Via Hand
Delivery

January 16, 2009

Mr. Robert Kot299 Delevan RoadDelanson, New York 12053

Re:Separation Agreement and Release Agreement

Dear Bob:

As we have discussed, your employment with
MTI Instruments Inc. (the Company) will end on January 16, 2009 (the
Termination Date). As we also discussed, you are eligible to receive the
severance benefits described herein if you sign and return this separation
agreement and release agreement (Separation Agreement and Release or the
Agreement) to me by February 6, 2009and do not revoke your acceptance.

|1. | If you sign and return this Separation
      Agreement and Release (including Attachment A) by January 16, 2009, you
      will receive the pay and benefits set forth in subsections af below and
      the terms and conditions set forth in paragraphs 114 of this agreement
      will become applicable and will be in full force and effect. All other
      benefits will cease upon your Termination Date (as defined below) in
      accordance with the plan documents. You acknowledge that other than the
      amounts set forth below, you are entitled to no further payments from the
      Company including any further payments under your employment agreement as
      amended (Employment Agreement) or under any other severance plan or
      agreement. You further acknowledge that you have received payment in full
      for all services rendered in conjunction with your employment by the
      Company, including payment for all wages and unused paid time off, and
      that no other compensation is owed to you except as provided
      herein.
      a. All wages accrued through the Termination Date will be
      paid to you on the next pay period following the Termination Date. Also,
      all unused paid time off accrued through the Termination Date will be paid
      to you on the Companys regular payday immediately following the
      Termination Date. The amount payable to you for unused paid time off
      accrued through the Termination Date will total approximately
      $7,827.
      b. You will be reimbursed for all reasonable and
      documented business expenses within thirty (30) days after you submit
      documentation evidencing such expenses.
      c. You will receive severance payments paid as salary
      continuation for a three month period (13 weeks) following your
      Termination Date for a gross total of $48,750. Payments will be made in
      accordance with the Companys regularly established payroll procedures or,
      at any time, the Company may accelerate and pay any remaining balance in a
      lump sum payment.
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|   | d. Should you elect to continue receiving group
      medical insurance pursuant to the federal COBRA law, 29 U.S.C. § 1161et seq., the Company will, until the earlier of (i) the three month
      anniversary of your Termination Date or (ii) the date on which you cease
      to be eligible for continuation coverage under COBRA, continue to pay its
      regular share of the COBRA continuation payment for health, dental, and
      optical coverage.
      e. You will have ninety (90) days following the
      Termination Date to exercise any vested stock rights you may have, subject
      to any generally applicable changes to the Companys stock options. All
      unvested stock rights will be cancelled on the Termination
Date.
      f. Notwithstanding the foregoing, your non-competition
      obligations under Section 6 of the Proprietary Information, Developments,
      Non-Competition and Non-Solicitation Agreement you executed on March 27,
      2007 (Restrictive Covenant Agreement) will remain effect except that the
      period described in Paragraph 6 of that agreement shall be in effect only
      for a period of three (3) months following your Termination Date, rather
      than the twelve (12) months provided.
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|  
|2. | **Termination Date**- Your effective
      date of termination from the Company is January 16, 2009 (the Termination
      Date).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|  
|3. | **Return of Company
      Property**-You confirm that,
      by the Termination Date, you will have returned to the Company all keys,
      files, records (and copies thereof), equipment, Company identification and
      any other Company-owned property in your possession or control and have
      left intact all electronic Company documents, including but not limited to
      those which you developed or helped to develop during your employment. You
      further confirm that, by the Termination Date, you will have cancelled all
      accounts for your benefit, if any, in the Companys name, including but
      not limited to, credit cards, telephone charge cards, cellular phone
      and/or pager accounts, computer accounts, and subscriptions.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|  
|4. | Non-Disparagement- You understand and agree that, as a
      condition for payment to you of the consideration herein described, you
      shall not make any deliberately false, disparaging or derogatory
      statements to any media outlet, industry group, financial institution or
      current or former employee, consultant, client or customer of the Company
      regarding the Company or any of its directors, officers, employees, agents
      or representatives or about the Companys business affairs and financial
      condition;provided,however, that nothing herein
      shall prevent you from making truthful disclosures to any governmental
      entity or in any litigation or arbitration.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|  
|5. | Amendment- This letter agreement shall be
      binding upon the parties and may not be modified in any manner, except by
      an instrument in writing of concurrent or subsequent date signed by duly
      authorized representatives of the parties hereto. This Separation
      Agreement and Release is binding upon and shall inure to the benefit of
      the parties and their respective agents, assigns, heirs, executors,
      successors and administrators.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|  
|6. | Waiver of Rights- No delay or omission by the Company
      in exercising any right under this Separation Agreement and Release shall
      operate as a waiver of that or any other right. A waiver or consent given
      by the Company on any one occasion shall be effective only in that
      instance and shall not be construed as a bar or waiver of any right on any
      other occasion.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     

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|7.  | Validity- Should any provision of this
      Separation Agreement and Release be declared or be determined by any court
      of competent jurisdiction to be illegal or invalid, the validity of the
      remaining parts, terms or provisions shall not be affected thereby and
      said illegal or invalid part, term or provision shall be deemed not to be
      a part of this letter agreement.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
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|   
|8.  | Confidentiality- To the extent permitted by law, you
      understand and agree that as a condition for payment to you of the
      benefits herein described, the terms and contents of this letter
      agreement, and the contents of the negotiations and discussions resulting
      in this separation agreement and release shall be maintained as
      confidential by you and your agents and representatives and shall not be
      disclosed to any third party except to the extent required by federal or
      state law or as otherwise agreed to in writing by the Company,provided,however, that nothing herein shall prevent you from making
      truthful disclosures to any governmental entity or in any litigation or
      arbitration or from disclosing the terms of this letter agreement in any
      legal action you commence to enforce the terms of this letter
      agreement.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   
|9.  | Nature of Agreement- You understand and agree that nothing
      within this Separation Agreement and Release is intended to or does
      constitute an admission of liability or wrongdoing on the part of the
      Company.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   
|10. | Voluntary Assent- You affirm that no other promises or
      agreements of any kind have been made to or with you by any person or
      entity whatsoever to cause you to sign this Separation Agreement and
      Release and that you fully understand the meaning and intent of its terms.
      You state and represent that you have had an opportunity to fully discuss
      and review the terms of this Separation Agreement and Release including
      Attachment A , with an attorney. You further state and represent that you
      have carefully read this Separation Agreement and Release, including
      Attachment A, understand the contents herein, freely and voluntarily
      assent to all of the terms and conditions hereof, and sign your name of
      your own free act.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   
|11. | Applicable Law- This Agreement shall be interpreted and construed by
      the laws of the State of New York, without regard to conflict of laws
      provisions. Except for violations of the Restrictive Covenant Agreement,
      any dispute arising under, or alleged violation of, this Agreement, and
      any claim, charge, or cause of action by Employee relating to his
      employment, including, but not limited to, claims under Title VII of the
      Civil Rights Act of 1964, the Age Discrimination in Employment Act, the
      Americans with Disabilities Act, the New York Human Rights Law, and any
      other statute prohibiting employment discrimination or dealing with
      employment rights, and any contract or tort claim including any claims
      pursuant to this Agreement, shall be submitted exclusively to arbitration
      under the Employment Dispute Arbitration rules of the American Arbitration
      Association. The Arbitration shall be held in the County of Albany, State
      of New York.The arbitrator shall be chosen by the
      Employment Dispute Arbitration rules of the American Arbitration
      Association. The decision of the arbitrator shall be final and binding. In
      construing or applying this Agreement, the arbitrators jurisdiction shall
      be limited to interpretation or application of this Agreement; the
      arbitrator shall not have the power to add to, to delete, or modify any
      provision of this Agreement. Each party shall bear his or its own expenses
      in arbitration, except that the parties shall share the costs of the
      arbitrator equally.

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|12. | Entire Agreement- This Agreement contains and
      constitutes the entire understanding and agreement between you and the
      Company with respect to your separation from employment and cancels all
      previous oral and written negotiations, agreements, commitments and
      writings in connection therewith other than as provided
  herein.                                                                                                                                                                                                                    
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|   
|13. | Tax Acknowledgement- In connection with the payments and consideration
      provided to you pursuant to this Agreement, the Company shall withhold and
      remit to the tax authorities the amounts required under applicable law,
      and you shall be responsible for all applicable taxes with respect to such
      payments and consideration under applicable law.You
      acknowledge that you are not relying upon the advice or representation of
      the Company with respect to the tax treatment of any of the payments set
      forth in this Agreement.
|   
|14. | Section
      409A.The payments under this Agreement are intended to be
      exempt from, the provisions of Section 409A of the Internal Revenue Code
      of 1986 and this Agreement shall be administered and construed
      accordingly.                                                                                                                                                                                                                                                                                                                                

If you have any questions about the
matters covered in this letter agreement, please call me at (518)
391-4917.

| | Very truly yours,
      Mechanical Technology
      Incorporated
| | ----------------------------------------------------------------
| |                                                                 
| | By:                                                             
| |                                                                 

I hereby agree to the terms and conditions
set forth above and in Attachment A. I intend that this Agreement become a
binding agreement between the Company and me.

|/s/ Robert Kot |  | Date | 1/16/09 | 
|-------------- |  | ---- | ------- | 
|Robert Kot     |  |      |        

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ATTACHMENT
A

This Attachment A is attached to and made
a part thereof of the Agreement between you and Mechanical Technology,
Incorporated(the Company) dated as of January 16, 2008.

|1. | **Release** -In consideration of the payment of the above-described
      severance benefits, which you acknowledge you would not otherwise be
      entitled to receive, you hereby fully, forever, irrevocably and
      unconditionally release, remise and discharge the Company, its officers,
      directors, stockholders, corporate affiliates, subsidiaries, parent
      companies, agents and employees (each in their individual and corporate
      capacities) (hereinafter, the Released Parties) from any and all claims,
      charges, complaints, demands, actions, causes of action, suits, rights,
      debts, sums of money, costs, accounts, reckonings, covenants, contracts,
      agreements, promises, doings, omissions, damages, executions, obligations,
      liabilities, and expenses (including attorneys fees and costs), of every
      kind and nature that you ever had or now have against the Released
      Parties, including, but not limited to, any and all claims arising out of
      or relating to your employment with and/or separation from the Company,
      including, but not limited to, all claims under Title VII of the Civil
      Rights Act of 1964, 42 U.S.C. § 2000e et seq., the Americans
      With Disabilities Act of 1990, 42 U.S.C. § 12101 et seq.,
      the Age Discrimination in Employment Act, 29 U.S.C. § 621 et
      seq., the Family and Medical Leave Act, 29 U.S.C. § 2601 et
      seq., the Worker Adjustment and Retraining Notification Act
      (WARN), 29 U.S.C. § 2101 et seq., Section 806 of the
      Corporate and Criminal Fraud Accountability Act of 2002, 18 U.S.C.
      1514(A), the Rehabilitation Act of 1973, 29 U.S.C. § 701 et
      seq., the Fair Credit Reporting Act, 15 U.S.C. § 1681 et
      seq., the Employee Retirement Income Security Act of 1974
      (ERISA), 29 U.S.C. § 1001 et seq., Executive Order 11246,
      and Executive Order 11141, all as amended; all claims under the New York
      Human Rights Law, N.Y. Exec. Law § 290 et seq., N.Y. Civ.
      Rights Law § 40-c et seq.(New York anti-discrimination
      law), the New York Equal Pay Law, N.Y. Lab. Law § 194 et
      seq., and the New York Whistleblower Law, N.Y. Lab. Law § 740, all
      as amended; all common law claims including, but not limited to, actions
      in defamation, intentional infliction of emotional distress,
      misrepresentation, fraud, wrongful discharge, and breach of contract
      (including, without limitation, all claims pursuant to the Employment
      Agreement); all claims to any non-vested ownership interest in the
      Company, contractual or otherwise; and any claim or damage arising out of
      your employment with and/or separation from the Company (including a claim
      for retaliation) under any common law theory or any federal, state or
      local statute or ordinance not expressly referenced above; provided,
      however, that nothing in this letter agreement prevents you from filing a
      charge with, cooperating with, or participating in any proceeding before
      the Equal Employment Opportunity Commission or a state fair employment
      practices agency (except that you acknowledge that you may not be able to
      recover any monetary benefits in connection with any such claim, charge or
      proceeding).
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|   | The Company agrees that you are
      not releasing any claims you may have for indemnification under state or
      other law or the charter, articles, or by-laws of the Company and its
      affiliated companies, or under any indemnification agreement with the
      Company or under any insurance policy providing directors and officers
      coverage for any lawsuit or claim relating to the period when you were a
      director or officer of the Company or any affiliated company; provided,
      however, that (i) the Companys execution of this Agreement is not a
      concession or guaranty that you have any such rights to indemnification,
      (ii) this Agreement does not create any additional rights to
      indemnification, and (iii) the Company retains any defenses it may have to
      such indemnification or coverage.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
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|  
|2. | **Acknowledgments** -You acknowledge that you have been given at least twenty one (21)
      days to consider your release and that the Company advised you to consult
      with an attorney of your own choosing prior to signing this document. You
      understand that you may revoke this release for a period of seven (7) days
      after you sign it, and this release shall not be effective or enforceable
      until the expiration of this seven (7) day revocation period. You
      understand and agree that by entering into this release you are waiving
      any and all rights or claims you might have under The Age Discrimination
      in Employment Act, as amended by The Older Workers Benefit Protection Act,
      and that you have received consideration beyond that to which you were
      previously entitled. You affirm that no other promises or agreements of
      any kind have been made to or with you by any person or entity whatsoever
      to cause you to sign this Release, and that you fully understand the
      meaning and intent of this Release. You further state and represent that
      you have carefully read this Release, understand the contents herein,
      freely and voluntarily assent to all of the terms and conditions hereof,
      and sign your name of your own free act.

I hereby agree to the terms and conditions
set forth in the above Release. I have been given at least twenty one (21) days
to consider this Release and I have chosen to execute this on the date below. I
intend that this Release will become a binding agreement between the Company and
me if I do not revoke my acceptance in seven (7) days.

|/s/ Robert Kot   |  |  | Date | 1/16/09 | 
|---------------- |  |  | ---- | ------- | 
|Robert
      Kot |  |  |     

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