On December 30, 2005, Mechanical Technology Incorporated (MTI) issued options (the "Options") to acquire 1,021,213 shares of MTI common stock, par value $0.01 per share, to certain employees, officers and directors of MTI and MTI MicroFuel Cells Inc. (MTI Micro)(the "Optionees"). The Options have an exercise price per share of $2.80 based on the closing price of the Company's stock on the NASDAQ National Market System on December 30, 2005. MTI issued the Options pursuant to the exchange offer described below, whereby Optionees received the Options in replacement of options (the "MTI Micro Options") held by the Optionees to acquire an aggregate of 2,392,947 shares of common stock, par value $0.01 per share, of MTI Micro. MTI Micro is a majority-owned subsidiary of MTI. Certain Optionees' names and titles, as well as the number of Options received, are set forth below. MTI issued the Options pursuant to MTI's 1999 Employee Stock Incentive Plan and the shares of common stock underlying such options are registered pursuant to an effective Form S-8 that was previously filed with the SEC.

Number of Number of Options MTI Micro Issued on Options Individual Title 12/30/05 ExchangedWilliam P. Acker CEO - MTI Micro 200,060 650,243Juan J. Becerra VP Market & Business 50,000 100,001 Development - MTI MicroDale W. Church Director - MTI & MTI Micro 48,333 96,667Edward A. Dohring Director - MTI & MTI Micro 8,333 16,667Steven N. Fischer Chairman & CEO - MTI 23,333 46,667Shimshon Gottesfeld VP & CTO - MTI Micro 95,161 230,645Russel H. Marvin VP Engineering - MTI Micro 78,250 163,000E. Dennis O'Connor Director - MTI & MTI Micro 8,333 16,667Walter L. Robb Director - MTI & MTI Micro 8,333 16,667Cynthia A. Scheuer VP, CFO & Secretary - MTI 13,333 26,667
In accordance with the terms and subject to the conditions of the voluntary exchange offer, each Option is exercisable for one share of MTI common stock. The exchange rate was one Option for each two MTI Micro Options, rounded down to the nearest whole Option, or if an individual had an MTI Micro Option balance in excess of 150,000 options, then at a rate of one Option for each four MTI Micro Options in excess of 150,000 options. Each replacement Option will have a vesting schedule that is the same or no more favorable than the replaced MTI Micro Option, and will have the same expiration date as the corresponding canceled and replaced MTI Micro Option. The exchange offer resulted in MTI maintaining an 89% ownership in its subsidiary MTI Micro. If MTI Micro Options exchanged by this offer had been in the money and exercised then MTI's ownership of MTI Micro could have been reduced to 78%. As part of the exchange offer, MTI issued options to acquire MTI common stock with a dilution impact to shareholders of 3%. There are 88,503 remaining MTI Micro Options outstanding as of December 31, 2005. The exchange offer expired on December 27, 2005.