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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended September 30, 1998
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 11, 1998 (based on the last
sale price of $8.50 per share for such stock reported by OTC Bulletin
Board for that date) was approximately $32,296,183.
As of December 11, 1998, the registrant had 7,179,770 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 March 18, 1999
<PAGE>
PART I
ITEM 1: BUSINESS
During the last two and a half years, MTI has undergone significant
change. In May 1996, First Albany Companies, Inc. ("FAC") acquired a
substantial interest in MTI and led a series of financial and strategic
transactions that have significantly changed MTI's operations and fiscal
well-being. In July 1996, MTI received an infusion of capital through a
private placement of its Common Stock. In December 1996, MTI and FAC
succeeded in restructuring a significant outstanding debt of the Company
by swapping the debt for Common Stock. This allowed the Company to
receive an unqualified opinion in 1996 from its Independent Auditors,
Coopers & Lybrand L.L.P., for the first time since 1992. On June 27,
1997, the Company transferred a portion of the Technology Division to
Plug Power, L.L.C. ("Plug Power") to form a joint venture between the
Company and Edison Development Corp. ("EDC"), a subsidiary of DTE
Energy, Corp. Plug Power has focused exclusively on the research and
development of an economically viable Proton Exchange Membrane ("PEM")
fuel cell. On September 30, 1997, the Company sold all of the assets of
its L.A.B. Division to Noonan Machine Company of Franklin Park,
Illinois. The proceeds from this sale were used to pay down outstanding
debt and build working capital. On March 31, 1998, the Company sold the
remainder of its Technology Division to a subsidiary of Foster-Miller,
Inc., a Waltham, Massachusetts-based technology company. These
divestitures have enabled the Company to continue to invest in fuel cell
technology through Plug Power and to better focus on its profitable test
and measurement business. In June, 1998, the Company raised
approximately $7.2 million in a rights offering and committed to invest
approximately $5 million of the proceeds in Plug Power, now an industry
leader in development of fuel cells in the United States.
Today, MTI is a very different Company, substantially streamlined in
focus, but with many challenges remaining. MTI is a manufacturer of
advanced test and measurements products that combine precision sensing
capabilities with proprietary software and systems to serve a variety of
applications for commercial and military customers. The Company has two
principal business units: the Advanced Products Division ("Advanced
Products"), which produces sensing instruments and computer-based
balancing systems, and Ling Electronics, Inc. ("Ling"), a developer and
manufacturer of vibration test systems and power conversion products.
MTI is also a fifty percent owner of Plug Power, which hopes to be the
first commercial manufacturer of PEM fuel cells for residential and
other applications.
Advanced Products has two general product families: non-contact sensing
instrumentation and computer-based balancing systems. The non-contact
sensing instrumentation products utilize fiber optic, laser and
capacitance technology to perform high precision position measurements
for product design and quality control inspection requirements,
primarily in the semiconductor and computer disk drive industries. Some
of these products bear the trademarks FOTONIC and ACCUMEASURE, which are
recognized in the industry worldwide. Advanced Products's computer-
based aircraft engine balancing systems include an on-wing jet engine
balancing system used by both commercial and military aircraft fleet
maintenance personnel. This product provides trim balancing and
vibration analysis in the field or in test cells.
<PAGE>
Ling, of Anaheim, California, designs, manufactures, and markets
electro-dynamic vibration test systems, high-intensity-sound
transducers, power conversion equipment and power amplifiers 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 Company believes that the test and measurement industry will undergo
substantial consolidation in the near future. The challenges facing MTI
today are similar to those facing other smaller companies in industries
where consolidation is a part of the landscape. The Company believes
that consolidation may become a competitive necessity and that Advanced
Products and Ling are well-positioned to combine with complementary,
synergistic businesses to enhance and expand product offerings and
increase profitability and market position. Accordingly, the Company is
actively exploring strategic acquisitions and alliances for these
business units.
Plug Power, the Company's fuel cell joint venture, is developing a
proton exchange membrane fuel cell for residential and automotive
applications. In June 1998, Plug Power introduced the world's first
fuel cell powered home. In September 1998, Plug Power announced a
preliminary agreement with GE Power Systems to market and distribute
Plug Power's residential fuel cell units worldwide. Plug Power
continues to need substantial investment to continue its research and
development of the fuel cell and is aggressively pursuing additional
funding sources.
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
On June 27, 1997, the Company and Edison Development Corp. ("EDC"), a
subsidiary of DTE Energy Co. formed a joint venture, Plug Power, L.L.C.
("Plug Power"), to further develop the Company's Proton Exchange Membrane
Fuel Cell technology. In exchange for its contribution of contracts and
intellectual property and certain other net assets that had comprised the
fuel cell research and development business activity of the Technology
segment (which assets had a net book value of $357 thousand), the Company
received a 50% interest in Plug Power. The Company's interest in Plug
Power may be reduced in certain circumstances. EDC made an initial cash
contribution of $4.75 million in exchange for the remaining 50% interest
in Plug Power. The Company's investment in Plug Power is included in the
balance sheet caption "Investment in Joint Venture"; the assets
contributed by the Company to Plug Power had previously been included in
the assets of the Company's Technology segment. See the supplemental
disclosure regarding Contribution of Net Assets to Joint Venture in the
Consolidated Statements of Cash Flows for additional information regarding
the assets contributed by the Company to Plug Power.
<PAGE>
On April 15, 1998, EDC contributed $2.25 million in cash to Plug Power.
The Company contributed a below-market lease for office and manufacturing
facilities in Latham, New York valued at $2 million and purchased a one-
year option to match the remaining $250 thousand of EDC's contribution.
In May 1998, EDC contributed an additional $2 million to Plug Power and
the Company purchased another one-year option to match that contribution.
The Company paid approximately $191 thousand for the options, which mature
in April 1999 ($250 thousand) and May 1999 ($2 million). If the Company
does not exercise its options, they will lapse.
In August 1998, the Company committed to contribute an additional $5
million dollars (in cash, accounts receivable and research credits) to
Plug Power between August 5, 1998 and March 31, 1999 and recorded a
liability representing this obligation. Such contributions will
increase the Company's total contributions to Plug Power (including
contributions of cash, assets, research credits and a below market
lease) to $11.75 million over the period commencing on June 27, 1997 and
ending on March 31, 1999.
On August 5, 1998, the Company made a short term loan to Plug Power of
$500 thousand, which was subsequently contributed to capital on
September 23, 1998. The Company also converted $500 thousand of its
accounts receivable from Plug Power to capital on September 23, 1998.
At September 30, 1998, the remaining obligation to provide additional
funds to Plug Power was $4 million. The Company has recorded its
proportionate share of Plug Power's losses to the extent of its recorded
investment in Plug Power (including the foregoing obligation to
contribute an additional $4 million through March 31, 1999).
On September 30, 1998, the Company completed the sale of 1,196,399 shares
of common stock to current shareholders through a rights offering. The
offering raised approximately $7,178 thousand before offering costs of
approximately $186 thousand for net proceeds of approximately $6,992
thousand. The Company will use some or all of the proceeds of the
offering for investment in and/or loans to Plug Power. In addition, some
proceeds may be used for acquisitions for the Company's core businesses,
efforts to increase market share, working capital, general corporate
purposes and other capital expenditures.
The sale of the Company's Technology Division, the sole component of the
Technology segment, to NYFM, Incorporated (a wholly owned subsidiary of
Foster-Miller, Inc., a Waltham, Massachusetts-based technology company)
on March 31, 1998 completed management's planned sale of non-core
businesses. Accordingly, the Company no longer includes Technology among
its reportable business segments and now operates in only one segment,
Test and Measurement. The Technology Division is reported as a
discontinued operation as of December 26, 1997, and the consolidated
financial statements have been restated to report separately the net
assets and operating results of the business. Net assets of the
discontinued operation were $8 thousand and $3,186 thousand at September
30, 1998 and 1997, respectively and the loss on discontinued operations
in 1998 included a loss from operations of $516 thousand and a loss on
disposal of $1,769 thousand. The loss on disposal includes a provision
for estimated operating results prior to disposal. The Company's prior
year financial statements have been restated to conform to this
treatment. See Note 15 to the accompanying Consolidated Financial
Statements.
On September 30, 1997, the Company sold all of the assets of its L.A.B.
<PAGE>
division to Noonan Machine Company of Franklin Park, IL. The Company
received $2,600 thousand in cash and two notes, totaling $650 thousand,
from Noonan Machine Company. The purchaser has requested that the
principal amount of the note be reduced to reflect the resale value of
certain assets of L.A.B. The Company is enforcing its rights with respect
to the note. The net proceeds from the sale were used to pay down all
outstanding debt and build working capital. The sale of L.A.B. resulted
in a $2,012 thousand gain, which was recorded in the fourth quarter of
fiscal year 1997.
On December 27, 1996, the Company and First Albany Companies, Inc. ("FAC")
entered into a Settlement Agreement and Release whereby the Company issued
FAC 1.0 million shares of Common Stock in full satisfaction of its
obligations pursuant to the Claim Participation Agreement dated December
21, 1993 and amended December 14, 1994, among United Telecontrol
Electronics, Inc. ("UTE"), the Company and First Commercial Credit
Corporation, in the principal amount of $3.0 million plus 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 $2.5 million,
net of approximately $100 thousand of transaction related expenses and net
of taxes of $106 thousand.
The Company's wholly owned subsidiary, UTE of Asbury Park, New Jersey,
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 UTE has been classified as a
"discontinued operation" in the Company's Financial Statements. (See Note
15 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 16 to the accompanying
Consolidated Financial Statements).
Business Segments
The Company currently conducts business in one business segment: Test and
Measurement. 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 the
Advanced Products Division, Ling Electronics, Inc. and the L.A.B. Division
(sold on September 30, 1997).
Advanced Products designs, manufactures and markets high-performance test
and measurement instruments and systems. These products are categorized
in two general product families: non-contact sensing instrumentation and
computer-based balancing systems. The Division's largest customers
include industry leaders in the computer, electronic, semiconductor,
automotive, aerospace, aircraft and bioengineering fields.
The non-contact sensing instrumentation products utilize fiber optic,
laser and capacitance technology to perform high precision position
measurements for product design and quality control inspection
requirements, primarily in the semiconductor and computer disk drive
<PAGE>
industries. Product trademarks such as the Fotonic Sensor and Accumeasure
are recognized worldwide.
The Division's computer-based aircraft engine balancing systems include an
on-wing jet engine balancing system used by both commercial and military
aircraft fleet maintenance personnel. This product provides trim
balancing and vibration analysis in the field or in test cells.
Ling Electronics, Inc., of Anaheim, California, designs, manufactures, and
markets electro-dynamic vibration test systems, high-intensity-sound
transducers, power conversion equipment and power amplifiers 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 L.A.B. Division, which was sold on September 30, 1997, designed,
manufactured and marketed mechanically-driven 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 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.
Backlog
The backlog of orders believed to be firm as of September 30, is
$2,071,000 for 1998 and $3,861,000 for 1997. The backlog relates to
contracts awarded by government agencies or commercial customers.
Approximately $110 thousand of the orders included in the September 30,
1998 backlog may not be filled during the Company's current fiscal 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 salespeople. 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
representatives to sophisticated customers. The manufacturer's
representatives are compensated on a commission basis.
Research and Development
The Company conducts considerable research and development to support
<PAGE>
existing products and develop new products. (See the accompanying
Consolidated Statements of Operations). The Company holds patents and
rights in various fields of technology. 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 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 units are subject to intense
competition. 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 primary competitive considerations in the test and measurement segment
are: product quality and performance, price and timely delivery. The
Company believes that its product development skills and reputation are
competitive advantages.
Employees
The total number of employees of the Company and its subsidiaries was 123
as of September 30, 1998, compared to 178 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, George C. McNamee 52
and a Director
Vice President and Chief Cynthia A. Scheuer 37
Financial Officer
Vice President and General Manager, Denis P. Chaves 58
Advanced Products
President and Chief Executive Officer James R. Clemens 49
Ling Electronics, Inc.
Mr. McNamee has been Chief Executive Officer of the Company since April
1998 and a director since 1996.
Ms. Scheuer was appointed Vice President and Chief Financial Officer of
the Company in November 1997. Prior to joining the Company, she was a
<PAGE>
senior business assurance manager at Coopers & Lybrand L.L.P. where she
was employed since 1983.
Mr. Chaves has been Vice President and General Manager of the Company's
Advanced Products Division since 1987 and was Vice President and General
Manager of the Company's L.A.B. Division from January 1994 until it was
sold in September, 1997. Previously, he served as Manager of Corporate
Marketing for the Company from 1981 to 1987.
Mr. Clemens has been President and Chief Executive Officer of Ling
Electronics, Inc., a wholly owned subsidiary of the Company, since April
1998. Mr. Clemens was previously Vice President and General Manager of
Ling from April 1997 to April 1998. From December 1994 to March 1997, he
was a site manager for Teleflex Control. From September 1992 to November
1994, he was President and Chief Operating Officer of MTI's former
subsidiary United Telecontrol Electronics, Inc.
ITEM 2: PROPERTIES
The Company owns and leases property in New York and California. In
management's opinion, the facilities are generally well-maintained and
adequate to meet the Company's current and future needs.
The Company's corporate headquarters are located on a 36 acre site in Latham,
New York. The site includes three separate buildings that contain a total of
approximately 116,000 square feet. In October 1998, the Company completed
construction of a new manufacturing and office facility for Advanced Products
and corporate headquarters. The former Advanced Products facility has been
renovated and is being rented to Plug Power, as part of the Company's capital
contribution to Plug Power. See "Significant Developments in the Business".
The lease expires on September 30, 2008. The third building is being rented
to Plug Power and NYFM, Incorporated. Both Plug Power's and NYFM
Incorporated's leases expire on March 31, 1999.
Ling Electronics', Inc. leases approximately 85,000 square feet of office and
manufacturing space in Anaheim, California. The lease will expire in June of
2003.
In addition to the above property, 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, may relate to compliance with various governmental
regulations and requirements, or may be based on other transactions or
circumstances. The Company does not believe there are any such proceedings
presently pending that could have a material adverse effect on the
Company's financial condition except for the matters described in Note 13
to the accompanying Consolidated Financial Statements (which description
is incorporated herein by reference).
On or about February 6, 1997, Ling Holdings Group, Inc. ("Holdings")
<PAGE>
commenced an action against the Company and its former chief executive
officer, R. Wayne Diesel, in the Superior Court, Orange County,
California, entitled Ling Holdings Group, Inc. v. Mechanical Technology
Inc. et al, No. 775074. In that action, Holdings alleged nine causes of
action against the Company for breach of contract and tort. All of the
claims related to a Stock Purchase Agreement between Holdings and the
Company. In the action, Holdings sought specific performance of the Stock
Purchase Agreement (i.e., the sale of two subsidiaries of the Company,
Ling Electronics, Inc. and Ling Electronics Limited), as well as
compensatory and punitive damages. The Company asserted counterclaims.
In August 1998, all but five of Holdings' causes of action were dismissed
with prejudice. The remaining causes of action were dismissed with
prejudice in an oral statement of decision by the court after a trial,
which began on September 21 and concluded September 30, 1998. The
Company's counterclaims were dismissed, as well. The judgment, based upon
the court's September 30 statement of decision, was entered November 17,
1998. Holdings will have 60 days from the mailing of notice of entry of
the judgment to appeal.
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 1998.
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 the 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 1998
First Quarter 6-3/4 3-3/4
Second Quarter 8-1/8 3-1/2
Third Quarter 8-1/8 5-11/16
Fourth Quarter 9-3/8 6
Fiscal Year 1997
First Quarter 2-7/8 1-1/2
Second Quarter 2-3/4 1-7/8
Third Quarter 3-1/2 1-7/8
Fourth Quarter 4-1/3 2-1/4
Number of Equity Security Holders
As of December 11, 1998, the Company had approximately 538 holders of its
$1.00 par value Common Stock. In addition, there are approximately 1,356
beneficial owners holding stock in "street" name.
<PAGE>
Dividends
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 has never paid and 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:
Statement of Earnings Data (In thousands, except per share data)
Restated Restated Restated Restated
1998 1997 1996 1995 1994
Net Sales $ 21,028 $ 24,102 $ 22,755 $ 18,140 $ 29,721
Gain on sale of
subsidiary/division or
building - 2,012 750 6,779 1,856
(Loss) Income from
Continuing Operations
Before Extraordinary
Item and Income Taxes (2,006) 2,701 673 3,352 816
(Loss) Income from
Continuing Operations
before Extraordinary Item (2,031) 2,558 598 3,256 201
Extraordinary Item -
Gain on Extinguish-
ment of Debt, net of
taxes($106) - 2,507 - - -
(Loss) Income from
Continuing Operations (2,031) 5,065 598 3,256 201
(Loss) Income from
Discontinued
Operations, Net
of Taxes (2,285)(1) (545) 3,150 (334) (24,579)(2)
Net(Loss)Income $ (4,316) $ 4,520 $ 3,748 $ 2,922 $(24,378)
Diluted Earnings
Per Share (3)
(Loss) Income from
Continuing Operations
before Extraordinary
Item $ (0.35) $ 0.45 $ 0.15 $ 0.91 $ 0.05
Extraordinary Item - 0.44 - - -
<PAGE>
(Loss)Income from
Discontinued
Operations (0.38) (0.09) 0.81 (0.09) 6.96
Net (Loss)Income $ (0.73) $ 0.80 $ 0.96 $ 0.82 $ (6.91)
Weighted Average Shares
Outstanding and
Equivalents 5,937,158 5,672,045 3,911,952 3,559,789 3,529,881
Balance Sheet Data:
Working Capital
(Deficit) $ 5,779 $ 7,696 $ 7,086 $ 2,712 $ (6,219)
Total Assets 21,128 14,003 13,481 13,444 23,971
Total Long-Term
Debt 0 0 5,508 6,960 11,182
Total Shareholders'
Equity (Deficit) 11,124 8,213 2,164 (3,490) (6,418)
_______________________
(1) Includes a net charge of $1,769 related to the discontinuance of the
Company's Technology Division.
(2) Includes a net charge of $15,415 related to the discontinuance of the
Company's United Telecontrol Electronics, Inc. subsidiary.
(3) Earnings per share have been restated to comply with SFAS No. 128,
"Earnings Per Share."
Prior years have been restated to reflect the Technology and
Defense/Aerospace segments as discontinued operations. (See Note 15 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
Results of Operations: 1998 in Comparison with 1997
The following three paragraphs summarize significant organizational
changes, which impact the comparison of 1998 and 1997 results of
operations.
On June 27, 1997, the Company and Edison Development Corp. ("EDC"), a
subsidiary of DTE Energy Co. formed a joint venture, Plug Power L.L.C.
("Plug Power") to further develop the Company's Proton Exchange Membrane
Fuel Cell technology. In exchange for its contribution of employees,
contracts, intellectual property and certain other assets that had
comprised the fuel cell research and development business activity of the
Technology segment (which assets had a net book value of $357 thousand),
the Company received a 50% interest in Plug Power. The Company's interest
in Plug Power may be reduced in certain circumstances. EDC made an
initial cash contribution of $4.75 million in exchange for the remaining
50% interest in Plug Power. The Company's investment in Plug Power is
<PAGE>
included in the balance sheet caption "Investment in Joint Venture"; the
assets contributed by the Company to Plug Power had previously been
included in the assets of the Company's Technology segment. See the
supplemental disclosure regarding Contribution of Net Assets to Joint
Venture in the Consolidated Statements of Cash Flows for additional
information regarding the assets contributed by the Company to Plug Power.
The sale of the Company's Technology Division, the sole component of the
Technology segment, to NYFM, Incorporated (a wholly owned subsidiary of
Foster-Miller, Inc., a Waltham, Massachusetts-based technology company) on
March 31, 1998 completed management's planned sale of non-core businesses.
Accordingly, the Company no longer includes Technology among its
reportable business segments and now operates in only one segment, Test
and Measurement. The Technology Division is reported as a discontinued
operation as of December 26, 1997, and the consolidated financial
statements have been restated to report separately the net assets and
operating results of the business. Net assets of the discontinued
operation were $8 thousand and $3,186 thousand at September 30, 1998 and
1997, respectively and the loss on discontinued operations included a loss
from operations of $516 thousand and a loss on disposal of $1,769 thousand
at September 30, 1998. The loss on disposal includes a provision for
estimated operating results prior to disposal. The Company's prior year
financial statements have been restated to conform to this treatment.
On September 30, 1997, the Company sold all of the assets of its L.A.B.
Division to Noonan Machine Company of Franklin Park, IL. The Company
received $2,600 thousand in cash and two notes, totaling $650 thousand,
from Noonan Machine Company. The purchaser has requested that the
principal amount of the note be reduced to reflect the resale value of
certain assets of L.A.B. The Company is enforcing its rights with respect
to the note. The net proceeds from the sale were used to pay down all
outstanding debt and build working capital. The sale of L.A.B. resulted
in a $2,012 thousand gain, which was recorded in the fourth quarter of
fiscal year 1997. In addition, $250 thousand of the proceeds associated
with one of the notes was recorded as deferred revenue due to the
possible reduction of the $250 thousand note receivable, in the event of
a sale of certain fixed assets, in accordance with the terms of the
note.
The following is management's discussion and analysis of certain
significant factors, which have affected the Company's results of
operations for 1998 compared to 1997. This discussion relates only to the
Company's continuing operations.
Sales for fiscal 1998 totaled $21.0 million compared to $24.1 million for
the prior year, a decrease of $3.1 million or 12.8%. This decrease is
attributable to the reduction of sales resulting from the sale of the
L.A.B. Division on September 30, 1997, which reported sales of
$3.3 million and operating income of $500 thousand at September 30, 1997.
Advanced Products reported a sales increase of 26.2% and Ling reported a
sales decrease of 11.3% in the year ended September 30, 1998.
Selling, general and administrative expenses for fiscal 1998 were 27.6% of
sales, as compared to 29.1% in 1997. Product development and research
costs during fiscal 1998 were 4% of sales, compared to 4.2% for 1997.
Lower levels of general/administrative expenses for fiscal 1998 resulted
primarily from cost reduction efforts during fiscal 1998 as well as the
elimination of costs for L.A.B. of $600 thousand.
<PAGE>
Operating income of $2 million at September 30, 1998 represented a $400
thousand or 24% increase from the $1.6 million operating income recorded
during the same period last year. The increase is the result of
increased sales levels for Advanced Products and improved margins as a
result of cost control measures. Excluding the L.A.B. division results
in 1997, operating income increased $900 thousand.
In addition to the matters noted above, during the fourth quarter of
fiscal 1998, the Company recorded a $3.8 million loss from the recognition
of the Company's proportionate share of losses of the Plug Power joint
venture compared to a $300 thousand loss in 1997. During the fourth
quarter of fiscal 1997, the Company recorded a $2.0 million gain on the
sale of the L.A.B. Division. Further, 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 fiscal 1998 were enhanced by lower interest expense,
principally resulting from reduced indebtedness. Moreover, the Company
benefited from reduced income tax expense due to the loss generated by
discontinued operations and the use of net operating loss carryforwards.
However, as a result of recent ownership changes, the availability of
further net operating loss carryforwards to offset future taxable income
will be significantly limited pursuant to the Internal Revenue Code.
Results of Operations: 1997 in Comparison with 1996
The following three paragraphs summarize significant organizational
changes, which impact the comparison of 1997 and 1996 results of
operations.
On September 30, 1997, the Company sold all of the assets of its L.A.B.
Division to Noonan Machine Company of Franklin Park, IL. The Company
received $2,600 thousand in cash and two notes, totaling $650 thousand,
from Noonan Machine Company. The purchaser has requested that the
principal amount of the note be reduced to reflect the resale value of
certain assets of L.A.B. The Company is enforcing its rights with respect
to the note. The net proceeds from the sale were used to pay down all
outstanding debt and build working capital. The sale of L.A.B. resulted
in a $2,012 thousand gain, which was recorded in the fourth quarter of
fiscal year 1997. In addition, $250 thousand of the proceeds associated
with one of the notes was recorded as deferred revenue due to the
possible reduction of the $250 thousand note receivable, in the event of
a sale of certain fixed assets, in accordance with the terms of the
note.
On June 27, 1997, the Company and Edison Development Corp. ("EDC"), a
subsidiary of DTE Energy Co. formed a joint venture, Plug Power L.L.C.
("Plug Power") to further develop the Company's Proton Exchange Membrane
Fuel Cell technology. In exchange for its contribution of employees,
contracts, intellectual property and certain other assets that had
comprised the fuel cell research and development business activity of the
Technology segment (which assets had a net book value of $357 thousand),
the Company received a 50% interest in Plug Power. The Company's interest
in Plug Power may be reduced in certain circumstances. EDC made an initial
cash contribution of $4.75 million in exchange for the remaining 50%
interest in Plug Power. The Company's investment in Plug Power is
included in the balance sheet caption "Investment in Joint Venture"; the
assets contributed by the Company to Plug Power had previously been
<PAGE>
included in the assets of the Company's Technology segment. See the
supplemental disclosure regarding Contribution of Net Assets to Joint
Venture in the Consolidated Statements of Cash Flows for additional
information regarding the assets contributed by the Company to Plug Power.
On December 27, 1996, the Company and First Albany Companies, Inc. ("FAC")
entered into a Settlement Agreement and Release whereby the Company issued
FAC 1.0 million shares of Common Stock in full satisfaction of its
obligations pursuant to the certain Claim Participation Agreement dated
December 21, 1993 and amended December 14, 1994, among United Telecontrol
Electronics, Inc. ("UTE"), the Company and First Commercial Credit
Corporation, in the principal amount of $3.0 million plus 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 $2.5 million,
net of approximately $100 thousand of transaction related expenses and net
of taxes of $106 thousand. (See "Liquidity and Capital Resources",
below.)
The following is management's discussion and analysis of certain
significant factors, which have affected the Company's results of
operations for 1997 compared to 1996. This discussion relates only to the
Company's continuing operations.
Sales for fiscal 1997 totaled $24.1 million compared to $22.8 million for
the prior year, an increase of 5.9% in fiscal 1997 compared to fiscal
1996. L.A.B and Advanced Products reported sales increases of 7.8% and
19.4%, respectively and Ling reported a sales decrease of 0.2%.
Selling, general and administrative expenses for fiscal 1997 were 29.1% of
sales, as compared to 31.1% in 1996. Product development and research
costs during fiscal 1997 were 4.2% of sales, compared to 3.0% for 1996.
Lower levels of general/administrative expenses for fiscal 1997 resulted
primarily from cost reduction efforts during fiscal 1997 as well as
certain expenses having been incurred during 1996 in connection with the
now-discontinued efforts to sell Ling.
Company 1997 operating income totaled $1.6 million compared to $1.1
million for fiscal 1996, or an increase of $500 thousand. The increase
in operating income is primarily due to continuing growth of revenues.
Increased operating income was achieved in spite of higher product
development costs. All divisions reported improvements, however, Ling
continues to experience an operating loss.
In addition to the matters noted above, during the fourth quarter of
fiscal 1997, the Company recorded a $2.0 million gain on the sale of the
L.A.B. Division and a $330 thousand loss from the recognition of the
Company's proportionate share of the loss of the Plug Power joint venture.
Sales for the L.A.B. Division were $3.3 million in 1997 and $3.1 million
in 1996. Further, the Company recorded a $2.5 million extraordinary gain,
net of taxes, on the extinguishment of debt during the first quarter of
fiscal 1997. Fiscal 1996 results included a $750 thousand gain from the
sale of its former subsidiary ProQuip, as a result of the removal of
contingencies.
Results during fiscal 1997 were further enhanced by lower interest
expense, principally resulting from reduced indebtedness. Moreover, the
Company has 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 further net operating loss carryforwards to
<PAGE>
offset future taxable income will be significantly limited pursuant to the
Internal Revenue Code.
Liquidity and Capital Resources
At September 30, 1998, the Company's order backlog was $2.1 million, a
decrease of $1.8 million from the prior year-end. This reduction reflects
a decline due to orders expected in the fourth quarter of 1998 being
shifted to the next fiscal year.
Inventories increased by $362 thousand in 1998 to support increased sales
levels at Advanced Products. Additionally, accounts receivable increased
by $477 thousand in 1998 due to the timing of sales at the end of the
fiscal year.
Cash flow from continuing operations was $513 thousand in 1998 compared
with $1,089 thousand in 1997 and ($49) thousand in 1996. Cash flow from
operating activities was impacted in 1998 and 1997 by positive operating
income and fluctuations in working capital components.
Working capital was $5.8 million at September 30, 1998, a $1.9 million
decrease from $7.7 million at fiscal year-end 1997. Capital used during
fiscal 1998 was principally to fund short term operating cash flow
requirements and pay construction costs.
Capital expenditures were $3,166 thousand for 1998, $377 thousand for 1997
and $170 thousand for 1996. The increased capital expenditures in 1998
were in accordance with the higher level of planned expenditures and the
construction of a new facility for Advanced Products and corporate
headquarters and renovations to an existing building leased to Plug Power.
Capital expenditures in 1999 are expected to be about $4.4 million, which
consists of additional expenditures associated with the construction of
the new facility, computer software and hardware costs and manufacturing
equipment. The Company expects to finance these expenditures with cash
from operations and existing credit facilities. As of September 30, 1998,
the Company was committed to construction costs of approximately $2,856
thousand.
Cash and cash equivalents were $5,567 thousand at September 30, 1998
compared to $1,421 thousand at September 30, 1997, this increase is
attributable to $6,992 thousand of net cash proceeds from the sale of
common shares to existing shareholders through a rights offering, which
closed on September 30, 1998 net of payments associated with the Company's
construction project.
At September 30, 1998 and 1997, there were no borrowings outstanding on
the lines of credit. The Company has a working capital line of credit
available in the amount of $4 million and a $1 million equipment line of
credit. These lines of credit expire on January 31, 2000.
The reduction in net assets of discontinued operations of $3,178 thousand
includes the transfer of $878 thousand of assets to continuing operations
(principally land, building and management information systems) as well as
the accrual for the loss on disposal of the Technology Division. Such
accrual included a provision for estimated operating results prior to
disposal and an estimate of the loss on disposal and winddown of the
Technology Division, which totaled $1,769 thousand. The sale of the
Technology Division was completed as of March 31, 1998.
<PAGE>
On July 31, 1998, Plug Power asked the Company to commit to contribute $5
million (in cash, other assets and research credits) to Plug Power to fund
continuing operations for the period August 1, 1998 through March 31,
1999. The Company has committed to the $5 million contribution request,
which will be funded by the proceeds from the rights offering. On August
5, 1998, EDC and the Company each made short-term loans of $500 thousand
to Plug Power, which were subsequently contributed to capital on September
23, 1998. On September 23, 1998, the Company also contributed $500
thousand of accounts receivable from Plug Power to equity. A liability
for $4 million was recorded as of September 30, 1998 to reflect the
Company's additional obligation to fund Plug Power during 1999. In
addition, Plug Power will continue to need substantial investment for the
foreseeable future. Plug Power continues to pursue strategic partners and
additional sources of capital. Plug Power is currently negotiating with
several strategic partners and has signed a preliminary Memorandum of
Understanding with General Electric Power Systems. There is no assurance,
however, that Plug Power will successfully conclude any transactions with
strategic partners or find other sources of capital. If other sources of
funding cannot be found, the Company will be faced with contributing
and/or lending additional capital to Plug Power or dilution of its
interest in Plug Power. If EDC and the Company stop funding Plug Power
and no additional sources of capital are found, Plug Power will not be
able to continue as a going concern.
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 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 million and accrued interest of $1.2 million. Accordingly,
the Company realized a gain on the extinguishment of debt totaling $2.5
million, net of approximately $100 thousand of transaction related
expenses and net of taxes of $106 thousand.
The Company benefited in fiscal 1997 from the sale of the L.A.B. Division
on September 30, 1997, with cash proceeds of $2.6 million and two notes
receivable for a total of $650 thousand. The cash proceeds were used to
pay off the remaining balance on the Company's term loan to Chase
Manhattan Bank and to provide for general working capital needs.
The Company anticipates that it will be able to meet the liquidity needs
of its continuing operations from cash flow generated by operations and
borrowing under its existing lines of credit.
Debt
The Industrial Development Agency for the Town of Colonie has agreed to
issue $6 million in Industrial Development Revenue Bonds ("IDR") on behalf
of the Company to assist in the construction of a new building for
<PAGE>
Advanced Products and the Company's corporate staff and renovation of
existing buildings leased to Plug Power. The construction project is due
to be completed as of April 1999. First Albany Companies, Inc. ("FAC"),
which owns 34% of the Company's stock, will underwrite the sale of the IDR
Bonds. Proceeds of the IDR Bonds will be deposited with a trustee for the
bondholders. The Company may draw the bond proceeds to cover qualified
project costs. The bond closing is expected to be completed on or about
December 17, 1998. FAC will receive no fees for underwriting the IDR
Bonds but will be reimbursed for its out of pocket costs.
Year 2000
General
Mechanical Technology Incorporated's company-wide Year 2000 plan is
proceeding on schedule. The plan is addressing the issue of computer
programs and embedded computer chips being unable to distinguish between
the year 1900 and the year 2000 as well as the ability to recognize the
leap year date of February 29, 2000. The plan has been divided into six
areas: (1)Systems evaluation, (2) Software evaluation, (3) Third-party
suppliers, (4) Facility systems, (5) Products and (6)Contingency plans.
The general phases common to all segments are: (1) Inventorying Year
2000 items, (2) Assigning priorities to identified items, (3) Assessing
the Year 2000 compliance of items determined to be material to the
Company, (4) Repairing or replacing material items that are determined
not to be Year 2000 compliant, (5) Testing material items and (6)
Designing and implementing contingency and business continuation plans
for each organization and company location.
Systems Evaluation
At September 30, 1998, all internal systems have been identified,
inventoried, prioritized and assessed for Year 2000 compliance. Systems
found to be totally non-compliant were replaced, the remaining systems
were found to be in compliance. Plans are being developed to ensure
that staff are available to oversee restarting certain machines and
manually adjusting their dates.
Software Evaluation
At September 30, 1998, all software material to the Company has been
identified, evaluated, and placed into one of three categories: (1)
Found to be in full compliance and certified as such by vendors, (2)
Identified as requiring update or (3) Identified as requiring
replacement with compliant software. Those in the latter category have
been included in the current budget.
Third-Party Suppliers
This phase of the Year 2000 Plan will be completed by the end of the 2nd
Quarter of fiscal 1999. These third-party suppliers are in the process
of implementing their own plans with an expected completion date of
1999. If any provider is not successfully compliant, the Company will
evaluate selecting alternative providers at that time.
Facility Systems
The facility systems review is complete. All systems are believed to be
<PAGE>
Year 2000 compliant including telephone, fire alarm, security, elevator
and network components.
Products
The Company has evaluated both current product offerings and products in
the field to determine their ability to comply with Year 2000 issues.
The products were found to be non-compliant, compliant if modifications
are made, fully compliant or not impacted (that is, the product does not
have a computer or contains an embedded computer but does not use a date
function). Those products identified as non-compliant are products in
the field that are not Year 2000 compliant, cannot be modified and must
be replaced. Products which can be modified will have upgrades
available for sale during fiscal 1999.
Contingency Plans
This phase is currently being developed. Contingency plans should be in
place by the end of the 2nd Quarter of fiscal 1999.
Costs
The total cost associated with required modifications to become Year
2000 compliant is not expected to be material to the Company's financial
position. The estimated total cost of the Year 2000 project is
approximately $120 thousand, which includes software, hardware and
cabling upgrade and replacement costs. This estimate does not include
the Company's potential share of Year 2000 costs that may be incurred by
joint ventures, in which the company participates but is not the
operator. The total amount expended on the Plan through September 30,
1998 was $34 thousand for the upgrade and replacement of hardware.
Risks
The failure to correct a material Year 2000 problem could result in an
interruption in, or a failure of, certain normal business activities or
operations. Such failures could materially and adversely affect the
Company's results of operations, liquidity and financial condition. Due
to the general uncertainty inherent in the Year 2000 problem, resulting
in part from the uncertainty of the Year 2000 readiness of third-party
suppliers and customers, the Company is unable to determine at this time
whether the consequences of Year 2000 failures will have a material
impact on the Company's results of operations, liquidity or financial
condition. The Year 2000 Plan is expected to significantly reduce the
Company's level of uncertainty about the Year 2000 problem and, in
particular, about the Year 2000 compliance and readiness of its material
customers. The Company believes that, with the implementation and
completion of the Year 2000 Plan as scheduled, the possibility of
significant interruptions of normal operations should be reduced.
Statements in this Form 10-K or in documents incorporated herein by
reference that are not statements of historical fact constitute "forward-
looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995, including statements regarding future
revenues, expenses and profits. These forward looking statements are
subject to known and unknown risks, uncertainties or other factors that
may cause the actual results of the Company to be materially different
from the historical results or from any results expressed or implied by
the forward looking statements. Such risks and factors include, but are
<PAGE>
not limited to, those discussed in "Management's Discussion and Analysis
of Financial Condition and Results of Operations".
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 33 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 March 18, 1999 (the "1999 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 Information"
in the registrant's 1999 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 1999 Proxy Statement, is incorporated herein by reference.
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 1999 Proxy Statement is incorporated herein by
<PAGE>
reference.
PART IV
ITEM 14: EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON
FORM 8-K
(a) (1) 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
herein 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)
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)
<PAGE>
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, 1998
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)
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
<PAGE>
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)
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
<PAGE>
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)
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)
<PAGE>
4.85 Mortgage Consolidation, Spreader, Modification
Extension and Security Agreement, dated July
22, 1992, executed by the registrant and
CLFB.(3)
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)
4.93 Credit Agreement dated as of September 22, 1998
among Mechanical Technology Incorporated and
KeyBank National Association ("KeyBank").
4.94 Security Agreement, dated as of September 22,
1998, executed by the registrant in favor of
KeyBank and securing the registrant's
obligations to KeyBank.
4.95 Security Agreement, dated as of September 22,
1998, executed by Ling Electronics, Inc. (a
wholly-owned subsidiary of the registrant) in
<PAGE>
favor of KeyBank and securing the registrant's
obligations to KeyBank.
4.96 Guaranty of Payment and Performance, dated as of
September 22, 1998, executed by Ling Electronics,
Inc. (a wholly-owned subsidiary of the
registrant) in favor of KeyBank and guaranteeing
payment of the registrant's obligations to
KeyBank.
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
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
<PAGE>
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)
10.15 Agreement, dated December 6, 1996, between
the registrant and Mr. Martin J. Mastroianni,
President and Chief Operating Officer,
regarding his employment. (10)
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. (10)
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. (11)
10.18 Limited Liability Company Agreement of Plug
Power, L.L.C., dated June 27, 1997, between
Edison Development Corporation and Mechanical
Technology, Incorporated. (12)(13)
10.19 Contribution Agreement, dated June 27, 1997,
between Mechanical Technology, Incorporated and
Plug Power, L.L.C. (12)(13)
10.20 Asset Purchase Agreement, dated as of September
22, 1997, between Mechanical Technology,
Incorporated and Noonan Machine Company. (12)
10.21 Asset Purchase Agreement between MTI and NYFM,
Incorporated, dated as of March 31, 1998. (14)
10.22 Option Agreement-Contribution Match between Plug
Power, L.L.C. and MTI, dated as of April 24,
1998. (14)
10.23 Option Agreement-Contribution Match between Plug
Power, L.L.C. and MTI, dated as of June 15,
1998. (14)
10.24 Contribution Agreement between Edison
Development Corporation and MTI, dated as of
June 10, 1998. (14)
10.25 Form of Notice of Guaranteed Delivery for
Subscription Certificate. (14)
<PAGE>
10.26 Form of American Stock Transfer & Trust Co.
Agency Agreement. (14)
10.27 Form of Instructions for Subscription
Certificate. (14)
10.28 Agreement between Mechanical Technology, Inc.
and Malone & Tate Builders, Inc. for Building 1
Construction. (15)
10.29 Mechanical Technology, Incorporated/Plug Power,
L.L.C. Lease for Building III. (15)
21 Subsidiaries of the registrant.
27 Financial Data Schedule
______________________
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.
(10) Filed as an Exhibit (bearing the same exhibit number) to the
registrant's Form 10-K Report for its fiscal year ended September
<PAGE>
30, 1996.
(11) Filed as an Exhibit (bearing the same exhibit number) to the
registrant's Form 8-K Report dated May 12, 1997.
(12) Filed as an Exhibit (bearing the same exhibit number) to the
registrant's Form 10-K Report for the fiscal year ended September
30,1997.
(13) Refiled herewith after confidential treatment request with
respect to certain schedules and exhibits was denied by the
Commission. Confidential treatment with respect to certain
schedules and exhibits was granted.
(14) Filed as an Exhibit (bearing the same exhibit number) to the
registrant's Form S-2 dated August 18, 1998.
(15) Filed as an Exhibit (bearing the same exhibit number) to the
registrant's Report on Form 10-Q for the period ended June 26,
1998.
(a) (2) Schedule. The following consolidated financial statement
schedule for each of the three years in the period ended September 30,
1998 is included pursuant to Item 14(d):
Report of Independent Accountants on Financial Statements
Schedule
Schedule II--Valuation and Qualifying Accounts
(a) (3) One report on Form 8-K was filed during the quarter ending
September 30, 1998.
The Company filed a Form 8-K Report, dated September 10, 1998,
reporting under item 5 thereof Plug Power LLC's (a joint venture
between MTI and DTE) its preliminary approval from its Board of
Managers concerning its understanding with GE Power Systems, to
brand, market and distribute Plug Power's residential fuel cells
through a joint venture marketing subsidiary.
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: December 16, 1998 By: /s/ G.C. McNamee
George C. McNamee
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
<PAGE>
/s/ George C. McNamee Chief Executive Officer and
George C. McNamee Chairman of the Board of Directors 12/16/98
/s/ Cynthia A. Scheuer Chief Financial Officer
Cynthia A. Scheuer (Principal Financial and Accounting
Officer) "
/s/ Dale W. Church Director "
Dale W. Church
/s/ Edward A. Dohring Director "
Edward A. Dohring
/s/ Alan P. Goldberg Director "
Alan P. Goldberg
/s/ E. Dennis O'Connor Director "
E. Dennis O'Connor
/s/ Walter L. Robb Director "
Dr. Walter L. Robb
/s/ Beno Sternlicht Director "
Dr. Beno Sternlicht
REPORT OF INDEPENDENT ACCOUNTANTS
ON FINANCIAL STATEMENT SCHEDULES
To the Board of Directors and Shareholders
of Mechanical Technology Incorporated
Our audits of the consolidated financial statements referred to in our
report dated November 6, 1998 appearing on page F-2 of this Form 10-K of
Mechanical Technology Incorporated also included an audit of the
financial statement schedule listed in Item 14(a)(2) of this Form 10-K.
In our opinion, this financial statement schedule presents fairly, in
all material respects, the information set forth therein when read in
conjunction with the related consolidated financial statements.
/s/ PricewaterhouseCoopers L.L.P.
Albany, New York
November 6, 1998
SCHEDULE II
MECHANICAL TECHNOLOGY INCORPORATED AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
(DOLLARS IN THOUSANDS)
Additions
Balance at Charged to Charged Balance
beginning costs and to other at end of
Description of period expenses accounts Deductions period
<PAGE>
Allowance for
doubtful accounts
Year ended
September 30:
1998 $ 94 $ 95 $ - $ 90 $ 99
1997 73 49 - 28 94
1996 58 26 - 11 73
Valuation allowance
for deferred tax assets
Year ended
September 30:
1998 $ 2,754 $ 1,335 $ - $ - $ 4,089
1997 4,264 - - 1,510 2,754
1996 5,565 - - 1,301 4,264
Includes accounts written off as uncollectible, recoveries and the effect
of currency exchange rates.
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, 1998 and 1997 . . F-3 & F-4
Statements of Operations for the Years Ended
September 30, 1998, 1997 and 1996 . . . . . . . . F-5
Statements of Shareholders' Equity for the Years Ended
September 30, 1998, 1997 and 1996 . . . . . . . . F-6
Statements of Cash Flows for the Years Ended
September 30, 1998, 1997 and 1996 . . . . . . . .F-7 - F-8
Notes to Consolidated Financial Statements . . . . . F-9 - F-29
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.
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders
of Mechanical Technology Incorporated
In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of operations and retained earnings and of
cash flows present fairly, in all material respects, the financial
position of Mechanical Technology Incorporated and Subsidiaries at
September 30, 1998 and 1997, and the results of their operations and their
cash flows for each of the three years in the period ended September 30,
1998, in conformity with generally accepted accounting principles. 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 of these statements in
accordance with generally accepted auditing standards which 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, assessing the accounting
principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for the opinion expressed above.
/s/ PricewaterhouseCoopers L.L.P.
Albany, New York
November 6, 1998
<PAGE>
MECHANICAL TECHNOLOGY INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
September 30, 1998 and 1997
(Dollars in thousands)
Restated
1998 1997
------- --------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 5,567 $ 1,421
Accounts receivable, less allowance of
$99 (1998) and $94 (1997) 4,959 4,482
Accounts receivable - Joint Venture 87 -
Inventories 3,748 3,386
Taxes receivable 8
Note receivable - current 327 315
Prepaid expenses and other current assets 472 102
Net assets of a discontinued operation 8 3,186
------- --------
Total Current Assets 15,176 12,892
Property, Plant and Equipment, net 4,467 749
Note receivable - noncurrent 264 335
Investment in Joint Venture 1,221 27
------- --------
Total Assets $21,128 $ 14,003
======= ========
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>
MECHANICAL TECHNOLOGY INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (Continued)
September 30, 1998 and 1997
(Dollars in thousands)
Restated
1998 1997
------- --------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Income taxes payable $ 5 $ 73
Accounts payable 2,064 1,389
Accrued liabilities 3,328 3,734
Contribution payable-Joint Venture 4,000 -
Total Current Liabilities 9,397 5,196
LONG-TERM LIABILITIES
Deferred income taxes and other credits 607 594
------- --------
Total Liabilities $10,004 $ 5,790
------- --------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY
Common stock, par value $1 per share,
authorized 15,000,000; issued
7,182,645 (1998) and 5,908,661 (1997) 7,183 5,909
Paid-in capital 19,866 13,923
Deficit (15,885) (11,569)
------- --------
11,164 8,263
Foreign currency translation adjustment (11) (19)
Common stock in treasury, at cost,
3,000 shares (1998 and 1997) (29) (29)
Restricted stock grants - (2)
------- --------
Total Shareholders' Equity 11,124 8,213
------- --------
Total Liabilities and Shareholder's Equity $21,128 $ 14,003
======= ========
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>
MECHANICAL TECHNOLOGY INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Years Ended September 30, 1998, 1997 and 1996
(Dollars in thousands, except per share)
Restated Restated
1998 1997 1996
------- -------- --------
Net sales $21,028 $ 24,102 $ 22,755
Cost of sales 12,386 14,474 13,925
------- -------- --------
Gross profit 8,642 9,628 8,830
Selling, general and
administrative expenses 5,812 7,015 7,071
Product development
and research costs 831 1,020 690
------- -------- --------
Operating income 1,999 1,593 1,069
Interest expense (102) (323) (790)
Gain on sale of division
/subsidiary - 2,012 750
Equity in joint venture loss (3,806) (330) -
Other (expense)income, net (97) (251) (356)
------- -------- --------
(Loss)Income from continuing
operations before extraordinary
item and income taxes (2,006) 2,701 673
Income tax expense 25 143 75
------- -------- --------
(Loss)Income from continuing
operations before extraordinary
item (2,031) 2,558 598
Extraordinary Item- gain on
extinguishment of debt, net
of taxes ($106) - 2,507 -
------- -------- --------
(Loss)Income from continuing
operations (2,031) 5,065 598
(Loss)Income from discontinued
operations (2,285) (545) 3,150
------- -------- --------
Net(loss)income $(4,316) $ 4,520 $ 3,748
======= ======== ========
Earnings per share (Basic and Diluted):
(Loss)income before extraordinary
item $ (.35) $ .45 $ .15
Extraordinary Item - .44 -
(Loss)income on discontinued operations (.38) (.09) -
------- -------- --------
Net (Loss)income $ (.73) $ .80 $ .15
======= ======== ========
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>
MECHANICAL TECHNOLOGY INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
For the Years Ended September 30, 1998, 1997 and 1996
(Dollars in thousands)
Restated Restated
1998 1997 1996
-------- -------- --------
COMMON STOCK
Balance, October 1 $ 5,909 $ 4,902 $ 3,569
Issuance of shares - options 78 - -
Issuance of Shares 1,196 1,007 1,333
-------- -------- --------
Balance, September 30 $ 7,183 $ 5,909 $ 4,902
======== ======== ========
PAID-IN-CAPITAL
Balance, October 1 $ 13,923 $ 13,423 $ 12,856
Issuance of shares - options 147 - -
Issuance of shares 5,796 500 567
-------- -------- --------
Balance, September 30 $ 19,866 $ 13,923 $ 13,423
======== ======== ========
DEFICIT
Balance, October 1 $(11,569) $(16,089) $(19,837)
Net(loss)income (4,316) 4,520 3,748
-------- -------- --------
Balance, September 30 $(15,885) $(11,569) $(16,089)
======== ======== ========
FOREIGN CURRENCY TRANSLATION ADJUSTMENT
Balance, October 1 $ (19) $ (19) $ (20)
Adjustments 8 - 1
-------- -------- --------
Balance, September 30 $ (11) $ (19) $ (19)
======== ======== ========
TREASURY STOCK
Balance, October 1 $ (29) $ (29) $ (29)
Restricted stock grants - - -
-------- -------- --------
Balance, September 30 $ (29) $ (29) $ (29)
======== ======== ========
RESTRICTED STOCK GRANTS
Balance, October 1 $ (2) $ (24) $ (29)
Grants issued/vested,net 2 22 5
-------- -------- --------
Balance, September 30 $ - $ (2) $ (24)
======== ======== ========
SHAREHOLDERS' EQUITY
September 30 $ 11,124 $ 8,213 $ (2,164)
======== ======== ========
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>
MECHANICAL TECHNOLOGY INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For The Years Ended September 30, 1998, 1997 and 1996
(Dollars in thousands)
Restated Restated
1998 1997 1996
------- -------- --------
OPERATING ACTIVITIES
(Loss)Income from continuing
operations $(2,031) $ 5,065 $ 598
Adjustments to reconcile net income
to net cash provided (used) by
continuing operations:
Depreciation and amortization 323 243 233
Gain on extinguishment of debt,
net of taxes - (2,507) -
Gain on sale of subsidiaries - (2,012) (750)
Equity in joint venture loss 3,806 330 -
Accounts receivable reserve 5 21 15
Loss on sale of fixed assets 9 - -
Deferred income taxes and other credits 13 (170) (15)
Other - 31 29
Changes in operating assets and liabilities net
of effects from discontinued operations:
Accounts receivable (1,069) (44) (1,635)
Inventories (362) 228 (664)
Escrow deposit - - 750
Prepaid expenses and other current
assets (374) (18) 240
Accounts payable 788 (87) 97
Income taxes (76) (49) 4
Accrued liabilities (519) 58 1,049
------- -------- --------
Net cash provided (used) by
continuing operations 513 1,089 (49)
------- -------- --------
Discontinued Operations:
(Loss)/Income from discontinued
operations (2,285) (574) 3,150
Adjustments to reconcile income to net cash
provided (used) by discontinued operations:
Changes in net assets/liabilities
of discontinued operations 3,178 31 (1,598)
Net assets transferred from
discontinued operations (878) - -
------- -------- --------
Net cash provided (used) by discontinued
operations 15 (543) 1,552
------- -------- --------
Net cash provided by operations 528 546 1,503
------- -------- --------
INVESTING ACTIVITIES
Purchases of property, plant &
equipment (3,166) (377) (170)
Proceeds from sale of subsidiaries - 2,600 750
Principal payments from note receivable 59 - -
Note receivable Plug Power (500) - -
------- -------- --------
<PAGE>
Net cash (used)provided by investing
activities (3,607) 2,223 580
------- -------- --------
FINANCING ACTIVITIES
Private placement of common stock,
net expenses - - 1,900
Proceeds from options exercised 225 - -
Proceeds from rights offering 7,178 - -
Costs of rights offering (186) - -
Net (payments) under line-of-credit
and note agreement - (100) (3,308)
Principal payments on long-term debt - (1,310) (688)
------- -------- --------
Net cash provided(used)by financing
activities 7,217 (1,410) (2,096)
------- -------- --------
Effect of exchange rate changes on
cash flows 8 - 1
Increase (decrease) in cash and
cash equivalents 4,146 1,359 (12)
Cash and cash equivalents -
beginning of year 1,421 62 74
------- -------- --------
Cash and cash equivalents -
end of year $ 5,567 $ 1,421 $ 62
======= ======== ========
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>
MECHANICAL TECHNOLOGY INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
For The Years Ended September 30, 1998, 1997 and 1996
(Dollars in thousands)
Restated Restated
1998 1997 1996
------- -------- --------
Supplemental Disclosures
NONCASH INVESTING ACTIVITIES
Contribution of net assets to
joint venture
Accounts receivable $ 500 $ - $ -
Note receivable 500 - -
Inventories - 1 -
Property, plant and equipment, net - 452 -
Accounts payable - (46) -
Accrued liabilities - (50) -
Contribution payable -
Joint Venture 4,000 - -
------- -------- --------
$ 5,000 $ 357 $ -
------- -------- --------
Proceeds from sale of subsidiary
Notes receivable $ - $ 650 $ -
------- -------- --------
Net noncash provided(used) in
investing activities $ 5,000 $ 1,007 $ -
------- -------- --------
NONCASH 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) $ -
------- -------- --------
Net noncash provided(used)in
investing/financing activities $ 5,000 $ (1,706) $ -
======= ======== ========
The accompanying notes are an integral part of the consolidated financial
statements.
<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. The Company has a 50% interest in a joint
venture. The consolidated financial statements include the Company's
investments in the joint venture (including obligations to invest), plus
its share of undistributed earnings/losses. The investment is included in
the financial line "Investment in Joint Venture".
Use of Estimates
The preparation of the consolidated 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 consolidated financial statements and the reported amounts of
revenues and expenses during the reporting 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.
Property, Plant, and Equipment
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. Significant additions or improvements
extending assets' useful lives are capitalized; normal maintenance and
repair costs are expensed as incurred. The cost of fully depreciated
assets remaining in use are included in the respective asset and
accumulated depreciation accounts. When items are sold or retired,
related gains or losses are included in net income.
<PAGE>
MECHANICAL TECHNOLOGY INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) Accounting Policies (continued)
Income Taxes
The Company accounts for taxes in accordance with Financial Accounting
Standard No. 109, "Accounting for Income Taxes," which requires the use of
the asset and liability method of accounting for income taxes. Under the
asset and liability method, deferred income taxes are recognized for the
tax consequences of "temporary differences" by applying enacted statutory
tax rates applicable for future years to differences between financial
statement and tax bases of existing assets and liabilities. Under FAS No.
109, the effect of tax rate changes on deferred taxes is recognized in the
income tax provision in the period that includes the enactment date. The
provision for taxes is reduced by investment and other tax credits in the
years such credits become available.
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. 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 estimable.
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 or losses resulting from the
translation of the foreign subsidiary's balance sheet are accumulated in a
separate component of shareholders' equity.
Cash and Cash Equivalents
Cash and cash equivalents consist of cash and highly liquid short-term
investments with maturities of less than three months.
Earnings (Loss) Per Share
Effective October 1, 1997, the Company adopted Financial Accounting
Standard No. 128, "Earnings per Share." In accordance with this Standard,
net income(loss) per share is computed using the weighted average number
of common shares outstanding during each year. Diluted net income(loss)
per share includes the effects of all potentially dilutive securities.
Earnings per share amounts for all periods presented have been computed in
accordance with this Standard.
<PAGE>
MECHANICAL TECHNOLOGY INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) Accounting Policies (continued)
Advertising
The costs of advertising are expensed as incurred. Advertising expense
was approximately $83, $92 and $82 thousand in 1998, 1997, and 1996,
respectively.
Asset Impairment
The Company adopted SFAS No. 121, "Accounting For The Impairment of Long-
Lived Assets and for Long-Lived Assets To Be Disposed Of." This statement
requires companies to record impairments to long-lived assets, certain
identifiable intangibles, and related goodwill when events or changing
circumstances indicate a probability that the carrying amount of an asset
may not be fully recovered. Impairment losses are recognized when
expected future cash flows are less than the asset's carrying value.
Reclassification and Restatement
Certain 1997 and 1996 amounts have been reclassified to conform with the
1998 presentation. The financial statements for 1997 and 1996 have also
been restated to reflect the discontinuance of the Company's Technology
Division (See Note 15).
(2) Inventories
Inventories consist of the following:
(Dollars in thousands) 1998 1997
-------- --------
Finished goods $ 112 $ 205
Work in process 791 967
Raw materials, components and assemblies 2,845 2,214
-------- --------
$ 3,748 $ 3,386
======== ========
(3) Property, Plant and Equipment
Property, plant and equipment consists of the following:
(Dollars in thousands) 1998 1997
-------- --------
Land and improvements $ 125 $ -
Buildings and improvements 6,111 -
Leasehold improvements 517 568
Machinery and equipment 4,285 3,092
Office furniture and fixtures 866 579
-------- --------
11,904 4,239
<PAGE>
MECHANICAL TECHNOLOGY INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(3) Property, Plant and Equipment (continued)
(Dollars in thousands) 1998 1997
-------- --------
Less accumulated depreciation 7,437 3,490
-------- --------
$ 4,467 $ 749
======== ========
At the beginning of 1998, assets with a net book value of $878 thousand
consisting primarily of land, building and management information systems
were transferred from discontinued operations to continuing operations.
Construction in progress, included in buildings and improvements, was
approximately $1,371 thousand in 1998.
At the end of 1998, the Company was committed to approximately $2,856
thousand of future expenditures for new equipment and facilities.
Depreciation expense was $317, $216 and $194 thousand for 1998, 1997
and 1996, respectively. Repairs and maintenance expense was $177, $175
and $182 thousand for 1998, 1997 and 1996, respectively.
The cost and accumulated depreciation of buildings and improvements
leased to Plug Power was:
(Dollars in thousands) 1998 1997 1996
-------- -------- --------
Cost $ 1,547 $ 21 $ -
Accumulated depreciation (660) (17) -
-------- -------- --------
$ 887 $ 4 $ -
======== ======== ========
(4) Notes Receivable
Notes receivable consists of the following:
(Dollars in thousands) 1998 1997
-------- --------
$250 with an interest rate of
10%, interest and principal due
September 30, 1998 (A) $ 250 $ 250
$400 with an interest rate of
10%, due in monthly installments
through September 30, 2002 341 400
-------- --------
591 650
Less: Current portion (327) (315)
-------- --------
$ 264 $ 335
======== ========
<PAGE>
MECHANICAL TECHNOLOGY INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(4) Notes Receivable (continued)
(A) The principal amount of this note may be reduced in accordance with
the terms of the note in the event of a sale of the fixed assets. The
purchaser has requested that the principal amount of the note be reduced
to reflect the resale value of certain assets of L.A.B. The Company is
enforcing its rights with respect to the note and is currently negotiating
the collection of this note.
(5) Investment in Joint Venture
On June 27, 1997, the Company and Edison Development Corp. ("EDC"), a
subsidiary of DTE Energy Co. formed a joint venture, Plug Power, L.L.C.
("Plug Power"), to further develop the Company's Proton Exchange Membrane
Fuel Cell technology. In exchange for its contribution of contracts and
intellectual property and certain other net assets that had comprised the
fuel cell research and development business activity of the Technology
segment (which assets had a net book value of $357 thousand), the Company
received a 50% interest in Plug Power. The Company's interest in Plug
Power may be reduced in certain circumstances. EDC made an initial cash
contribution of $4.75 million in exchange for the remaining 50% interest
in Plug Power. The Company's investment in Plug Power is included in the
balance sheet caption "Investment in Joint Venture"; the assets
contributed by the Company to Plug Power had previously been included in
the assets of the Company's Technology segment. See the supplemental
disclosure regarding Contribution of Net Assets to Joint Venture in the
Consolidated Statements of Cash Flows for additional information regarding
the assets contributed by the Company to Plug Power. The Company recorded
the carrying value of the net assets contributed as its initial investment
in Plug Power in recognition of the nature of the venture's undertaking.
On April 15, 1998, EDC contributed $2.25 million in cash to Plug Power.
The Company contributed a below-market lease for office and manufacturing
facilities in Latham, New York valued at $2 million and purchased a one-
year option to match the remaining $250 thousand of EDC's contribution.
In May 1998, EDC contributed an additional $2 million to Plug Power and
the Company purchased another one-year option to match that contribution.
The Company paid approximately $191 thousand for the options, which mature
in April 1999 ($250 thousand) and May 1999 ($2 million). If the Company
does not exercise its options, they will lapse.
In August, 1998, the Company committed to contribute an additional $5
million dollars (in cash, accounts receivable and research credits) to
Plug Power between August 5, 1998 and March 31, 1999 and recorded a
liability representing this obligation. Such contributions will
increase the Company's total contributions to Plug Power (including
contributions of cash, assets, research credits, and a below market
lease) to $11.75 million over the period commencing on June 27, 1997,
and ending on March 31, 1999.
<PAGE>
MECHANICAL TECHNOLOGY INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(5) Investment in Joint Venture (continued)
On August 5, 1998, the Company made a short term loan to Plug Power of
$500 thousand, which was subsequently contributed to capital on
September 23, 1998. The Company also converted $500 thousand of its
accounts receivable from Plug Power to capital on September 23, 1998.
At September 30, 1998, the remaining obligation to provide additional
funds to Plug Power was $4 million.
The Company has recorded its proportionate share of Plug Power's losses
to the extent of its recorded investment in Plug Power (including the
foregoing obligation to contribute an additional $4 million through
March 31, 1999).
At September 30, 1998, the difference between the carrying value of the
Company's investment in Plug Power and its interest in the underlying
equity consists of the following:
(Dollars in thousands)
Calculated 50% ownership $ 2,431
Unrecognized negative goodwill (2,086)
Value of below market lease contribution (2,000)
Calculated 50% of equity value under option (1,125)
Contribution liability 4,000
-------
Carrying value of Investment in Joint Venture $ 1,221
=======
(6) 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) for the years ended September 30, consists of
the following:
(Dollars in thousands) 1998 1997 1996
-------- -------- --------
Continuing operations
Federal $ 15 $ 62 $ 44
State 10 81 31
Deferred - - -
-------- -------- --------
25 143 75
-------- -------- --------
Discontinued operations
Federal - (17) (8)
State - (12) (3)
Deferred - - -
-------- -------- --------
- (29) (11)
======== ======== ========
<PAGE>
MECHANICAL TECHNOLOGY INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(6) Income Taxes (continued)
(Dollars in thousands) 1998 1997 1996
-------- -------- --------
Extraordinary Item
Federal - 28 -
State - 78 -
Deferred - - -
-------- -------- --------
- 106 -
-------- -------- --------
$ 25 $ 220 $ 64
======== ======== ========
The significant components of deferred income tax expense (benefit) for
the years ended September 30, are as follows:
(Dollars in thousands) 1998 1997 1996
-------- -------- --------
Continuing operations
Deferred tax (benefit) expense $ (667) $ (356) $ (310)
Net operating loss carryforward 105 1,223 635
Valuation allowance 562 (867) (325)
-------- -------- --------
- - -
-------- -------- --------
Discontinued operations
Deferred tax (benefit) expense (508) 60 ( 52)
Net operating loss carryforward (265) (251) 1,028
Valuation allowance 773 191 (976)
-------- -------- --------
- - -
-------- -------- --------
$ - $ - $ -
======== ======== ========
Extraordinary item
Deferred tax (benefit) expense - (28) -
Net operating loss carryforward - 862 -
Valuation allowance - (834) -
-------- -------- --------
- - -
-------- -------- --------
$ - $ - $ -
======== ======== ========
The Company's effective income tax rate from continuing operations
differed from the Federal statutory rate as follows:
1998 1997 1996
-------- -------- --------
Federal statutory tax rate (34%) 34% 34%
State taxes, net of
federal tax effect - 2% 3%
Meals and entertainment - - 1%
Additional tax gain on sale of
subsidiary - - 11%
Change in valuation allowances 28% (32%) (48%)
Alternative minimum tax - 2% 7%
Other, net 7% (1%) 3%
-------- -------- --------
1% 5% 11%
======== ======== ========
<PAGE>
MECHANICAL TECHNOLOGY INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(6) Income Taxes (continued)
The deferred tax assets and liabilities as of September 30, consist of the
following tax effects relating to temporary differences and carryforwards:
(Dollars in thousands)
1998 1997
-------- --------
Current deferred tax assets:
Loss provisions for Discontinued
Operations $ 337 $ -
Bad debt reserve 96 52
Inventory valuation 161 165
Inventory capitalization 20 40
Vacation pay 66 111
Warranty and other sale obligations 25 51
Other reserves and accruals 151 358
-------- --------
856 777
Valuation allowance (856) (777)
-------- --------
Net current deferred tax assets $ - $ -
======== ========
Noncurrent deferred tax assets (liabilities):
Net operating loss $ 1,951 $ 1,791
Property, plant and equipment (9) (251)
Investment in Joint Venture 954 -
Other 187 288
Alternative minimum tax credit 150 149
-------- --------
3,233 1,977
Valuation allowance (3,233) (1,977)
Other credits (607) (594)
-------- --------
Noncurrent net deferred tax
liabilities and other credits $ (607) $ (594)
======== ========
The valuation allowance at year ended September 30, 1998 is $4,089
thousand and at September 30, 1997 was $2,754 thousand. During the year
ended September 30, 1998, the valuation allowance increased by $1,335
thousand.
At September 30, 1998, the Company has unused Federal net operating loss
carryforwards of approximately $5,738 thousand. The Federal net operating
loss carryforwards if unused will begin to expire during the year ended
September 30, 2009. The use of $5,339 thousand of these carryforwards is
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, 1998, the Company has available alternative minimum tax
credit carryforward of approximately $150 thousand.
The Company made cash payments, net of refunds, for income taxes of $42,
$361 and $61 thousand for 1998, 1997 and 1996, respectively.
<PAGE>
MECHANICAL TECHNOLOGY INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(7) Accrued Liabilities
Accrued liabilities consist of the following:
(Dollars in thousands) 1998 1997
-------- --------
Salaries, wages and related expenses $ 999 $ 924
Acquisition and disposition costs 410 665
Legal and professional fees 305 445
Warranty and other sale obligations 607 329
Contingent liabilities 150 350
Accrued severance 143 300
Deferred income 267 250
Commissions 213 230
Interest expense 8 103
Other 226 138
-------- --------
$ 3,328 $ 3,734
======== ========
(8) Debt
The Company has a working capital line of credit available in the amount
of $4 million with interest payable monthly at a rate of prime (8.5% at
September 30, 1998) or LIBOR plus 2.5% (7.875% at September 30, 1998), and
a $1 million equipment loan/lease line of credit at an interest rate of
LIBOR plus 2.75% (8.125% at September 30, 1998). The lines of credit
expire on January 31, 2000. No amounts were outstanding under these lines
at September 30, 1998 and 1997.
The Industrial Development Agency for the Town of Colonie has agreed to
issue $6 million in Industrial Development Revenue ("IDR") Bonds on behalf
of the Company to assist in the construction of a new building for
Advanced Products and the Company's corporate staff and renovation of
existing buildings leased to Plug Power. The construction project is due
to be completed in April 1999. First Albany Companies Inc. ("FAC"), which
owns 34% of the Company's stock, will underwrite the sale of the IDR
Bonds. Proceeds of the IDR Bonds will be deposited with a trustee for the
bondholders. The Company may draw the bond proceeds to cover qualified
project costs. The bond closing is expected to be completed on or about
December 17, 1998. FAC will receive no fees for underwriting the IDR
Bonds but will be reimbursed for its out-of-pocket costs.
Additionally, KeyBank has agreed to issue a $6 million direct pay letter
of credit to enhance the $6 million IDR Bonds to be issued on the
Company's behalf on or about December 17, 1998. The KeyBank credit
agreements require the Company to meet certain covenants, including a
fixed charge coverage and leverage ratio. Further, if certain performance
standards are achieved, the interest rates on the debt may be reduced.
<PAGE>
MECHANICAL TECHNOLOGY INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(8) Debt (continued)
The credit agreement also requires the Company to grant a first lien on
all consolidated assets of the Company, exclusive of its investment in
Plug Power, a first mortgage on all land and buildings owned by the
Company and a first lien on any equipment purchased by the Company.
The weighted average interest rate for the Note Payable and Line of Credit
draws during 1998 was 9.02%, 10.75% during 1997 and 13.2% during 1996.
Cash payments for interest were $97, $201 and $477 thousand for 1998, 1997
and 1996, respectively.
(9) Shareholders' Equity
On September 30, 1998, the Company completed the sale of 1,196,399 shares
of common stock to current shareholders through a rights offering. The
offering raised approximately $7,178 thousand before offering costs of
approximately $186 thousand for net proceeds of approximately $6,992
thousand. The Company will use some or all of the proceeds of the
offering for investment in and/or loans to Plug Power. In addition, some
proceeds may be used for acquisitions for the Company's core businesses,
efforts to increase market share, working capital, general corporate
purposes and other capital expenditures.
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, valued at
$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 were recorded as a
component of Shareholders' Equity. The value of the grants, net of
accumulated amortization and write-offs, was $0 at September 30, 1998 and
$2 thousand at September 30, 1997.
<PAGE>
MECHANICAL TECHNOLOGY INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(9) Shareholders' Equity (continued)
Changes in common shares for 1998, 1997 and 1996 are as follows:
Common Shares 1998 1997 1996
- ------------- -------- -------- --------
Balance, October 1 5,908,661 4,902,201 3,568,868
Issuance of shares for
stock option exercises 77,585 - -
Issuance of shares for
stock sale 1,196,399 1,000,000 1,333,333
Issuance of shares -
consultant - 6,460 -
-------- -------- --------
Balance, September 30 7,182,645 5,908,661 4,902,201
======== ======== ========
Treasury Shares
Balance, October 1 and
September 30 3,000 3,000 3,000
======== ======== ========
(10) Earnings per Share
The amounts used in computing earnings per share and the effect on income
and the weighted average number of shares of potentially dilutive
securities are as follows:
(Dollars in Thousands) 1998 1997 1996
- -------------------------------------------------------------------------------
(Loss) income before extraordinary
item and available to common
stockholders $ (2,031) $ 2,558 $ 598
Weighted average number of
shares:
Weighted average number of
shares used in net (loss)/
income per share 5,937,158 5,662,827 3,911,952
Effect of dilutive securities:
Stock options - 9,218 -
- -------------------------------------------------------------------------------
Weighted average number of
shares used in diluted net
(loss)/income per share 5,937,158 5,672,045 3,911,952
- -------------------------------------------------------------------------------
<PAGE>
MECHANICAL TECHNOLOGY INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(10) Earnings per Share (continued)
During fiscal 1998, options to purchase 404,915 shares of common stock at
prices ranging from $2.44 to $6 per share were outstanding but were not
included in the computation of Earnings per Share-assuming dilution
because the Company incurred a loss from continuing operations.
Therefore, no potential common shares are included in the computation.
The options, which expire between December 20, 2006 and August 31, 2008,
were still outstanding at September 30, 1998. During fiscal 1997,
options to purchase 195,000 shares of common stock at a price of $3.44
per share were outstanding but were not included in the computation of
Earnings per Share-assuming dilution because the exercise price was
greater than the average market price of the common shares. Therefore,
no potential common shares are included in the computation. The
options, which expire August 27, 2007 were still outstanding at
September 30, 1997.
(11) Stock Option Plan
During December 1996, the shareholders approved a new stock incentive
plan. The plan provides that an initial aggregate number of 500,000 shares
of common stock may be awarded or issued. The number of shares available
under the plan may be increased by 10% of any increase in the number of
outstanding shares of common stock for reasons other than shares issued
under this plan. During 1998 and 1997, the number of shares available
under the plan increased to 719,640 and 600,000 shares respectively.
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. Options are generally
exercisable in from one to five cumulative annual amounts beginning 12
months after the date of grant. Certain options granted may be
exercisable immediately. Option exercise prices are not less than the
market value of the shares on the date of grant. Unexercised options
generally terminate ten years after grant.
For the purpose of applying Financial Accounting Standard No. 123 ("FAS
123"), "Accounting for Stock-Based Compensation", the fair value of each
option granted is estimated on the grant date using the Black-Scholes
Single Option model. The dividend yield was 0% for 1998 and 1997,
respectively. The expected volatility was 102% in 1998 and 78% and in
1997. The expected life of the options is 5 years. The risk free interest
rate ranges from 5.52% to 5.85% in 1998 and 6.12% to 6.67% in 1997. The
Company applies Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees," in accounting for stock options.
Accordingly, no compensation cost has been recognized in 1998 or 1997.
Had compensation cost and fair value been determined pursuant to FAS 123,
net loss would increase from $(4,316) to $(4,773) thousand in 1998 and net
income would decrease from $4,520 to $4,351 thousand in 1997. Basic and
<PAGE>
MECHANICAL TECHNOLOGY INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(11) Stock Option Plan (continued)
diluted loss per share would increase from $(.73) to $(.80) in 1998 and
basic and diluted earnings per share would decrease from $0.80 to $0.76 in
1997. The weighted average fair value of options granted during 1998 and
1997 for purposes of FAS 123, is $4.70 and $1.96 per share, respectively.
Activity with respect to the plan is as follows:
1998 1997
-------- --------
Shares under option
at October 1 415,600 -
Options granted 198,500 423,100
Options exercised (77,585) -
Options canceled (131,600) (7,500)
-------- --------
Shares under option
at September 30 404,915 415,600
======== ========
Options exercisable
at September 30 180,915 76,800
Shares available for
granting of options 237,140 184,400
The weighted average exercise price is as follows:
1998 1997
-------- --------
Shares under option
at October 1 $ 2.93 $ -
Options granted 5.75 2.91
Options exercised 2.87 -
Options canceled 2.61 2.44
Shares under option at
September 30 4.37 2.91
Options exercisable at
September 30 3.96 2.93
<PAGE>
MECHANICAL TECHNOLOGY INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(11) Stock Option Plan (continued)
The following is a summary of the status of options outstanding at
September 30, 1998:
Outstanding Options Exercisable Options
- ----------------------------------- --------------------------------
Weighted
Average Weighted Weighted
Exercise Remaining Average Average
Price Contractual Exercise Exercise
Range Number Life Price Number Price
$2.44-$3.44 212,415 8.8 $3.16 110,915 $3.03
$4.09-$6.00 192,500 9.7 $5.84 70,000 $6.00
(12) Retirement Plan
The Company maintains a voluntary 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 investment of
employee contributions to the plan is self-directed. The cost of the plan
was $83, $179 and $187 thousand for 1998, 1997 and 1996, respectively.
(13) Commitments and Contingencies
During October 1998, a legal action brought by a group of investors
against the Company related to a stock purchase agreement and side letter
agreements for the sale of the stock of the Company's wholly owned
subsidiary, Ling Electronics, Inc. ("Ling"), was determined in favor of
the Company.
In February 1995, Ling, 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.
<PAGE>
MECHANICAL TECHNOLOGY INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(13) Commitments and Contingencies (continued)
Future minimum rental payments required under noncancelable operating
leases are (dollars in thousands): $386 in 1999; $424 in 2000; $433 in
2001; $438 in 2002; and $342 in 2003. Rent expense under all leases was
$403, $446 and $433 thousand for 1998, 1997 and 1996, respectively.
Future minimum rental income under non-cancelable operating sub-leases are
(dollars in thousands): $165 in 1999; $160 in 2000; $141 in 2001; $150 in
2002; and $105 in 2003.
Rental income under all sub-leases was $66, $19 and $10 thousand in 1998,
1997 and 1996, respectively.
The Company leases certain of its Latham, New York facilities to its 50
percent owned joint venture, Plug Power, L.L.C. Effective October 1,
1998, the Company has leased one building to Plug Power at below market
rent as part of its April 1998 capital contribution to Plug Power. The
lease is for ten years with an option to extend the lease for an
additional 5 years at 70 percent of the current fair market rent. Future
minimum rental income receivable under non-cancelable leases as of
September 30, 1998 are as follows:
(Dollars in thousands)
Fiscal Year Amount
- ----------- ----------
1999 $ 212
2000 212
2001 212
2002 212
2003 212
----------
$ 1,061
==========
(14) Related Party Transactions
At September 30, 1998 First Albany Companies, Inc. ("FAC") owned
approximately 34% of the Company's Common Stock (See Note 18).
During fiscal 1998 and 1997, First Albany Corporation, a wholly owned
subsidiary of FAC, provided financial advisory services in connection with
the sale of the Technology Division in 1998 and the L.A.B. Division in
1997, for which First Albany Corporation was paid fees of $10 and $75
thousand, respectively. During fiscal 1996, First Albany Corporation,
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 thousand fee.
<PAGE>
MECHANICAL TECHNOLOGY INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(14) Related Party Transactions (continued)
On June 27, 1997, the Company entered into a management services agreement
with Plug Power to provide certain services and facilities for a period of
one year. Services billed by the Company are for cost reimbursement only.
Billings under these agreements amounted to $661 and $65 thousand for 1998
and 1997, respectively. Amounts receivable from Plug Power under these
agreements are included in the balance sheet caption "Accounts receivable
- - Joint Venture". During 1998, the Company entered into leases for
manufacturing, laboratory and office space which expire at various dates
through September 30, 2008.
On August 5, 1998, the Company made a short term loan to Plug Power of
$500 thousand, which was subsequently contributed to capital on September
23, 1998. The Company also converted $500 thousand of its accounts
receivable from Plug Power to capital on September 23, 1998. At September
30, 1998, the remaining obligation to provide additional funds to Plug
Power was $4 million.
During 1996, 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 thousand. At September 30, 1996,
several subsidiaries of LIG collectively owned approximately 16.8% of the
Company's common stock.
(15) Discontinued Operations
The sale of the Company's Technology Division, the sole component of the
Technology segment, to NYFM, Incorporated (a wholly owned subsidiary of
Foster-Miller, Inc., a Waltham, Massachusetts-based technology company) on
March 31, 1998 completed management's planned sale of non-core businesses.
Accordingly, the Company no longer includes Technology among its
reportable business segments and now operates in only one segment, Test &
Measurement. The Technology Division is reported as a discontinued
operation as of December 26, 1997, and the consolidated financial
statements have been restated to report separately the net assets and
operating results of the business. In exchange for the Technology
Division's assets, NYFM, Incorporated (a) agreed to pay the Company a
percentage of gross sales in excess of $2.5 million for a period of five
years; (b) assumed approximately $40 thousand of liabilities; and (c)
established a credit for warranty work of approximately $35 thousand.
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
<PAGE>
MECHANICAL TECHNOLOGY INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(15) Discontinued Operations (continued)
approval occurred during the third quarter of fiscal 1996. Accordingly,
the Company no longer includes Defense/Aerospace among 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 as a result of the UTE bankruptcy are
reflected in income from discontinued operations.
Discontinued operations consist of the following:
(Dollars in thousands) 1998 1997 1996
-------- -------- --------
Sales $ 532 $ 7,878 $ 9,146
======== ======== ========
(Loss)income from discontinued
operations before income tax (516) (574) 3,139
Income tax (benefit) - (29) (11)
-------- -------- --------
Net (loss)income from discontinued
operations $ (516) $ (545) $ 3,150
======== ======== ========
Loss on disposal of Division $ (1,769) - -
Income tax (benefit) - - -
-------- -------- --------
Loss on disposal of Division $ (1,769) $ - $ -
======== ======== ========
The assets and liabilities of the Company's discontinued operations are as
follows at September 30:
(Dollars in thousands) 1998 1997
-------- --------
Assets (primarily accounts receivable
at September 30, 1998) $ 1,136 $ 3,968
Liabilities (primarily accrued expenses
at September 30, 1998) 1,128 782
-------- --------
Net Assets $ 8 $ 3,186
======== ========
Assets with a net book value of $878 thousand consisting primarily of
land, building and management information systems were transferred to
continuing operations on October 1, 1997.
(16) Sale of Division/Subsidiary
L.A.B. Division
On September 30, 1997, the Company sold all of the assets of its L.A.B.
Division to Noonan Machine Company of Franklin Park, IL. The Company
<PAGE>
MECHANICAL TECHNOLOGY INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(16) Sale of Division/Subsidiary (continued)
received $2,600 thousand in cash and two notes, totaling $650 thousand,
from Noonan Machine Company. The purchaser has requested that the
principal amount of the note be reduced to reflect the resale value of
certain assets of L.A.B. The Company is enforcing its rights with respect
to the note. The net proceeds from the sale were used to pay down all
outstanding debt and build working capital.
The sale resulted in a $2,012 thousand gain, which was recorded in the
fourth quarter of fiscal year 1997. In addition, $250 thousand of the
proceeds associated with one of the notes was recorded as deferred revenue
due to contingencies associated with the realization of this note. This
note is still outstanding as of September 30, 1998.
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.
The Company received $13,250 thousand in cash from Phase Metrics and
ProQuip forgave a $316 thousand intercompany debt due from the Company.
The net proceeds from the sale were used to reduce term debt by $8,000
thousand and to increase working capital by $3,776 thousand.
The sale resulted in a $6,779 thousand gain, which was recorded during the
first quarter of fiscal year 1995. In addition, $750 thousand 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.
(17) Geographic and Segment Information
The Company sells its products on a worldwide basis with its principal
markets listed in the table below where information on export sales is
summarized by geographic area for the Company as a whole:
(Dollars in thousands)
Geographic Area 1998 1997 1996
- --------------- -------- -------- --------
United States $ 17,022 $ 17,290 $ 15,050
Europe 1,072 1,223 2,909
Japan 1,534 1,243 1,321
Pacific Rim 834 1,901 1,286
China 302 1,900 1,307
Canada 228 178 341
Rest of World 36 367 541
-------- -------- --------
Total Sales $ 21,028 $ 24,102 $ 22,755
======== ======== ========
<PAGE>
MECHANICAL TECHNOLOGY INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(17) Geographic and Segment Information (continued)
One customer accounted for 11.5% of sales during fiscal 1998.
The Company operates in one business segment, Test and Measurement, which
develops, manufactures, markets and services sensing instruments,
computer-based balancing systems for aircraft engines, vibration test
systems and power conversion products.
The accounting policies of the Test and Measurement segment are the same
as those described in the summary of significant accounting policies. The
Company evaluates performance based on profit or loss from operations
before income taxes.
The following table details information about the Test and Measurement
segment profit or loss, segment assets and shows the reconciliation of
segment data to the Company's consolidated totals. The Company does not
allocate income taxes or unusual items to segments. In addition, segments
noncash items include any depreciation and amortization in reported profit
or loss.
Reconciling
(Dollars in thousands) Test and Item: Consolidated
1998 Measurement Corporate Totals
- ---- ----------- ----------- ------------
Revenues $ 21,028 $ - $ 21,028
Interest revenue - 65 65
Interest expense - 102 102
Depreciation and
amortization 205 118 323
Equity in joint venture loss - (3,806) (3,806)
Income (loss) from
continuing operations
before tax 2,155 (4,161) (2,006)
Income (loss) from
continuing operations 2,155 (4,186) (2,031)
Loss on discontinued
operations - (2,285) (2,285)
Total income (loss) 2,155 (6,471) (4,316)
Segment assets 9,424 11,696 21,120
Net assets discontinued
operations - 8 8
Expenditures for segment
assets 202 2,964 3,166
<PAGE>
MECHANICAL TECHNOLOGY INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(17) Geographic and Segment Information (continued)
Reconciling
(Dollars in thousands) Test and Item: Consolidated
1997 Measurement Corporate Totals
- ---- ----------- ----------- ------------
Revenues $ 24,102 $ - $ 24,102
Interest revenue - - -
Interest expense - 323 323
Depreciation and
amortization 206 37 243
Equity in joint venture loss - (330) (330)
Gain on sale of
division - 2,012 2,012
Income from continuing
operations before
extraordinary item
and tax 2,414 287 2,701
Income from continuing
operations before
extraordinary item 2,411 147 2,558
Extraordinary item, net
of tax - 2,507 2,507
Loss on discontinued
operations - (545) (545)
Total income 2,411 2,109 4,520
Segment assets 8,696 2,121 10,817
Net assets discontinued
operations - 3,186 3,186
Expenditures for segment
assets 375 2 377
1996
- ----
Revenues $ 22,755 $ - $ 22,755
Interest revenue - - -
Interest expense - 790 790
Depreciation and
amortization 203 30 233
Gain on sale of
division - 750 750
Income (loss) from continuing
operations before tax 2,006 (1,333) 673
Income (loss) from
continuing operations 2,004 (1,406) 598
Income from discontinued
operations - 3,150 3,150
Total income 2,004 1,744 3,748
Segment assets 9,577 348 9,925
Net assets discontinued
operations - 3,556 3,556
Expenditures for segment assets 169 1 170
<PAGE>
MECHANICAL TECHNOLOGY INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(17) Geographic and Segment Information (continued)
The reconciling items are the amounts of revenues earned and expenses
incurred for corporate operations, which is not included in the segment
information.
(18) Extraordinary Item- Extinguishment of Debt
During fiscal 1996, 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 was obligated under a Note Payable, due December 31,
1996 (See Note 14).
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. 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. The
Company and FAC entered into an agreement dated as of December 27, 1996
under which the Company issued to FAC 1.0 million shares of Common
Stock in full satisfaction of the Note Payable and accrued interest.
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.
(19) Comprehensive Income
Total comprehensive income for the years ended September 30 consists of:
(Dollars in Thousands) 1998 1997 1996
-------- -------- --------
Net (loss)income $ (4,316) $ 4,520 $ 3,748
Other comprehensive income(loss),
before tax:
Foreign currency translation
adjustments 8 - 1
Income tax related to items of
other comprehensive
income(loss) - - -
-------- -------- --------
Total comprehensive income(loss) $ (4,308) $ 4,520 $ 3,749
======== ======== ========
<PAGE>
Exhibit 4.93
CREDIT AGREEMENT
dated as of September __, 1998
among
MECHANICAL TECHNOLOGY, INCORPORATED
and
KEYBANK NATIONAL ASSOCIATION
<PAGE>
TABLE OF CONTENTS
Page
SECTION 1 DEFINITIONS 1
1.1 Definitions 1
1.2 Other Interpretive Provisions 7
SECTION 2 COMMITMENTS OF THE BANK BORROWING AND
CONVERSION PROCEDURES 8
2.1 Commitment 8
2.3 Letter of Credit Procedures 9
2.4 Certain Conditions 9
SECTION 3 NOTE EVIDENCING LOANS 10
3.1 Note 10
3.2 Recordkeeping 10
SECTION 4 INTEREST 10
4.2 Interest Payment Dates 10
4.3 Setting and Notice of LIBOR Rate 10
4.4 Computation of Interest Rate for Prime Rate Loans 11
SECTION 5 FEES 11
5.1 Letter of Credit Fees 11
SECTION 6 REDUCTION AND TERMINATION OF THE COMMITMENT;
PREPAYMENTS 11
6.1 Reduction or Termination of the Commitment 11
6.2 Voluntary Prepayments 11
SECTION 7 MAKING AND PRORATION OF PAYMENTS; SETOFF; TAXES 11
7.1 Making of Payments 11
7.2 Application of Certain Payments 11
7.3 Due Date Extension 12
7.4 Setoff 12
7.5 Taxes 12
SECTION 8 WARRANTIES 13
8.1 Organization, etc. 13
8.2 Authorization; No Conflict 13
8.3 Validity and Binding Nature 13
8.4 Financial Condition 13
8.5 No Material Change 13
8.7 Ownership of Properties; Liens 14
8.8 Subsidiaries 14
8.9 Pension and Welfare Plans 14
8.11 Public Utility Holding Company Act 15
8.12 Regulation U 15
8.13 Taxes 15
8.14 Solvency, etc. 15
8.15 Environmental Matters 15
8.16 Year 2000 Problem 16
8.17 Copyrights, Patents, Trademarks and Licenses, etc. 16
8.18 Transactions with Affiliates 17
8.19 Information 17
<PAGE>
SECTION 9 COVENANTS 17
9.1 Reports, Certificates and Other Information 17
9.2 Books, Records and Inspections 19
9.3 Insurance 20
9.4 Compliance with Laws; Payment of Taxes and Liabilities 20
9.5 Maintenance of Existence, etc. 20
9.6 Financial Covenants 20
9.8 Liens 21
9.9 Mergers, Consolidations, Sales 22
9.10 Modification of Organizational Documents 22
9.11 Use of Proceeds 22
9.13 Transactions with Affiliates 23
9.14 Employee Benefit Plans 23
9.15 Environmental Matters 23
9.16 Unconditional Purchase Obligations 23
9.17 Inconsistent Agreements 23
9.18 Advances and Other Investments 23
9.19 Maintenance of Property 24
9.20 Performance of Obligations 24
SECTION 10 EFFECTIVENESS; CONDITIONS OF LENDING, ETC 24
10.1 Initial Credit Extensions 24
10.2 Conditions 25
SECTION 11 EVENTS OF DEFAULT AND THEIR EFFECT 26
11.1 Events of Default 26
11.2 Effect of Event of Default 28
SECTION 12 GENERAL 29
12.1 Waiver; Amendments 29
12.2 Confirmations 29
12.3 Notices 29
12.4 Computations 29
12.5 Regulation U 30
12.6 Costs, Expenses and Taxes 30
12.7 Subsidiary References 30
12.8 Captions 30
12.9 Governing Law 30
12.10 Counterparts 30
12.11 Successors and Assigns 31
12.12 Indemnification by the Borrower 31
12.13 Forum Selection and Consent to Jurisdiction 31
12.14 Waiver of Jury Trial 32
<PAGE>
CREDIT AGREEMENT
This CREDIT AGREEMENT, dated as of September 22, 1998 (this
"Agreement"), is entered into between MECHANICAL TECHNOLOGY INCORPORATED, a New
York corporation (the "Borrower") and KEYBANK NATIONAL ASSOCIATION (the "Bank").
In consideration of the premises and the mutual agreements herein
contained, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
SECTION 1 DEFINITIONS.
1.1 Definitions. When used herein the following terms shall
have the following meanings:
Acceptable Accounts means any account receivable of Borrower aged less
than ninety (90) days.
Affiliate of any Person means (i) any other Person which, directly or
indirectly, controls or iscontrolled by or is under common control with such
Person and (ii) any officer or director of such Person.
Agreement __ see the Preamble.
Bank __ see the Preamble.
Borrower - see the Preamble.
Business Day means any day on which the Bank is open for commercial
banking business in Albany, New York.
Capital Expenditures means all expenditures which, in accordance with
GAAP, would be required to be capitalized and shown on the consolidated balance
sheet of the Borrower, but excluding expenditures made in connection with the
replacement, substitution or restoration of assets to the extent financed within
three months (i) from insurance proceeds (or other similar recoveries) paid on
account of the loss of or damage to the assets being replaced or restored or
(ii) with awards of compensation arising from the taking by eminent domain or
condemnation of the assets being replaced.
Capital Lease means, with respect to any Person, any lease of (or
other agreement conveying the right to use) any real or personal property by
such Person that, in conformity with GAAP, is accounted for as a capital lease
on the balance sheet of such Person.
CERCLA __ see Section 8.15.
Code means the Internal Revenue Code of 1986, as amended.
Collateral Documents means the Security Agreement and any other
agreement pursuant to which the Borrower or any Guarantor grant collateral to
the Bank.
Commitment means the Bank's commitment to make Loans up to the
Commitment Amount.
<PAGE>
Commitment Amount -- see Section 2.1.1.
Computation Period means each period of four consecutive Fiscal
Quarters ending on the last day of a Fiscal Quarter.
Contingent Payment means any payment that has been (or is required to
be) made by the Borrower or any Subsidiary in connection with the achievement
any particular business goal (excluding (i) employee compensation and bonuses in
the ordinary course of business and (ii) periodic, variable payments based upon
performance-related criteria, such as revenues or earnings).
A Contingent Payment shall be deemed to be any payment which is
contingent under GAAP and must be accrued against by Borrower.
Controlled Group means all members of a controlled group of
corporations and all members of a controlled group of trades or businesses
(whether or not incorporated) under common control which, together with the
Borrower, are treated as a single employer under Section 414 of the Code or
Section 4001 of ERISA.
Debt of any Person means, without duplication, (a) all indebtedness of
such Person for borrowed money, whether or not evidenced by bonds, debentures,
notes or similar instruments, (b) all obligations of such Person as lessee under
Capital Leases which have been or should be recorded as liabilities on a balance
sheet of such Person, (c) all obligations of such Person to pay the deferred
purchase price of property or services (including Contingent Payments but
excluding trade accounts payable in the ordinary course of business), (d) all
indebtedness secured by a Lien on the property of such Person, whether or not
such indebtedness shall have been assumed by such Person (it being understood
that if such Person has not assumed or otherwise become personally liable for
any such indebtedness, the amount of the Debt of such Person in connection
therewith shall be limited to the lesser of the face amount of such indebtedness
or the fair market value of all property of such Person securing such
indebtedness), (e) all obligations, contingent or otherwise, with respect to
the face amount of all letters of credit (whether or not drawn) and banker's
acceptances issued for the account of such Person, (f) all Suretyship
Liabilities of such Person. Notwithstanding the foregoing, obligations will
not be counted twice in calculating Debt hereunder.
Disposal __ see the definition of "Release".
Dollar and the sign "$" mean lawful money of the United States of
America.
Effective Date __ see Section 10.1.
Environmental Claims means all claims, however asserted, by any
governmental, regulatory or judicial authority or other Person alleging
potential liability or responsibility for violation of any Environmental Law, or
for release or injury to the environment.
Environmental Laws means all federal, state or local laws, statutes,
common law duties, rules, regulations, ordinances and codes, together with all
administrative orders, directed duties, requests, licenses, authorizations and
permits of, and agreements with, any governmental authority, in each case
relating to environmental matters.
<PAGE>
ERISA means the Employee Retirement Income Security Act of 1974.
References to sections of ERISA also refer to any successor sections.
Event of Default means any of the events described in Section 11.1.
Financial Letter of Credit means any Letter of Credit determined by
the Bank to be a "financial guaranty-type Standby Letter of Credit" as defined
in footnote 13 to Appendix A to the Risk Based Capital Guidelines issued by the
Comptroller of the Currency (or in any successor regulation, guideline or ruling
by any applicable banking regulatory authority).
Fiscal Quarter means a fiscal quarter of a Fiscal Year.
Fiscal Year means the fiscal year of the Borrower and its Subsidiaries,
which period shall be the 12-month period ending on September 30 of each year.
References to a Fiscal Year with a number corresponding to any calendar year
(e.g., "Fiscal Year 1998") refer to the Fiscal Year ending on September 30 of
such calendar year.
Fixed Charges means scheduled current maturities of long term Debt
(including payments on Capital Leases) determined in accordance with GAAP plus
interest expense plus operating lease expense plus non-financed Capital
Expenditures.
Fixed Charges Coverage Ratio means the ratio of Operating Cash Flow to
Fixed Charges.
GAAP means generally accepted accounting principles set forth from
time to time in the opinions and pronouncements of the Accounting Principles
Board and the American Institute of Certified Public Accountants and statements
and pronouncements of the Financial Accounting Standards Board (or agencies with
similar functions of comparable stature and authority within the U.S. accounting
profession), which are applicable to the circumstances as of the date of
determination.
Guarantor means, on any day, each Subsidiary that has executed a
counterpart of the Guaranty on or prior to that day (or is required to execute
a counterpart of the Guaranty on that day).
Guaranty means a guaranty substantially in the form of Exhibit A.
Hazardous Substances __ see Section 8.15.
Interest Expense means for any period the consolidated interest
expense of the Borrower and its Subsidiaries for such period (including all
imputed interest on Capital Leases and before giving effect to any
capitalization of interest but excluding amortization of deferred financing
costs).
Investment means, relative to any Person, (a) any loan or advance made
by such Person to any other Person (excluding any commission, travel or similar
advances made to directors, officers and employees of the Borrower or any of its
Subsidiaries), (b) any Suretyship Liability of such Person, (c) any ownership or
similar interest held by such Person in any other Person and (d) deposits and
the like relating to prospective acquisitions of businesses.
L/C Application means, with respect to any request for the issuance
of a Letter of Credit, a letter of credit application in the form being used by
the Bank at the time of such request for the type of Letter of Credit requested.
<PAGE>
Letter of Credit means a Financial Letter of Credit or a Non-Financial
Letter of Credit.
Letter of Credit Fee -- see Section 5.1.
Leverage Ratio means the ratio of Total Liabilities to Tangible Net
Worth.
LIBOR means the rate designated as the one month rate under the
heading "LONDON INTERBANK OFFERED RATES" in the "Money Rate" column as published
in The Wall Street Journal.
LIBOR Loan means any Loan which bears interest at a rate determined by
reference to the LIBOR Rate.
LIBOR Rate means LIBOR plus the applicable LIBOR Rate Margin.
LIBOR Rate Margin __ see Schedule 1.1.
Lien means, with respect to any Person, any interest granted by such
Person in any real or personal property, asset or other right owned or being
purchased or acquired by such Person which secures payment or performance of any
obligation and shall include any mortgage, lien, encumbrance, charge or other
security interest of any kind, whether arising by contract, as a matter of law,
by judicial process or otherwise.
Loan Documents means this Agreement, the Note, the Guaranty and the
Collateral Documents.
Loans __ see Section 2.1.1.
Margin Stock means any "margin stock" as defined in Regulation U of
the Board of Governors of the Federal Reserve System.
Material Adverse Effect means (a) a material adverse change in, or a
material adverse effect upon, the financial condition, operations, assets,
business, properties or prospects of either of the Borrower or their
Subsidiaries taken as a whole, or (b) a material adverse effect upon any
substantial portion of the collateral under the Collateral Documents or upon the
legality, validity, binding effect or enforceability against the Borrower or any
Guarantor of any Loan Document.
Multiemployer Pension Plan means a multiemployer plan, as such term is
defined in Section 4001(a)(3) of ERISA, and to which the Borrower or any member
of the Controlled Group may have any liability.
Non-Financial Letter of Credit means any Letter of Credit other than a
Financial Letter of Credit.
Note __ see Section 3.1.
Operating Cash Flow means net income after taxes and exclusive of (i)
extraordinary gains/losses, (ii) gains/losses on discontinued operations (iii)
gains/losses on asset sales plus depreciation, plus amortization, plus interest
expense plus lease expense less dividends and distributions and less advances of
any kind to Plug Power except for advances funded by grants or equity offerings
or funded through the Loans advanced hereunder and (iv) the impact of any profit
or loss recognized or realized by Borrower from its investment/interest in
Plug Power.
<PAGE>
Operating Lease means any lease of (or other agreement conveying the
right to use) any real or personal property by the Borrower or any Subsidiary,
as lessee, other than any Capital Lease.
PBGC means the Pension Benefit Guaranty Corporation and any entity
succeeding to any or all of its functions under ERISA.
Pension Plan means a "pension plan", as such term is defined in
Section 3(2) of ERISA, which is subject to Title IV of ERISA (other than a
Multiemployer Pension Plan), and to which the Borrower or any member of the
Controlled Group may have any liability, including any liability by reason of
having been a substantial employer within the meaning of Section 4063 of ERISA
at any time during the preceding five years, or by reason of being deemed to be
a contributing sponsor under Section 4069 of ERISA.
Person means any natural person, corporation, partnership, trust,
limited liability company, association, governmental authority or unit, or
any other entity, whether acting in an individual, fiduciary or other capacity.
Plug Power means Plug Power LLC.
Prime Rate means, for any day, the rate of interest in effect for such
day as publicly announced from time to time by the Bank as its "prime rate."
(The "prime rate" is a rate set by the Bank based upon various factors,
including the Bank's costs and desired return, general economic conditions and
other factors, and is used as a reference point for pricing some loans, which
may be priced at, above, or below such announced rate.) Any change in the prime
rate announced by the Bank shall take effect at the opening of business on the
day specified in the public announcement of such change.
Prime Rate Loan means any Loan which bears interest at or by reference
to the Prime Rate.
RCRA __ see Section 8.15.
Release has the meaning specified in CERCLA and the term "Disposal"
(or "Disposed") has the meaning specified in RCRA; provided that in the event
either CERCLA or RCRA is amended so as to broaden the meaning of any term
defined thereby, such broader meaning shall apply as of the effective date of
such amendment; and provided, further, that to the extent that the laws of a
state wherein any affected property lies establish a meaning for "Release" or
"Disposal" which is broader than is specified in either CERCLA or RCRA, such
broader meaning shall apply.
Rental Expense means for any period the consolidated rental expense of
the Borrower and its Subsidiaries for such period.
SEC means the Securities and Exchange Commission.
Security Agreement means a Security Agreement substantially in the
form of Exhibit B-1.
Senior Debt means all Debt of the Borrower and its Subsidiaries other
than Subordinated Debt.
Subordinated Debt means any indebtedness of the Borrower and its
Subsidiaries which has subordination terms, covenants, pricing and other terms
applicable to such indebtedness which has been approved by the Bank.
<PAGE>
Subsidiary means, with respect to any Person, a corporation of which
such Person and/or its other Subsidiaries own, directly or indirectly, an
interest of at least 25% (whether by share holding, partnership interests or
otherwise) but as to the Borrower, Plug Power shall not be considered a
Subsidiary.
Suretyship Liability means any agreement, undertaking or arrangement
by which any Person guarantees, endorses or otherwise becomes or is contingently
liable upon (by direct or indirect agreement, contingent or otherwise, to
provide funds for payment, to supply funds to or otherwise to invest in a
debtor, or otherwise to assure a creditor against loss) any indebtedness,
obligation or other liability of any other Person (other than by endorsements
of instruments in the course of collection), or guarantees the payment of
dividends or other distributions upon the shares of any other Person. The
amount of any Person's obligation in respect of any Suretyship Liability shall
(subject to any limitation set forth therein) be deemed to be the principal
amount of the debt, obligation or other liability supported thereby.
Tangible Net Worth means tangible net worth as determined in
accordance with GAAP.
Termination Date means the earlier to occur of (a) January 31, 2000,
or such later date to which the Termination Date may be extended at the request
of the Borrower and with the consent of the Bank or (b) such other date on which
the Commitment shall terminate pursuant to Section 6 or Section 11.
Total Liabilities means total liabilities as determined in accordance
with GAAP.
Type of Loan __ see Section 2.2.1.
Unmatured Event of Default means any event that, if it continues
uncured, will, with lapse of time or notice or both, constitute an Event of
Default.
Welfare Plan means a "welfare plan", as such term is defined in
Section 3(i) of ERISA.
1.2 Other Interpretive Provisions. (a) The meanings of defined
terms are equally applicable to the singular and plural forms of the defined
terms.
(b) Section, Schedule and Exhibit references are to this
Agreement unless otherwise specified.
(c) (i) The term "including" is not limiting and means
"including without limitation."
(ii) In the computation of periods of time from a
specified date to a later specified date, the word "from" means "from
and including"; the words "to" and "until" each mean "to but
excluding", and the word "through" means "to and including."
(d) Unless otherwise expressly provided herein, (i)
references to agreements (including this Agreement) and other contractual
instruments shall be deemed to include all subsequent amendments and other
modifications thereto, but only to the extent such amendments and other
modifications are not prohibited by the terms of any Loan Document, and (ii)
references to any statute or regulation are to be construed as including all
<PAGE>
statutory and regulatory provisions consolidating, amending, replacing,
supplementing or interpreting such statute or regulation.
(e) This Agreement and the other Loan Documents may use
several different limitations, tests or measurements to regulate the same or
similar matters. All such limitations, tests and measurements are cumulative
and shall each be performed in accordance with their terms.
(f) This Agreement and the other Loan Documents are the
result of negotiations among and have been reviewed by counsel to the Borrower,
the Bank and the other parties thereto and are the products of all parties.
Accordingly, they shall not be construed against the Bank merely because of the
Bank's involvement in their preparation.
SECTION 2 COMMITMENTS OF THE BANK BORROWING AND
CONVERSION PROCEDURES.
2.1 Commitment. On and subject to the terms and conditions of
this Agreement, the Bank agrees to make Loans to and issue Letters of Credit
for the account of the Borrower as follows:
2.1.1 Loan Commitment. The Bank will make loans ("Loans") on a
revolving basis from time to time before the Termination Date provided that
the sum of (i) the aggregate outstanding principal amount of all Loans plus
(ii) the aggregate stated amount of all Letters of Credit shall not at any
time exceed $4,000,000.00 (the "Commitment Amount").
2.1.2 L/C Commitment. The Bank will issue Letters of Credit in
each case containing such terms and conditions as are permitted by this
Agreement and as are reasonably satisfactory to the Bank, at the request of and
for the account of the Borrower from time to time provided that any Letter of
Credit to be issued shall terminate on or before the Termination Date.
2.2 Loan Procedures.
2.2.1 Various Types of Loans. Each Loan shall be either a Prime
Rate Loan or a LIBOR Loan, as the Borrower shall specify in the related notice
of borrowing or conversion pursuant to Section 2.2.2 or 2.2.3, the form of which
is annexed hereto as Exhibit C. Prime Rate Loans and LIBOR Loans may be
outstanding at the same time, provided that the aggregate principal amount of
each LIBOR Loan shall at all times be at least $250,000 and an integral multiple
of $100,000.
2.2.2 Borrowing Procedures. The Borrower shall give written
notice or telephonic notice (followed immediately by written confirmation
thereof) to the Bank of each proposed Loan not later than (a) in the case of a
Prime Rate Loan, 10:00 A.M., Albany time, on the proposed date of such Loan,
and (b) in the case of a LIBOR Loan, 10:00 A.M., Albany time, two (2) Business
Days prior to the proposed date of such Loan. Each such notice shall be
effective upon receipt by the Bank, shall be irrevocable, and shall specify the
date, amount and type of Loan. So long as the conditions precedent set forth in
Section 10 with respect to such Loan have been satisfied and there has been no
default in the payment of any principal, interest or fees to be paid under any
of the Loan Documents, the Bank shall pay over the requested amount to the
Borrower on the requested Loan date. Each Loan shall be funded on a Business
Day.
<PAGE>
2.2.3 Procedures for Conversion of Type of Loan. Subject to the
provisions of Section 2.2.1, the Borrower may convert all or any part of any
outstanding Loan into a Loan of a different type by giving written notice or
telephonic notice (followed immediately by written confirmation thereof) to the
Bank not later than (a) in the case of conversion into a Prime Rate Loan,
10:00 A.M., Albany time, on the proposed date of such conversion, and (b) in the
case of a conversion into a LIBOR Loan, 10:00 A.M., Albany time, at least two
(2) Business Days prior to the proposed date of such conversion. Each properly
given notice shall be effective on the proposed date of such conversion, shall
be irrevocable, and shall specify the date and amount of such conversion, the
Loan to be so converted and the type of Loan into which the Loan
should be converted. Subject to Section 2.4, such Loan shall be so converted
on the requested date of conversion. Each conversion shall be on a Business
Day.
2.3 Letter of Credit Procedures.
2.3.1 L/C Applications. The Borrower shall give notice to the
Bank of the proposed issuance of each Letter of Credit on a Business Day which
is at least three Business Days (or such lesser number of days as the Bank
shall agree in any particular instance) prior to the proposed date of issuance
of such Letter of Credit. Each such notice shall be accompanied by an L/C
Application, duly executed by the Borrower and in all respects satisfactory to
the Bank, together with such other documentation as the Bank may request in
support thereof, it being understood that each L/C Application shall specify,
among other things, the date on which the proposed Letter of Credit is to be
issued, the expiration date of such Letter of Credit (which shall not be later
than the Termination Date) and whether such Letter of Credit is to be
transferable in whole or in part. So long as the Bank has not received written
notice that the conditions precedent set forth in Section 10 with respect to the
issuance of such Letter of Credit have not been satisfied, the Bank shall issue
such Letter of Credit on the requested issuance date.
2.3.2 Reimbursement Obligations. The Borrower hereby
unconditionally and irrevocably agrees to reimburse the Bank for each payment or
disbursement made by the Bank under any Letter of Credit honoring any demand
for payment made by the beneficiary thereunder, in each case on the date that
such payment or disbursement is made. Any amount not reimbursed on the date of
such payment or disbursement shall bear interest from the date of such payment
or disbursement to the date that the Bank is reimbursed by the Borrower
therefor, payable on demand, at a rate per annum equal to the Prime Rate from
time to time in effect from time to time in effect plus, beginning on the third
Business Day after receipt of notice from the Bank of such payment or
disbursement, two (2%) percent. The Bank shall notify the Borrower whenever any
demand for payment is made under any Letter of Credit by the beneficiary
thereunder; provided, however, that the failure of the Bank to so notify the
Borrower shall not affect the rights of the Bank in any manner whatsoever.
2.3.3 Limitation on Obligations of the Bank. In determining
whether to pay under any Letter of Credit, the Bank shall have no obligation to
the Borrower other than to confirm that any documents required to be delivered
under such Letter of Credit appear to have been delivered and
appear to comply on their face with the requirements of such Letter of Credit.
Any action taken or omitted to be taken by the Bank under or in connection with
any Letter of Credit, if taken or omitted in the absence of gross negligence and
willful misconduct, shall not impose upon the Bank any liability to the Borrower
and shall not reduce or impair the Borrower's reimbursement obligations set
forth in Section 2.3.2.
<PAGE>
2.4 Certain Conditions. Notwithstanding any other provision of this
Agreement, the Bank shall have no obligation to make any Loan, or to
permit the continuation of or any conversion into any other Type of Loan
or to issue any Letter of Credit if an Event of Default or Unmatured
Event of Default (relating to those Events of Default set forth at
Sections 11.1.1, 11.1.4, 11.1.5, 11.1.6, 11.1.9 or 11.1.10 exists).
SECTION 3 NOTE EVIDENCING LOANS.
3.1 Note. The Loans shall be evidenced by a promissory note (the
"Note") substantially in the form set forth in Exhibit C, with appropriate
insertions, payable to the order of the Bank in an amount equal to the
Commitment Amount.
3.2 Recordkeeping. The Bank shall record in its records the date
and amount of each Loan made by the Bank and each repayment or conversion
thereof. The aggregate unpaid principal amount so recorded shall be
rebuttable presumptive evidence of the principal amount owing and unpaid on
such Note. The failure to so record any such amount or any error in so
recording any such amount shall not, however, limit or otherwise affect the
obligations of the Borrower hereunder or under the Note to repay the principal
amount of the Loans evidenced by such Note together with all interest accruing
thereon.
SECTION 4 INTEREST.
4.1 Interest Rates. The Borrower promises to pay interest on
the unpaid principal amount of each Loan for the period commencing on the date
of such Loan until such Loan is paid in full as follows:
(a) at all times while such Loan is a Prime Rate
Loan, at a rate per annum equal to the sum of the Prime Rate
from time to time in effect; and
(b) at all times while such Loan is a LIBOR Loan,
at a rate per annum equal to the sum of the applicable LIBOR plus
the LIBOR Rate Margin from time to time in effect;
provided, however, that at any time an Event of Default exists, the interest
rate applicable to each Loan (be it a Prime Rate Loan or LIBOR Loan) may, at
the option of the Bank, be increased up to a rate equal to the Prime Rate plus
2% (200 basis points) per annum.
4.2 Interest Payment Dates. Accrued interest on each Loan
shall be payable in arrears on the first Business Day of each calendar month
and at maturity. After maturity, accrued interest on all Loans shall be
payable on demand.
4.3 Setting and Notice of LIBOR Rate. The applicable LIBOR
Rate for each LIBOR Rate Loan shall be determined by the Bank, as of the date
said LIBOR Loan is advanced based upon LIBOR in effect on said date and as set,
shall remain in effect for one month and shall be adjusted to reflect any change
in LIBOR in effect on each successive anniversary of the date that the LIBOR
Loan was advanced, provided that if the anniversary date of said advance does
not exist in any subsequent month, the LIBOR Rate will be adjusted on the last
day of any said month and provided further that if the anniversary date is not
a date on which The Wall Street Journal is published, the change in the LIBOR
<PAGE>
Rate shall be based upon LIBOR on the first date immediately prior to the
anniversary date that it is published. Each determination of the applicable
LIBOR Rate shall be conclusive and binding upon the parties hereto, in the
absence of demonstrable error. The Bank shall, upon written request of the
Borrower, deliver to the Borrower a statement showing the computations used by
the Bank in determining any applicable LIBOR Rate hereunder.
4.4 Computation of Interest Rate for Prime Rate Loans. All
determinations of interest for Prime Rate Loans shall be computed for the actual
number of days elapsed on the basis of a year of 360 days. The applicable
interest rate for each Prime Rate Loan shall change simultaneously with each
change in the Prime Rate.
SECTION 5 FEES.
5.1 Letter of Credit Fees. The Borrower agrees to pay to the
Bank a letter of credit fee (each a "Letter of Credit Fee") for each Letter of
Credit in an amount equal to the rate per annum in effect from time to time
pursuant to the Bank's then-current letter of credit fee schedule. Such Letter
of Credit Fee shall be payable in advance on the first Business Day of each
calendar quarter and on the date of issuance of each Letter of Credit.
SECTION 6 REDUCTION AND TERMINATION OF THE COMMITMENT;
PREPAYMENTS.
6.1 Reduction or Termination of the Commitment. The Borrower
may from time to time on at least five Business Days' prior written notice
received by the Bank permanently reduce the Commitment Amount to an amount not
less than the sum of the aggregate unpaid principal amount of the Loans. The
Borrower may at any time on like notice terminate the Commitment upon payment in
full of all Loans and all other obligations of the Borrower hereunder or under
any other Loan Documents.
6.2 Voluntary Prepayments. The Borrower may from time to time
prepay the Loans in whole or in part, provided that (a) the Borrower shall give
the Bank notice thereof not later than 10:00 A.M., Albany time, on the day of
such prepayment (which shall be a Business Day) specifying the Loans to be
prepaid and the date and amount of prepayment and (b) each partial prepayment
shall, in the case of a LIBOR Loan, be in a principal amount of at least
$250,000 and an integral multiple thereof.
SECTION 7 MAKING AND PRORATION OF PAYMENTS; SETOFF; TAXES.
7.1 Making of Payments. All payments of principal of or
interest on the Note shall be made by the Borrower to the Bank in immediately
available funds at the office specified by the Bank not later than noon, Albany
time, on the date due; and funds received after that hour shall be deemed to
have been received by the Bank on the next following Business Day.
7.2 Application of Certain Payments. Each payment of principal
shall be applied to such Loans as the Borrower shall direct by notice to be
received by the Bank on or before the date of such payment or, in the absence of
such notice, as the Bank shall determine in its reasonable discretion.
7.3 Due Date Extension. If any payment of principal or interest
with respect to any of the Notes, falls due on a day which is not a Business
Day, then such due date shall be extended to the immediately following Business
<PAGE>
Day and, in the case of principal, additional interest shall accrue and be
payable for the period of any such extension.
7.4 Setoff. The Borrower agrees that the Bank has all rights of
set-off and bankers' lien provided by applicable law, and in addition thereto,
the Borrower agrees that at any time any Event of Default exists, the Bank may
apply to the payment of any obligations of the Borrower hereunder, whether or
not then due, any and all balances, credits, deposits, accounts or moneys of the
Borrower then or thereafter with the Bank.
7.5 Taxes. All payments of principal of, and interest on, the
Loans and all other amounts payable hereunder shall be made free and clear of
and without deduction for any present or future income, excise, stamp or
franchise taxes and other taxes, fees, duties, withholdings or other charges of
any nature whatsoever imposed by any taxing authority, but excluding franchise
taxes and taxes imposed on or measured by the Bank's net income or receipts (all
non-excluded items being called "Taxes"). If any withholding or deduction from
any payment to be made by the Borrower hereunder is required in respect of any
Taxes pursuant to any applicable law, rule or regulation, then the Borrower
will:
(a) pay directly to the relevant authority the full
amount required to be so withheld or deducted;
(b) promptly forward to the Bank an official receipt
or other documentation satisfactory to the Bank evidencing such
payment to such authority; and
(c) pay to the Bank such additional amount or amounts
as is necessary to ensure that the net amount actually received by
the Bank will equal the full amount the Bank would have received
had no such withholding or deduction been required.
Moreover, if any Taxes are directly asserted against the Bank with respect to
any payment received by the Bank hereunder, the Bank may pay such Taxes and the
Borrower will promptly pay such additional amounts (including any penalty,
interest and expense) as is necessary in order that the net amount received by
such Person after the payment of such Taxes (including any Taxes on such
additional amount) shall equal the amount such Person would have received had
such Taxes not been asserted.
If the Borrower fails to pay any Taxes when due to the appropriate
taxing authority or fails to remit to the Bank, the required receipts or other
required documentary evidence, the Borrower shall indemnify the Bank for any
incremental Taxes, interest or penalties that may become payable by the Bank as
a result of any such failure.
SECTION 8 WARRANTIES.
To induce the Bank to enter into this Agreement and to induce the
Bank to make Loans and hereunder, the Borrower warrants to the Bank that:
8.1 Organization, etc. Borrower is a corporation duly
organized, validly existing and in good standing under the laws of the State of
New York; each Subsidiary is a corporation duly organized, validly existing and
in good standing under the laws of the state of its incorporation; and the
Borrower and each Subsidiary is duly qualified to do business in each
jurisdiction where the nature of its business makes such qualification necessary
(except in those instances in which the failure to be qualified or in good
<PAGE>
standing does not have a Material Adverse Effect) and has full power and
authority to own its property and conduct its business as presently conducted by
it.
8.2 Authorization; No Conflict. The execution and delivery by
the Borrower of this Agreement and each other Loan Document to which it is a
party, the borrowings hereunder and the performance by the Borrower of its
obligations under each Loan Document to which it is a party are within the
corporate powers of the Borrower, have been duly authorized by all necessary
corporate action on the part of the Borrower (including any necessary
shareholder action), have received all necessary governmental approval (if any
shall be required), and do not and will not (a) violate any provision of law or
any order, decree or judgment of any court or other government agency which is
binding on the Borrower, (b) contravene or conflict with, or result in a breach
of, any provision of the Certificate of Incorporation, By-Laws or other
organizational documents of the Borrower or of any agreement, indenture,
instrument or other document which is binding on the Borrower or any Subsidiary
or (c) result in, or require, the creation or imposition of any Lien on any
property of the Borrower or any Subsidiary (other than Liens arising under the
Loan Documents).
8.3 Validity and Binding Nature. Each of this Agreement and
each other Loan Document to which the Borrower is a party is the legal, valid
and binding obligation of the Borrower, enforceable against the Borrower in
accordance with its terms.
8.4 Financial Condition. The financial statements of the
Borrower which have been furnished to the Bank:
(i) were prepared in accordance with GAAP
consistently applied throughout the periods covered thereby,
except as otherwise expressly noted therein (subject, in the
case of the unaudited financial statements, to the absence of
footnotes and to customary year-end audit adjustments); and
(ii) fairly present in all material respects
the financial condition of the Borrower and its Subsidiaries as of
the dates thereof and the results of operations for the periods
covered thereby.
8.5 No Material Change. Since the date of the statements
referenced at Section 8.4 above, there has been no material change in the
financial condition, operations, assets, business or properties of the Borrower
and its Subsidiaries taken as a whole, except as disclosed to the Bank in
writing.
8.6 Litigation and Contingent Liabilities. No litigation
(including derivative actions), arbitration proceeding, labor controversy or
governmental investigation or proceeding is pending or, to the Borrower's
knowledge, threatened against the Borrower or any Subsidiary which might
reasonably be expected to have a Material Adverse Effect.
8.7 Ownership of Properties; Liens. The Borrower and each
Subsidiary owns good and marketable title to all of its properties and assets,
real and personal, tangible and intangible, of any nature whatsoever (including
patents, trademarks, trade names, service marks and copyrights), free and clear
of all Liens, charges and material claims (including material infringement
claims with respect to patents, trademarks, copyrights and the like) except as
permitted pursuant to Section 9.8.
<PAGE>
8.8 Subsidiaries. The Borrower has no Subsidiaries except those
listed in Schedule 8.8.
8.9 Pension and Welfare Plans. (a) During the twelve-
consecutive-month period prior to the date of the execution and delivery of
this Agreement or the making of any Loan hereunder, (i) no steps have been
taken to terminate any Pension Plan and (ii) no contribution failure has
occurred with respect to any Pension Plan sufficient to give rise to a lien
under Section 302(f) of ERISA. No condition exists or event or transaction has
occurred with respect to any Pension Plan which could result in the incurrence
by the Borrower of any material liability, fine or penalty. The Borrower has no
contingent liability with respect to any post-retirement benefit under a Welfare
Plan, other than liability for continuation coverage described in Part 6 of
Subtitle B of Title I of ERISA.
(b) All contributions (if any) have been made to any
Multiemployer Pension Plan that are required to be made by the Borrower or any
other member of the Controlled Group under the terms of the plan or of any
collective bargaining agreement or by applicable law; neither the Borrower nor
any member of the Controlled Group has withdrawn or partially withdrawn from any
Multiemployer Pension Plan, incurred any withdrawal liability with respect to
any such plan, received notice of any claim or demand for withdrawal liability
or partial withdrawal liability from any such plan, and no condition has
occurred which, if continued, might result in a withdrawal or partial withdrawal
from any such plan; and neither the Borrower nor any member of the Controlled
Group has received any notice that any Multiemployer Pension Plan is in
reorganization, that increased contributions may be required to avoid a
reduction in plan benefits or the imposition of any excise tax, that any such
plan is or has been funded at a rate less than that required under Section 412
of the Code, that any such plan is or may be terminated, or that any such plan
is or may become insolvent.
8.10 Investment Company Act. Neither the Borrower nor any
Subsidiary are an "investment company" or a company "controlled" by an
"investment company", within the meaning of the Investment Company Act of 1940.
8.11 Public Utility Holding Company Act. Neither the Borrower
nor any Subsidiary are a "holding company", or a "subsidiary company" of a
"holding company", or an "affiliate" of a "holding company" or of a "subsidiary
company" of a "holding company", within the meaning of the Public Utility
Holding Company Act of 1935.
8.12 Regulation U. The Borrower is not engaged principally, or as
one of its important activities, in the business of extending credit for the
purpose of purchasing or carrying Margin Stock.
8.13 Taxes. The Borrower and each Subsidiary have filed all tax
returns and reports required by law to have been filed by it and has paid all
taxes and governmental charges thereby shown to be owing, except any such taxes
or charges which are being diligently contested in good faith by appropriate
proceedings and for which adequate reserves in accordance with GAAP shall have
been set aside on its books.
8.14 Solvency, etc. On the Effective Date (or, in the case of
any Person which becomes a Guarantor after the Effective Date, on the date such
Person becomes a Guarantor), and immediately prior to and after each borrowing
hereunder and the use of the proceeds thereof, (a) the Borrower's and the
Guarantor's assets will exceed their liabilities and (b) the Borrower and the
Guarantor will be solvent, will be able to pay its debts as they mature, will
<PAGE>
own property with fair saleable value greater than the amount required to pay
its debts and will have capital sufficient to carry on its business as then
constituted.
8.15 Environmental Matters.
(a) No Violations. Except as set forth on Schedule 8.15,
neither the Borrower nor any Subsidiary, nor any operator of the Borrower's or
any Subsidiary's properties, is in violation, or alleged violation, of any
judgment, decree, order, law, permit, license, rule or regulation pertaining to
environmental matters, including those arising under the Resource Conservation
and Recovery Act "RCRA"), the Comprehensive Environmental Response,
Compensation and Liability Act of 1980 ("CERCLA"), the Superfund Amendments
and Reauthorization Act of 1986 or any other Environmental Law which (i) in any
single case, requires expenditures in any three-year period of $500,000 or more
by the Borrower and its Subsidiaries in penalties and/or for investigative,
removal or remedial actions or (ii) individually or in the aggregate otherwise
might reasonably be expected to have a Material Adverse Effect.
(b) Notices. Except as set forth on Schedule 8.15,
neither the Borrower nor any Subsidiary have received notice from any third
party, including any Federal, state or local governmental authority: (a) that
any one of them has been identified by the U.S. Environmental Protection Agency
as a potentially responsible party under CERCLA with respect to a site listed
on the National Priorities List, 40 C.F.R. Part 300 Appendix B; (b) that any
hazardous waste, as defined by 42 U.S.C. 6903(5), any hazardous substance as
defined by 42 U.S.C. 9601(14), any pollutant or contaminant as defined by 42
U.S.C. 9601(33) or any toxic substance, oil or hazardous material or other
chemical or substance regulated by any Environmental Law, excluding household
hazardous waste (all of the foregoing, "Hazardous Substances"), which any one of
them has generated, transported or disposed of has been found at any site at
which a Federal, state or local agency or other third party has conducted a
remedial investigation, removal or other response action pursuant to any
Environmental Law; (c) that the Borrower or any Subsidiary must conduct a
remedial investigation, removal, response action or other activity pursuant to
any Environmental Law; or (d) of any Environmental Claim.
(c) Handling of Hazardous Substances. Except as set forth
on Schedule 8.15, (i) no portion of any real property or other assets owned,
leased or operated by the Borrower or any Subsidiary has been used for the
handling, processing, storage or disposal of Hazardous Substances except in
accordance in all material respects with applicable Environmental Laws; and no
underground tank or other underground storage receptacle for Hazardous
Substances is located on such properties; (ii) in the course of any activities
conducted by the Borrower, any Subsidiary or the operators of any real property
owned, leased or operated by either the Borrower or any Subsidiary, no Hazardous
Substances have been generated or are being used on such properties except in
accordance in all material respects with applicable Environmental Laws; (iii)
there have been no Releases or threatened Releases of Hazardous Substances on,
upon, into or from any real property or other assets owned, leased or operated
by the Borrower or any Subsidiary, which Releases singly or in the aggregate
might reasonably be expected to have a material adverse effect on the value of
such real property or assets; (iv) to the Borrower's actual knowledge, there
have been no Releases on, upon, from or into any real property in the vicinity
of any real property or other assets owned, leased or operated by either the
Borrower or any Subsidiary which, through soil or groundwater contamination,
may have come to be located on, and which might reasonably be expected to have a
material adverse effect on the value of, any real property or other assets
owned, leased or operated by either the Borrower or any Subsidiary; and (v)
<PAGE>
any Hazardous Substances generated by either the Borrower or its Subsidiaries
have been transported offsite only by properly licensed carriers and delivered
only to treatment or disposal facilities maintaining valid permits as required
under applicable Environmental Laws, which transporters and facilities have been
and are, to the best of the Borrower's knowledge, operating in compliance with
such permits and applicable Environmental Laws.
(d) Investigations. Except as set forth on Schedule 8.15,
the Borrower and their Subsidiaries have taken all reasonable steps to
investigate the past and present condition and usage of any real property owned,
leased or operated by either the Borrower or its Subsidiaries and the operations
conducted by either the Borrower or its Subsidiaries with regard to
environmental matters.
8.16 Year 2000 Problem. The Borrower and its Subsidiaries have
reviewed the areas within their business and operations which could be
adversely affected by, and have developed or are developing a program to
address on a timely basis, the "Year 2000 Problem" (that is, the risk that
computer applications used by the Borrower and its Subsidiaries may be unable
to recognize and perform properly date-sensitive functions involving certain
dates prior to and any date after December 31, 1999). Based on such review
and program, the Borrower reasonably believes that the "Year 2000 Problem" will
not have a Material Adverse Effect.
8.17 Copyrights, Patents, Trademarks and Licenses, etc. The
Borrower and its Subsidiaries own or are licensed or otherwise have the right to
use all of the patents, trademarks, service marks, trade names, copyrights,
contractual franchises, authorizations and other rights that are reasonably
necessary for the operation of their respective businesses, all as set forth on
Schedule 8.17, without conflict with the rights of any other Person. No slogan
or other advertising device, product, process, method, substance, part or other
material now employed, or now contemplated to be employed, by the Borrower or
any Subsidiary infringes upon any rights held by any other Person. No claim or
litigation regarding any of the foregoing is pending or, to the knowledge of the
Borrower, threatened, and no patent, invention, device, application, principle
or any statute, law, rule, regulation, standard or code is pending or, to the
knowledge of the Borrower, proposed, which, in either case, could reasonably be
expected to have a Material Adverse Effect.
8.18 Transactions with Affiliates. Neither the Borrower nor any
Subsidiary have entered into or participated in any agreements or transactions
of any kind with any Affiliates of the Borrower except agreements or
transactions entered into in the ordinary course of business or as disclosed to
the Bank.
8.19 Information. All information heretofore or
contemporaneously herewith furnished in writing by the Borrower or any
Subsidiary to the Bank for purposes of or in connection with this Agreement and
the transactions contemplated hereby is, and all written information hereafter
furnished by or on behalf of the Borrower or any Subsidiary to the Bank pursuant
hereto or in connection herewith will be, true and accurate in every material
respect on the date as of which such information is dated or certified, and none
of such information is or will be incomplete by omitting to state any material
fact necessary to make such information not misleading in light of the
circumstances under which made (it being recognized by the Bank that (a) any
projection s and forecasts provided by the Borrower are based on good faith
estimates and assumptions believed by the Borrower to be reasonable as of the
date of the applicable projections or assumptions and that actual results during
the period or periods covered by any such projections and forecasts may differ
<PAGE>
from projected or forecasted results and (b) any information provided by the
Borrower or any Subsidiary with respect to any Person or assets acquired or to
be acquired by the Borrower or any Subsidiary shall, for all periods prior to
the date of such acquisition, be limited to the knowledge of the Borrower or
the acquiring Subsidiary after reasonable inquiry).
SECTION 9 COVENANTS.
Until the expiration or termination of the Commitment and thereafter
until all obligations of the Borrower hereunder and under the other Loan
Documents are paid in full, the Borrower agrees that, unless at any time the
Bank shall otherwise expressly consent in writing, it will:
9.1 Reports, Certificates and Other Information. Furnish to the
Bank:
9.1.1 Audit Report. Promptly when available and in any event
within 120 days after the close of each Fiscal Year: (a) a copy of the annual
audit report of the Borrower and its Subsidiaries for such Fiscal Year,
including therein consolidated balance sheets of the Borrower and its
Subsidiaries as of the end of such Fiscal Year and consolidated statements of
earnings and cash flow of the Borrower and its Subsidiaries for such Fiscal Year
in the form of the 10-K submitted by the Borrower to the SEC, certified without
qualification by independent auditors of recognized standing selected by the
Borrower and reasonably acceptable to the Bank and (b) consolidating balance
sheets of the Borrower and its Subsidiaries as of the end of such Fiscal Year
and a consolidating statement of earnings for the Borrower and its Subsidiaries
for such Fiscal Year, certified by the Chief Executive Officer, the Chief
Financial Officer or any Vice President of the Borrower.
9.1.2 Quarterly Reports. Promptly when available and in any event
within 45 days after the end of each Fiscal Quarter (except the last Fiscal
Quarter) of each Fiscal Year, internally prepared consolidated and consolidating
balance sheets of the Borrower and its Subsidiaries as of the end of such Fiscal
Quarter together with consolidated and consolidating statements of earnings and
a consolidated and consolidating statement of cash flows for such Fiscal Quarter
and for the period beginning with the first day of such Fiscal Year and ending
on the last day of such Fiscal Quarter, certified by the Chief Executive
Officer, the Chief Financial Officer or any Vice President of the Borrower.
9.1.3 Compliance Certificates. Contemporaneously with the
furnishing of a copy of each set of quarterly statements pursuant to Section
9.1.2, a duly completed compliance certificate in form acceptable to the Bank,
dated the date of such quarterly statements and signed by the Chief Executive
Officer, the Chief Financial Officer or any Vice President of the Borrower,
containing a computation of each of the financial ratios and restrictions set
forth in Section 9.6 and a statement to the effect that such officer has not
become aware of any Event of Default or Unmatured Event of Default that has
occurred and is continuing or, if there is any such event, describing it and the
steps, if any, being taken to cure it.
9.1.4 Reports to SEC and to Shareholders. Promptly upon the
filing or sending thereof, copies of all regular, periodic or special reports of
the Borrower or any Subsidiary filed with the SEC; and copies of all
registration statements of the Borrower or any Subsidiary filed with the SEC;
and copies of all proxy statements or other communications made to security
holders generally concerning material developments in the business of the
Borrower or any Subsidiary.
<PAGE>
9.1.5 Notice of Default, Litigation and ERISA Matters. Promptly
upon becoming aware of any of the following, written notice describing the same
and the steps being taken by the Borrower or the Subsidiary affected thereby
with respect thereto:
(a) the occurrence of an Event of Default or an
Unmatured Event of Default;
(b) any litigation, arbitration or governmental
investigation or proceeding not previously disclosed by the
Borrower to the Bank which has been instituted or, to the
knowledge of the Borrower, is threatened against either the
Borrower or any Subsidiary or to which any of the properties
of any thereof is subject which, if adversely determined,
might reasonably be expected to have a Material Adverse Effect;
(c) the institution of any steps by any member of
the Controlled Group or any other Person to terminate any Pension
Plan, or the failure of any member of the Controlled Group to make
a required contribution to any Pension Plan (if such failure is
sufficient to give rise to a lien under Section 302(f) of ERISA)
or to any Multiemployer Pension Plan, or the taking of any action
with respect to a Pension Plan which could result in the requirement
that the Borrower furnish a bond or other security to the PBGC or
such Pension Plan, or the occurrence of any event with respect to
any Pension Plan or Multiemployer Pension Plan which could result
in the incurrence by any member of the Controlled Group of any
material liability, fine or penalty (including any claim or
demand forwithdrawal liability or partial withdrawal from any
Multiemployer Pension Plan), or any material increase in the
contingent liability of the Borrower with respect to any
post-retirement Welfare Plan benefit, or any notice that any
Multiemployer Pension Plan is in reorganization, that increased
contributions may be required to avoid a reduction in plan benefits
or the imposition of an excise tax, that any such plan is or has
been funded at a rate less than that required under Section 412
of the Code, that any such plan is or may be terminated, or that
any such plan is or may become insolvent;
(d) any cancellation or material change in any
insurance maintained by the Borrower or any Subsidiary;
(e) any event (including (i) any violation of any
Environmental Law or the assertion of any Environmental Claim
or (ii) the enactment or effectiveness of any law, rule or
regulation) which might reasonably be expected to have a Material
Adverse Effect; or
(f) any setoff, claims, withholdings or other defenses
to which any of the Collateral, or the Bank's, rights with respect
to the Collateral, are subject.
9.1.6 Subsidiaries. Promptly upon any change in the list of its
Subsidiaries, a written report of such change.
9.1.7 Management Reports. Promptly upon the request of the Bank,
copies of all detailed financial and management reports submitted to the
Borrower by independent auditors in connection with each annual or interim
audit made by such auditors of the books of the Borrower.
<PAGE>
9.1.8 Budgets. As soon as practicable and in any event within 60
days after the commencement of each Fiscal Year, divisional and consolidated
budgets for the Borrower and its Subsidiaries for such Fiscal Year prepared in a
manner reasonably satisfactory to the Bank.
9.1.9 Other Information. From time to time such other
information concerning the Borrower and its Subsidiaries as the Bank may
reasonably request.
9.2 Books, Records and Inspections. Keep, and cause each
Subsidiary to keep, its books and records in accordance with sound business
practices sufficient to allow the preparation of financial statements in
accordance with GAAP; permit, and cause each Subsidiary to permit, the Bank or
any representative thereof to inspect the properties and operations of the
Borrower and of such Subsidiary; and permit, and cause each Subsidiary to
permit, at any reasonable time and with reasonable notice (or at any time
without notice if an Event of Default exists), the Bank or any representative
thereof to visit any or all of its offices, to discuss its financial matters
with its officers and its independent auditors (and the Borrower hereby
authorizes such independent auditors to discuss such financial matters with the
Bank or any representative thereof) and to examine (and, at the expense of the
Borrower or the applicable Subsidiary, photocopy extracts from) any of its books
or other corporate records.
9.3 Insurance. Maintain, and cause each Subsidiary to
maintain, with responsible insurance companies, such insurance as may be
required by any law or governmental regulation or court decree or order
applicable to it and such other insurance, to such extent and against such
hazards and liabilities, as is customarily maintained by companies similarly
situated and that is acceptable to the Bank; and, on each anniversary of the
Effective Date and from time to time upon request of the Bank, furnish to the
Bank a certificate setting forth in reasonable detail the nature and extent of
all insurance maintained by the Borrower and its Subsidiaries.
9.4 Compliance with Laws; Payment of Taxes and Liabilities.
(a) Comply, and cause each Subsidiary to comply, in all material respects with
all applicable laws (including Environmental Laws), rules, regulations, decrees,
orders, judgments, licenses and permits; and (b) pay, and cause each Subsidiary
to pay, prior to delinquency, all taxes and other governmental charges against
it or any of its property, as well as claims of any kind which, if unpaid, might
become a Lien on any of its property; provided, however, that the foregoing
shall not require the Borrower or any Subsidiary to pay any such tax or charge
so long as it shall contest the validity thereof in good faith by appropriate
proceedings and shall set aside on its books adequate reserves with respect
thereto in accordance with GAAP.
9.5 Maintenance of Existence, etc. Maintain and preserve, and
(subject to Section 9.10) cause each Subsidiary to maintain and preserve, (a)
its existence and good standing in the jurisdiction of its incorporation and (b)
its qualification and good standing as a foreign corporation in each
jurisdiction where the nature of its business makes such qualification necessary
(except in those instances in which the failure to be qualified or in good
standing does not have a Material Adverse Effect).
9.6 Financial Covenants. On a consolidated basis with its
Subsidiaries on a quarterly basis commencing September 30, 1998 and continuing
quarterly thereafter:
<PAGE>
9.6.1 Fixed Charges Coverage Ratio. Not permit the Fixed Charges
Coverage Ratio to be less than 2.00 to 1.00.
9.6.2 Leverage Ratio. Not permit the Leverage Ratio as of the
last day of each quarter through and including the quarter ending June 25, 1999
to exceed 1.75 to 1.00 and for each quarter thereafter, 1.50 to 1.00.
9.6.3 Losses. Not show losses for any two (2) consecutive
quarters, excluding losses on Borrower's investment in Plug Power.
9.7 Limitations on Debt. Not, and not permit any Subsidiary to,
create, incur, assume or suffer to exist any Debt, except:
(a) obligations in respect of the Loan or any Letters of
Credit;
(b) other Debt due the Bank;
(c) trade debt;
(d) Debt of Guarantor owed to the Borrower;
(e) Debt of Subsidiaries (other than Guarantor) or
Debt of Plug Power owed to Borrower in the aggregate in excess
of $750,000 during any Fiscal Year, provided that Debt in excess
of $750,000 will be permitted to the extent that the loans by
Borrower are funded entirely with grant funds or equity offering
proceeds;
(f) Up to $6,000,000 in bonds (the "Bonds") for the
benefit of the Borrower by the Town of Colonie Industrial
Development Agency;
(g) Subordinated Debt.
9.8 Liens. Not, and not permit any Subsidiary to, create or
permit to exist any Lien on any of its real or personal properties, assets or
rights of whatsoever nature (whether now owned or hereafter acquired), except:
(a) Liens for taxes or other governmental charges
not at the time delinquent or thereafter payable without penalty
or being contested in good faith by appropriate proceedings and,
in each case, for which it maintains adequate reserves;
(b) Liens arising in the ordinary course of business
(such as (i) Liens of carriers, warehousemen, mechanics and
materialmen and other similar Liens imposed by law and (ii)
Liens incurred in connection with worker's compensation,
unemployment compensation and other types of social security
(excluding Liens arising under ERISA) or in connection with
surety bonds, bids, performance bonds and similar obligations)
for sums not overdue or being contested in good faith by
appropriate proceedings and not involving any deposits or
advances or borrowed money or the deferred purchase price of
property or services, and, in each case, for which it maintains
adequate reserves;
(c) Liens identified in Schedule 9.8;
<PAGE>
(d) Liens that constitute purchase money security
interests on any property securing debt incurred for the purpose
of financing all or any part of the cost of acquiring such
property, provided that any such Lien attaches to such property
within 60 days of the acquisition thereof and such Lien attaches
solely to the property so acquired;
(e) attachments, appeal bonds, judgments and other
similar Liens, for sums not exceeding $250,000 arising in
connection with court proceedings, provided the execution or
other enforcement of such Liens is effectively stayed and the
claims secured thereby are being actively contested in good
faith and by appropriate proceedings;
(f) easements, rights of way, restrictions, minor
defects or irregularities in title and other similar Liens not
interfering in any material respect with the ordinary conduct
of the business of the Borrower or any Subsidiary; and
(g) Liens in favor of the Bank arising under the
Loan Documents or otherwise.
(h) Liens granted to secure repayment of the Bonds
or arising in connection with construction of the Project being
financed with the Bonds.
9.9 Mergers, Consolidations, Sales. Not, and not permit any
Subsidiary to, be a party to any merger or consolidation, or purchase or
otherwise acquire all or substantially all of the assets or any stock of any
class of, or any partnership or joint venture interest in, any other Person, or
sell, transfer, convey or lease all or any substantial part of its assets, or
sell or assign with or without recourse any receivables.
9.10 Modification of Organizational Documents. Not permit the
Certificate of Incorporation, By-Laws or other organizational documents of the
Borrower or any Subsidiary to be amended or modified in any way which might
reasonably be expected to materially adversely affect the interests of the Bank.
9.11 Use of Proceeds. Use the proceeds of the Loans solely to
finance the Borrower's working capital and to make advances to Plug Power,
provided, however, that advances to Plug Power shall be limited to $1,000,000
(exclusive of the $750,000 permitted at Section 9.7 herein). As a condition to
any advance of Loan proceeds to Plug Power, Borrower must demonstrate to the
Bank that the total of all Loans and Letters of Credit outstanding are seventy
(70%) percent or less of Borrower's Acceptable Accounts. If at any time this
requirement is not met, Borrower must either (i) demand and receive payment of
said advances from Plug Power or (ii) reduce the aggregate amount of Loans and
Letter of Credit to a level that will allow the condition to be met. Borrower
will not use or permit any proceeds of any Loans to be used, either directly or
indirectly, for the purpose, whether immediate, incidental or ultimate, of
"purchasing or carrying" any Margin Stock.
9.12 Further Assurances. Take, and cause each Subsidiary to
take, such actions as are necessary, or as the Bank may reasonably request,
from time to time (including the execution and delivery of guaranties, security
agreements, pledge agreements, financing statements and other documents, the
filing or recording of any of the foregoing, and the delivery of stock
certificates and other collateral with respect to which perfection is obtained
by possession) to ensure that the obligations of the Borrower hereunder and
<PAGE>
under the other Loan Documents are secured by (i) substantially all of the
assets of the Borrower and guaranteed by all of the Subsidiaries (including,
promptly upon the acquisition or creation thereof, any Subsidiary acquired or
created after the date hereof) by execution of a counterpart of the Guaranty and
(ii) the obligations of the Guarantor under the Guaranty are secured as required
hereunder.
9.13 Transactions with Affiliates. Not, and not permit any
Subsidiary to, enter into, or cause, suffer or permit to exist any transaction,
arrangement or contract with any of its other Affiliates(other than the Borrower
and its Subsidiaries) which is on terms which are less favorable than are
obtainable from any Person which is not one of its Affiliates.
9.14 Employee Benefit Plans. Maintain, and cause each Subsidiary
to maintain, each Pension Plan in substantial compliance with all applicable
requirements of law and regulations.
9.15 Environmental Matters. (a) If any material Release or
Disposal of Hazardous Substances shall occur or shall have occurred on any real
property or any other assets owned, leased or operated by either the Borrower or
any Subsidiary, the Borrower shall, and shall cause the applicable Subsidiary
to, cause the prompt containment and removal of such Hazardous Substances and
the remediation of such real property or other assets as necessary to comply in
all material respects with all Environmental Laws and to preserve the value of
such real property or other assets. Without limiting the generality of the
foregoing, the Borrower shall, and shall cause each Subsidiary to, comply in a
reasonable and cost-effective manner with any valid Federal or state judicial or
administrative order requiring the performance at any real property owned,
leased or operated by either the Borrower or any Subsidiary of activities in
response to the Release or threatened Release of a Hazardous Substance except
for the period of time that the Borrower or such Subsidiary is diligently and in
good faith contesting such order.
(b) To the extent that the transportation of "hazardous
waste" as defined by RCRA is permitted by this Agreement, the Borrower
shall, and shall cause its Subsidiaries to, dispose of such hazardous
waste only at licensed disposal facilities operating, to the best of
the Borrower's or such Subsidiary's knowledge after reasonable
inquiry, in compliance with Environmental Laws.
9.16 Unconditional Purchase Obligations. Not, and not permit
any Subsidiary to, enter into or be a party to any contract for the purchase of
materials, supplies or other property or services, if such contract requires
that payment be made by it regardless of whether or not delivery is ever made of
such materials, supplies or other property or services; provided that the fore
going shall not prohibit the Borrower or any Subsidiary from entering into
options for the purchase of particular assets or businesses.
9.17 Inconsistent Agreements. Not, and not permit any Subsidiary
to, enter into any agreement containing any provision which (a) would be
violated or breached by any borrowing by the Borrower hereunder or by the
performance by the Borrower or any Subsidiary of any of their obligations
hereunder or under any other Loan Document or (b) would prohibit the Borrower or
any Subsidiary from granting to the Bank, a Lien on any of their assets.
9.18 Advances and Other Investments. Not, and not permit any
Subsidiary to, make, incur, assume or suffer to exist any Investment in any
other Person, except (without duplication) the following:
<PAGE>
(a) the advances permitted pursuant to Section 9.7
and Section 9.11 herein;
(b) equity Investments existing on the Effective Date
in Subsidiaries identified in Schedule 8.8; and
(c) the Guarantor's bank deposits in the ordinary
course of business; provided that the aggregate amount of all
such deposits (excluding amounts in payroll accounts or for
accounts payable, in each case to the extent that checks have
been issued to third parties) which are maintained with any bank
other than the Bank shall not at any time exceed the amount(s)
necessary for payroll plus $50,000;
provided, however, that no Investment otherwise permitted by clause (b) shall be
permitted to be made if, immediately before or after giving effect thereto, any
Event of Default or Unmatured Event of Default shall have occurred and be
continuing.
9.19 Maintenance of Property. The Borrower shall, and shall
cause each Subsidiary to, maintain and preserve all its property which is used
or useful in its business in good working order and condition, ordinary wear and
tear excepted.
9.20 Performance of Obligations. The Borrower shall, and shall
cause each Subsidiary to, pay and discharge as the same shall become due and
payable, all their respective obligations and liabilities, including:
(a) all tax liabilities, assessments and governmental
charges or levies upon it or its properties or assets; and
(b) all lawful claims which, if unpaid, would by law
become a Lien upon its property; unless, in each case, the same
are being contested in good faith by appropriate proceedings and
adequate reserves in accordance with GAAP are being maintained
by the Borrower or such Subsidiary.
SECTION 10 EFFECTIVENESS; CONDITIONS OF LENDING, ETC.
The obligation of the Bank to make its Loans is subject to the
following conditions precedent:
10.1 Initial Credit Extensions. The obligation of the Bank to
make its initial Loan is, in addition to the conditions precedent specified in
Section 10.2, subject to the conditions precedent (and the date on which all
such conditions precedent have been satisfied or waived in writing by the Bank
is called the "Effective Date") that (a) the Bank shall have received all
amounts which are then due and payable pursuant to Section 5 and (to the extent
billed) Section 12.6, (b) the Bank shall have completed its due diligence of the
Borrower and (c) the Bank shall have received all of the following, each duly
executed and dated the Effective Date (or such other date as shall be
satisfactory to the Bank), in form and substance satisfactory to the Bank.
10.1.1 Note. The Note.
10.1.2 Resolutions. Certified copies of resolutions of the Board of
Directors of the Borrower authorizing or ratifying the execution, delivery and
performance by the Borrower of this Agreement, the Note and the other Loan
<PAGE>
Documents to which the Borrower is a party; and certified copies of resolutions
of the Board of Directors of each Subsidiary which is to execute and deliver
any Loan Document authorizing or ratifying the execution, delivery and
performance by such Subsidiary of each Loan Document to which such Subsidiary
is a party.
10.1.3 Consents, etc. Certified copies of all documents evidencing
any necessary corporate action, consents and governmental approvals (if any)
required for the execution, delivery and performance by the Borrower and each
Subsidiary of the documents referred to in this Section 10.
10.1.4 Incumbency and Signature Certificates. A certificate of an
officer of the Borrower and each Subsidiary as of the Effective Date certifying
the names of the officer or officers of such entity authorized to sign the Loan
Documents to which such entity is a party, together with a sample of the true
signature of each such officer (it being understood that the Bank may
conclusively rely on each such certificate until formally advised by a like
certificate of any changes therein).
10.1.5 Guaranty. The Guaranty executed by the Guarantor as of the
Effective Date and by any Subsidiary created or acquired after the Effective
Date.
10.1.6 Security Agreements. The Security Agreements executed by
the Borrower and the Guarantor as of the Effective Date and by any Subsidiary
created or acquired after the Effective Date, together with evidence,
satisfactory to the Bank, that all filings necessary to perfect the Bank's Lien
on any collateral granted under the Security Agreements have been duly made and
are in full force and effect.
10.1.7 Opinion of Counsel for the Borrower and the Guarantor. The
opinion of counsel to the Borrower and the Guarantor in all respects acceptable
to the Bank and its counsel.
10.1.8 Other. Such other documents as the Bank may reasonably
request.
10.2 Conditions. The obligation of the Bank to make each Loan is
subject to the following further conditions precedent that:
10.2.1 Compliance with Warranties, No Default, etc. Both before
and after giving effect to any borrowing the following statements shall be true
and correct:
(a) the representations and warranties of the Borrower
and the Guarantor set forth in this Agreement and the other Loan
Documents shall be true and correct in all material respects with
the same effect as if then made (except to the extent stated to
relate to an earlier date, in which case such representations and
warranties shall be true and correct in all material respects as
of such earlier date);
(b) no litigation (including derivative actions),
arbitration proceeding, labor controversy or governmental
investigation or proceeding shall be pending or, to the
knowledge of the Borrower, threatened against either the
Borrower or any of its Subsidiaries which might reasonably
be expected to have a Material Adverse Effect or which
purports to affect the legality, validity or enforceability
of this Agreement, the Note or any other Loan Document;
<PAGE>
(c) no Event of Default or Unmatured Event of
Default shall have then occurred and be continuing, and
neither the Borrower nor any Subsidiary shall be in
violation of any law or governmental regulation or court
order or decree where such violation or violations singly
or in the aggregate might reasonably be expected to have
a Material Adverse Effect; and
(d) there shall have been no change in the
operations or financial condition of either the Borrower
or its Subsidiaries that might reasonably be expected to
have a Material Adverse Effect.
10.2.2 Confirmatory Certificate. If requested by the Bank, the
Bank shall have received a certificate dated the date of such requested Loan and
signed by a duly authorized representative of the Borrower as to the matters set
out in Section 10.2.1 (it being understood that each request by the Borrower for
the making of a Loan shall be deemed to constitute a warranty by the Borrower
that the conditions precedent set forth in Section 10.2.1 will be satisfied at
the time of the making of such Loan, together with such other documents as the
Bank may reasonably request in support thereof.
SECTION 11 EVENTS OF DEFAULT AND THEIR EFFECT.
11.1 Events of Default. Each of the following shall constitute
an Event of Default under this Agreement:
11.1.1 Non-Payment of the Loans, etc. Default in the payment when
due of the principal of any Loan; or default, and continuance thereof for ten
(10) Business Days, in the payment when due of any interest, fee, or other
amount payable by the Borrower hereunder or under any other Loan Document, or
payable by the Borrower under any other credit arrangement with any Bank.
11.1.2 Non-Payment of Other Debt. Any default shall occur under
the terms applicable to any Debt of either the Borrower or any Subsidiary in an
aggregate amount (for all such Debt so affected) exceeding $250,000 and such
default shall (a) consist of the failure to pay such Debt when due (subject to
any applicable grace period), whether by acceleration or otherwise, or (b)
accelerate the maturity of such Debt or permit the holder or holders thereof,
or any trustee or agent for such holder or holders, to cause such Debt to
become due and payable prior to its expressed maturity; provided, however,
that this Section 11.1.2 shall not apply to trade debt.
11.1.3 Other Material Obligations. Default after any applicable
notice and cure periods in the payment when due, or in the performance or
observance of, any material obligation of, or condition agreed to by, either
the Borrower or any Subsidiary with respect to any material purchase or lease of
goods or services where such default, singly or in the aggregate with other
such defaults might reasonably be expected to have a Material Adverse Effect
(except only to the extent that the existence of any such default is being
contested by either the Borrower or such Subsidiary in good faith and by
appropriate proceedings and appropriate reserves have been made in respect of
such default).
11.1.4 Bankruptcy, Insolvency, etc. Either the Borrower or any
Subsidiary becomes insolvent or generally fails to pay, or admits in writing
its inability or refusal to pay, debts as they become due; or either the
Borrower or any Subsidiary applies for, consents to, or acquiesces in the
<PAGE>
appointment of a trustee, receiver or other custodian for either the Borrower or
such Subsidiary or any property thereof, or makes a general assignment for the
benefit of creditors; or, in the absence of such application, consent or
acquiescence, a trustee, receiver or other custodian is appointed for either
the Borrower or any Subsidiary or for a substantial part of the property of any
thereof and is not discharged within 120 days; or any bankruptcy,
reorganization, debt arrangement, or other case or proceeding under any
bankruptcy or insolvency law, or any dissolution or liquidation proceeding
(except the voluntary dissolution, not under any bankruptcy or insolvency law,
of a Subsidiary), is commenced in respect to either the Borrower or any
Subsidiary, and if such case or proceeding is not commenced by such Borrower or
Subsidiary, it is consented to or acquiesced in by such Borrower or Subsidiary,
or remains for 120 days undismissed; or the Borrower or any Subsidiary takes any
corporate action to authorize, or in furtherance of, any of the foregoing.
11.1.5 Non-Compliance with Provisions of This Agreement. (a)
Failure by the Borrower to comply with or to perform any covenant set forth in
Section 9.6; or (b) failure by the Borrower to comply with or to perform any
covenant set forth in Section 9.12 for 15 days after notice thereof to Borrower
from the Bank; or (c) failure by the Borrower to comply with or to perform any
other provision of this Agreement (and not constituting an Event of Default
under any of the other provisions of this Section 11) and continuance of such
failure described in this clause (b) for 30 days after notice thereof to
Borrower from the Bank.
11.1.6 Warranties. Any warranty made by the Borrower to the Bank
is breached or is false or misleading in any material respect, or any schedule,
certificate, financial statement, report, notice or other writing furnished by
the Borrower to the Bank in connection herewith is false or misleading in any
material respect on the date as of which the facts therein set forth are stated
or certified.
11.1.7 Pension Plans. (i) Institution of any steps by the Borrower
or any other Person to terminate a Pension Plan if as a result of such
termination the Borrower could be required to make a contribution to such
Pension Plan, or could incur a liability or obligation to such Pension Plan, in
excess of $250,000; (ii) a contribution failure occurs with respect to any
Pension Plan sufficient to give rise to a Lien under section 302(f) of ERISA; or
(iii) there shall occur any withdrawal or partial withdrawal from a
Multiemployer Pension Plan and the withdrawal liability (without unaccrued
interest) to Multiemployer Pension Plans as a result of such withdrawal
(including any outstanding withdrawal liability that the Borrower and the
Controlled Group have incurred on the date of such withdrawal) exceeds $250,000.
11.1.8 Judgments. Final non-appealable judgments which exceed an
aggregate of $250,000 shall be rendered against the Borrower or any Subsidiary
and shall not have been paid, discharged or vacated or had execution thereof
stayed pending appeal within 30 days after entry or filing of such judgments.
11.1.9 Invalidity of Guaranty, etc. The Guaranty shall cease to be
in full force and effect with respect to any Guarantor for a period of 15 days
after notice thereof to Borrower from the Bank, any Guarantor shall fail
(subject to any applicable grace period) to comply with or to perform any
applicable provision of the Guaranty, or any Guarantor (or any Person by,
through or on behalf of such Guarantor) shall contest in any manner the
validity, binding nature or enforceability of the Guaranty with respect to such
Guarantor.
<PAGE>
11.1.10 Invalidity of Collateral Documents, etc. Any Collateral
Document shall cease to be in full force and effect with respect to the
Borrower or any Guarantor for a period of 15 days after notice thereof to
Borrower from the Bank or, the Borrower or any Guarantor shall fail (subject to
any applicable grace period) to comply with or to perform any applicable
provision of any Collateral Document to which such entity is a party, or the
Borrower or any Guarantor (or any Person by, through or on behalf of the
Borrower or Guarantor) shall contest in any manner the validity, binding nature
or enforceability of any Collateral Document.
11.1.11 Change in Control. (a) Any Person or group of Persons
(within the meaning of Section 13 or 14 of the Securities Exchange Act of 1934,
but excluding the executive managers of the Borrower as of the Effective Date)
shall acquire beneficial ownership (within the meaning of Rule 13d-3 promulgated
under such Act) of 30% or more of the outstanding shares of common stock of the
Borrower; (b) during any 24-month period, individuals who at the beginning of
such period constituted the Board of Directors of the Borrower (together with
any new directors whose election by said Board of Directors or whose nomination
for election was approved by a vote of at least two-thirds of the directors who
either were directors at beginning of such period or whose election or
nomination was previously so approved) cease for any reason to constitute a
majority of said Board of Directors; (c) a period of 60 consecutive days shall
have elapsed during which any of the individuals named in Schedule 11.1.11A
shall have ceased to hold executive offices with the Borrower at least equal in
seniority to such individual's present offices, as set out in such Schedule
11.1.11, excluding any such individual who has been replaced by another
individual or individuals reasonably satisfactory to the Bank (it being
understood that any such replacement individual shall be deemed added to
Schedule 11.1.11 on the date of approval thereof by the Bank); or (d) a period
of 60 consecutive days shall have elapsed during which all of the individuals
named in Schedule 11.1.11B shall have ceased to be members of the Board of
Directors.
11.2 Effect of Event of Default. If any Event of Default
described in Section 11.1.4 shall occur, the Commitment (if not theretofore
terminated) shall immediately terminate and the Note and all other obligations
hereunder shall become immediately due and payable all without presentment,
demand, protest or notice of any kind; and, if any other Event of Default shall
occur and be continuing, the Bank shall declare the Commitment (if not
theretofore terminated) to be terminated and/or declare the Note and all other
obligations hereunder to be due and payable whereupon the Commitment (if not
theretofore terminated) shall immediately terminate and/or the Note and all
other obligations hereunder shall become immediately due and payable all
without presentment, demand, protest or notice of any kind. The Bank shall
promptly advise the Borrower of any such declaration, but failure to do so
shall not impair the effect of such declaration. Notwithstanding the
foregoing, the effect as an Event of Default of any event described in Section
11.1.1 or Section 11.1.4 may be waived by the written concurrence of the Bank,
and the effect as an Event of Default of any other event described in this
Section 11 may be waived by the written concurrence of the Bank.
SECTION 12 GENERAL.
12.1 Waiver; Amendments. No delay on the part of the Bank in the
exercise of any right, power or remedy shall operate as a waiver thereof, nor
shall any single or partial exercise by any of them of any right, power or
<PAGE>
remedy preclude other or further exercise thereof, or the exercise of any
other right, power or remedy. No amendment, modification or waiver of, or
consent with respect to, any provision of this Agreement or the Note shall in
any event be effective unless the same shall be in writing and signed and
delivered by the Bank and then any such amendment, modification, waiver or
consent shall be effective only in the specific instance and for the specific
purpose for which given.
12.2 Confirmations. The Borrower and the Bank agree from time to
time, upon written request received by it from the other, to confirm to the
other in writing the aggregate unpaid principal amount of the Loans then
outstanding under such Note.
12.3 Notices. Except as otherwise provided in Section 2.2.2,
all notices hereunder shall be in writing (including facsimile transmission)
and shall be sent to the applicable party at its address shown on Schedule 12.3
or at such other address as such party may, by written notice received by the
other parties, have designated as its address for such purpose. Notices sent by
facsimile transmission shall be deemed to have been given when sent; notices
sent by mail shall be deemed to have been given three Business Days after the
date when sent by registered or certified mail, postage prepaid; and notices
sent by hand delivery or overnight courier service shall be deemed to have been
given when received. For purposes of Section 2.2.2, the Bank shall be entitled
to rely on telephonic instructions from any person that the Bank in good faith
believes is an authorized officer or employee of the Borrower, and the Borrower
shall hold the Bank harmless from any loss, cost or expense resulting from any
such reliance.
12.4 Computations. Where the character or amount of any asset or
liability or item of income or expense is required to be determined, or any
consolidation or other accounting computation is required to be made, for the
purpose of this Agreement, such determination or calculation shall, to the
extent applicable and except as otherwise specified in this Agreement, be made
in accordance with GAAP, consistently applied.
12.5 Regulation U. The Bank represents that it in good faith is
not relying, either directly or indirectly, upon any Margin Stock as collateral
security for the extension or maintenance by it of any credit provided for in
this Agreement.
12.6 Costs, Expenses and Taxes. The Borrower agrees to pay on
demand all reasonable out-of-pocket costs and expenses of the Bank (including
the reasonable accounting fees, appraisal fees and fees and charges of counsel
for the Bank of local counsel, if any, who may be retained by said counsel) in
connection with the preparation, execution, delivery and administration of this
Agreement the other Loan Documents and all other documents provided for herein
or delivered or to be delivered hereunder or in connection herewith (including
any amendments, supplements or waivers to any Loan Documents), and all
reasonable out-of-pocket costs and expenses (including reasonable accounting
fees, appraisal fees and attorneys' fees, court costs and other legal expenses
and allocated costs of staff counsel) incurred by the Bank after an Event of
Default in connection with the enforcement of this Agreement, the other Loan
Documents or any such other documents, except as otherwise determined by a court
of competent jurisdiction. In addition, the Borrower agrees to pay, and to save
the Bank harmless from all liability for, (a) any stamp or other taxes
(excluding income taxes and franchise taxes based on net income) which may be
payable in connection with the execution and delivery of this Agreement, the
borrowings hereunder, the issuance of the Note or the execution and delivery of
any other Loan Document or any other document provided for herein or delivered
<PAGE>
or to be delivered hereunder or in connection herewith and (b) any fees of the
Borrower's auditors in connection with any reasonable exercise by the Bank of
their rights pursuant to Section 9.2. All obligations provided for in this
Section 12.6 shall survive repayment of the Loans, cancellation of the Note and
any termination of this Agreement.
12.7 Subsidiary References. The provisions of this Agreement
relating to Subsidiaries shall apply only during such times as the Borrower has
one or more Subsidiaries.
12.8 Captions. Section captions used in this Agreement are for
convenience only and shall not affect the construction of this Agreement.
12.9 Governing Law. This Agreement and each Note shall be a
contract made under and governed by the internal laws of the State of New York.
Whenever possible each provision of this Agreement shall be interpreted in such
manner as to be effective and valid under applicable law, but if any provision
of this Agreement shall be prohibited by or invalid under applicable law, such
provision shall be ineffective to the extent of such prohibition or invalidity,
without invalidating the remainder of such provision or the remaining provisions
of this Agreement. All obligations of the Borrower and rights of the Bank
expressed herein or in any other Loan Document shall be in addition to and not
in limitation of those provided by applicable law.
12.10 Counterparts. This Agreement may be executed in any number
of counterparts and by the different parties hereto on separate counterparts
and each such counterpart shall be deemed to be an original, but all such
counterparts shall together constitute but one and the same Agreement.
12.11 Successors and Assigns. This Agreement shall be binding
upon the Borrower, the Bank and their respective successors and assigns, and
shall inure to the benefit of the Borrower, the Bank and the successors and
assigns of the Bank.
12.12 Indemnification by the Borrower.
(a) In consideration of the execution and delivery of this
Agreement by the Bank and the agreement to extend the Commitment provided
hereunder, the Borrower hereby agrees to indemnify, exonerate and hold the Bank
and each of the officers, directors, employees, Affiliates and agents of the
Bank (each a "Bank Party") free and harmless from and against any and all
actions, causes of action, suits, losses, liabilities, damages and expenses,
including reasonable attorneys' fees and charges and reasonable allocated costs
of staff counsel (collectively, for purposes of this Section 12.12, called the
"Indemnified Liabilities"), incurred by the Bank Parties or any of them as a
result of, or arising out of, or relating to (i) any tender offer, merger,
purchase of stock, purchase of assets or other similar transaction financed or
proposed to be financed in whole or in part, directly or indirectly, with the
proceeds of any of the Loans, (ii) the use, handling, release, emission,
discharge, transportation, storage, treatment or disposal of any hazardous
substance at any property owned or leased by the Borrower or any Subsidiary,
(iii) any violation of any Environmental Laws with respect to conditions at any
property owned or leased by the Borrower or any Subsidiary or the operations
conducted thereon, (iv) the investigation, cleanup or remediation of offsite
locations at which the Borrower or any Subsidiary or their respective
predecessors are alleged to have directly or indirectly disposed of hazardous
substances or (v) the execution, delivery, performance or enforcement of this
Agreement or any other Loan Document by any of the Bank Parties, except for any
such Indemnified Liabilities arising on account of any such Bank Party's gross
<PAGE>
negligence or willful misconduct. If and to the extent that the foregoing
undertaking may be unenforceable for any reason, the Borrower hereby agrees to
make the maximum contribution to the payment and satisfaction of each of the I
ndemnified Liabilities which is permissible under applicable law. Nothing set
forth above shall be construed to relieve any Bank Party from any obligation it
may have under this Agreement.
(b) All obligations provided for in this Section 12.12
shall survive repayment of the Loans, cancellation of the Note, any foreclosure
under, or any modification, release or discharge of any or all of the Collateral
Documents and any termination of this Agreement.
12.13 Forum Selection and Consent to Jurisdiction. ANY LITIGATION
BASED HEREON, OR ARISING OUT OF, UNDER, OR IN CONNECTION WITH THIS AGREEMENT OR
ANY OTHER LOAN DOCUMENT, SHALL BE BROUGHT AND MAINTAINED EXCLUSIVELY IN THE
COURTS OF THE STATE OF NEW YORK OR IN THE UNITED STATES DISTRICT COURT FOR THE
NORTHERN DISTRICT OF NEW YORK; PROVIDED, HOWEVER, THAT ANY SUIT SEEKING
ENFORCEMENT AGAINST ANY COLLATERAL OR OTHER PROPERTY MAY BE BROUGHT, AT THE
BANK'S OPTION, IN THE COURTS OF ANY JURISDICTION WHERE SUCH COLLATERAL OR OTHER
PROPERTY MAY BE FOUND. THE BORROWER HEREBY EXPRESSLY AND IRREVOCABLY SUBMITS TO
THE JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK AND OF THE UNITED STATES
DISTRICT COURT FOR THE NORTHERN DISTRICT OF NEW YORK FOR THE PURPOSE OF ANY SUCH
LITIGATION AS SET FORTH ABOVE. THE BORROWER FURTHER IRREVOCABLY CONSENTS TO THE
SERVICE OF PROCESS BY REGISTERED MAIL, POSTAGE PREPAID, OR BY PERSONAL SERVICE
WITHIN OR WITHOUT THE STATE OF NEW YORK. THE BORROWER HEREBY EXPRESSLY AND
IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH
IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY SUCH LITIGATION
BROUGHT IN ANY SUCH COURT REFERRED TO ABOVE AND ANY CLAIM THAT ANY SUCH
LITIGATION HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. TO THE EXTENT THAT THE
BORROWER HAS OR HEREAFTER MAY ACQUIRE ANY IMMUNITY FROM JURISDICTION OF ANY
COURT OR FROM ANY LEGAL PROCESS (WHETHER THROUGH SERVICE OR NOTICE, ATTACHMENT
PRIOR TO JUDGMENT, ATTACHMENT IN AID OF EXECUTION OR OTHERWISE) WITH RESPECT TO
ITSELF OR ITS PROPERTY, THE BORROWER HEREBY IRREVOCABLY WAIVES SUCH IMMUNITY IN
RESPECT OF ITS OBLIGATIONS UNDER THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS.
12.14 Waiver of Jury Trial. THE BORROWER AND THE BANK HEREBY
WAIVE ANY RIGHT TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO ENFORCE OR
DEFEND ANY RIGHTS UNDER THIS AGREEMENT, ANY NOTE, ANY OTHER LOAN DOCUMENT AND
ANY AMENDMENT, INSTRUMENT, DOCUMENT OR AGREEMENT DELIVERED OR WHICH MAY IN THE
FUTURE BE DELIVERED IN CONNECTION HEREWITH OR THEREWITH OR ARISING FROM ANY
BANKING RELATIONSHIP EXISTING IN CONNECTION WITH ANY OF THE FOREGOING, AND
AGREES THAT ANY SUCH ACTION OR PROCEEDING SHALL BE TRIED BEFORE A COURT AND NOT
BEFORE A JURY.
<PAGE>
In witness whereof, the parties hereto have executed this instrument
as of the day and year first above written.
MECHANICAL TECHNOLOGY INCORPORATED
By: /s/ C.Scheuer
---------------------------------
Name: Cynthia A. Scheuer
Title: Vice President and Chief
Financial Officer
KEYBANK NATIONAL ASSOCIATION
By: /s/ W.Palmer
---------------------------------
Name: William B. Palmer
Title: Vice President
STATE OF NEW YORK )
) ss.:
COUNTY OF ALBANY )
On this 2nd day of September, 1998, before me the subscriber
personally appeared Cynthia A. Scheuer, who being by me duly sworn, did depose
and say; that she resides at Castleton, New York, that she is Vice President and
Chief Financial Officer of Mechanical Technology Incorporated, the corporation
described in and which executed the foregoing instrument;and that she signed her
name thereto by order of the Board of Directors of said corporation.
NOTARY PUBLIC
STATE OF NEW YORK )
) ss.:
COUNTY OF ALBANY )
On this 2nd day of September, 1998, before me the subscriber
personally appeared William B. Palmer, who being by me duly sworn, did depose
and say; that he resides Athens, New York, that he is a Vice President of
KeyBank National Association, the corporation described in and which executed
the foregoing instrument; and that he signed his name thereto by order of the
Board of Directors of said corporation.
NOTARY PUBLIC
<PAGE>
SCHEDULE 1.1
PRICING SCHEDULE
The LIBOR Rate Margin shall be determined in accordance with the table below
and the other provisions of this Schedule 1.1.
Level I
Level II
Level III
LIBOR Rate Margin
2.50%
2.00%
1.60%
Level I applies at any time when Level II or Level III do not apply.
Level II applies when the Leverage Ratio is equal to or less than 1.50 to 1.
Level III applies when (a) the Leverage Ratio is less than 1.50 to 1 and (b) the
Borrower has operating revenues of at least $50,000,000.00.
The applicable Level shall be adjusted, to the extent applicable, 45 days
(or, in the case of the last Fiscal Quarter of any Fiscal Year, 120 days) after
the end of each Fiscal Quarter based on the Ratios as of the last day of such
Fiscal Quarter; provided that if the Borrower fail to deliver the financial
statements required by Section 9.1.1 or 9.1.2, as applicable, and the related
certificate required by Section 9.1.3 by the 60th day (or, if applicable, the
120th day) after any Fiscal Quarter, Level I shall apply until such financial
statements are delivered.
SCHEDULE 8.6(a)
LITIGATION AND CONTINGENT LIABILITIES
[TO BE PROVIDED]
SCHEDULE 8.6(b)
CONTINGENT PAYMENTS
[TO BE PROVIDED]
<PAGE>
SCHEDULE 8.8
SUBSIDIARIES
Borrower owns 100% of Turbonetics Energy,Inc., Ling Electronics Limited and Ling
Electronics, Inc.
SCHEDULE 8.15
ENVIRONMENTAL MATTERS
[TO BE PROVIDED]
SCHEDULE 8.17
COPYRIGHTS, PATENTS, TRADEMARKS AND LICENSES
SCHEDULE 9.8
EXISTING LIENS
[TO BE PROVIDED]
SCHEDULE 11.1.11A
EXECUTIVES
Name Current Office(s)
[TO BE PROVIDED]
SCHEDULE 11.1.11B
DIRECTORS
[TO BE PROVIDED]
SCHEDULE 12.3
ADDRESSES FOR NOTICES
[TO BE PROVIDED]
Exhibit 4.94
SECURITY AGREEMENT
Date: September 22, 1998
The undersigned, MECHANICAL TECHNOLOGY INCORPORATED, a New York
corporation, with an office for the transaction of business located at 968
Albany Shaker Road, Latham, New York 12110 (herein referred to as "Borrower"),
hereby agrees in favor of KEYBANK NATIONAL ASSOCIATION, a national banking
association with an office for the transaction of business at 66 South Pearl
Street, Albany, New York 12207 (the "Bank") as follows:
1. DEFINITIONS. All capitalized terms used herein which are
defined in the Credit Agreement of even date herewith (hereinafter, together
with all exhibits thereto, as it may from time to time be amended, modified or
supplemented, referred to as the "Credit Agreement") by and between the Borrower
and the Bank, shall have the respective meanings provided therefor in the Credit
Agreement, unless otherwise defined herein or unless the context otherwise
requires.
2. THE INDEBTEDNESS. In consideration of one or more loans,
advances, or other financial accommodations at any time before, at or after the
date hereof made or extended by the Bank to or for the account of Borrower,
directly or indirectly, as principal, guarantor or otherwise (the
"Indebtedness") Borrower hereby grants to the Bank a continuing security
interest in and a right of set-off against, and Borrower hereby assigns to the
Bank, the Collateral described in Paragraph 3, to secure the payment,
performance and observance of (i) all indebtedness, obligations, liabilities
and agreements of any kind of Borrower to the Bank, now existing or hereafter
arising, direct or indirect, absolute or contingent, secured or unsecured, due
or not, arising out of or relating to the Indebtedness and (ii) all agreements,
documents and instruments evidencing any of the foregoing or under which any of
the foregoing may have been issued, created, assumed or guaranteed (all of the
foregoing being herein referred to as the "Obligations").
3. THE COLLATERAL. The Collateral is described on Schedule "A"
annexed hereto as part hereof and also includes all attachments, accessions and
equipment now or hereafter affixed to the Collateral or used in connection
therewith, substitutions and replacements therefor (unless the description of
Collateral expressly excludes after-acquired Collateral), all items of
Collateral now owned or existing and hereafter acquired, created or arising, and
all proceeds thereof (including, without limitation, claims of Borrower against
third parties for loss or damage to or destruction of any Collateral).
4. WARRANTIES, REPRESENTATIONS AND COVENANTS. Borrower warrants,
represents and covenants that:
(a) The chief executive office and other places of
business of Borrower, the Collateral and the books and records relating to
the Collateral and the Collateral are, and have been during the four month
period prior to the date hereof (or in the case of a new business, from
the date of commencement of said business), located at the address(es) set
forth below and Borrower will not change the same, or merge or consolidate
with any person or change its name, without prior written notice to and
consent of the Bank:
Addresses: 968 Albany Shaker Road, Latham, New York 12110; [OTHER
ADDRESSES TO BE PROVIDED]
<PAGE>
(b) Borrower will use the Collateral for lawful and business
purposes only, with all reasonable care and caution and in conformity with
all applicable laws, ordinances and regulations;
(c) Borrower will keep the Collateral in good order, repair,
running and marketable condition as used in the ordinary course of
business, at Borrower's sole cost and expense;
(d) The Bank shall at all times have free access to and right
of inspection of the Collateral and any records pertaining thereto, and the
right to make extracts from and to receive from Borrower originals or true
copies of such records and any papers and instruments relating to any
Collateral upon request therefor (which rights shall, except after the
occurrence of an Event of Default, be exercised only upon reasonable notice
during regular business hours), and Borrower hereby grants to the Bank a
security interest in all such records, papers and instruments to secure the
payment, performance and observance of the Obligations;
(e) Borrower, at its sole cost and expense, will insure the
Collateral in the name of and with loss or damage payable solely to the
Bank, as its interest may appear, against such risks, with such companies
and in such amounts, as may be required by the Bank from time to time (all
such policies providing ten (10) days minimum written notice of
cancellation to the Bank) and Borrower will deliver to the Bank the
original or duplicate policies, or certificates or other evidence
satisfactory to the Bank attesting thereto, and Borrower will promptly
notify the Bank of any loss or damage to any Collateral or arising from
its use;
(f) Borrower will, at its sole cost and expense, and at all
times, pay and discharge all taxes and assessments and keep the Collateral
free and clear of any and all liens, security interests or encumbrances
(other than in favor of the Bank), perform all acts and execute all
documents requested by the Bank from time to time to evidence, perfect,
maintain or enforce the Bank's primary security interest granted herein or
otherwise in furtherance of the provisions of this Security Agreement;
(g) At any time and from time to time, Borrower shall, at its
sole cost and expense, execute and deliver to the Bank such financing
statements pursuant to the Uniform Commercial Code ("UCC"), applications
for certificate of title and other papers, documents or instruments as may
be requested by the Bank in connection with this Security Agreement, and
Borrower hereby authorizes the Bank to execute and file at any time and
from time to time one or more financing statements or copies thereof or of
this Security Agreement with respect to the Collateral signed only by the
Bank;
(h) In its discretion, the Bank may, at any time and from time
to time, after a Default (as hereinafter defined) or an event which but for
the passage of time, the giving of notice or both would constitute a
Default has occurred and is continuing, in its name or Borrower's or
otherwise, notify any account debtor or obligor of any account, contract,
document, instrument, chattel paper or general intangible included in the
Collateral to make payment to the Bank;
(i) In their discretion, the Bank may, at any time and from
time to time, after a Default has occurred and is continuing, demand sue
for, collect or receive any money or property at any time payable or
receivable on account of or in exchange for, or make any compromise or
<PAGE>
settlement deemed desirable by the Bank with respect to, any Collateral,
and/or extend the time of payment, arrange for payment in installments, or
otherwise modify the terms of, or release, any Collateral or Obligations,
all without notice to or consent by Borrower and without otherwise
discharging or affecting the Obligations, the Collateral or the security
interest granted herein;
(j) In their discretion, the Bank may, at any time and from
time to time, for the account of Borrower, pay any amount or do any act
required of Borrower hereunder and which Borrower fails to do or pay, and
any such payment shall be deemed an advance by the Bank to Borrower payable
on demand together with interest at the highest rate then payable on any of
the Obligations;
(k) Borrower will pay the Bank for any sums, costs, and expenses
which the Bank may pay or incur pursuant to the provisions of this Security
Agreement or in negotiating, executing, perfecting, defending, or
protecting the security interest granted herein or in enforcing payment of
the Obligations or otherwise in connection with the provisions hereof,
including but not limited to court costs, collection charges, travel
expenses, and reasonable attorneys' fees, all of which, together with
interest at the highest rate then payable on any of the Obligations, shall
be part of the Obligations and be payable on demand;
(l) All proceeds of any other Collateral received by Borrower
after the occurrence of a Default shall not be commingled with other
property of Borrower, but shall be segregated, held by Borrower in trust
for the Bank, and immediately delivered to the Bank in the form received,
duly endorsed in blank where appropriate to effectuate the provisions
hereof, the same to be held by the Bank as additional Collateral hereunder
or, at the Bank's option, to be applied to payment of the Obligations,
whether or not due and in any order; and
(m) In their sole discretion, the Bank may, subject to the terms
of the Credit Agreement, at any time and from time to time, assign,
transfer or deliver to any transferee of any Obligations, any Collateral,
whereupon the Bank shall be fully discharged from all responsibility and
the transferee shall be vested with all powers and rights of the Bank
hereunder with respect thereto, but the Bank shall retain all rights and
powers with respect to any Collateral not assigned, transferred or
delivered.
5. DEFAULT. It shall constitute an event of default ("Default")
under this Security Agreement if an Event of Default shall have occurred under
any of the Loan Documents or if any one or more of the following shall occur:
(a) Borrower shall fail to perform any covenant, agreement or
obligation contained in this Security Agreement for a period of fifteen
(15) days after notice from the Bank of such failure; or
(b) the Collateral shall be subjected to waste, sale, transfer
or other disposition or any lien, encumbrance or other imposition is placed
upon said Collateral; or
(c) any levy, seizure, attachment, condemnation, forfeiture or
other proceeding shall be brought against or with respect to the
Collateral; or
<PAGE>
(d) the occurrence of a material and adverse change in the
condition or affairs (financial or otherwise) of the Borrower which the
Bank reasonably believes substantially impairs their security or
substantially increases the risk of failure of payment or performance
under any of the Loan Documents.
6. REMEDIES. Upon the occurrence and continuation of any Default
and at any time thereafter, the Bank shall have the following rights and
remedies (to the extent permitted by applicable law) in addition to all rights
and remedies of a secured party under the UCC or of the Bank under the
Obligations, all such rights and remedies being cumulative, not exclusive and
enforceable alternatively, successively or concurrently:
(a) the Bank may at any time and from time to time, with or
without judicial process or the aid and assistance of others, enter upon
any premises in which any Collateral may be located and, without resistance
or interference by Borrower, take possession of the Collateral; and/or
dispose of any Collateral on any such premises; and/or require Borrower to
assemble and make available to the Bank at the expense of Borrower any
Collateral at any place and time designated by the Bank which is reasonably
convenient to both parties; and/or remove any Collateral from any such
premises for the purpose of effecting sale or other disposition thereof
(and if any of the Collateral consists of motor vehicles, the Bank may use
Borrower's license plates); and/or sell, resell, lease, assign and deliver,
grant options for or otherwise dispose of any Collateral in its then
condition or following any commercially reasonable preparation or
processing, at public or private sale or proceedings or otherwise, by one
or more contracts, in one or more parcels, at the same or different times,
with or without having the Collateral at the place of sale or other
disposition, for cash and/or credit, and upon any terms, at such place(s)
and time(s) and to such person(s) as the Bank deem best, all without
demand, notice or advertisement whatsoever except that where an applicable
statute requires reasonable notice of sale or other disposition Borrower
hereby agrees that the sending of five days' notice by registered or
certified mail, return receipt requested, to any address of Borrower set
forth in this Security Agreement shall be deemed reasonable notice thereof.
If any Collateral is sold by the Bank upon credit or for future delivery,
the Bank shall not be liable for the failure of the purchaser to pay for
same and in such event the Bank may resell such Collateral. The Bank may
buy any Collateral at any public sale and, if any Collateral is of a type
customarily sold in a recognized market or is of the type which is the
subject of widely distributed standard price quotations, the Bank may buy
such Collateral at private sale and in each case may make payment therefor
by any means. The Bank may apply the sale proceeds actually received from
any sale or other disposition to the reasonable expenses of retaking,
holding, preparing for sale, selling, leasing and the like, to reasonable
attorneys' fees and all legal, travel and other expenses which may be
incurred by the Bank in attempting to collect the Obligations or enforce
this Security Agreement or in the prosecution or defense of any action or
proceeding related to the subject matter of this Security Agreement; and
then to the Obligations in such order and as to principal or interest as
the Bank may desire; and Borrower shall remain liable and will pay the Bank
on demand any deficiency remaining, together with interest thereon at the
highest rate then payable on the Obligations and the balance of any
expenses unpaid, with any surplus to be paid to Borrower, subject to any
duty of the Bank imposed by law to the holder of any subordinate security
interest in the Collateral known to the Bank;
<PAGE>
(b) The Bank may appropriate, set off and apply to the payment
of the Obligations, any Collateral in or coming into the possession of the
Bank or their agents, without notice to Borrower and in such manner as the
Bank may in their discretion determine.
7. DESIGNATION AND AUTHORIZATION. To effectuate the terms and
provisions hereof, Borrower hereby designates and appoints the Bank and each of
its designees or agents as attorney-in-fact of Borrower, irrevocably and with
power of substitution, with authority, after the occurrence of a Default, to:
receive, open and dispose of all mail addressed to Borrower and notify the Post
Office authorities to change the address for delivery of mail addressed to
Borrower to such address as the Bank may designate; endorse the name of Borrower
on any notes, acceptances, checks, drafts, money orders, instruments or other
evidences of Collateral that may come into the Bank's possession; sign the name
of Borrower on any invoices, documents, drafts against and notices to account
debtors or obligors of Borrower, assignments and requests for verification of
accounts; execute proofs of claim and loss; execute endorsements, assignments of
other instruments of conveyance or transfer; adjust and compromise any claims
under insurance policies or otherwise; execute releases; and do all other acts
and things necessary or advisable in the sole discretion of the Bank to carry
out and enforce this Security Agreement or the Obligations. All acts done under
the foregoing authorization are hereby ratified and approved and neither the
Bank nor any designee or agent thereof shall be liable for any acts of
commission or omission, for any error of judgment or for any mistake of fact or
law. This ower of attorney being coupled with an interest is irrevocable while
any Obligations shall remain unpaid.
8. PRESERVATION AND DISPOSITION OF COLLATERAL; MISCELLANEOUS.
The Bank shall have the duty to exercise reasonable care in the custody and
preservation of any Collateral in its possession, which duty shall be fully
satisfied if the Bank maintains safe custody of such Collateral. Except as
hereinabove specifically set forth, the Bank shall not be deemed to assume any
other responsibility for, or obligation or duty with respect to, any Collateral,
or its use, of any nature or kind, or any matter or proceedings arising out of
or relating thereto, including, without limitation, any obligation or duty to
take any action to collect, preserve or protect its or Borrower's rights in the
Collateral or against any prior parties thereto, but the same shall be at
Borrower's sole risk and responsibility at all times. Borrower hereby releases
the Bank from any claims, causes of action and demands at any time arising out
of or with respect to this Security Agreement, the Obligations, the Collateral
and its use and/or any actions taken or omitted to be taken by the Bank with
respect thereto, and Borrower hereby agrees to hold the Bank harmless from and
with respect to any and all such claims, causes of action and demands. The
Bank's prior recourse to any Collateral shall not constitute a condition of
any demand, suit or proceeding for payment or collection of the Obligations.
No act, omission or delay by the Bank shall constitute a waiver of its rights a
nd remedies hereunder or otherwise. No single or partial waiver by the Bank of
any Default or right or remedy which it may have shall operate as a waiver of
any other Default, right or remedy or of the same Default, right or remedy on a
future occasion. Borrower hereby waives presentment, notice of dishonor and
protest of all instruments included in or evidencing any Obligations or
Collateral, and all other notices and demands whatsoever (except as expressly
provided herein). In the event of any litigation with respect to any matter
connected with this Security Agreement, the Obligations or the Collateral,
Borrower hereby waives the right to a trial by jury. Borrower hereby
irrevocably consents to the jurisdiction of the Courts of the State of New York
and of any Federal Court located in such State in connection with any action or
proceeding arising out of or relating to the Obligations, this Security
Agreement or the Collateral, or any document or instrument delivered with
respect to any of the Obligations. Borrower hereby waives personal service of
<PAGE>
any process in connection with any such action or proceeding and agrees that
the service thereof may be made by certified or registered mail directed to
Borrower at any address of Borrower set forth in this Security Agreement.
Borrower so served shall appear or answer to such process within thirty (30)
days after the mailing thereof. Should Borrower so served fail to appear or
answer within said thirty (30) day period, Borrower shall be deemed in default
and judgment may be entered by the Bank against Borrower for the amount or such
other relief as may be demanded in any process so served. In the alternative,
in its discretion, the Bank may effect service upon Borrower in any other form
or manner permitted by law. All capitalized terms used and not otherwise
defined shall have the meanings set forth in the Credit Agreement and other
terms herein shall have the meanings as defined in the UCC, unless the context
otherwise requires. No provision hereof shall be modified, altered or limited
except by a written instrument expressly referring to this Security Agreement
and to such provision, and executed by the party to be charged. This Security
Agreement and all Obligations shall be binding upon the successors, or
assigns of Borrower and shall, together with the rights and remedies of the Bank
hereunder, inure to the benefit of the Bank and their successors, endorsees and
assigns. This Security Agreement and the Obligations shall be governed in all
respects by the laws of the State of New York applicable to contracts executed
and to be performed in such State. If any term of this Security Agreement shall
be held to be invalid, illegal or unenforceable, the validity of all other terms
hereof shall in no way be affected thereby. The Bank is authorized to annex
hereto any schedules referred to herein. Borrower acknowledges receipt of a
copy of this Security Agreement.
<PAGE>
IN WITNESS WHEREOF, the undersigned has executed or caused this Security
Agreement to be executed in the State of New York as of the date first above set
forth.
MECHANICAL TECHNOLOGY INCORPORATED
By: /s/ C.Scheuer
--------------------------------------------
Name: Cynthia A. Scheuer
Title: Vice President and Chief Financial Officer
STATE OF NEW YORK )
) ss.:
COUNTY OF ALBANY )
On this 22nd day of September, 1998, before me the subscriber
personally appeared Cynthia A. Scheuer, who being by me duly sworn, did depose
and say; that she resides at Castleton, New York, that she is Vice President
and Chief Financial Officer of Mechanical Technology Incorporated, the
corporation described in and which executed the foregoing instrument; and that
she signed her name thereto by order of the Board of Directors of said
corporation.
\s\ M.S. Lamb
--------------------
M. Sheila Lamb
NOTARY PUBLIC
<PAGE>
Schedule "A"
All personal property and fixtures of the Borrower, whether now or
hereafter existing or now owned or hereafter acquired and wherever located, of
every kind and description, tangible or intangible, and all goods, equipment,
inventory, accounts, chattel paper, general intangibles, credits, claims,
demands and any other property, rights and interests of the Borrower, and any
and all additions and accessions thereto, all substitutions and replacements
therefor and all products and proceeds thereof and proceeds of insurance thereon
provided that Borrower's interest in Plug Power LLC shall not be included as
Collateral.
Exhibit 4.95
SECURITY AGREEMENT
Date: September 22, 1998
The undersigned, LING ELECTRONICS, INC., a California corporation with
an office for the transaction of business located at 4890 E. LaPalma Avenue,
Anaheim, California 92807 (herein referred to as "Guarantor") as guarantor of
payment of the obligations of MECHANICAL TECHNOLOGY INCORPORATED, a New York
corporation,with an office for the transaction of business located at 968 Albany
Shaker Road, Latham, New York 12110 (herein referred to as "Borrower"), hereby
agrees in favor of KEYBANK NATIONAL ASSOCIATION, a national banking association
with an office for the transaction of business at 66 South Pearl Street, Albany,
New York 12207 (the "Bank") as follows:
1. DEFINITIONS. All capitalized terms used herein which are
defined in the Credit Agreement of even date herewith (hereinafter, together
with all exhibits thereto, as it may from time to time be amended, modified or
supplemented, referred to as the "Credit Agreement") by and between the Borrower
and the Bank, shall have the respective meanings provided therefor in the Credit
Agreement, unless otherwise defined herein or unless the context otherwise
requires.
2. THE INDEBTEDNESS. In consideration of one or more loans,
advances, or other financial accommodations at any time before, at or after the
date hereof made or extended by the Bank to or for the account of Borrower,
directly or indirectly, as principal, guarantor or otherwise (the
"Indebtedness") Guarantor hereby grants to the Bank a continuing security
interest in and a right of set-off against, and Guarantor hereby assigns to the
Bank, the Collateral described in Paragraph 3, to secure the payment,
performance and observance of (i) all indebtedness, obligations, liabilities
and agreements of any kind of Borrower to the Bank, now existing or hereafter
arising, direct or indirect, absolute or contingent, secured or unsecured, due
or not, arising out of or relating to the Indebtedness and (ii) all agreements,
documents and instruments evidencing any of the foregoing or under which any of
the foregoing may have been issued, created, assumed or guaranteed (all of the
foregoing being herein referred to as the "Obligations").
3. THE COLLATERAL. The Collateral is described on Schedule "A"
annexed hereto as part hereof and also includes all attachments, accessions and
equipment now or hereafter affixed to the Collateral or used in connection
therewith, substitutions and replacements therefor (unless the description of
Collateral expressly excludes after-acquired Collateral), all items of
Collateral now owned or existing and hereafter acquired, created or arising, and
all proceeds thereof (including, without limitation, claims of Guarantor against
third parties for loss or damage to or destruction of any Collateral).
4. WARRANTIES, REPRESENTATIONS AND COVENANTS. Guarantor warrants,
represents and covenants that:
(a) The chief executive office and other places of business of
Guarantor, the Collateral and the books and records relating to the
Collateral and the Collateral are, and have been during the four month
period prior to the date hereof (or in the case of a new business, from the
date of commencement of said business), located at the address(es) set
forth below and Guarantor will not change the same, or merge or
consolidate with any person or change its name, without prior written
notice to and consent of the Bank:
<PAGE>
Addresses: 4890 E. LaPalma Avenue, Anaheim, California 92807
(b) Guarantor will use the Collateral for lawful and business
purposes only, with all reasonable care and caution and in conformity with
all applicable laws, ordinances and regulations;
(c) Guarantor will keep the Collateral in good order, repair,
running and marketable condition as used in the ordinary course of
business, at Guarantor's sole cost and expense;
(d) The Bank shall at all times have free access to and right
of inspection of the Collateral and any records pertaining thereto, and the
right to make extracts from and to receive from Guarantor originals or true
copies of such records and any papers and instruments relating to any
Collateral upon request therefor (which rights shall, except after the
occurrence of an Event of Default, be exercised only upon reasonable notice
during regular business hours), and Guarantor hereby grants to the Bank a
security interest in all such records, papers and instruments to secure the
payment, performance and observance of the Obligations;
(e) Guarantor, at its sole cost and expense, will insure the
Collateral in the name of and with loss or damage payable solely to the
Bank, as its interest may appear, against such risks, with such companies a
nd in such amounts, as may be required by the Bank from time to time (all
such policies providing ten (10) days minimum written notice of
cancellation to the Bank) and Guarantor will deliver to the Bank the
original or duplicate policies, or certificates or other evidence
satisfactory to the Bank attesting thereto, and Guarantor will promptly
notify the Bank of any loss or damage to any Collateral or arising from its
use;
(f) Guarantor will, at its sole cost and expense, and at all
times, pay and discharge all taxes and assessments and keep the Collateral
free and clear of any and all liens, security interests or encumbrances
(other than in favor of the Bank), perform all acts and execute all
documents requested by the Bank from time to time to evidence, perfect,
maintain or enforce the Bank's primary security interest granted herein or
otherwise in furtherance of the provisions of this Security Agreement;
(g) At any time and from time to time, Guarantor shall, at its
sole cost and expense, execute and deliver to the Bank such financing
statements pursuant to the Uniform Commercial Code ("UCC"), applications
for certificate of title and other papers, documents or instruments as may
be requested by the Bank in connection with this Security Agreement, and
Guarantor hereby authorizes the Bank to execute and file at any time and
from time to time one or more financing statements or copies thereof or of
this Security Agreement with respect to the Collateral signed only by the
Bank;
(h) In its discretion, the Bank may, at any time and from
time to time, after a Default (as hereinafter defined) or an event which
but for the passage of time, the giving of notice or both would constitute
a Default has occurred and is continuing, in its name or Guarantor's or
otherwise, notify any account debtor or obligor of any account, contract,
document, instrument, chattel paper or general intangible included in the
Collateral to make payment to the Bank;
(i) In their discretion, the Bank may, at any time and from
time to time, after a Default has occurred and is continuing, demand, sue
<PAGE>
for, collect or receive any money or property at any time payable or
receivable on account of or in exchange for, or make any compromise or
settlement deemed desirable by the Bank with respect to, any Collateral,
and/or extend the time of payment, arrange for payment in installments, or
otherwise modify the terms of, or release, any Collateral or Obligations,
all without notice to or consent by Guarantor and without otherwise
discharging or affecting the Obligations, the Collateral or the security
interest granted herein;
(j) In their discretion, the Bank may, at any time and from
time to time, for the account of Guarantor, pay any amount or do any act
required of Guarantor hereunder and which Guarantor fails to do or pay,
and any such payment shall be deemed an advance by the Bank to Guarantor
payable on demand together with interest at the highest rate then payable
on any of the Obligations;
(k) Guarantor will pay the Bank for any sums, costs, and
expenses which the Bank may pay or incur pursuant to the provisions of
this Security Agreement or in negotiating, executing, perfecting,
defending, or protecting the security interest granted herein or in
enforcing payment of the Obligations or otherwise in connection with the
provisions hereof, including but not limited to court costs, collection
charges, travel expenses, and reasonable attorneys' fees, all of which,
together with interest at the highest rate then payable on any of the
Obligations, shall be part of the Obligations and be payable on demand;
(l) All proceeds of any other Collateral received by Guarantor
after the occurrence of a Default shall not be commingled with other
property of Guarantor, but shall be segregated, held by Guarantor in trust
for the Bank, and immediately delivered to the Bank in the form received,
duly endorsed in blank where appropriate to effectuate the provisions
hereof, the same to be held by the Bank as additional Collateral hereunder
or, at the Bank's option, to be applied to payment of the Obligations,
whether or not due and in any order; and
(m) In their sole discretion, the Bank may, subject to the
terms of the Credit Agreement, at any time and from time to time, assign,
transfer or deliver to any transferee of any Obligations, any Collateral,
whereupon the Bank shall be fully discharged from all responsibility and
the transferee shall be vested with all powers and rights of the Bank
hereunder with respect thereto, but the Bank shall retain all rights and
powers with respect to any Collateral not assigned, transferred or
delivered.
5. DEFAULT. It shall constitute an event of default ("Default")
under this Security Agreement if an Event of Default shall have occurred under
any of the Loan Documents or if any one or more of the following shall occur:
(a) Guarantor shall fail to perform any covenant, agreement or
obligation contained in this Security Agreement for a period of fifteen
(15) days after notice from the Bank of such failure; or
(b) the Collateral shall be subjected to waste, sale, transfer
or other disposition or any lien, encumbrance or other imposition is placed
upon said Collateral; or
(c) any levy, seizure, attachment, condemnation, forfeiture or
other proceeding shall be brought against or with respect to the
Collateral; or
<PAGE>
(d) the occurrence of a material and adverse change in the
condition or affairs (financial or otherwise) of the Borrower which the
Bank reasonably believes substantially impairs their security or
substantially increases the risk of failure of payment or performance under
any of the Loan Documents.
6. REMEDIES. Upon the occurrence and continuation of any Default
and at any time thereafter, the Bank shall have the following rights and
remedies (to the extent permitted by applicable law) in addition to all rights
and remedies of a secured party under the UCC or of the Bank under the
Obligations, all such rights and remedies being cumulative, not exclusive and
enforceable alternatively, successively or concurrently:
(a) the Bank may at any time and from time to time, with or
without judicial process or the aid and assistance of others, enter upon
any premises in which any Collateral may be located and, without resistance
or interference by Guarantor, take possession of the Collateral; and/or
dispose of any Collateral on any such premises; and/or require Guarantor to
assemble and make available to the Bank at the expense of Guarantor any
Collateral at any place and time designated by the Bank which is reasonably
convenient to both parties; and/or remove any Collateral from any such
premises for the purpose of effecting sale or other disposition thereof
(and if any of the Collateral consists of motor vehicles, the Bank may use
Guarantor's license plates); and/or sell, resell, lease, assign and
deliver, grant options for or otherwise dispose of any Collateral in its
then condition or following any commercially reasonable preparation or
processing, at public or private sale or proceedings or otherwise, by one
or more contracts, in one or more parcels, at the same or different times,
with or without having the Collateral at the place of sale or other
disposition, for cash and/or credit, and upon any terms, at such place(s)
and time(s) and to such person(s) as the Bank deem best, all without
demand, notice or advertisement whatsoever except that where an applicable
statute requires reasonable notice of sale or other disposition Guarantor
hereby agrees that the sending of five days' notice by registered or
certified mail, return receipt requested, to any address of Guarantor set
forth in this Security Agreement shall be deemed reasonable notice thereof.
If any Collateral is sold by the Bank upon credit or for future delivery,
the Bank shall not be liable for the failure of the purchaser to pay for
same and in such event the Bank may resell such Collateral. The Bank may
buy any Collateral at any public sale and, if any Collateral is of a type
customarily sold in a recognized market or is of the type which is the
subject of widely distributed standard price quotations, the Bank may buy
such Collateral at private sale and in each case may make payment therefor
by any means. The Bank may apply the sale proceeds actually received from
any sale or other disposition to the reasonable expenses of retaking,
holding, preparing for sale, selling, leasing and the like, to reasonable
attorneys' fees and all legal, travel and other expenses which may be
incurred by the Bank in attempting to collect the Obligations or enforce
this Security Agreement or in the prosecution or defense of any action or
proceeding related to the subject matter of this Security Agreement; and
then to the Obligations in such order and as to principal or interest as
the Bank may desire; and Guarantor shall remain liable and will pay the
Bank on demand any deficiency remaining, together with interest thereon
at the highest rate then payable on the Obligations and the balance of any
expenses unpaid, with any surplus to be paid to Guarantor, subject to any
duty of the Bank imposed by law to the holder of any subordinate security
interest in the Collateral known to the Bank;
<PAGE>
(b) The Bank may appropriate, set off and apply to the payment
of the Obligations, any Collateral in or coming into the possession of the
Bank or their agents, without notice to Guarantor and in such manner as the
Bank may in their discretion determine.
7. DESIGNATION AND AUTHORIZATION. To effectuate the terms and
provisions hereof, Guarantor hereby designates and appoints the Bank and each of
its designees or agents as attorney-in-fact of Guarantor, irrevocably and with
power of substitution, with authority, after the occurrence of a Default, to:
receive, open and dispose of all mail addressed to Guarantor and notify the
Post Office authorities to change the address for delivery of mail addressed to
Guarantor to such address as the Bank may designate; endorse the name of
Guarantor on any notes, acceptances, checks, drafts, money orders, instruments
or other evidences of Collateral that may come into the Bank's possession; sign
the name of Guarantor on any invoices, documents, drafts against and notices to
account debtors or obligors of Guarantor, assignments and requests for
verification of accounts; execute proofs of claim and loss; execute
endorsements, assignments of other instruments of conveyance or transfer; adjust
and compromise any claims under insurance policies or otherwise; execute
releases; and do all other acts and things necessary or advisable in the sole
discretion of the Bank to carry out and enforce this Security Agreement or the
Obligations. All acts done under the foregoing authorization are hereby
ratified and approved and neither the Bank nor any designee or agent thereof
shall be liable for any acts of commission or omission, for any error of
judgment or for any mistake of fact or law. This power of attorney being
coupled with an interest is irrevocable while any Obligations shall remain
unpaid.
8. PRESERVATION AND DISPOSITION OF COLLATERAL;
MISCELLANEOUS. The Bank shall have the duty to exercise reasonable care in the
custody and preservation of any Collateral in its possession, which duty shall
be fully satisfied if the Bank maintains safe custody of such Collateral.
Except as hereinabove specifically set forth, the Bank shall not be deemed to
assume any other responsibility for, or obligation or duty with respect to, any
Collateral, or its use, of any nature or kind, or any matter or proceedings
arising out of or relating thereto, including, without limitation, any
obligation or duty to take any action to collect, preserve or protect its or
Guarantor's rights in the Collateral or against any prior parties thereto, but
the same shall be at Guarantor's sole risk and responsibility at all times.
Guarantor hereby releases the Bank from any claims, causes of action and demands
at any time arising out of or with respect to this Security Agreement, the
Obligations, the Collateral and its use and/or any actions taken or omitted to
be taken by the Bank with respect thereto, and Guarantor hereby agrees to hold
the Bank harmless from and with respect to any and all such claims, causes of
action and demands. The Bank's prior recourse to any Collateral shall not
constitute a condition of any demand, suit or proceeding for payment or
collection of the Obligations. No act, omission or delay by the Bank shall
constitute a waiver of its rights and remedies hereunder or otherwise. No
single or partial waiver by the Bank of any Default or right or remedy which it
may have shall operate as a waiver of any other Default, right or remedy or of
the same Default, right or remedy on a future occasion. Guarantor hereby waives
presentment, notice of dishonor and protest of all instruments included in or
evidencing any Obligations or Collateral, and all other notices and demands
whatsoever (except as expressly provided herein). In the event of any litigati
on with respect to any matter connected with this Security Agreement, the
Obligations or the Collateral, Guarantor hereby waives the right to a trial by
jury. Guarantor hereby irrevocably consents to the jurisdiction of the Courts
of the State of California and of any Federal Court located in such State in
connection with any action or proceeding arising out of or relating to the
<PAGE>
Obligations, this Security Agreement or the Collateral, or any document or
instrument delivered with respect to any of the Obligations. Guarantor hereby
waives personal service of any process in connection with any such action or
proceeding and agrees that the service thereof may be made by certified or
registered mail directed to Guarantor at any address of Guarantor set forth in
this Security Agreement. Guarantor so served shall appear or answer to such
process within thirty (30) days after the mailing thereof. Should Guarantor
so served fail to appear or answer within said thirty (30) day period, Guarantor
shall be deemed in default and judgment may be entered by the Bank against
Guarantor for the amount or such other relief as may be demanded in any process
so served. In the alternative, in its discretion, the Bank may effect service
upon Guarantor in any other form or manner permitted by law. All capitalized
terms used and not otherwise defined shall have the meanings set forth in the
Credit Agreement and other terms herein shall have the meanings as defined in
the UCC, unless the context otherwise requires. No provision hereof shall be
modified, altered or limited except by a written instrument expressly referring
to this Security Agreement and to such provision, and executed by the party to
be charged. This Security Agreement and all Obligations shall be binding upon
the successors, or assigns of Guarantor and shall, together with the rights and
remedies of the Bank hereunder, inure to the benefit of the Bank and their
successors, endorsees and assigns. This Security Agreement and the Obligations
shall be governed in all respects by the laws of the State of California applic
able to contracts executed and to be performed in such State. If any term of
this Security Agreement shall be held to be invalid, illegal or unenforceable,
the validity of all other terms hereof shall in no way be affected thereby.
The Bank is authorized to annex hereto any schedules referred to herein.
Guarantor acknowledges receipt of a copy of this Security Agreement.
<PAGE>
IN WITNESS WHEREOF, the undersigned has executed or caused this Security
Agreement to be executed in the State of New York as of the date first above set
forth.
LING ELECTRONICS, INC.
By: /s/ C.Scheuer
-------------------------------
Name: Cynthia A. Scheuer
Title: Secretary
STATE OF NEW YORK )
) ss.:
COUNTY OF ALBANY )
On this 22nd day of September, 1998, before me the subscriber
personally appeared Cynthia A. Scheuer, who being by me duly sworn,
did depose and say; that she resides at 2757 Doelner Circle,
Castleton, New York, that she is Secretary of Ling Electronics, Inc.,
the corporation described in and which executed the foregoing
instrument; and that she signed her name thereto by order of the
Board of Directors of said corporation.
/s/ M.S.Lamb
----------------------
M. Sheila Lamb
NOTARY PUBLIC
<PAGE>
Schedule "A"
All personal property and fixtures of the Guarantor, whether now or
hereafter existing or now owned or hereafter acquired and wherever located, of
every kind and description, tangible or intangible, and all goods, equipment,
inventory, accounts, chattel paper, general intangibles, credits, claims,
demands and any other property, rights and interests of the Guarantor, and any
and all additions and accessions thereto, all substitutions and replacements
therefor and all products and proceeds thereof and proceeds of insurance
thereon.
Exhibit 4.96
GUARANTY OF PAYMENT AND PERFORMANCE
THIS Guaranty dated September 22, 1998 (the "Guaranty") from LING
ELECTRONICS, INC., a California corporation with an office for the transaction
of business located at 4890 E. LaPalma Avenue, Anaheim, California 92807
(whether individually or if more than one, collectively, the "Guarantor") to
KEYBANK NATIONAL ASSOCIATION, a national banking association with an office for
the transaction of business located at 66 South Pearl Street, Albany, New York
12207 (the "Bank").
W I T N E S S E T H :
WHEREAS, MECHANICAL TECHNOLOGY INCORPORATED, a New York corporation
(the "Borrower"), is about to borrow from the Bank the sum of up to Four Million
and no/100 ($4,000,000.00) Dollars, (the "Loan") in accordance with a certain
Credit Agreement of even date herewith (hereinafter, together with all exhibits
thereto, as it may from time to time be amended, modified or supplemented,
referred to as the "Credit Agreement") by and between the Borrower and the
Bank; and
WHEREAS, the Bank is unwilling to make the Loan to the Borrower unless
it receives this Guaranty; and
WHEREAS, the Guarantor is willing to enter into this Guaranty in order
to induce the Bank to make the Loan and the Guarantor has approved the form and
substance of any documents executed or delivered by Borrower in connection with
the Loan (the "Loan Documents"); and
WHEREAS, all capitalized terms used herein which are defined in the
Credit Agreement shall have the respective meanings provided therefor in the
Credit Agreement, unless otherwise defined herein or unless the context
otherwise requires;
NOW, THEREFORE, in order to induce the Bank to make the Loan to the
Borrower and in consideration of the premises and of other good and valuable
consideration, the Guarantor intends to guarantee absolutely and unconditionally
(and jointly and severally if there be more than one Guarantor) to the Bank,
the punctual payment of the Loan and all notes or other evidences of
indebtedness given by the Borrower to the Bank in connection therewith and all
extensions, modifications or renewals thereof (collectively, the "Note") and all
interest and other sums due under the Note or any Loan Document and such further
payment and performance as may be set forth in Article 2 hereof.
ARTICLE 1
REPRESENTATIONS AND WARRANTIES OF THE GUARANTORS
The Guarantor hereby represents and warrants to the Bank (if the
Guarantor is more than one party, said representations and warranties are made
only with respect to the particular party) that:
Section 1.1 Capacity of the Guarantor. Guarantor:
(A) Has the capacity to enter into this Guaranty.
<PAGE>
(B) Has an office for the transaction of business at the
address set forth at the head of this Guaranty.
Section 1.2 No Violation of Restrictions. Neither the execution
and delivery of this Guaranty, the consummation of the transactions contemplated
hereby nor the fulfillment of or compliance with the provisions of this Guaranty
will conflict with or result in a breach of any of the terms, covenants,
conditions or provisions of any agreement, judgment or order to which any party
named as a Guarantor is a party or by which the Guarantor is bound, or will
constitute a default under any of the foregoing, or result in the creation or
imposition of any lien of any nature whatsoever.
Section 1.3 Compliance with Law. Each party named as a
Guarantor (A) is not in violation of any law, ordinance, governmental rule,
regulation, order or judgment to which the Guarantor may be subject or which
would materially and adversely affect the business of the Guarantor and (B) has
not failed to obtain any license, permit, franchise or other governmental
authorization necessary to the conduct of their present business if such failure
would have a material and adverse effect on the business of the Guarantor.
Section 1.4 Financial Statements. The financial statements
submitted by each party named as Guarantor, including balance sheets, statement
of income, retained earnings and other related schedules, to the Bank fairly
represent the financial condition as of the date of each statement and there has
been no material change in the financial condition of any Guarantor since the
date of the respective statements submitted to the Bank, except as disclosed to
the Bank in writing.
Section 1.5 Solvency of Guarantor and Borrower. Each party named
as a Guarantor is solvent and each Guarantor has made an appropriate financial
investigation of the Borrower and has determined that the Borrower is solvent at
the time of execution of this Guaranty.
ARTICLE 2
COVENANTS AND AGREEMENTS
Section 2.1 Guaranty of Payment. The Guarantor (jointly and
severally, if there be more than one Guarantor) irrevocably, absolutely and
unconditionally guarantees to the Bank:
(A) The punctual payment of the Loan, the Note, all
principal and interest due thereunder and any other sums due under
the Note or any Loan Document.
(B) The full and prompt payment and performance of any
and all obligations of Borrower to the Bank under the Loan Documents
including, without limitation, the obligations of Borrower concerning
hazardous materials and other environmental matters contained in any
of the Loan Documents.
Section 2.2 Obligations Unconditional. This Guaranty shall remain
in full force and effect until the Loan, the Note and all sums due thereunder or
under any Loan Document are paid in full, irrespective of any interruptions in
the business relationships of the Borrower and the Guarantor with the Bank, and
shall not be affected, modified or impaired by any state of facts or the
happening from time to time of any event, including, without limitation, any of
the following, whether or not with notice to or the consent of the Guarantor:
<PAGE>
(A) The invalidity, irregularity, illegality or
unenforceability of, or any defect in, the Note or any Loan Document
or any collateral security for the Loan (the "Collateral").
(B) Any present or future law or order of any government
(de jure or de facto) or of any agency thereof purporting to reduce,
amend or otherwise affect the Note or any other obligation of the
Borrower or any other obligor or to any other terms of payment.
(C) The waiver, compromise, settlement, release or
termination of any or all of the obligations, covenants or agreements
of the Borrower under the Note or any Loan Documents or of any party
named as a Guarantor under this Guaranty.
(D) The loss, release, sale, exchange, surrender or other
change in any Collateral.
(E) The extension of the time for payment of any principal
of or interest on the Note or of the time for performance of any other
obligations, covenants or agreements under or arising out of the Note
or any Loan Document or the extension or the renewal of any thereof.
(F) The modification or amendment (whether material or
otherwise) of any obligation, covenant or agreement set forth in the
Note or any Loan Document.
(G) The taking of, or the omission to take, any of the
actions referred to in the Note or any Loan Document.
(H) Any failure, omission or delay on the part of the Bank
to enforce, assert or exercise any right, power or remedy conferred on
the Bank in the Note or any Loan Document.
(I) The voluntary or involuntary liquidation, dissolution,
sale or other disposition of all or substantially all the assets,
marshalling of assets and liabilities, receivership, insolvency,
bankruptcy, assignment for the benefit of creditors, reorganization,
arrangement, composition with creditors or readjustment of, or other
similar proceedings affecting the Guarantor or the Borrower or any of
their assets, or any allegation or contest of the validity of the
Note or any Loan Document.
(J) The default or failure of the Guarantor to fully
perform any obligations set forth in this Guaranty.
(K) Any event or action that would, in the absence of this
paragraph, result in the release or discharge of the Guarantor from
the performance or observance of any obligation, covenant or agreement
contained in this Guaranty.
(L) Any other circumstances which might otherwise
constitute a legal or equitable discharge or defense of a surety or a
guarantor.
Section 2.3 Waiver by Guarantor. The Guarantor hereby waives:
(A) Notice of acceptance of this Guaranty.
<PAGE>
(B) Diligence, presentment and demand for payment of the
Loan and/or the Note.
(C) Protest and notice of protest, dishonor or default to
the Guarantor or to any other party with respect to the Loan.
(D) Any and all notices to which the Guarantor might
otherwise be entitled.
(E) Any and all defenses to payment including, without
limitation, any defenses and counterclaims of the Guarantor or the
Borrower based upon fraud, negligence or the failure of any condition
precedent or claims of offset or defenses involving the invalidity,
irregularity or unenforceability of all or any part of the liabilities
herein guaranteed or any defense otherwise available to the Guarantor
or the Borrower.
(F) Any and all rights of subrogation, reimbursement,
indemnity, exoneration, contribution or any other claim which the
Guarantor may now or hereafter have against the Borrower or any other
person directly or contingently liable for the Loan guaranteed
hereunder, or against or with respect to the Borrower's property
(including, without limitation, property collateralizing the Loan),
arising from the existence or performance of this Guaranty and
whether or not such claim, right or remedy arises in equity, under
contract, by statute, under common law or otherwise.
Section 2.4 Nature of Guaranty. This Guaranty is a guaranty of
payment and not of collection and the Guarantor hereby waives the right to
require that any action be brought first against the Borrower or any other
Guarantor, or any security, or to require that resort be made to any security or
to any balance of any deposit account on credit on the books of the Bank in
favor of the Borrower or of any Guarantor.
Section 2.5 Continuation of Guaranty. The Guarantor further
agrees that the obligations hereunder shall continue to be effective or
reinstated, as the case may be, if at any time payment or any part thereof of
the Loan or the Note is rescinded or must otherwise be restored by the Bank
upon the bankruptcy or reorganization of the Borrower, the Guarantor or
otherwise.
Section 2.6 Subordination of Debt. The Guarantor hereby
subordinates any and all indebtedness of Borrower now or hereafter owed to
Guarantor to all indebtedness of Borrower to the Bank and agrees with the Bank
that Guarantor shall not demand or accept any payment from Borrower, shall not
claim any offset or other reduction of Guarantor's obligations hereunder
because of any such indebtedness and shall not take any action to obtain any
interest in any of the security described in and encumbered by the Loan
Documents; provided, however, that, if the Bank so requests, such indebtedness
shall be collected, enforced and received by Guarantor as trustee for the Bank
and paid over to the Bank on account of the indebtedness of Borrower to the
Bank, but without reducing or affecting in any manner the liability of Guarantor
under the other provisions of this Guaranty except to the extent the principal
amount of such outstanding indebtedness shall have been reduced by such payment.
Section 2.7 Financial Statements. Guarantor will advise the Bank
in writing if Guarantor operates on other than a calendar year basis. Guarantor
will at all times keep proper books of record and account in which full, true
and correct entries shall be made in accordance with generally accepted
<PAGE>
accounting principles and will deliver to the Bank the reports, certificates
and other information described in Section 9.1 of the Credit Agreement. So long
as the financial results of Guarantor are included in consolidated statements
submitted to the Bank by Borrower in compliance with Section 9.1 of the Credit
Agreement, Guarantor will have no obligation to provide independent financial
statements to the Bank.
Section 2.8 Transfer of Interest. Guarantor agrees not to make or
permit to be made, by a voluntary or involuntary means, any transfer of the
interest of Guarantor in the Borrower, without first obtaining the prior written
consent of the Bank.
ARTICLE 3
EVENTS OF DEFAULT
Section 3.1 Events of Default Defined. An "Event of Default"
shall exist if any of the following occurs:
(A) Any party named as a Guarantor fails to perform or
observe any covenant contained herein for a period of ten (10) days
after notice from the Bank.
(B) Any warranty, representation or other statement by or
on behalf of any party named as a Guarantor contained in this Guaranty
is false or misleading in any material respect when made.
(C) A receiver, liquidator or trustee of any party named
as a Guarantor or any of his or its property is appointed by court
order, or any party named as a Guarantor is adjudicated bankrupt or
insolvent or any of his or its property is sequestered by court order
and such order remains in effect for more than one hundred twenty
(120) days, or a petition is filed against any party named as a
Guarantor under any bankruptcy, reorganization, arrangement,
insolvency, readjustment of debt, dissolution or liquidation law of
any jurisdiction, whether now or hereafter in effect, and is not
dismissed within one hundred twenty (120) days of such filing.
(D) Any party named as a Guarantor files a petition in
voluntary bankruptcy or seeks relief under any provision of any
reorganization, arrangement, insolvency, readjustment of debt,
dissolution or liquidation law of any jurisdiction, whether now or
hereafter in effect, or consents to the filing of any petition against
it under any such law.
(E) Any party named as a Guarantor makes an assignment
for the benefit of creditors or admits in writing inability to pay
debts generally as they become due, or consents to the appointment of
a receiver, trustee or liquidator of all or any part of his or its
property.
(F) The occurrence of an event of default under any other
Loan Document.
Section 3.2 Remedies on Default. If an event of default exists,
the Bank may proceed to enforce the provisions hereof and to exercise any other
rights, powers and remedies available to the Bank.
<PAGE>
Section 3.3 Waiver and Notice.
(A) No remedy herein conferred upon or reserved to the
Bank is intended to be exclusive of any other available remedy or
remedies, but each and every such remedy shall be cumulative and
shall be in addition to every other remedy given under this Guaranty
now or hereafter existing at law or in equity or by statute.
(B) No delay or omission to exercise any right or power
accruing upon the occurrence of any Event of Default shall impair any
such right or power or shall be construed to be a waiver thereof, but
any such right or power may be exercised from time to time and as
often as may be deemed expedient.
(C) In order to entitle the Bank to exercise any remedy
reserved to it in this Guaranty, it shall not be necessary to give
any notice, other than such notice as may be expressly required in
this Guaranty.
(D) No waiver, amendment, release or modification of this
Guaranty shall be established by conduct, custom or course of dealing.
ARTICLE 4
MISCELLANEOUS
Section 4.1 Construction. If this Guaranty is executed by two or
more parties, they shall be jointly and severally liable hereunder and the
phrase Guarantor whenever used herein shall be construed to refer to each of
the parties in the same manner and with the same effect as if each party had
signed a separate guaranty.
Section 4.2 Governing Law. This Guaranty shall be governed by and
construed in accordance with the laws of the State of New York.
Section 4.3 Submission to Jurisdiction. The Guarantor hereby
irrevocably and unconditionally agrees that any suit, action or proceeding
arising out of or relating to this Guaranty shall be brought in the state courts
of the State of New York or federal district court for the Northern District of
New York and waives any right to object to jurisdiction within either of the
foregoing forums by the Bank. Nothing contained herein shall prevent the Bank
from bringing any suit, action or proceeding or exercising any rights against
any security and against any Guarantor personally, and against any property of
any Guarantor, within any other jurisdiction and the initiation of such suit,
action or proceeding or taking of such action in any such other jurisdiction
shall in no event constitute a waiver of the agreements contained herein with
respect to the laws of the State of California governing the rights and
obligations of the parties hereto or the agreement of the Guarantor to submit to
personal jurisdiction within the State of New York.
Section 4.4 Waiver of Jury Trial. The Guarantor and the Bank
agree that any suit, action or proceeding arising under or in connection with
this Guaranty shall be before a court without a jury.
Section 4.5 Successors and Assigns. This Guaranty shall inure to
the benefit of and be binding upon the successors and assigns of each of the
parties hereto.
<PAGE>
Section 4.6 Notices. Any notices required or permitted to be
given hereunder shall be: (i) personally delivered or (ii) given by registered
or certified mail, postage prepaid, return receipt requested, or (iii) forwarded
by overnight courier service, in each instance addressed to the addresses set
forth at the head of this Guaranty, or such other addresses as the parties may
for themselves designate in writing as provided herein for the purpose of
receiving notices hereunder. All notices shall be in writing and shall be
deemed given, in the case of notice by personal delivery, upon actual delivery,
and in the case of appropriate mail or courier service, upon deposit with the
U.S. Postal Service or delivery to the courier service.
Section 4.7 Entire Agreement. This Guaranty and the Note and
other Loan Documents constitute the entire understanding between Borrower, the
Guarantor and the Bank and to the extent that any writings not signed by the
Bank or oral statements or conversations at any time made or had are
inconsistent with the provisions of this Guaranty, the Note or the other Loan
Documents, the same shall be null and void.
Section 4.8 Amendments. No amendment, change, modification,
alteration or termination of this Guaranty shall be made except upon the written
consent of the parties hereto.
Section 4.9 Assignment. This Guaranty is assignable by the Bank
in whole or in part in conjunction with an assignment of the Note and any
assignment hereof or any transfer or assignment of the Note or portions thereof
shall operate to vest in any such assignee the rights and powers, in whole or in
part, as appropriate, herein conferred upon and granted to the Bank.
Section 4.10 Partial Invalidity. The invalidity or
unenforceability of any one or more phrases, sentences, clauses or sections in
this Guaranty shall not affect the validity or enforceability of the remaining
portions of the Guaranty or any part thereof.
<PAGE>
IN WITNESS WHEREOF, the Guarantor has executed this Guaranty as of the
day and year first above written.
LING ELECTRONICS, INC.
By: /s/ C.Scheuer
----------------------------
Name: Cynthia A. Scheuer
Title: Secretary
STATE OF NEW YORK )
) ss.:
COUNTY OF ALBANY )
On this 22nd day of Septemer, 1998, before me the subscriber
personally appeared Cynthia A. Scheuer, who being by me duly sworn, did depose
and say; that she resides at 2757 Doelner Circle, Castleton, New York, that she
is Secretary of Ling Electronics, Inc., the corporation described in and which
executed the foregoing instrument; and that she signed her name thereto by order
of the Board of Directors of said corporation.
/s/ M.S.Lamb
---------------------
M. Sheila Lamb
NOTARY PUBLIC
Exhibit 21
SUBSIDIARIES OF MECHANICAL TECHNOLOGY INCORPORATED
Jurisdiction of
Incorporation or
Subsidiary Name Organization
- ------------------------ -----------------
Turbonetics Energy, Inc. New York
Ling Electronics, Ltd. United Kingdom
MTI International, Inc. Guam
Ling Electronics, Inc. California
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