.3 million shares of Common Stock, which were sold at an offering price
of $1.50 per share. The proceeds of this placement were applied to the
Company's line of credit.
During December 1993 UTE borrowed $3.0 million ("Note Payable") from a
finance company. The agreement states that the Company shall pay amounts
due thereunder which are not paid by UTE when due. The obligation matured
in October 1994, which was subsequently extended to December 31, 1996
(See Notes 7, 12, and 17 to the accompanying Consolidated Financial
Statements).
During fiscal 1996, First Albany Companies, Inc. ("FAC") purchased
909,091 shares of the Company's Common Stock from the New York State
Superintendent of Insurance as the court-ordered liquidator of United
Community Insurance Company ("UCIC"). In connection with this purchase,
<PAGE>
FAC also acquired certain rights to an obligation ("Term Loan") due from
the same finance company ("FCCC") to whom the Company is obligated under
the Note Payable, due December 31, 1996.
FCCC is in default of its Term Loan to UCIC. FAC, as the owner of the
rights to the Term Loan, filed suit seeking payment. Collateral for the
FCCC Term Loan includes the Company's Note Payable to FCCC. FAC has
exercised its rights to the collateral securing the Term Loan, including
the right to obtain payment on the Note Payable directly from the
Company. The Company and FAC have entered into an agreement dated as of
December 27, 1996 under which the Company will issue to FAC 1.0 million
shares of Common Stock in full satisfaction of the Note Payable.
Accordingly, the Note Payable of $3.0 million and accrued interest of
$1.1 million have been reclassified as long term in the accompanying
balance sheet (See Notes 7, 12, and 17 to the accompanying Consolidated
Financial Statements).
At September 30, 1996 cash and cash equivalents were $66 thousand versus
$78 thousand at September 30, 1995. Working capital was a positive $5.1
million at September 30, 1996 an improvement over a positive $1.4 million
at fiscal year-end 1995. Net cash provided by continuing operations was
$1.4 million in 1996 versus $558 thousand of net cash used in 1995.
Improved operating income was the most significant positive factor
impacting the cash provided from operations. Line of credit borrowing at
September 30, 1996 was $100 thousand, while at September 30, 1995 there
was line of credit borrowing of $3.4 million. The capital provided in
1996 was used to, among other things, reduce debt and accounts payable,
support higher levels of receivables and inventories, and acquire capital
equipment.
The Company also benefited in fiscal 1996 from $483 thousand in cash
provided from discontinued operation (finalization of UTE bankruptcy),
$750 thousand in cash provided from investing activities (release of
ProQuip escrow), and $1.9 million in cash provided from financing
activities (private placement of Common Stock); these proceeds were
applied to reduce the Company's line of credit borrowings.
Capital spending for 1996 was $549 thousand, a decline from 1995's
capital spending level of $667 thousand.
In November 1995, the lending institution agreed to extend the maturity
of the Company's term debt to October 1998; scheduled principal payments
on the Company's bank term debt are due as follows: $604 thousand in
fiscal year 1997, $654 thousand in fiscal year 1998, and on October 31,
1998 the balance of $52 thousand is payable in full.
The Company has a line of credit available in the amount of $4.0 million,
of which $100 thousand was outstanding on September 30, 1996. In October
1995, the lending institution agreed to extend the maturity of the line
of credit until October 31, 1998 when the outstanding balance becomes due
and payable. This line of credit continues to be collateralized by a
guarantee from a former shareholder, and expires on October 31, 1998.
<PAGE>
The Company anticipates that it will be able to meet the liquidity needs
of its continuing operations from cash flow generated by those operations
and borrowing under its existing line of credit, including sufficient
cash flow to make all payments due on its term loan indebtedness during
1997.
ITEM 8: FINANCIAL STATEMENTS
The financial statements filed herewith are set forth on the Index to
Consolidated Financial Statements on Page F-1 of the separate financial
section which follows page 25 of this report and are incorporated herein
by reference.
ITEM 9: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10: DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information set forth under the caption "Executive Officers" in Item
1 of this Form 10-K Report, and the information which will be set forth
in the section entitled "Election of Directors", and under the captions
"Security Ownership of Certain Beneficial Owners" and "Compliance with
Section 16(a) of the Securities Exchange Act of 1934" in the section
entitled "Additional Information", in the definitive Proxy Statement to
be filed by the registrant, pursuant to Regulation 14A, for its Annual
Meeting of Shareholders to be held on April 16, 1997 (the "1997 Proxy
Statement"), is incorporated herein by reference.
ITEM 11: EXECUTIVE COMPENSATION
The information which will be set forth under the captions "Executive
Compensation", "Compensation Committee Report", "Compensation Committee
Interlocks and Insider Participation", "Employment Agreements", and
"Directors Compensation", in the section entitled "Additional Infor-
mation" in the registrant's 1997 Proxy Statement, is incorporated herein
by reference.
ITEM 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The information which will be set forth under the captions "Security
Ownership of Certain Beneficial Owners" and "Security Ownership of
Management" in the section entitled "Additional Information" in the
registrant's 1997 Proxy Statement is incorporated herein by reference.
<PAGE>
ITEM 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information which will be set forth under the caption "Certain
Information Regarding Nominees" in the section entitled "Election of
Directors", and under the captions "Directors Compensation", "Security
Ownership of Certain Beneficial Owners", and "Certain Relationships and
Related Transactions", in the section entitled "Additional Information",
in the registrant's 1997 Proxy Statement is incorporated herein by refer-
ence.
PART IV
ITEM 14: EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K
(a) The financial statements filed herewith are set forth on the Index
to Consolidated Financial Statements on page F-1 of the separate
financial section which accompanies this Report, which is incorporated by
reference.
The following exhibits are filed as part of this Report:
Exhibit
Number Description
------- -----------
2.1 Purchase Agreement, dated as of November 23,
1994, among the Registrant, ProQuip Inc. and
Phase Metrics.(7)
3.1 Certificate of Incorporation of the registrant,
as amended.(1)
3.2 By-Laws of the registrant, as amended.
4.1 Certificate of Amendment of the Certificate
of Incorporation of the registrant, filed
on March 6, 1986 (setting forth the provisions
of the Certificate of Incorporation,as amended,
relating to the authorized shares of the
registrant's Common Stock) - included in the
copy of the registrant's Certificate of
Incorporation, as amended, filed as Exhibit 3.1
hereto.
4.20 Loan Agreement, dated as of June 1, 1987,
between the registrant and Chase Lincoln
First Bank, N.A. ("Chase Lincoln"), relating to
a $20,000,000 term loan to finance the
registrant's acquisition of United
Telecontrol Electronics, Inc. (the "UTE Loan
Agreement").(1)
<PAGE>
4.21 First Amendment to Loan Agreement, dated as
of September 30, 1988, amending certain
provisions of the UTE Loan Agreement.(1)
4.22 Second Amendment to Loan Agreement, dated as of
February 21, 1990, amending certain provisions
of the UTE Loan Agreement.(1)
4.24 Third Amendment to Loan Agreement, dated as
of January 1, 1991, amending certain
provisions of the UTE Loan Agreement.(2)
4.25 Form of Note, in the amount of $9,181,700,
executed by the registrant on January 1,
1991 to evidence its indebtedness under the
UTE Loan Agreement.(2)
4.26 Form of Note, in the amount of $2,000,000,
executed by the registrant on January 1,
1991 to evidence its indebtedness under the
UTE Loan Agreement.(2)
4.27 Form of Note, in the amount of $1,000,000,
executed by the registrant on January 1,
1991 to evidence its indebtedness under the
UTE Loan Agreement.(2)
4.28 Mortgage, dated January 31, 1991, executed
by the registrant in favor of Chase Lincoln
and securing the registrant's obligation to
Chase Lincoln, including those under the
UTE and ProQuip Loan Agreements.(2)
4.30 Loan Agreement, dated as of September 30,
1988, between the registrant and Chase
Lincoln relating to an $8,000,000 term loan
to finance the registrant's acquisition of
ProQuip, Inc. (the "ProQuip Loan
Agreement").(1)
4.31 Negative Pledge Agreement, dated as of
September 30, 1988, executed by the
registrant in favor of Chase Lincoln in
connection with the ProQuip Loan
Agreement.(1)
4.32 Security Agreement, dated as of September
30, 1988, executed by the registrant in
favor of Chase Lincoln and securing the
registrant's obligations to Chase Lincoln,
including those under the UTE and ProQuip
Loan Agreements (the "Chase Lincoln
Security Agreement").(1)
<PAGE>
4.33 First Amendment to Loan Agreement, dated as
of February 21, 1990, amending certain
provisions of the ProQuip Loan Agreement.(1)
4.34 Form of Note, in the amount of
$3,375,817.80, executed by the registrant
on February 21, 1990 to evidence its
indebtedness under the ProQuip Loan
Agreement.(1)
4.35 Amendment Number One to Security Agreement,
executed by the registrant on February 21,
1990, amending the Chase Lincoln Security
Agreement.(1)
4.36 Mortgage, dated February 21, 1990, executed
by the registrant in favor of Chase Lincoln
and securing the registrant's obligations
to Chase Lincoln, including those under the
UTE and ProQuip Loan Agreements.(1)
4.37 Second Amendment to Loan Agreement, dated
as of January 1, 1991, amending certain
provisions of the ProQuip Loan
Agreement.(2)
4.38 Mortgage Modification and Allocation
Agreement, dated January 1, 1991, executed
by the registrant and Chase Lincoln.(2)
4.40 Form of Payment Guaranty, dated as of
September 1, 1988 [as of September 30,
1988, in the case of ProQuip, Inc.],
executed by the subsidiaries of the
registrant in favor of Chase Lincoln and
guaranteeing payment of the registrant's
obligations to Chase Lincoln, including
those under the UTE and ProQuip Loan
Agreements.(1)
4.41 Form of Negative Pledge Agreement, dated as
of September 30, 1988, executed by the
subsidiaries of the registrant in favor of
Chase Lincoln in connection with the
ProQuip Loan Agreement.(1)
4.42 Form of Security Agreement, dated as of
September 30, 1988, executed by the
subsidiaries of the registrant in favor of
Chase Lincoln and securing the registrant's
obligations to Chase Lincoln, including
those under the UTE and ProQuip Loan
Agreements.(1)
<PAGE>
4.43 Acknowledgment, Confirmation and Further
Agreement, made as of February 21, 1990,
executed by the subsidiaries of the
registrant in favor of Chase Lincoln with
respect to the registrant's obligations
under the UTE and ProQuip Loan
Agreements.(1)
4.50 Debt Restructure Agreement, made as of
February 21, 1990, between the registrant,
Chase Lincoln, and Manufacturers Hanover
Trust Company ("Manufacturers Hanover"),
providing for a restructuring of the
registrant's indebtedness to Chase Lincoln
under the UTE and ProQuip Loan Agreements
and of the registrant's outstanding
indebtedness to Manufacturers Hanover (the
"MHTCo. Existing Debt"), among other
things.(1)
4.55 Second Amendment to Debt Restructure
Agreement, made as of January 1, 1991,
between the registrant, Chase Lincoln, and
Manufacturers Hanover, amending certain
provisions of the Debt Restructure
Agreement.(2)
4.56 Second Debt Restructure Agreement, as of
July 22, 1992, between the registrant,
Chase Lincoln First Bank, N. A. ("CLFB"),
and Chemical Bank ("Chemical"), as
successor in interest to Manufacturers
Hanover Trust Company, providing for a
restructuring of the registrant's
indebtedness to CLFB under the UTE and
ProQuip Loan Agreements and of the
registrant's outstanding indebtedness to
Chemical, among other things.(3)
4.63 Promissory Note, in the amount of
$4,000,000 and dated July 22, 1992,
executed by the registrant to evidence its
indebtedness to Chemical from time to time
with respect to a line of credit in such
amount (The Chemical Line of Credit).(3)
4.64 Form of Payment Guaranty, dated as of July
24, 1992, executed by Masco Corporation in
favor of Chemical and guaranteeing payment
of the registrant's obligations to Chemical
under the Chemical Line of Credit.(3)
<PAGE>
4.65 Promissory Note, in the amount of
$4,000,000 and dated October 31, 1994,
extending the maturity date of the
Promissory note dated July 22, 1992,
executed by the registrant to evidence its
indebtedness to Chemical under The Chemical
Line of Credit.(8)
4.66 Promissory Note, in the amount of $4,000,000
and dated October 31, 1995, extending the
maturity date of the Promissory note dated
October 31, 1994, executed by the registrant to
evidence its indebtedness to Chemical under The
Chemical Line of Credit.(9)
4.67 Form of Payment Guaranty, dated October 31,
1995 executed by Masco Corporation in favor of
Chemical and guaranteeing payment of the
registrant's obligations to Chemical under the
Chemical Line of Credit.(9)
4.80 Amended and Restated Loan Agreement, dated
as of July 22, 1992, between the registrant
and Chase Lincoln First Bank, N.A., which
amends, restates, combines, and supersedes
in full the UTE and the ProQuip loan
agreements.(3)
4.81 Form of Note, in the amount of $5,000,000,
executed by the registrant on July 24, 1992
to evidence its indebtedness to CLFB under
the July 22, 1992 Loan Agreement.(3)
4.82 Form of Note, in the amount of $7,984,770,
executed by the registrant on July 24, 1992
to evidence its indebtedness to CLFB under
the July 22, 1992 Loan Agreement.(3)
4.83 Additional Mortgage Note, dated July 24,
1992, executed by the registrant in favor
of CLFB and securing the registrant's
obligation to CLFB under the Loan Agreement.(3)
4.84 Additional Mortgage and Security Agreement,
dated as of July 22, 1992, executed by the
registrant in favor of CLFB and securing
the registrant's obligations to CLFB.(3)
4.85 Mortgage Consolidation, Spreader, Modification
Extension and Security Agreement, dated July
22, 1992, executed by the registrant and
CLFB.(3)
<PAGE>
4.86 Confirmation of Guaranties and Security
Agreements, dated July 22, 1992, executed
by subsidiaries of the registrant in favor
of CLFB with respect to the registrant's
obligations to CLFB.(3)
4.87 Consent and waiver, dated December 21, 1993,
from CLFB to the registrant with respect to the
Amended and Restated Loan Agreement.(5)
4.88 Amendment One to Amended and Restated Loan
Agreement, dated as of August 1, 1994, between
the registrant and Chase Manhattan Bank, N. A.
which amends the Amended and Restated Loan
Agreement to defer the payment due on June 30,
1994.(6)
4.89 Amendment Two to Amended and Restated Loan
Agreement with waiver, dated as of November
22,1994, between the registrant and Chase
Manhattan Bank, N. A. which amends the Amended
and Restated Loan Agreement and waives any
existing defaults.(8)
4.90 Additional Mortgage and Security Consolidation
Agreement, dated as of October 6, 1995 executed
by the registrant in favor of Chase Manhattan
Bank, N.A. and securing the registrant's
obligations to Chase Manhattan Bank, N.A.(9)
4.91 Form of Note, in the amount of $340,000,
executed by the registrant on October 6, 1995
to evidence its indebtedness to Chase
Manhattan Bank, N.A. under the July 22, 1992
Loan Agreement.(9)
4.92 Amendment Three to Amended and Restated Loan
Agreement with waiver, dated as of November
30, 1995, between the registrant and Chase
Manhattan Bank, N. A. which amends the Amended
and Restated Loan Agreement and waives any
existing defaults.(9)
10.1 Mechanical Technology Incorporated Restricted
Stock Incentive Plan - filed as Exhibit 28.1 to
the registrant's Form S-8 Registration
Statement No. 33-26326 and incorporated herein
by reference.
10.3 MTI Employee 1982 Stock Option Plan.(1)
10.4 Agreement, dated December 21, 1993, between
UTE, First Commercial Credit Corporation
("FCCC") and the registrant, relating to an
<PAGE>
advance against certain receivables.(5)
10.6 Agreement, dated June 2, 1993, between the
registrant and Mr. Harry Apkarian, Director,
regarding his employment.(5)
10.7 Agreement, dated February 22, 1994, between
the registrant and Mr. R. Wayne Diesel,
President and Chief Executive Officer,
regarding his employment.(8)
10.8 Agreement, dated December 14, 1994, between
FCCC and the registrant, modifying the
Agreement dated December 21, 1993 relating to
an advance against certain receivables.(8)
10.9 Agreement, dated May 30, 1995, between FCCC
and the registrant, extending the maturity of
the Agreement dated December 14, 1994 relating
to an advance against certain receivables.(9)
10.10 Agreement, dated June 28, 1995, between FCCC
and the registrant, extending the maturity of
the Agreement dated December 14, 1994 relating
to an advance against certain receivables.(9)
10.11 Agreement, dated September 21, 1995, between
FCCC and the registrant, extending the
maturity of the Agreement dated December 14,
1994 relating to an advance against certain
receivables.(9)
10.12 Agreement, dated October 25, 1995, between FCCC
and the registrant, extending the maturity of
the Agreement dated December 14, 1994 relating
to an advance against certain receivables.(9)
10.13 Agreement, dated December 27, 1995, between
FCCC and the registrant, extending the maturity
of the Agreement dated December 14, 1994
relating to an advance against certain
receivables.(9)
10.14 Mechanical Technology Incorporated Stock
Incentive Plan - included as Appendix A to the
registrant's Proxy Statement, filed pursuant to
Regulation 14A, for its December 20, 1996
Special Meeting of Shareholders and
incorporated herein by reference.
10.15 Agreement, dated December 6, 1996, between
the registrant and Mr. Martin J. Mastroianni,
President and Chief Operating Officer,
regarding his employment.
<PAGE>
10.16 Settlement Agreement and Release, dated as of
December 27, 1996, between First Albany
Companies Inc. and the registrant, with respect
to the registrant's indebtedness and
obligations under the Agreement dated December
14, 1994 between FCCC and the registrant
relating to an advance against certain
receivables.
21 Subsidiaries of the registrant.
- ---------------------------------------
Certain exhibits were previously filed (as indicated below) and are
incorporated herein by reference. All other exhibits for which no
other filing information is given are filed herewith:
(1) Filed as an Exhibit (bearing the same exhibit number) to the
registrant's Form 10-K Report, as amended, for its fiscal year ended
September 30, 1989.
(2) Filed as an Exhibit (bearing the same exhibit number) to the
registrant's Form 10-Q Report for its fiscal quarter ended December
29, 1990.
(3) Filed as an Exhibit (bearing the same exhibit number) to the
registrant's Form 10-Q Report for its fiscal quarter ended June 27,
1992.
(4) Filed as an Exhibit (bearing the same exhibit number) to the
registrant's Form 10-K Report for its fiscal year ended September
30, 1991.
(5) Filed as an Exhibit (bearing the same exhibit number) to the
registrant's Form 10-K Report for its fiscal year ended September
30, 1993.
(6) Filed as an Exhibit (bearing the same exhibit number) to the
registrant's Form 10-Q Report for its fiscal quarter ended July 2,
1994.
(7) Filed as an Exhibit (bearing the same exhibit number) to the
registrant's Form 8-K Report dated November 23, 1994.
(8) Filed as an Exhibit (bearing the same exhibit number) to the
registrant's Form 10-K Report for its fiscal year ended September
30, 1994.
(9) Filed as an Exhibit (bearing the same exhibit number) to the
registrant's Form 10-K Report for its fiscal year ended September
30, 1995.
(b) No reports on Form 8-K were filed by the registrant during the
last quarter of the period covered by this Form 10-K Report.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly
authorized.
MECHANICAL TECHNOLOGY INCORPORATED
Date: January 13, 1997 By: /s/ R. Wayne Diesel
------------------ ---------------------------------------
R. Wayne Diesel
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of
the registrant and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
- --------- ----- --------
/s/ George C. McNamee Chairman of the Board of Directors 1/13/97
- -----------------------
George C. McNamee
/s/ R. Wayne Diesel Chief Executive Officer
- ----------------------- (Principal Executive Officer)
R. Wayne Diesel and a Director "
/s/ Stephen T. Wilson Chief Financial Officer
- ----------------------- (Principal Financial and Accounting
Stephen T. Wilson Officer) "
/s/ Harry Apkarian Director "
- -----------------------
Harry Apkarian
/s/ Alan P. Goldberg Director "
- -----------------------
Alan P. Goldberg
/s/ Stanley Landgraf Director "
- -----------------------
Stanley Landgraf
/s/ E. D. O'Connor Director "
- -----------------------
E. D. O'Connor
/s/ Dr. Beno Sternlicht Director "
- -----------------------
Dr. Beno Sternlicht
<PAGE>
MECHANICAL TECHNOLOGY INCORPORATED AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------
Page
--------
Report of Independent Accountants. . . . . . . . . . . F-2
Consolidated Financial Statements:
Balance Sheets as of September 30, 1996 and 1995 . . . F-3 & F-4
Statements of Income for the Years Ended
September 30, 1996, 1995 and 1994 . . . . . . . . F-5
Statements of Shareholders' Equity for the Years Ended
September 30, 1996, 1995 and 1994 . . . . . . . . F-6
Statements of Cash Flows for the Years Ended
September 30, 1996, 1995 and 1994 . . . . . . . . F-7
Notes to Consolidated Financial Statements . . . . . . F-8 - F-23
Separate financial statements of the registrant alone are omitted because
the registrant is primarily an operating company and all subsidiaries
included in the consolidated financial statements being filed, in the
aggregate, do not have minority equity interest and/or indebtedness to
any person other than the registrant or its consolidated subsidiaries in
amounts which together exceed 5% of the total assets as shown by the most
recent year-end consolidated balance sheet.
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders
of Mechanical Technology Incorporated
We have audited the consolidated financial statements of Mechanical
Technology Incorporated and Subsidiaries listed in the accompanying index
in Item 8 of this Form 10-K. These financial statements are the
responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Mechanical Technology Incorporated and Subsidiaries as of September 30,
1996 and 1995, and the consolidated results of their operations and their
cash flows for each of the three years in the period ended September 30,
1996, in conformity with generally accepted accounting principles.
/s/ Coopers & Lybrand L.L.P.
Albany, New York
November 8, 1996, except as to
Note 17, for which the date is
December 31, 1996
F-2
<PAGE>
MECHANICAL TECHNOLOGY INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
September 30, 1996 and 1995
(Dollars in thousands)
1996 1995
ASSETS ---------- ----------
CURRENT ASSETS
Cash and cash equivalents $ 66 $ 78
Accounts receivable, less allowance of
$102 (1996) and $120 (1995) 7,389 6,793
Inventories 4,111 3,484
Escrow deposit - 750
Prepaid expenses and other current assets 190 461
---------- ----------
Total Current Assets 11,756 11,566
Property, Plant and Equipment, net 2,618 2,798
Other 78 119
---------- ----------
$ 14,452 $ 14,483
========== ==========
The accompanying notes are an integral part of the consolidated financial
statements.
F-3
<PAGE>
MECHANICAL TECHNOLOGY INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (Continued)
September 30, 1996 and 1995
(Dollars in thousands)
1996 1995
---------- ----------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Line-of-Credit $ - $ 1,446
Current installments on long-term debt 604 738
Income taxes payable 16 13
Accounts payable 1,979 2,290
Accrued liabilities 4,021 2,948
Net liabilities of discontinued operations - 2,756
---------- ----------
Total Current Liabilities 6,620 10,191
LONG-TERM LIABILITIES
Line-of-Credit 100 1,962
Note Payable 3,000 3,000
Long-term debt, net of current maturities 706 1,260
Accrued Interest - Note Payable 1,098 781
Deferred income taxes and other credits 764 779
---------- ----------
Total Liabilities 12,288 17,973
---------- ----------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY
Common stock, par value $1 per share,
authorized 15,000,000; issued 4,902,201
(1996) and 3,568,868 (1995) 4,902 3,569
Paid-in capital 13,423 12,856
Deficit (16,089) (19,837)
---------- ----------
2,236 (3,412)
Foreign currency translation adjustment (19) (20)
Common stock in treasury, at cost,
3,000 shares (1996) and 3,000 (1995) (29) (29)
Restricted stock grants (24) (29)
---------- ----------
Total Shareholders' Equity 2,164 (3,490)
---------- ----------
$ 14,452 $ 14,483
========== ==========
The accompanying notes are an integral part of the consolidated financial
statements.
F-4
<PAGE>
MECHANICAL TECHNOLOGY INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
For the Years Ended September 30, 1996, 1995 and 1994
(Dollars in thousands, except per share)
1996 1995 1994
------ ------ ------
Product revenue $22,966 $18,516 $30,347
Research & development revenue 8,935 11,232 9,887
------ ------ ------
Total revenue 31,901 29,748 40,234
Product cost of sales 13,955 12,616 19,033
Research & development contract costs 5,946 8,492 7,742
Selling, general and administrative
expenses 9,781 8,097 9,921
Product development and
research costs 1,263 1,425 3,270
Impairment loss on long-lived assets - 1,590 -
------ ------ ------
Operating income (loss) from
continuing operations 956 (2,472) 268
Interest expense (790) (1,081) (1,157)
Gain on sale of subsidiary, ProQuip 750 6,779 -
Gain on sale of building - - 1,856
Other (expense) income, net (343) (218) (249)
------ ------ ------
Income from continuing operations
before income taxes 573 3,008 718
Income tax expense 64 86 577
------ ------ ------
Income from continuing operations 509 2,922 141
Income (loss) from discontinued
operations 3,239 - (24,519)
------ ------ ------
Net income (loss) $ 3,748 $ 2,922 $(24,378)
====== ====== ======
Earnings (loss) per share:
Continuing operations $ .13 $ .82 $ .04
Discontinued operations .83 .00 (6.95)
------ ------ ------
Net income (loss) $ .96 $ .82 $ (6.91)
====== ====== ======
The accompanying notes are an integral part of the consolidated financial
statements.
F-5
<PAGE>
MECHANICAL TECHNOLOGY INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
For the Years Ended September 30, 1996, 1995 and 1994
(Dollars in thousands)
1996 1995 1994
-------- -------- --------
COMMON STOCK
Balance, October 1 $ 3,569 $ 3,546 $ 3,546
Issuance of shares 1,333 23 -
-------- -------- --------
Balance, September 30 $ 4,902 $ 3,569 $ 3,546
======== ======== ========
PAID-IN-CAPITAL
Balance, October 1 $ 12,856 $ 12,944 $ 13,049
Issuance of shares 567 - -
Restricted stock grants - (88) (105)
-------- -------- --------
Balance, September 30 $ 13,423 $ 12,856 $ 12,944
======== ======== ========
DEFICIT
Balance, October 1 $(19,837) $(22,759) $ 1,619
Net income (loss) 3,748 2,922 (24,378)
-------- -------- --------
Balance, September 30 $(16,089) $(19,837) $(22,759)
======== ======== ========
FOREIGN CURRENCY TRANSLATION ADJUSTMENT
Balance, October 1 $ (20) $ (31) $ (44)
Adjustments 1 11 13
-------- -------- --------
Balance, September 30 $ (19) $ (20) $ (31)
======== ======== ========
TREASURY STOCK
Balance, October 1 $ (29) $ (100) $ (201)
Restricted stock grants - 71 101
-------- -------- --------
Balance, September 30 $ (29) $ (29) $ (100)
======== ======== ========
RESTRICTED STOCK GRANTS
Balance, October 1 $ (29) $ (18) $ -
Grants issued/vested,net 5 (11) (18)
-------- -------- --------
Balance, September 30 $ (24) $ (29) $ (18)
======== ======== ========
SHAREHOLDERS' EQUITY
September 30 $ 2,164 $ (3,490) $ (6,418)
======== ======== ========
The accompanying notes are an integral part of the consolidated finan-
cial statements.
F-6
<PAGE>
MECHANICAL TECHNOLOGY INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For The Years Ended September 30, 1996, 1995 and 1994
(Dollars in thousands)
1996 1995 1994
OPERATING ACTIVITIES -------- -------- --------
Income from continuing operations $ 509 $ 2,922 $ 141
Adjustments to reconcile net income to net cash
provided (used) by continuing operations:
Depreciation and amortization 686 837 1,017
Impairment loss on long-lived assets - 1,590 -
Gain on sale of building - - (1,856)
Gain on sale of subsidiary (750) (6,779) -
Deferred income taxes and other credits (15) (1) 595
Foreign currency translation 1 11 12
Other 71 (5) 463
Changes in operating assets and liabilities net
of effects from discontinued operations:
Accounts receivable (578) 1,611 (824)
Inventories (627) (230) (50)
Escrow deposit 750 (750) -
Prepaid expenses and other current assets 271 (19) 299
Accounts payable (311) 355 499
Income taxes 3 394 (651)
Accrued liabilities (including interest) 1,390 (494) 2,351
------- ------- -------
Net cash provided (used) by continuing operations 1,400 (558) 1,996
Discontinued Operations: ------- ------- -------
Income (loss) from discontinued operations 3,239 - (24,519)
Adjustments to reconcile loss to net cash
provided(used) by discontinued operations:
Write-down of assets to net realizable value - - 15,415
Changes in net assets/liabilities
of discontinued operations (2,756) - 4,839
------- ------- -------
Net cash provided (used) by discontinued operations 483 - (4,265)
------- ------- -------
Net cash provided (used) by operations 1,883 (558) (2,269)
------- ------- -------
INVESTING ACTIVITIES
Purchases of property, plant & equipment (549) (667) (645)
Proceeds from sale of building - - 1,959
Proceeds from sale of subsidiary, net of
cash balance and expenses 750 9,125 -
------- ------- -------
Net cash provided in investing activities 201 8,458 1,314
------- ------- -------
FINANCING ACTIVITIES
Private placement of common stock, net expenses 1,900 - -
Net (payments) borrowings under line-of-credit (3,308) (592) 1,000
Borrowings under note payable agreement - - 3,000
Principal payments of long-term debt (688) (9,050) (1,900)
------- ------- -------
Net cash (used) provided in financing activities (2,096) (9,642) 2,100
------- ------- -------
(Decrease) increase in cash and cash equivalents (12) (1,742) 1,145
Cash and cash equivalents - beginning of year 78 1,820 675
------- ------- -------
Cash and cash equivalents - end of year $ 66 $ 78 $ 1,820
======= ======= =======
The accompanying notes are an integral part of the consolidated financial
statements.
F-7
<PAGE>
MECHANICAL TECHNOLOGY INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) Accounting Policies
-------------------
Principles of Consolidation
- ---------------------------
The consolidated financial statements include the accounts of the Company
and its subsidiaries. All significant intercompany transactions and
accounts have been eliminated.
Use of Estimates
- ----------------
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the
financial statements. Estimates also affect the reported amounts of
revenues and expenses during the reported period. Actual results could
differ from those estimates.
Financial Instruments
- ---------------------
The fair value of the Company's financial instruments including cash and
cash equivalents, line-of-credit, note payable and long-term debt,
approximates carrying value. Fair values were estimated based on quoted
market prices, where available, or on current rates offered to the
Company for debt with similar terms and maturities.
Inventories
- -----------
Inventories are stated at the lower of cost (first-in, first-out) or
market.
Depreciation and Amortization
- -----------------------------
Property, plant and equipment are stated at cost and depreciated using
primarily the straight-line method over their estimated useful lives
ranging from 3 to 40 years. When assets are sold, retired or otherwise
disposed of, the applicable cost and accumulated depreciation or
amortization are removed from the accounts and the resulting gain or loss
is recognized.
F-8
<PAGE>
MECHANICAL TECHNOLOGY INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) Accounting Policies (continued)
-------------------
Income Taxes
- ------------
The Company accounts for income taxes under Statement of Financial
Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes". Under
SFAS 109, deferred tax consequences represent the future effects on
income taxes, as measured by the applicable enacted tax rate and
provisions of the enacted tax law, resulting from temporary differences
and carryforwards, at the end of the current year.
Revenue Recognition
- -------------------
Sales of products are recognized when products are shipped to customers.
Sales of products under long-term contracts are recognized under the
percentage-of-completion method. Sales of contract research and
development services are also recognized on the percentage-of-completion
method. Percentage-of-completion is based on the ratio of incurred costs
to current estimated total costs at completion. Total contract losses
are charged to operations during the period such losses are estimated.
Foreign Currency Translation
- ----------------------------
Assets and liabilities of the foreign subsidiary are translated at year-
end rates of exchange, and revenues and expenses are translated at the
average rates of exchange for the year. Gains and losses resulting from
the translation of the foreign subsidiary's balance sheet are accumulated
as a separate component of shareholders' equity.
Statement of Cash Flows
- -----------------------
For purposes of reporting cash flows, cash and cash equivalents include
cash on hand and repurchase agreements with maturities of less than three
months.
Reclassification
- ----------------
Certain 1995 and 1994 amounts have been reclassified to conform with the
1996 presentation.
F-9
<PAGE>
MECHANICAL TECHNOLOGY INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(2) Long-Term Contracts Receivable
------------------------------
Included in accounts receivable are the following:
(Dollars in thousands) 1996 1995
-------- --------
U.S. Government:
Amounts billed and billable $ 1,485 $ 2,722
Retainage 357 396
-------- --------
1,842 3,118
-------- --------
Commercial Customers:
Amounts billed and billable 294 207
Retainage 269 223
-------- --------
563 430
-------- --------
$ 2,405 $ 3,548
======== ========
The balances billed but not paid by customers pursuant to retainage
provisions in contracts are due upon completion of the contracts and
acceptance by the customer. Based on the Company's experience, most
retainage amounts are expected to be collected within the ensuing
year.
In addition, the Company periodically incurs costs in excess of funded
contract limits. Such costs are incurred in the expectation of future
authorization by the contract sponsor. Management believes these
costs, classified as inventory, will become billable and collectible.
(3) Inventories
-----------
Inventories consist of the following:
(Dollars in thousands) 1996 1995
-------- --------
Finished goods $ 153 $ 249
Work in process 1,727 1,119
Raw materials, components
and assemblies 2,231 2,116
-------- --------
$ 4,111 $ 3,484
======== ========
F-10
<PAGE>
MECHANICAL TECHNOLOGY INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(4) Property, Plant and Equipment
-----------------------------
Property, plant and equipment consist of the following:
(Dollars in thousands) 1996 1995
-------- --------
Land and improvements $ 125 $ 125
Buildings and improvements 3,513 3,513
Leasehold improvements 752 694
Machinery and equipment 13,625 13,028
Office furniture and fixtures 1,483 1,755
-------- --------
19,498 19,115
Less accumulated depreciation 16,880 16,317
-------- --------
$ 2,618 $ 2,798
======== ========
Depreciation expense was $640,000, $646,000 and $813,000 for 1996,
1995 and 1994, respectively. Repairs and maintenance expense was
$502,000, $362,000 and $417,000 for 1996, 1995 and 1994, respectively.
(5) Income Taxes
------------
Deferred tax assets and liabilities are determined based on the temporary
differences between the financial statement and tax bases of assets and
liabilities as measured by the enacted tax rates.
Income tax expense (benefit) consists of the following:
(Dollars in thousands) 1996 1995 1994
------ ------ ------
Continuing operations
Federal $ 36 $ - $ 747
State 28 86 408
Deferred - - (578)
------ ------ ------
64 86 577
------ ------ ------
Discontinued operations
Federal - - (1,224)
State - - 28
Deferred - - 843
------ ------ ------
- - (353)
------ ------ ------
$ 64 $ 86 $ 224
====== ====== ======
F-11
<PAGE>
MECHANICAL TECHNOLOGY INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(5) Income Taxes (continued)
------------
The significant components of deferred income tax expense (benefit) for
the years ended September 30, 1996, 1995 and 1994 are as follows:
(Dollars in thousands) 1996 1995 1994
------ ------ ------
Continuing operations
Deferred tax (benefit) expense $ (259) $ 1,586 $ (578)
Net operating loss carryforward 573 - -
Valuation allowance (314) (1,586) -
------ ------ ------
- - (578)
------ ------ ------
Discontinued operations
Deferred tax (benefit) expense (103) 2,831 (3,851)
Net operating loss carryforward 1,090 (4,154) (1,134)
Valuation allowance (987) 1,323 5,828
------ ------ ------
- - 843
------ ------ ------
$ - $ - $ 265
====== ====== ======
The Company's effective income tax rate from continuing operations
differed from the Federal statutory rate as follows:
1996 1995 1994
------ ------ ------
Federal statutory tax rate 34% 34% 34%
State taxes, net of
federal tax effect 3% 2% 38%
Amortization of goodwill - 1% 1%
Meals and entertainment 5% - -
Impairment loss on long-lived
assets - 18% -
Additional tax gain on sale of
subsidiary 13% - -
Change in valuation allowances (55%) (53%) -
Alternative minimum tax 6% - -
Other, net 5% 1% 7%
------ ------ ------
11% 3% 80%
====== ====== ======
F-12
<PAGE>
MECHANICAL TECHNOLOGY INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(5) Income Taxes (continued)
------------
The deferred tax assets and liabilities as of September 30, 1996 and 1995
consist of the following tax effects relating to temporary differences
and carryforwards:
(Dollars in thousands) 1996 1995
-------- --------
Current deferred tax assets (liabilities):
Net deferral of income from
discontinued operations $ - $ (295)
Bad debt reserve 31 41
Inventory valuation 230 261
Inventory capitalization 161 70
Vacation pay 111 180
Warranty and other sale obligations 64 50
Other 37 178
-------- --------
634 485
Valuation allowance (634) (485)
-------- --------
Net current deferred tax assets $ - $ -
======== ========
Noncurrent deferred tax assets
(liabilities):
Net operating loss $ 3,625 $ 5,288
Property, plant and equipment (324) (408)
Other 329 200
-------- --------
3,630 5,080
Valuation allowance (3,630) (5,080)
Other credits (764) (779)
-------- --------
Noncurrent net deferred tax asset
(liabilities) and other credits $ (764) $ (779)
======== ========
The valuation allowance at year ended September 30, 1996 is $4,264,000,
and at September 30, 1995 was $5,565,000. During the year ended September
30, 1996, the valuation allowance decreased by $1,301,000.
At September 30, 1996, the company has unused Federal net operating loss
carryforwards of approximately $10,660,000. The Federal net operating
loss carryforwards if unused will begin to expire during the year ended
September 30, 2009. The use of these carryforwards may be limited on an
annual basis, pursuant to the Internal Revenue Code, due to certain
changes in ownership and equity transactions. For the year ended
September 30, 1996, the Company has available alternative minimum tax
credit carryforward of approximately $36,000.
During 1996, the Company made cash payments, net of cash refunds, for
income taxes of $61,000, for 1995 received net cash refunds for income
taxes of $266,000, and for 1994 made cash payments for income taxes of
$365,000.
F-13
<PAGE>
MECHANICAL TECHNOLOGY INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(6) Accrued Liabilities
-------------------
Accrued liabilities consist of the following:
(Dollars in thousands) 1996 1995
-------- --------
Salaries, wages and related expenses $ 1,230 $ 666
Deferred income - ProQuip sale - 750
Customer advances against contracts 696 -
Warranty and other sale obligations 460 223
Acquisition costs 371 373
Contingent liabilities 367 185
Commissions 331 269
Legal and professional fees 197 89
Interest expense 96 100
Other 273 293
-------- --------
$ 4,021 $ 2,948
======== ========
(7) Indebtedness
Indebtedness consists of the following:
(Dollars in thousands) 1996 1995
-------- --------
Line-of Credit $ 100 $ 3,408
Note Payable 3,000 3,000
Term Loan 1,310 1,998
-------- --------
4,410 8,406
Less current portion 604 2,184
-------- --------
$ 3,806 $ 6,222
======== ========
The loan agreement covering the Term Loan was amended in November 1995
and now provides for principal payments as follows: $604,000, fiscal year
1997; $654,000, fiscal year 1998; and the balance of $52,000 is payable
on October 31, 1998. The Term Loan is collateralized by accounts receiv-
able, inventories, real estate, machinery and equipment. The interest on
the debt is payable monthly at the rate of prime plus 1-1/2% (9.75% at
September 30, 1996).
The Company borrowed $3,000,000 from a finance company in December 1993
and the Note Payable agreement for this loan was modified in December
1994. On December 27, 1995, the lender agreed to extend the due date to
December 31, 1996. Interest is presently accruing at the rate of $1,250
per day (15.2% per annum). Since the modification in December 1994, one-
third of the interest accrued was paid through August 1996, and as of
September 30, 1996 and 1995 accrued but unpaid interest was $1,098,000
and $781,000, respectively.(See Notes 12 and 17)
F-14
<PAGE>
MECHANICAL TECHNOLOGY INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(7) Indebtedness (continued)
------------
The Company's Term Loan and Line of Credit agreements with its other
lenders prohibit the Company from paying the principal balance of the
Note Payable so long as the Company's indebtedness to its other lenders
remains outstanding.
The Company has a Line of Credit available in the amount of $4,000,000
with interest payable monthly at a rate of prime plus .625% (8.875% at
September 30, 1996). As of September 30, 1996, the Company had standby
letters of credit outstanding of $73,500 against the Line of Credit. In
October 1995 the maturity date of the Line of Credit was extended and it
expires on October 31, 1998. The Line of Credit is collateralized by a
guarantee from a former shareholder.
The weighted average interest rate for the Note Payable and Line of
Credit was 13.2%, 13.2%, and 12.9% during 1996, 1995, and 1994,
respectively.
Cash payments for interest were $477,000, $695,000 and $1,109,000 for
1996, 1995 and 1994, respectively.
(8) Shareholders' Equity
--------------------
The Company had a Restricted Stock Incentive Plan, which awarded
restricted Common Stock of the Company to officers and other key
employees. The Plan expired on December 31, 1994 and no further awards
may be granted. In fiscal year 1995, 32,500 shares were granted,
amounting to $14,375 based on the market value of the stock at the date
of grant. For accounting purposes, the value of the grants represents
compensation, which has been deferred and is being amortized over the 5-
year and 10-year vesting periods. The shares granted during 1995 are
recorded as a component of Shareholders' Equity. The value of the grants,
net of accumulated amortization and write-offs, was $24,000 at September
30, 1996 and $29,000 at September 30, 1995.
On October 17, 1996, the Board of Directors adopted a new stock incentive
plan. The plan provides that the initial aggregate number of 500,000
shares of Common Stock may be awarded or issued. Under the plan, the
Board of Directors is authorized to award stock options, stock
appreciation rights, restricted stock, and other stock-based incentives
to officers, employees and others. The plan was approved by shareholders
on December 20, 1996; prior to shareholder approval, no awards had been
made.
The Company's term loan obligations prohibit the payment of dividends.
F-15
<PAGE>
MECHANICAL TECHNOLOGY INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(9) Earnings (Loss) Per Share
-------------------------
Earnings (loss) per share is computed on the basis of the weighted
average number of shares outstanding plus the common stock equivalents
which would arise from the exercise of stock options, unless such common
stock equivalents would be anti-dilutive. Weighted average outstanding
shares are: 1996, 3,911,952; 1995, 3,559,789; and 1994, 3,529,881.
(10) Pension Plans
-------------
The Company maintains a savings and retirement plan (Internal Revenue
Code Section 401(k) Plan) covering substantially all employees. The
Company plan allows eligible employees to contribute a percentage of
their compensation; the Company makes additional contributions in amounts
as determined by management and the Board of Directors. The expense for
the plan was $345,000, $346,000 and $420,000 for 1996, 1995 and 1994,
respectively.
(11) Commitments and Contingencies
-----------------------------
During 1994, a legal action against the Company related to compensation
matters was commenced by a former company officer/director. Management is
vigorously defending the action and believes the likelihood of a loss in
the action is not probable. The final outcome of this action is not
presently determinable and, therefore, no provision for any liability
that may result has been recorded in the Company's financial statements.
In February 1995, Ling Electronics Inc. ("Ling"), a wholly owned
subsidiary of the Company, made a voluntary disclosure to the United
States Department of Commerce regarding unlicensed exports of certain
products shipped in the first four months of fiscal 1995. Ling has fully
cooperated with the Office of Export Enforcement, which has not taken any
action to date. Possible administrative sanctions include: no action; a
warning letter; denial of export privileges; and/or imposition of civil
penalties. Foreign sales represent a significant portion of Ling's total
revenue. The final outcome of this matter is not presently determinable
and, therefore no provision for any liability that may result has been
recorded in the Company's financial statements.
In May 1996, Lawrence Group, Inc. filed a legal action against the
Company and First Albany Companies, Inc. ("FAC") challenging certain
actions taken by the Board of Directors in connection with its approval
under Section 912 of the New York Business Corporation Law of the
transfer of 909,091 shares of the Company's Common Stock to FAC.
F-16
<PAGE>
MECHANICAL TECHNOLOGY INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(11) Commitments and Contingencies (continued)
-----------------------------
Management is vigorously defending the action and believes the likelihood
of a loss in the action is not probable. The final outcome of this
action is not presently determinable and, therefore, no provision has
been recorded in the Company's financial statements for any expense or
liability that may result(See Note 12).
Future minimum rental payments required under noncancelable operating
leases are $517,000, 1997; $506,000, 1998; $486,000, 1999; $446,000,
2000; and $ 462,000, 2001. Rent expense under all leases was $542,000,
$564,000 and $672,000 for 1996, 1995 and 1994, respectively.
(12) Related Party Transactions
--------------------------
At September 30, 1996 FAC owned approximately 21.1% of the Company's
Common Stock. (See Note 17)
During fiscal 1996, First Albany Corporation, a wholly-owned subsidiary
of FAC, acted as placement agent in connection with a private placement
of 1.3 million shares of the Company's Common Stock, pursuant to which
the Company raised approximately $1.9 million of additional capital (net
of expenses), for which First Albany Corporation was paid a $40,000 fee.
During 1996, 1995 and 1994, the Company made several rental payments for
laboratory space to an officer/director of the Lawrence Insurance Group
Inc. ("LIG") and purchased various insurance coverage from LIG or
companies owned directly or indirectly by LIG totaling $453,000,
$493,000, and $444,000, respectively. Several subsidiaries of LIG
collectively own approximately 16.8% of the Company's Common Stock.
(13) Discontinued Operations
-----------------------
The Company's United Telecontrol Electronics, Inc. ("UTE") subsidiary,
the sole component of the Defense/Aerospace segment, filed for voluntary
bankruptcy under Chapter 11 of the Federal Bankruptcy Code in April 1994.
During October 1994, UTE commenced an orderly liquidation and final court
approval occurred during the third quarter of fiscal 1996. Accordingly,
the Company no longer includes Defense/Aerospace amongst its reportable
business segments, and since 1994 UTE has been reported as a discontinued
operation, and accordingly the consolidated financial statements have
been reclassified to report separately the net liabilities and operating
results of the business.
The Company recorded the effect of the final liquidation of UTE during
fiscal year 1996. Final adjustments to the Company's financial statements
F-17
<PAGE>
MECHANICAL TECHNOLOGY INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(13) Discontinued Operations (continued)
-----------------------
as a result of the UTE bankruptcy are reflected in income from
discontinued operations.
Discontinued operations consist of the following:
(Dollars in thousands) 1996 1995 1994
-------- -------- --------
Sales $ 0 $ 0 $ 2,299
======== ======== ========
Income (loss) from discontinued
operations before income tax $ 3,239 $ 0 $(24,872)
Income tax benefit 0 0 (353)
-------- -------- --------
Net income (loss) from discontinued
operations $ 3,239 $ 0 $(24,519)
======== ======== ========
The assets and liabilities of the Company's discontinued operations at
September 30, 1996 and 1995 are as follows:
(Dollars in thousands) 1996 1995
-------- --------
Assets:
Cash $ 0 $ 162
Assets held for sale 0 1,658
-------- --------
Total Assets $ 0 $ 1,820
-------- --------
Liabilities:
Post-petition liabilities $ 0 $ 166
Pre-petition liabilities 0 4,410
-------- --------
Total Liabilities $ 0 $ 4,576
-------- --------
Net Liabilities $ 0 $ 2,756
======== ========
(14) Sale of Subsidiary - ProQuip, Inc.
----------------------------------
On November 22, 1994, the Company sold all of the outstanding capital
stock of its ProQuip Inc. subsidiary to Phase Metrics of San Diego, CA.
F-18
<PAGE>
MECHANICAL TECHNOLOGY INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(14) Sale of Subsidiary - ProQuip, Inc. (continued)
----------------------------------
The Company received $13,250,000 in cash from Phase Metrics and ProQuip
forgave a $316,000 intercompany debt due from the Company. The net
proceeds from the sale were used to reduce term debt by $8,000,000 and to
increase working capital by $3,776,000.
The sale resulted in a $6,779,000 gain, which was recorded during the
first quarter of fiscal year 1995. In addition, $750,000 of the net
proceeds was escrowed to provide a fund for any indemnity payments that
the Company may be obligated to pay Phase Metrics. As of February 22,
1996 (the escrow expiration date), no claim had been filed, nor was the
company aware of any circumstances which might give rise to future
claims. Accordingly, the Company recognized the remaining $750 thousand
gain from the sale during the second quarter of fiscal 1996.
ProQuip, a component of the Test & Measurements segment, is included in
the Company's financial statements through November 22, 1994, the date of
its sale, as follows:
(Dollars in thousands) 1995 1994
-------- --------
Sales $ 2,584 $ 15,231
======== ========
Income from continuing operations
before income tax $ 730 $ 4,019
Income tax expense 293 1,564
-------- --------
Net Income $ 437 $ 2,455
======== ========
The following unaudited condensed pro forma income statement from
continuing operations for the year ended September 30, 1995 and 1994
reflects the effects of the sale of ProQuip, assuming the sale had
occurred October 1, 1994. The pro forma adjusted results include a
reduction of interest on term debt, assuming a payment of $8,000,000 was
made; a reduction of interest on the line of credit, assuming the excess
net proceeds after the term debt pay down are used to reduce or pay down
any outstanding line of credit balance; and interest income earned on
excess cash after the pay down of the term debt and line of credit.
F-19
<PAGE>
MECHANICAL TECHNOLOGY INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(14) Sale of Subsidiary - ProQuip, Inc. (continued)
(Dollars in thousands) 1995 1994
Pro Forma Pro Forma
--------- ---------
Sales $ 27,164 $ 25,003
========= =========
Operating loss $ (3,194) $ (3,801)
--------- ---------
Interest expense 914 290
Other (expense) income, net (226) 1,670
--------- ---------
Income (loss) from continuing
operations before income tax (4,334) (2,421)
Income tax (benefit) expense (142) (645)
--------- ---------
Income (loss) from continuing
operations $ (4,192) $ (1,776)
========= =========
(15) Impairment Loss on Long-Lived Assets
------------------------------------
During 1995, the Company elected to adopt the provisions of Statement of
Financial Accounting Standards No. 121 "Accounting for the Impairment of
Long-Lived Assets to be Disposed Of". Accordingly, the realizability of
goodwill associated with the Company's investment in Ling Electronics,
Inc. (Ling), a wholly owned subsidiary, was analyzed for impairment due
to its history of operating and cash flow losses. The Company determined
that the goodwill would not likely be recoverable based on the estimated
future cash flows at Ling. As a result, a $1,590,000 impairment loss was
recognized to reduce the carrying value of the Company's investment in
Ling.
(16) Information on Business Segments
--------------------------------
The Company's operations comprise two business segments.
Technology - provides contract research and development, design and
prototype manufacturing services in mechanical engineering, machinery
dynamics and diagnostics, tribology, electrical engineering,
measurement science, and energy technology.
Test and Measurement - develops and manufactures high-accuracy
inspection systems, shock and vibration testing systems, and
electronic instruments using noncontact measurement techniques.
The information below includes the results of ProQuip, Inc. which
was sold in November 1994 (See Note 14).
F-20
<PAGE>
MECHANICAL TECHNOLOGY INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(16) Information on Business Segments (continued)
--------------------------------
A summary of financial data for these business segments at September 30,
1996, 1995, 1994, and for the fiscal years then ended follows:
(Dollars in thousands)
SALES
---------------------------------------
1996 1995 1994
-------- -------- --------
Technology $ 9,146 $ 11,608 $ 10,513
Test and Measurement 22,755 18,140 29,721
-------- -------- --------
$ 31,901 $ 29,748 $ 40,234
======== ======== ========
OPERATING INCOME (LOSS)
---------------------------------------
1996 1995 1994
-------- -------- --------
Technology $ (434) $ (463) $ (1,903)
Test and Measurement 1,390 (2,009) 2,171
-------- -------- --------
$ 956 $ (2,472) $ 268
======== ======== ========
DEPRECIATION
---------------------------------------
1996 1995 1994
-------- -------- --------
Technology $ 446 $ 440 $ 510
Test and Measurement 190 203 298
Corporate 4 3 5
-------- -------- --------
$ 640 $ 646 $ 813
======== ======== ========
ASSETS EMPLOYED
---------------------------------------
1996 1995 1994
-------- -------- --------
Technology $ 4,527 $ 5,753 $ 6,120
Test and Measurement 9,577 7,492 18,167
Corporate 348 1,238 1,030
-------- -------- --------
$ 14,452 $ 14,483 $ 25,317
======== ======== ========
CAPITAL EXPENDITURES
---------------------------------------
1996 1995 1994
-------- -------- --------
Technology $ 285 $ 227 $ 219
Test and Measurement 258 437 426
Corporate 6 3 0
-------- -------- --------
$ 549 $ 667 $ 645
======== ======== ========
F-21
<PAGE>
MECHANICAL TECHNOLOGY INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(16) Information on Business Segments (continued)
--------------------------------
The U.S. Government is the largest customer of the Technology segment
and accounted for 21%, 30% and 17% of consolidated revenues in 1996,
1995 and 1994, respectively. The largest single government agency
customer of the Technology segment accounted for 14%, 23% and 12% of the
Company's consolidated revenues in 1996, 1995 and 1994, respectively.
The largest customer of the Test & Measurement segment accounted for 2%,
7%, and 13% of consolidated revenues in 1996, 1995, and 1994, respec-
tively.
The Technology segment continues to be dependent on government-funded
R&D contracts for the bulk of its business. However, fiscal constraints
at all levels of government have reduced the level of funding available
for these programs, and securing additional such contracts has become
more difficult and competitive; no improvement in this situation is
anticipated in the foreseeable future. For the second year in a row ,
the Technology segment has a historically low level of backlog, and any
improvement in the segment's results in fiscal 1997 will depend on
success in procuring and fulfilling orders within the fiscal year. The
future growth and profitability of the segment will depend on its
success in identifying and exploiting new markets for its products and
services.
(17) Subsequent Event
----------------
During fiscal 1996, First Albany Companies, Inc. ("FAC") purchased
909,091 shares of the Company's Common Stock from the New York State
Superintendent of Insurance as the court-ordered liquidator of United
Community Insurance Company ("UCIC"). In connection with this purchase,
FAC also acquired certain rights to an obligation ("Term Loan") due from
the same finance company ("FCCC") to whom the Company is obligated under
the Note Payable, due December 31, 1996 (See Notes 7 and 12).
FCCC is in default of its Term Loan to UCIC. FAC, as the owner of the
rights to the Term Loan, filed suit seeking payment. Collateral for the
FCCC Term Loan includes the Company's Note Payable to FCCC. FAC has
exercised its rights to the collateral securing the Term Loan, including
the right to obtain payment on the Note Payable directly from the
Company. The Company and FAC have entered into an agreement dated as of
December 27, 1996 under which the Company will issue to FAC 1.0 million
shares of Common Stock in full satisfaction of the Note Payable.
F-22
<PAGE>
MECHANICAL TECHNOLOGY INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(17) Subsequent Event (continued)
----------------
Accordingly, the Note payable of $3.0 million and accrued interest of
$1.1 million have been reclassified as long term in the accompanying
balance sheet. If the transaction described herein had been consummated
on September 30, 1996, Shareholders' Equity would be as follows:
September 30, 1996
------------------
As Reported Pro Forma
----------- -----------
(Dollars in thousands)
SHAREHOLDERS' EQUITY
Common stock, par value $1 per share,
authorized 15,000,000; issued 4,902,201
(Actual) and 5,902,201 (Pro Forma) $ 4,902 $ 5,902
Paid-in capital 13,423 16,421
Deficit (16,089) (16,089)
----------- -----------
2,236 6,234
Foreign currency translation adjustment (19) (19)
Common stock in treasury, at cost,
3,000 shares (29) (29)
Restricted stock grants (24) (24)
----------- -----------
Total Shareholders' Equity $ 2,164 $ 6,162
=========== ===========
If FCCC were to seek collection of the Note Payable plus accrued
interest from the Company, the Company, based on the opinion of counsel,
believes that the outcome of any such action pursued by FCCC against the
Company would not have a material adverse impact on the Company's
financial position or results of operation.
F-23
<PAGE>
Exhibit 3.2
BY-LAWS
OF
MECHANICAL TECHNOLOGY INCORPORATED
As amended thru 6/96
<PAGE>
BY-LAWS
OF
MECHANICAL TECHNOLOGY INCORPORATED
1. The principal office of the corporation shall be in the
City of Latham, County of Albany, State of New York.
2. The corporation may also have offices at such other
places as the Board of Directors may from time to time determine or
the business of the corporation may require.
MEETINGS OF STOCKHOLDERS
3. All meetings of the stockholders shall be held at the
principal office of the corporation or at such place within the
State of New York as the Board of Directors shall authorize.
4. The annual meeting of the stockholders shall be held on
such business day in each year, at such time and place as the Board
of Directors by resolution may fix. At the annual meeting the
stockholders shall elect a Board of Directors and transact such
other business as may properly come before the meeting.
5. Written notice of every meeting of stockholders, stating
the purpose or purposes for which the meeting is called, the time
when and the place within the State of New York where it is to be
held, shall be served, either personally or by mail, upon each
stockholder entitled to vote at such meeting and upon each
stockholder of record who, by reason of any action proposed at such
meeting, would be entitled to have his stock appraised if such
action were taken, not less than ten nor more than forty days
before the meeting. If mailed, such notice shall be directed to a
stockholder at his address as it shall appear on the books of the
corporation unless he shall have filed with the Secretary of the
corporation a written request that notices intended for him be
<PAGE>
mailed to some other address, in which case it shall be mailed to
the address designated in such request. Notice of all meetings may
be waived by any stockholder by written waiver or by personal
attendance thereat.
6. Special meetings of the stockholders for any purpose or
purposes, unless otherwise prescribed by statute or by the
certificate of incorporation, may be called by resolution of the
Board of Directors or by the President, and shall be called by the
President or Secretary at the request in writing of a majority of
the Board of Directors or at the request in writing by stockholders
owning a majority in amount of the capital stock of the corporation
issued and outstanding. Such request shall state the purpose or
purposes of the proposed meeting. The president may, in his
discretion, call a special meeting of stockholders upon ten days'
notice.
7. Business transacted at all special meetings shall be
confined to the purposes stated in the notice of meeting.
8. The holders of a majority of the stock issued and
outstanding and entitled to vote thereat, present in person or
represented by proxy, shall be requisite and shall constitute a
quorum at all meetings of the stockholders for the transaction of
business except as otherwise provided by statute or by the
certificate of incorporation or by these by-laws.
9. If a quorum shall not be present or represented, the
stockholders entitled to vote thereat, present in person or
represented by proxy, shall have power to adjourn the meeting from
time to time, without notice other than announcement at the
meeting, until a quorum shall be presented or represented. At such
adjourned meeting at which a quorum shall be present or
represented, any business may be transacted which might have been
transacted at the meeting as originally notified.
<PAGE>
10. When a quorum is present or represented at any meeting,
the vote of the holders of a majority of the stock having voting
power present in person or represented by proxy shall decide any
question brought before such meeting, unless the question is one
upon which by express provision of the statutes or of the
certificate of incorporation or of these by-laws, a different vote
is required, in which case such express provision shall govern and
control the decision of such question.
11. Each stockholder of record having the right to vote
shall be entitled at every meeting of the stockholders of the
corporation to one vote for each share of stock having voting power
standing in the name of such stockholder on the books of the
corporation, and such votes maybe cast either in person or by
written proxy.
12. Every proxy must be executed in writing by the
stockholder or by his duly authorized attorney. No proxy shall be
valid after the expiration of eleven months from the date of its
execution unless it shall have specified therein its duration.
Every proxy shall be revocable at the pleasure of the person
executing it or of his personal representatives or assigns.
DIRECTORS
13. The Board of Directors shall consist of not less than
five (5) nor more than fifteen (15) Directors as determined by the
Board from time to time, who need not be stockholders of the
Corporation, all of whom shall be of full age and at least one of
whom shall be a citizen of the United States and a resident of the
State of New York. They shall be elected at the annual meeting of
the stockholders and each Director shall serve for one year and
until his successor shall be elected and shall qualify.
<PAGE>
14. If the office of any Director or Directors becomes
vacant for any reason, the Directors in office may choose a
successor or successors who shall hold office for the unexpired
term in respect to which such vacancy occurred or until the next
election of Directors, or any vacancy may be filled by the
stockholders at any meeting thereof. Any Director may be removed
either with or without cause, at any time, by vote of the
stockholders at any meeting called for the purpose.
15. The business of this corporation shall be managed by its
Board of Directors which may exercise all such powers of the
corporation and do all such lawful acts and things as are not by
statute or by the certificate of incorporation or by these by-laws
required to be exercised or done by the stockholders.
MEETINGS OF THE BOARD
16. The Directors may hold their meetings at the office of
the corporation, or at such other places, either within or without
the State of New York, as they may from time to time determine.
17. Regular meetings of the Board may be held without notice
at such time and place as shall from time to time by determined by
resolution of the Board.
18. Special meetings of the Board may be called by the
President on five days' notice to each Director either personally
or by mail or by wire; special meetings shall be called by the
President or Secretary in a like manner on the written request of
two Directors. Notice of meeting may be waived by any Director by
written waiver or by personal attendance thereat.
19. At any meeting at which every member of the Board of
Directors shall be present, though held without notice, any
business may be transacted which might have been transacted if the
meeting had been duly called.
<PAGE>
20. At all meetings of the Board the presence of a majority
of the entire number of Directors shall be necessary to constitute
a quorum and sufficient for the transaction of business.
21. Any act of a majority present at a meeting, at which
there is a quorum, shall be the act of the Board of Directors,
except as may be otherwise specifically provided by statute or by
the certificate of incorporation or by these by-laws.
22. If a quorum shall not be present at any meeting of
Directors, the Directors present thereat may adjourn the meeting
from time to time, without notice other than announcement at the
meeting, until a quorum shall be present.
22.A. Any one or more members of the Board or any Committee
thereof may participate in a meeting of such Board or Committee by
means of a conference telephone or similar communications equipment
allowing all persons participating in the meeting to hear each
other at the same time. Participation by such means shall
constitute presence in person at such meeting.
WAIVER OF NOTICE
23. Whenever by statute the provisions of the certificate of
incorporation or these by-laws, the stockholders or the Board of
Directors are authorized to take any action after notice, such
notice may be waived, in writing, before or after the holding of
the meeting, by the person or persons entitled to such notice, or,
in the case of a stockholder, by his attorney thereunto authorized.
OFFICERS
24. The officers of the corporation shall be a President, a
Vice-President, a Secretary and a Treasurer. Any officer may hold
more than one office.
<PAGE>
25.A. The Directors shall elect from amongst their members a
Chairman who shall preside at all meetings of the stockholders and
Directors. The Chairman shall serve for one year or until a
successor shall have been elected and qualified.
25.B. The Directors shall elect from amongst their members a
President who shall serve until a successor has been elected and
qualified.
25.C. The Directors shall elect from amongst their members a
Chief Operating Officer and Chief Executive Officer to serve until
a successor shall have been elected and qualified. These positions
may be held by one or more person at the discretion of the
Directors.
25.D. The Directors shall choose a vice-president, a secretary
and a treasurer who need not be members of the board.
26. The Board may appoint such other officers, agents and
employees as it shall deem necessary who shall have such authority
and shall perform such duties as from time to time shall be
prescribed by the Board.
27. The salaries of all officers of the corporation shall be
fixed by the Board of Directors.
28. The officers of the corporation shall hold office for
one year and until their successors are chosen and qualify in their
stead. Any officer elected or appointed by the Board of Directors
may be removed at any time by the affirmative vote of a majority of
the Directors. If the office of any officer becomes vacant for any
reason, the vacancy shall be filled by the Board of Directors.
<PAGE>
THE PRESIDENT
29. The President shall be the executive officer of the
corporation; he shall have the management of the business of the
corporation and shall see that all orders and resolutions of the
Board are carried into effect.
VICE-PRESIDENT
30. The Vice-President in the absence or disability of the
President shall perform the duties and exercise the powers of the
President and shall perform such other duties as the Board of
Directors shall prescribe.
THE SECRETARY
31. The Secretary shall attend all sessions of the Board and
all meetings of the stockholders and record all votes and the
minutes of all proceedings in a book to be kept for that purpose.
He shall give or cause to be given notice of all meetings of
stockholders and special meetings of the Board of Directors and
shall perform such other duties as may be prescribed by the Board
of Directors. He shall keep in safe custody the seal of the
Corporation and affix it to any instrument when authorized by the
Board of Directors.
THE TREASURER
32. The Treasurer shall have the custody of the corporate
funds and securities and shall keep full and accurate accounts of
receipts and disbursements in books belonging to the corporation
and shall deposit all moneys and other valuable effects in the name
and to the credit of the corporation in such depositories as may be
designated by the Board of Directors. He shall disburse the funds
of the corporation as may be ordered by the Board, taking proper
vouchers for such disbursements, and shall render to the President
and Directors at the regular meetings of the Board, or whenever
they may require it, an account of all his transactions as
Treasurer and of the financial condition of the corporation.
<PAGE>
33. He shall, if required by the Board, give the corporation
a bond in such sum or sums and with such surety or sureties as
shall be satisfactory to the Board, conditioned upon the faithful
performance of his duties and for the restoration to the
corporation in case of his death, resignation, retirement or
removal from office of all books, papers, vouchers, money and other
property of whatever kind in his possession, or under his control
belonging to the corporation.
CERTIFICATES OF STOCK
34. The certificates of stock of the corporation shall be
numbered and entered in the books of the corporation as they are
issued. They shall exhibit the holder's name or identity and the
number of shares and shall be signed by the Chairman or President
and the Secretary or Treasurer and shall bear the corporate seal.
LOST CERTIFICATES
35. The Board of Directors may direct a new certificate or
certificates to be issued in place of any certificate or
certificates theretofore issued by the corporation, alleged to have
been lost or destroyed, upon the making of an affidavit of that
fact by the person claiming the certificate of stock to be lost or
destroyed. When authorizing such issue of a new certificate or
certificates, the Board of Directors may, in its discretion and as
a condition precedent to the issuance thereof, require the owner of
such lost or destroyed certificate or certificates, or his legal
representative, to advertise the same in such manner as it shall
require and/or give the corporation a bond in such sum and with
such surety or sureties as it may direct as indemnity against any
claim that may be made against the corporation with respect to the
certificate alleged to have been lost or destroyed.
<PAGE>
TRANSFERS OF STOCK
36. Upon surrender to the corporation or the transfer agent
of the corporation of a certificate of stock duly endorsed or
accompanied by proper evidence of succession, assignment or
authority to transfer, it shall be the duty of the corporation to
issue a new certificate to the person entitled thereto, and cancel
the old certificate; every such transfer of stock shall be entered
on the stock book of the corporation which shall be kept at its
principal office. No transfer of stock shall be made within ten
days next preceding the annual meeting of stockholders.
37. The corporation shall be entitled to treat the holder of
record of any share or shares of stock as the holder in fact
thereof and, accordingly, shall not be bound to recognize any
equitable or other claim to or interest in such share on the part
of any other person whether or not it shall have express or other
notice thereof, except as expressly provided by the laws of New
York.
DIVIDENDS
38. Dividends upon the capital stock of the corporation
subject to any provisions of the certificate of incorporation
relating thereto may be declared by the Board of Directors at any
regular or special meeting, pursuant to law.
39. Before payment of any dividend, there may be set aside
out of the net profits of the corporation available for dividends
such sum or sums as the Directors from time to time in their
absolute discretion think proper as a reserve fund to meet
contingencies, or for equalizing dividends, or for repairing or
maintaining any property of the corporation, or for such other
purpose as the Directors shall think conducive to the interests of
the corporation, and the Directors may modify or abolish any such
reserve in the manner in which it was created.
<PAGE>
SEAL
40. The seal of the corporation shall be as follows: the
name of the corporation, the year of its organization and the words
"Corporate Seal, New York." The seal may be used by causing it to
be impressed directly on the instrument or writing to be sealed, or
upon adhesive substance affixed thereto. The seal on any corporate
obligation for the payment of money may be a facsimile, engraved or
printed.
CHECKS
41. All checks or demands for money and notes of the
corporation shall be signed by such officer or officers or such
other person or persons as the Board of Directors may from time to
time designate.
FISCAL YEAR
42. The fiscal year shall begin the first day of October in
each year.
AMENDMENTS
43. These by-laws may be amended, altered or added to by the
vote of the Board of Directors of this corporation at any regular
meeting of said Board, or at a special meeting of Directors called
for that purpose provided a quorum of the Directors as provided by
law and by the Certificate of Incorporation, are present at such
regular or special meeting. These by-laws, and any amendments
thereto and new by-laws added by the Directors may be amended,
altered or replaced by the stockholders at any annual or special
meeting of the stockholders.
INDEMNIFICATION OF OFFICERS AND DIRECTORS
44.A. Right to Indemnification. Each person who was or is
made a party or is threatened to be made a party to or is involved
in any action, suit or proceeding, whether civil, criminal,
administrative or investigative ("proceeding"), by reason of the
fact that he or she, or a person of whom he or she is the legal
representative, is or was a director or officer of the Corporation
or is or was serving at the request of the Corporation as a
<PAGE>
director, officer, employee or agent of another corporation or of a
partnership, joint venture, trust or other enterprise, including
service with respect to employee benefit plans, whether the basis
of such proceeding is alleged action in an official capacity as a
director, officer, employee or agent or in any other capacity while
serving as a director, officer, employee or agent, shall be
indemnified and held harmless by the Corporation to the fullest
extent authorized by the New York Business Corporation Law ("Law"),
as the same exists or may hereafter be amended (but, in the case of
any such amendment, only to the extent that such amendment permits
the Corporation to provide broader indemnification rights than said
Law permitted the Corporation to provide prior to such amendment)
against all expenses, liability and loss (including attorney's
fees, judgments, fines, ERISA excise taxes or penalties, and
amounts paid or to be paid in settlement) reasonably incurred or
suffered by such person in connection therewith; provided,
however, that the Corporation shall indemnify any such person
seeking indemnity in connection with an action, suit or proceeding
(or part thereof) initiated by such person only if such action,
suit or proceeding was authorized by the Board of Directors of the
Corporation. Such right shall be a contract right and shall
include the right to be paid by the Corporation expenses incurred
in defending any such proceeding in advance of its final
disposition; provided, however, that the payment of such expenses
incurred by a director or officer in his or her capacity as a
director or officer (and not in any other capacity in which service
was or is rendered by such person while a director or officer,
including, without limitation, service to an employee benefit plan)
in advance of the final disposition of such proceeding shall be
made only upon delivery to the Corporation of an undertaking, by or
on behalf of such director or officer, to repay all amounts so
advanced if it should be determined ultimately that such director
or officer is not entitled to be indemnified under this Section or
otherwise.
<PAGE>
44.B. Right of Claimant to Bring Suit. If a claim under
Section A of this By-Law 44 is not paid in full by the Corporation
within ninety days after a written claim has been received by the
Corporation, the claimant may at any time thereafter bring suit
against the Corporation to recover the unpaid amount of the claim
and, if successful in whole or in part, the claimant shall be
entitled to be paid also the expense of prosecuting such claim. It
shall be a defense to any such action (other than an action brought
to enforce a claim for expenses incurred in defending any
proceeding in advance of its final disposition where the required
undertaking has been tendered to the Corporation) that the claimant
has not met the standards of conduct which make it permissible
under the New York Business Corporation Law for the Corporation to
indemnify the claimant for the amount claimed, but the burden of
proving such defense shall be on the Corporation. Neither the
failure of the Corporation (including its Board of Directors,
independent legal counsel, or its shareholders) to have made a
determination prior to the commencement of such action that
indemnification of the claimant is proper in the circumstances
because he or she has met the applicable standard of conduct set
forth in the New York Business Corporation Law, nor an actual
determination by the Corporation (including its Board of Directors,
independent legal counsel, or its shareholders) that the claimant
had not met such applicable standard of conduct, shall be a defense
to the action or create a presumption that the claimant had not met
the applicable standard of conduct.
44.C. Non-Exclusivity of Rights. The rights conferred on any
person by Sections A and B of this By-Law 44 shall not be exclusive
of any other rights which such person may have or hereafter acquire
under any statute, provision of the Certificate of Incorporation,
by-law, agreement, vote of shareholders or disinterested directors
or otherwise.
<PAGE>
44.D Insurance. The Corporation may maintain insurance, at
its expense, to protect itself or any such director, officer,
employee or agent of the Corporation or another corporation,
partnership, joint venture, trust or other enterprise, or both,
against any such expense, liability or loss, whether or not the
Corporation would have the power to indemnify such person against
such expense, liability or loss under the New York Business
Corporation Law.
BOARD COMMITTEES
45. The Board by resolution adopted by a majority of the
entire Board may designate from among its members an Executive
Committee and other committees each consisting of three or more
Directors, and each such committee to serve at the pleasure of the
Board.
<PAGE>
Exhibit 10.15
MECHANICAL TECHNOLOGY INC.
December 6, 1996
Mr. Martin J. Mastroianni
29 South Forty Pier
Waldo Pt. Harbor
Sausalito, CA 94965
Dear Marty:
I have enjoyed meeting with you over the last few weeks in New York and
Albany to discuss the future of MTI. We believe that the future holds
significant opportunities for the growth of MTI, and that you will be a vital
part of its success. Accordingly, on behalf of the Board of Directors, I am
pleased to offer you the position of President and Chief Operating Officer.
You will be responsible for the operations and performance of all operating
businesses of MTI. You will report directly to the Board of Directors.
We have agreed to employ you for a period of not less than three years,
beginning December 9, 1996, at a base annual salary of $150,000.
The Board of Directors has agreed that you be granted the option to
purchase 30,000 shares of MTI. Such options will vest at the rate 20% per year
from the date of the grant. The Board of Directors has also agreed that you be
granted the following additional options to purchase shares of MTI subject to
exceeding the following profit targets as of the end of the 1997 fiscal year:
25,000 shares if profits exceed 3% of sales; plus
35,000 shares if profits exceed 6% of sales; plus
60,000 shares if profits exceed 10% of sales.
MECHANICAL TECHNOLOGY INC., 968 ALBANY-SHAKER ROAD, LATHAM, NEW YORK 12110
518/785-2211 FAX 518/785-2420 or 2127
<PAGE>
Page 2
Mr. Martin J. Mastroianni
December 6, 1996
These profit targets will be based on the audited combined pre-tax profits of
the Technology Division and Ling Electronics excluding the Advanced Products
Division and L.A.B. The additional options will vest 1/3 per year from the
date of grant.
You will be entitled to participate in the standard employee benefit
programs offered by MTI in accordance with the terms of each plan.
You will be reimbursed for incidental moving expenses. If you voluntarily
leave the employ of MTI before the first anniversary of your employment, you
agree to repay such expenses within thirty days of your termination.
If you are removed from your position for reasons other than cause, the
Company will pay you severance equal to either $150,000 or, if there is less
than one year remaining under this agreement, a pro rata amount of such
severance payment based on the remaining period.
I am excited about the prospect of having you as a partner in this
challenging venture. I look forward to having you and your wife join us in
the Capital Region.
Very truly yours,
/s/ George C. McNamee
Chairman
GCM/lma/Ltr.201
Accepted:
/s/ Martin J. Mastroianni
MECHANICAL TECHNOLOGY INC., 968 ALBANY-SHAKER ROAD, LATHAM, NEW YORK 12110
518/785-2211 FAX 518/785-2420 or 2127
<PAGE>
EXHIBIT 10.16
SETTLEMENT AGREEMENT AND RELEASE
This Settlement Agreement and Release ("Agreement") is made as of December
27, 1996, by and between Mechanical Technology, Inc. ("MTI") and First Albany
Companies Inc. ("First Albany").
RECITALS
--------
WHEREAS, United Telecontrol Electronics, Inc. ("UTE") became indebted to
First Commercial Credit Corporation ("FCCC") pursuant to a certain Claim
Participation Agreement dated December 21, 1993, as amended by a certain
Modification of Claim Participation Agreement dated December 14, 1994 and
various letters between MTI and FCCC extending the due date for repayment of
the principal amount of this indebtedness until December 31, 1996 (collectively,
the "Claim Participation Agreement"); and
WHEREAS, MTI succeeded to UTE's obligations to FCCC under the Claim
Participation Agreement pursuant to a certain Settlement and Claims Agreement,
and the Order of the United States Bankruptcy Court for the District of New
Jersey approving the same, rendered by the Hon. Stephen A. Stripp, U.S.B.J.
dated August 18, 1995; and
WHEREAS, FCCC became indebted to United Community Insurance Company ("UCIC")
pursuant to a certain Term Loan and Security Agreement dated December 21, 1993
(the "Security Agreement"); and
<PAGE>
WHEREAS, FCCC's indebtedness pursuant to the Security Agreement is evidenced
by that certain Term Note dated December 21, 1993 payable to UCIC in the
principal sum of $5,000,000.00 (the "Term Note"); and
WHEREAS, pursuant to the Security Agreement, the Term Note is secured by a
security interest in all of FCCC's right, title and interest in its accounts,
inventory, general intangibles, chattel paper, cash equivalents, documents and
instruments, including MTI's debt to FCCC under the Claim Participation
Agreement ("MTI Collateral"); and
WHEREAS, by that certain Order of Liquidation of UCIC entered in the Supreme
Court of the State of New York, Schenectady County on November 10, 1995 ("Order
of Liquidation"), UCIC was ordered to liquidate and the New York State
Superintendent of Insurance was appointed as UCIC's Liquidator (the
"Liquidator"); and
WHEREAS, by that certain letter agreement between First Albany and the
Liquidator dated May 7, 1996, as supplemented by a letter dated October 30,
1996, from First Albany to the Liquidator and written notice from First Albany
to the Liquidator dated December 23, 1996 (collectively, the "Participation
Agreement"), First Albany and the Liquidator represent that First Albany has
acquired all of the Liquidator's rights, as a secured party, to the MTI
Collateral; and
WHEREAS, by that certain Notice from First Albany to MTI dated December 27,
1996, First Albany notified MTI to make all of its payments due and owing
pursuant to the Claim Participation Agreement to First Albany; and
<PAGE>
WHEREAS, each of the undersigned parties has determined that it is desirable
to settle, compromise and resolve all claims against each other arising from
MTI's indebtedness pursuant to the Claim Participation Agreement; and
WHEREAS, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby expressly acknowledged, the undersigned agree as
follows:
1. In full satisfaction of all of its indebtedness and obligations under
the Claim Participation Agreement, MTI shall issue to First Albany One Million
(1,000,000) shares of MTI common stock, the receipt and sufficiency of which is
hereby acknowledged.
2. First Albany acknowledges that the shares of MTI common stock being
issued to it pursuant to this Agreement have not been registered under the
Securities Act of 1933 for issuance to it and are being purchased by it solely
for its own account for investment and not for the account of any other person
and not for distribution, assignment or resale to others. First Albany further
understands that it cannot, and agrees that it will not, transfer the MTI common
stock unless the MTI common stock is registered under all applicable securities
laws, or unless an exemption from such registration is available. First Albany
also understands that MTI is under no obligation to register the MTI common
stock on its behalf or to assist it in complying with any exemption from
registration, and that a legend will be placed upon the certificates for the
shares of MTI common stock issued to it to indicate that the shares may not be
sold or transferred unless registered under all applicable securities laws, or
unless an exemption from such registration is available.
<PAGE>
3. First Albany hereby releases and forever discharges MTI, its
subsidiaries, partners, agents, employees, successors, assigns, heirs,
executors and administrators from any and all claims, demands, actions, causes
of action, liability suits, debts, sums of money, accounts, bonds, bills,
covenants, contracts, controversies, agreements, promises, damages, judgments,
claims and demands whatsoever, state and federal, in law or equity, whether
known or unknown, asserted or unasserted, suspended or unsuspended, which First
Albany may now or hereafter have, or claim to have, for upon or reason by any
matter, event, cause or thing whatsoever arising out of, based in whole or in
part, relating to or existing by reason of the Claim Participation Agreement.
4. MTI hereby releases and forever discharges First Albany, its
subsidiaries, partners, agents, employees, successors, assigns, heirs, executors
and administrators from any and all claims, demands, actions, causes of action,
liability suits, debts, sums of money, accounts, bonds, bills, covenants,
contracts, controversies, agreements, promises, damages, judgments, claims and
demands whatsoever, state and federal, in law or equity, whether known or
unknown, asserted or unasserted, suspended or unsuspended, which MTI may now or
hereafter have, or claim to have, for upon or reason by any matter, event, cause
or thing whatsoever arising out of, based in whole or in part, relating to or
existing by reason of the Claim Participation Agreement.
5. First Albany agrees that it shall contribute to amounts paid or payable
by MTI, and its officers and directors, in respect of any losses, expenses,
claims, proceedings, judgments or settlements related to or arising out of the
transactions described herein ("Losses"), in an amount equal to the amount of
such Losses multiplied by forty-five percent (45%). First Albany's obligation
pursuant to this paragraph will be limited to a maximum of One Million Five
<PAGE>
Hundred Thousand Dollars ($1,500,000.00). As used herein, the term Losses does
not include any amounts paid or payable by MTI with respect to any adverse
state or federal tax rulings, judgments, claims or settlements related to or
arising out of the transactions described herein.
6. Each party represents and declares that in executing this Agreement,
the party has relied solely upon the party's own judgment, belief and knowledge,
and the advice and recommendation of the party's own independently selected
counsel concerning the nature, extent and duration of the party's rights and
claims, and that the party has not been influenced to any extent whatsoever in
executing this Agreement by any representations or statements not expressly
contained or referred to herein.
7. The parties hereto acknowledge and agree that this Agreement contains,
embodies and constitutes the parties' entire agreement and that this Agreement
supersedes all prior understandings and discussions, written or oral, related
thereto. In the event of breach of the terms of this Agreement, either party
shall have such remedies as may be available for a breach of contract,
including an action for specific performance.
8. No change, addition, deletion or any other modification, oral or
written of this Agreement shall be binding upon any of the parties hereto unless
and until each party to this Agreement executes a written agreement.
9. No breach of any provision hereto can be waived by any party, unless
in writing. Waiver of any provision hereof cannot be made unless in writing.
Waiver of any one breach by a party shall not be deemed to be a waiver of any
<PAGE>
other breach of the same or any other provision hereof.
10. The undersigned parties have reviewed this Agreement and the normal
rule of construction to the effect that any ambiguities are to be resolved
against the drafting party shall not be employed in the interpretation of this
Agreement.
11. This Agreement shall be governed by, construed and enforced in
accordance with the laws of the State of New York.
12. This Agreement may be executed in counterparts, each of which shall be
deemed to be one and the same instrument. The parties shall exchange among
themselves original counterparts.
Dated: December 31, 1996 MECHANICAL TECHNOLOGY, INC.
By: /s/ R. Wayne Diesel
-------------------------------------
Name: R. Wayne Diesel
Title: Chief Executive Officer
FIRST ALBANY COMPANIES INC.
By: /s/ Stephen P. Wink
-------------------------------------
Name: Stephen P. Wink
Title: Assistant Secretary
EXHIBIT 21
SUBSIDIARIES OF MECHANICAL TECHNOLOGY INCORPORATED
----------------------------------------------------
Jurisdiction of
Incorporation or
Subsidiary Name Organization
- --------------- ---------------
Turbonetics Energy, Inc. New York
Ling Electronics, Inc. United Kingdom
MTI International, Inc. Guam
Ling Electronics, Inc. California
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<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-END> SEP-30-1996
<CASH> 66
<SECURITIES> 0
<RECEIVABLES> 7,491
<ALLOWANCES> 102
<INVENTORY> 4,111
<CURRENT-ASSETS> 11,756
<PP&E> 19,498
<DEPRECIATION> 16,880
<TOTAL-ASSETS> 14,452
<CURRENT-LIABILITIES> 6,620
<BONDS> 0
0
0
<COMMON> 4,902
<OTHER-SE> (2,738)
<TOTAL-LIABILITY-AND-EQUITY> 14,452
<SALES> 31,901
<TOTAL-REVENUES> 31,901
<CGS> 19,901
<TOTAL-COSTS> 30,945
<OTHER-EXPENSES> 343
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 790
<INCOME-PRETAX> 573
<INCOME-TAX> 64
<INCOME-CONTINUING> 509
<DISCONTINUED> 3,239
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,748
<EPS-PRIMARY> .96
<EPS-DILUTED> .96
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