Document:

December 31, 2008 

Mr. Robert Kot
299 Delevan
Road
Delanson, NY 12053 

Re:     Amendment to MTII VP & GM Employment Letter 

Dear Bob: 

This letter amends and restates our
agreement, dated March 27, 2007, with respect to your employment with MTI
Instruments, Inc. (“MTII” or “Company”) as Vice President and General Manager of
MTII, and is intended to comply with Section 409A of the Internal Revenue Code,
as amended, and the final Treasury Regulations promulgated thereunder (“Section
409A”). The terms of your employment agreement, as amended and restated,
effective December 31, 2008, are set forth below: 

1. Base
Salary. Your base salary will be at the rate
of $195,000 per year, less all applicable taxes and withholdings. 

2. Bonus. You will be eligible to receive
an annual bonus of $30,000 per calendar year if the Compensation Committee
determines in its sole discretion, after the annual audit is completed, that
MTII has achieved its annual revenue and profit goals, with the amount increased
to $40,000 if those goals were exceeded by at least 10%. You must be an active
employee of MTII on the date any bonus is distributed in order to be eligible
for and to earn any bonus. Nothing in this section is intended to prevent the
Compensation Committee of MTI from granting you a discretionary bonus.

3. Stock
Options. On December 23, 2007, the
Compensation Committee of MTI awarded you a grant of options for 75,000 shares
of MTI common stock, pursuant to the Company’s 2006 Equity Incentive Plan, all
options having a 7 year term, subject to the terms of the option plan and option
agreement and the following vesting terms: a) options for 25,000 shares vested
immediately; b) options for 35,000 shares shall vest as to 8,750 shares on the
first anniversary of the grant date, then vest on each quarterly anniversary
thereafter (i.e., beginning March 2009) if the Compensation Committee of the MTI Board
determines that MTII met its 2008 annual revenue and profits goals; c) options
for 15,000 shares shall vest as to 3,750 shares on the first anniversary of the
grant date then vest each quarterly anniversary thereafter (i.e., beginning March 2009)
if the Compensation Committee of the MTI Board determines that MTII exceeded its
2008 annual revenue and profits goals by at least 10%. The options were priced
based on the closing price of the Company’s stock on the NASDAQ Global Market
System on December 21, 2007 of $0.79 (pre-8-for-1 split). 

1 

The Compensation Committee of MTI may
grant you options at their discretion in the future. 

4. Other
Benefits. You may participate in any and all
benefit programs that MTII makes available to employees and officers of MTII
from time to time, including MTII’s 401(k) plan and health insurance plan.
Benefits are subject to change at any time in MTII’s sole discretion. You will
be eligible for 23 days of paid time off (“PTO”) annually, which shall accrue
based upon MTII regular PTO procedures. 

5. At-Will Employment. This letter shall
not be construed as an agreement, either express or implied, to employ you for
any stated term, and shall in no way alter MTII’s policy of employment at-will,
under which both MTII and you remain free to end the employment relationship for
any reason, at any time, with or without notice. Similarly, nothing in this
letter shall be construed as an agreement, either express or implied, to pay you
any compensation or grant you any benefit beyond the end of your employment with
MTII, except as otherwise provided herein.

6. Termination of Employment. If MTII
terminates your employment without “cause” (as
defined below), MTII shall, for four months following your date of termination:
(i) continue to pay to you your base salary at the rate in effect at the time of
your termination, in accordance with MTII’s regularly established payroll
procedure; and (ii) provided you elect to continue receiving group medical
insurance pursuant to the federal “COBRA” law, 29 U.S.C. § 1161 et. seq., continue to pay
the share of the premium for health coverage that is paid by MTII for active and
similarly situated employees who receive the same type of coverage. It is
intended that these COBRA payments are exempt from Section 409A. For purposes of
this agreement, “cause” shall mean (i) a finding by the Board of Directors that
you have engaged in gross misconduct, negligence, theft, dishonesty, fraud, or
gross dereliction of duties; or (ii) your indictment on any felony charge or a
misdemeanor charge involving theft, moral turpitude or a violation of the
federal securities laws (whether or not related to your conduct at work).

As a condition to your receipt of these
severance benefits, you must execute, return to the Company and not revoke a
severance agreement and release in a form acceptable to MTII within 60 days of
your termination (the “Release Deadline”). Such payments shall be paid in equal
installments on each regular pay cycle commencing, if such payments are exempt
from Section 409A pursuant to Treasury Regulation Section 1.409A-1(b)(9)(iii),
on the date the Release is effective, with the first such payment including the
amount due from the date of termination. For purposes of this agreement, your
termination of employment shall mean your “separation from service” (within the
meaning of Section 409A). 

7. Section 409A Delay: Each payment
hereunder subject to Section 409A will be considered a separate payment for
purposes of Section 409A. To the extent that it is determined by the Company in
good faith that all or a portion of any payments hereunder subject to Section
409A made in connection with your separation from service are not exempt from
Section 409A and that you are a “specified employee” (within the meaning of
Section 409A) at the time of your separation from service, then payment of such
non-exempt payments shall not be made until the date that is 6 months and one
day after your separation from service (or, if earlier, your death), with any
payments that are required to be delayed being accumulated during the 6 month
period and paid in a lump sum on the date that is 6 months and one day following
your separation from service and any subsequent payments, if any, being paid in
accordance with the dates and terms set forth herein.

2 

8. Proprietary Information, Developments, Non-Competition and
Non-Solicitation Agreement. During the course of your employment you will be exposed to,
and be responsible for developing, trade secrets and confidential information of
the Company. Therefore, as a condition of your employment, you are required to
continue to comply with the Proprietary Information, Developments,
Non-Competition and Non-Solicitation Agreement (the “Non-Competition/Proprietary
Information Agreement”), dated and executed by you on March 27, 2007, which is
incorporated by reference in its entirety. 

9. Representations. You represent that
you are not bound by any employment contract, restrictive covenant or other
restriction preventing you from continuing employment with or carrying out your
responsibilities for MTII, or that is in any way inconsistent with the terms of
this letter agreement. 

10. Amendments. Any amendment to this
letter agreement shall be made in writing and signed by the parties hereto.

11. Applicable Law. This letter agreement
shall be governed by and construed in accordance with the laws of the State of
New York (without reference to the conflict of laws provisions thereof). Any
action, suit or other legal proceeding arising under or relating to any
provision of this Agreement shall be commenced only in a court of the State of
New York (or, if appropriate, a federal court located within the State of New
York), and MTII and you each consents to the jurisdiction of such a court. MTII
and you each hereby irrevocably waives any right to a trial by jury in any
action, suit or other legal proceeding arising under or relating to any
provision of this letter agreement. 

12. Miscellaneous. You agree to devote
your full business time, energy, loyalty, efforts and attention to the business
and affairs of MTII. The provisions of any other agreement (other than any offer
letter and the agreement amended and restated by this agreement) between you and
MTII or any of its affiliates, including, but not limited to, any
non-competition agreement, shall continue to be effective in accordance with the
terms of any such agreement.

13. Section 409A. This letter is intended
to comply with the provisions of Section 409A and the letter shall, to the
extent practicable, be construed in accordance therewith. Notwithstanding
anything stated herein to the contrary, each of the salary continuation payments
provided in connection with your involuntary termination (not in connection with
a termination of your employment by reason of death or disability) is intended
to be exempt from Section 409A pursuant to Treasury Regulation Section 1.409A-1(b)(9)(iii) and to the extent it is exempt pursuant to such section, it will
in any event be paid no later than the last day of your second (2nd) taxable
year following the taxable year in which your involuntary termination has
occurred. Terms defined in the letter shall have the meanings given such terms
under Section 409A if and to the extent required in order to comply with Section
409A. Notwithstanding the foregoing, to the extent that the letter or any
payment or benefit hereunder shall be deemed not to comply with Section 409A,
then neither the Company or the Board of Directors, nor its or their designees
or agents, shall be liable to you or any other person for any actions, decisions
or determinations made in good faith.  

[Signature Page Follows]

3 

     If the
foregoing is acceptable to you, please countersign this letter in the space
provided below and return it to me. 

Sincerely, 

MTI INSTRUMENTS, INC. 

	/s/
      Peng K. Lim 	
	
      Peng K. Lim
President and Chief
      Executive Officer
	

	Agreed and
      Accepted by:  	/s/ Robert Kot
      	 on  	12/31/08 
	  	Robert
      Kot 	  	(Date)
    

4Via Hand
Delivery 

January 16, 2009 

Mr. Robert Kot
299 Delevan Road

Delanson, 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, 2009
and 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.

	 	
      d. Should you elect to continue receiving group
      medical insurance pursuant to the federal “COBRA” law, 29 U.S.C. § 1161
      et 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.

	 
	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.

- 2 - 

	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.
	 
	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.

- 3 - 

	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.
	 
	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: 
	/s/
      Peng K. Lim	 
			
      Peng K. Lim
Chairman and Chief
      Executive Officer 

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 			 

- 4 - 

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).

	 	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.
	 
	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 			 

- 6 -

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