MTI MICROFUEL CELLS INC.


SECURED CONVERTIBLE PROMISSORY
NOTE
NEGOTIATED CONVERSION AGREEMENT 

     This
Secured Convertible Promissory Note Negotiated Conversion Agreement (this
“Agreement”) is made as of December 9, 2009 (the “Effective Date”) by and among MTI
MicroFuel Cells Inc., a Delaware corporation (the “Company”) and each of the “Purchasers”
listed on Exhibit A attached to this Agreement (each a “Purchaser” and together the
“Purchasers”), and effects the Negotiated Conversion pursuant to Section 2(a)(ii) of
those certain Secured Convertible Promissory Notes, as amended (the
“Notes”),
issued pursuant to that certain Convertible Note and Warrant Purchase Agreement,
dated as of September 18, 2008 and amended February 20, 2009 and April 15, 2009
(the “Purchase Agreement”) between the Company and the Purchasers.

     WHEREAS, the Company has issued Notes
in the aggregate principal amount of $3,556,866, and warrants exercisable for
equity securities of the Company (the “Warrants”), to the Purchasers pursuant
to the Purchase Agreement, which Notes are secured by all of the assets of the
Company in accordance with the provisions of that certain Security Agreement,
dated as of September 18, 2008 and amended February 20, 2009 and April 15, 2009
(the “Security Agreement”) between the Company and the Purchasers;

     WHEREAS, pursuant to Section 2(a)(ii)
of the Notes, all principal and accrued interest outstanding under all of the
Notes shall be converted into equity securities of the Company (“Equity Securities”) based upon a Company
valuation and on such terms to be agreed upon by the Company and the holders of a
majority in interest of the Notes within thirty (30) days following the date
upon which the aggregate principal amount under all the Notes equals or exceeds
$3,500,000, which valuation and terms shall be negotiated in good faith by the
Company and a majority in interest of the Notes (a “Negotiated Conversion”); 

     WHEREAS, the Company and the
Purchasers have agreed upon the terms of the Negotiated Conversion pursuant to
which all principal and accrued interest held by each Purchaser under the
Note(s) held thereby shall be converted into a number of shares of Common Stock
of the Company calculated as follows (the “Negotiated Conversion Calculation”):



	X	   =
        	     	Y	 
	  			Negotiated
      Conversion Price	 




	     	Where:  	  
		  	
      X = the number of shares of
      Common Stock issuable upon conversion of principal and accrued interest outstanding under the Note(s) held by a Purchaser,
      rounded down to the nearest whole share, and with
      each Purchaser waiving cash payment with respect to unissued fractional shares (not to exceed $0.070)
  

		   
		  	Y=the
      aggregate principal and accrued interest outstanding under the Note(s)
      held by a Purchaser 
		   
		  	Negotiated Conversion Price=A/B, rounded to the nearest 1/100 of a
      cent ($0.001)



1 





	                 
    	
      A=$4,644,989 (the deemed
      valuation of the Company, calculated as approximately 75% of the deemed
      valuation of Mechanical Technology Incorporated (“MTI”), based on MTI’s 30
      day average trading price, as of the close of trading on December 4,
      2009)

		    
		
      B=65,558,616 (the number of issued and outstanding shares in the
      Company)  




     NOW,
THEREFORE, in consideration of the mutual
promises contained herein and other good and valuable consideration, receipt of
which is hereby acknowledged, the parties to Agreement agree as follows:


     1. Consummation of
Negotiated Conversion.

          a. Immediately upon the execution of this Agreement by the Company and
Purchasers holding a majority in interest of the Notes, the Negotiated
Conversion of all the outstanding principal and accrued interest under the Notes
shall be consummated in accordance with the terms of the Notes and the
Negotiated Conversion Calculation set forth above, and the Company shall issue
to the Purchasers such number of shares of the Company’s Common Stock as set
forth on Exhibit A attached hereto in full satisfaction of all principal and
accrued interest outstanding under the Notes. 

          b. Upon consummation of the Negotiated Conversion, all Notes shall be
satisfied in full and each Purchaser shall surrender all Notes held thereby,
duly endorsed, at the principal offices of the Company as required pursuant to
Section 2(b) of the Notes. 

          c. As soon as practicable following surrender of a Purchaser’s Note(s), the
Company shall issue and deliver to such Purchaser a certificate or certificates
for the number of shares to which such Purchaser is entitled upon the Negotiated
Conversion. 

          d. Upon consummation of the Negotiated Conversion of the Notes, the Company
will be forever released from all its obligations and liabilities under the
Notes, the Purchase Agreement and the Security Agreement. 

     2. Termination of Security
Interest. Immediately upon the consummation of the Negotiated Conversion, the security interest granted under the Security
Agreement shall terminate and all rights to the Collateral (as defined therein)
shall revert to the Company, and each Purchaser agrees to authenticate and
deliver to the Company such documents as the Company may reasonably request to
evidence such termination. 

     3.
Purchaser
Warrants. Upon consummation of the Negotiated Conversion and in accordance with
Section 1 of the Warrants, the Warrant(s) issued to each Purchaser under the
Purchase Agreement shall be exercisable for up to the number of shares of
Company Common Stock equal to (x) 10% of such Purchaser’s aggregate original
principal amount of the Note(s) issued thereto, divided by (y) the Negotiated
Conversion Price, rounded down to the nearest whole share, at a per share
purchase price equal to the Negotiated Conversion Price per share rounded to the
nearest 1/100 of a cent ($0.001), as set forth on Exhibit A hereto. 

     4.
Company Stockholder Warrants; Waiver of
Adjustment and Notice.
The Company and each of the Purchasers
further agree and acknowledge that, as an incentive for the Company to agree to
the terms of the Negotiated Conversion set forth herein, the Company shall issue
to each current Company stockholder (including MTI), without consideration and
immediately prior to the consummation of the Negotiated Conversion, a warrant
(“Company Warrant”) exercisable after one (1) year for up to 50% of the aggregate number
of shares of Common Stock each such Company stockholder currently holds in the
Company, at $0.070 per share and with a term of seven (7) years, in
substantially the form attached hereto as Exhibit
B. Each Purchaser hereby waives (i) any
adjustments to the number of shares issuable upon exercise of, or exercise price
of, the Warrants held thereby in connection with the issuance of the Company
Warrants, and (ii) any notice requirements under the Warrants with respect to
the issuance of the Company Warrants.

2 




     5. Reattribution of
Company Tax Attributes to MTI. The
Purchasers agree that MTI may, in its sole discretion, for federal (and any
pertinent state) income tax purposes, elect to reattribute from the Company to
MTI the maximum amount of the Company's tax attributes (including net operating
loss carryovers) permitted by Section 1.1502-36(d) of the Treasury Regulations.


     6.
Miscellaneous.

          (a) Governing
Law. This Agreement and all acts and transactions pursuant hereto and the
rights and obligations of the parties hereto shall be governed, construed and
interpreted in accordance with the laws of the State of Delaware, without giving
effect to principles of conflicts of law.

          (b) Counterparts. This Agreement may be executed in two or more counterparts
and by facsimile, each of which shall be deemed an original and all of which
together shall constitute one instrument. 

          (c) Entire
Agreement. This Agreement constitutes the entire agreement between the parties
hereto pertaining to the subject matters hereof and thereof, respectively, and
any and all other written or oral agreements existing between the parties hereto
are expressly canceled. 

[Signature Pages
Follow]

3 




      The
parties have executed this Secured Convertible Promissory Note Negotiated
Conversion Agreement as of the Effective Date.


	COMPANY:  
	 
	MTI MICROFUEL CELLS INC.  
	 
	/s/ PENG K. LIM  	 
	Peng
      K. Lim, Chief Executive Officer  
	 
	PURCHASERS:  
	 
	MECHANICAL TECHNOLOGY INCORPORATED  
	 
	/s/ PENG K. LIM  	 
	Peng
      K. Lim, Chief Executive Officer  
	   
	WALTER L. ROBB  
	 
	/s/ WALTER L. ROBB  	 
	Walter L. Robb  
	  
	COUNTER POINT VENTURES FUND II, LP  
	 
	/s/ WALTER L. ROBB  	 
	Walter L. Robb, General Partner  
	   
	PENG K. LIM   
	 
	/s/ PENG K. LIM  	 
	Signatory Name  
	   
	JAMES K. PRUEITT  
	 
	/s/ JAMES K. PRUEITT  	 
	Signatory Name  
	  
	LISA STERNLICHT  
	 
	/s/ LISA STERNLICHT  	 
	Signatory Name  



4




EXHIBIT A 

NEGOTIATED
CONVERSION 

	Name and
      Address of Purchaser	Aggregate
      Principal and 	Number of
      Shares of	Number of Shares of
		Accrued Interest
      Under 	Company Common
      Stock	Company Common
      Stock
		All Notes Held By
    	Issuable Upon
      Negotiated	Issuable Upon
      Exercise of
		Purchaser* 	Conversion	Warrants
	 	  	 	 
	Dr. Walter L. Robb,
      General Partner	$562,083	8,029,761	50,000
	c/o Vantage
      Management, Inc.			
	3000 Troy
      Schenectady Road			
	Facsimile: (518)
      782-0030			
	 	 	 	 
	Counter Point
      Ventures Fund II, LP	$2,451,422	35,020,317	225,000
	Dr. Walter L. Robb,
      General Partner			
	c/o Vantage
      Management, Inc.			
	3000 Troy
      Schenectady Road			
	Facsimile: (518)
      782-0030			
	 	 	 	 
	Mechanical
      Technology Incorporated	$786,917	11,241,666	70,000
	431 New Karner
      Road			
	Albany, NY
      12205			
	 	 	 	 
	Peng K.
      Lim  	$52,749**	753,558	5,275
	c/o Mechanical
      Technology Inc.			
	431 New Karner
      Road			
	Albany, NY
      12205			
	 	 	 	 
	James K.
      Prueitt	$4,116**	58,806	412
	c/o Mechanical
      Technology Inc.			
	431 New Karner
      Road			
	Albany, NY
      12205			
	 	 	 	 
	Lisa
      Sternlicht	$53,222	760,317	5,000
	 	 	 	 
	 	 	 	 
	TOTAL:	$3,910,510
      	55,864,425
      	355,687
      





    
*Interest accrued through December 8, 2009. 
     **Represents Deferred Salary
converted into Note principal, and accrued interest thereon, net of
taxes.




EXHIBIT B 

FORM OF COMPANY
WARRANT