______________________________________________________________________________
______________________________________________________________________________
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
__________________________________
FORM 10-Q
/X/ Quarterly report pursuant to Section 13 or 15 (d) of the Securities
Exchange Act of 1934
For the quarterly period ended March 28, 1997
/ / 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 Road, Latham, New York 12110
- ---------------------------------------- -------------------
(Address of principal executive offices) (Zip Code)
(518) 785-2211
------------------
(Registrant's telephone number, including area code)
Not Applicable
------------------
(Former name,former address and former fiscal year,if changed since last report)
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
--- ---
CLASS OUTSTANDING AT MARCH 28, 1997
_____________________________ _____________________________
Common Stock, $1.00 Par Value 5,899,201 Shares
______________________________________________________________________________
______________________________________________________________________________
<PAGE>
MECHANICAL TECHNOLOGY INCORPORATED
INDEX
Page No.
--------
Part I Financial Information
Consolidated Balance Sheets - March 28, 1997
and September 30, 1996 3 - 4
Consolidated Statements of Income -
Three months and six months ended
March 28, 1997 and March 29, 1996 5
Consolidated Statements of Cash Flows -
Six months ended March 28, 1997
and March 29, 1996 6
Notes to Consolidated Financial Statements 7
Management's Discussion and Analysis of Financial
Condition and Results of Operations 8 - 10
Part II Other Information 11
Item 1. Legal Proceedings
Item 2. Exhibits and Reports on Form 8-K
Signature 12
2
<PAGE>
PART I FINANCIAL INFORMATION
MECHANICAL TECHNOLOGY INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
As of March 28, 1997 (Unaudited) and
September 30, 1996 (Derived from audited financial statements)
(Dollars in thousands)
March 28, Sept. 30,
1997 1996
ASSETS --------- ---------
Current Assets:
Cash and cash equivalents $ 105 $ 66
Trade accounts 7,402 7,491
Allowance for doubtful accounts (90) (102)
------- -------
Net receivables 7,312 7,389
Inventories:
Raw materials and components 2,649 2,231
Work in process 1,075 1,727
Finished goods 151 153
------- -------
Total inventories 3,875 4,111
Prepaid expenses & other
current assets 196 190
------- -------
Total Current Assets 11,488 11,756
------- -------
Property, Plant and Equipment:
Cost 20,023 19,498
Accumulated depreciation (17,104) (16,880)
------- -------
Net Property, Plant and Equipment 2,919 2,618
------- -------
Other Assets 64 78
------- -------
TOTAL ASSETS $ 14,471 $ 14,452
======= =======
The accompanying notes are an integral part of the consolidated financial
statements.
3
<PAGE>
MECHANICAL TECHNOLOGY INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (Continued)
As of March 28, 1997 (Unaudited) and
September 30, 1996 (Derived from audited financial statements)
(Dollars in thousands)
March 28, Sept.30,
1997 1996
--------- ---------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Line-of-credit $ 1,600 $ -
Current installments on long-term debt 604 604
Income taxes payable 98 16
Accounts payable 1,564 1,979
Accrued liabilities 2,399 3,350
Payroll and other taxes withheld
and accrued 344 671
------- -------
Total Current Liabilities 6,609 6,620
Line-of-credit, net of current portion - 100
Note Payable - 3,000
Long-term debt, net of current maturities 403 706
Accrued interest - Note Payable - 1,098
Deferred income taxes and other credits 739 764
------- -------
Total Liabilities 7,751 12,288
------- -------
Shareholders' Equity:
Common stock 5,902 4,902
Paid-in capital 13,923 13,423
Deficit (13,057) (16,089)
Foreign currency translation adjustment (16) (19)
Treasury stock (29) (29)
Restricted stock grants (3) (24)
------- -------
Total Shareholders' Equity 6,720 2,164
------- -------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 14,471 $ 14,452
======= =======
The accompanying notes are an integral part of the consolidated financial
statements.
4
<PAGE>
MECHANICAL TECHNOLOGY INCORPORATED
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands, except per share)
Three months ended Six months ended
------------------ ------------------
March 28, March 29, March 28, March 29,
1997 1996 1997 1996
-------- -------- -------- --------
Product revenue $ 6,358 $ 4,939 $ 12,654 $ 10,336
Research & development revenue 2,156 2,925 3,982 4,929
------- ------- ------- -------
Total revenue 8,514 7,864 16,636 15,265
Product cost of sales 3,853 2,992 7,759 6,341
Research & development contract
costs 1,601 1,805 2,924 3,214
Selling, general and administrative
expenses 2,278 2,363 4,298 4,261
Product development and
research costs 556 443 846 634
------- ------- ------- -------
Operating income 226 261 809 815
Interest expense (64) (160) (225) (423)
Gain on sale of subsidiary, ProQuip - 750 - 750
Other income (expense), net 15 (98) 51 (142)
------- ------- ------- -------
Income before extraordinary
item and income taxes 177 753 635 1,000
Income tax expense 75 9 110 16
------- ------- ------- -------
Income before extraordinary item 102 744 525 984
Gain on extinguishment of debt, net
of taxes ($106) - - 2,507 -
------- ------- ------- -------
Net income $ 102 $ 744 $ 3,032 $ 984
======= ======= ======= =======
Earnings per share:
Income before extraordinary item $ .02 $ .21 $ .10 $ .28
Gain on extinguishment of debt .00 .00 .46 .00
------- ------- ------- -------
Net Income $ .02 $ .21 $ .56 $ .28
======= ======= ======= =======
The accompanying notes are an integral part of the consolidated financial
statements.
5
<PAGE>
MECHANICAL TECHNOLOGY INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
Six months ended
-------------------
March 28, March 29,
1997 1996
OPERATING ACTIVITIES -------- --------
Net income $ 3,032 $ 984
Adjustments to reconcile net income to net
cash provided (used) :
Gain on extinguishment of debt (2,507) -
Depreciation and amortization 290 351
Gain on sale of subsidiary - (750)
Accounts receivable reserve (12) (50)
Asset valuation reserve - 134
Foreign currency translation 3 (5)
Other (5) -
Changes in operating assets and liabilities:
Accounts receivable 89 608
Inventories 236 (420)
Escrow deposit - 750
Prepaid expenses and other current assets (6) 268
Accounts payable (415) (548)
Income taxes (24) (15)
Accrued liabilities (1,263) 299
------- -------
Net cash (used) provided by operations $ (582) $ 1,606
------- -------
INVESTING ACTIVITIES
Purchases of property, plant & equipment $ (576) $ (325)
Proceeds from sale of subsidiary, ProQuip,
net of cash balance and expenses - 750
------- -------
Net cash (used) provided in investing activities $ (576) $ 425
FINANCING ACTIVITIES ------- -------
Net borrowings (payments) under
line-of-credit agreement $ 1,500 $ (1,608)
Principal payments of long-term debt (303) (386)
------- -------
Net cash provided (used) in financing activities $ 1,197 $ (1,994)
------- -------
Increase in cash and cash equivalents $ 39 $ 37
Cash and cash equivalents - beginning of period 66 78
------- -------
Cash and cash equivalents - end of period $ 105 $ 115
======= =======
Supplemental Disclosure
NON CASH FINANCING ACTIVITIES
Conversion of Note Payable to common stock
Note Payable extinguishment $ (3,000) $ -
Common stock issued 1,500 -
Accrued interest - Note Payable (1,213) -
------- -------
Net noncash used in financing activities $ (2,713) $ -
======= =======
The accompanying notes are an integral part of the consolidated financial
statements.
6
<PAGE>
MECHANICAL TECHNOLOGY INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. The management of the Company believes the accompanying unaudited
consolidated financial statements contain all adjustments (consisting primarily
of normal recurring accruals) necessary to fairly present the financial
position as of March 28, 1997 and results of operations and changes in financial
position for the six months then ended.
2. The results of operations for the six-month period ended March 28, 1997 are
not necessarily indicative of the results to be expected for the full year.
3. Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted. It is suggested that these consolidated
financial statements be read in conjunction with the financial statements and
notes thereto included in the Company's Form 10-K Report for the fiscal year
ended September 30, 1996.
7
<PAGE>
MECHANICAL TECHNOLOGY INCORPORATED AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
On December 27, 1996, the Company and First Albany Companies, Inc. ("FAC")
entered into an agreement under which the Company issued to FAC 1.0 million
shares of common stock in full satisfaction of the Note Payable of $3.0 million
and accrued interest of $1.2 million. As a result, the Company in the first
quarter of fiscal 1997 realized a gain on the extinguishment of debt totaling
$2.6 million, net of approximately $100 thousand of transaction related
expenses. (see "FINANCIAL CONDITION" below.)
During the first quarter of fiscal 1997 the Company announced it had
discontinued efforts to sell its wholly owned subsidiary, Ling Electronics Inc.
("Ling"), of Anaheim, California. A definitive agreement had been negotiated
and executed under which the amount to be paid in cash at closing approximated
Ling's book value; however the buyer failed to obtain funding prior to the
expiration date of the agreement.
The following is management's discussion and analysis of certain significant
factors which have affected the Company's earnings during the periods included
in the accompanying consolidated statements of income
RESULTS OF OPERATIONS
- ---------------------
(Dollars in thousands)
SALES
-----
Three months ended Six months ended
-------------------- ------------------
BUSINESS SEGMENT: 3/28/97 3/29/96 Change 3/28/97 3/29/96 Change
- ----------------- -------- -------- -------- -------- -------- --------
Test & Measurement $ 6,328 $ 4,929 $ 1,399 $ 12,594 $ 10,326 $ 2,268
Technology 2,186 2,935 (749) 4,042 4,939 (897)
------ ------ ------ ------- ------- ------
TOTAL $ 8,514 $ 7,864 $ 650 $ 16,636 $ 15,265 $ 1,371
====== ====== ====== ======= ======= ======
OPERATING INCOME (LOSS)
-----------------------
Three months ended Six months ended
-------------------- ------------------
BUSINESS SEGMENT: 3/28/97 3/29/96 Change 3/28/97 3/29/96 Change
- ----------------- -------- -------- -------- -------- -------- --------
Test & Measurement $ 535 $ 154 $ 381 $ 1,302 $ 590 $ 712
Technology (309) 107 (416) (493) 225 (718)
------ ------ ------ ------ ------ ------
TOTAL $ 226 $ 261 $ (35) $ 809 $ 815 $ (6)
====== ====== ====== ====== ====== ======
Sales for the first six months of fiscal year 1997 versus the same period of
fiscal year 1996 have increased approximately $1.4 million or 9.0% while
operating income was essentially unchanged. The effect each business segment had
on this change is outlined in the above table and discussed below.
TEST AND MEASUREMENT
- --------------------
The Test and Measurement segment reported a 22% increase in sales and a
120.7% rise in operating income during the first six months of fiscal 1997
compared to the same period last year.
8
<PAGE>
MECHANICAL TECHNOLOGY INCORPORATED AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Sales for the first half of fiscal year 1997 totaled $12.6 million compared
to $10.3 million for the comparable period in the prior year. All divisions
within this segment reported higher levels of shipments in the first six months
of fiscal 1997 as compared to the same period in the prior year. Operating
income for the first half of fiscal 1997 totaled $1.3 million, an increase of
$712 thousand over the $590 thousand operating income for the same period in
1996; improved operating income resulted primarily from the higher level of
sales partially offset by higher product development cost. All divisions were
profitable during the first six months with Ling Electronics Inc.("Ling")
recording the most significant improvement from the prior year. However, it is
unlikely this level of improvement at Ling will be sustained for the remainder
of the fiscal year which may result in lower segment growth in the second half
of fiscal 1997.
TECHNOLOGY
- ----------
The Technology segment experienced a 18.2% decrease in sales and a
significant decline in operating income compared to the corresponding six-month
period last year. The decline in sales was substantially due to delays in
performing the work on a large contract. This segment incurred an operating loss
of $493 thousand compared to income of $225 thousand for the first six months of
the previous year. Current year results were negatively impacted by contract
overruns of approximately $580 thousand.
As the Technology segment continues to focus on fewer business areas and
concentrates on new products such as low-cost power generation with particular
emphasis on fuel cell technologies, the segment is competing for and more
dependent on a few large 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. The Company is actively
pursuing other sources of funding, such as joint ventures with partners in the
utility industry; however, there is no assurance the Company will be successful
in securing such funding. Additional funding sources are deemed critical to
support and sustain ongoing efforts to commercialize these technologies and the
failure to obtain funding from the government or other sources could have a
material adverse effect on the Company's financial condition.
Technology segment results in the remaining quarters of fiscal 1997 will
rely on success in procuring and fulfilling orders within the fiscal year. The
future growth and profitability of the segment will be highly dependent on its
success in procuring and performing substantial work on such orders and securing
funding to continue efforts to commercialize its fuel cell technology.
OTHER
- -----
In addition to the matters noted above, the Company recorded a $2.5 million
extraordinary gain, net of taxes, on the extinguishment of debt during the first
quarter of fiscal 1997. Results during the first six months of fiscal 1997 were
further enhanced by lower interest expense, principally resulting from reduced
indebtedness. Moreover, in the first six months, the Company benefited from
reduced income tax expense due to the use of net operating loss carryforwards.
However, as a result of recent ownership changes, the availability of any
further net operating loss carryforwards to offset future taxable income will
be significantly limited pursuant to the Internal Revenue Code.
9
<PAGE>
MECHANICAL TECHNOLOGY INCORPORATED AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FINANCIAL CONDITION
- -------------------
Working capital of $4.9 million at March 28, 1997 reflects a $257 thousand
decline from September 30, 1996.
At March 28, 1997 cash and cash equivalents were $105 thousand versus $66
thousand at September 30, 1996. Net cash used by operations for the first six
months of fiscal 1997 amounted to $582 thousand, as compared to cash provided of
$1.6 million in the same period last year.
The capital used during the first half of fiscal 1997 was used principally
to reduce accrued liabilities and accounts payable and to acquire capital equip-
ment. Substantially all of the funds provided were from line of credit
borrowings. Line of credit borrowings at March 28, 1997 were $1.6 million, while
at September 30, 1996 there were line of credit borrowings of $100 thousand.
Capital spending during the first six months of fiscal 1997 was $576
thousand, a significant increase from the comparable period in 1996, where
capital spending totaled $325 thousand. The increased capital investments are
in accordance with the higher level of planned expenditures for fiscal 1997.
During fiscal 1996, First Albany Companies, Inc. ("FAC") had 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 had also
acquired certain rights to an obligation ("Term Loan") due from the same finance
company ("FCCC") to whom the Company was obligated under the Note Payable. FCCC
was in default of its Term Loan to UCIC. FAC, as the owner of the rights to the
Term Loan, filed suit seeking payment and obtained a summary judgment.
Collateral for the FCCC Term Loan included the Company's Note Payable to FCCC.
FAC exercised its rights to the collateral securing the Term Loan, including the
right to obtain payment on the Note Payable directly from the Company. On
December 27, 1996, the Company and FAC entered into an agreement under which the
Company issued to FAC 1.0 million shares of common stock in full satisfaction of
the Note Payable of $3.0 million and accrued interest of $1.2 million.
Accordingly, the Company realized a gain on the extinguishment of debt totaling
$2.6 million, net of approximately $100 thousand of transaction related
expenses.
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.
10
<PAGE>
PART II OTHER INFORMATION
Item 1. Legal Proceedings
- -------------------------
Lawrence Group, Inc.
- --------------------
As previously reported (see Form 10-Q Report for quarter ended June 28,
1996), Lawrence Group, Inc.("LGI"), the owner of approximately 14% of the
Company's outstanding Common Stock, filed a legal action against the Company
and First Albany Companies, Inc. ("FAC") in May 1996 challenging certain
actions taken by the Company's Board of Directors in connection with its
approval, under Section 912 of the New York Business Corporation Law, of the
purchase by FAC of 909,091 shares of the Company's Common Stock (which
represented about 25% of the shares of such stock then outstanding). Claims
under federal securities laws asserted by LGI in that litigation were
previously dismissed; in April 1997, the Company's motion seeking dismissal of
the remaining claims asserted by LGI (based on alleged violation of state law)
was granted, and the case has been dismissed.
Ling Holdings Group, Inc.
- -------------------------
In February 1997, Ling Holdings Group, Inc. filed suit in the Orange
County (California) Superior Court against the Company, its Ling Electronics,
Inc. ("Ling") subsidiary, the Company's Chief Executive Officer (R. Wayne
Diesel), and unnamed other persons. The Complaint alleges, among other
things, that the various Defendants breached their obligations to Plaintiff in
connection with the termination of a Stock Purchase Agreement that had been
entered into in 1996 for the proposed sale of Ling by the Company, asserts
claims against the Defendants on a variety of theories (e.g., breach of
contract, fraud, conversion, etc.), and seeks a number of different remedies
for the alleged injuries suffered by Plaintiff (including monetary damages,
specific performance of the Stock Purchase Agreement, imposition of a
constructive trust, an accounting of lost profits, etc.).
The Company believes the claims asserted in the Complaint are without
merit, and intends to vigorously defend the matter. Due to the preliminary
nature of the proceedings in this case, final decisions have not yet been made
regarding all actions the Company will take in response to the Complaint;
however, as an initial matter the Company has filed a motion to dismiss a
number of the counts of the multiple-count Complaint.
Item 6. Exhibits and Reports on Form 8-K
- -----------------------------------------
(a) Exhibits
Exhibit No. Description
----------- -----------
10.17 Agreement, dated March 14, 1997, between the
registrant and Mr. James Clemens, Vice President
and General Manager of Ling Electronic, Inc.,
regarding his employment
27 Financial Data Schedule
(b) No Reports on Form 8-K were filed by the Company during the quarter ending
March 28, 1997.
11
<PAGE>
SIGNATURE
Pursuant to the requirements 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
5-12-97 /s/ R. WAYNE DIESEL
- -------- -----------------------------------
(Date) R. Wayne Diesel
Chief Executive Officer
5-12-97 /s/ STEPHEN T. WILSON
- -------- -----------------------------------
(Date) Stephen T. Wilson
Chief Financial Officer
12
<PAGE>
March 11, 1997
Mr. James Clemens
4131 West Channel Islands Blvd.
Oxnard, California 93035
Dear Jim:
On behalf of the Board of Directors of Mechanical Technology Incorporated,
I am pleased to offer you the position of Vice President and General Manager of
Ling Electronics, Inc., effective March 24, 1997.
As such, you will be responsible for all aspects of the operations and
performance of Ling. You will report to the President and Chief Operating
Officer of MTI and will work closely with the Chief Executive Officer and the
Board of Directors to develop and implement strategies and goals designed to
return the Ling to profitability and to position it for future growth and
profitability.
We have agreed to employ you for three years at a base annual salary of
$115,000. From time to time, but not less than annually, your performance will
be reviewed and you may be eligible for salary adjustments at the discretion of
the Compensation Committee of MTI's Board of Directors.
You will also be eligible for cash incentive compensation as follows:
3% of Annual Pretax Income up to $1,000,000
2% of Annual Pretax Income in excess of $1,000,000
You will be awarded options to purchase 15,000 shares of MTI common stock at
a price to be set on the day you sign this agreement. Vesting in these options
will occur as follows:
Year 1 5,000 options if Pre Tax Income exceeds $1,000,000
Year 2 5,000 options if Pre Tax Income exceeds $1,400,000
Year 3 5,000 options if Pre Tax Income exceeds $1,700,000
<PAGE>
Mr. James Clemens
March 11, 1997
Page 2
Pre Tax Income will be defined as income prior to corporate assessments and
taxes. Cash incentive compensation and vesting in options will be subject to
the review of operating results by the Company's independent auditors. Normally,
we expect such payments and vesting to occur in December or January following
the close of the fiscal year on September 30.
You will be eligible for three weeks paid vacation annually and to
participate in the standard employee benefit packages offered to individuals in
comparable positions in the Company. An employee handbook explaining these
benefits will be provided under separate cover.
MTI will advance to you the sum of $30,000 in conformance with the enclosed
agreement and promissory note. Of this amount, $10,000 will be advanced upon
execution of this letter; $10,000 will be advanced on the effective date of your
employment (anticipated to be March 24, 1997); and the balance will be advanced
within 30 days of the effective date of employment. This advance is to cover
your cash flow needs during the transition period of your relocation, including
but not limited to temporary living expenses (housing, food and travel) for the
first three months of your employment, security deposits on housing rental, etc.
Reimbursement for normal business expenses will be in accordance with Company
policy. Should you buy a home during the first 18 months of employment,
refunded security deposits may be applied to closing costs associated therewith.
You will be eligible for reimbursement of ordinary relocation costs
associated with your move to the Anaheim area, including: two visits by you and
your spouse to explore living arrangements; personal transportation and expenses
for you and your spouse during relocation; packing, transportation, and
insurance associated with moving household goods; temporary living arrangements
pending the availability of housing; and reasonable closing costs associated
with the purchase of a primary residence. Reimbursement for the costs of moving
your personal, household possessions will be "grossed up" to reflect the tax
consequences of such reimbursement.
If MTI decides to sell or discontinue the operations of Ling during the
period of this agreement, and if a buyer of Ling does not continue your
employment, you will be paid severance allowance equivalent to one year's base
salary. If you leave employment on your own initiative within one year, the
relocation costs cited above will be reimbursed to the Company.
<PAGE>
Mr. James Clemens
March 11, 1997
Page 3
If this offer is acceptable to you, please sign and return an original copy
of this letter where indicated. Jim, we are all looking forward to your joining
us on the 24th and to working together to achieve our common objectives. Best
regards to you and Jackie.
Sincerely,
/s/ R. Wayne Diesel
Accepted By: /s/ James Clemens Date: 3/14/97
-------------------- ----------
James Clemens
cc: George McNamee, Chairman
Marty Mastroianni, President & Chief Operating Officer
<PAGE>
AGREEMENT
---------
THIS AGREEMENT, made this 11th day of March, 1997, by and between
Mechanical Technology Inc. ("MTI") and James Clemens ("Employee").
WHEREAS, Employee has accepted employment by MTI as Vice President and
General Manager of Ling Electronics, Inc.; and
WHEREAS, Employee has executed the attached Promissory Note; and
WHEREAS, MTI and Employee believe it to be mutually advantageous to
provide for the payout of bonuses to Employee upon the terms and conditions
hereafter set forth;
NOW THEREFORE, the parties hereto agree as follows:
1. MTI will pay bonuses to Employee on March 24, 1998, March 24, 1999, and
March 24, 2000, provided that Employee is still employed by MTI on those dates,
each bonus to be in an amount equal to the then-due principal and interest
payments under the attached Promissory Note. Any bonuses paid are compensation
to the Employee, and subject to standard payroll withholdings.
2. In the event that Employee ceases to be employed by MTI for any reason
whatsoever prior to any of the dates set forth in Paragraph 1 above, then
Employee will not be entitled to receive any bonus or partial or prorated bonus
for having been employed by MTI.
3. Any bonuses payable hereunder shall be withheld by MTI and shall be
applied to the payment of then-due principal and interest obligations pursuant
to the attached Promissory Note. Employee hereby consents to such withholding
and application.
4. Notwithstanding any other provision herein to the contrary, in the event
Employee is still employed by MTI and dies or becomes permanently disabled prior
to the last bonus payment date set forth in Paragraph 1 above, MTI will pay, as
of the date of Employee's death or the date of the determination of Employee's
permanent disability, a bonus equal in amount to the then-outstanding principal
balance and all accrued but unpaid interest under the attached Promissory Note,
and shall withhold and apply said bonus as provided in paragraph 3 above.
Employee, for himself, and for his estate, heirs, legatees, executors and
personal representatives, consents to such payment, withholding and application.
<PAGE>
5. This Agreement and any bonus payable hereunder shall not be assignable
by voluntary or involuntary assignment or by operation of law including, without
limitation, garnishment, attachment or other creditors' process, and payment of
bonuses hereunder is specifically conditioned on MTI's ability to withhold and
apply the bonus as provided in Paragraph 3 above, without interference from
Employee's creditors.
This Agreement shall be subject to and construed in accordance with the laws
of the State of New York.
MTI's March 11, 1997 letter to employee is attached to this Agreement and is
made a part hereof.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed as of the date hereinabove written.
MECHANICAL TECHNOLOGY INCORPORATED
By: /s/ R. Wayne Diesel .
-----------------------------
Chief Executive Officer
/s/ James Clemens 3/14/97
-----------------------------
Employee
<PAGE>
PROMISSORY NOTE
---------------
Latham, New York
March 11, 1997
1. FOR VALUE RECEIVED, the undersigned promises to pay to Mechanical
Technology Incorporated ("MTI") the principal sum of Thirty Thousand and no/100
Dollars ($30,000.00) plus interest at the rate of 6.5% per annum on the balance
remaining from time to time unpaid. Principal shall be due and payable in three
equal annual installments of Ten Thousand and no/100 Dollars ($10,000.00)
commencing one (1) year from the date hereof. Accrued interest shall be due and
payable at the same time as the payment of principal installments.
2. In the event the undersigned's employment with MTI terminates for any reason
other than death or permanent disability, whether involuntary or voluntary and
for whatever cause, the principal amount, plus accrued interest, shall be due
and payable as of the date of the undersigned's termination.
3. The undersigned has the right to prepay at any time the unpaid principal and
interest on the indebtedness.
4. In the event that bonuses are paid to the undersigned by MTI pursuant to the
attached Agreement there shall be a mandatory prepayment of this Promissory Note
as, when and to the extent, that such bonuses are paid to the undersigned. Any
bonuses paid are compensation to the Employee, and subject to standard payroll
withholdings.
5. The undersigned understands and agrees that in the event of default in
payment of any amount due hereunder not cured within fifteen days, MTI shall
have the right, without notice, to withhold any and all amounts payable by it
to the undersigned, as compensation or otherwise, and apply such amounts to the
indebtedness hereunder.
6. In the event that MTI is obliged to refer the note to an attorney for
collection, Employee agrees to pay all reasonable costs and attorneys' fees
incurred by MTI in the collection thereof.
This note is attached to and made a part of the Agreement dated March 11,
1997 between Employee and Mechanical Technology Incorporated.
/s/ James Clemens 3/14/97
----------------------------
Employee:
<PAGE>
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<S> <C>
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0
0
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