SCHEDULE 14A
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 ( Amendment No. )
Filed by the registrant [ X ]
Filed by a party other than the registrant [ ]
Check the appropriate box:
[ X ] Preliminary proxy statement [ ] Confidential, for Use
of the Commission Only
(as permitted by Rule
14a-6(e)(2))
[ ] Definitive proxy statement
[ ] Definitive additional materials
[ ] Soliciting material pursuant to Rule 14a-11(c) or Rule 14a-12
MECHANICAL TECHNOLOGY INCORPORATED
(NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
Payment of filing fee (Check the appropriate box):
[ X ] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and
0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11:
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting
fee was paid previously. Identify the previous filing by
registration statement number, or the form or schedule and the
date of its filing,
(1) Amount previously paid:
(2) Form, schedule or registration statement no.:
(3) Filing Party:
(4) Date filed:
<PAGE>
MECHANICAL TECHNOLOGY INCORPORATED
968 ALBANY-SHAKER ROAD
LATHAM, NEW YORK 12110
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO THE SHAREHOLDERS:
The Annual Meeting of Shareholders of Mechanical Technology Incorporated
will be held at the offices Mechanical Technology Incorporated, 968 Albany-
Shaker Road, Latham, New York 12110 (directions enclosed), on March 18,
1999, at 10:00 A.M. local time (refreshments will be served at 9:15 A.M.)
for the following purposes:
1. Election of Directors;
2. Ratification of the appointment of PricewaterhouseCoopers LLP as the
auditors of the Company.
3. Adoption and approval of the Company's 1999 Employee Stock Incentive
Plan.
4. Such other business as may properly come before the meeting or any
adjournment thereof.
Shareholders of record at the close of business on January 29, 1999 are
entitled to notice of and to vote at the meeting. The Proxy Statement and
Annual Report of the Company for the fiscal year ended September 30, 1998,
are enclosed.
By Order of the Board of Directors
John Recupero Latham, New York
Secretary February 12, 1999
YOUR VOTE IS IMPORTANT
YOU ARE URGED TO MARK, DATE, SIGN, AND PROMPTLY
RETURN YOUR PROXY IN THE ENCLOSED ENVELOPE
<PAGE>
MECHANICAL TECHNOLOGY INCORPORATED
968 ALBANY-SHAKER ROAD
LATHAM, NEW YORK 12110
PROXY STATEMENT
This Proxy Statement, first being mailed to shareholders on approximately
February 12, 1999, is furnished in connection with the solicitation by the
Board of Directors of proxies to be voted at the Annual Meeting of
Shareholders of Mechanical Technology Incorporated to be held on March 18,
1999, and any adjournment thereof, at the offices of Mechanical Technology
Incorporated, 968 Albany-Shaker Road, Latham, New York.
The shares represented by properly completed proxies received prior to the
vote will be voted FOR 1) the election of directors; and 2) ratifying
appointment of auditors, unless specific instructions to the contrary are
given or an abstention from voting is indicated by the shareholder. The
proxy may be revoked any time before it is exercised.
At the close of business on January 29, 1999 the Company had outstanding
7,178,270 shares of Common Stock. Each share of Common Stock entitles the
holder thereof to one vote on the matters to be voted upon by such
shareholders. A majority of the outstanding shares, present in person or by
proxy, will constitute a quorum at the meeting. Abstentions and broker non-
votes are counted for purposes of determining whether a quorum is present
but do not affect the outcome of the election. A plurality vote is required
for the election of Directors. Votes will be tabulated by inspectors of
election appointed in accordance with the applicable provisions of the New
York Business Corporation Law.
ELECTION OF DIRECTORS
At the Annual Meeting of Shareholders, two Directors are to be elected, each
to hold office until the expiration of his or her term and until a successor
shall be elected and shall qualify. The Directors serve staggered terms.
George McNamee and Dennis O'Connor are nominated to serve three-year terms.
Alan Goldberg, Walter Robb and Beno Sternlicht are in the second year of
three-year terms; Dale Church and Edward Dohring are in the second year of
two-year terms. Management's nominees for Directors, together with certain
information concerning them, are on the following pages. In the event that
any of such nominees shall become unavailable for any reason, it is intended
that proxies will be voted for substitute nominees designated by management.
Both nominees are presently serving as Directors of the Company.
<PAGE>
CERTAIN INFORMATION REGARDING NOMINEES
Mr. McNamee, 52, a Director since 1996, Chairman of the Company's Board of
Directors from 1996 through April 1998, and Chief Executive Officer since
April 1998, is the Chairman of the Board and Co-Chief Executive Officer of
FAC (see "Securities Ownership of Certain Beneficial Owners" in the section
entitled "Additional Information", below). Mr. McNamee is a member of the
Board of Directors of MapInfo Corporation and The Meta Group, Inc. and is
Chairman of the Company's joint venture with Edison Development Corp., a
subsidiary of DTE Energy, Corp., Plug Power, L.L.C. He also serves on the
Board of Directors of the New York State Science and Technology Foundation,
and is a member of the Regional Firms Advisory Committee to the Board of the
New York Stock Exchange.
Mr. O'Connor, 59, a Director since 1993, is a registered patent attorney and
has, since April 1984, been the Director of New Products and Technology for
Masco Corporation, Taylor, Michigan, a diversified manufacturer of building
and home improvement, and other specialty products for the home and family.
He is a director of various private corporations. Mr. O'Connor originally
became a Director of the Company when he was selected by Masco Corporation
as its designee on the Company's Board of Directors pursuant to agreements
entered into in connection with the 1992 transaction in which Masco sold
1,730,000 shares of the Company's Common Stock to subsidiaries of the
Lawrence Insurance Group, Inc., a former majority shareholder of the
Company. The Lawrence Insurance Group, Inc. subsidiaries agreed to vote
their shares to elect a designee of Masco to the Company's Board of
Directors so long as Masco remained liable under a guarantee it had executed
in connection with the Company's obligations under a line of credit. This
Agreement with Masco terminated when Mr. Lawrence lost control of his shares
in 1996. Furthermore, the guarantee was released on October 15, 1998 after
the Company replaced its existing line of credit with a line of credit from
KeyBank, N.A.
Management recommends that you vote FOR election of the two nominees listed
above as Directors of the Company.
CERTAIN INFORMATION REGARDING INCUMBENT DIRECTORS
Mr. Church, 59, a Director since 1997, has practiced law in private
practice, government, and corporate environments for over 30 years with
specialties in U.S. and international government contracting, developing
companies, mergers and acquisitions, and joint ventures. He is currently the
CEO of Ventures & Solutions LLC, a Trustee of the National Defense
Industrial Association and is a director of various private corporations.
He has served as General Counsel to the American Electronics Association.
His previous experience includes working for the U.S. Government's Central
Intelligence Agency and Department of Defense and as corporate counsel to
establish several companies in the Silicon Valley of California.
Mr. Dohring, 65, a Director since 1997, has been Vice President of Silicon
Valley Group, Inc. ("SVG") since July 1992 and President of its SVG
Lithography Systems, Inc. unit since October 1994. From June 1992 to October
1994, he served as President of SVG's Track Systems Division. He joined SVG
from Rochester Instrument Systems, Inc., where he served as President from
April 1989 to June 1992. He has also held management positions with General
Signal, CVC Products, Bendix, Bell & Howell and Veeco Instruments.
<PAGE>
Mr. Goldberg, 53, a Director since 1996, is the President & Co-Chief
Executive Officer and a Director of First Albany Companies, Inc. ("FAC", see
"Securities Ownership of Certain Beneficial Owners" in the section entitled
"Additional Information", below). He is Chairman of the Board of Trustees of
the Albany Institute of History and Art, and a Director of the Center for
Economic Growth and the Albany Symphony Orchestra.
Dr. Robb, 70, a Director since 1997, now a management consultant and
President of Vantage Management, Inc., was until December 31, 1992, General
Electric Company's("GE") Senior Vice President for corporate research and
development. He directed the GE Research and Development Center, one of the
world's largest and most diversified industrial laboratories, and served on
GE's Corporate Executive Council. He serves on the Board of Directors of
Marquette Medical Systems, Cree Research, Celgene and Neopath. He also
serves on the Advisory Council of the Critical Technology Institute and on
the Council of the National Academy of Engineering.
Dr. Sternlicht, 70, a Director since 1996, co-founder of the Company, has
been President of Benjosh Management Corporation, a management firm in New
York, New York, since 1976 and has been President of Arben International
since 1994, with offices in Moscow and New York City. He previously served
as a Director of the Company from 1961 to 1992. Prior to 1985, he held a
number of positions with the Company. At the time of his departure from the
Company in 1985, he served as Vice Chairman of the Board of Directors and
Technical Director.
COMMITTEES AND MEETINGS OF THE BOARD OF DIRECTORS
The Board of Directors held seven (7) meetings during fiscal 1998. All
Directors attended at least 75% of all meetings of the Board, and of all
Board committees on which they serve, held during fiscal 1998.
The Company's Board of Directors has established Audit and Compensation
Committees. The Audit Committee (consisting of Messrs. O'Connor, Church and
Goldberg) reviews with the independent auditors the plan and results of the
auditing engagement, the auditors' assessment of internal accounting
controls; and recommends the appointment of the public auditors to the Board
of Directors. One Audit Committee meeting was held during fiscal 1998. The
Compensation Committee (consisting of Mr. Goldberg and Dr. Sternlicht)
determines compensation and bonuses for officers and employee Directors.
Two Compensation Committee meetings were held during fiscal 1998.
PROPOSAL TO ADOPT AND APPROVED THE MECHANICAL TECHNOLOGY INCORPORATED
1999 EMPLOYEE STOCK INCENTIVE PLAN
The Board of Directors expects to approve, subject to approval by the
stockholders, a new employee stock incentive plan ("the 1999 Plan")
intended to attract or encourage officers and other key employees of the
Company and its subsidiaries to remain in the employ of the Company and to
reward other individuals or entities who make significant contributions to
the Company's success. A copy of the 1999 Plan is attached to this Proxy
Statement as Exhibit A. The following description of the 1999 Plan is in
all respects qualified by reference to Exhibit A:
ADMINISTRATION: The 1999 Plan will be administered by the Compensation
Committee of the Board of Directors.
<PAGE>
SHARES SUBJECT TO PLAN: The 1999 Plan authorizes the grant of options to
purchase a number of shares of Common Stock equal to 1,000,000. If options
granted under the 1999 Plan expire or are terminated or surrendered without
having been exercised, the shares of Common Stock subject thereto may again
be optioned.
PARTICIPATION: Options may be granted by the Committee to officers,
directors and other key employees of the Company and its subsidiaries.
Approximately 115 persons would be potentially eligible to receive options
under the 1999 Plan.
TERM OF OPTIONS: The Committee will determine the term of each option,
which may not exceed 10 years. The Committee also has the power to shorten
the term of an option and to determine the effect on any option of the
holder's termination of employment or of any conduct or activity of the
holder.
EXERCISE PRICE: The per share exercise price of an option will be
determined by the Committee at the time of granting the option but may not
be less than 100% of the fair market value (determined by the Committee) of
a share of Common Stock on the date of grant. The exercise price shall be
paid in cash. The proceeds received by the Company on the exercise of
options will be used for general corporate purposes.
EXERCISE OF OPTIONS: The times at which an option granted under the 1999
Plan will become exercisable will be determined by the Committee at the
time of grant. In the past options granted under the Company's option
plans have become exercisable as to either 25% of the shares covered
thereby on each of the first four anniversaries of the date of grant, or
immediately vested. The Committee has indicated its intention to continue
this practice, but will not be obligated to do so.
RECAPITALIZATION, ETC.: In the event of a stock dividend,
recapitalization, merger, consolidation, combination or exchange of shares,
or the like, the Committee will be empowered, but not obligated, to make
appropriate adjustments in the number and class of shares subject to the
1999 Plan, in the number of shares subject to options granted thereunder
and in the exercise prices of such options.
TRANSFERABILITY: The options granted under the 1999 Plan shall not be
transferable other than by will or the laws of descent and distribution.
AMENDMENT AND TERMINATION: The Board of Directors may at any time
terminate or amend the 1999 Plan in any respect, except that, without the
approval of the stockholders, no amendment may (1) increase the number of
shares for which options may be granted under the 1999 Plan; (2) change the
minimum option exercise price; (3) change eligibility for awards; (4)
extend the award period; or (5) materially modify eligibility for
participation. Unless the 1999 Plan is previously terminated, options may
be granted under the 1999 Plan through March 18, 2009.
TAX AND ACCOUNTING CONSEQUENCES: The 1999 Plan permits grants of incentive
stock options, intended to meet the requirements of Section 422 of the
Internal Revenue Code, as well as of non-qualified options.
<PAGE>
Incentive Stock Options
The Company has been advised that the federal income tax consequences to
the Company and the optionee of the grant and exercise of incentive stock
options under the 1999 Plan, under the current provisions of the Internal
Revenue Code, are substantially as follows: Generally a person who is
granted an incentive stock option is not required to recognize taxable
income at the time of the grant or at the time of exercise and the Company
is not entitled to a deduction at the time of grant or at the time of
exercise. Under certain circumstances, however, an optionee may be subject
to alternative minimum tax with respect to the exercise of his or her
incentive stock options. Generally, the gain realized, but not recognized,
upon the exercise of an incentive stock option (equal to the difference
between the fair market value of the shares received upon exercise of the
incentive stock option and the purchase price paid for such shares) is
included in the optionee's alternative minimum tax income and, depending
upon the optionee's overall tax situation, he or she may be required to pay
alternative minimum tax on such gain.
If an optionee does not dispose of the shares acquired pursuant to the
exercise of an incentive stock option before the later of two years from
the date of grant and one year from the date of exercise, any gain or loss
realized on a subsequent disposition of the shares will be treated as
capital gain or loss. Under such circumstances, the Company will not be
entitled to any deduction for federal income tax purposes. An optionee
must also own the shares of stock acquired upon exercise of an incentive
stock option for more than eighteen months for the gain or loss realized on
the sale to qualify as long-term capital gain or loss.
If an optionee disposes of the shares received upon the exercise of an
incentive stock option either (1) within one year of the exercise date or
(2) within two years after the grant date, the optionee will generally
recognize ordinary income equal to the lesser of (a) the excess of the fair
market value of the shares on the date of exercise over the purchase price
paid for the shares upon exercise and (b) the amount of gain realized on
the sale. Any gain realized in excess of the ordinary income recognized,
and any loss realized, will be long-term or short-term capital gain or
loss, depending upon the length of the period the optionee held the shares.
If an optionee is required to recognize ordinary income as a result of the
disposition of shares acquired on the exercise of an incentive stock
option, the Company, subject to general rules under Section 162(m) of the
Internal Revenue Code, will be entitled to a deduction for an equivalent
amount.
Non-Qualified Stock Options
The Company has been advised that the federal income tax consequences to
the Company and the optionee of the grant and exercise of non-qualified
options under the 1999 Plan, under the current provisions of the Internal
Revenue Code, are substantially as follows: An optionee is not deemed to
receive any income at the time the option is granted. If the option is
exercised, the optionee is deemed to have received ordinary income, on the
exercise date, in an amount equal to the difference, on the exercise date,
between the exercise price and the fair market value of the acquired
shares. The Company is generally entitled, in the year in which the option
is exercised, to a corresponding deduction, subject to general rules
relating to the reasonableness of the optionee's compensation and the
limitation under Rule 162(m) of the Code.
<PAGE>
Section 162(m) of the Code generally limits to $1 million the amount of
compensation paid to certain "covered employees" of a publicly held
corporation (generally, the corporation's chief executive officer and four
most highly compensated executive officers other than the chief executive
officer) that may be deducted by the corporation as an expense. Certain
performance-based compensation, the material terms of which are disclosed
to the corporation's stockholders and approved by a majority stockholder
vote, is exempt from the $1 million limitation. Based on regulations of
the Internal Revenue Service promulgated under Section 162(m), grants of
stock options under the 1999 Plan approved by a Committee consisting solely
of "outside directors" (as defined in such regulations) would appear to
constitute performance-based compensation that would be exempt under
Section 162(m).
Under current accounting rules, there is no earnings charge to the Company
for financial accounting purposes in connection with the grant, existence
or exercise of any stock option granted to employees under the 1999 Plan,
however, there will be an earnings charge for options granted to members of
the Board of Directors. The Company is required to disclose, and does
disclose, in a footnote to its annual consolidated financial statements,
the impact of such employee grants on consolidated net income and earnings
per share.
The board expects to approve the 1999 plan and recommends that stockholders
vote "for" the 1999 plan.
APPROVAL OF AUDITORS
The Board of Directors has recommended that the appointment of
PricewaterhouseCoopers LLP as independent auditors for the year ending
September 30, 1999 be ratified by the stockholders. PricewaterhouseCoopers
LLP (and its predecessor, Coopers & Lybrand, LLP) have been the Company's
auditors since 1978. Representatives of PricewaterhouseCoopers LLP are
expected to be present at the Annual Meeting with the opportunity to make a
statement if they desire to do so and to be available to respond to
appropriate questions.
The Board of Directors recommends that shareholders vote FOR the ratifica-
tion of the appointment of auditors.
ADDITIONAL INFORMATION
EXECUTIVE COMPENSATION
The following tables set forth information with respect to the compensation
and stock option grants for the fiscal year ended September 30, 1998 (and
during the Company's two prior fiscal years), of each person who served as
Chief Executive Officer during such year, and of all other persons who
served as executive officers of the Company and its subsidiaries during such
year whose total annual compensation exceeded $100,000.
<PAGE>
<TABLE>
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION LONG-TERM COMPENSATION
<S> <C> <C> <C> <C> <C>
NAME AND POSITION OF
PRINCIPAL FISCAL SALARY BONUS SECURITIES ALL
YEAR UNDER- OTHER
LYING COMP
OPTIONS
(#)
George C. McNamee,
Chief Executive
Officer (1) 1998 $- $- None $-
Martin J. Mastroianni, 1998 $101,168 $50,000 None $170,322
President & COO(2) (3),(4)
1997 $121,154 None 150,100 $-
James Clemens, President 1998 $122,961 $20,340 50,000 $4,896
& CEO, Ling Electronics, (3)
Inc.
1997 $57,501 None 30,000 $32,123
(3),(5)
Denis P. Chaves, Vice 1998 $133,481 $33,500 45,100 $5,793
(3)
1997 $120,673 $37,000 25,100 $4,233
(3)
1996 $99,167 $37,000 None $3,966
(3)
</TABLE>
(1) Mr. McNamee was appointed Chief Executive Officer on April 15, 1998.
(2) Dr. Mastroianni resigned his position as President and Chief Operating
Officer on April 7, 1998.
(3) Represents Company matching contributions of $1.00 for each $1.00
contributed by the named individual to the 401(k) Savings Plan up to a
maximum of 4% of base pay.
(4) Represents payout of vacation pay in lieu of time off and total salary
payments of $150,000 payable monthly at a rate of $10,000 per month for
a period of 15 months pursuant to an agreement dated April 7, 1998.
See "Employment Agreements."
(5) Includes a $30,000 loan by the Company to Mr. Clemens. The loan is
repayable in three equal annual installments of $10,000 plus interest at
the rate of 6.5%. The Company has agreed to pay Mr. Clemens an annual
bonus equal to the principal plus interest due on the promissory note, if
Mr. Clemens continues to be employed by the Company on March 24 of 1998,
1999 and 2000, respectively. The March 24, 1998 installment was bonused
to Mr. Clemens. The Company also agreed to repay the note in full if
Mr. Clemens dies or becomes permanently disabled prior to the due date
of the final payment on the note.
<PAGE>
OPTION GRANTS IN FISCAL 1998
<TABLE>
<S> <C> <C> <C> <C> <C>
Potential Realizable
Value at Assumed
Number of Percentage Annual Rates of
Shares of Total Stock Price
Underlying Options Exercise Appreciation for
Options Granted to Price Expiration Option Term
Name Granted Employees (per share) Date 5%($) 10%($)
James Clemens 20,000(1) 14.44% $6.00 06/16/08 $75,467 $191,249
Denis P. Chaves 20,000(1) 14.44% $6.00 06/16/08 $75,467 $191,249
</TABLE>
(1) 25% or 5,000 shares are exercisable each year beginning on August 27, 1999.
<TABLE>
AGGREGATE OPTION EXERCISES AND FISCAL YEAR-END OPTION VALUES
Number of Securities
Underlying Unexercised Value of Unexercised In-the-Money
Options at Fiscal Year End(#) Options at Fiscal Year End($)
<S> <C> <C> <C> <C> <C> <C>
Shares Value
Acquired on Realized
Name Exercise (#) ($) Exercisable Unexercisable Exercisable Unexercisable
Martin J. Mastroianni 42,100 206 0 0 0 0
James Clemens 0 0 3,750 46,250 $13,819 $134,231
Denis P. Chaves 0 0 6,350 38,750 $23,500 $91,594
</TABLE>
COMPENSATION COMMITTEE REPORT
COMPENSATION POLICIES FOR OFFICERS
The Company's compensation program for executive officers, other than
the Chief Executive Officer, consists of an annual salary and bonus
payments that are designed to reward performance.
<PAGE>
For the fiscal year 1998, the Committee used the following criteria in
making compensation decisions for executive officers:
* Company and individual affiliate financial performance.
* Identification and implementation of strategies and programs
that result in increased revenue, decreased cost or improved
share value.
* Implementation of programs to improve working capital
and cash flow, and to focus the Company's product
offerings such that they compliment the Company's
technology resources.
CHIEF EXECUTIVE OFFICER COMPENSATION.
George C. McNamee became Chief Executive Officer of the Company on April 15,
1998 after Dr. Mastroianni resigned as President and Chief Operating Officer
on April 7, 1998. Mr. McNamee receives no salary, bonus or other
compensation from the Company.
Effective April 7, 1998, Dr. Mastroianni resigned as President and Chief
Operating Officer. Dr. Mastroianni was President and Chief Operating Officer
from December 20, 1996 to April 7, 1998. For the period December 20, 1996
to April 7, 1998, Dr. Mastroianni's base salary of $150,000 did not change.
In fiscal 1997, Dr. Mastroianni was awarded a bonus of $50,000 which was
accrued as of September 30, 1997 and paid in fiscal 1998. Dr. Mastroianni was
awarded qualified options for 30,000 shares, plus an additional 120,000
shares if certain performance targets were met, at an exercise price of $2.44
per share. The award was amended on July 15, 1997, to (1) redefine the profit
targets; (2) reprice the exercise price for the 120,000 shares at $2.50 per
share; and (3) permit vesting of 30,000 of the 120,000 shares based on the
Company's performance in fiscal 1997. Upon his resignation, Dr. Mastroianni
was vested in 42,000 qualified options.
Compensation Committee
Mr. Alan P. Goldberg
Dr. Beno Sternlicht
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee ("Committee") approves all of the policies under
which compensation is paid or awarded to the Company's officers and employee
Directors. The Committee, in fiscal 1998, consisted of Mr. Goldberg and Dr.
Sternlicht.
Mr. Goldberg is Co-Chief Executive Officer of First Albany Companies, Inc.
("FAC"). (See "Security Ownership of Certain Beneficial Owners" in the
section entitled "Additional Information" and "Certain Relationship and
Related Transactions", below).
DIRECTORS COMPENSATION Directors who are not officers or employees receive
Director's fees of $750 for each Board meeting attended. Directors also are
reimbursed for travel expenses incurred in attending meetings.
<PAGE>
EMPLOYMENT AGREEMENTS
The Company entered into an employment agreement with Mr. James Clemens,
President of Ling Electronics, Inc. ("Ling"). The agreement provides for
an annual base salary of $115,000, subject to adjustment by the Compensation
Committee. Effective July 1, 1998, Mr. Clemens' salary was increased to
$150,000. In addition, Mr. Clemens is entitled to receive incentive
compensation equal to 3% of annual pre-tax income of Ling up to $1,000,000,
and 2% of annual pre-tax income of Ling in excess of $1,000,000. Mr. Clemens
also received non-qualified stock options for 15,000 shares of the Company's
common stock and an advance of $30,000. The advance must be repaid at the
rate of $10,000 per year plus 6.5% interest. The Company agreed to pay Mr.
Clemens an annual bonus equivalent to the payments due on the advance if Mr.
Clemens is still employed by the Company prior to March 24, 1998, 1999 and
2000, respectively. If Mr. Clemens dies or is disabled prior to March 24,
2000, the amount then due on the advance will be forgiven.
The Company had an employment agreement with Dr. Mastroianni which provided
that Dr. Mastroianni would receive an annual base salary of $150,000 and be
eligible for incentive compensation and incentive stock options. The
agreement also stated that if Dr. Mastroianni was removed from the position
of President for reasons other than cause during his first three years of
employment, the Company would pay him severance payments equivalent to a
maximum of one year's base salary.
Effective April 7, 1998, Dr. Mastroianni resigned as President and Chief
Operating Officer of the Company. On April 7, 1998, the Company entered
into an agreement with Dr. Mastroianni regarding his employment. The
agreement provides that Dr. Mastroianni will receive: a) total salary payments
from the Company of $150,000 payable monthly over 15 months; b) 401(k)
matching payments; c) insurance benefits through June 1, 2000; and d) vesting
of 42,000 qualified stock options previously awarded to Dr. Mastroianni.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
At September 30, 1998, First Albany Companies, Inc. ("FAC") owned
approximately 34% of the Company's Common Stock. George McNamee, a Director
and Chief Executive Officer of the Company, is Chairman of the Board of
Directors, Co-Chief Executive Officer and a shareholder of FAC. Alan Goldberg,
a Director of the Company, is a Director, President and Co-Chief Executive
Officer and a shareholder of FAC.
During fiscal 1998, First Albany Corporation, a wholly owned subsidiary of
FAC, provided financial advisory services in connection with the sale of the
Technology Division for which FAC was paid fees of $10,000.
On December 17, 1998, the Industrial Development Agency for the Town of
Colonie issued $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 headquarters and renovation of
existing buildings leased to Plug Power. The construction project is due to
be completed in April 1999. FAC underwrote the sale of the IDR Bonds. FAC
received no fees for underwriting the IDR Bonds but was reimbursed for its
out-of-pocket expenses.
<PAGE>
ADDITIONAL INFORMATION
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
First Albany Companies, Inc. ("FAC"), 30 South Pearl street, Albany, New
York, 12207, are beneficial owners of 2,444,038 shares, or 34%, of the
outstanding common stock of the Company. Messrs. McNamee and Goldberg may
be deemed the beneficial owners of at least a portion of the shares owned by
FAC. Messrs. McNamee and Goldberg disclaim such beneficial ownership.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information with respect to the
beneficial ownership of shares of the Company's Common Stock by (i) each
Director and nominee for Director of the Company, (ii) each named executive
officer described in the section of this Proxy Statement captioned "Executive
Compensation", and (iii) all present Directors and Officers of the Company
as a group.
Name of Amount and Nature of Percent of
Beneneficial Owner Beneficial Ownership Class(1)
Denis P. Chaves 47,700(2) *
Dale W. Church 68,000(3) *
James R. Clemens 50,000(4) *
Edward A. Dohring 26,000(5) *
Alan P. Goldberg 2,644,229(6) 36.8%
George C. McNamee 2,741,341(6)(7) 38.2%
Martin J. Mastroianni 24,000(8) *
E. Dennis O'Connor 58,000(9) *
Dr. Walter L. Robb 37,400(5) *
Dr. Beno Sternlicht 273,902(5)(10) 3.8%
All present Directors and
Officers as a group (10 persons) 3,517,534 48.99%
*Percentage is less than 1.0% of the outstanding Common Stock.
(1) To the best of the Company's knowledge, based on information reported by
such Directors and Officers or contained in the Company's shareholder records,
except as otherwise indicated, each of the named persons is presumed to have
sole voting and investment power with respect to all shares shown. None of
the Company's present Directors or Officers other than Messrs. Goldberg ,
McNamee, and Dr. Sternlicht (see "Security Ownership of Certain Beneficial
Owners", above) beneficially own more than 1% of the Company's outstanding
Common Stock; all present Directors and Officers as a group beneficially own,
in the aggregate, approximately 48.99% of the Company's outstanding Common
Stock.
(2) Includes options for 20,000 shares granted on June 16, 1998, 25,000 shares
granted on August 27, 1997 and 100 shares granted on December 20, 1996.
(3) Includes options for 10,000 shares granted on August 31, 1998, 10,000
shares granted on April 16, 1997 and 8,000 shares owned by Mr. Church's wife.
Mr. Church disclaims beneficial ownership of such shares.
(4) Includes options for 20,000 shares granted on June 16, 1998, 15,000
shares granted on August 27, 1997 and 15,000 shares granted on March 24, 1997.
(5) Includes options for 10,000 shares granted on August 31, 1998 and 10,000
shares granted on April 16, 1997.
<PAGE>
(6) Includes 2,444,038 shares owned by First Albany Companies Inc.; see
"Security Ownership of Certain Beneficial Owners". However, Messrs. McNamee
and Goldberg disclaim beneficial ownership of such shares.
(7) Includes 12,000 shares owned by Mr. McNamee's wife. Mr. McNamee disclaims
beneficial ownership of such shares.
(8) Dr. Mastroianni resigned as President and Chief Operating Officer of the
Company in April 1998, accordingly his shares are not included within the
total shares of all present Directors and Officers as a group.
(9) Includes options for 10,000 shares granted on August 31, 1998.
(10) Includes 31,980 shares owned by Dr. Sternlicht's wife and 12,180 shares
held by Dr. Sternlicht's wife as custodian for their children; Dr. Sternlicht
disclaims beneficial ownership of such shares.
ANNUAL REPORT TO SHAREHOLDERS
The Company's Annual Report to Shareholders accompanies this Proxy Statement.
The Company's Annual Report on Form 10-K for the year ended September 30,
1998, as filed with the Securities and Exchange Commission, may be obtained
by addressing a written request to the Investor Relations Department at the
Company's corporate headquarters, 968 Albany-Shaker Road, Latham, NY 12110.
PROPOSALS OF SECURITY HOLDERS
Proposals by security holders intended to be presented at the Company's
Annual Meeting of Shareholders to be held in 2000 must be received by the
Company before October 4, 1999 in order to qualify for inclusion in the
Company's Proxy Statement relating to that meeting.
OTHER MATTERS
Management does not know of any matters which will be brought before the
meeting other than those specifically set forth in the notice thereof. If
any other matter properly comes before the meeting, however, it is intended
that the shares represented by proxies will be voted with respect thereto in
accordance with the best judgment of the persons voting them.
All expenses incurred in connection with this solicitation of proxies will
be borne by the Company.
By Order of the Board of Directors
John Recupero
Secretary
Latham, New York
February 12, 1999
<PAGE>
Appendix A - Proxy Card
MECHANICAL TECHNOLOGY INCORPORATED
968 Albany-Shaker Road Latham, New York 12110
PROXY
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby revokes any proxy heretofore given to vote such shares,
and hereby ratifies and confirms all that said proxies may do by virtue hereof.
THIS PROXY WILL BE VOTED AS SPECIFIED BY THE SHAREHOLDER. IF AUTHORITY TO VOTE
FOR ITEM 1, ELECTION OF DIRECTORS, IS NOT SPECIFICALLY WITHHELD, THE PROXY WILL
BE VOTED FOR THE NOMINEES LISTED IN THE PROXY STATEMENT. IF NO CHOICE IS
SPECIFIED WITH RESPECT TO ITEMS 2 AND 3, THE PROXY WILL BE VOTED FOR THAT
PROPOSAL.
The undersigned hereby appoints George C. McNamee and Alan Goldberg, or either
of them, as proxies to vote all the stock of the undersigned with all the powers
which the undersigned would possess if personally present at the Annual Meeting
of the Shareholders of Mechanical Technology Incorporated, to be held at the
offices of Mechanical Technology Incorporated, 968 Albany-Shaker Road, Latham,
New York, at 10:00 a.m. on March 18, 1999, or any adjournment thereof, as
follows:
1.ELECTION OF DIRECTORS:
FOR BOTH NOMINEES LISTED BELOW ____ WITHHOLD AUTHORITY ____
(except as marked to the contrary below) to vote for both nominees
listed below
INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE, STRIKE A
LINE THROUGH THE NOMINEE'S NAME IN THE LIST BELOW.
Three Year Term
George C. McNamee
E. Dennis O'Connor
2.PROPOSAL TO APPROVE THE REAPPOINTMENT OF PRICEWATERHOUSECOOPERS L.L.P AS
AUDITORS.
FOR __ AGAINST __ ABSTAIN __
3.PROPOSAL TO APPROVE AND ADOPT THE COMPANY'S 1999 EMPLOYEE STOCK INCENTIVE PLAN
FOR __ AGAINST __ ABSTAIN __
IN THEIR DISCRETION, UPON ANY OTHER MATTERS WHICH MAY PROPERLY COME BEFORE THE
MEETING.
Date,_____________1999 ___________________________________________
Please sign exactly as name appears on this
proxy. When shares are held by joint
tenants, both should sign. When signing
as attorney, executor, administrator,
trustee, or guardian, please give full
title as such. If a corporation, please
sign in full corporate name by President
or other authorized officer. If a
partnership, please sign in partnership
name by authorized person.
________________________________________
Please provide Social Security Number or
Tax Identification Number
Attendance at Meeting: NO __ YES __
NUMBER ATTENDING __
<PAGE>
EXHIBIT A
Mechanical Technology Incorporated 1999 Employee Stock Incentive Plan
SECTION 1
PURPOSE
The purpose of the Mechanical Technology Incorporated 1999 Employee Stock
Incentive Plan is to provide a means whereby Mechanical Technology
Incorporated, a New York corporation (the "Corporation"), may attract able
persons to remain in or to enter the employ of the Corporation, a Parent
Corporation or a Subsidiary and to provide a means whereby those employees,
directors, officers, and other individuals or entities upon whom the
responsibilities of the successful administration, management, planning,
and/or organization of the Corporation may rest, and whose present and
potential contributions to the welfare of the Corporation, a Parent
Corporation or a Subsidiary are of importance, can acquire and maintain
stock ownership, thereby strengthening their concern for the long-term
welfare of the Corporation. A further purpose of the Plan is to provide
such employees and individuals or entities with additional incentive and
reward opportunities designed to enhance the profitable growth of the
Corporation over the long term. Accordingly, the Plan provides for granting
Common Stock, Incentive Stock Options, options which do not constitute
Incentive Stock Options, or any combination of the foregoing, as is best
suited to the circumstances of the particular employees and individuals or
entities as provided herein.
SECTION 2
DEFINITIONS
The following definitions shall be applicable during the term of the Plan
unless specifically modified by any paragraph:
(a) Award means, individually or collectively, any Option granted pursuant
to the Plan.
(b) Board means the board of directors of the Corporation.
(c) Change of Control Value means the amount determined in Clause (i),
(ii) or (iii), whichever is applicable, as follows: (i) the per share price
offered to stockholders of the Corporation in any merger, consolidation,
sale or assets or dissolution transaction, (ii) the price per share offered
to stockholders of the corporation in any tender offer or exchange offer
whereby a Corporate Change takes place or (iii) if a Corporate Change
occurs other than as described in Clause (i) or Clause (ii), the fair
market value per share determined by the Board as of the date determined by
the Board to be the date of cancellation and surrender of an Option. If the
consideration offered to stockholders of the Corporation in any transaction
described in this Paragraph or Paragraphs (d) and (e) of Section 8 consists
of anything other than cash, the Board shall determine the fair cash
equivalent of the portion of the consideration offered which is other than
cash.
<PAGE>
(d) Code means the Internal Revenue Code of 1986, as amended. Reference in
the Plan to any Section of the Code shall be deemed to include any
amendments or successor provisions to such Section and any regulations
under such Section.
(e) Common Stock means the common stock of the Corporation.
(f) Compensation Committee means a committee of the Board of Directors of
the Corporation, who is given authority by the Board to grant options or
make stock grants under the Plan.
(g) Corporation means Mechanical Technology Incorporated.
(h) Corporate Change means one of the following events: (i) the merger,
consolidation or other reorganization of the Corporation in which the
outstanding Common Stock is converted into or exchanged for a different
class of securities of the Corporation, a class of securities of any other
issuer (except a Subsidiary or Parent Corporation), cash or other property
other than (a) a merger, consolidation or reorganization of the Corporation
which would result in the voting stock of the Corporation outstanding
immediately prior thereto continuing to represent (either by remaining
outstanding or by being converted into voting securities of the surviving
entity), in combination with the ownership of any trustee or other
fiduciary holding securities under an employee benefit plan of the
Corporation, at least sixty percent (60%) of the combined voting power of
the voting stock of the Corporation or such surviving entity outstanding
immediately after such merger, consolidation or reorganization of the
Corporation, or (b) merger, consolidation or reorganization of the
Corporation effected to implement a recapitalization of the Corporation (or
similar transaction) in which no person acquires more than forty-nine
percent (49%) of the combined voting power of the Corporation's then
outstanding stock; (ii) the sale, lease or exchange of all or substantially
all of the assets of the Corporation to any other corporation or entity
(except a Subsidiary or Parent Corporation); (iii) the adoption by the
stockholders of the Corporation of a plan of liquidation and dissolution;
(iv) the acquisition (other than acquisition pursuant to any other clause
of this definition) by any person or entity, including without limitation a
"group" as contemplated by Section 13(d)(3) of the Exchange Act, of
beneficial ownership, as contemplated by such Section, of more than twenty-
five percent (25%) (based on voting power) of the Corporation's outstanding
capital stock or acquisition by a person or entity who currently has
beneficial ownership which increases such person's or entity's beneficial
ownership to fifty percent (50%) or more (based on voting power) of the
Corporation's outstanding capital stock; or (v) as a result of or in
connection with a contested election of directors, the persons who were
directors of the Corporation before such election shall cease to constitute
a majority of the Board. Notwithstanding the provisions of clause (iv)
above, a Corporate Change shall not be considered to have occurred upon the
acquisition (other than acquisition pursuant to any other clause of the
preceding sentence) by any person or entity, including without limitation a
"group" as contemplated by Section 13(d)(3) of the Exchange Act, of
beneficial ownership, as contemplated by such Section, of more than twenty-
five percent (25%) (based on voting power) of the Corporation's outstanding
capital stock or the requisite percentage to increase their ownership to
fifty percent (50%) resulting from a public offering of securities of the
Corporation under the Securities Act of 1933, as amended.
<PAGE>
(i) Exchange Act means the Securities Exchange Act of 1934, as amended.
(j) Fair Market Value means, as of any specified date, the closing price
of the Common Stock on the NASDAQ (or, if the Common Stock is not listed on
such exchange, such other national securities exchange on which the Common
Stock is then listed) on that date, or if no prices are reported on that
date, on the last preceding date on which such prices of the Common Stock
are so reported. If the Common Stock is not then listed on any national
securities exchange but is traded over the counter at the time
determination of its Fair Market Value is required to be made hereunder,
its Fair Market Value shall be deemed to be equal to the average between
the reported high and low sales prices of Common Stock on the most recent
date on which Common Stock was publicly traded. If the Common Stock is not
publicly traded at the time a determination of its value is required to be
made hereunder, the determination of its Fair Market Value shall be made by
the Board in such manner as it deems appropriate (such determination will
be made in good-faith as required by Section 422(c)(1) of the Code and may
be based on the advice of an independent investment banker or appraiser
recognized to be expert in making such valuations). Fair Market Value also
shall satisfy the requirements under Section 260.140 of the California Code
of Regulations, as necessary to qualify for an exemption from the
provisions of Section 25110 of the California Corporations Code.
(k) Grant means individually or collectively, any Common Stock granted
pursuant to the Plan.
(l) Grantee means an employee, director, officer, other individual or
entity who has been granted Common Stock pursuant to the Plan.
(m) Holder means an individual or entity who has been granted an Award.
(n) Incentive Stock Option means an Option within the meaning of Section
422 of the Code.
(o) Option means an Award granted under Section 7 of the Plan and includes
both Incentive Stock Options to purchase Common Stock and Options which do
not constitute Incentive Stock Options to purchase Common Stock.
(p) Option Agreement means a written agreement between the Corporation and
an employee with respect to an Option.
(q) Optionee means an employee, director, officer, entity or individual
who has been granted an Option.
(r) Parent Corporation shall have the meaning set forth in Section 424(e)
of the Code.
(s) Plan means the Mechanical Technology Incorporated 1999 Employee Stock
Incentive Plan.
(t) Rule 16b-3 means Rule 16b-3 of the General Rules and Regulations of
the Securities and Exchange Commission under the Exchange Act, as such rule
is currently in effect or as hereafter modified or amended.
<PAGE>
(u) Subsidiary means a company (whether a corporation, partnership, joint
venture or other form of entity) in which the Corporation, or a corporation
in which the Corporation owns a majority of the shares of capital stock,
directly or indirectly, owns an equity interest of fifty percent (50%) or
more, except solely with respect to the issuance of Incentive Stock Options
the term "Subsidiary" shall have the same meaning as the term "subsidiary
corporation" as defined in Section 424(f) of the Code.
SECTION 3
EFFECTIVE DATE AND DURATION OF THE PLAN
The Plan shall be effective as of March 29, 1999, the date of its adoption
by the Board, provided that the Plan is approved by the stockholders of the
Corporation within twelve (12) months before or thereafter and on or prior
to the date of the first annual meeting of stockholders of the Corporation
held subsequent to the acquisition of an equity security by a Holder
hereunder for which exemption is claimed under Rule 16b-3. Notwithstanding
any provision of the Plan or of any Option Agreement, no Option shall be
exercisable and no Common Stock may be granted prior to such stockholder
approval. The Plan shall be terminated and no further Awards or Common
Stock may be granted under the Plan after ten (10) years from the date the
Plan is adopted by the Board or the date the Plan is approved by the
Corporation's shareholders, whichever is earlier. Subject to the provisions
of Section 9, the Plan shall remain in effect until all Options granted
under the Plan have been exercised or have expired by reason of lapse of
time and all restrictions imposed upon restricted stock awards have lapsed.
Any option exercised before shareholder approval is obtained must be
rescinded if shareholder approval is not obtained within twelve (12) months
before or after the Plan is adopted. Such shares shall not be counted in
determining whether such approval is granted.
SECTION 4
ADMINISTRATION
(a) Administration of Plan by Board. The Plan shall be administered by the
Board in compliance with Rule 16b-3. Members of the Board shall abstain
from participating in and deciding matters which directly affect their
individual ownership interests under the Plan.
(b) Powers. Subject to the terms of the Plan, the Board shall elect one or
several members to the Compensation Committee who shall have sole
authority, in their discretion, to determine which employees, officers,
directors, individuals or entities shall receive an Award or Grant, the
time or times when such Award or Grant shall be made, whether Common Stock,
an Incentive Stock Option or non-qualified Option shall be granted and the
number of shares of Common Stock which may be issued under each Option. In
making such determinations, the Designated Officer may take into account
the nature of the services rendered by these individuals, their present and
potential contribution to the success of the Corporation, a Parent
Corporation or a Subsidiary, and such other factors as the Board in its
discretion shall deem relevant.
<PAGE>
(c) Additional Powers. The Board shall have such additional powers as are
delegated to it by the other provisions of the Plan. Subject to the express
provisions of the Plan, the Board is authorized in its sole discretion,
exercised in a nondiscriminatory manner, to construe and interpret the Plan
and the respective agreements executed thereunder, to prescribe such rules
and regulations relating to the Plan as it may deem advisable to carry out
the Plan, and to determine the terms, restrictions and provisions of each
Award or Grant, including such terms, restrictions and provisions as shall
be requisite in the judgment of the Board to cause designated Options to
qualify as Incentive Stock Options, and to make all other determinations
necessary or advisable for administering the Plan. The Board may correct
any defect or supply any omission or reconcile any inconsistency in any
agreement relating to an Award or Grant in the manner and to the extent it
shall deem expedient to carry it into effect. The determination of the
Board on the matters referred to in this Section 4 shall be conclusive.
(d) Compliance With Code 162(m). In the event the Corporation, a Parent
Corporation or a Subsidiary becomes a "publicly-held corporation" as
defined in Section 162(m)(2) of the Code, the Corporation may establish a
committee of outside directors meeting the requirements of Code 162(m) to
(i) approve the grant of Options which might reasonably be anticipated to
result in the payment of employee remuneration that would otherwise exceed
the limit on employee remuneration deductible for income tax purposes by
the Corporation pursuant to Code 162(m) and (ii) administer the Plan. In
such event, the powers reserved to the Board in the Plan shall be exercised
by such compensation committee. In addition, Options under the Plan shall
be granted upon satisfaction of the conditions to such grants provided
pursuant to Code 162(m) and any Treasury Regulations promulgated
thereunder.
SECTION 5
GRANT OF OPTIONS AND STOCK SUBJECT TO THE PLAN
(a) Award Limits. The Compensation Committee may from time to time grant
Awards and/or make Grants to one or more employees, directors, officers,
individuals or entities determined by him or her to be eligible for
participation in the Plan in accordance with the provisions of Section 6 of
the Plan. The aggregate number of shares of Common Stock that may be issued
under the Plan shall not exceed 1,000,000 shares. The aggregate number of
shares of Common Stock that may be issued to any Holder and/or granted to
any Grantee under the Plan shall not exceed thirty percent (30%)] of the
aggregate number of shares referred to in the preceding sentence. The total
number of shares issuable upon exercise of all outstanding Options shall
not exceed a number of shares which is equal to thirty percent (30%) of the
then outstanding shares of the Corporation. Any of such shares which remain
unissued and which are not subject to outstanding Options and/or Grants at
the termination of the Plan shall cease to be subject to the Plan but,
until termination of the Plan, the Corporation shall at all times reserve a
sufficient number of shares to meet the requirements of the Plan. Shares
shall be deemed to have been issued under the Plan only to the extent
actually issued and delivered pursuant to an Award or Grant. To the extent
that an Award or Grant lapses or the rights of its Holder or Grantee
terminate, any shares of Common Stock subject to such Award or Grant shall
again be available for the grant of an Award or making of a Grant. The
aggregate number of shares which may be issued under the Plan shall be
subject to adjustment in the same manner as provided in Section 8 of the
Plan with respect to shares of Common Stock subject to Options then
outstanding. Separate stock certificates shall be issued by the Corporation
<PAGE>
for those shares acquired pursuant to a Grant, the exercise of an Incentive
Stock Option and for those shares acquired pursuant to the exercise of any
Option which does not constitute an Incentive Stock Option.
(b) Stock Offered. The stock to be offered pursuant to an Award or Grant
may be authorized but unissued Common Stock or Common Stock previously
issued and outstanding and reacquired by the Corporation.
SECTION 6
ELIGIBILITY
An Incentive Stock Option Award made pursuant to the Plan may be granted
only to an individual who, at the time of grant, is an employee of the
Corporation, a Parent Corporation or a Subsidiary. An Award of an Option
which is not an Incentive Stock Option or a Grant of Common Stock may be
made to an individual who, at the time of Award or Grant, is an employee of
the Corporation, a Parent Corporation or a Subsidiary, or to an individual
who has been identified by the Board or Designated Officer to receive an
Award or Grant due to their contribution or service to the Corporation,
including members of the Board of Directors of the Corporation, a Parent
Corporation or a Subsidiary. An Award or Grant made pursuant to the Plan
may be made on more than one occasion to the same person, and such Award or
Grant may include a Common Stock Grant, an Incentive Stock Option, an
Option which is not an Incentive Stock Option, or any combination thereof.
Each Award or Grant shall be evidenced by a written instrument duly
executed by or on behalf of the Corporation.
SECTION 7
STOCK OPTIONS/GRANTS
(a) Stock Option Agreement. Each Option shall be evidenced by an Option
Agreement between the Corporation and the Optionee which shall contain such
terms and conditions as may be approved by the Board and agreed upon by the
Holder. The terms and conditions of the respective Option Agreements need
not be identical. Each Option Agreement shall specify the effect of
termination of employment, total and permanent disability, retirement or
death on the exercisability of the Option. Under each Option Agreement, a
Holder shall have the right to appoint any individual or legal entity in
writing as his or her beneficiary under the Plan in the event of his death.
Such designation may be revoked in writing by the Holder at any time and a
new beneficiary may be appointed in writing on the form provided by the
Board for such purpose. In the absence of such appointment, the beneficiary
shall be the legal representative of the Holder's estate.
(b) Option Period. The term of each Option shall be as specified by the
Board at the date of grant and shall be stated in the Option Agreement;
provided, however, that an option may not be exercised more than one
hundred twenty (120) months from the date it is granted.
(c) Limitations on Exercise of Option. Any Option granted hereunder shall
be exercisable at such times and under such conditions as determined by the
Board and as shall be permissible under the terms of the Plan, which shall
be specified in the Option Agreement evidencing the Option; provided,
however, that an option shall be exercised at the rate of at least twenty
percent (20%) per year over five (5) years from the date it is granted. An
Option may not be exercised for fractional shares.
<PAGE>
(d) Special Limitations on Incentive Stock Options. To the extent that the
aggregate Fair Market Value (determined at the time the respective
Incentive Stock Option is granted) of Common Stock with respect to which
Incentive Stock Options are exercisable for the first time by an individual
during any calendar year under all incentive stock option plans of the
Corporation (and any Parent Corporation or Subsidiary) exceeds One Hundred
Thousand Dollars ($100,000) (within the meaning of Section 422 of the
Code), such excess Incentive Stock Options shall be treated as Options
which do not constitute Incentive Stock Options. The Board shall determine,
in accordance with applicable provisions of the Code, Treasury Regulations
and other administrative pronouncements, which of an Optionee's Incentive
Stock Options will not constitute Incentive Stock Options because of such
limitation and shall notify the Optionee of such determination as soon as
practicable after such determination. No Incentive Stock Option shall be
granted to an individual if, at the time the Option is granted, such
individual owns stock possessing more than ten percent (10%) of the total
combined voting power of all classes of stock of the Corporation or of its
Parent Corporation or a Subsidiary, within the meaning of Section 422(b)(6)
of the Code, unless (i) at the time such Option is granted the Option price
is at least one hundred ten percent (110%) of the Fair Market Value of the
Common Stock subject to the Option and (ii) such Option by its terms is not
exercisable after the expiration of five years from the date of grant.
(e) Option Price. The purchase price of Common Stock issued under each
Option shall be determined by the Board and shall be stated in the Option
Agreement, but such purchase price shall, in the case of Incentive Stock
Options, not be less than the Fair Market Value of Common Stock subject to
the Option on the date the Option is granted, and, in the case of Options
which do not constitute Incentive Stock Options, not be less than
eighty-five percent (85%) of the fair value of the stock at the time the
option is granted, except that the price shall be one hundred ten percent
(110%) of the fair value in the case of any person or entity who owns stock
comprising more than ten percent (10%) of the total combined voting power
of all classes of stock of the Corporation or its Parent Corporation or
Subsidiary. Fair value in the case of options that do not constitute
Incentive Stock Options shall have the same meaning as set forth in
Section 260.140.50 of the California Code of Regulations.
(f) Options and Rights in Substitution for Stock Options Made by Other
Corporations. Options may be granted under the Plan from time to time in
substitution for stock options held by employees of corporations who
become, or who became prior to the effective date of the Plan, employees of
the Corporation, of any Parent Corporation or of any Subsidiary as a result
of a merger or consolidation of the employing corporation with the
Corporation, such Parent Corporation or such Subsidiary, or the acquisition
by the Corporation, a Parent Corporation or a Subsidiary of all or a
portion of the assets of the employing corporation, or the acquisition by
the Corporation, a Parent Corporation or a Subsidiary of stock of the
employing corporation with the result that such employing corporation
becomes a Subsidiary.
(g) Restricted Stock Option Purchase Agreement. Notwithstanding the
foregoing, at the election of the Holder, the Option can be exercised
provided that the Holder shall, as a condition of such exercise, execute
and deliver the Restricted Stock Option Purchase Agreement (the "Purchase
Agreement"), pursuant to which the Corporation shall be granted a
"Repurchase Option" and "Right of First Refusal" as to all "Shares" (as
such terms are defined in the Purchase Agreement).
<PAGE>
(h) Restricted Stock Grant Agreement. Each Grant shall be evidenced by the
execution and delivery of a Restricted Stock Grant Agreement (the "Grant
Agreement"), pursuant to which the Corporation shall be granted a
"Repurchase Option" and "Right of First Refusal" as to all "Shares" (as
such terms are defined in the Grant Agreement).
SECTION 8
RECAPITALIZATION OR REORGANIZATION
(a) Except as hereinafter otherwise provided, Awards or Grants shall be
subject to adjustment by the Board at its discretion as to the number and
price of shares of Common Stock in the event of changes in the outstanding
Common Stock by reason of stock dividends, stock splits, reverse stock
splits, reclassifications, recapitalizations, reorganizations, mergers,
consolidations, combinations, exchanges or other relevant changes in
capitalization occurring after the date of the grant of any such Options or
Common Stock.
(b) The existence of the Plan and the Awards and/or Grants made hereunder
shall not affect in any way the right or power of the Board or the
stockholders of the Corporation to make or authorize any adjustment,
recapitalization, reorganization or other change in the capital structure
of the Corporation, a Parent Corporation or a Subsidiary or their business,
any merger or consolidation of the Corporation, a Parent Corporation or a
Subsidiary, any issue of debt or equity securities having any priority or
preference with respect to or affecting Common Stock or the rights thereof,
the dissolution or liquidation of the Corporation, a Parent Corporation or
a Subsidiary, or any sale, lease, exchange or other disposition of all or
any part of their assets or business or any other corporate act or
proceeding.
(c) The shares with respect to which Options may be granted are shares of
Common Stock as presently constituted but if and whenever, prior to the
expiration of an Option theretofore granted, the Corporation shall effect a
subdivision or consolidation of shares of Common Stock or the payment of a
stock dividend on Common Stock without receipt of consideration by the
Corporation, the number of shares of Common Stock with respect to which
such Option may thereafter be exercised (i) in the event of an increase in
the number of outstanding shares shall be proportionately increased, and
the purchase price per share shall be proportionately reduced, and (ii) in
the event of a reduction in the number of outstanding shares shall be
proportionately reduced, and the purchase price per share shall be
proportionately increased.
(d) If the Corporation recapitalizes or otherwise changes its capital
structure, thereafter upon any exercise of an Option theretofore granted,
the Optionee shall be entitled to purchase under such Option, in lieu of
the number of shares of Common Stock as to which such Option shall then be
exercisable, the number and class of shares of stock and securities, and
the cash and other property to which the Optionee would have been entitled
pursuant to the terms of the recapitalization if, immediately prior to such
recapitalization, the Optionee had been the holder of such record of the
number of shares of Common Stock then covered by such Option.
<PAGE>
(e) In the event of a Corporate Change, unless otherwise deemed to be
impractical by the Board, then no later than (i) two business days prior to
any Corporate Change referenced in Clause (i), (ii), (iii), (v) or (vi) of
the definition thereof or (ii) ten business days after any Corporate Change
referenced in Clause (iv) of the definition thereof, the Board, acting in
its sole discretion without the consent or approval of any Optionee or
Grantee, shall act to effect the following alternatives with respect to
outstanding Options which acts may vary among individual Optionees and,
with respect to acts taken pursuant to Clause (i) above, may be contingent
upon effectuation of the Corporate Change: (A) in the event of a Corporate
Change referenced in Clauses (i), (ii) and (vi) acceleration of exercise
for all Options then outstanding so that such Options may be exercised in
full for a limited period of time on or before a specified date (before or
after such Corporate Change) fixed by the Board, after which specified date
all unexercised Options and all rights of Optionees thereunder shall
terminate; (B) in the event of a Corporate Change referenced in Clauses
(iii), (iv) and (v) require the mandatory surrender to the Corporation by
selected Optionees of some or all of the outstanding Options held by such
Optionees (irrespective of whether such Options are then exercisable under
the provisions of the Plan) as of a date (before or after such Corporate
Change) specified by the Board, in which event the Board shall thereupon
cancel such Options and pay to each Optionee an amount of cash per share
equal to the excess, if any, of the Change of Control Value of the shares
subject to such Option over the exercise price(s) under such Options for
such shares; (C) in the event of a Corporate Change referenced in Clauses
(iii), (iv) and (v), make such adjustments to Options then outstanding as
the Board deems appropriate to reflect such Corporate Change (provided,
however, that the Board may determine in its sole discretion that no
adjustment is necessary to Options then outstanding); (D) in the event of a
Corporate Change referenced in Clauses (iii), (iv) and (v), provide that
thereafter upon any exercise of an Option theretofore granted the Optionee
shall be entitled to purchase under such Option, in lieu of the number of
shares of Common Stock as to which such Option shall then be exercisable,
the number and class of shares of stock or other securities or property
(including, without limitation, cash) to which the Optionee would have been
entitled pursuant to the terms of the agreement of merger, consolidation or
sale of assets or plan of liquidation and dissolution if, immediately prior
to such merger, consolidation or sale of assets or any distribution in
liquidation and dissolution of the Corporation, the Optionee had been the
holder of record of the number of shares of Common Stock then covered by
such Option; or (E) in the event of a Corporate Change referenced in
Clauses (iii), (iv) and (v), cancel the Options granted if the Fair Market
Value of the Common Stock underlying the Options is below the Option
exercise price.
(f) Except as hereinbefore expressly provided, issuance by the Corporation
of shares of stock of any class or securities convertible into shares of
stock of any class, for cash, property, labor or services, upon direct
sale, upon the exercise of rights or warranty to subscribe therefore, or
upon conversion of shares or obligations of the Corporation convertible
into such shares or other securities, and in any case whether or not for
fair value, shall not affect, and no adjustment by reason thereof shall be
made with respect to, the number of shares of Common Stock subject to
Options theretofore granted, or the purchase price per share of Common
Stock subject to Options.
<PAGE>
SECTION 9
AMENDMENT OR TERMINATION OF THE PLAN
The Board in its discretion may terminate the Plan or any Option or Grant
or alter or amend the Plan or any part thereof or any Option from time to
time; provided that no change in any Award or Grant previously made may be
made which would impair the rights of the Holder or Grantee without the
consent of the Holder or Grantee, and provided further, that the Board may
not, without approval of the stockholders, amend the Plan:
(a) to increase the aggregate number of shares which may be issued
pursuant to the provisions of the Plan on exercise or surrender of Options
or upon Grants;
(b) to change the minimum Option exercise price;
(c) to change the class of employees eligible to receive Awards and/or
Grants or increase materially the benefits accruing to employees under the
Plan;
(d) to extend the maximum period during which Awards may be granted or
Grants may be made under the Plan;
(e) to modify materially the requirements as to eligibility for
participation in the Plan; or
(f) to decrease any authority granted to the Board hereunder in
contravention of Rule 16b-3.
SECTION 10
OTHER
(a) No Right to an Award or Grant. Neither the adoption of the Plan nor
any action of the Board or Designated Officer shall be deemed to give an
employee any right to be granted an Option to purchase Common Stock, to
receive a Grant or to any other rights hereunder except as may be evidenced
by an Option Agreement duly executed on behalf of the Corporation, and then
only to the extent of and on the terms and conditions expressly set forth
therein. The Plan shall be unfunded. The Corporation shall not be required
to establish any special or separate fund or to make any other segregation
of funds or assets to assure the payment of any Award or Grant. Shares
issued under this Plan shall have the same voting rights as all other
shares of common stock issued by the Corporation.
(b) No Employment Rights Conferred. Nothing contained in the Plan or in
any Award or Grant made hereunder shall (i) confer upon any employee any
right with respect to continuation of employment with the Corporation or
any Parent Corporation or Subsidiary, or (ii) interfere in any way with the
right of the Corporation or any Parent Corporation or Subsidiary to
terminate his or her employment at any time.
<PAGE>
(c) Other Laws; Withholding. The Corporation shall not be obligated to
issue any Common Stock pursuant to any Award granted or any Grant made
under the Plan at any time when the offering of the shares covered by such
Award has not been registered (or exempted) under the Securities Act of
1933 and such other state and federal laws, rules or regulations as the
Corporation or the Board deems applicable and, in the opinion of legal
counsel for the Corporation, there is no exemption from the registration
requirements of such laws, rules or regulations available for the issuance
and sale of such shares. No fractional shares of Common Stock shall be
delivered, nor shall any cash in lieu of fractional shares be paid. The
Corporation shall have the right to deduct in connection with all Awards or
Grants any taxes required by law to be withheld and to require any payments
necessary to enable it to satisfy its withholding obligations. The Board
may permit the Holder of an Award or Grant to elect to surrender, or
authorize the Corporation to withhold shares of Common Stock (valued at
their Fair Market Value on the date of surrender or withholding of such
shares) in satisfaction of the Corporation's withholding obligation,
subject to such restrictions as the Board deems necessary to satisfy the
requirements of Rule 16b-3.
(d) No Restriction of Corporate Action. Nothing contained in the Plan
shall be construed to prevent the Corporation or any Parent Corporation or
Subsidiary from taking any corporate action which is deemed by the
Corporation or such Parent Corporation or Subsidiary to be appropriate or
in its best interest, whether or not such action would have an adverse
effect on the Plan or any Award made under the Plan. No employee,
beneficiary or other person shall have any claim against the Corporation or
any Parent Corporation or Subsidiary as a result of such action.
(e) Restrictions on Transfer. An Award shall not be transferable otherwise
than by will or the laws of descent and distribution and shall be
exercisable during the lifetime of the Holder only by such Holder or the
Holder's guardian or legal representative.
(f) Effect of Death, Disability or Termination of Employment. The Option
Agreement or other written instrument evidencing an Award shall specify the
effect of the death, disability or termination of employment of the Holder
on the Award; provided, however that an Optionee shall be entitled to
exercise (i) at least six (6) months from the date of termination of
employment with the Corporation if such termination is caused by death or
disability or (ii) at least thirty (30) days from the date of termination
of employment with the Corporation if such termination is caused by reasons
other than death or disability. The Corporation has no right to repurchase
securities issued under the Plan upon termination of employment of the
Holder.
All outstanding Incentive Stock Options will automatically be converted to
a non-qualified stock option if the Optionee does not exercise the
Incentive Stock Option (i) within three (3) months of the date of
termination caused by reasons other than death or disability; or
(ii) within twelve (12) months of the date of termination caused by
disability.
(g) Information to Employees. Optionees and Grantees under the Plan shall
receive financial statements annually regarding the Corporation during the
period the options are outstanding. The financial statements provided need
not comply with Section 260.613 of the California Code of Regulations.
<PAGE>
(h) Rule 16b-3. It is intended that the Plan and any grant of an Award
made to a person subject to Section 16 of the Exchange Act meet all of the
requirements of Rule 16b-3. If any provisions of the Plan or any such Award
would disqualify the Plan or such Award hereunder, or would otherwise not
comply with Rule 16b-3, such provision or Award shall be construed or
deemed amended to conform to Rule 16b-3.
(i) Governing Law. The Plan shall by construed in accordance with the laws
of the State of New York and all applicable federal law. The securities
issued hereunder shall be governed by and in accordance with the Corporate
Securities Laws of the State of New York.
ADOPTED BY MECHANICAL TECHNOLOGY INCORPORATED's BOARD OF DIRECTORS AS OF
_________ __, 199_.
APPROVED BY THE SHAREHOLDERS AS OF ___________ __, 199__.
<PAGE>
