AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 7, 1998
REGISTRATION NO. 333-
===========================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-1
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
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CLEAN DIESEL TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 5169 06-1393453
(State or other (Primary Standard (I.R.S. Employer
jurisdiction of Industrial Identification Number)
incorporation or Classification Code
organization) Number)
300 ATLANTIC STREET, SUITE 702
STAMFORD, CT 06901-3522
(203) 327-7050
(Address, including zip code, and telephone number, including area
code, of registrant's principal executive offices)
CHARLES W. GRINNELL, ESQ.
HUTH & GRINNELL, LLC
1055 WASHINGTON BLVD.
STAMFORD, CT 06901
(Name, address, including zip code, and telephone number, including area
code, of registrant's agent for service)
PLEASE SEND COPIES OF ALL COMMUNICATIONS TO:
KENNETH ROSH, ESQ.
FRIED, FRANK, HARRIS, SHRIVER & JACOBSON
ONE NEW YORK PLAZA
NEW YORK, NY 10004
(212) 859-8000
Approximate date of commencement of proposed sale to public: As soon as
practicable after the effective date of this Registration Statement.
--------------------
If any of the securities being registered on this form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities
Act of 1933, check the following box. |X|
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. |_|
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. |_|
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. |_|
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. |_|
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<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
==========================================================================================================================
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED PER SHARE (FN1) OFFERING PRICE (FN1) REGISTRATION FEE
- --------------------------------------------- ---------------- ------------------- ------------------- -------------------
<S> <C> <C> <C> <C>
Rights to purchase shares of Series B
Convertible Preferred Stock, par value
$0.05 per share.............................. 50,000 -- -- -- (FN2)
- --------------------------------------------- ---------------- ------------------- ------------------- -------------------
Series B Convertible Preferred Stock, par
value $0.05 per share........................ 50,000 $74.25 $3,712,500 $1,095.19
- --------------------------------------------- ---------------- ------------------- ------------------- -------------------
Common Shares, par value $0.05 per share..... 1,650,000 -- -- -- (FN3)
==========================================================================================================================
<FN>
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457.
(2) Pursuant to Rule 457(g), no registration fee is payable with respect
to the Rights since the Rights are being registered in the same
registration statement as the securities to be offered pursuant
thereto.
(3) Pursuant to Rule 457(i), no registration fee is payable with respect
to the Common Shares since the Common Shares are being registered in
the same registration statement as the securities which are
convertible, for no additional consideration, into the Common Shares.
</FN>
</TABLE>
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION
STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
===========================================================================
SUBJECT TO COMPLETION, DATED ______________, 1998
PROSPECTUS
CLEAN DIESEL TECHNOLOGIES, INC.
50,000 RIGHTS TO ACQUIRE SHARES OF SERIES B CONVERTIBLE PREFERRED STOCK
50,000 SHARES OF SERIES B CONVERTIBLE PREFERRED STOCK
1,650,000 SHARES OF COMMON STOCK
--------------------
Clean Diesel Technologies, Inc., a Delaware corporation (the
"Company"), is distributing to holders (the "Holders") of the Company's
outstanding common shares, par value $0.05 per share (the "Common Shares")
of record at the close of business on __________, 1998 (the "Record Date")
transferable rights (the "Rights") to subscribe (the "Basic Subscription
Privilege") for and purchase an aggregate of up to 50,000 shares of the
Company's Series B Convertible Preferred Stock, par value $0.05 per share
(the "Series B Preferred Stock" and with respect to the Series B Preferred
Stock underlying the Rights, the "Offering Shares"). The Rights will expire
at 5:00 p.m., Eastern Standard Time, on _______ ___, 1998, unless extended
as described herein (the "Expiration Date"). The term "Rights Offering" or
"Offering" includes the distribution of the Rights and the issuances of the
Offering Shares upon the exercise of the Rights.
A Holder will receive the Right to purchase one share of Series B
Preferred Stock for each 50 Common Shares held on the Record Date (the
"Underlying Shares"); provided, however, that Rights will not be
distributed to Holders who reside in jurisdictions where the securities
offered hereby (the "Securities") have not been registered or where an
exemption from registration is not available, as described more fully
below. Each Right will entitle the Holder to purchase one share of Series B
Preferred Stock for $_____ per share (the "Subscription Price"), and each
share of Series B Preferred Stock will be immediately convertible, at no
cost to the Holder thereof, into 33 Common Shares. No fractional Rights or
cash in lieu thereof will be distributed or paid by the Company. The number
of Rights distributed will be rounded down to the nearest whole number. The
Rights will be evidenced by transferable certificates; provided, however,
that the Oversubscription Privilege (as defined below) is not transferable
and transferees of Rights in jurisdictions where the Securities have not
been registered or where an exemption from registration is not available
may not exercise the rights.
Cover continued on following page.
THE RIGHTS WILL ONLY BE GRANTED TO, AND MAY ONLY BE EXERCISED BY,
INVESTORS RESIDING IN THE FOLLOWING JURISDICTIONS WHERE THE SECURITIES
OFFERED HEREBY HAVE BEEN REGISTERED WITH THE APPROPRIATE SECURITIES
REGULATORY AUTHORITIES OR WHERE AN EXEMPTION FROM SUCH REGISTRATION IS
AVAILABLE: OUTSIDE THE UNITED STATES AND IN COLORADO, CONNECTICUT, THE
DISTRICT OF COLUMBIA, ILLINOIS, INDIANA, IOWA, KANSAS, MAINE, MARYLAND,
MASSACHUSETTS, NEVADA, NEW JERSEY, NEW YORK, NORTH CAROLINA, RHODE ISLAND,
VERMONT, VIRGINIA AND WASHINGTON. RIGHTS WILL NOT BE DISTRIBUTED TO HOLDERS
WHO RESIDE IN STATES WHERE THE SECURITIES OFFERED HEREBY HAVE NOT BEEN
REGISTERED OR WHERE AN EXEMPTION FROM REGISTRATION IS NOT AVAILABLE. IN
ADDITION, THE SERIES B PREFERRED STOCK MAY NOT BE TRANSFERRED TO RESIDENTS
OF ANY OF THE FOLLOWING STATES: ARIZONA, FLORIDA, GEORGIA, OHIO,
PENNSYLVANIA OR TEXAS.
--------------------
ONCE A HOLDER HAS EXERCISED ANY RIGHTS, SUCH EXERCISE MAY NOT BE
REVOKED. PRIOR TO DECIDING TO EXERCISE OR SELL RIGHTS, ANY POTENTIAL
INVESTORS SHOULD CAREFULLY CONSIDER THE FACTORS SET FORTH BELOW UNDER "RISK
FACTORS" BEGINNING ON PAGE 13 IN ADDITION TO THE OTHER INFORMATION SET
FORTH IN THIS PROSPECTUS.
--------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR
HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
- ---------------------------------------------------------------------------
Price to Proceeds to
Public Company (FN1)
- ---------------------------------------------------------------------------
Per Share................... $ -- $ --
- ---------------------------------------------------------------------------
Total Minimum............... $ __________________ $ _________________
- ---------------------------------------------------------------------------
Maximum............ $ __________________ $ _________________
- ---------------------------------------------------------------------------
(1) Before offering and subscription expenses.
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DELIVERY OF THE CERTIFICATES REPRESENTING THE RIGHTS IS EXPECTED TO BE MADE
ON OR ABOUT ____ _, 1998.
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THE DATE OF THIS PROSPECTUS IS __________, 1998
[RED HERRING]
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor
may offers to buy be accepted prior to the time the registration statement
becomes effective. This prospectus shall not constitute an offer to sell or
the solicitation of an offer to buy nor shall there be any sale of these
securities in any State in which such offer, solicitation or sale would be
unlawful prior to registration or qualification under the securities laws
of any such State.
Each Holder may also subscribe ("the Oversubscription Privilege") at
the Subscription Price for some or all of the additional Offering Shares
available after satisfaction of all subscriptions pursuant to the Basic
Subscription Privilege. The Oversubscription Privilege is not transferable.
A Holder of Rights may, at the time of exercise of the Basic Subscription
Privilege, exercise the Oversubscription Privilege for up to an aggregate
of 50,000 Offering Shares (the "Maximum Offering Shares") minus the
Offering Shares subscribed for by such Holder pursuant to the Basic
Subscription privileges. If an insufficient number of Offering Shares is
available to satisfy fully all elections to exercise the Oversubscription
Privilege, then the available Offering Shares will be allocated among the
Holders exercising their Oversubscription Privilege such that each such
Holder will be entitled to receive a number of Offering Shares which is
equal to the number of Offering Shares subscribed to by such Holder
pursuant to the Oversubscription Privilege multiplied by a fraction, the
numerator of which is the number of the then available Offering Shares and
the denominator of which is the aggregate number of Offering Shares
subscribed to pursuant to the Oversubscription Privilege. If a proration of
the Offering Shares results in a Holder receiving fewer Offering Shares
than such Holder subscribed for pursuant to the Oversubscription Privilege,
then any excess funds paid by the Holder as the Subscription Price for
shares not issued will be returned by the Subscription Agent without
interest or deduction.
The Company shall terminate the Rights Offering if on the Expiration
Date the Company receives aggregate cash proceeds of less than $2.0 million
from the exercise of Rights. On June 30, 1998, the last day on which the
Company's Common Shares were listed on the Nasdaq National Market
("Nasdaq"), the average of the high and low sales prices of the Common
Shares was $1.75 per share. As of July 1, 1998, the Company's Common Shares
are no longer listed and traded on Nasdaq but currently trade on the OTC
Electronic Bulletin Board, although no assurances can be given that such
shares will continue to trade thereon or in the over-the-counter market, in
what are commonly referred to as the "pink sheets." As of August 4, 1998,
the last sale price for the Common Shares as reported by the OTC Electronic
Bulletin Board was $1.88 per Common Share. Neither the Rights nor the
Series B Preferred Stock will be listed on an exchange.
The Company shall pay broker-dealers fees for their soliciting efforts
(the "Soliciting Fees") of ten percent of the Subscription Price paid for
each Right which is subscribed; provided that such fees will only be paid
in respect of Rights exercised in those jurisdictions described under "PLAN
OF DISTRIBUTION -- Distribution Arrangements." The Soliciting Fees will be
paid directly to the broker-dealer designated on the applicable portion of
the Rights Certificate. Soliciting fees will not be paid on any
undesignated exercises of Rights.
AN INVESTMENT IN THE SECURITIES OFFERED HEREBY IS SPECULATIVE IN
NATURE AND INVOLVES A HIGH DEGREE OF RISK. AN INVESTMENT IN THE SECURITIES
SHOULD NOT BE MADE BY AN INVESTOR WHO CANNOT AFFORD THE LOSS OF HIS OR HER
ENTIRE INVESTMENT.
THE DISTRIBUTION OF THIS PROSPECTUS AND THE OFFERING OF THE SECURITIES
IN CERTAIN JURISDICTIONS MAY BE RESTRICTED BY LAW. NO ACTION HAS BEEN TAKEN
BY THE COMPANY THAT WOULD PERMIT AN OFFERING OF THE SECURITIES OR THE
CIRCULATION OR DISTRIBUTION OF THIS PROSPECTUS OR ANY OFFERING MATERIAL IN
RELATION TO THE COMPANY OR THE SECURITIES IN ANY COUNTRY OUTSIDE THE UNITED
STATES WHERE ACTION FOR THAT PURPOSE IS REQUIRED.
--------------------
THIS PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS WITHIN THE MEANING
OF SECTION 27A OF THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"). DISCUSSION CONTAINING SUCH FORWARD-LOOKING STATEMENTS WILL BE FOUND
IN THE MATERIAL SET FORTH UNDER "PROSPECTUS SUMMARY," "RISK FACTORS," "USE
OF PROCEEDS," "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS" AND "BUSINESS," AS WELL AS WITHIN THE PROSPECTUS
GENERALLY. ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE PROJECTED IN
THE FORWARD-LOOKING STATEMENTS AS A RESULT OF THE RISK FACTORS SET FORTH
UNDER "RISK FACTORS" AND THE MATTERS SET FORTH IN THIS PROSPECTUS
GENERALLY. THE COMPANY CAUTIONS THE READER, HOWEVER, THAT THIS LIST OF
FACTORS MAY NOT BE EXHAUSTIVE.
--------------------
AVAILABLE INFORMATION
The Company currently reports under the Securities Exchange Act of
1934, as amended (the "Exchange Act"), and, in accordance therewith, files
reports and other information with the Securities and Exchange Commission
(the "Commission"). Such reports and other information can be inspected and
copied at the public reference facilities maintained by the Commission at:
Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549;
Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661; and Seven World Trade Center, 13th Floor, New York, New
York 10048. Copies of such material also can be obtained from the Public
Reference Section of the Commission, at Judiciary Plaza, 450 Fifth Street,
N.W., Washington, D.C. 20549, at prescribed rates. The Commission maintains
a web site that contains reports, proxy and information statements and
other information regarding registrants that file electronically with the
Commission. The address of such site is http://www.sec.gov. In addition,
through June 30, 1998, the Company's Common Shares were listed and traded
on Nasdaq under the symbol "CDTI", but as of July 1, 1998 were delisted
therefrom. Reports and other information, including proxy and information
statements, for periods during which the Common Shares were listed on
Nasdaq can be inspected and copies can be made at the offices of the
National Association of Securities Dealers, Inc. (the "NASD"), 1735 K
Street, N.W., Washington, D.C. 20006.
The Company has filed with the Commission, 450 Fifth Street, N.W.,
Washington, D.C. 20549, a Registration Statement on Form S-1 (the
"Registration Statement") under the Securities Act, with respect to the
Securities offered hereby. This Prospectus does not contain all the
information set forth in the Registration Statement and the exhibits
thereto, as permitted by the Rules and Regulations of the Commission. For
further information, reference is made to the Registration Statement and to
the exhibits filed therewith. Statements contained in this Prospectus as to
the contents of any contract or other document which has been filed as an
exhibit to the Registration Statement are qualified in all respects by
reference to such exhibits for a complete statement of their terms and
conditions. The Registration Statement and exhibits may be inspected
without charge and copied upon payment of prescribed fees at the public
reference facilities maintained by the Commission at the address set forth
above.
The Company intends to furnish the Holders of the Company's Common
Shares with annual reports containing financial statements audited by an
independent public accounting firm and, in addition to filing quarterly
reports on Form 10-Q with the Commission, the Company will issue press
releases containing summary financial information for each of the first
three fiscal quarters of each fiscal year.
PROSPECTUS SUMMARY
The following summary is provided for convenience only and is not
intended to be complete. It is qualified in its entirety by and should be
read in conjunction with the more detailed information and Financial
Statements (including the Notes thereto) appearing elsewhere in this
Prospectus. For purposes of this document, (i) "minimum subscription"
assumes the exercise in cash of a sufficient number of Holders such that
the aggregate cash proceeds to the Company equal $2.0 million and (ii)
"full subscription" assumes the purchase of all of the Offering Shares
offered hereby, including the exercise in cash of the Oversubscription
Privilege by certain Holders to compensate for those Holders who do not
exercise the Basic Subscription in full.
THE COMPANY
GENERAL
The Company, a Delaware corporation with a principal place of business
at 300 Atlantic Street, Stamford, Connecticut 06901, is a development-stage
specialty chemical company supplying advanced catalytic fuel additives and
systems that reduce harmful emissions from internal combustion engines
while improving fuel economy. The Company's two main technology areas are
Platinum Fuel Catalysts ("PFCs") for emission control and fuel economy
improvement in diesel- and gasoline-fueled engines, and nitrogen oxide
("NOx") reduction systems and chemicals for control of NOx emissions from
diesel engines.
BACKGROUND
The Company was formed in 1994 as a wholly owned subsidiary of
Fuel-Tech N.V. ("Fuel Tech"), which had conducted fundamental work
regarding the Company's technologies. The Company was spun off by Fuel Tech
in a rights offering in December 1995 (the "1995 Rights Offering"), and
Fuel Tech currently owns 27.4% of the Company's outstanding Common Shares.
The Company raised net proceeds of approximately $10.5 million in the 1995
Rights Offering which, following the repayment of $2.3 million of
intercompany loans to Fuel Tech, was sufficient to fund the Company's
operations through May of 1998. The Company has since funded its operations
through the net proceeds received in connection with the issuance of bridge
loan notes (the "Bridge Loan Notes") issued to Fuel Tech and certain other
lenders.
At its inception, the Company had a limited number of patents for PFCs
licensed from Fuel Tech and limited testing results of PFCs. The Company
currently has 12 U.S. and 38 International patents on PFCs and NOx
reduction systems and has another 83 U.S. and International applications
pending. In addition, the Company has completed successful testing of a
diesel fuel PFC additive, launched the marketing of a PFC used to
rejuvenate aged catalytic converters in Europe, and developed the Advanced
Reagent Injection System ("ARIS(TM) 2000") for use in catalytic NOx
reduction systems.
BUSINESS STRATEGY
The Company's strategic objective is to become a leading developer and
supplier of (i) PFCs for emission control and fuel economy improvement in
diesel- and gasoline-fueled engines and (ii) NOx reduction systems and
chemicals for control of NOx emissions from diesel engines. Key elements of
the Company's strategy include the following:
DEVELOPING MARKETS FOR PFCS AS A DIESEL FUEL ADDITIVE
The Company has successfully concluded a study at Delft Technical
University in the Netherlands concerning the emission reduction effects of
PFCs used with ceramic filters for reduction in particulate emission. The
Company has also demonstrated improved emission reduction and increased
fuel economy from the use of PFCs without ceramic filters in separate
programs at Ricardo Consulting Engineers Ltd. ("Ricardo") and Cummins
Engine Co. ("Cummins"). The Company seeks to capitalize on these test
results, coupled with the increased regulation of emissions, by developing
a market for PFCs in the U.S. and abroad.
DEVELOPING MARKETS FOR PFCS AS A GASOLINE ADDITIVE
The Company seeks to continue its marketing of PFCs used to rejuvenate
aged catalytic converters, and has begun to focus on selling this product
through service centers in Europe in conjunction with Holt Lloyd
International Ltd. ("Holts"). The Company is also seeking marketing
partners to help launch the gasoline product in the U.S. and Asia.
COMMERCIALIZING THE ARIS(TM) 2000
The Company has developed a prototype of the ARIS(TM) 2000, an
Advanced Reagent Injection System to be used in the selective catalytic
reduction of NOx. The Company believes that there is a market for the
ARIS(TM) 2000 as a result of increased regulations in California and the
Northeast of NOx levels in new and existing large stationary diesels. The
Company seeks to commercialize the ARIS(TM) 2000 through cooperative
ventures and licenses with engine manufacturers, engine distributors, and
catalyst and emission control companies.
The Company believes that the net proceeds of the Rights Offering,
together with the net proceeds received in connection with the $1.4 million
bridge loan financing effected in 1998, will be sufficient to fund the
foregoing commercialization efforts through January 2000 (assuming full
subscription) and through April 1999 (assuming minimum subscription). See
"USE OF PROCEEDS" and "RISK FACTORS."
THE RIGHTS OFFERING
Rights............. The Company is issuing to each Holder of record of
Common Shares on the Record Date one transferable Right
for each 50 Common Shares held; provided, however, that
Rights will not be distributed to Holders who reside in
jurisdictions in which the Securities have not been
registered or where an exemption from registration is
not available, as described more fully below, and
transferees of Rights in jurisdictions where the
Securities have not been registered or where an
exemption from registration is not available may not
exercise the Rights. See "THE RIGHTS OFFERING --
Jurisdictions in Which the Securities Are Offered." The
Rights will be evidenced by Rights Certificates. An
aggregate of up to 50,000 Rights will be so
distributed. No fractional Rights or cash in lieu
thereof will be distributed or paid by the Company. The
number of Rights distributed will be rounded down to
the nearest whole number. As described below under
"Amendment and Termination," the Company will terminate
the Rights Offering if on the Expiration Date less than
an aggregate of $2.0 million worth of Rights have been
exercised (calculated based upon a per Common Share
price of $2.25, a 12.5% premium over the average bid
and ask prices of such shares over the five most recent
business days). Accordingly, assuming a Subscription
Price of $74.25, a minimum subscription of
approximately 26,937 Offering Shares pursuant to the
exercise of the Rights is necessary to proceed with the
Rights Offering. See "THE RIGHTS OFFERING -- The
Rights."
Basic Subscription
Privilege.......... Each Right will entitle the Holder thereof to purchase
at the Subscription Price one share of Series B
Preferred Stock. Each share of Series B Preferred Stock
will be immediately convertible, at no cost to the
Holder thereof, into 33 Common Shares. Certificates
representing Offering Shares purchased pursuant to the
Basic Subscription Privilege will be delivered to the
subscribers as soon as practicable after the Expiration
Date and after all prorations contemplated by the terms
of the Rights Offering have been effected. See "THE
RIGHTS OFFERING -- Subscription Privileges."
Oversubscription
Privilege.......... Each Holder who exercises all of his or her Rights
pursuant to the Basic Subscription Privilege may
indicate on the Rights Certificate additional shares of
Series B Preferred Stock above the Basic Subscription
Privilege up to the Maximum Offering Shares such Holder
would like to purchase at the Subscription Price. The
Oversubscription Privilege is not transferable. After
the Expiration Date, the Company will issue those
Offering Shares not purchased through the Basic
Subscription Privilege to the Holders who wish to
exercise their Oversubscription Privilege. If an
insufficient number of Offering Shares is available to
satisfy fully all elections to exercise the
Oversubscription Privilege, then the available Offering
Shares will be allocated among the Holders exercising
their Oversubscription Privilege such that each such
Holder will be entitled to receive a number of Offering
Shares which is equal to the number of Offering Shares
subscribed to by such Holder pursuant to the
Oversubscription Privilege multiplied by a fraction,
the numerator of which is the number of the then
available Offering Shares and the denominator of which
is the aggregate number of the Offering Shares
subscribed to pursuant to the Oversubscription
Privilege. If a proration of the Offering Shares
results in a Holder receiving fewer Offering Shares
than such Holder subscribed for pursuant to the
Oversubscription Privilege, then any excess funds paid
by that Holder as the Subscription Price for shares not
issued will be returned by the Subscription Agent
without interest or deduction. See "THE RIGHTS
OFFERING -- Subscription Privileges."
Series B Preferred
Stock.............. Holders of the Series B Preferred Stock are entitled to
receive, when, as and if declared by the Board out of
funds of the Company legally available therefor, cash
dividends at the annual rate of 9% of the $________ per
share price and liquidation preference (the
"Liquidation Preference"); provided, however, that in
lieu of making dividends in cash, the Company may
elect, by giving written notice to each holder of the
Series B Preferred Stock, to pay dividends in kind at
the annual rate of 11% of the Liquidation Preference
(cash dividends and dividends in kind are each deemed
"Preferred Dividends").
Shares of Series B Preferred Stock are convertible (at
the Liquidation Preference of $______ per share), in
whole or in part, at the option of the holders thereof
("Optional Conversion"), into Common Shares at a
conversion price of $____ per Common Share (equivalent
to a conversion rate of 33 Common Shares for each share
of Series B Preferred Stock so converted), which
conversion price will be deemed to have been paid in
full, at no extra cost to the holder thereof, with the
tendering of the Series B Preferred Stock in connection
with the conversion thereof, subject to adjustment as
set forth in the Certificate of Designation. The
Company can force the holder to convert his Series B
Preferred Stock, in whole or in part, into Common
Shares at any time on or after the date that the
average Closing Price (as defined in the Certificate of
Designation) of the Common Shares equals or exceeds
$4.50 for 20 consecutive Trading Days (as defined in
the Certificate of Designation).
In the event of any voluntary or involuntary
liquidation, dissolution, or winding up of the Company,
and subject to the rights of holders of any other
series of Preferred Stock, the holders of outstanding
shares of Series B Preferred Stock are entitled to
receive the sum of $______ per share in cash for each
share of Series B Preferred Stock, plus accrued and
unpaid Preferred Dividends thereon, out of the assets
of the Company available for distribution to
stockholders, before any distribution of assets is made
to holders of Common Shares or any other capital stock
ranking junior to the shares of Series B Preferred
Stock and pari passu with holders of Series A Preferred
Stock upon a liquidation, dissolution, or winding up of
the Company.
Certificates representing shares of Series B Preferred
Stock will include a legend to the effect that such
securities may not be transferred to any resident of
any of the following states: Arizona, Florida, Georgia,
Ohio, Pennsylvania or Texas. See "DESCRIPTION OF
CAPITAL STOCK -- Preferred Stock -- Series B
Convertible Preferred Stock."
Record Date........ _______________ __ , 1998
Subscription
Price.............. The Subscription Price is $_______ per Offering Share.
Expiration Date
for Rights......... The Rights Offering will expire at 5:00 p.m., Eastern
Standard Time, on _______________, 1998, unless
extended by the Board of Directors of the Company, in
which case the term "Expiration Date" shall mean the
latest date and time to which the Rights Offering is
extended.
Exercise of
Rights............. The Basic Subscription Privilege and the
Oversubscription Privilege may be exercised by properly
completing the Rights Certificates evidencing the
Rights and forwarding them, with payment of the
Subscription Price for each share of Series B Preferred
Stock subscribed for pursuant to the Basic Subscription
Privilege and the Oversubscription Privilege, to the
Subscription Agent prior to the Expiration Date. If the
aggregate Subscription Price paid by an exercising
Rights Holder is insufficient to purchase the number of
shares of Series B Preferred Stock that the Holder
indicates are being subscribed for, or if an exercising
Rights Holder does not specify the number of shares of
Series B Preferred Stock to be purchased, then the
Rights Holder will be deemed to have exercised, first,
the Basic Subscription Privilege and, second, the
Oversubscription Privilege to purchase shares of Series
B Preferred Stock to the full extent of the payment
tendered. If the aggregate Subscription Price paid by
an exercising Rights Holder exceeds the amount
necessary to purchase the number of shares of Series B
Preferred Stock for which the Rights Holder has
indicated an intention to subscribe, then the Rights
Holder will be deemed to have exercised, first, the
Basic Subscription Privilege (if not already fully
exercised) and, second, the Oversubscription Privilege
to the full extent of the excess payment tendered. Once
a Rights Holder has exercised the Basic Subscription
Privilege or the Oversubscription Privilege, such
exercise may not be revoked. See "THE RIGHTS OFFERING
-- Exercise of Rights." Any Rights not duly exercised
prior to the Expiration Date will expire and become
worthless.
Amendment and
Termination........ The Board of Directors reserves the right to extend the
Expiration Date and to amend the terms and conditions
of the Rights Offering. Any extension, if made, will be
publicly announced through a release to the Dow Jones
News Service and as otherwise required by applicable
law or regulations. In the event of a material change
in the terms of the Rights Offering, there will be an
affirmative resolicitation of the Rights Offering by
means of a post-effective amendment to the Registration
Statement. In the event of such a resolicitation,
subscribing Holders will be deemed to have effectively
revoked their subscriptions unless they affirmatively
confirm their intent to subscribe, and their
subscription payments will be returned to them without
interest or deduction. The Board of Directors of the
Company in its sole discretion, may terminate the
Rights Offering and revoke the Rights at any time prior
to the Expiration Date or thereafter. In any event, the
Company shall terminate the Rights Offering if on the
Expiration Date the Company receives aggregate cash
proceeds of less than $2.0 million from the exercise of
Rights. In the event of such termination, the Company
will promptly return to all persons that exercised
Rights their subscription payments, without interest or
deduction. See "THE RIGHTS OFFERING -- Amendment and
Termination."
Method of
Transferring
Rights............. Rights may be purchased or sold through usual
investment channels, including banks and brokers. There
can be no assurance that an active market will develop
for the Rights. The Rights, the underlying shares of
Series B Preferred Stock and the Common Shares issuable
upon conversion of the Series B Preferred Stock, will
not be eligible for trading on Nasdaq.
The Rights evidenced by a single Rights Certificate may
be transferred in whole by endorsing the Rights
Certificate for transfer in accordance with the
accompanying instructions; provided, that the related
Oversubscription Privilege may not be exercised by the
transferee thereof and transferees of Rights in
jurisdictions where the Securities have not been
registered or where an exemption from registration is
not available. A portion of the Rights evidenced by a
single Rights Certificate (but not fractional Rights or
the Oversubscription Privilege or to persons in
jurisdictions where the Securities have not been
registered or where an exemption from registration is
not available) may be transferred by delivering to the
Subscription Agent a Rights Certificate properly
endorsed for transfer, with instructions to register
such portion of the Rights evidenced thereby in the
name of the transferee (and to issue a new Rights
Certificate to the transferee evidencing such
transferred Rights). In such event, a new Rights
Certificate evidencing the balance of the Rights will
be issued to the Rights Holder or, if the Rights Holder
so instructs, to an additional transferee. The
Oversubscription Privilege is not transferable.
Holders of Rights wishing to transfer all or a portion
of their Rights (subject to the limitations described
above) should allow a sufficient amount of time prior
to the Expiration Date for (i) the transfer
instructions to be received and processed by the
Subscription Agent, (ii) a new Rights Certificate for
the transferred Rights to be issued and transmitted to
the transferee or transferees and a new Rights
Certificate for any retained Rights to be issued and
transmitted to the transferor and (iii) the Rights
evidenced by such new Rights Certificates to be
exercised or sold by the recipients thereof. Neither
the Company nor the Subscription Agent shall have any
liability to a transferee or transferor of Rights if
Rights Certificates are not received in time for
exercise or sale prior to the Expiration Date.
Except for fees paid to broker-dealers and charged by
the Subscription Agent that will be paid by the
Company, all commissions, fees and other expenses
(including brokerage commissions and transfer taxes)
incurred in connection with the purchase, sale or
exercise of Rights will be for the account of the
shareholder transferor of the Rights and none of such
commissions, fees or expenses will be paid by the
Company or the Subscription Agent.
The Rights will be eligible for transfer through, and
the exercise of the Rights may be effected through, the
facilities of the Transfer Agent. See "THE RIGHTS
OFFERING -- Method of Transferring Rights."
Jurisdictions
in Which the
Securities Are
Offered............ RIGHTS WILL ONLY BE GRANTED TO, AND MAY ONLY BE
EXERCISED BY, HOLDERS IN COLORADO, CONNECTICUT, THE
DISTRICT OF COLUMBIA, ILLINOIS, INDIANA, IOWA, KANSAS,
MAINE, MARYLAND, MASSACHUSETTS, NEVADA, NEW JERSEY, NEW
YORK, NORTH CAROLINA, RHODE ISLAND, VERMONT, VIRGINIA
AND WASHINGTON AND OUTSIDE THE UNITED STATES. See "THE
RIGHTS OFFERING -- Jurisdictions in Which the
Securities Are Offered."
U.S. Tax
Consequences....... Holders who receive Rights will be deemed to be in
receipt of property in an amount equal to the fair
market value (the "Value") of the Rights on the date
they are distributed. Whether the receipt of Rights by
a Holder will result in taxable income and the
characterization of such income, if any, will be
dependent on whether the Company has current and/or
accumulated earnings and profits ("E&P"), the tax basis
of the stock held by the Holder, and the Value of the
Rights. Management of the Company believes that the
Company will have no current and/or accumulated E&P for
the taxable year in which the Rights are distributed,
although no assurances can be given in this regard.
Neither the exercise of the Rights nor conversion of
the Series B Preferred Stock into Common Shares would
result in a taxable event. See "THE RIGHTS OFFERING --
Certain United States Federal Income Tax Consequences
to Holders."
Capital Stock
to be Outstanding
After Offering..... 2,516,666 Common Shares(FN1)
2,800 shares of Series A Preferred Stock(FN2)
50,000 shares of Series B Preferred Stock(FN3)
Net Cash Proceeds
from the
Offering(FN4)...... $3.1 million
Use of Proceeds ... The net proceeds of the Offering will be used for:
marketing, field trials and patents; repayment under
the Term Loan (as defined below) to Fuel Tech; and the
balance for working capital and general corporate
purposes. See "USE OF PROCEEDS."
Subscription
Agent ............. ChaseMellon Shareholder Services, L.L.C.
Information Agent.. ChaseMellon Shareholder Services, L.L.C.
- -----------------------------
(1) Excludes 427,784 Common Shares issuable under the Company's stock
option plan, 75,000 shares issuable upon exercise of certain warrants,
933,324 Common Shares which would be issuable upon conversion of
Series A Preferred Stock which are expected to be issued to Holders of
Bridge Loan Notes upon consummation of the Rights Offering, and up to
1,650,000 Common Shares issuable upon conversion of Series B Preferred
Stock being offered hereby (assuming full subscription) or 888,921
Common Shares (assuming minimum subscription). See "DESCRIPTION OF
CAPITAL STOCK," "MANAGEMENT" and "CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS."
(2) Assumes conversion of the Bridge Loan Notes upon consummation of the
Rights Offering resulting in net proceeds to the Company of at least
$1.75 million.
(3) Assuming full subscription. Assuming minimum subscription, 26,937
shares of Series B Preferred Stock will be outstanding.
(4) Assuming full subscription of the Rights Offering at a price of $74.25
per Right, after deducting Soliciting Fees and expenses of the Rights
Offering payable by the Company estimated at $600,000. Assuming
minimum subscription using the foregoing assumptions, net cash
proceeds would be approximately $1.4 million.
RISK FACTORS
An investment in the Securities offered hereby involves a high degree
of risk and should only be made by investors who can afford a loss of their
entire investment. Prospective investors should carefully review and
consider the information set forth under the caption "Risk Factors."
SUMMARY SELECTED FINANCIAL DATA
The following summary selected financial data for each of the five
years ended December 31, 1997 and for the period from January 1, 1992
through December 31, 1997 are derived from the audited financial statements
of the Company. The summary selected financial data for the three month
periods ended March 31, 1997 and 1998 are derived from unaudited financial
statements. The unaudited financial statements include all adjustments,
consisting of normal recurring accruals, which the Company considers
necessary for a fair presentation of the financial position and the results
of operations for these periods. Operating results for the three months
ended March 31, 1998 are not necessarily indicative of the results that may
be expected for the entire year ending December 31, 1998. The summary
selected financial data should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
and the financial statements and notes thereto appearing elsewhere herein.
The Company was incorporated on January 19, 1994, as a wholly owned
subsidiary of Fuel Tech. Predecessor financial information included below
for the period from January 1, 1992, through January 18, 1994, reflects the
Company's operations prior to incorporation, at which time it was accounted
for as part of Fuel Tech. Effective December 12, 1995, Fuel Tech completed
a Rights Offering of the Company's Common Shares, with Fuel Tech retaining
a 27.6% ownership interest in the Company (which as of March 31, 1998, has
declined to a 27.4% interest after giving effect to the exercise of stock
options). The Company is a development-stage enterprise, and its efforts
from January 1, 1992, to the present time have been devoted to the
research, development and commercialization of PFCs and NOx reduction
technologies to reduce emissions from diesel engines. There were no
material activities related to the Company's business in 1990 or 1991.
Prior to 1990, the activities of Fuel Tech were focused on other
applications of PFCs that are unrelated to the Company's present or
contemplated business and were not material to the overall development of
the Company's products. Therefore, such costs have been excluded from the
determination of the Company's development costs and from the summary
selected financial data set forth below.
<TABLE>
<CAPTION>
Period
Period from
from January 1,
Year Ended January 1, Three Months 1992,
December 31, 1992 Ended through
through March 31,
December March 31,
1993 1994 1995 1996 1997 31, 1997 1997 1998 1998
---- ---- ---- ---- ---- -------- ---- ---- ----
STATEMENT OF (IN THOUSANDS, EXCEPT PER SHARE DATA)
OPERATIONS DATA:
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Sales................... $ -- $ -- $ -- $ -- $ 199 $ 199 $ 40 $ -- $ 199
Operating expenses...... 131 1,106 1,958 3,812 4,084 11,429 1,051 743 12,172
Net loss during
development stage.... 131 1,107 2,024 3,489 3,764 10,853 961 741 11,594
Basic and diluted loss
per Common Share..... N/A $0.44 $ 0.81 $1.40 $1.50 N/A $ 0.38 $ 0.29 N/A
Weighted-average shares
outstanding.......... N/A 2,500 2,500 2,500 2,517 N/A 2,512 2,517 N/A
Ratio of earnings to
combined fixed charges
and preferred
dividends (FN1)...... -- -- -- -- -- -- -- -- --
Cash dividends declared. -- -- -- -- -- -- -- -- --
</TABLE>
<TABLE>
<CAPTION>
March 31, 1998
----------------------------------
As Adjusted As Adjusted
December 31, Assuming Assuming
Full Minimum
Subscription Subscription
1993 1994 1995 1996 1997 Actual (FN2) (FN2)
---- ---- ---- ---- ---- ------ ------------ ------------
BALANCE SHEET DATA: (IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Current assets.......... $ -- $ 513 $8,882 $5,595 $1,682 $ 982 $5,494 $3,782
Total assets............ -- 513 8,882 5,677 1,750 1,044 5,556 3,844
Working capital
(deficit)............ -- (857) 8,395 4,109 788 53 4,565 2,853
Long-term debt.......... -- -- 745 -- 395 395 395 395
Series A Redeemable
Preferred Stock...... -- -- -- -- -- -- 1,400 --
Shareholders' equity
(deficiency)......... -- (857) 7,650 4,191 461 (280) 2,832 1,120
<FN>
(1) For the years ended December 31, 1993, 1994, 1995, 1996 and 1997 and
for the period from January 1, 1992 through December 31, 1997 and for
the three month periods ended March 31, 1997 and 1998 and for the
period from January 1, 1992 through March 31, 1998, the Company's
earnings were inadequate to cover fixed charges by approximately (in
thousands) $131; $1,107; $2,024; $3,489; $3,764; $10,853; $961; $741;
and $11,594, respectively. On a pro forma basis, for the periods ended
December 31, 1997 and March 31, 1998, the Company's earnings would
have been inadequate to cover combined fixed charges and preferred
stock dividends by (in thousands) $4,326 and $882 asumming full
subscription and that the Series A Preferred Stock and Series B
Preferred Stock were outstanding as of the beginning of such periods
and $4,124 and $831 assuming minimum subscription and that the Bridge
Loan Notes and Series B Preferred Stock were outstanding as of the
beginning of such periods, respectively.
(2) Adjusted to reflect the receipt by the Company of the estimated net
proceeds from the sale of the Securities offered hereby, assuming full
subscription or minimum subscription, as the case may be, of the
Rights Offering at a price of $74.25 per Offering Share, after
deducting Soliciting Fees and expenses of the Rights Offering payable
by the Company estimated at $600,000, receipt of the proceeds from the
Bridge Loan Notes and, assuming full subscription and conversion of
the Bridge Loan Notes into Series A Convertible Preferred Stock.
</FN>
</TABLE>
RISK FACTORS
This Prospectus contains forward-looking statements within the meaning
of Section 27A of the Securities Act of 1933, as amended (the "Securities
Act"). Discussion containing such forward-looking statements will be found
in the material set forth under "Prospectus Summary," "Risk Factors," "Use
of Proceeds," "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and "Business," as well as within the Prospectus
generally. Actual results could differ materially from those projected in
the forward-looking statements as a result of the risk factors set forth
below and the matters set forth in this Prospectus generally. The Company
cautions the reader, however, that this list of factors may not be
exhaustive. The following risk factors should be considered carefully in
addition to the other information contained in this Prospectus before
purchasing the Securities offered hereby.
FACTORS RELATING TO THE COMPANY
INDEPENDENT AUDITOR'S REPORT
The report of the Company's independent auditors with respect to the
financial statements of the Company for the year ended December 31, 1997
contains an explanatory paragraph as to the Company's ability to continue
as a going concern. Among the factors cited by the auditors as raising
substantial doubt as to the Company's ability to continue as a going
concern is that, with respect to the periods covered, the Company incurred
recurring operating losses and its operations have not produced a positive
cash flow. See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS", and the financial statements of the Company,
the notes thereto and the Report of Independent Auditors included therein.
LIQUIDITY AND CAPITAL REQUIREMENTS
At the date of this prospectus, the Company has cash resources,
including the $1.4 million Bridge Loan from Fuel Tech and certain other
lenders, estimated to be sufficient for its needs through November 1998.
The Company is actively seeking additional financing of approximately $1.4
million to $3.1 million (net of estimated Subscription Fees and expenses of
the offering of $600,000) through the Rights Offering. Although the Company
believes that it will be successful in its capital raising efforts, there
is no guarantee that the Company will be able to raise such capital on
terms satisfactory to the Company. Accordingly, at March 31, 1998, there
continues to be substantial doubt as to the Company's ability to continue
as a going concern. See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS," and the Report of Independent
Auditors and the related financial statements and the notes thereto as of
December 31, 1996 and 1997 and for each of the three years in the period
ended December 31, 1997 and for the period from January 1, 1992 through
December 31, 1997 (the "Annual Financial Statements") and the financial
statements and the note thereto as of March 31, 1997 and 1998 and for each
of the three months ended March 31, 1997 and 1998 and for the period from
January 1, 1992 through March 31, 1998 (the "Interim Financial
Statements").
CONTINUING OPERATING LOSSES
The Company has had minimal revenues through March 31, 1998. Even if
the Company consummates the Rights Offering and/or other financing
alternative, the Company expects to incur operating losses through at least
the first half of 1999. There can be no assurance that the Company will
achieve or sustain significant revenues or profitability in the future. See
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS."
COMPETITION
Competition in the diesel fuel additive market will come from large
additive suppliers. The Company is not currently in competition with other
fuel additive manufacturers. When active marketing of the Company's PFC is
in progress, the Company anticipates competing on the basis of price,
proprietary technology, effectiveness and ease of use of the PFC and
efficiency of distribution. To the Company's knowledge, it does not compete
against any major gasoline companies in the PFC market. While the Company
intends to seek collaborative arrangements with additive suppliers and oil
companies, there are no assurances that these arrangements can be
negotiated. Competition may also come from alternative fuels including
methanol and natural gas, as well as from new engine technology.
NO ASSURANCES OF ADDITIONAL FUNDING
Based on the Company's operating plan, management believes that the
proceeds from the Rights Offering, together with the net proceeds received
in connection with the $1.4 million Bridge Loan effected in 1998, will be
sufficient to meet the Company's anticipated cash needs and finance its
operations through January 2000 (assuming full subscription) and through
April 1999 (assuming minimum subscription), although no assurances can be
given in this regard. Thereafter, the Company anticipates that it may
require additional funding in the form of a public or private offering of
the Company's securities. Any offering of the Company's equity securities
may result in immediate and significant dilution to the shareholders of the
Company. The ability of the Company to consummate a public offering or to
obtain other financing will depend on the status of the Company's
commercial efforts and marketing programs and field trials, as well as
conditions then prevailing in the relevant capital markets. There can be no
assurance that such funding will be available when needed or on terms
acceptable to the Company. If the Company is unable to obtain sufficient
additional financing, its ability to meet its current plans for expansion
will be materially adversely affected, and the Company will not be able to
continue as a going concern. See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS" and the Report of
Independent Auditors in the Annual Financial Statements.
LIMITED MARKETING EXPERIENCE
To date, the Company has had limited experience and has expended
limited efforts in marketing its products. The Company intends to sell its
PFCs to additive companies, oil companies, oil distributors and fleets. The
Company intends to sell its ARIS(TM) 2000 system to catalyst-system
suppliers or engine companies. While the Company is now in active
discussions with third parties to achieve this and believes it will be
successful, there can be no assurance that the Company will successfully
implement its plans.
RELATIONSHIP WITH FUEL TECH; CONFLICTS OF INTEREST
Directors and officers of Fuel Tech and its subsidiaries who are also
directors and officers of the Company, and Fuel Tech as the Company's
largest shareholder, are in positions involving the possibility of
conflicts of interest with respect to transactions concerning the Company.
The Company currently has one independent director. See "CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS."
DEPENDENCE UPON THIRD PARTY TECHNOLOGY
While the PFCs may be used alone for moderate levels of emission
control, it is expected that the product will be integrated into other
systems using third party technology to achieve higher levels of control.
The adoption of the use of PFCs in such systems will depend on the
effectiveness of third party technology, the ability of third parties to
market their products, and the compatibility of the PFC and NOx control
products with their systems. Failure of these third party systems to gain
market acceptance or failure of the PFCs and NOx control products to prove
compatible and effective with third party systems could have an adverse
effect on the Company's business, operating results and financial
condition. See "BUSINESS -- Products and Markets."
UNCERTAINTY OF MARKET ACCEPTANCE
The commercial success of the Company's products will depend upon
acceptance by the fuel additive, oil and engine industries, and acceptance
by governmental regulatory bodies. This market acceptance will in turn
depend upon competitive developments and the Company's ability to
demonstrate the efficacy, cost-effectiveness, safety and ease of use of the
PFC and NOx control products of the Company. The failure by the Company to
receive market acceptance for the PFC and NOx control products would have
an adverse effect on the Company's business, operating results and
financial condition. See "BUSINESS -- Products and Markets."
NO ASSURANCE OF NECESSARY REGULATORY APPROVALS
The Company's products and manufacturing activities are subject to
governmental regulation, principally by the Environmental Protection Agency
("EPA") and corresponding foreign and state agencies. The EPA administers
the Clean Air Act Amendments of 1990 ("CAAA"). The Company is subject to
the standards and procedures contained in such act and the regulations
promulgated thereunder, as well as similar standards, procedures and
regulations of international regulatory authorities, and is subject to
inspection by the EPA and other regulatory bodies for compliance with such
standards, procedures and regulations. Failure to receive appropriate
approvals or to comply with the EPA and similar foreign regulations could
result in civil monetary or criminal sanctions, restrictions on or
injunction against marketing of the Company's products, as well as seizure
or recall of the Company's products or other regulatory actions. The
Company received registration for its PFC from the EPA to be used as an
aftermarket treatment for individual vehicles and in bulk fuel supplies for
diesel. The Company has received registration status under the EPA fuel
additive regulations for three additional PFCs with the original PFC. The
Company has received consent from the U.K. Ministry of Health for use of
the PFC in diesel fuel. See "BUSINESS -- Regulations -- USA" and "BUSINESS
- -- Regulations -- International."
The Company has registered the cerium products and is in the process
of registering platinum/cerium bimetallic products. The Company will be
required to register the gasoline product and apply for a waiver before
this product can be marketed in the U.S. There can be no assurance that
such registrations will be obtained.
NO ASSURANCE OF PROTECTION OF PATENTS AND PROPRIETARY RIGHTS
The Company holds licenses to a number of patents and has patent
applications pending. There can be no assurance that pending patent
applications will be approved or that the issued patents or pending
applications will not be challenged or circumvented by competitors. Certain
critical technology incorporated in the Company's products is protected by
trademark and trade secret laws and confidentiality and licensing
agreements. There can be no assurance that such protection will prove
adequate or that the Company will have adequate remedies for disclosure of
its trade secrets or violations of its intellectual property rights. See
"BUSINESS -- Protection of Proprietary Information."
RAW MATERIAL PRICE VOLATILITY
The cost of raw materials, including platinum, rhodium and cerium,
will have a direct impact on the future pricing and profitability of the
Company's products. Although the Company intends to minimize this risk
through various purchasing and hedging strategies, there can be no
assurance that the Company will be able to do so. A significant increase in
the price of these materials could have a material adverse effect on the
Company's business, operating results and financial condition.
DEPENDENCE ON ATTRACTING AND RETAINING PERSONNEL
The success of the Company will depend, in large part, on the
Company's ability to (i) retain current key personnel, (ii) attract and
retain qualified sales and marketing personnel and (iii) develop and
maintain relationships with research institutions and other outside
consultants. The loss of key personnel, or the inability of the Company to
hire or retain qualified personnel or the failure to assimilate effectively
such personnel could have a material adverse effect on the Company's
business, operating results and financial condition. See "BUSINESS --
Employees."
FOREIGN CURRENCY RISK
To date, sales, marketing and testing of the Company's PFCs have been
limited principally to Europe. While the Company has not experienced any
significant foreign currency exposure with respect to such activities,
there can be no assurance that exposure to currency fluctuation will not
have a significant effect on the Company's operations in the future. The
Company intends to manage the risk to such exposure, if any, by entering
into foreign currency futures and option contracts.
FACTORS RELATING TO THE SECURITIES
POSSIBLE ADVERSE FUTURE ACCOUNTING EFFECT ON EARNINGS PER SHARE ALLOCABLE
TO COMMON SHARES
If, on issuance of the Series B Preferred Stock, its $____ per share
stated value is less than the then-current market price of the 33 Common
Shares into which it is convertible, the excess of that market price over
$_____ multiplied by the number of shares of Series B Preferred Stock
issued (the "Aggregate Discount") will be treated under accounting rules
applicable to the Company as analogous to a dividend with respect to the
Series B Preferred Stock. For accounting purposes, the Aggregate Discount
will increase the loss attributable to Common Shareholders for purposes of
computation of basic loss per share and may affect the diluted loss per
share computation in the fiscal quarter and year in which the Rights
Offering is completed. The Company cannot predict the market price of the
Common Shares on the date of issuance of the Series B Preferred Stock, and
therefore it cannot now estimate whether an Aggregate Discount will exist
or, if it does exist, the amount of the Aggregate Discount with respect to
any assumed number of shares of Series B Preferred Stock to be issued in
the Transaction.
Solely as an example of the accounting effect, assuming that (1) the
stated value per Series B Preferred Stock was $74.25, (2) the reported
closing price of Common Shares at the time of issuance of the Series B
Preferred Stock was $2.50 and (3) 50,000 shares of Series B Preferred Stock
were issued in the Transaction, the Aggregate Discount would be $412,500.
This Aggregate Discount would increase the annual basic loss per share by
$.16 per share (based upon 2,516,666 shares of the Company's Common Stock
outstanding at March 31, 1998).
ACCOUNTING CONSEQUENCES PERTAINING TO SERIES A CONVERTIBLE PREFERRED
STOCK AND SERIES B CONVERTIBLE PREFERRED STOCK
Upon completion of the Rights Offering, the Series B Preferred Stock
will initially be reflected in the Company's balance sheet net of the
Soliciting Fees and expenses of the Rights Offering (estimated to be
$600,000). Pursuant to applicable accounting rules and SEC regulations, the
Company will be required to accrete the carrying value of such stock to its
liquidation value. Such accretion will be recognized over a period of five
years. The carrying amount of such stock shall be further periodically
increased by amounts representing dividends earned but not paid. The
aforementioned increases in carrying amount will decrease retained earnings
and will increase the loss per share attributable to common shareholders.
Pursuant to applicable accounting standards, any dividends which are
paid in kind on the Series A Preferred Stock or on the Series B Preferred
Stock, will be recorded in the Company's balance sheet as an increase to
the accumulated deficit or reduction in retained earnings, as the case may
be, and an increase in the carrying value of such stock. Accordingly,
dividends that are paid in kind will increase the loss per share
attributable to common shareholders and will result in additional dilution
of ownership interest attributable to existing common shareholders.
TAX CONSEQUENCES TO SHAREHOLDERS ON SALE OF RIGHTS OR SERIES B PREFERRED
STOCK
The Company believes that the Rights Offering will result in a taxable
distribution to recipients of Rights. However, in the event it is
determined that the distribution of the Rights is a non-taxable
distribution, sale of the Rights and the Series B Preferred Stock may be
subject to certain restrictions. See "CERTAIN UNITED STATES FEDERAL INCOME
TAX CONSEQUENCES TO HOLDERS." If the Rights or stock acquired is
characterized, for federal income tax purposes, as being "stock other than
common stock," then the amount realized from the sale of such stock or
Rights may, in whole or in part, be treated as ordinary income. The Company
believes that, because the conversion rights granted to holders of the
Series B Preferred Stock provide the unrestricted right to participate in
future corporate growth, the Rights, the Series B Preferred Stock and the
Common Shares received as a result of conversion of the Series B Preferred
Stock should be treated as common stock for these purposes. There is no
clear statutory definition of the term "stock other than common stock"
however, and it is possible for the Internal Revenue Service (the "IRS") to
challenge this position.
Even if the Rights or the Series B Preferred Stock are classified as
"stock other than common stock," there are several methods available to
shareholders to avoid the adverse tax consequences arising from this
designation. Ordinary income treatment will not apply on sale or other
disposition of the Rights or the Series B Preferred Stock: (i) if the sale
terminates the entire stock interest of the shareholder in the Company;
(ii) if the Series B Preferred Stock is converted to Common Shares and the
sale is of the Common Shares; (iii) in transactions where gain or loss to
the shareholder is not recognized; or (iv) where it is established to the
satisfaction of the Secretary of the Treasury that the transactions were
not in pursuance of a plan having one of its principal purposes the
avoidance of federal income tax. If the Rights and the Series B Preferred
Stock are not treated as "stock other than common stock," or if one of the
above exceptions apply, then a shareholder who sells the Rights or the
Series B Preferred Stock will recognize gain or loss equal to the
difference between the sale proceeds and such shareholder's basis (if any)
in the Rights or the Series B Preferred Stock sold. Such gain or loss will
generally be capital gain or loss, long or short-term, depending upon the
holding period for the security sold. For tax years ending after 1997, the
Internal Revenue Service Restructuring and Reform Bill of 1998 generally
provides for a twelve month holding period for qualification of capital
gains as long-term.
DELISTING FROM NASDAQ
Effective July 1, 1998, the Company's Common Shares were delisted from
Nasdaq for failing to meet Nasdaq's new net tangible asset/market
capitalization/net income requirement. As a result, the Company's Common
Shares currently trade on the OTC Electronic Bulletin Board, although no
assurance can be given that such shares will continue to trade thereon or
that they will trade in the over-the-counter market, in what are commonly
referred to as the "pink sheets." Nasdaq's listing requirements have become
more stringent since the Company's original listing in December 1995, and
there can be no assurance that the Company will be able to relist its
Common Shares on Nasdaq.
POSSIBLE ADVERSE EFFECT OF PENNY STOCK REGULATIONS ON THE LIQUIDITY OF THE
COMPANY'S SECURITIES
In the absence of the Common Shares being quoted on Nasdaq and for so
long as the Common Shares continue to trade at market prices below $5.00
per share (see "PRICE RANGE OF COMMON SHARES"), the Common Shares will be
deemed to be "penny stock" under the Exchange Act. Accordingly, trading in
the Common Shares is covered by Rule 15g-9 promulgated under the Exchange
Act. Under such rule, broker-dealers who recommend such securities to
persons other than established customers and accredited investors must make
a special written suitability determination for the purchaser and receive
the purchaser's written agreement to a transaction prior to sale.
The Commission adopted regulations that generally define a penny stock
to be any equity security that has a market price of less than $5.00 per
share, subject to certain exceptions. Such exceptions include an equity
security listed on Nasdaq, and an equity security issued by an issuer that
has (i) net tangible assets of at least $2,000,000, if such issuer has been
in continuous operation for three years, (ii) net tangible assets of at
least $5,000,000, if such issuer has been in continuous operation for less
than three years, or (iii) average revenue of at least $6,000,000 for the
preceding three years. Unless an exception is available, the regulations
require the delivery, prior to any transaction involving a penny stock, of
a disclosure schedule explaining the penny stock market and the risks
associated therewith.
For so long as the Common Shares are subject to the regulations
applicable to penny stocks, the market liquidity for the Common Shares will
be severely affected, limiting the ability of broker-dealers to sell the
Common Shares and the ability of purchasers in this Offering to sell their
Common Shares in the secondary market. There is no assurance that trading
in the Common Shares will not continue to be subject to these or other
regulations that would adversely affect the market for such securities.
UNCERTAIN MARKET FOR THE RIGHTS AND THE SERIES B PREFERRED STOCK
The Series B Preferred Stock and the Rights will not be listed for
trading. There can be no assurance that a market for the Rights will
develop prior to their Expiration Date; nor can there be assurance that a
market for the Series B Preferred Stock will develop. If a market develops
for the Rights or the Series B Preferred Stock, there is no assurance as to
the price at which the Rights or Series B Preferred Stock will trade. Any
market that may develop may be volatile and unreliable.
Following the Expiration Date, a subscribing Holder may or may not be
able to sell shares of Series B Preferred Stock purchased in the Rights
Offering at a price equal to or greater than the Subscription Price. There
can also be no assurance that the Common Shares issuable upon conversion of
the Series B Preferred Stock will trade at or above the Subscription Price.
When made, the election of a Holder to exercise Rights in the Rights
Offering is irrevocable. Moreover, until certificates are delivered,
subscribing Holders may not be able to sell the Series B Preferred Stock
that they have purchased in the Rights Offering.
As described herein, the Series B Preferred Stock is convertible into
Common Shares which currently trade on the OTC Electronic Bulletin Board,
although no assurances can be given that such shares will continue to trade
thereon or in the over-the-counter market, in what are commonly referred to
as the "pink sheets." See "-- Delisting from Nasdaq" above.
POSSIBLE VOLATILITY OF STOCK PRICE; LOW TRADING VOLUME
There has been significant volatility in the market prices of publicly
traded shares of emerging growth technology companies, including the
Company's Common Shares. Factors such as announcements of technical
developments, establishment of strategic alliances, changes in governmental
regulation and developments in patent or proprietary rights may have a
significant effect on the market price of the Company's securities. In
addition, there has been insignificant average daily trading volume of the
Company's Common Shares (including days during which no trades were
consummated) since public trading of the Common Shares commenced. To the
extent this trading pattern continues, the price of the Common Shares may
fluctuate significantly as a result of relatively minor changes in demand
for such shares and sales of stock by Holders.
DILUTION
Holders who do not exercise their Rights will experience a significant
decrease in their proportionate interest in the equity ownership and voting
power of the Company. The sale of the Rights may not compensate a
shareholder for all or any part of any reduction in the market value of
such shareholder's Common Shares resulting from the Rights Offering.
Holders who do not exercise or sell their Rights will relinquish any value
inherent in the Rights. As described herein, Rights will only be
distributed to, and may only be exercised by, Holders residing outside the
United States and in certain states.
After giving effect to the exercise of the Rights and the subsequent
conversion of the Series B Preferred Stock (assuming full subscription of
the Rights and not including the conversion of the Series A Preferred Stock
and outstanding stock options and warrants), the Company will have
approximately 4,166,666 Common Shares issued and outstanding (3,405,587
assuming minimum subscription).
Purchasers of Series B Preferred Stock will experience immediate and
substantial dilution in the net tangible book value per share attributable
to the Common Shares underlying the Series B Preferred Stock. See
"DILUTION."
NO DIVIDENDS ON COMMON SHARES, SERIES A PREFERRED STOCK AND SERIES B
PREFERRED STOCK
The Company has not paid dividends on its Common Shares since its
inception and does not intend to pay any dividends to its Holders of Common
Shares in the foreseeable future.
Holders of the Series A Preferred Stock and Series B Preferred Stock
are entitled to receive, when, as and if declared by the Board out of funds
of the Company legally available therefor, cash dividends at the annual
rate of 9% of the $500 stated value and liquidation preference of the
Series A Preferred Stock price per share and 9% of the $_____ stated value
and liquidation preference of the Series B Preferred Stock price per share;
provided, however, that in lieu of making dividends in cash, the Company
may elect, by giving written notice to each holder of the Series A
Preferred Stock and Series B Preferred Stock, to pay dividends in kind at
the annual rate of 11% of the Liquidation Preference (cash dividends and
dividends in kind are each deemed "Preferred Dividends"). Dividends payable
to the holders of the Series A Preferred Stock and Series B Preferred Stock
are payable quarterly in arrears, on the first business day of January,
April, July and October of each year (each such date being hereinafter
referred to as a "Dividend Payment Date"), commencing July 1, 1998.
Preferred Dividends on shares of Series A Preferred Stock and Series B
Preferred Stock shall be cumulative and shall accrue from the date of
original issuance. It is presently anticipated that the Company will pay
dividends on shares of the Series A Preferred Stock and Series B Preferred
Stock in shares of Series A Preferred Stock and shares of Series B
Preferred Stock, respectively, and any earnings which the Company may
realize in the foreseeable future will be retained to finance the
development and expansion of the Company. See "DIVIDEND POLICY."
Pursuant to applicable accounting standards, any dividends which are
paid in kind on the Series A Preferred Stock or on the Series B Preferred
Stock, will be recorded in the Company's balance sheet as an increase to
the accumulated deficit or reduction in retained earnings, as the case may
be, and an increase in the carrying value of such stock. Accordingly,
dividends that are paid in kind will increase the loss per share
attributable to Common Shareholders and will result in additional dilution
of ownership interest attributable to existing Common Shareholders.
FUTURE SALES OF COMMON SHARES
The sale, or availability for sale, of substantial amounts of Common
Shares in the public market subsequent to this Offering pursuant to Rule
144 under the Securities Act or otherwise could adversely affect the market
price of the Common Shares and could impair the Company's ability to raise
additional capital through the sale of its equity securities or debt
financing.
THE RIGHTS OFFERING
THE RIGHTS
The Company is issuing to each Holder of record of Common Shares on
the Record Date one transferable Right for each 50 Common Shares held;
provided, however, Rights will not be distributed to Holders who reside in
jurisdictions in which the Securities have not been registered or where an
exemption from registration is not available, as described more fully
below, and transferees of Rights in jurisdictions where the Securities have
not been registered or where an exemption from registration is not
available may not exercise the Rights. The Rights will be evidenced by
Rights Certificates. An aggregate of up to 50,000 Rights will be so
distributed. No fractional Rights or cash in lieu thereof will be
distributed or paid by the Company. The number of Rights distributed will
be rounded down to the nearest whole number. As described below under
"Amendment and Termination," the Company will terminate the Rights Offering
if on the Expiration Date the Company receives aggregate cash proceeds of
less than $2.0 million from the exercise of Rights (calculated based upon a
per Common Share price of $2.25, a 12.5% premium over the average bid and
ask prices of such shares over the five most recent business days).
Accordingly, assuming a Subscription Price of $74.25, a minimum
subscription of approximately 26,937 Offering Shares pursuant to the
exercise of the Rights is necessary to proceed with the Rights Offering.
Expiration Date
The Rights will expire on ______________ _, 1998, at 5:00 p.m. Eastern
Standard Time, thirty days after the effective date of this Prospectus,
unless extended by the Board of Directors of the Company, in which case the
term "Expiration Date" shall mean the latest date and time to which the
Rights Offering is extended. After the Expiration Date, unexercised Rights
will be null and void. The Company will not be obligated to honor any
purported exercise of Rights received by the Subscription Agent after the
Expiration Date, regardless of when the documents relating to that exercise
were sent, except pursuant to the procedures described below.
SUBSCRIPTION PRIVILEGES
Basic Subscription Privilege
Each Right will entitle the registered Holder thereof to purchase at
the Subscription Price one share of Series B Preferred Stock. Each share of
Series B Preferred Stock will be immediately convertible at no cost to the
Holder thereof, into 33 Common Shares. Certificates representing Underlying
Shares purchased pursuant to the Basic Subscription Privilege will be
delivered to the subscribers as soon as practicable after the Expiration
Date and after all prorations contemplated by the terms of the Rights
Offering have been effected.
Oversubscription Privilege
Each Holder who exercises all of his or her Rights pursuant to the
Basic Subscription Privilege may indicate on the Rights certificate
additional shares of Series B Preferred Stock above the Basic Subscription
Privilege up to the Maximum Offering Shares such Holder would like to
purchase at the Subscription Price. The Oversubscription Privilege is not
transferable. After the Expiration Date, the Company will issue those
Offering Shares not purchased through the Basic Subscription Privilege to
the Holders who wish to exercise their Oversubscription Privilege. If an
insufficient number of Offering Shares is available to satisfy fully all
elections to exercise the Oversubscription Privilege, then the available
Offering Shares will be allocated among the Holders exercising their
Oversubscription Privilege such that each such Holder will be entitled to
receive a number of Offering Shares which is equal to the number of
Offering Shares subscribed to by such Holder pursuant to the
Oversubscription Privilege multiplied by a fraction, the numerator of which
is the number of the then available Offering Shares and the denominator of
which is the aggregate number of Offering Shares subscribed to pursuant to
the Oversubscription Privilege. If a proration of the Offering Shares
results in a Holder receiving fewer Offering Shares than such Holder
subscribed for pursuant to the Oversubscription Privilege, then any excess
funds paid by that Holder as the Subscription Price for shares not issued
will be returned by the Subscription Agent without interest or deduction.
Certificates representing Offering Shares purchased pursuant to the
Oversubscription Privilege will be delivered to subscribers as soon as
practicable after the Expiration Date and after all prorations and
adjustments contemplated by the terms of the Rights Offering have been
effected.
SUBSCRIPTION PRICE
The Subscription Price is $______ per Offering Share. The Subscription
Price is payable in cash or by check, money order or wire transfer, all as
more completely set forth under "THE RIGHTS OFFERING -- Exercise of
Rights."
METHOD FOR PRICING
The terms of the Rights Offering, including the Subscription Price of
$______, were determined by the Board of Directors of the Company. Among
the factors considered in determining the Subscription Price are: the
recent market prices of the Common Shares, the terms of the Series B
Preferred Stock, including dividend and liquidation preferences,
anticipated market and economic conditions, estimates of the business
potential and prospects of the Company, the Company's status as a
development-stage company, the Company's prior investment in its products,
its future estimated cash requirements to commercialize its products, the
risks of the business, and consultation with financial advisors.
EXERCISE OF RIGHTS
The Basic Subscription Privilege and the Oversubscription Privilege
may be exercised by properly completing the Rights Certificates evidencing
the Rights and forwarding them, with payment of the Subscription Price for
each share of Series B Preferred Stock subscribed for pursuant to the Basic
Subscription Privilege and the Oversubscription Privilege, to ChaseMellon
Shareholder Services, L.L.C., the Subscription Agent, prior to the
Expiration Date. Payment may only be made (a) by check or postal,
telegraphic or express money order, payable to ChaseMellon Shareholder
Services, L.L.C., as Subscription Agent, or (b) by wire transfer of funds
to the account maintained by the Subscription Agent for the purpose of
accepting subscriptions at ABA No. 021000021, Chase Manhattan Bank, New
York, New York, Reorganization No. 323-213057, for Clean Diesel
Technologies, Inc., Attn: Evelyn O'Connor. The Subscription Price will be
deemed to have been received by the Subscription Agent only upon (i)
clearance of any uncertified check, (ii) receipt by the Subscription Agent
of any certified check or cashier's check or of any postal, telegraphic or
express money order, or (iii) receipt of collected funds in the
Subscription Agent's account designated above. If paying by uncertified
personal check, please note that the funds paid thereby may take at least
five (5) business days to clear. Accordingly, Holders who wish to pay the
Subscription Price by means of uncertified personal check are urged to make
payment sufficiently in advance of the Expiration Date to ensure that such
payment is received and clears by such time and are urged to consider, in
the alternative, payment by means of certified or cashier's check, money
order or wire transfer of funds. All funds received in payment of the
Subscription Price shall be held by the Subscription Agent in a segregated
interest bearing account in the name of the Company. If Rights Certificates
are sent by mail, Rights Holders are urged to use insured, registered mail,
return receipt requested.
If a Holder wishes to exercise Rights, but time will not permit such
Holder to cause the Rights Certificates evidencing those Rights to reach
the Subscription Agent prior to the Expiration Date, such Rights may
nevertheless be exercised if all of the following conditions (the
"Guaranteed Delivery Procedures") are met:
(i) the Holder has caused payment in full of the Subscription
Price for each Offering Share being subscribed for pursuant to the
Basic Subscription Privilege and the Oversubscription Privilege to be
received (in the manner set forth above) by the Subscription Agent
prior to the Expiration Date;
(ii) the Subscription Agent receives, at or prior to the
Expiration Date, a guarantee notice (a "Notice of Guaranteed
Delivery"), substantially in the form provided with the Instructions
as to Use of Clean Diesel Technologies, Inc. Rights Certificates (the
"Instructions") distributed with the Rights Certificates, from a
member firm of a registered national securities exchange or a member
of the National Association of Securities Dealers, Inc. ("NASD"), or
from a commercial bank or trust company having an office or
correspondent in the United States (each, an "Eligible Institution"),
stating the name of the exercising Holder, the Number of Rights
represented by the Rights Certificate held by such Holder, the number
of Offering Shares being subscribed for pursuant to the Basic
Subscription Privilege, if any, pursuant to the Oversubscription
Privilege, and guaranteeing the delivery to the Subscription Agent of
the Rights Certificates evidencing those Rights within five (5)
trading days following the date of the Notice of Guaranteed Delivery;
and
(iii) the properly completed Rights Certificates evidencing the
Rights being exercised, with any signatures guaranteed as required, is
received by the Subscription Agent within five (5) trading days
following the date of the Notice of Guaranteed Delivery relating
thereto. The Notice of Guaranteed Delivery may be delivered to the
Subscription Agent in the same manner as Rights Certificates at the
addresses set forth below, or may be transmitted to the Subscription
Agent by telegram or facsimile transmission (telecopier no. (201)
296-4293). Additional copies of the form of Notice of Guaranteed
Delivery are available upon request from the Subscription Agent at the
address set forth below.
If the aggregate Subscription Price paid by an exercising Rights
Holder is insufficient to purchase the number of shares of Series B
Preferred Stock that the Holder indicates are being subscribed for, or if
an exercising Rights Holder does not specify the number of shares of Series
B Preferred Stock to be purchased, then the Rights Holder will be deemed to
have exercised, first, the Basic Subscription Privilege and, second, the
Oversubscription Privilege to purchase shares of Series B Preferred Stock
to the full extent of the payment tendered. If the aggregate Subscription
Price paid by an exercising Rights Holder exceeds the amount necessary to
purchase the number of shares of Series B Preferred Stock for which the
Rights Holder has indicated an intention to subscribe, then the Rights
Holder will be deemed to have exercised, first, the Basic Subscription
Privilege (if not already fully exercised) and, second, the
Oversubscription Privilege to the full extent of the excess payment
tendered. Once a Rights Holder has exercised the Basic Subscription
Privilege or the Oversubscription Privilege, such exercise may not be
revoked. Any Rights not duly exercised prior to the Expiration Date will
expire and become worthless.
Funds received in payment pursuant to the Oversubscription Privilege
will be held in a segregated account pending issuance of the Offering
Shares.
Record Holders of Common Shares such as brokers, trustees or
depositories for securities, who hold shares for the account of others,
should contact the respective beneficial owners of such shares as soon as
possible to ascertain the beneficial owners' intentions to obtain
instructions with respect to the Rights. If a beneficial owner so
instructs, the record owner of Common Shares should complete appropriate
Rights Certificates and submit them to the Subscription Agent with the
proper payment. The Company shall pay broker-dealers Soliciting Fees of ten
percent of the Subscription Price paid for each Right which is subscribed;
provided that such fees will only be paid in respect of Rights exercised in
those jurisdictions described under "PLAN OF DISTRIBUTION -- Distribution
Arrangements." See "PLAN OF DISTRIBUTION." Additionally, beneficial owners
of Common Shares or Rights held through such a nominee Holder should
contact the nominee Holder and request the nominee Holder to effect
transactions in accordance with the beneficial owner's instructions.
The Instructions accompanying the Rights Certificates should be read
carefully and followed in detail. RIGHTS CERTIFICATES SHOULD BE SENT WITH
PAYMENT TO THE SUBSCRIPTION AGENT. DO NOT SEND RIGHTS CERTIFICATES TO THE
COMPANY.
THE METHOD OF DELIVERY OF RIGHTS CERTIFICATES AND PAYMENT OF THE
SUBSCRIPTION PRICE TO THE SUBSCRIPTION AGENT WILL BE AT THE ELECTION AND
RISK OF THE RIGHTS HOLDERS. IF SENT BY MAIL, RIGHTS HOLDERS ARE URGED TO
SEND RIGHTS CERTIFICATES AND PAYMENTS BY REGISTERED MAIL, PROPERLY INSURED,
WITH RETURN RECEIPT REQUESTED, AND ARE URGED TO ALLOW A SUFFICIENT NUMBER
OF DAYS TO ENSURE DELIVERY TO THE SUBSCRIPTION AGENT AND CLEARANCE OF
PAYMENT PRIOR TO THE EXPIRATION DATE. BECAUSE UNCERTIFIED PERSONAL CHECKS
MAY TAKE AT LEAST FIVE BUSINESS DAYS TO CLEAR, RIGHTS HOLDERS ARE STRONGLY
URGED TO PAY, OR ARRANGE FOR PAYMENT, BY MEANS OF CERTIFIED OR CASHIER'S
CHECK, MONEY ORDER OR WIRE TRANSFER OF FUNDS.
All questions concerning the timeliness, validity, form and
eligibility of any exercise of Rights will be determined by the Company,
whose determinations will be final and binding. The Company, in its sole
discretion, may waive any defect or irregularity, or permit a defect or
irregularity to be corrected within such time as it may determine, or
reject the purported exercise of any Right. Rights Certificates will not be
deemed to have been received or accepted until all irregularities have been
waived or cured within such time as the Company determines, in its sole
discretion. Neither the Company nor the Subscription Agent will be under
any duty to give notification of any defect or irregularity in connection
with the submission of Subscription Rights or incur any liability for
failure to give such notification.
ANY QUESTIONS OR REQUESTS FOR ASSISTANCE CONCERNING THE METHOD OF
EXERCISING RIGHTS OR REQUESTS FOR ADDITIONAL COPIES OF THIS PROSPECTUS
SHOULD BE DIRECTED TO CHASEMELLON SHAREHOLDER SERVICES, L.L.C. ("THE
INFORMATION AGENT"), AT THE ADDRESS SET FORTH BELOW UNDER "INFORMATION
AGENT".
JURISDICTIONS IN WHICH THE SECURITIES ARE OFFERED
THE RIGHTS WILL ONLY BE GRANTED TO, AND MAY ONLY BE EXERCISED BY,
INVESTORS RESIDING IN THE FOLLOWING JURISDICTIONS WHERE THE SECURITIES
OFFERED HEREBY HAVE BEEN REGISTERED WITH THE APPROPRIATE SECURITIES
REGULATORY AUTHORITIES OR WHERE AN EXEMPTION FROM SUCH REGISTRATION IS
AVAILABLE: OUTSIDE THE UNITED STATES AND IN COLORADO, CONNECTICUT, THE
DISTRICT OF COLUMBIA, ILLINOIS, INDIANA, IOWA, KANSAS, MAINE, MARYLAND,
MASSACHUSETTS, NEVADA, NEW JERSEY, NEW YORK, NORTH CAROLINA, RHODE ISLAND,
VERMONT, VIRGINIA AND WASHINGTON. RIGHTS WILL NOT BE DISTRIBUTED TO HOLDERS
WHO RESIDE IN STATES WHERE THE SECURITIES OFFERED HEREBY HAVE NOT BEEN
REGISTERED OR WHERE AN EXEMPTION FROM REGISTRATION IS NOT AVAILABLE. IN
ADDITION, THE SERIES B PREFERRED STOCK MAY NOT BE TRANSFERRED TO RESIDENTS
OF ANY OF THE FOLLOWING STATES: ARIZONA, FLORIDA, GEORGIA, OHIO,
PENNSYLVANIA OR TEXAS.
NO REVOCATION
ONCE A HOLDER OF RIGHTS HAS PROPERLY EXERCISED THE BASIC SUBSCRIPTION
PRIVILEGE AND/OR THE OVERSUBSCRIPTION PRIVILEGE, SUCH EXERCISE MAY NOT BE
REVOKED.
AMENDMENT AND TERMINATION
The Board of Directors reserves the Right to extend the Expiration
Date and to amend the terms and conditions of the Rights Offering. Any
extension, if made, will be publicly announced through a release to the Dow
Jones News Service and as otherwise required by applicable law or
regulations. In the event of a material change in the terms of the Rights
Offering, there will be an affirmative resolicitation of the Rights
Offering by means of a post-effective amendment to the Registration
Statement. In the event of such a resolicitation, subscribing Holders will
be deemed to have effectively revoked their subscriptions unless they
affirmatively confirm their intent to subscribe, and their subscription
payments will be returned to them without interest or deduction. The Board
of Directors of the Company in its sole discretion, may terminate the
Rights Offering and revoke the Rights at any time prior to the Expiration
Date or thereafter. In any event, the Company shall terminate the Rights
Offering if on the Expiration Date the Company receives aggregate cash
proceeds of less than $2.0 million from the exercise of Rights. In the
event of such termination, the Company will promptly return to all persons
that exercised Rights, their subscription payments, without interest or
deduction.
METHOD OF TRANSFERRING RIGHTS
Rights may be purchased or sold through usual investment channels,
including banks and brokers. There can be no assurance that an active
market will develop for the Rights. The Rights, the underlying shares of
Series B Preferred Stock and the Common Shares issuable upon conversion of
the Series B Preferred Stock, will not be eligible for trading on Nasdaq.
The Rights evidenced by a single Rights Certificate may be transferred
in whole by endorsing the Rights Certificate for transfer in accordance
with the accompanying instructions. A portion of the Rights evidenced by a
single Rights Certificate (but not fractional Rights or the
Oversubscription Privilege or to persons in jurisdictions where the
Securities have not been registered or where an exemption from registration
is not available) may be transferred by delivering to the Subscription
Agent a Rights Certificate properly endorsed for transfer, with
instructions to register such portion of the Rights evidenced thereby in
the name of the transferee (and to issue a new Rights Certificate to the
transferee evidencing such transferred Rights). In such event, a new Rights
Certificate evidencing the balance of the Rights will be issued to the
Rights Holder or, if the Rights Holder so instructs, to an additional
transferee. The Oversubscription Privilege is not transferable.
Holders of Rights wishing to transfer all or a portion of their Rights
(subject to the limitations described above) should allow a sufficient
amount of time prior to the Expiration Date for (i) the transfer
instructions to be received and processed by the Subscription Agent, (ii) a
new Rights Certificate for the transferred Rights to be issued and
transmitted to the transferee or transferees and a new Rights Certificate
for any retained Rights to be issued and transmitted to the transferor and
(iii) the Rights evidenced by such new Rights Certificates to be exercised
or sold by the recipients thereof. Neither the Company nor the Subscription
Agent shall have any liability to a transferee or transferor of Rights if
Rights Certificates are not received in time for exercise or sale prior to
the Expiration Date.
EXCEPT FOR CERTAIN FEES PAID TO BROKER-DEALERS AND CHARGED BY THE
SUBSCRIPTION AGENT THAT WILL BE PAID BY THE COMPANY, ALL COMMISSIONS, FEES
AND OTHER EXPENSES (INCLUDING BROKERAGE COMMISSIONS AND TRANSFER TAXES)
INCURRED IN CONNECTION WITH THE PURCHASE, SALE OR EXERCISE OF RIGHTS WILL
BE FOR THE ACCOUNT OF THE TRANSFERRING HOLDER OF THE RIGHTS AND NONE OF
SUCH COMMISSIONS, FEES OR EXPENSES WILL BE PAID BY THE COMPANY OR THE
SUBSCRIPTION AGENT.
The Rights will be eligible for transfer through, and the exercise of
the Rights may be effected through, the facilities of the Transfer Agent.
NO RECOMMENDATION
Neither the Company nor the Board of Directors of the Company makes
any recommendations regarding whether Rights Holders should sell their
Rights or whether Rights Holders should exercise their Rights.
PARTICIPATION BY FUEL TECH
Fuel Tech has not yet made a determination as to whether it will
participate in the Rights Offering, and will do so following the
distribution of the Rights based upon several factors, including the
offering price, Fuel Tech's financial position and other factors. If Fuel
Tech were to participate, it may desire to participate through the
conversion of the outstanding $495,000 loan by one of its subsidiaries to
the Company. Such a participation, if agreed to in the sole discretion of
the Company, would represent a Basic Subscription in respect of 31.9% of
the Common Shares currently owned by Fuel Tech.
SUBSCRIPTION AGENT
The Company has engaged ChaseMellon Shareholder Services, L.L.C. as
the Subscription Agent for the Rights Offering. The Company will pay the
fees and expenses of the Subscription Agent, and has also agreed to
indemnify the Subscription Agent from certain liabilities which it may
incur in connection with the Rights.
INFORMATION AGENT
The Company has appointed ChaseMellon Shareholder Services, L.L.C. as
Information Agent for the Rights Offering. The Company will pay the fees
and expenses of the Information Agent and has also agreed to indemnify the
Information Agent from certain liabilities that it may incur in connection
with the Rights Offering.
Any questions or requests for assistance concerning the method of
exercising Rights to purchase Series B Preferred Stock or for additional
copies of this Prospectus can be directed to the Information Agent in the
continental United States at ChaseMellon Shareholder Services, L.L.C., 450
West 33rd Street, New York, NY 10001, Phone: (888) 224-2745 and in the
United Kingdom at Computershare Services, P.L.C., P.O. Box, Consort House,
East Street, Bedminister, Bristol, BS 991XZ, Phone: 1179-370-672.
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSEQUENCES TO HOLDERS
The following is a general summary of certain United States Federal
income tax consequences (the "Tax Consequences") to the Company's Holders
who are citizens or residents of the United States of the proposed
distribution to such Holders of Rights to acquire shares of Series B
Preferred Stock of the Company. This summary does not address any state,
local, foreign, estate or gift tax considerations. This summary is included
for general information only. This summary is based upon laws, regulations,
revenue rulings and decisions as of July 10, 1998, all of which are subject
to change or differing interpretations; any such change could have a
retroactive effect and may also have a negative tax impact. The tax
treatment of a Holder may vary depending upon the Holder's particular
circumstances and certain Holders such as tax exempt corporations,
insurance companies, "S" corporations, banks, foreign estates or trusts,
foreign corporations and persons who are not citizens or residents of the
United States, may be subject to special rules not discussed below. This
summary is limited to Holders who are citizens or residents of the United
States or corporations organized under the laws of a state of the United
States who will hold the Rights as "capital assets" within the meaning of
Section 1221 of the Internal Revenue code of 1986, as amended (the "Code").
HOLDERS SHOULD CONSULT THEIR OWN TAX ADVISORS AS TO THE SPECIFIC TAX
CONSEQUENCES TO THEM OF THE OFFERING AND THE RIGHTS IN LIGHT OF THEIR
PARTICULAR CIRCUMSTANCES.
RECEIPT OF RIGHTS BY HOLDERS
Code Section 305(b)(5) provides that a distribution of convertible
preferred stock is taxable under Code Section 301 as a dividend unless it
is established that such distribution will not have the result of a
disproportionate distribution. Rights to acquire convertible preferred
stock are treated the same as the stock itself. Holders in jurisdictions
where Securities have not been registered or where an exemption for
registration is not available will not receive, or be able to exercise, the
Rights. Holders of less than fifty (50) Common Shares shall not receive any
Rights pursuant to this offering plan. Additionally, management believes
that some Holders will exercise their Rights and some will not and there is
an Oversubscription Privilege. Consequently, the distribution of Rights
will be a disproportionate distribution and will be taxable as a dividend
pursuant to Code Section 301. Therefore, a Holder who receives Rights will
(i) recognize ordinary income (treated as a dividend for Federal income tax
purposes) equal to the lesser of: (a) the Value of the Rights on the date
of receipt, or (b) the Company's current and/or accumulated earnings and
profits ("E&P") for the taxable year in which the Rights are distributed;
(ii) reduce the adjusted tax basis of the Common Shares of the Company held
by the Holder by the excess of the Value of the Rights over the amount
required to be treated as a dividend; and (iii) recognize capital gain to
the extent such excess Value exceeds the adjusted tax basis of the
Company's Common Shares held by the Holder. Characterization of the capital
gain recognized for Federal income tax purposes, if any, as long term or
short term capital gain, is determined by reference to each Holder's
individual holding period for the Company Common Shares. Management of the
Company believes that the Company will have no current and/or accumulated
E&P for the taxable year in which the Rights are distributed. Consequently,
Management believes that no portion of the Rights will be taxable as
ordinary income to Holders. No attempt has been made to independently
verify whether current and/or accumulated E&P exist or are anticipated to
exist for the taxable year of the distribution of the Rights. Accordingly,
there can be no assurance that current and/or accumulated E&P exist or will
exist for the taxable year of the distribution of the Rights. In any event,
the Company will provide each Holder with an information statement after
the close of the taxable year in which the Rights are distributed
indicating the amount, if any, of the distribution that is required to be
treated as ordinary income under the foregoing rules.
DETERMINATION OF VALUE
The fair market value of property is a question of fact and
acknowledged experts may disagree as to the fair market value of a
particular item of property. In some instances, the fair market value of
property may not be ascertainable for tax purposes which may postpone
income recognition for Federal income tax purposes. The Rights would
constitute a distribution or property. In the instant case, no appraisal of
the Rights will be obtained, but it is anticipated that the Rights will be
purchased and sold through usual investment channels and the selling price
thereof at or near the date the Rights are distributed will likely be
deemed the Value of the Rights. No assurance can be given as to what the
Value of the Rights will be or that the Rights will be considered to have
an ascertainable fair market value.
TAX BASIS OF RIGHTS
Holders receiving Rights will have a tax basis therein equal to their
Value. As to Holders, their basis in their shares will be reduced, but not
below zero, by an amount equal to the excess of such Value over the amount,
if any, treated as ordinary income under the rules discussed above.
SALE OF RIGHTS
A Holder who sells Rights prior to exercise will recognize a
short-term gain or loss equal to the difference between his tax basis in
the Rights sold and the amount realized on the sale.
EXERCISE OF RIGHTS; BASIS OF STOCK RECEIVED
The exercise of Rights will not have any separate Federal income tax
consequences, nor will the receipt of the shares of Series B Preferred
Stock upon such exercise. Such shares will have a basis equal to the amount
paid therefor on exercise plus the Holder's tax basis in the Rights
exercised.
LAPSE OF RIGHTS PRIOR TO EXERCISE
If a Holder does not sell or exercise the Rights received, and the
Rights expire, the Holder will realize a short-term capital loss equal to
the tax basis of the expired Rights. No adjustment to the basis of the
Company shares of a Holder will result.
CONVERSION OF PREFERRED STOCK
Holders who convert their Series B Preferred Stock into Common Shares
will not recognize any gain or loss upon such conversion. A Holder's basis
in the Common Shares acquired through conversion will be equal to the basis
which the Holder had in the Series B Preferred Stock so converted. The
Holding period for such Common Shares shall include the holding period for
the converted Series B Preferred Stock.
NON-DISPROPORTIONATE DISTRIBUTION
Treasury Regulations Sections 1.305-6 provide that where a conversion
right (of preferred into common shares) may be exercised over a period of
many years and the dividend rate is consistent with market conditions at
the time of distribution of the stock, there is no basis for predicting at
what time and the extent to which the stock will be converted, the
distribution may not be a "disproportionate distribution." If the
distribution of Rights is not a disproportionate distribution, it may be
tax free pursuant to Code Section 305. In the event the distribution of
Rights is determined to be a tax-free transaction, several consequences may
result, one of which is that the Series B Preferred Stock received may be
treated as "Section 306 stock." Although the Company believes that the
preferred stock which would be received on exercise of the Rights would not
be Section 306 stock, it is possible for the Internal Revenue Service to
challenge this position. The effect of such a designation upon various
aspects of this offering are summarized below for information purposes.
Code Section 306 generally provides that where a corporation
distributes preferred stock to its shareholders in a tax-free distribution,
the shareholders will recognize ordinary income at such time as such
preferred stock is "disposed of."
Code Section 306(c)(2) provides that stock shall not be "Section 306"
stock if no part of the distribution would have been a dividend if, in lieu
of the stock (or rights) distribution, a cash distribution would have been
made. It should be noted, however, that dividend consequences of a
distribution of cash are determined as of the end of the taxable year in
which the distribution is made. Although management believes that there
will be no current or accumulated E&P as of the end of the tax year in
which the distribution occurs, there can be no assurance that that will be
so. Therefore, in the event there is any E&P, current or accumulated as of
the end of the year in which the distribution of Rights occurs, and the
distribution itself is determined to be a tax-free distribution, any gain
recognized on the disposition of the Rights or the preferred stock received
on exercising the Rights would be taxable as ordinary income and not as
capital gain.
The basis and the holding period for computation of long-term or
short-term capital gain or loss of the Rights would be determined with
reference to the basis of the previously owned Common Shares. The basis
provisions of Code Section 307 would require a Holder to allocate the
adjusted basis of the previously owned Common Shares between the previously
owned Common Shares and the Rights based on relative fair market value
(after the distribution of the Rights). Code Section 307(b) provides an
exception to the allocation of basis requirement if the fair market value
of the Rights are less than fifteen (15%) percent of the fair market value
of the previously owned stock. In such cases, the allocation of basis is
not required but becomes an election available to the stockholder. As
discussed above, no representation or assurances can be made as to the
Value of the Rights.
If a Holder's basis in the Rights is determined with reference to his
previously owned Common Shares, lapse of the Rights would result in a
capital loss measured by the Holder's basis in the Rights and the
determination of whether such loss is long-term or short-term would be the
same as the holding period of the previously owned Common Shares.
A Holder who converts the Series B Preferred Stock into Common Shares
will not recognize gain or loss on such conversion. Under certain
circumstances, sale of the Common Shares acquired thereby may be treated as
being sale of "stock other than common stock" such that any resulting gain
would be treated as ordinary income rather than capital gain.
Even if the Rights, the Series B Preferred Stock or resultant Common
Shares are treated as "stock other than common stock," there are several
methods available to Holders to avoid the adverse tax consequences arising
from such designation. One such method would be the sale of the entire
stock interest of the Holder.
RATIO OF EARNINGS TO FIXED CHARGES AND PREFERRED STOCK DIVIDENDS
For the years ended December 31, 1993, 1994, 1995, 1996 and 1997 and
for the period from January 1, 1992 through December 31, 1997 and for the
three month periods ended March 31, 1997 and 1998 and for the period from
January 1, 1992 through March 31, 1998, the Company's earnings were
inadequate to cover fixed charges by approximately (in thousands) $131;
$1,107; $2,024; $3,489; $3,764; $10,853; $961; $741; and $11,594,
respectively.
USE OF PROCEEDS
The net proceeds to be received by the Company from the sale of the
50,000 shares of Series B Preferred Stock offered hereby, are expected to
be approximately $3.1 million, assuming an offering price of $74.25 per
share, estimated Subscription Fees and expenses of $600,000 and full
subscription of the Rights. All of the net proceeds of the Subscription
Rights will be paid to the Company. Assuming minimum subscription using the
foregoing assumptions, net cash proceeds would be approximately $1.4
million. The Company expects to use the net proceeds of the Rights
Offering, assuming full subscription, and apply them to the following
budgeted uses: $1,700,000 for marketing, field trials and patents;
repayment of $200,000 plus $45,000 of interest to Fuel Tech under the Term
Loan (as defined below); and the balance for working capital and general
corporate purposes. The Company expects to use the net proceeds of the
Rights Offering, assuming minimum subscription, and apply them to the
following budgeted uses: $750,000 for marketing, field trials and patents;
repayment of $100,000 plus $26,000 of interest to Fuel Tech under the Term
Loan (as defined below); and the balance for working capital and general
corporate purposes.
The allocation of the net proceeds of this offering set forth above
represents the Company's best estimate based upon its present plans and
certain assumptions regarding general economic and industry conditions and
the Company's future revenues and expenditures. The Company reserves the
Right to reallocate the proceeds within the above described categories or
to other purposes in response to, among other things, changes in its plans,
industry conditions, and the Company's future revenues and expenditures.
Based on the Company's operating plan, management believes that the
net proceeds from this offering, together with the $1.4 million Bridge Loan
effected in 1998, will be sufficient to meet the Company's anticipated cash
needs and finance its operations through January 2000 (assuming full
subscription) and through April 1999 (assuming minimum subscription).
Thereafter, the Company anticipates that it may require additional
financing to meet its current or future plans. See "RISK FACTORS -- Factors
Relating to the Company -- Independent Auditor's Report" and "-- Liquidity
and Capital Requirements" and "-- No Assurances of Additional Funding."
Net proceeds not immediately required for the purposes described above
will be invested principally in U.S. government securities, short-term
certificates of deposit, money market funds, or other high-grade,
short-term, interest-bearing investments.
As described herein, Fuel Tech has not yet made a determination as to
whether it will participate in the Rights Offering, and will do so
following the distribution of the Rights based upon several factors,
including the offering price, Fuel Tech's financial position and other
factors. If Fuel Tech were to participate, it may desire to participate
through the conversion of the outstanding $495,000 loan by one of its
subsidiaries to the Company. If Fuel Tech were to participate by converting
such loan (for which the Company's consent would be required) and, assuming
full subscription, net cash proceeds, as well as outstanding indebtedness
of the Company, would decrease by approximately $495,000. Any such
conversion, if agreed by the Company, would not be included in calculating
aggregate cash proceeds received by the Company in determining whether the
minimum subscription has been met.
PRICE RANGE OF COMMON SHARES
The Company's Common Shares were listed on Nasdaq under the symbol
"CDTI" through June 30, 1998. Effective July 1, 1998, the Common Shares
were delisted and currently trade on the OTC Electronic Bulletin Board,
although no assurances can be given that such shares will continue to trade
thereon or in the over-the-counter market, in what are commonly referred to
as the "pink sheets". The following table sets forth the high and low sale
prices by quarter through June 30, 1998 as reported by Nasdaq, and for July
1 through July 29, 1998 in the OTC Electronic Bulletin Board.
High Low
---- ---
1st Quarter 1996................................ 7 3/8 5
2nd Quarter 1996................................ 6 3/8 4 3/8
3rd Quarter 1996................................ 6 3 7/8
4th Quarter 1996................................ 4 1/4 2
1st Quarter 1997................................ 5 1/2 2
2nd Quarter 1997................................ 4 1/2 3 1/4
3rd Quarter 1997................................ 4 1/8 2 1/4
4th Quarter 1997................................ 3 3/4 1 3/16
1st Quarter 1998................................ 3 1/2 1 3/8
2nd Quarter 1998................................ 1 3/4 1 3/4
3rd Quarter 1998 (through August 4, 1998)....... 2 1 7/8
As of August 4, 1998, the last sale price for the Common Shares as
reported by the OTC Electronic Bulletin Board was $1.88 per Common Share.
As of _______ __, 1998, there were ___ Holders of record of the Common
Shares.
DIVIDEND POLICY
The Company has to date not paid dividends on its Common Shares and
does not intend to pay any dividends to its Holders of Common Shares in the
foreseeable future.
Holders of the Series A Preferred Stock and Series B Preferred Stock
are entitled to receive, when, as and if declared by the Board out of funds
of the Company legally available therefor, cash dividends at the annual
rate of 9% of the $500 stated value and liquidation preference of the
Series A Preferred Stock price per share and 9% of the $______ stated value
and liquidation preference of the Series B Preferred Stock price per share,
respectively; provided, however, that in lieu of making dividends in cash,
the Company may elect, by giving written notice to each holder of the
Series A Preferred Stock and Series B Preferred Stock, as the case may be,
to pay dividends in kind at the annual rate of 11% of the Liquidation
Preference (cash dividends and dividends in kind are each deemed "Preferred
Dividends"). Dividends payable to the holders of the Series A Preferred
Stock and Series B Preferred Stock are payable quarterly in arrears, on the
first business day of January, April, July and October of each year (each
such date being hereinafter referred to as a "Dividend Payment Date"),
commencing July 1, 1998. Preferred Dividends on shares of Series A
Preferred Stock and Series B Preferred Stock shall be cumulative and shall
accrue from the date of original issuance. It is presently anticipated that
the Company will pay dividends on shares of the Series A Preferred Stock
and Series B Preferred Stock in shares of Series A Preferred Stock and
Series B Preferred Stock, respectively, and any earnings which the Company
may realize in the foreseeable future will be retained to finance the
development and expansion of the Company.
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
March 31, 1998, and the as adjusted capitalization of the Company as of
March 31, 1998 after giving effect to (i) the issuance of $1.4 million of
Bridge Loan Notes, (ii) the distribution of and the exercise of the Rights
by Holders of Common Shares and the contribution of approximately $3.1
million (assuming full subscription, net of estimated Soliciting Fees and
expenses of the Rights Offering of $600,000), to the Company's capital and
the conversion of the Bridge Loan Notes into Series A Convertible Preferred
Stock and (iii) the distribution of and the exercise of the Rights by
Holders of Common Shares and the contribution of approximately $1.4 million
(assuming minimum subscription, net of estimated Soliciting Fees and
expenses of the Rights Offering of $600,000), to the Company's capital, in
each case as if such events occurred as of March 31, 1998. See "USE OF
PROCEEDS."
<TABLE>
<CAPTION>
March 31, 1998
--------------------------------------------
(in thousands)
AS ADJUSTED AS ADJUSTED AS ADJUSTED FOR
FOR BRIDGE LOAN FOR RIGHTS RIGHTS OFFERING
ACTUAL OFFERING (FULL (MINIMUM
SUBSCRIPTION) SUBSCRIPTION)
------------ ----------- ------------- -----------
<S> <C> <C> <C> <C>
Short-term Debt
Current Portion Term Loan
payable to Platinum Plus, Inc. $ 100 $ 100 $ 100 $ 100
(FN1)............................ ------------ ----------- ------------- -----------
Total short-term debt......... 100 100 100 100
------------ ----------- ------------- -----------
Long-term Debt
Term Loan payable to Platinum
Plus, Inc. (FN1).............. 395 395 395 395
Bridge Loan payable to Fuel Tech. -- 500 (FN2) -- (FN6) 500 (FN2)
Bridge Loan payable to other -- 900 (FN2) -- (FN6) 900 (FN2)
lenders ......................... ------------ ------------ ------------ -----------
Total long-term debt.......... 395 1,795 395 1,795
------------ ------------ ------------- -----------
Series A Redeemable Preferred
Stock (FN3).................... -- -- 1,400 --
Shareholders' (Deficit) Equity
Series B Preferred Stock (FN4)... -- -- 3,112 1,400
Common Stock (FN5)............... 126 126 126 126
Additional Paid-in Capital........... 11,188 11,188 11,188 11,188
Deficit accumulated during the
development stage................. (11,594) (11,594) (11,594) (11,594)
------------ ------------ -------------- ------------
Total Shareholders' (Deficit) Equity. (280) (280) 2,832 1,120
------------ ------------- ------------- -----------
Total Capitalization................. $ 215 $ 1,615 $ 4,727 $ 3,015
============ ============ ============= ===========
- ------------------------------------------------
<FN>
(1) Platinum Plus, Inc. ("Platinum Plus") is a wholly owned subsidiary of
Fuel Tech. The principal amount of the Term Loan is payable in three
annual installments of $100,000 each on July 1 of each of the years
1998 through 2000 with a final installment of $195,000 on July 1,
2001. On July 1, 1998, Platinum Plus elected to defer the repayment of
the $100,000 of principal which was payable on that date. Platinum
Plus has reserved the right, however, to call this payment at any
time. As of the date of this prospectus, Platinum Plus has not
demanded repayment. Interest at a rate of 8% per annum is payable on
the unpaid balance on each principal payment date. The interest
accrued on the note as of July 1, 1998 was paid by the Company. See
Note 7 to the Annual Financial Statements for information regarding
the loan payable by the Company. As described under "USE OF PROCEEDS,"
Fuel Tech has not yet decided whether it will participate in the
Rights Offering. If Fuel Tech were to participate by converting such
loan (for which the Company's consent would be required) and the
Rights Offering was fully subscribed, net cash proceeds from the
Rights Offering, as well as outstanding indebtedness of the Company,
would decrease by approximately $495,000. If Fuel Tech were to
participate and the Rights Offering was minimally subscribed, the
outstanding indebtedness of the Company would decrease by
approximately $495,000 and shareholders' equity would increase by
approximately $495,000.
(2) Assumes receipt of the proceeds of the Bridge Loan as of March 31,
1998. See "CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS -- Bridge
Loan."
(3) For a description of the Series A Convertible Preferred Stock issuable
upon the conversion of the Bridge Loan Notes, see "DESCRIPTION OF
CAPITAL STOCK -- Preferred Stock -- Series A Convertible Preferred
Stock" and "CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS -- Terms of
Series A Convertible Preferred Stock." Shares of Series A Convertible
Preferred Stock, once issued, are convertible at the option of the
Holders thereof into Common Shares at a conversion price of $1.50 per
share, which conversion price will be deemed to have been paid in
full, at no extra cost to the holder thereof, with the tendering of
the Series A Preferred Stock in connection with the conversion
thereof. Series A Convertible Preferred Stock is redeemable at the
holder's option after four years.
(4) For a description of the Series B Convertible Preferred Stock, see
"DESCRIPTION OF CAPITAL STOCK -- Preferred Stock -- Series B
Convertible Preferred Stock." Shares of Series B Convertible Preferred
Stock, once issued, are convertible at the option of the Holders
thereof into 33 Common Shares at no cost to such Holder.
(5) Based on the number of shares outstanding at March 31, 1998. Excludes
(i) 427,784 shares of Common Stock issuable upon exercise of
outstanding options at a weighted average exercise price of $3.50 per
share; and (ii) 75,000 shares of Common Stock issuable upon exercise
of outstanding warrants at a weighted average exercise price of $7.66
per share.
(6) Assumes mandatory conversion of the Bridge Loan Notes into Series A
Preferred Stock. In the event that the Rights Offering does not meet
the minimum net subscription of $1.75 million required under the terms
of the Bridge Loan Notes to automatically convert the Bridge Loan
Notes into Series A Preferred Stock, the Bridge Loan may be converted
at any time at the option of the Bridge Loan Lenders after January 31,
1999. See "CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS -- Bridge
Loan."
</FN>
</TABLE>
DILUTION
At March 31, 1998, the Company had a negative tangible net worth of
$280,000 or $0.11 per Common Share based on the 2,516,666 Common Shares
outstanding. Negative tangible net worth per share represents the amount of
the Company's total assets less the amount of its intangible assets and
liabilities, divided by the number of Common Shares outstanding. After
giving effect to the receipt of net proceeds (assuming a public offering
price of $74.25 per share of Series B Preferred Stock, full, minimum and
midpoint subscription of the Rights and the immediate conversion of the
foregoing shares of Series B Preferred Stock into shares of Common Stock)
from the sale of the securities offered hereby, the pro forma net tangible
book value of the Company at March 31, 1998, would have been approximately
$.83, $.51 and $.68 per Common Share, respectively. This would result in
dilution to the new public investors (i.e., the difference between the
Offering Price of a Common Share underlying the Series B Preferred Stock
offered hereby and the net tangible book value thereof after giving effect
to this Offering) of approximately $1.43, $1.74 and $1.57 per Common Share
(based on full, minimum and midpoint subscription), respectively. The
following table illustrates the per share dilution under three scenarios:
(i) full subscription of the Rights; (ii) minimum subscription of the
Rights; and (iii) a midpoint between the first two scenarios.
<TABLE>
<CAPTION>
Minimum
Full Subscription Subscription Midpoint
-------------------- -------------------- --------------------
<S> <C> <C> <C>
Public offering price per Common Share
underlying the Series B Preferred Stock
offered hereby at March 31, 1998 (FN1).... $2.25 $2.25 $2.25
Pro forma tangible book value per Common
Share after Offering......................
Negative tangible book value per Common
Share at March 31, 1998................. $(.11) $(.11) $(.11)
Increase in net tangible book value per
Common Share attributable to new
investors............................... .94 .83 .62 .51 .79 .68
------- --------- ------- --------- ------- ---------
Dilution per Common Share to new investors
(FN2)(FN3)(FN4)........................... $1.43 $1.74 $1.57
==================== ==================== ====================
- -------------------------
<FN>
(1) Public offering price per Common Share is calculated as though the
Series B Convertible Preferred Stock is converted into the underlying
Common Shares of the Company, pursuant to the conversion provisions of
such stock discussed elsewhere herein.
(2) At March 31, 1998, 427,784 Common Shares are issuable pursuant to the
Company's 1994 Incentive Plan (the "Plan"). Options with exercise
prices less than $2.25 per Common Share, subject to the Plan's vesting
provisions, will result in further dilution to new investors of $.01,
$.01 and $.01 per Common Share assuming full subscription, minimum
subscription and midpoint subscription, respectively.
(3) The dilution amounts set forth above under "Full Subscription",
Minimum Subscription" and "Midpoint" assume subscription to 50,000
shares, 26,937 shares and 38,469 shares of Series B Convertible
Preferred Stock, respectively.
(4) If the holders of the Bridge Loan Notes were to exercise the
conversion provisions of such notes into Series A Convertible
Preferred Stock and convert such stock into the Company's Common
Shares, the amounts set forth above for "Dilution per Common Share to
new investors" under the columns "Full Subscription", Minimum
Subscription" and "Midpoint" would have been reduced to $1.33, $1.57
and $1.44, per share, respectively.
</FN>
</TABLE>
The following table sets forth, as of the date of this Prospectus, the
number of Common Shares purchased, the percentage of Common Shares
purchased, the total consideration paid (before expenses of the 1995 Rights
Offering and Subscription Fees and expenses of this Offering), the
percentage of total consideration paid and the average price per share
paid, by the existing shareholders of the Company and the investors in this
Offering assuming the maximum proceeds to the Company from the Rights
Offering (i.e. full subscription).
<TABLE>
<CAPTION>
Shares Purchased Average
-------------------------- Price per
Number Percentage Amount Percentage Share
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
New Investors.................. 1,650,000 39.6% $ 3,712,500 22.8% $ 2.25
Existing Shareholders.......... 2,516,666 60.4% 12,569,000 77.2% 4.99
----------- ----------- ----------- ----------- -----------
TOTAL(FN2)................ 4,166,666 100.0% $16,281,500 100.0% 3.91 (FN1)
=========== =========== =========== =========== ===========
- ------------------
<FN>
(1) Assuming full subscription of the Rights Offering, conversion of the
Bridge Loan Notes into Series A Preferred Stock and, subsequent
conversion of such Series A Preferred Stock into the Company's Common
Shares, the average price per share paid by all shareholders would
decrease from $3.91 to $3.47 per share.
(2) Excludes any conversion of Series A Preferred Stock into Common
Shares.
</FN>
</TABLE>
The following table sets forth, as of the date of this Prospectus, the
number of Common Shares purchased, the percentage of Common Shares
purchased, the total consideration paid (before expenses of the 1995 Rights
Offering and Subscription Fees and expenses of this Offering), the
percentage of total consideration paid and the average price per share
paid, by the existing shareholders of the Company and the investors in this
Offering assuming the minimum proceeds to the Company from the Rights
Offering (i.e. minimum subscription).
<TABLE>
<CAPTION>
Shares Purchased Average
-------------------------- Price per
Number Percentage Amount Percentage Share
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
New Investors.................. 888,921 26.1% $ 2,000,100 13.7% $ 2.25
Existing Shareholders.......... 2,516,666 73.9% 12,569,000 86.3% 4.99
----------- ----------- ----------- -----------
TOTAL..................... 3,405,587 100.0% $14,569,100 100.0% 4.28
=========== =========== =========== =========== ===========
</TABLE>
SUMMARY SELECTED FINANCIAL DATA
The following summary selected financial data for each of the five
years in the period ended December 31, 1997 and for the period from January
1, 1992 through December 31, 1997 are derived from the audited financial
statements of the Company. The summary selected financial data for the
three month periods ended March 31, 1997 and 1998 are derived from
unaudited financial statements of the Company. The unaudited financial
statements include all adjustments, consisting of normal recurring
accruals, which the Company considers necessary for a fair presentation of
the financial position and the results of operations for these periods.
Operating results for the three months ended March 31, 1998 are not
necessarily indicative of the results that may be expected for the entire
year ending December 31, 1998. The summary selected financial data should
be read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the financial statements
and notes thereto appearing elsewhere herein.
The Company was incorporated on January 19, 1994, as a wholly owned
subsidiary of Fuel Tech. Predecessor financial information included below
for the period January 1, 1992, through January 18, 1994, reflects the
Company's operations prior to incorporation, at which time it was accounted
for as part of Fuel Tech. Effective December 12, 1995, Fuel Tech completed
a Rights Offering of the Company's Common Shares, with Fuel Tech retaining
at such time a 27.6% ownership interest in the Company (which as of March
31, 1998, has declined to a 27.4% interest after giving effect to the
exercise of stock options). The Company is a development-stage enterprise,
and its efforts from January 1, 1992, to the present time have been devoted
to the research, development and commercialization of PFCs and NOx
reduction technologies to reduce emissions from diesel engines. There were
no material activities related to the Company's business in 1990 or 1991.
Prior to 1990, the activities of Fuel Tech were focused on other
applications of PFCs that are unrelated to the Company's present or
contemplated business and were not material to the overall development of
the Company's products. Therefore, such costs have been excluded from the
determination of the Company's development costs and from the summary
selected financial data set forth below.
<TABLE>
<CAPTION>
Period Period
from from
January 1, January 1,
1992, Three Months 1992
Years Ended through Ended through
December 31, December 31, March 31, March 31,
1993 1994 1995 1996 1997 1997 1997 1998 1998
------ ------ ------ ------ ------ ------ ------ ----- ------
STATEMENT OF
OPERATIONS DATA: (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Sales..................... $ -- $ -- $ -- $ -- $ 199 $ 199 $ 40 $ -- $ 199
Costs and expenses:
Cost of sales.......... -- -- -- -- 132 132 23 -- 132
General and
administrative......... -- 507 963 1,842 1,730 5,042 496 451 5,493
Research and
development............ 86 441 796 1,747 1,985 5,317 457 236 5,553
Patent filing and 45 158 199 223 237 938 75 56 994
maintenance............ ------ ------ ------ ------ ------ ------ ------ ----- ------
Loss from operations...... 131 1,106 1,958 3,812 3,885 11,230 1,011 743 11,973
Interest expense (income),
net.................... -- 1 66 (323) (121) (377) (50) (2) (379)
------ ------ ------ ------ ------ ------ ------ ----- ------
Net loss during
development stage...... $ 131 $1,107 $2,024 $3,489 $3,764 $10,853 $ 961 $ 741 $11,594
====== ====== ====== ====== ====== ======= ====== ===== =======
Basic and diluted loss per
Common Share........... N/A $ 0.44 $ 0.81 $ 1.40 $ 1.50 N/A $ 0.38 $ 0.29 N/A
Weighted-average shares
outstanding............ N/A 2,500 2,500 2,500 2,517 N/A 2,512 2,517 N/A
Ratio of earnings to
combined fixed charges
and preferred stock
dividends (FN1)........ -- -- -- -- -- -- -- -- --
Cash dividends declared... -- -- -- -- -- -- -- -- --
</TABLE>
<TABLE>
<CAPTION>
December 31, March 31,
1993 1994 1995 1996 1997 1998
---- ---- ---- ---- ---- ----
BALANCE SHEET DATA:
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Current assets.......... $ -- $ 513 $ 8,882 $ 5,595 $ 1,682 $ 982
Total assets............ -- 513 8,882 5,677 1,750 1,044
Current liabilities..... -- 1,370 487 1,486 894 929
Long-term debt.......... -- -- 745 -- 395 395
Working capital
(deficit)............ -- (857) 8,395 4,109 788 53
Shareholders'
equity
(deficiency)......... -- (857) 7,650 4,191 461 (280)
<FN>
(1) For the years ended December 31, 1993, 1994, 1995, 1996 and 1997 and
for the period from January 1, 1992 through December 31, 1997 and for
the three month periods ended March 31, 1997 and 1998 and for the
period from January 1, 1992 through March 31, 1998, the Company's
earnings were inadequate to cover fixed charges by approximately $131;
$1,107; $2,024; $3,489; $3,764; $10,853; $961; $741; and $11,594,
respectively.
</FN>
</TABLE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The Company is a development-stage enterprise, and its efforts from
January 1, 1992 (date of inception), to the present time have been devoted
to the research, development and, to a limited extent, commercialization of
PFCs and NOx reduction technologies to reduce emissions from diesel
engines.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1997, VERSUS THREE MONTHS ENDED MARCH 31, 1998
Sales and Cost of sales were $40,000 and $23,000, respectively, for
the first quarter of 1997 and zero in the comparable period in 1998. The
Company's products were purchased by Holts, pursuant to a supply agreement
entered into in September 1996 (the "September 1996 Supply Agreement").
Holts launched the Company's PFC products for use with Holts' fuel
additives in the aftertreatment of fuel for both gasoline and diesel
engines in several European countries. In December 1997, Holts was acquired
by Prestone Products, Inc. ("Prestone"), a division of AlliedSignal. Based
on management and product line changes at Holts resulting from the Prestone
acquisition, Holts did not order any product in the first half of 1998, and
the Company expect delays in sales to Holts in 1998.
General and administrative expenses decreased from $496,000 in the
first quarter of 1997 to $451,000 in the comparable period in 1998. The
decrease is the result of the implementation of some of the Company's plans
to minimize expenses in order to conserve cash, pending securing additional
working capital. Such plans included reducing the administrative staff from
four to two, closing the Company's U.K. office and reducing management fees
charged to the Company by Fuel Tech. These efforts were partially offset by
the increased costs associated with obtaining financing.
Research and development expenses were $457,000 in the first quarter
of 1997 versus $236,000 in the comparable period in 1998. The Company
significantly reduced research and development costs in 1998 due in part to
a shift in emphasis toward commercialization versus research and
development. Other factors include the completion of a number of
fundamental programs in 1997, the deferral of certain field trials due to
the Company's diminishing working capital position and the Company's
expanded participation in collaborative and consortium-based programs with
potential customers and industrial partners for which it is responsible for
only a portion of the program costs.
Patent filing and maintenance expenses decreased from $75,000 in the
first three months of 1997 to $56,000 in the comparable period in 1998.
Expenses were higher in 1997 due to the costs associated with new patent
filings for the Company's NOx reduction technology.
Interest income decreased from $64,000 in the first three months of
1997 to $13,000 in the comparable period in 1998 as a result of the
Company's diminishing cash position.
The Company is currently taking steps to minimize costs and expenses
in order to conserve cash pending securing additional working capital, and
consequently, expects costs and expenses to be lower in 1998 than in 1997,
although no assurances can be given in this regard.
1996 VERSUS 1997
Sales and Cost of sales were zero in 1996 and $199,000 and $132,000,
respectively, in 1997 as the Company started selling small quantities of
product to Holts in 1997. The Company's products were purchased by Holts,
pursuant to the September 1996 Supply Agreement. Holts launched the
Company's PFC products for use with Holts' fuel additives in the
aftertreatment of fuel for both gasoline and diesel engines in several
European countries. As described above, Holts was acquired by Prestone in
December 1997, and as a result the Company expects delays in sales to Holts
in 1998 . See "-- Results of Operations -- Three Months Ended March 31,
1997, Versus Three Months Ended March 31, 1998" and the Annual Financial
Statements.
As the Company begins selling product again, gross margin is expected
to improve in the future as the PFC processing costs charged to the Company
will be reduced with subsequent production batches.
General and administrative expenses decreased from $1,842,000 in 1996
to $1,730,000 in 1997. The decrease was primarily due to a reduction in
management fees charged by Fuel Tech as the Company hired its own personnel
and, in August 1996, terminated certain services furnished by Fuel Tech.
Research and development expenses were $1,747,000 in 1996 versus
$1,985,000 in 1997. The increase was primarily due to the costs associated
with significant test programs on light-duty and heavy-duty engines and the
addition of three senior technical employees in mid-year 1996. The programs
included the use of the Company's PFC in gasoline and diesel vehicles, the
testing of NOx control technologies in conjunction with Engelhard
Corporation and the Nalco Fuel Tech joint venture (which is now
wholly-owned by Fuel Tech) and engine testing of the PFC as required to
maintain registration with the U.S. Environmental Protection Agency. Some
of the programs relating to the PFC and NOx control were done in
collaboration with Cummins Engine Company, a major U.S. diesel engine
manufacturer. The Company announced that the use of the PFC in conjunction
with advanced heavy-duty engine design techniques and a diesel particulate
filter had achieved U.S. federal emission levels for 2004. The Company also
developed a platinum/cerium bimetallic fuel additive based on a platinum
and cerium compound. This product achieved emission reductions of 25-35% on
new light-duty diesels. Certification testing of the bimetallic additive
for Taiwan buses equipped with particulate filters began in late 1997 and
field trials are expected to be expanded in the second quarter of 1998.
Discussions with oil distribution companies in the U.S., Europe and Asia
are expected to lead to engine testing and field trials of the PFC or
bimetallic additive in the second half of 1998. Based on the extent of the
market interest and the improved cost and performance of the bimetallic
additive, the Company entered into negotiations with a third party for the
supply of a cerium product based on the Company's specifications.
In late 1997, the Company signed a development and marketing agreement
with AMBAC of Springfield, Massachusetts, for the fabrication of the
ARIS(TM) 2000 urea injection equipment suitable for stationary and mobile
engine NOx control. AMBAC is a major supplier of fuel injection equipment
for diesel engine manufacturers worldwide. A prototype system was completed
in the second quarter of 1998.
Patent filing and maintenance expenses remained relatively flat,
increasing from $223,000 in 1996 to $237,000 in 1997.
1995 VERSUS 1996
General and administrative expenses increased from $963,000 in 1995 to
$1,842,000 in 1996. The increase was due to expenses associated with the
Company establishing its own offices, the recruitment and hiring of
additional staff and increased management and administrative costs provided
by Fuel Tech pursuant to a management and services agreement (the
"Management and Services Agreement"). In the first six months of 1996, a
greater portion of Fuel Tech management's time was spent on the Company's
business activities, which included research programs, establishing
relationships with potential marketing partners and hiring staff. The
Company established its own payroll and hired some of these Fuel Tech
executives full-time in August 1996.
Research and development expenses were $796,000 in 1995 versus
$1,747,000 in 1996. The increase was primarily due to significant testing
on light-duty and heavy-duty engines using the Company's PFC alone and with
a catalytic oxidizer. These test programs were conducted in conjunction
with potential marketing partners. The Company also hired three senior
technical employees during 1996, and its senior officers, who were Fuel
Tech employees in 1995, spent a greater percentage of their time developing
and managing research projects in 1996 than in 1995.
Patent filing and maintenance expenses were $199,000 in 1995 versus
$223,000 in 1996. The increase was primarily attributable to the
preparation and filing of new patent applications.
LIQUIDITY AND SOURCES OF CAPITAL
The Company is a development-stage company and has incurred losses
since inception (January 1, 1992) aggregating $10,853,000 and $11,594,000
at December 31, 1997, and March 31, 1998, respectively. The Company expects
to incur losses through the foreseeable future as it further pursues its
research, development and commercialization efforts. Although the Company
started selling product in 1997, it sold no product in the first half of
1998 and continues to be dependent upon sources other than operations to
finance its working capital requirements.
In December 1995, the Company raised approximately $10.5 million, net
of offering expenses and broker-dealer commissions of approximately $1.3
million, through the 1995 Rights Offering of its shares by Fuel Tech. The
Company then repaid Fuel Tech approximately $2.3 million in intercompany
loans.
On February 17, 1998, Fuel Tech agreed to provide the Company with up
to $500,000 in order to fund its cash requirements until such time as the
Company obtains the long-term financing it is seeking. On May 20, 1998, the
$500,000 commitment was converted into a bridge loan (the "Bridge Loan"),
which constitutes senior secured debt, bearing interest at the rate of ten
percent per annum and maturing April 15, 2001. The Bridge Loan
automatically converts into Series A Convertible Preferred Stock upon the
conclusion of a public or private financing that contributes $1.75 million
of additional net proceeds to the Company (including the Rights Offering,
if consummated and assuming it meets such conditions). The Bridge Loan is
secured by all of the Company's intellectual property. The Company has also
received an additional $900,000 of financing under the same Bridge Loan
(having the same terms and conditions, including maturity date,) from
outside investors. As of July 1998, the Company received $1.4 million,
representing all of the proceeds from the Bridge Loan.
For the period from January 1, 1992, through March 31, 1998, the
Company used cash of $11,071,000 in operating activities. In 1997, the
Company repaid $250,000 of a $745,000 promissory demand note ("Demand
Note") with Fuel Tech and restructured the remaining amount into a $495,000
term note ("Term Note") with Platinum Plus, Inc. ("Platinum Plus"), a
wholly owned subsidiary of Fuel Tech. The principal amount of the Term Note
is payable in three annual installments of $100,000 each on July 1 of each
of the years 1998 through 2000 with a final installment of $195,000 on July
1, 2001. On July 1, 1998, Platinum Plus elected to defer the repayment of
the $100,000 of principal which was payable on that date. Platinum Plus has
reserved the right, however, to call this payment at any time. As of the
date of this prospectus, Platinum Plus has not demanded repayment. Interest
at a rate of eight percent per annum is payable on the unpaid balance on
each principal payment date. The interest accrued on the note as of July 1,
1998 was paid by the Company. See "USE OF PROCEEDS."
At December 31, 1996 and 1997, and March 31, 1998, the Company had
cash, cash equivalents and short-term investments of $5,270,000,
$1,239,000, and $657,000, respectively. Working capital at those dates was
$4,109,000, $788,000, and $53,000, respectively. At December 31, 1996, the
Company owed Fuel Tech $745,000 under the Demand Note, while at December
31, 1997, and March 31, 1998, the Company owed Fuel Tech $495,000 under the
Term Note. In light of the Company's diminishing cash and working capital,
the Company has taken steps to decrease expenditures in 1998, as more fully
discussed in "Results of Operations -- Three Months Ended March 31, 1997
Versus Three Months Ended March 31, 1998."
Effective as of October 28, 1994, Fuel Tech granted two licenses to
the Company for all patents and rights associated with its PFC technology.
Effective November 24, 1997, the licenses were canceled and Fuel Tech
assigned to the Company all such patents and rights on terms substantially
similar to the licenses. In exchange for the assignment, the Company agreed
to pay Fuel Tech a royalty of 2.5% of its annual gross revenue from sales
of the PFC, commencing in 1998. The royalty obligation expires in 2008. The
Company may at any time terminate the royalty obligation by payment to Fuel
Tech in any year from 1998 through 2008 of amounts, depending on the year,
declining from $12 million in 1998 to $1.1 million in 2008. The Company as
assignee and owner will maintain the technology at its own expense. To
date, no royalties have been paid to Fuel Tech. See "CERTAIN RELATIONSHIPS
AND RELATED TRANSACTIONS -- Technology Assignments."
In September 1996, the Company entered into a supply agreement with
Holts to sell the Company's PFC under the Platinum Plus trademark for use
with Holts' fuel additives in the consumer car care market for
aftertreatment of fuel for both new and used diesel engines in vehicles.
The agreement covers territories worldwide except for North, Central and
South America. This agreement has a 10-year term with extension options.
The exclusivity of the agreement is determined by the attainment (or
reasonable effort toward the attainment) of predetermined minimum
performance levels for each territory on a calendar-year basis. The
agreement also provides for the marketing of a platinum-based gasoline fuel
additive by Holts on similar terms and in similar territories, if developed
by the Company. The Company's PFC were test-marketed by Holts in Europe in
the fourth quarter of 1996, with commercial sales commencing in the first
quarter of 1997. Based on jointly funded testing by Holts and the Company,
such a gasoline product was developed by the Company and launched by Holts
in September 1997 under the Cat Guard name, with disappointing results. See
"BUSINESS -- Platinum Plus -- Europe and Asia." The exclusivity granted to
Holts was revoked by the Company in the second quarter of 1998 due to lower
than expected performance levels, and the Company may terminate this
agreement at its option after March 1999.
As previously noted, the Company anticipates incurring additional
losses through the foreseeable future as it further pursues its research,
development and commercialization efforts. Management anticipates, with the
proceeds of the $1.4 million Bridge Loan, having sufficient resources to
fund its operations through November 1998. The Company intends to fund its
future cash needs through the Rights Offering. Although management believes
that it will be successful in its fund-raising efforts, there is no
guarantee that such funds will be available on terms satisfactory to the
Company.
As discussed elsewhere in this Prospectus, if the Rights Offering is
fully subscribed or the minimum subscription is obtained, the Company
anticipates receiving $3.1 million and $1.4 million, respectively, net of
Soliciting Fees and expenses of the offering estimated to be $600,000. The
Company believes that the net proceeds of the Rights Offering, together
with the net proceeds of $1.4 million from the bridge financing effected in
1998, will be sufficient for the commercialization of its PFC and NOx
products through January 2000 (assuming full subscription) and through
April 1999 (assuming minimum subscription), although no assurances can be
given in this regard. Thereafter, the Company anticipates that it may
require additional funding in the form of a public or private offering of
the Company's securities. Any offering of the Company's equity securities
may result in immediate and significant dilution to the shareholders of the
Company. The ability of the Company to consummate a public offering or to
obtain other financing will depend on the status of the Company's
commercial efforts, marketing programs and field trials, as well as
conditions then prevailing in the relevant capital markets. There can be no
assurance that such funding will be available when needed or on terms
acceptable to the Company. Absent a successful Rights Offering, and without
continued sufficient financing from an alternative source, the Company's
ability to meet its current plans for expansion will be materially
adversely affected, and the Company will not be able to continue as a going
concern beyond November 1998. See Note 1 to the Annual Financial
Statements, the Report of Independent Auditors, and the Note to the Interim
Financial Statements.
Holders of the Series A Preferred Stock and Series B Preferred Stock
are entitled to receive, when, as and if declared by the Board out of funds
of the Company legally available therefor, cash dividends at the annual
rate of 9% of the $500 stated value and liquidation preference of the
Series A Preferred Stock price per share and 9% of the $______ stated value
and liquidation preference of the Series B Preferred Stock price per share,
respectively; provided, however, that in lieu of making dividends in cash,
the Company may elect, by giving written notice to each holder of the
Series A Preferred Stock and Series B Preferred Stock, as the case may be,
to pay dividends in kind at the annual rate of 11% of the Liquidation
Preference (cash dividends and dividends in kind are each deemed "Preferred
Dividends"). Dividends payable to the holders of the Series A Preferred
Stock and Series B Preferred Stock are payable quarterly in arrears, on the
first business day of January, April, July and October of each year (each
such date being hereinafter referred to as a "Dividend Payment Date"),
commencing July 1, 1998. Preferred Dividends on shares of Series A
Preferred Stock and Series B Preferred Stock shall be cumulative and shall
accrue from the date of original issuance. It is presently anticipated that
the Company will pay dividends on shares of Series A Preferred Stock and
Series B Preferred Stock in shares of Series A Preferred Stock and Series B
Preferred Stock, respectively, and any earnings which the Company may
realize in the foreseeable future will be retained to finance the
development and expansion of the Company.
IMPACT OF YEAR 2000
The Company is in the process of completing an assessment of the
impact that the millennium may have on its computer software so that its
computer systems will function properly with respect to dates in the year
2000 and thereafter. The project is estimated to be completed not later
than December 31, 1998, which is prior to any possible impact on its
operating systems. The Company believes that with modifications to existing
software and conversions to new software, the Year 2000 Issue will not pose
any operational problems for its computer systems. Management believes that
the cost to the Company, if any, related to this issue will be
insignificant. In addition, during 1998, the Company intends to communicate
with its vendors to ascertain the status of their Year 2000 initiatives.
FOREIGN CURRENCY RISK
To date, sales, marketing and testing of the Company's PFCs have been
limited principally to Europe. While the Company has not experienced any
significant foreign currency exposure with respect to such activities,
there can be no assurance that exposure to currency fluctuation will not
have a significant effect on the Company's operations in the future. The
Company intends to manage the risk of such exposure, if any, by entering
into foreign currency futures and option contracts.
BUSINESS
GENERAL
The Company, a Delaware corporation with a principal place of business
at 300 Atlantic Street, Stamford, Connecticut 06901, is a development-stage
specialty chemical company supplying advanced catalytic fuel additives and
systems that reduce harmful emissions from internal combustion engines
while improving fuel economy. The Company's two main technology areas are
Platinum Fuel Catalysts ("PFCs") for emission control and fuel economy
improvement in diesel- and gasoline-fueled engines, and Nitrogen Oxide
("NOx") reduction systems and chemicals for control of NOx emissions from
diesel engines.
BACKGROUND
The Company was formed in 1994 as a wholly owned subsidiary of Fuel
Tech, which had conducted fundamental work regarding the Company's
technologies. The Company was spun off by Fuel Tech in a rights offering in
1995 (the "1995 Rights Offering"), and Fuel Tech currently owns 27.4% of
the Company's outstanding Common Shares. The Company raised net proceeds of
approximately $10.5 million in the 1995 Rights Offering which, following
the repayment of $2.3 million of intercompany loans to Fuel Tech, was
sufficient to fund the Company's operations through May of 1998. The
Company has since funded its operations through the net proceeds received
in connection with the issuance of the Bridge Loan Notes issued to Fuel
Tech and certain other lenders.
At its inception, the Company had patents for PFCs licensed from Fuel
Tech and limited testing results of PFCs. The Company currently has 12 U.S.
and 38 International patents on PFCs and NOx reduction systems and has
another 83 U.S. and International applications pending. In addition, the
Company has completed successful testing of a diesel fuel PFC additive,
launched the marketing of a PFC used to rejuvenate aged catalytic
converters in Europe, and developed the Advanced Reagent Injection System
("ARIS(TM) 2000") for use in catalytic NOx reduction systems.
BUSINESS STRATEGY
The Company's strategic objective is to become a leading developer and
supplier of (i) PFCs for emission control and fuel economy improvement in
diesel- and gasoline-fueled engines and (ii) NOx reduction systems and
chemicals for control of NOx emissions from diesel engines. Key elements of
the Company's strategy include the following:
DEVELOPING MARKETS FOR PFCS AS A DIESEL FUEL ADDITIVE
The Company has successfully concluded a study at Delft Technical
University in the Netherlands concerning the emission reduction effects of
PFCs used with ceramic filters for reduction in particulate emission. The
Company has also demonstrated improved emission reduction and increased
fuel economy from the use of PFCs without ceramic filters in separate
programs at Ricardo and Cummins. The Company seeks to capitalize on these
test results, coupled with the increased regulation of emissions, by
developing a market for PFCs in the U.S. and abroad.
DEVELOPING MARKETS FOR PFCS AS A GASOLINE ADDITIVE
The Company seeks to continue its marketing of PFCs used to rejuvenate
aged catalytic converters, and has begun to focus on selling this product
through service centers in Europe in conjunction with Holts. The Company is
also seeking marketing partners to help launch the gasoline product in the
U.S. and Asia.
COMMERCIALIZING THE ARIS(TM) 2000
The Company has developed a prototype of the ARIS(TM) 2000, an
Advanced Reagent Injection System to be used in the selective catalytic
reduction of NOx. The Company believes that there is a market for the
ARIS(TM) 2000 as a result of increased regulations in California and the
Northeast of NOx levels in large stationary diesels. The Company seeks to
commercialize the ARIS(TM) 2000 through cooperative ventures and licenses
with engine manufacturers, engine distributors and catalyst and emission
control companies.
REGULATIONS - USA
DIESEL ENGINES
1990. In the U.S., the EPA established specific regulations under
Title II of the CAAA pertaining to the control of NOx and particulates from
diesel engines. Existing urban buses in major metropolitan areas were
required to reduce particulate emissions during engine rebuild as of
January 1995 and, beginning in 1998, there will be new NOx level standards
in place for urban buses and new diesel engines.
1995. The EPA, California Air Resources Board and major diesel
manufacturers signed a Statement of Principles directed toward development
of low-NOx engines to be in service by the year 2004, which became law in
1997. New limits are 2.5 g/bhp-hr for NOx and 0.1 g/bhp-hr for
particulates.
1996. The EPA and the engine manufacturers signed a Statement of
Principles calling for a three-tiered progression to low emission standards
regarding emission limits for new off-road engines used in construction,
agricultural and industrial equipment.
1997. The EPA issued its proposed regulatory program for all non-road
diesel engines except locomotives, mining equipment and marine engines.
These standards broadly parallel the transport engine standards and include
a voluntary low-emission engine certification standard to promote early
introduction of low-emitting engines. The EPA issued proposed regulations
for controlling emissions from new and rebuilt diesel locomotive engines
that call for reductions in NOx emissions of 40%-60% beginning in the year
2000.
1998. The EPA is expected to announce retrofit guidelines to support
the use of emission control technologies on existing engines as part of the
states' efforts to comply with ambient air quality standards and qualify
for emission credit. The EPA has sued one engine manufacturer and is in
negotiations with others over the use of "defeat devices" which the EPA
alleges increases NOx emissions. Management believes that settlement may
require advanced or accelerated introduction of low-emission engines.
1999 and thereafter. The EPA is required to review the progress of
emission control technology with a view toward further tightening of the
2004 limits. Industry experts generally agree that an integrated system
approach will be needed to meet these regulations, including the use of
advanced engine design, reformulated fuel, fuel additives and exhaust
aftertreatment systems.
Regulators are showing concern at recent research results which show
that while new engine technology made great reduction in the total mass of
particulates, the total number of particulates is not reduced. Indeed, the
number of ultra-fine particles can increase. Separate research has shown
that diesel emissions may be toxic and that toxicity is associated with
soot particles.
While no regulations have yet been made as a result of these research
findings, the Company considers it probable that there will be a further
tightening of regulations of particulate emissions; further, there may well
be regulation to reduce the very fine particles.
Current regulation in California and the Northeast states for large
stationary diesel engines sets NOx levels at a 50% to 90% reduction from
normal levels achieved from current production engines under federally
mandated Best Available Control Technology ("BACT") and Lowest Achievable
Emission Rate ("LAER") requirements in ozone non-attainment areas.
GASOLINE ENGINES
Current regulations affecting new gasoline engine emissions require
increasingly lower emissions, longer durability and enhanced in-use
inspection of catalyst-equipped passenger vehicles, leading to the need for
technological advancements in catalytic converter design.
Current regulation for inspection and maintenance of gasoline vehicles
is now leading states to introduce programs for testing of the existing
fleet and for corrective measures to be taken where vehicles fail
measurement of NOx, Hydrocarbon ("HC") or Carbon Monoxide ("CO"). Based
upon a report of the Manufacturers of Emission Control Association
("MECA"), as of June 1998, 28 states have implemented or were planning to
implement inspection and maintenance programs.
REGULATIONS - INTERNATIONAL
Europe has similar regulations to the U.S. but with different
measurement standards, and in general, implementation is one year later
than when the U.S. Euro III Vehicle Emission Regulations become effective
in the year 2000 and Euro IV Vehicle Emission Regulations in the year 2005.
Current regulations for tunneling and mining equipment in Germany,
Switzerland and Austria now require the use of particulate filters.
Japan, Korea and Taiwan have introduced regulations for both diesel
and gasoline engines which are not identical but tend to follow U.S.
practice.
MARKETS FOR PRODUCTS
On-highway markets for the PFC are the consumer aftermarket, including
diesel and gasoline fuel additives; truck and bus fleets; bulk fuel
distributors; and engine manufacturers. Off-road markets include mining,
construction, agricultural, railroad and marine. Markets for the NOx
reduction systems are engine manufacturers and distributors for both
stationary and mobile sources and catalyst manufacturers.
PLATINUM FUEL CATALYSTS
These are fuel additives comprised of platinum, rhodium and/or
palladium, which are used in minute concentrations in fuel (selling for a
few (U.S.) cents per gallon of fuel treated) to improve combustion, reduce
emissions and improve the performance and reliability of emission control
equipment. The PFC may also be used in conjunction with other metallic
additives such a copper, iron, manganese or cerium. The Company's test
programs have shown the bimetallic additive of platinum and cerium to be
highly effective in diesel engines. The Company's Platinum Plus(R)
bimetallic additive has been chemically formulated to harness the synergy
between platinum and cerium at very low levels of metal. Levels as low as 5
ppm of metal in fuel have been found to be effective.
PLATINUM PLUS - EUROPE AND ASIA
In September 1996, the Company entered into an agreement with Holts,
the world's largest car care company, to test market the PFC under the
Platinum Plus trademark for diesel fuel in Europe and Asia. The agreement
also pertains to a gasoline product launched by Holts in early 1997, the
results of which were disappointing. Holts reported that consumers did not
understand what the product did and indeed few consumers knew if their cars
even had a catalytic converter. Test marketing by Holts concluded that the
product should be sold as a technical sale through service and repair
shops. Holts is considering how to better reposition the product. The
agreement with Holts is currently a non-exclusive agreement for Europe and
certain Far East markets and may be terminated at the Company's option
after March 1999. For a further discussion of the terms of the agreement
with Holts, see "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS -- Liquidity and Sources of Capital."
PLATINUM PLUS - THE AMERICAS
This market is not covered by the agreement with Holts. Discussions
are in progress with several potential partners for the blending,
distribution and marketing of Platinum Plus in the Americas. To sell in the
U.S., registration is required of the platinum/cerium bimetallic diesel
product and the platinum/rhodium gasoline product. The Company expects the
expense of the gasoline product testing and registration to be
substantially borne by marketing partners.
The Company anticipates shipping its catalytic concentrates to one or
several licensed blenders which will add diluents, solvents and other
components to make additive formulations for sale to packagers and additive
resellers. The Company may also have its concentrates blended for direct
sale by the Company or sales agents to large end users.
PFCS FOR PARTICULATE FILTERS AND CATALYTIC OXIDIZERS
The most effective method of reducing diesel particulate (smoke) is by
particulate filter or catalytic oxidizer. There are limitations when these
devices are used alone, which the PFC have been proven to ameliorate. In
two separate tests on typical bus engines, one on a Gardner engine and one
on a Cummins engine, the combination of the PFC and a catalytic oxidizer
established high levels of performance in both cases. This work was
conducted in conjunction with Lubrizol's Engine Control Systems ("ECS")
subsidiary, a leading supplier of oxidizers and traps. The Company is
currently evaluating its PFC in conjunction with ECS as part of an
industry-sponsored program for off-road equipment.
A program has successfully been concluded at Delft Technical
University, Netherlands, into the fundamental mechanism of metallic
additive in the oxidation of diesel soot with a special focus on a system
using platinum as part of a bimetallic-catalyst system. The results show
that a bimetallic additive catalyst of platinum and cerium in use with a
ceramic filter in the diesel exhaust gives performance superior to any
system known. Furthermore, it gives a significantly lower oxidation
temperature for the soot while using much lower metal levels in the fuel
than other known additive filter system. The PFC bimetallic was effective
at levels of 5.5 ppm versus 50-100 ppm required for other additives.
The Company also reached agreement with Cummins' Advanced Technology
Group to evaluate the applications of the PFC with oxidizers and traps for
a new generation of low-emission engines. Tests of the Company's fuel
additive/trap system conducted with an advanced Cummins diesel engine
design cut particulate emissions 94% while achieving a more than 50%
reduction in NOx in relation to current standards and met the year 2004
emission limits for new engines. The tests confirm results reported by
Delft in the lowering of the oxidation temperature for soot.
The Company believes that there is a market for the platinum/cerium
additive in Taiwan where a bus fleet trial confirmed the performance of the
platinum/cerium filter system.
The Company also believes that a medium term market for the
platinum/cerium additive is with filters for new vehicles, especially light
duty vehicles. In this regard, PSA Peugeot, France, has announced that it
intends to introduce particulate filters on new cars in 2000. Other
manufacturers are considering the early introduction of filter systems. The
Company recently agreed to additive/filter programs with 3M and Englehard
Corporation, both of whom are looking for lower soot oxidation temperatures
through the use of fuel additives with their trap systems.
Using the platinum/cerium additive in vehicles with filters presents a
potentially large market. This is driven by increasing concern about fine
particle emissions; whereas new engines produce little smoke, the total
number of particles has increased. Management believes that filters are the
preferred remedy capable of removing more than 90% of the particles. This
focus is given further weight by the probable classification by California
of diesel emissions as toxic. The toxicity is most associated with soot
particles. Once collected on the filter, the soot must be oxidized to
prevent the filter from clogging, and that is where the additive is needed.
PFC FOR ENGINES WITHOUT PARTICULATE FILTERS OR CATALYTIC OXIDIZERS
PREMIUM DIESEL
Tests of the Company's platinum/cerium additive have demonstrated that
emissions are significantly reduced on both heavy duty engines and
automobile engines without particulate filters or catalytic oxidizers.
Moreover, the emission benefits are usually accomplished by a fuel economy
improvement.
The Company believes that there is a near-term market developing in
the U.S. for a combustion catalyst (such as platinum and cerium) to reduce
smoke, gaseous and particulate emissions from the current fleet of engines.
This market is a result of pending EPA retrofit guidelines which provide
for State Implementation Plans ("SIP") credits, as well as state programs
for enforcement of smoke regulation, which include random highway smoke
tests with substantial penalties for failure.
The Company has its platinum product registered with the EPA for sale
in bulk diesel fuel and has registered with the EPA two families of cerium
products under "grouping" provisions of additive registration regulations.
Currently, it can sell the individual products to all on-highway and
off-road applications under these registrations. However, the Company
believes the price and performance of its bimetallic additive is far
superior to either additive alone.
The Company is required to complete engine tests in order to register
the combined additive so that it can be sold as a composite package and
also before the combined product can be sold by refiners or additive
companies. The Company can sell the two separate products directly to
fleets and oil distributors for use together in commercial tests and trials
while undergoing registration of the combined product with the EPA. The
Company expects to complete these engine tests and the subsequent
registration of the platinum/cerium additive in September or October of
1998. Off-road applications of the bimetallic additive do not require EPA
registration.
The Company intends to launch the platinum/cerium additive under the
Platinum Plus label to oil distributors and fleets in the second half of
1998 as well as to off-road applications. The Company intends to use a
network of experienced additive sales/service agents to reach these
markets, as well as establish a distribution network through the Company's
blenders.
PFC FOR GASOLINE
In a cooperative program with Holts, the Company developed a platinum
and rhodium bimetallic additive for gasoline. The function of the additive
is to rejuvenate an aged catalytic converter. Tests were carried out at
Ricardo to evaluate different additive formulations. The tests concluded
that the platinum/rhodium additive improved the reductions in emissions of
HC, CO and NOx. The reduction in tail pipe emissions after one tank of
treated fuel were long lived (5,000 miles) with a gradual fall-off of CO
reduction.
Holts subsequently marketed the product in the U.K. in 1997 in the
consumer aftermarket through auto part stores. The results were
disappointing. Holts reported that consumers did not understand what the
product did and indeed few consumers knew if their cars even had a
catalytic converter. Test marketing by Holts concluded that the product
should be sold as a technical sale through service and repair shops. Holts
is considering how to better reposition the product. The agreement with
Holts is currently a non-exclusive agreement for Europe and certain Far
East markets and may be terminated at the Company's option after March
1999.
The Company has interest from marketing and distribution companies for
the gasoline product in the U.S. Management estimates that the population
of cars with catalytic converters in the U.S. is approximately 140 million.
Since the implementation of enhanced inspection and maintenance programs,
data from two states indicates that 5%-15% of those cars tested are failing
inspection and maintenance tests. This is expected to increase as enhanced
inspection and maintenance programs are fully implemented in certain
states.
In order to sell the product in the U.S., the Company is required to
conduct engine tests that register the product and apply for a waiver.
There is also a need to demonstrate the effectiveness of the product on
U.S. vehicles under U.S. test standards. The Company is seeking to
establish a cooperative program with one or more marketing companies to
fund the test and registration program with a view toward launching the
product in the U.S. in the second half of 1999, although no assurances can
be given in this regard.
TOTAL MARKET FOR PFC
Management believes the total worldwide usage of diesel and gasoline
fuels is approximately 350 billion gallons per annum of which approximately
150 billion gallons are diesel and 200 billion gallons are gasoline. Based
upon this estimation, at a projected treatment cost of two cents (U.S.) per
gallon of fuel treatment, 1% of the market represents a $70 million revenue
opportunity.
HEALTH EFFECTS AND THE USE OF METALLIC ADDITIVES
Certain metallic additives have come under scrutiny for their possible
effects on health. While the platinum additive is already registered in the
U.S. and did not strictly need to be registered in Europe, the Company
considered it prudent to take a much more proactive view. Therefore, in
1996, the Company began discussions with the Ministry of Transport and the
Ministry of Health, regulatory authorities in the United Kingdom, asking
for specific consent to the use of platinum metal additives in diesel fuel.
In December 1996, the following response was received from the United
Kingdom Ministry of Health's committee on Toxicity: "The Committee was
satisfied that the platinum emissions from vehicles would not be in an
allergenic form and that the concentrations were well below those known to
cause human toxicity." In the U.S., the Company has completed additional
engine testing to maintain its EPA registration as required of all fuel and
fuel additive manufacturers.
The Company has applied for and received registration for two families
of cerium additives. It does not expect to have to carry out engine tests
since EPA rules allow that when a metallic additive is registered by one
company and engine tests are filed by that company, often companies may
file using the same engine data (grouping provisions) subject to agreeing
upon payment terms with the original registrant. In the case of cerium,
Rhodia Rare Earths, a subsidiary of Rhodia S.A., has conducted engine tests
and registered. While the Company has not yet agreed to terms with Rhodia
Rare Earths, it expects to do so in the near term.
PLATINUM AND CERIUM
The Company is required to make a separate registration of the
platinum/cerium combination before it can blend the two products and sell
it for bulk fuel blending for on-highway use. The Company can sell the
products without the registration for off-road applications and can sell
the platinum and cerium separately, for use together, to fleets and oil
distributors on a trial basis, but not to refiners or additive blenders.
Thus, the Company has determined to make a separate registration and to
carry out the engine tests on the combined additives. This program is
expected to be completed by October 1998.
GASOLINE ADDITIVES - PLATINUM AND RHODIUM
The Company will be required to carry out an engine test, register,
and apply for a waiver in order to sell this product into the U.S.
aftermarket.
NOX REDUCTION SYSTEMS AND ADDITIVES
NOx emissions from diesel engines represent as much as half of the
emissions from the transport sector in some parts of the U.S. Diesel
engines emit much more NOx than gasoline vehicles. The catalytic converter
systems used in gasoline engines to reduce NOx do not work in diesel
engines. This presents a great opportunity since, while much can be done by
engine design changes, this is not enough for many applications. The
Company is working on two programs to commercialize NOx reduction systems.
NOX REDUCTION PRODUCT - ARIS(TM) 2000
The Company has developed an Advanced Reagent Injection System
(ARIS(TM) 2000). This system injects reagent--typically urea--over a
catalyst in the exhaust system of a diesel engine to achieve NOx reduction
of up to 90%. The complete system of ARIS(TM) 2000 plus catalyst is
generally called "urea SCR." SCR means Selective Catalytic Reduction, a
process widely used to reduce NOx from gas turbines and furnaces.
While SCR systems are available for diesel engines, the current
systems are uneconomical, often costing as much as the engine. The
challenge has been to develop a simple, reliable, low-cost injection system
that can be produced with typical automotive components which could
eventually be mass produced. The catalysts are similar to those used in gas
turbines and boilers and are already made by such catalyst manufacturers as
Engelhard Corporation, Johnson Matthey, Mitsubishi and Siemens.
Current regulations in California and the Northeast states for large
stationary diesel engines sets NOx levels at a 50% to 90% reduction from
normal levels achieved from current production engines under federally
mandated Best Available Control Technology ("BACT") and Lowest Achievable
Emission Rate ("LAER") requirements in ozone non-attainment areas. Cost
effective systems are not yet available. As a result, gas engines are being
installed, which cost more to buy and to run than the ARIS(TM) 2000. The
Company intends to sell the ARIS(TM) 2000 to total system suppliers, engine
companies, engine distributors, or the assemblers of generation sets,
compressors, pumps, etc.
Currently the Company has a cooperative-development agreement with
AMBAC, West Springfield, MA, to develop the injectors used in the ARIS(TM)
2000 system. A prototype system has been built and tested. The next stage
will be to complete detailed engineering of the production unit and carry
out durability testing. The Company expects to carry out this next stage in
cooperation with a system supplier or catalyst supplier. While the Company
is in discussions with several parties, there can be no assurance that a
system supplier will wish to cooperate in commercializing ARIS(TM) 2000,
nor that detailed engineering and durability tests will be successful.
NOXOUT(TM) 3200 SCR REAGENT
The Company, working in conjunction with Fuel Tech, has developed
proprietary specifications and formulations for NOxOUT 3200 reagent, an
aqueous blend of urea and corrosion inhibitors for use with urea-based SCR
systems for diesels. While especially effective with the ARIS(TM) 2000
injection system, NOxOUT 3200 is also suited for use with other injection
systems and is under evaluation by several engine and catalyst companies
investigating its performance with their engines and catalysts. As agreed
with Fuel Tech, the Company will market the NOxOUT 3200 reagent to engine
companies, catalyst companies and end-users. The Company will receive a
royalty on sales of NOxOUT 3200 by Fuel Tech urea licensees and a
commission on the specialty component sales by Fuel Tech to the urea
licensees involved in blending of NOxOUT 3200. The agreement between Fuel
Tech and the Company is subject to consummation of detailed terms and
conditions between the two parties regarding duration, responsibilities,
and other terms.
SOURCES OF SUPPLY
The Company has outsourcing arrangements with two companies in the
precious metal refining industry and may make arrangements with others. The
Company has made the product itself in the past but considers outsourcing
to a precious metal refinery to be more cost effective. The Company is
negotiating for a source of cerium to use in its bimetallic diesel
additive.
RESEARCH AND DEVELOPMENT
The Company employs five full-time individuals, including two
executive officers, in engineering and product development as of the date
of this report. During the years ended December 31, 1995, 1996 and 1997,
and for the three months ended March 31, 1998 the Company's research and
development expenses exclusive of patent costs totaled approximately
$796,000, $1,747,000, $1,985,000 and $236,000, respectively. The Company
expenses all development costs as incurred.
PROTECTION OF PROPRIETARY INFORMATION
The Company holds the rights to a number of patents and patent
applications pending. There can be no assurance that pending patent
applications will be approved or that the issued patents or pending
applications will not be challenged or circumvented by competitors. Certain
critical technology incorporated in the Company's products is protected by
trademark and trade secret laws and confidentiality and licensing
agreements. There can be no assurance that such protection will prove
adequate or that the Company will have adequate remedies for disclosure of
its trade secrets or violations of its intellectual property rights.
INSURANCE
The Company maintains coverage for the customary risks inherent in its
operations. Although the Company believes its insurance policies to be
adequate in the amount and coverage for its current operations, no
assurance can be given that this coverage will, in fact, be or continue to
be available in adequate amounts or at a reasonable cost or that such
insurance will be adequate to cover any future claims against the Company.
EMPLOYEES
The Company has seven full-time employees. In addition, two executive
officers of Fuel Tech provide management, administrative, financial and
legal services for the Company pursuant to a Management and Services
Agreement between Fuel Tech and the Company on an as-needed basis. The
Company also retains four outside technical consultants on specific
projects related to platinum, engines and NOx reduction.
FACILITIES
The Company leased for administrative purposes 2,900 square feet of
office space at 300 Atlantic Street, Stamford, Connecticut, effective
February 1, 1996, through February 28, 1999. Annual base rent under this
lease is $65,250.
PATENTS AND TECHNOLOGY ASSIGNMENTS
The Company's technology is comprised of patents, patent applications,
trade or service marks, data and know-how. This technology was acquired by
assignment from Fuel Tech or developed internally. The assignment agreement
provides for running royalties of 2.5% of gross revenues derived from the
sale of the PFC, commencing in 1998 and terminating in 2008. The Company
may at any time terminate the royalty obligation by payment to Fuel Tech in
any year from 1998 through 2008 amounts, depending on the year, declining
from $12 million in 1998 to $1.1 million in 2008. The Company, as owner,
maintains the technology at its expense.
The Company currently has 12 U.S. and 38 International patents on PFCs
and NOx reduction systems and has another 83 U.S. and International
applications pending. These patents and patent applications cover the means
of controlling the four principal emissions from diesel engines (NOx,
particulates, CO and HC).
LEGAL PROCEEDINGS
The Company is not involved in any legal proceedings.
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The directors and executive officers and key employees of the Company,
their positions held with the Company and their ages are as follows:
Name Age Position
---- --- --------
Ralph E. Bailey 74 Chairman of the Board of
Directors, Director
Jeremy D. Peter-Hoblyn 58 President and Chief Executive
Officer, Director
James M. Valentine 44 Executive Vice President and Chief
Operating Officer, Director
Charles W. Grinnell 61 Vice President, General Counsel
and Corporate Secretary, Director
Scott M. Schecter 41 Vice President, Treasurer and
Chief Financial Officer
John A. de Havilland 60 Director
Douglas G. Bailey 48 Director
Directors are elected each year for a period of one year at the
Company's annual meeting of shareholders and serve until their successors
are duly elected by the shareholders. Vacancies and newly created
directorships resulting from any increase in the number of authorized
directors may be filled by a majority vote of the directors then in office.
Officers are elected by, and serve at the pleasure of, the Board of
Directors. The Board has an Audit Committee comprised of Messrs. Ralph E.
Bailey and de Havilland. There are no other committees of the Board of
Directors. Compensation matters are determined by the full membership of
the Board.
The following is a brief summary of the background of each director
and executive officer of the Company:
RALPH E. BAILEY
Ralph E. Bailey has been Chairman of the Board and a director of the
Company since July 1996. He has been a director and Chairman of American
Bailey Corporation ("ABC"), a privately owned business acquisition and
development company, which owns a significant equity stake in Fuel Tech,
since 1984. Mr. Bailey is the former Chairman and Chief Executive Officer
of Conoco, Inc. and a former Vice Chairman of E.I. du Pont de Nemours & Co.
Mr. Bailey is also a director and shareholder of Rowan Companies, Inc. and
is Chairman of the Board, Chief Executive Officer and a director of Fuel
Tech.
JEREMY D. PETER-HOBLYN
Jeremy D. Peter-Hoblyn has been the President and Chief Executive
Officer of the Company since its inception. He also has been a director of
Fuel Tech since 1984 and was Chief Executive Officer of that company from
1993 to 1996.
JAMES M. VALENTINE
James M. Valentine has been Executive Vice President and Chief
Operating Officer of the Company since its inception. From the period 1990
through 1993, Mr. Valentine was the head of his own energy and
environmental consulting firm. Mr. Valentine has been a director of Fuel
Tech since 1993.
CHARLES W. GRINNELL
Charles W. Grinnell has been Vice President, General Counsel and
Corporate Secretary of the Company since its inception and has held the
same positions with Fuel Tech since 1987. Mr. Grinnell has been a partner
in the Stamford, Connecticut law firm of Huth & Grinnell, LLC since 1992.
SCOTT M. SCHECTER
Scott M. Schecter has served as Vice President, Chief Financial
Officer and Treasurer of the Company and of Fuel Tech since January 1994.
From June 1990 to January 1994, Mr. Schecter was Senior Vice President and
Chief Financial Officer of American Vision Centers, Inc. From May 1986
through June 1990, Mr. Schecter served as a corporate development officer
of W.R. Grace and Company.
JOHN A. DE HAVILLAND
John A. de Havilland has been a director of the Company since its
inception. Mr. de Havilland was a director of J. Henry Schroder Wagg & Co.
Ltd. from 1971 until his retirement in 1990 and a director of Fuel Tech
from 1984 to 1998.
DOUGLAS G. BAILEY
Douglas G. Bailey has been a director of the Company since March 31,
1998. Mr. Bailey, who is the son of Ralph E. Bailey, has been the President
and Chief Executive Officer of ABC since 1984. Mr. Bailey is Chairman and
Chief Executive Officer of Golden Casting Corporation and a Director of
DieselCast France S.A., both affiliates of ABC. Mr. Bailey is a director of
Fuel Tech.
EXECUTIVE COMPENSATION
The table below sets forth information concerning compensation for
services in all capacities awarded to, earned by or paid to Mr. Jeremy D.
Peter-Hoblyn, President and Chief Executive Officer, Mr. James M.
Valentine, Executive Vice President and Chief Operating Officer and Eric N.
Balles, Vice President-Technology, during the fiscal years ending December
31, 1995, 1996 and 1997, the only executive officers of the Company who
earned total compensation in excess of $100,000 during fiscal year 1997
(the "Named Executive Officers"). Mr. Balles resigned from the Company
effective September 30, 1997. Prior to August 1, 1996, for Mr. Valentine
and December 1, 1996, for Mr. Peter-Hoblyn, the amounts of annual
compensation shown below were paid by Fuel Tech and allocated to and
reimbursed by the Company to Fuel Tech.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Long-Term
---------
Shares
Underlying
Annual Options
Name and Principal Position Year Salary(FN1) Other(FN2) Granted (#)
- --------------------------- ---- ----------- ---------- -----------
<S> <C> <C> <C> <C>
Jeremy D. Peter-Hoblyn.............. 1997 250,000 71,525 35,000
President and Chief 1996 229,667 64,996 --
Executive Officer 1995 162,500 35,500 17,200
James M. Valentine.................. 1997 220,000 29,523 35,000
Executive Vice President 1996 209,833 26,727 --
and Chief Operating Officer 1995 165,000 24,923 10,000
Eric N. Balles...................... 1997 120,000 12,625 --
Vice President-Technology 1996 56,910 4,776 25,000
- ----------------------
<FN>
(1) Effective February 16, 1998, Mr. Peter-Hoblyn voluntarily reduced his
base salary by $62,500 to $187,500. Effective July 1, 1988, Mr.
Peter-Hoblyn's salary reduction became a deferral of such salary.
Effective July 1, 1998, Messrs. Peter-Hoblyn and Valentine voluntarily
reduced their salaries by $10,000 each to $177,500 and $210,000,
respectively. Reinstatement of the $10,000 reduction is at the
discretion of the individual involved.
(2) The amounts designated "other" in 1997, 1996 and 1995 include,
respectively, for Mr. Peter-Hoblyn, pension contributions to a
purchased annuity of $45,200, $45,833 and $32,500; for Mr. Valentine,
401 (k) plan contributions of $9,550, $8,793 and $7,313 and medical
insurance premiums of $13,068, $11,671 and $9,441; and for Mr. Balles
medical insurance premiums of $9,475 and $3,376.
</FN>
</TABLE>
DIRECTORS' COMPENSATION
The Company provides an annual retainer of $15,000, a meeting fee of
$2,000 per board meeting and $1,000 per diem for services not involving
board meetings, plus associated expenses for directors who are not
employees of the Company. Mr. Ralph E. Bailey, however, is paid an annual
retainer of $15,000 and is reimbursed for his expenses of attending
meetings and for office expenses as Chairman of the Company. Mr. Ralph E.
Bailey, commencing October 1997, Mr. de Havilland, commencing January 1998,
and Mr. Douglas G. Bailey, commencing in March 1998, have deferred their
annual retainer payments pending improvement in the Company's financial
position. In addition, on June 5, 1998, the directors have elected to waive
their meeting fees pending improvement in the Company's financial position.
Where a non-employee director is employed or otherwise compensated by an
affiliated Company, such as Fuel Tech, the retainer and meeting fees are
paid to the affiliated company, unless waived. Fuel Tech was paid those
retainers and fees for 1997 in the amount of $56,850. Directors who are
employees of the Company receive no compensation for their service as
directors.
EMPLOYMENT AGREEMENTS
Mr. Peter-Hoblyn has an employment agreement with the Company which
provides that he will serve as the President and Chief Executive Officer of
the Company. Mr. Peter-Hoblyn's employment agreement commenced on December
6, 1996 and continues until terminated by either party as described more
fully therein. The employment agreement provides for the payment of an
annual base salary of $250,000, participation in benefit programs
previously extended to him by Fuel Tech or its affiliates (the Company's
predecessor) and payment of up to $50,000 for the annual premium for a U.K.
based annuity (less any amounts received from the Company's benefit or
profit sharing plans).
Mr. Valentine has an employment agreement with the Company which
provides that he will serve as the Executive Vice President and Chief
Operating Officer of the Company. Mr. Valentine's employment agreement
commenced on August 1, 1996 and continues until terminated by either party
as described more fully therein. The employment agreement provides for an
annual base salary of $220,000 and participation in the Company's benefit
plans.
For a description of voluntary reductions by Messrs. Peter-Hoblyn and
Valentine of their base salaries, see "Summary Compensation Table" above.
STOCK OPTION PLAN
In 1994, the Board of Directors adopted and the shareholders approved
the Company's 1994 Incentive Plan (the "Plan"). The Plan is intended to set
forth a flexible structure within which the Company may utilize various
compensation devices to recruit and retain the services of such key persons
as may be required to manage and carry out the Company's business.
The Plan provides for the grant of options to employees, officers,
directors and consultants of the Company to purchase up to such number of
shares of Common Shares as the Board of Directors shall from time to time
determine, provided that such shares in the aggregate shall not exceed
17.5% of the Company's issued and outstanding shares. At the date of this
Prospectus, 427,784 options under the Plan are outstanding.
The Plan is designed so that awards thereunder may be settled in the
form of the Company's shares and in a manner complying with applicable U.S.
securities laws. Under the Plan, the Boards of Directors may grant
incentive awards to participants in the form of non-qualified stock
options, stock appreciation rights, restricted stock, performance awards,
bonuses or any other form of share based or non-share based award or any
combination of these awards (collectively referred to herein as the
"Award(s)").
Share based Awards shall at the time of grant have an exercise price
of or be valued at not less than 100% of the fair market value of the
shares on the date of the Award, as determined by the Administrator.
Share based Awards shall be outstanding for a period of six months
prior to the exercise thereof or the receipt of benefits thereunder and may
not be outstanding for a period in excess of ten years. Absent approval of
the Board of Directors, awards and agreements evidencing Awards may be
assigned or transferred only pursuant to the laws of descent and
distribution, and during the life of the holder of an Award, only the
holder may exercise or receive the benefit of the Award.
OPTIONS GRANTED TO DATE UNDER THE PLAN
The following table sets forth information concerning stock options
granted from the inception of the Plan to date to those persons who are now
(i) the Named Executive Officers, (ii) all executive officers as a group,
(iii) each director, (iv) all non-executive employees as a group and (v)
all employees, including executive officers as a group. On August 4, 1998
the closing price of the Company's Common Shares was $1.88 per share. All
stock options become exercisable upon a change of control as defined in the
Plan.
<TABLE>
<CAPTION>
Number Exercise Expiration
Name of Shares Prices Dates/Vesting
---- --------- ------ -------------
<S> <C> <C> <C>
Ralph E. Bailey.............................................. 25,000 $4.50 2006(FN1)
5,000 $4.625 2007(FN4)
Douglas G. Bailey............................................ 15,000 $2.03 2008(FN4)
Eric N. Balles............................................... 25,000 $4.50 2006(FN5)
John A. de Havilland......................................... 7,500 $6.82 2005(FN2)
5,000 $4.625 2007(FN4)
Charles W. Grinnell.......................................... 6,250 $2.50 2002(FN2)
5,750 $6.82 2005(FN2)
10,000 $4.625 2007(FN4)
7,500 $2.03 2008(FN4)
Jeremy D. Peter-Hoblyn....................................... 25,000 $0.20 2001(FN3)
25,000 $2.00 2001(FN2)
17,200 $6.82 2005(FN2)
10,000 $4.625 2007(FN4)
25,000 $4.625 2007(FN4)
7,500 $2.03 2008(FN4)
James M. Valentine........................................... 25,000 $0.20 2001(FN2)
25,000 $2.00 2001(FN2)
10,000 $6.82 2005(FN2)
10,000 $4.625 2007(FN4)
25,000 $4.625 2007(FN4)
7,500 $2.03 2008(FN4)
Executive officers as a group (four in number)............... 290,700 $0.20-$6.82 2001-2008(FN2)(FN3)(FN4)
All employees, including executive officers as a group 335,700 $0.20-$6.82 2001-2008(FN1)(FN2)(FN3)(FN4)
(nine in number)...........................................
Non-executive employees as a group (five in number).......... 45,000 $2.03-$6.50 2002-2008(FN1)(FN4)
- ------------------------
<FN>
(1) These options become first exercisable in three equal installments on
the first through the third anniversaries of grant.
(2) These options are now vested and exercisable.
(3) 16,666 of these options were exercised in 1997 and the remaining 8,334
shares are now exercisable.
(4) These options become first exercisable in three equal installments on
the grant and on the first and second anniversaries of grant.
(5) 8,333 of these options are vested and exercisable, the balance having
been cancelled.
</FN>
</TABLE>
OPTION GRANTS IN THE LAST FISCAL YEAR
<TABLE>
<CAPTION>
Potential Realizable
Value of Assumed Annual
Number of % of Total Rates of Stock Price
Shares Options Appreciation for Option
Underlying Granted to Exercise or Term
Options Employees in Base Price ----
Name Granted (#) 1997 ($/Sh) Expiration Date 5% 10%
---- ----------- ---- ------ --------------- -- ---
<S> <C> <C> <C> <C> <C> <C>
Jeremy D. Peter-Hoblyn....... 35,000 44% $4.625 2/6/07 $102,000 $258,000
Eric N. Balles............... -- -- -- -- -- --
James M. Valentine........... 35,000 44% $4.625 2/6/07 $102,000 $258,000
</TABLE>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR END OPTION VALUES
<TABLE>
<CAPTION>
Number of Number of
Securities Securities Value of Value of
Underlying Underlying Unexercised Unexercised
Unexercised Unexercised in-the-Money in-the-Money
Options at Options at Options at Options at
Shares Fiscal Year Fiscal Fiscal Fiscal
Acquired on Value End/ Year End/ Year End/ Year End/
Name Exercises Realized Exercisable Unexercisable Exercisable Unexercisable
---- --------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Jeremy D.
Peter-Hoblyn............... 16,666 $50,832 62,200 23,334 $29,601 $0
James M. Valentine......... 0 $0 71,666 23,334 $66,900 $0
Eric N. Balles............. 0 $0 8,333 0 $0 $0
</TABLE>
PRINCIPAL SHAREHOLDERS
The following table sets forth information regarding the beneficial
ownership of Common Shares as of June 30, 1998 by (i) each person known to
the Company to own beneficially more than five percent of the outstanding
Common Shares, (ii) each director of the Company, (iii) the named Executive
Officers, and (iv) all directors and executive officers as a group.
Number of Percentage of Class
Shares After
Beneficially Before Offering
Name and Address of Beneficial Owner Owned Offering (FN1)
- ------------------------------------ ----- -------- -----
Fuel Tech (FN2)....................... 689,147 27.4 16.5
Ralph E. Bailey (FN3)(FN4)............ 26,666 1.1 (FN*)
Douglas G. Bailey (FN3)(FN4).......... 5,000 (FN*) (FN*)
Eric N. Balles (FN3).................. 8,333 (FN*) (FN*)
John A. de Havilland (FN3)............ 10,833 (FN*) (FN*)
Charles W. Grinnell (FN3)............. 29,008 1.2 (FN*)
Jeremy D. Peter-Hoblyn (FN3).......... 121,918 4.8 2.9
James M. Valentine (FN3).............. 91,771 3.6 2.2
All Directors and Officers as a Group
(seven persons) (FN3)............... 326,992 13.0 7.9
- ------------------------
* Less than one percent (1.0%)
(1) Assumes full subscription of the Rights Offering, no participation by
management or Fuel Tech and that all shares of Series B Preferred
Stock are immediately converted into Common Shares. Fuel Tech and the
directors and executive officers have not yet determined whether they
will participate in the Rights Offering. Fuel Tech and management will
make a determination as to whether to participate in the Rights
Offering after the distribution of the Rights based upon several
factors, including the Offering Price, their respective financial
resources and, in the case of Fuel Tech, applicable covenants.
(2) The address of Fuel Tech is Castorweg 22-24, Curacao, Netherlands
Antilles and the address of each other beneficial owner is c/o Clean
Diesel Technologies, Inc., Suite 702, 300 Atlantic Street, Stamford,
Connecticut 06901.
(3) Includes shares subject to options exercisable presently and within 60
days for Mr. Ralph E. Bailey, 11,666 shares; Mr. Douglas G. Bailey,
5,000 shares; Mr. Balles, 8,333 shares; Mr. de Havilland, 10,833
shares; Mr. Grinnell, 21,166 shares; Mr. Peter-Hoblyn, 76,366 shares;
Mr. Valentine, 85,832 shares; and for all directors and officers as a
group, 251,529 shares.
(4) For the description of ABC which is controlled by Messrs. Ralph and
Doug Bailey, see "CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS --
Relationship with Fuel Tech; Conflicts of Interest."
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
MANAGEMENT AND SERVICES AGREEMENT
Effective July 1995 and amended June 1996, the Company and Fuel Tech
have entered into a Management and Services Agreement (the "Management and
Services Agreement") under which Fuel Tech's corporate staff provides
certain administrative services, including legal advice, risk management,
tax advice and certain technical and other services to the Company. The
Company is assessed fees equal to, depending on the type of service, 3% or
10% of the Company's fixed reimbursable costs for these services. As of May
1998, the fee was fixed at 3% for all of the Company's reimbursable costs.
The fee may be changed by mutual agreement of the Company and Fuel Tech.
Management believes that the charges under the Management and Services
Agreement are reasonable and that the terms of the Management and Services
Agreement are fair to the Company. The Management and Services Agreement
may be canceled by either party on or before May 15 in any year.
TECHNOLOGY ASSIGNMENTS
The Company's technology is comprised of patents, patent applications,
trade or service marks, data and know-how. A substantial portion of this
technology is held under assignments of technology from Fuel Tech and Fuel
Tech affiliates. The assignments provide for running royalties payable to
Fuel Tech commencing in 1998 of 2.5% of gross revenues derived from
platinum fuel catalysts. The Company may at any time terminate the royalty
obligation by payment to Fuel Tech in any year from 1998 through 2008 of
amounts, depending on the year, declining from $12 million in 1998 to $1.1
million in 2008.
TERM LOAN
Under an unsecured promissory note of November 5, 1997, the Company
owes approximately $495,000 to Platinum Plus, Inc. ("Platinum Plus"), a
wholly owned subsidiary of Fuel Tech, repayable in installments of $100,000
on July 1 in each of the years 1998 through 2000 and approximately $195,000
on July 1, 2001, bearing interest at eight percent per annum. On July 1,
1998, Platinum Plus elected to defer the repayment of the $100,000 of
principal which was payable on that date. Platinum Plus has reserved the
right, however, to call this payment at any time. As of the date of this
prospectus, Platinum Plus has not demanded repayment. The interest accrued
on the note as of July 1, 1998 was paid by the Company. See "USE OF
PROCEEDS."
BRIDGE LOAN
Fuel Tech and a group of London based investors (the "Bridge Loan
Lenders") executed a letter of intent with the Company to provide the
Company with a Bridge Loan of $1.4 million at ten percent interest per
annum due April 15, 2001, secured by all of the intellectual property of
the Company. A $500,000 short-term note and security agreement entered into
with Fuel Tech in February 1998 was canceled and Fuel Tech's $500,000
portion of the Bridge Loan substituted for that instrument. The Bridge Loan
will, as a debt instrument and through its security interest, be preferred
in liquidation over all other securities of the Company, debt or equity. No
class of debt senior to the Bridge Loan may be issued absent the prior
consent of a majority in interest of the Bridge Loan Lenders.
The Bridge Loan may be converted into up to 2,800 shares of Series A
Convertible Preferred Stock (the "Series A Preferred Stock") of the Company
at any time at the option of the Bridge Loan Lenders, but is required to be
converted on (i) the conclusion of a public or private financing
contributing $1.75 million of net proceeds to the Company (including, if it
meets this condition, the Rights Offering), or (ii) voluntary conversion of
60% of the Bridge Loan.
John A. de Havilland, a director of the Company and of Fuel Tech, is
also a director of The Shimpling Trust Limited which is a Bridge Loan
Lender in the amount of $250,000.
TERMS OF SERIES A PREFERRED STOCK
In connection with the Company's Bridge Loan, the Board designated
10,000 shares of Series A Preferred Stock. The Bridge Loan is convertible
into the Series A Preferred Stock at the lenders' discretion and is
mandatorily convertible upon the conclusion of a public or private
financing that contributes at least $1.75 million of net proceeds to the
Company. Accordingly, upon consummation of the Rights Offering, assuming
subscription of at least 31,650 Rights pursuant to the Rights Offering at a
Subscription Price of $74.25 and estimated Soliciting Fees and expenses of
$600,000, the Bridge Loan Notes will be converted into Series A Preferred
Stock. Holders of the Bridge Loan Notes have agreed not to convert the
Bridge Loan into Series A Preferred Stock prior to the earlier of the
conclusion of a public or private financing that contributes at least $1.75
million of net proceeds to the Company (including the Rights Offering) or
January 31, 1999. See "DESCRIPTION OF CAPITAL STOCK -- Preferred Stock --
Series A Convertible Preferred Stock."
REGISTRATION RIGHTS
The Company has agreed as of November 15, 1997 under certain
circumstances to provide registration rights to Fuel Tech for one demand
and unlimited incidental registrations at Company cost for the sale of
Common Shares held by Fuel Tech, if such registration should be legally
required for Fuel Tech to sell such shares.
The terms of the Bridge Loan provide that on conversion of the Bridge
Loan Notes into Series A Preferred Stock, the holders of Series A Preferred
Stock may have three demand (each of $1 million in value and not more often
than one in any twelve months) and unlimited incidental registrations at
Company cost for the Common Shares underlying the Series A Preferred Stock
held by the holders, if registration should be legally required for such
holders to sell such underlying Common Shares.
RELATIONSHIP WITH FUEL TECH; CONFLICTS OF INTEREST
Directors and officers of Fuel Tech and its subsidiaries who are also
directors and officers of the Company, and Fuel Tech as the Company's
controlling shareholder, are in positions involving the possibility of
conflicts of interest with respect to transactions involving the Company.
The Company and Fuel Tech have entered into contractual arrangements
governing certain transactions and relationships between them. These
agreements were executed while the Company was a subsidiary or affiliate of
Fuel Tech and were not the result of arm's-length negotiations.
Accordingly, there is no assurance that the terms and conditions of these
agreements are as favorable to the Company as might have been obtained from
independent third parties.
Six of the Company's officers or directors are employees or directors
to the Board of Fuel Tech. Three of these persons are also officers of Fuel
Tech and Fuel Tech subsidiaries. Although these persons seek to devote such
time to the affairs of the Company as the Company's needs require, they
must balance the Company's need for their time with the needs of Fuel Tech
and its subsidiaries.
Ralph E. Bailey and Douglas G. Bailey were elected Managing Directors
of Fuel Tech which currently owns 27.4 percent of the issued and
outstanding Common Shares of the Company. Pursuant to a Securities Purchase
Agreement dated as of March 23, 1998 (the "Purchase Agreement"), certain
affiliates and related parties of ABC (the "Investors") purchased 4.75
million common shares of Fuel Tech and warrants to purchase an additional 3
million of such common shares. Under the terms of a related shareholders
agreement, the Investors, for a period of ten years and so long as they own
not less than a certain specified minimum percentage of the issued and
outstanding common shares of Fuel Tech, will be entitled from time to time
to nominate two Managing Directors of Fuel Tech who are representatives of
the Investors and one independent director. Also, during such period, the
Investors will be entitled to nominate up to 50% of the directors of Fuel
Tech, Inc., the operating subsidiary of Fuel Tech which owns substantially
all of the operating assets of the Fuel Tech Group.
The Company expects to resolve potential conflicts of interest with
Fuel Tech on a case-by-case basis, taking into consideration relevant
factors including its existing agreements with Fuel Tech, applicable stock
exchange rules and prevailing corporate practices. Fuel Tech, however, may
exercise its influence in its own best interests.
NOXOUT(TM) 3200 SCR REAGENT
For a description of arrangements between the Company and Fuel Tech
regarding the development of proprietary specifications and formulations
for NOxOUT 3200 SCR Reagent, see "BUSINESS -- NOxOUT(TM) 3200 SCR Reagent."
DESCRIPTION OF CAPITAL STOCK
The following summary description of the Company's capital stock is
qualified in its entirety by reference to the Company's Certificate of
Incorporation, as amended, the Certificate of Designation for the Series A
Preferred Stock and the form of the Certificate of Designation for the
Series B Preferred Stock, which are attached as exhibits to the
Registration Statement.
COMMON SHARES
The Company is authorized to issue up to 15,000,000 Common Shares,
$0.05 par value per share. As of the date of this Prospectus, 2,516,666
Common Shares are issued and outstanding.
Holders of Common Shares are entitled to one vote for each share held
of record on each matter submitted to a vote of shareholders. There is no
cumulative voting for election of Directors. Subject to the prior rights of
any series of preferred stock which may from time to time be outstanding,
if any, Holders of Common Shares are entitled to receive ratably dividends
when, as, and if declared by the Board of Directors, out of funds legally
available therefor and, upon the liquidation, dissolution, or winding up of
the Company, are entitled to share ratably in all assets remaining after
payment of liabilities and payment of accrued dividends and liquidation
preferences on the Preferred Stock, if any. Holders of Common Shares have
no preemptive rights and have no rights to convert their Common Shares into
any other securities. The outstanding Common Shares are, and the Common
Shares to be outstanding upon completion of this Offering will be, validly
authorized and issued, fully paid, and nonassessable.
PREFERRED STOCK
The Company is authorized to issue up to 100,000 shares of preferred
stock, $0.05 par value per share (the "Preferred Stock").
The Preferred Stock may be issued in one or more series, the terms of
which may be determined at the time of issuance by the Board of Directors,
without further action by shareholders, and may include voting rights
(including the right to vote as a series on particular matters),
preferences as to dividends and liquidation, conversion rights, redemption
rights, and sinking fund provisions.
SERIES A CONVERTIBLE PREFERRED STOCK
On March 31, 1998, the Board of Directors designated 100,000 shares as
Series A Convertible Preferred Stock, $0.05 par value per share (the
"Series A Preferred Stock").
RANKING
Upon liquidation, dissolution and winding up, proceeds are distributed
to holders of Series A Preferred Stock and Series B Preferred Stock, pro
rata, based on the original issue price of such shares, and prior to the
Holders of Common Shares.
DIVIDENDS
Holders of the Series A Preferred Stock are entitled to receive, when,
as and if declared by the Board of Directors out of funds of the Company
legally available therefor, cash dividends at the annual rate of 9% of the
$500.00 per share price and liquidation preference (the "Liquidation
Preference"); provided, however, that in lieu of making dividends in cash,
the Company may elect, by giving written notice to each holder of the
Series A Preferred Stock, to pay dividends in kind at the annual rate of
11% of the Liquidation Preference (cash dividends and dividends in kind are
each deemed "Preferred Dividends"). Dividends payable to the holders of the
Series A Preferred Stock are payable quarterly in arrears, on the first
business day of January, April, July and October of each year (each such
date being hereinafter referred to as a "Dividend Payment Date"),
commencing July 1, 1998. Preferred Dividends on shares of Series A
Preferred Stock shall be cumulative and shall accrue from the date of
original issuance.
VOTING RIGHTS
Holders of the Series A Preferred Stock are entitled to vote on all
matters as a class with the holders of the Common Shares and Series B
Preferred Stock and in such event are entitled to one vote for each Common
Share into which the Series A Preferred Stock is convertible. The holders
of Series A Preferred Stock are entitled to vote as a separate class on the
election of two directors. In addition, the approval of the holders of at
least 60 percent of the shares of Series A Preferred Stock, voting as a
separate class, will be required to: (i) amend, alter, or repeal any of the
provisions of the Certificate of Incorporation so as to affect adversely
the powers, preferences or rights of the holders of the shares of Series A
Preferred Stock then outstanding or reduce the minimum time for any
required notice to which the holders of the shares of Series A Preferred
Stock then outstanding may be entitled; (ii) authorize or create, or
increase the authorized amount of, any securities ranking senior to the
shares of Series A Preferred Stock or any securities that by their terms
rank pari passu with the shares of Series A Preferred Stock, either as to
the payment of dividends or the distribution of assets upon liquidation,
dissolution or winding up of the Company; (iii) authorize the payment of
dividends on the Common Shares; (iv) repurchase any Common Shares, except
in connection with the termination of employment of a holder of such stock
or otherwise pursuant to the terms of the Plan; (v) enter into a
transaction whose consummation results in a Change of Control (as defined
in the Certificate of Designation) of the Company; (vi) authorize or
create, or increase the number of authorized shares of Series A Preferred
Stock; or (vii) other than to add two additional board seats in connection
with the initial issuance of Series A Preferred Stock, increase the size of
the Board of Directors of the Company.
REDEMPTIONS AND CONVERSIONS
The shares of Series A Preferred Stock shall be redeemable at the
option of a holder of the Series A Preferred Stock, in whole or in part,
from time to time out of funds legally available for such purpose, at any
time, on or after the fourth anniversary of the date of execution of this
Certificate of Designation at the redemption price of $500.00 per share
(which conversion price will be deemed to have been paid in full, at no
extra cost to the holder thereof, with the tendering of the Series A
Preferred Stock in connection with the conversion thereof), plus, in each
case, an amount equal to all dividends accrued and unpaid on the shares of
Series A Preferred Stock up to the date fixed for the redemption as set
forth in the Certificate of Designation.
Shares of Series A Preferred Stock are convertible (at the Liquidation
Preference of $500.00 per share), in whole or in part, at the option of the
holders thereof ("Optional Conversion"), unless previously redeemed, into
Common Shares at a conversion price of $1.50 per Common Share (equivalent
to a conversion rate of 333.33 Common Shares for each share of Series A
Preferred Stock so converted), which conversion price will be deemed to
have been paid in full, at no extra cost to the holder thereof, with the
tendering of the Series A Preferred Stock in connection with the conversion
thereof, subject to adjustment as set forth in the Certificate of
Designation.
The Company can force the holder to convert his Series A Preferred
Stock, in whole or in part, into Common Shares at any time on or after the
date that the average Closing Price (as defined in the Certificate of
Designation) of the Common Shares equals or exceeds $4.50 for 20
consecutive Trading Days. Such conversion may at the election of the
holders of 60% of the issued and outstanding shares of the Series A
Preferred Stock be scheduled to occur, on a pro rata basis quarterly over
18 months.
Subject to the provision for adjustment set forth in the Certificate
of Designation, each share of Series A Preferred Stock shall be
automatically converted into a number of Common Shares at the conversion
price set forth in the Certificate of Designation in the event that the
Company consummates the sale of Common Shares in a bona fide, firm
commitment, underwritten public offering pursuant to an effective
registration statement under the Securities Act of 1933, as amended,
resulting in at least $10,000,000 of gross proceeds at a price per share of
at least 200% of the Conversion Price being received by the Company (a
"Qualified IPO"). In the event of such mandatory conversion, accrued and
unpaid dividends will also convert into Common Shares, on the same terms as
the underlying Series A Preferred Stock.
ANTI-DILUTION
In the event that additional Common Shares or securities exercisable
or convertible into Common Shares are issued without consideration or at a
price less than the applicable conversion price for the Series A Preferred
Stock in effect on the date of and immediately prior to such issue, then,
subject to certain exceptions, the applicable conversion price of the
Series A Preferred Stock shall be reduced, concurrently with such issue, to
a price determined by multiplying such conversion price by a fraction, the
numerator of which shall be the number of Common Shares outstanding
immediately prior to such issue plus the number of shares of Common Shares
which the aggregate consideration received by the Company for the total
number of additional Common Shares so issued would purchase at such
conversion price; and the denominator of which shall be the number of
shares of Common Shares outstanding immediately prior to such issue plus
the number of such additional Common Shares so issued.
LIQUIDATION
In the event of any voluntary or involuntary liquidation, dissolution,
or winding up of the Company, and subject to the rights of holders of any
other series of Preferred Stock, the holders of outstanding shares of
Series A Preferred Stock are entitled to receive the sum of $500.00 per
share in cash for each share of Series A Preferred Stock, plus accrued and
unpaid Preferred Dividends thereon, out of the assets of the Company
available for distribution to stockholders, before any distribution of
assets is made to holders of Common Shares or any other capital stock
ranking junior to the shares of Series A Preferred Stock and pari passu
with holders of Series B Preferred Stock upon liquidation, dissolution, or
winding up. If, upon any voluntary or involuntary liquidation, dissolution,
or winding up of the Company, the assets of the Company are insufficient to
permit the payment of the full preferential amounts payable with respect to
the shares of Series A Preferred Stock, the Holders shall share ratably in
any distribution of assets of the Company in proportion to the full
respective preferential amounts to which they are entitled, in each case on
a per share basis. After payment of the full amount of the liquidating
distribution to which they are entitled, the holders shall not be entitled
to any further participation in any distribution of assets by the Company.
A consolidation or merger of the Company with or into one or more other
Companies (whether or not the Company is the Company surviving such
consolidation or merger), or a sale, lease or exchange of all or
substantially all of the assets of the Company, shall not be deemed to be a
voluntary or involuntary liquidation, dissolution, or winding up of the
Company.
SERIES B CONVERTIBLE PREFERRED STOCK
In connection with the Rights Offering, the Board of Directors
designated 50,000 shares as Series B Convertible Preferred Stock, $0.05 par
value per share (the "Series B Preferred Stock").
RANKING
Upon liquidation, dissolution and winding up, proceeds are distributed
to holders of Series A Preferred Stock and Series B Preferred Stock, pro
rata, based on the original issue price of such shares, and prior to the
holders of Common Shares.
DIVIDENDS
Holders of the Series B Preferred Stock are entitled to receive, when,
as and if declared by the Board of Directors out of funds of the Company
legally available therefor, cash dividends at the annual rate of 9% of the
$________ per share price and liquidation preference (the "Liquidation
Preference"); provided, however, that in lieu of making dividends in cash,
the Company may elect, by giving written notice to each holder of the
Series B Preferred Stock, to pay dividends in kind at the annual rate of
11% of the Liquidation Preference (cash dividends and dividends in kind are
each deemed "Preferred Dividends"). Dividends payable to the holders of the
Series B Preferred Stock are payable quarterly in arrears, on the first
business day of January, April, July and October of each year (each such
date being hereinafter referred to as a "Dividend Payment Date"),
commencing January 1, 1999. Preferred Dividends on shares of Series B
Preferred Stock shall be cumulative and shall accrue from the date of
original issuance.
VOTING RIGHTS
Holders of the Series B Preferred Stock are entitled to vote on all
matters as a class with the holders of the Common Shares and Series A
Preferred Stock and in such event are entitled to one vote for each Common
Share into which the Series B Preferred Stock is convertible.
CONVERSIONS
Shares of Series B Preferred Stock are convertible (at the Liquidation
Preference of $______ per share), in whole or in part, at the option of the
holders thereof ("Optional Conversion"), into Common Shares at a conversion
price of $____ per Common Share (equivalent to a conversion rate of 33
Common Shares for each share of Series B Preferred Stock so converted),
which conversion price will be deemed to have been paid in full, at no
extra cost to the holder thereof, with the tendering of the Series A
Preferred Stock in connection with the conversion thereof, subject to
adjustment as set forth in the Certificate of Designation.
The Company can force the holder to convert his Series B Preferred
Stock, in whole or in part, into Common Shares at any time on or after the
date that the average Closing Price (as defined in the Certificate of
Designation) of the Common Shares equals or exceeds $4.50 for 20
consecutive Trading Days.
Subject to the provision for adjustment set forth in the Certificate
of Designation which will be filed with the Secretary of State immediately
prior to the consummation of the sale of the Series B Preferred Stock
offered hereby, each share of Series B Preferred Stock shall be
automatically converted into a number of Common Shares at the conversion
price set forth in the Certificate of Designation in the event that the
Company consummates the sale of Common Shares in a bona fide, firm
commitment, underwritten public offering pursuant to an effective
registration statement under the Securities Act of 1933, as amended,
resulting in a Qualified IPO. In the event of such mandatory conversion,
accrued and unpaid dividends will also convert into Common Shares, on the
same terms as the underlying Series B Preferred Stock.
ANTI-DILUTION
In the event that additional Common Shares or securities exercisable
or convertible into Common Shares are issued without consideration or at a
price less than the applicable conversion price for the Series B Preferred
Stock in effect on the date of and immediately prior to such issue, then,
subject to certain exceptions, the applicable conversion price of the
Series B Preferred Stock shall be reduced, concurrently with such issue, to
a price determined by multiplying such conversion price by a fraction, the
numerator of which shall be the number of shares of Common Shares
outstanding immediately prior to such issue plus the number of shares of
Common Shares which the aggregate consideration received by the Company for
the total number of additional Common Shares so issued would purchase at
such conversion price; and the denominator of which shall be the number of
Common Shares outstanding immediately prior to such issue plus the number
of such additional Common Shares so issued.
LIQUIDATION
In the event of any voluntary or involuntary liquidation, dissolution,
or winding up of the Company, and subject to the rights of holders of any
other series of Preferred Stock, the holders of outstanding shares of
Series B Preferred Stock are entitled to receive the sum of $______ per
share in cash for each share of Series B Preferred Stock, plus accrued and
unpaid Preferred Dividends thereon, out of the assets of the Company
available for distribution to stockholders, before any distribution of
assets is made to holders of Common Shares or any other capital stock
ranking junior to the shares of Series B Preferred Stock and pari passu
with holders of Series A Preferred Stock upon liquidation, dissolution, or
winding up. If, the assets of the Company are insufficient to permit the
payment of the full preferential amounts payable with respect to the shares
of Series B Preferred Stock under such circumstances, the Holders shall
share ratably in any distribution of assets of the Company in proportion to
the full respective preferential amounts to which they are entitled, in
each case on a per share basis. After payment of the full amount of the
liquidating distribution to which they are entitled, the holders shall not
be entitled to any further participation in any distribution of assets by
the Company. A consolidation or merger of the Company with or into one or
more other Companies, or a sale, lease or exchange of all or substantially
all of the assets of the Company, shall not be deemed to be a voluntary or
involuntary liquidation, dissolution, or winding up of the Company.
Certificates representing shares of Series B Preferred Stock will
include a legend to the effect that such securities may not be transferred
to any resident of any of the following states: Arizona, Florida, Georgia,
Ohio, Pennsylvania or Texas.
SHARES ELIGIBLE FOR FUTURE SALE
The Company currently has 2,516,666 Common Shares outstanding. Upon
completion of this Offering (assuming full subscription), the Company will
have Series A and Series B Preferred Stock outstanding which will be
convertible into 933,324 and 1,650,000 additional Common Shares,
respectively. The Common Shares underlying the Series B Preferred Stock,
except for certain shares owned by "affiliates," including Fuel Tech, are
or will be freely tradable without further registration under the
Securities Act.
In general, under Rule 144 as currently in effect, a person (or
persons whose shares are aggregated), including a person who may be deemed
to be an "affiliate" of the Company as that term is defined under the
Securities Act, will be entitled to sell within any three month period a
number of shares beneficially owned for one year that does not exceed the
greater of (i) 1% of the then outstanding Common Shares, or (ii) the
average weekly trading volume in the Common Shares during the four calendar
weeks preceding such sale. Sales under Rule 144 are also subject to certain
requirements as to the manner of sale, notice, and the availability of
current public information about the Company. However, a person who is not
deemed to have been an affiliate of the Company during the 90 days
preceding a sale by such person, and who has beneficially owned Common
Shares for two years, may sell such shares without regard to the volume,
manner of sale, or notice requirements of Rule 144.
Following this Offering, the Company cannot predict the effect, if
any, that sales of Common Shares pursuant to Rule 144 or otherwise, or the
availability of such shares for sale, will have on the market price
prevailing from time to time. Nevertheless, sales by the current
shareholders of substantial amounts of Common Shares in the public market
could adversely affect prevailing market prices for the Common Shares. In
addition, the availability for sale of a substantial amount of Common
Shares acquired through the Rights could adversely affect prevailing market
prices for the Common Shares.
PLAN OF DISTRIBUTION
DISTRIBUTION ARRANGEMENTS
Outside of the United States, and in Colorado, Connecticut, the
District of Columbia, Maryland, New Jersey and New York, the Company will
pay to broker-dealers registered or exempt from registration in the
relevant jurisdiction a fee for their soliciting efforts (the "Soliciting
Fees"). Ten percent of the Subscription Price paid for the Series B
Preferred Stock which is subscribed for will be paid to such
broker-dealers. The Soliciting Fees will be paid directly to the
broker-dealer designated on the applicable portion of the Rights
Certificate. Soliciting Fees will not be paid on any undesignated exercise
of Rights, to any broker-dealer not registered or exempt from registration
in the relevant jurisdiction, or in the United States except with respect
to subscriptions by Holders in the states listed above.
TRANSFER AGENT
The Company has appointed ChaseMellon Shareholder Services, L.L.C. as
Transfer Agent for its Common Shares.
LEGAL MATTERS
The validity of the Securities offered hereby will be passed upon for
the Company by the law firm of Fried, Frank, Harris, Shriver & Jacobson (a
partnership including professional corporations), New York, NY.
EXPERTS
The financial statements of Clean Diesel Technologies, Inc. at
December 31, 1996 and 1997, and for each of the three years in the period
ended December 31, 1997, and for the period from January 1, 1992 through
December 31, 1997, appearing in this Prospectus and Registration Statement
have been audited by Ernst & Young LLP, independent auditors, as set forth
in their report thereon (which contains an explanatory paragraph describing
conditions that raise substantial doubt about the Company's ability to
continue as a going concern as described in Note 1 to the Annual Financial
Statements) appearing elsewhere herein, and are included in reliance upon
such report given upon the authority of such firm as experts in accounting
and auditing.
INDEX TO FINANCIAL STATEMENTS PAGE
- ----------------------------- ----
Audited Financial Statements
Report of Independent Auditors............................................ F-2
Balance Sheets as of December 31, 1996, and 1997.......................... F-3
Statements of Operations for the years ended
December 31, 1995, 1996, and 1997 and for the period from
January 1, 1992, through December 31, 1997.............................. F-4
Statements of Changes in Shareholders' Equity (Deficiency) for
the years ended December 31, 1995, 1996, and 1997....................... F-5
Statements of Cash Flows for the years ended December 31, 1995,
1996, and 1997 and for the period from January 1, 1992,
through December 31, 1997............................................... F-6
Notes to Financial Statements............................................. F-7
Unaudited Interim Financial Statements
Balance Sheet as of March 31, 1998 (unaudited)............................ F-14
Statements of Operations for the three months ended
March 31, 1997, and 1998, and for the period from
January 1, 1992, through March 31, 1998 (unaudited)..................... F-15
Statements of Cash Flows for the three months ended
March 31, 1997, and 1998, and for the period from January 1, 1992,
through March 31, 1998 (unaudited)...................................... F-16
Note to Financial Statements (unaudited).................................. F-17
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Clean Diesel Technologies, Inc.
We have audited the accompanying balance sheets of Clean Diesel
Technologies, Inc. (a development-stage company) as of December 31, 1996
and 1997, and the related statements of operations, shareholders' equity
(deficiency), and cash flows for each of the three years in the period
ended December 31, 1997 and for the period from January 1, 1992, through
December 31, 1997. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Clean Diesel
Technologies, Inc. at December 31, 1996 and 1997, and the results of its
operations and its cash flows for each of the three years in the period
ended December 31, 1997, and for the period from January 1, 1992, through
December 31, 1997, in conformity with generally accepted accounting
principles.
The accompanying financial statements have been prepared assuming Clean
Diesel Technologies, Inc. will continue as a going concern. As more fully
described in Note 1, the Company has incurred recurring operating losses
and its operations have not produced a positive cash flow. These conditions
raise substantial doubt about the Company's ability to continue as a going
concern. (Management's plans as to these matters are also described in Note
1.) The financial statements do not include any adjustments to reflect the
possible future effects on the recoverability and classification of assets
or the amounts and classifications of liabilities that may result from the
outcome of this uncertainty.
/s/ ERNST & YOUNG LLP
Stamford, Connecticut
February 26, 1998
CLEAN DIESEL TECHNOLOGIES, INC. (A DEVELOPMENT-STAGE COMPANY)
<TABLE>
<CAPTION>
BALANCE SHEETS
(IN THOUSANDS EXCEPT SHARE DATA)
DECEMBER 31
------------------------------
1996 1997
-------- --------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents.................................... $ 3,270 $ 1,239
Short-term investments....................................... 2,000 --
Inventories.................................................. 103 205
OTHER CURRENT ASSETS......................................... 222 238
--------- ---------
Total current assets......................................... 5,595 1,682
Other assets................................................. 82 68
--------- ---------
TOTAL ASSETS $ 5,677 $ 1,750
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses........................ $ 741 $ 794
Loan payable to Fuel-Tech N.V................................ 745 100
--------- ---------
TOTAL CURRENT LIABILITIES.................................... 1,486 894
LOAN PAYABLE TO FUEL-TECH N.V. -- 395
SHAREHOLDERS' EQUITY:
Preferred Stock, par value $0.05 per share, authorized
100,000 shares, no shares issued and outstanding.......... -- --
Common Shares, par value $0.05 per share, authorized
5,000,000 shares, issued and outstanding 2,500,000 and
2,516,666 shares.......................................... 125 126
Additional paid-in capital................................... 11,155 11,188
Deficit accumulated during development stage................. (7,089) (10,853)
--------- ---------
TOTAL SHAREHOLDERS' EQUITY................................... 4,191 461
--------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY................... $ 5,677 $ 1,750
========= =========
See accompanying notes.
</TABLE>
CLEAN DIESEL TECHNOLOGIES, INC. (A DEVELOPMENT-STAGE COMPANY)
<TABLE>
<CAPTION>
STATEMENTS OF OPERATIONS
(IN THOUSANDS EXCEPT PER SHARE DATA)
Period from
January 1,
1992,
For the years ended December 31 through
------------------------------------------------- December 31,
1995 1996 1997 1997
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Sales.................................. $ -- $ -- $ 199 $ 199
Costs and expenses:
Cost of sales.......................... -- -- 132 132
General and administrative............. 963 1,842 1,730 5,042
Research and development............... 796 1,747 1,985 5,317
Patent filing and maintenance.......... 199 223 237 938
--------- --------- --------- ---------
Loss from operations................... 1,958 3,812 3,885 11,230
Interest income........................ (33) (383) (165) (581)
Interest expense to Fuel-Tech N.V...... 99 60 44 204
--------- --------- --------- ---------
NET LOSS DURING DEVELOPMENT STAGE $ 2,024 $ 3,489 $ 3,764 $ 10,853
========= ========= ========= =========
BASIC AND DILUTED LOSS PER COMMON SHARE
$ 0.81 $ 1.40 $ 1.50 N/A
========= ========= ========= =========
AVERAGE NUMBER OF COMMON SHARES OUTSTANDING 2,500 2,500 2,517 N/A
========= ========= ========= =========
See accompanying notes.
</TABLE>
CLEAN DIESEL TECHNOLOGIES, INC. (A DEVELOPMENT-STAGE COMPANY)
<TABLE>
<CAPTION>
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIENCY)
(IN THOUSANDS)
Deficit
Deficit
Accumulated Total
Common Shares Additional During Shareholders'
------------------------- Paid-In Development Equity
Shares Amount Capital Stage (Deficiency)
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
BALANCE AT JANUARY 1, 1995................. 2,500 $ 125 $ 594 $ (1,576) $ (857)
Net loss for year.......................... -- -- -- (2,024) (2,024)
Fuel-Tech N.V. capital contribution........ -- -- 10,531 -- 10,531
--------- --------- --------- --------- ---------
BALANCE AT DECEMBER 31, 1995............... 2,500 125 11,125 (3,600) 7,650
Net loss for year.......................... -- -- -- (3,489) (3,489)
Issuance of stock purchase warrants........ -- -- 30 -- 30
--------- --------- --------- --------- ---------
BALANCE AT DECEMBER 31, 1996............... 2,500 125 11,155 (7,089) 4,191
Net loss for year.......................... -- -- -- (3,764) (3,764)
Issuance of stock purchase warrants........ -- -- 30 -- 30
Exercise of stock options.................. 17 1 3 -- 4
--------- --------- --------- --------- ---------
BALANCE AT DECEMBER 31, 1997............... 2,517 $ 126 $ 11,188 $ (10,853) $ 461
========= ========= ========= ========= =========
See accompanying notes.
</TABLE>
CLEAN DIESEL TECHNOLOGIES, INC. (A DEVELOPMENT-STAGE COMPANY)
<TABLE>
<CAPTION>
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
PERIOD FROM
JANUARY 1,
1992,
FOR THE YEARS ENDED DECEMBER 31 THROUGH
---------------------------------------------- DECEMBER 31,
1995 1996 1997 1997
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net loss................................... $ (2,024) $ (3,489) $ (3,764) $ (10,853)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation............................ -- 12 24 36
Issuance of stock purchase warrants..... -- 30 30 60
Changes in operating assets and
liabilities:
Inventories........................... (15) (88) (102) (205)
Other current assets.................. (1) (221) (16) (238)
Accounts payable and accrued expenses. 230 320 53 794
Other assets.......................... -- (18) -- (18)
Due to Fuel-Tech N.V.................. -- (66) -- (66)
--------- --------- --------- ---------
Net cash used in operating activities...... (1,810) (3,520) (3,775) (10,490)
--------- --------- --------- ---------
FINANCING ACTIVITIES
Proceeds from 1995 Rights Offering net of
$630 of brokerage commissions........... 9,138 2,018 -- 11,156
Expenses of 1995 Rights Offering........... (425) -- -- (425)
Repayment of expenses of 1995 Rights
Offering paid by Fuel-Tech N.V.......... (200) -- -- (200)
Issuance of Common Shares to parent........ -- -- -- 250
Net parent company investment.............. -- -- -- 469
Proceeds of loan from Fuel-Tech N.V........ 1,695 -- -- 2,874
Repayment of loan to Fuel-Tech N.V......... (2,063) -- (250) (2,313)
Proceeds from exercise of stock options.... -- -- 4 4
--------- --------- --------- ---------
Net cash provided from (used in) financing
activities.............................. 8,145 2,018 (246) 11,815
--------- --------- --------- ---------
INVESTING ACTIVITIES
Sale (purchase) of short-term investments.. -- (2,000) 2,000 --
Purchase of fixed assets................... -- (76) (10) (86)
--------- --------- --------- ---------
Net cash provided by (used in) investing -- (2,076) 1,990 (86)
activities............................. --------- --------- --------- ---------
NET (DECREASE) INCREASE IN CASH AND CASH
EQUIVALENTS............................. 6,335 (3,578) (2,031) 1,239
Cash and cash equivalents at beginning of
period.................................. 513 6,848 3,270 --
--------- --------- --------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD. $ 6,848 $ 3,270 $ 1,239 $ 1,239
========= ========= ========= =========
Cash payments for interest to Fuel-Tech
N.V..................................... $ -- $ 63 $ 44 $ 107
NON-CASH ACTIVITIES
Contribution of net parent company
investment to capital of the Company.... $ -- $ -- $ -- $ 469
Stock subscription receivable.............. $ 2,018 $ -- $ -- $ 2,018
Issuance of stock purchase warrants........ $ -- $ 30 $ 30 $ 60
See accompanying notes.
</TABLE>
Clean Diesel Technologies, Inc. (A Development-Stage Company)
Notes to Financial Statements
1. BASIS OF PRESENTATION
Clean Diesel Technologies, Inc. (the "Company") was incorporated in
the State of Delaware on January 19, 1994, as a wholly owned subsidiary of
Fuel-Tech N.V. ("Fuel Tech"). Predecessor financial information included in
the accompanying financial statements for the period January 1, 1992,
through January 18, 1994, reflects the Company's operations prior to
incorporation, at which time it was accounted for as part of Fuel Tech. As
more fully discussed in Note 4, effective December 12, 1995, Fuel Tech
completed a Rights Offering of the Company's Common Shares. Accordingly, at
December 12, 1995, Fuel Tech held a 27.6% interest in the Company's Common
Shares.
The Company is a development-stage enterprise, and its efforts from
January 1, 1992, through December 31, 1997, have been devoted to the
research, development and commercialization of Platinum Fuel Catalysts
("PFC"), some of which are licensed to the Company by Fuel Tech, and
nitrogen oxide ("NOx") reduction technologies for diesel engines (see Note
6). There were no material activities related to the Company's business in
1990 or 1991. Prior to 1990, the activities of Fuel Tech were focused on
other applications of the PFC that were unrelated to the Company's present
or contemplated business and were not material to the overall development
of the Company's products. Therefore, such costs have been excluded from
the determination of the Company's development costs.
The Company began selling its PFC on a commercial basis to the
consumer car care market in the first quarter of 1997, for use in the
aftertreatment of fuel (see Note 8). In order to sell the PFC in other
markets, however, additional research and development testing may be
required. The Company's NOx control technologies will also require
additional research and development testing to determine their commercial
viability. The commercialization of these technologies will depend upon the
success of field tests, cost-effective production of the PFC and
governmental regulations, principally by the U.S. Environmental Protection
Agency and corresponding foreign and state agencies. The accomplishment of
these objectives by the Company will require additional capital and there
can be no assurance that such capital will be available.
GOING CONCERN
The financial statements have been prepared assuming that the Company
will continue as a going concern and do not include any adjustments to
reflect the possible future effects on the recoverability and
classification of assets and the amount and classification of liabilities
that may result from the possible inability of the Company to continue as a
going concern.
As a result of the aforementioned recurring operating losses, the
Company has been unable to generate a positive cash flow. The Company is
actively seeking additional financing in the amount of $5 million through a
private placement or other arrangement and is currently in discussion with
several interested parties; however, the Company has not received a
commitment from any such party. Although the Company believes that it will
be successful in its capital raising efforts, there is no guarantee that
the Company will be able to raise such capital on terms satisfactory to the
Company. The Company has developed contingency plans in the event its
financing efforts are not successful. Such plans include cost reductions
(both general and administrative and research and development), licensing
the Company's technologies and selling its intellectual property.
Accordingly, at December 31, 1997, there is substantial doubt as to the
Company's ability to continue as a going concern.
On February 17, 1998, the Company received a commitment from Fuel Tech
to provide short-term financing in the amount of up to $500,000. Borrowings
pursuant to this agreement will be secured by the Company's intellectual
property. The Company's management believes that, with this loan from Fuel
Tech, the Company has adequate capital to fund its operations through the
first half of 1998.
2. SIGNIFICANT ACCOUNTING POLICIES
USE OF ESTIMATES
The preparation of the financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates.
CASH AND CASH EQUIVALENTS AND FINANCIAL INSTRUMENTS
The Company considers all highly liquid investments with a maturity of
three months or less when purchased to be cash equivalents. At December 31,
1996, substantially all of the Company's cash and cash equivalents
consisted of a $1.5 million Eurodollar deposit with a banking institution
and $1.4 million in U.S. Government obligations. At December 31, 1997,
substantially all of the Company's cash and cash equivalents consisted of
$1 million in U.S. Government obligations and a $0.2 million deposit with a
financial institution.
All financial instruments are reflected in the accompanying balance
sheets at amounts that approximate fair market value.
Short-term investments at December 31, 1996, consisted of United
States Government-backed mortgages, which matured in 1997. The Company
classified such investments as held to maturity and, accordingly, they were
carried at amortized cost in the accompanying balance sheet at December 31,
1996.
INVENTORIES
Inventories are stated at lower of cost or market and consist of
finished product. Cost is determined using the first-in, first-out (FIFO)
method.
RESEARCH AND DEVELOPMENT COSTS
Costs relating to the research, development and testing of products
are charged to operations as they are incurred. These costs include test
programs, salaries and related costs, consultancy fees, materials and
certain testing equipment. The cost of patent filings and maintenance are
also charged to operations as they are incurred. Included in accrued
expenses at December 31, 1997, are liabilities for research and development
expenses owing to Ricardo Consulting Engineers Ltd., Delft University and
Johnson Matthey of $166,533, $53,559 and $51,719, respectively.
STOCK-BASED COMPENSATION
The Company accounts for stock option grants in accordance with
Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock
Issued to Employees. Under the Company's current plan, options may be
granted at not less than the fair market value on the date of grant and
therefore no compensation expense is recognized for the stock options
granted. In 1996, the Company adopted the disclosure provisions of
Statement of Financial Accounting Standards (SFAS) No. 123, Accounting for
Stock-Based Compensation.
BASIC AND DILUTED LOSS PER COMMON SHARE
In 1997, SFAS No. 128, Earnings per Share, was issued. SFAS No. 128
replaced the previously reported primary and fully diluted earnings per
share with basic and diluted earnings per share, respectively. Unlike the
previously reported primary earnings per share, basic earnings per share
excludes the dilutive effects of stock options. Diluted earnings per share
is similar to the previously reported fully diluted earnings per share.
Earnings per share amounts for all periods presented have been calculated
in accordance with and, where appropriate, restated to conform to the
requirements of SFAS No. 128.
3. TAXATION
The Company accounts for income taxes in accordance with the
"liability method." Prior to December 12, 1995, the Company's operations
were included in the consolidated U.S. federal income tax return of Fuel
Tech, Inc.
At December 31, 1996 and 1997, the Company had tax losses available
for offset against future years' earnings of approximately $6.4 million and
$10 million, respectively. Temporary differences were insignificant as of
such dates. Approximately $0.9 million, $2.0 million, $3.5 million and $3.6
million of the tax loss carryforwards expire in 2009, 2010, 2011 and 2012,
respectively. The Company has not recognized any benefit from the
aforementioned tax loss carryforwards.
Under the provisions of the United States Tax Reform Act of 1986,
utilization of the Company's U.S. federal tax loss carryforwards (for the
period prior to December 12, 1995) may be limited as a result of the
ownership change in excess of 50% related to the Fuel Tech Rights Offering
(see Note 4).
4. SHAREHOLDERS' EQUITY
On December 12, 1995, Fuel Tech completed a Rights Offering to its
existing shareholders of 72.4% of the Company's Common Shares, retaining
27.6% of the Common Shares outstanding. Under the terms of the offering,
each Fuel Tech shareholder and Holder of Fuel Tech's Nil Coupon
Non-redeemable Convertible Unsecured Bridge Loan Notes ("Note Holders")
received a Right to purchase one common share of the Company for every 7.65
Fuel Tech shares (or notes convertible into 7.65 Fuel Tech shares) held for
$6.50 per Company share. Holders of Fuel Tech options were also allowed to
participate, if requested, under the same terms. Two million of the 2.5
million Company shares held by Fuel Tech were offered in the Rights
Offering.
Approximately 1.8 million Company shares were purchased in the
offering, which raised net proceeds, after expenses and broker-dealer
commissions aggregating $1.3 million, of approximately $10.5 million, all
of which was contributed by Fuel Tech to the Company. In December 1995,
after the offering was completed, the Company paid Fuel Tech approximately
$2.3 million, which represented the repayment of certain loans made to the
Company ($2.1 million), as well as certain expenses of the Rights Offering
paid by Fuel Tech ($200,000).
As a result of the Rights Offering and Fuel Tech's capital
contribution of the net offering proceeds, the Company's additional paid-in
capital increased by approximately $10.5 million.
On December 26, 1995, the Company's Common Shares commenced trading on
the National Association of Securities Dealers Quotation System ("Nasdaq")
under the symbol "CDTI."
5. STOCK OPTIONS AND WARRANTS
The Company maintains a stock award plan, the 1994 Incentive Plan (the
"Plan"). Under the Plan, awards may be granted to participants in the form
of non-qualified stock options, stock appreciation rights, restricted
stock, performance awards, bonuses or other forms of share based or
non-share based awards or combinations thereof. Participants in the Plan
may be such of the Company's directors, officers, employees, consultants
and advisors (except consultants or advisors in capital-raising
transactions) as the directors determine are key to the success of the
Company's business. The Company includes 50%-owned subsidiaries or
affiliates. In 1996, shareholders amended the Plan to increase from 10% to
12 1/2% the percentage of outstanding shares of the Company used to
determine the maximum number of awards to participants. In 1997, the
percentage was further increased from 12 1/2% to 17 1/2%. The policy of the
Board was to grant stock options vesting in three equal portions on the
first through third anniversaries of the grant date for grants prior to
1997, and in equal portions on the grant date and the first and second
anniversaries of the grant date for grants awarded in 1997.
If compensation expense for the Company's plan had been determined
based on the fair value at the grant dates for awards under its plan,
consistent with the method described in SFAS No. 123, the Company's net
loss and basic and diluted loss per share would have been increased to the
pro forma amounts indicated below:
1995 1996 1997
---- ---- ----
Net loss (000's):
As reported.................. $2,024 $3,489 $3,764
Pro forma.................... 2,031 3,600 4,040
Basic and diluted loss per share:
As reported.................. $ 0.81 $ 1.40 $ 1.50
Pro forma.................... 0.81 1.44 1.59
In accordance with the provisions of SFAS No. 123, the pro forma
disclosures include only the effect of stock options granted in 1995, 1996
and 1997. The application of the pro forma disclosures presented above are
not representative of the effects SFAS No. 123 may have on operating
results and earnings (loss) per share in future years due to the timing of
stock option grants and considering that options vest over a period of
three years.
The Black-Scholes option pricing model was developed for use in
estimating the fair value of traded options that have no vesting
restrictions and are fully transferable. In addition, option pricing models
require the input of highly subjective assumptions including the expected
stock price volatility. Because the Company's employee stock options have
characteristics significantly different from those of traded options and
because changes in the subjective input assumptions can materially affect
the fair value estimate, in management's opinion the existing models do not
necessarily provide a reliable single measure of the fair value of its
stock options.
The fair value of each option grant, for pro forma disclosure
purposes, was estimated on the date of grant using the modified
Black-Scholes option pricing model with the following weighted-average
assumptions:
1995 1996 1997
---- ---- ----
Expected dividend yield 0.0% 0.0% 0.0%
Risk-free interest rate 6.4% 6.8% 5.72%
Expected volatility 65.4% 54.3% 61.3%
Expected life of option 4 years 4 years 4 years
The following table presents a summary of the Company's stock option
activity and related information for the years ended December 31:
<TABLE>
<CAPTION>
1995 1996 1997
--------------------------- --------------------------- ---------------------------
OPTIONS WEIGHTED-AVERAGE OPTIONS WEIGHTED-AVERAGE OPTIONS WEIGHTED-AVERAGE
(000'S) EXERCISE PRICE (000'S) EXERCISE PRICE (000'S) EXERCISE PRICE
------- -------------- ------- -------------- ------- --------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding, beginning of
year................... 125 $ 1.10 222 $ 2.86 287 $ 3.25
Granted................... 97 5.13 65 4.59 115 4.61
Exercised................. -- -- -- -- (17) 0.20
Forfeited................. -- -- -- -- (20) 4.52
---- ------ -------- ------ ---- ------
Outstanding, end of year.. 222 $ 2.86 287 $ 3.25 365 $ 3.77
==== ====== ======= ====== ==== ======
Exercisable, end of year.. 63 $ 1.40 189 $ 3.11 259 $ 3.41
Weighted-average fair
value of options
granted during the
year................... $ 2.79 $ 2.25 $ 2.18
</TABLE>
The following table summarizes information about stock options
outstanding at December 31, 1997:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------------------------------------------ ------------------------------
WEIGHTED-AVERAGE
RANGE OF EXERCISE NUMBER OF REMAINING WEIGHTED-AVERAGE NUMBER OF WEIGHTED-AVERAGE
PRICES OPTIONS CONTRACTUAL LIFE EXERCISE PRICE OPTIONS EXERCISE PRICE
- ----------------- --------- ---------------- ---------------- --------- ----------------
<S> <C> <C> <C> <C> <C>
$.20 - $2.00 108,334 3.5 years $ 1.24 108,334 $ 1.24
2.50 - 4.63 192,500 8.0 4.21 91,663 3.82
5.63 - 6.82 64,450 7.8 6.70 59,449 6.75
- ----------------- --------- ---------------- ---------------- --------- ----------------
$.20 - $6.82 365,284 5.8 years $ 3.77 259,446 $ 3.41
</TABLE>
Pursuant to a financial consulting agreement, an investment bank has
the right to purchase warrants covering 50,000 of the Company's Common
Shares, with an exercise price of $6.50 per share (an 18% premium over
market price on the date of issue). The warrants expire on March 1, 2001.
Included in the Company's Financial Statements is $30,000 of expense in
1996 related to the issuance of these stock purchase warrants, which
represented the fair value of services received as determined by
utilization of the Black-Scholes option pricing model.
In March 1997, in consideration of his undertaking to assist the
Company in obtaining sources of permanent financing, the Company granted a
director of the Company a warrant to purchase 25,000 shares of the
Company's Common Shares for $10.00 per share (a 142% premium over market
price on the date of issue). The warrant expires on March 17, 2004.
Included in the Company's Financial Statements is $30,000 of expense, as
determined by utilization of the Black-Scholes option pricing model, in
1997, related to the issuance of these purchase warrants, which represented
the fair value of the services received.
6. COMMITMENTS
The Company is obligated under a sublease agreement for its principal
office. Future minimum lease payments at December 31, 1997, are as follows:
1998--$65,000 and 1999--$11,000. For the years ended December 31, 1996 and
1997, rental expense approximated $90,000 and $93,000 respectively. Prior
to 1996, the Company did not incur any rent expense as such expenses were
included in management fees and allocations from Fuel Tech (see Note 7).
Effective as of October 28, 1994, Fuel Tech granted two licenses to
the Company for all patents and rights associated with its Platinum Fuel
Catalyst technology. Effective November 24, 1997, the licenses were
canceled and Fuel Tech assigned to the Company all such patents and rights
on terms substantially similar to the licenses. In exchange for the
assignment, the Company will pay Fuel Tech a royalty of 2.5% of its annual
gross revenue from sales of the Platinum Fuel Catalysts, commencing in
1998. The royalty obligation expires in 2008. The Company may terminate the
royalty obligation to Fuel Tech by payment of $12 million commencing in
1998 and declining annually to $1,090,910 in 2008. The Company as assignee
and owner will maintain the technology at its own expense. To date, no
royalties have been paid to Fuel Tech.
7. RELATED PARTY TRANSACTIONS
On July 1, 1995, the Company entered into a $745,000 promissory demand
note ("Demand Note") with Fuel Tech bearing an interest rate of 8% per
annum. Pursuant to the Company's agreement with Fuel Tech, Fuel Tech did
not demand repayment during 1996. In the first quarter of 1997, the Company
repaid $250,000 of this note. Throughout the life of the note, the Company
has made monthly interest payments on the unpaid balance. On November 5,
1997, the Company entered into a $495,000 promissory note ("Term Note")
with Platinum Plus, Inc. (a wholly owned subsidiary of Fuel Tech)
representing the unpaid balance of the Demand Note on that date. The
principal amount is payable in three annual installments of $100,000 each
on July 1 of each of the years 1998 through 2000 with a final installment
of $195,000 on July 1, 2001. Interest at a rate of 8% per annum is payable
on the unpaid balance on each principal payment date.
On February 17, 1998, the Company received a commitment of up to
$500,000 from Fuel Tech to fund its cash requirements until such time as
the Company obtains the long-term financing it is seeking. The $500,000
from Fuel Tech will be in the form of a grid note, bearing interest at the
rate of 10% per annum. The note will be secured by all of the Company's
intellectual property and is repayable, in full, on or before June 17,
1998.
Average trade balances due to Fuel Tech for the years ended December
31, 1996 and 1997, approximated $183,000 and $69,000, respectively.
On August 3, 1995, the Company signed a Management and Services
Agreement with Fuel Tech. According to the agreement, the Company
reimburses Fuel Tech for management, services and administrative expenses
incurred on behalf of the Company. Additionally, Fuel Tech charged the
Company a fee equivalent to an additional 10% of such costs. In June 1996,
the Company renegotiated this agreement. Under the new agreement, the
Company agreed to pay Fuel Tech a fee equal to an additional 3% or 10% of
the costs paid on the Company's behalf, dependent upon the nature of the
costs incurred. Prior to the August 1995 agreement, the Company paid Fuel
Tech a management fee of $150,000 per quarter, which included the direct
costs and associated fees. The Company shares facilities and certain other
resources with Fuel Tech and costs are allocated between the companies
based on usage. Certain of Fuel Tech's officers and directors serve as
officers and directors of the Company, and the Company received management
and administrative support from Fuel Tech's staff. The Financial Statements
include allocations from Fuel Tech of certain management and administrative
costs, which approximate $904,000, $1,232,000 and $403,000 for the years
ended December 31, 1995, 1996 and 1997, respectively, and $3,204,000 for
the period from January 1, 1992, through December 31, 1997. Cost
allocations for such periods were based on the amount of management time
devoted to the Company. Certain services furnished by Fuel Tech to the
Company were terminated in mid-year 1996. In the opinion of the Company's
management, such cost allocations are fair and reasonable and are on terms
no less favorable than could be obtained from a third party.
During 1994, Fuel Tech contributed $469,000 to the Company and the
Company issued 2,500,000 Common Shares to Fuel Tech for $250,000.
8. MARKETING AND JOINT DEVELOPMENT AGREEMENTS
In September 1996, the Company entered into a supply agreement with
Holt Lloyd International Ltd. ("Holts") of the United Kingdom to sell the
Company's PFC under the Company's Platinum Plus trademark for use with
Holts's fuel additives in the aftertreatment of fuel for both new and used
diesel engines in the consumer car care market. The agreement covers
territories worldwide except for North, Central and South America. The term
of this agreement is 10 years with the possibility of a term extension. The
exclusivity of the agreement is determined by the attainment (or reasonable
effort toward the attainment) of predetermined minimum performance levels
for each territory on a calendar-year basis. The Company's PFC were
test-marketed by Holts in Europe in the fourth quarter of 1996, with
commercial sales commencing in the first quarter of 1997. This agreement
also provides for collaborative testing of the Company's PFC product for
gasoline-fueled vehicles, which will be marketed under similar terms by
Holts. This product was launched by Holts in Europe in late 1997 under the
Cat Guard name. In December 1997, Holts was acquired by Prestone Products,
Inc., a division of AlliedSignal. Based on management and product line
changes at Holts, and as a result of the Prestone acquisition, the Company
expects a delay in the buildup of sales to Holts in 1998.
On November 11, 1996, the Company entered into a joint development
agreement with Engelhard Corporation and Nalco Fuel Tech. The parties
agreed to collaborate on the commercialization of various diesel engine NOx
control technologies, both in the U.S. and abroad. The companies will
demonstrate and market technologies utilizing urea-based NOx catalyst
systems for stationary diesels.
9. SUBSEQUENT EVENT
On February 26, 1998, the Company was notified by Nasdaq that it was
not in compliance with the new net tangible assets/market
capitalization/net income requirements. As such, Nasdaq informed the
Company that, unless the Company requests a temporary exemption to this
requirement, its securities will be delisted at the close of business on
March 16, 1998. The Company has requested a temporary exemption to this
requirement, which will temporarily stay the delisting.
<TABLE>
<CAPTION>
BALANCE SHEET (UNAUDITED)
(IN THOUSANDS EXCEPT SHARE DATA)
March 31,
1998
------------
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents.......................................... $ 657
Inventories........................................................ 203
Other current assets............................................... 122
------------
Total current assets............................................... 982
Other assets....................................................... 62
------------
Total assets....................................................... $ 1,044
============
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable and accrued expenses.............................. $ 829
Loan payable to Fuel-Tech N.V...................................... 100
------------
Total current liabilities.......................................... 929
Loan payable to Fuel-Tech N.V...................................... 395
Shareholders' equity (deficit):
Preferred Stock, par value $0.05 per share, authorized 100,000
shares, no shares issued and outstanding........................ --
Common Shares, par value $0.05 per share, authorized 5,000,000
shares, issued and outstanding 2,516,666 shares................. 126
Additional paid-in capital......................................... 11,188
Deficit accumulated during development stage....................... (11,594)
------------
Total shareholders' equity (deficit)............................... (280)
------------
Total liabilities and shareholders' equity (deficit)............... $ 1,044
============
See note to financial statements.
</TABLE>
<TABLE>
<CAPTION>
STATEMENTS OF OPERATIONS (UNAUDITED)
(IN THOUSANDS EXCEPT PER SHARE DATA)
Period from
Three Months Ended January 1, 1992,
March 31, through
1997 1998 March 31, 1998
------- ------- ---------
<S> <C> <C> <C>
Sales.................................................... $ 40 $ -- $ 199
Costs and expenses:
Cost of sales............................................ 23 -- 132
General and administrative............................... 496 451 5,493
Research and development................................. 457 236 5,553
Patent filing and maintenance............................ 75 56 994
------- ------- ---------
Loss from operations..................................... 1,011 743 11,973
Interest income.......................................... (64) (13) (594)
Interest expense......................................... 14 11 215
------- ------- ---------
Net loss during development stage........................ $ 961 $ 741 $ 11,594
======= ======= =========
Basic and diluted loss per common share.................. $ 0.38 $ 0.29 N/A
======= ======= =========
Average number of common shares
outstanding........................................... 2,512 2,517 N/A
======= ======= =========
See note to financial statements.
</TABLE>
<TABLE>
<CAPTION>
STATEMENTS OF CASH FLOWS (UNAUDITED)
(IN THOUSANDS)
Period from
Three Months Ended January 1, 1992,
March 31 through
1997 1998 March 31, 1998
------------- ------------- -------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net cash used in operating activities................. $ (1,075) $ (581) $ (11,071)
------------- ------------- -------------
FINANCING ACTIVITIES
Proceeds from 1995 Rights Offering, net of $630 of
brokerage commissions.............................. -- -- 11,156
Expenses of 1995 Rights Offering...................... -- -- (425)
Repayment of expenses of 1995 Rights Offering
paid by Fuel-Tech N.V.............................. -- -- (200)
Issuance of Common Shares to parent................... -- -- 250
Net parent company investment......................... -- -- 469
Proceeds of loan from Fuel-Tech N.V................... -- -- 2,874
Repayment of loan to Fuel-Tech N.V.................... (250) -- (2,313)
Proceeds from exercise of stock options............... 3 -- 4
------------- ------------- -------------
Net cash (used in) provided from financing activities. (247) -- 11,815
------------- ------------- -------------
INVESTING ACTIVITIES
Net cash used in investing activities................. (5) (1) (87)
------------- ------------- -------------
NET (DECREASE) INCREASE IN CASH
AND CASH EQUIVALENTS............................... (1,327) (582) 657
Cash and cash equivalents at beginning of
period............................................. 3,270 1,239 --
------------- ------------- -------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 1,943 $ 657 $ 657
============= ============= =============
See note to financial statements.
</TABLE>
BASIS OF PRESENTATION
The accompanying unaudited, condensed, consolidated financial
statements have been prepared in accordance with generally accepted
accounting principles for interim financial information and Rule 10-01 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments
considered necessary for a fair presentation have been included. All such
adjustments are of a normal recurring nature. Operating results for the
three month period ended March 31, 1998, are not necessarily indicative of
the results that may be expected for the year ending December 31, 1998. For
further information, refer to the accompanying Financial Statements and
footnotes thereto for the year ended December 31, 1997.
Clean Diesel Technologies, Inc. (the "Company") is a development-stage
enterprise, and its efforts from January 1, 1992, through March 31, 1998,
have been devoted to the research, development and commercialization of
Platinum Fuel Catalysts ("PFCs"), some of which are licensed to the Company
by Fuel-Tech N.V. ("Fuel Tech"), and nitrogen oxide ("NOx") reduction
technologies for diesel engines. There were no material activities related
to the Company's business in 1990 or 1991. Prior to 1990, the activities of
Fuel Tech were focused on other applications of the PFC that were unrelated
to the Company's present or contemplated business and were not material to
the overall development of the Company's products. Therefore, such costs
have been excluded from the determination of the Company's development
costs.
In the first quarter of 1997, the Company began selling its PFC on a
commercial basis to the consumer car care market for use in the
aftertreatment of fuel. In order to sell the PFC in other markets, however,
additional research and development testing may be required. The Company's
NOx control technologies will also require additional research and
development testing to determine their commercial viability. The
commercialization of these technologies will depend upon the success of
field tests, cost-effective production of the PFC, and governmental
regulations, principally by the Environmental Protection Agency and
corresponding foreign and state agencies. The accomplishment of these
objectives by the Company will require additional capital and there can be
no assurance that such capital will be available. As more fully described
under the caption "Related Party Transactions" below, the Company has
received a $1.4 million bridge loan and is actively seeking additional
funding. With the net proceeds of the bridge loan, the Company's management
believes that the Company has adequate capital to fund its operations up to
November 1998. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Sources of Capital"
elsewhere in this Prospectus.
GOING CONCERN
The financial statements have been prepared assuming that the Company
will continue as a going concern and do not include any adjustments to
reflect the possible future effects on the recoverability and
classification of assets and the amount and classification of liabilities
that may result from the possible inability of the Company to continue as a
going concern.
As a result of the Company's recurring operating losses, the Company
has been unable to generate a positive cash flow. In addition to the $1.4
million bridge loan mentioned above, the Company is actively seeking
additional financing of $2.0 million to $3.75 million through the Rights
Offering. Although the Company believes that it will be successful in its
capital raising efforts, there is no guarantee that the Company will be
able to raise such capital on terms satisfactory to the Company.
Accordingly, at March 31, 1998, there continues to be substantial doubt as
to the Company's ability to continue as a going concern. See "Management's
Discussions and Analysis of Financial Condition and Results of Operations
- -- Liquidity and Sources of Capital" elsewhere in this prospectus.
INVENTORIES
Inventories are stated at lower of cost or market and consist of
finished product. Cost is determined using the first-in, first-out (FIFO)
method.
BASIC AND DILUTED LOSS PER COMMON SHARE
In 1997, SFAS No. 128, Earnings per Share, was issued. SFAS No. 128
replaced the previously reported primary and fully diluted earnings per
share with basic and diluted earnings per share, respectively. Unlike the
previously reported primary earnings per share, basic earnings per share
excludes the dilutive effects of stock options. Diluted earnings per share
is similar to the previously reported fully diluted earnings per share.
Earnings per share amounts for all periods presented have been calculated
in accordance with and, where appropriate, restated to conform to the
requirements of SFAS No. 128.
WARRANT TO PURCHASE COMMON SHARES
In March 1997, in consideration of his undertaking to assist the
Company in obtaining sources of permanent financing, the Company granted a
director of the Company a warrant to purchase 25,000 shares of the
Company's Common Shares for $10.00 per share (a 142% premium over market
price on the date of issue). The warrant expires on March 17, 2004.
Included in the Company's March 31, 1997 Statement of Operations is $30,000
of expense related to the issuance of this purchase warrant, which
represented the fair value of services received, as determined by
utilization of the Black-Scholes option pricing model.
RELATED PARTY TRANSACTIONS
On February 17, 1998, Fuel Tech agreed to provide the Company with up
to $500,000 in order to fund its cash requirements until such time as the
Company obtains the long-term financing it is seeking. The $500,000
commitment has subsequently been converted into a bridge loan (the "Bridge
Loan"), which will constitute senior debt, will bear interest at the rate
of ten percent per annum and will be due April 15, 2001. The Bridge Loan is
automatically convertible into Series A Convertible Preferred Stock upon
the conclusion of a public or private financing that contributes $1.75
million of additional net proceeds to the Company. The bridge loan is
secured by all of the Company's intellectual property. Subsequent to March
31, 1998, the Company received from outside investors an additional
$900,000 of financing under the same bridge loan.
The Company believes that, with the $1.4 million Bridge Loan described
above, it has sufficient cash balances to fund its operations through
November 1998. The Company is actively seeking additional financing in the
amount of $2.0 million to $3.75 million through the Rights Offering.
Although the Company believes that it will be successful in its capital
raising efforts, there is no guarantee that the Company will be able to
raise such capital on terms satisfactory to the Company.
SUBSEQUENT EVENTS
On February 26, 1998, the Company was notified by Nasdaq that it was
not in compliance with the new net tangible assets/market
capitalization/net income requirements. As such, the Company's securities
were delisted at the close of business on June 30, 1998. Quotations as to
the Company's shares have continued to be available on the OTC Bulletin
Board.
In May 1998, the Company received $950,000 of the proceeds from the
$1.4 million Bridge Loan, as more fully described in "Related Party
Transactions" above. The remaining proceeds of $300,000 and $150,000 were
received in June and July 1998, respectively. The Company is currently
using the proceeds to fund its operations.
On June 17, 1998, the shareholders of the Company voted to increase
the authorized capital of the Company from 5,100,000 shares, par value
$0.05, to 15,100,000 shares, par value $0.05. Of the authorized capital,
15,000,000 will be designated as Common Shares and 100,000 as Preferred
Stock.
On July 1, Platinum Plus, Inc. elected to defer repayment of the
$100,000 of principal due on the $495,000 Term Loan. Platinum Plus has
reserved the right, however, to call this payment at any time. As of the
date of this prospectus, Platinum Plus, Inc. has not demanded repayment.
The interest accrued on the note as of July 1, 1998 was paid by the
Company.
NO DEALER, SALESMAN, OR OTHER
PERSON HAS BEEN AUTHORIZED TO GIVE
ANY INFORMATION OR TO MAKE ANY
REPRESENTATION NOT CONTAINED IN
THIS PROSPECTUS, AND ANY
INFORMATION OR REPRESENTATION NOT
CONTAINED HEREIN MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY
THE COMPANY. THIS PROSPECTUS DOES
NOT CONSTITUTE AN OFFER TO SELL, OR
A SOLICITATION OF ANY OFFER TO BUY,
ANY OF THE SECURITIES OFFERED
HEREBY IN ANY JURISDICTION TO ANY
PERSON TO WHOM IT IS UNLAWFUL TO
MAKE SUCH OFFER OR SOLICITATION. CLEAN DIESEL
NEITHER THE DELIVERY OF THIS TECHNOLOGIES, INC.
PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY 50,000 RIGHTS TO ACQUIRE SHARES OF
IMPLICATION THAT THE INFORMATION SERIES B CONVERTIBLE PREFERRED STOCK
HEREIN IS CORRECT AS OF ANY DATE
SUBSEQUENT TO THE DATE HEREOF OR
THAT THERE HAS BEEN NO CHANGE IN
THE AFFAIRS OF THE COMPANY SINCE
SUCH DATE OR, IN THE CASE OF
INFORMATION INCORPORATED HEREIN BY
REFERENCE, THE DATE OF FILING WITH
THE COMMISSION.
------------------------
TABLE OF CONTENTS
PAGE
----
PROSPECTUS SUMMARY................3 50,000 SHARES OF SERIES B CONVERTIBLE
RISK FACTORS.....................13 PREFERRED STOCK
THE RIGHTS OFFERING..............20
USE OF PROCEEDS..................29
DIVIDEND POLICY..................30
CAPITALIZATION...................31
DILUTION.........................33
SUMMARY SELECTED FINANCIAL DATA..35 1,650,000 SHARES OF COMMON STOCK
MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS......37
BUSINESS.........................42
MANAGEMENT.......................51
PRINCIPAL SHAREHOLDERS...........57
CERTAIN RELATIONSHIPS AND
RELATED TRANSACTIONS...........57
DESCRIPTION OF CAPITAL STOCK.....59 ----------
SHARES ELIGIBLE FOR FUTURE SALE..65 PROSPECTUS
PLAN OF DISTRIBUTION.............65 ----------
LEGAL MATTERS....................65
EXPERTS..........................66
FINANCIAL STATEMENTS............F-1
___________, ____ 1998
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following is an itemization of all expenses (subject to future
contingencies) incurred or expected to be incurred by the Company in
connection with the issuance and distribution of the securities being
offered hereby other than broker-dealer commissions (items marked with an
asterisk (*) represent estimated expenses):
Registration Fee.......................... $ 1,100
Blue Sky Filing Fees and Expenses*........ $ 15,000
Printing and Engraving Costs*............. $ 35,000
Transfer Agent, Subscription Agent and
Information Agent Fees*................ $ 15,000
Legal Fees and Expenses*.................. $ 250,000
Accounting Fees and Expenses*............. $ 50,000
Miscellaneous*............................ $ 33,900
------------
TOTAL* $ 400,000
ITEM 14. INDEMNIFICATION OF OFFICERS AND DIRECTORS
Delaware General Corporation Law, Section 102(b)(7), enables a
corporation in its original certificate of incorporation or an amendment
thereto validly approved by shareholders to eliminate or limit personal
liability of members of its Board of Directors for violations of a
director's fiduciary duty of care. However, the elimination or limitation
shall not apply where there has been a breach of the duty of loyalty,
failure to act in good faith, engaging in intentional misconduct or
knowingly violating a law, paying a dividend or approving a stock
repurchase which is deemed illegal or obtaining an improper personal
benefit. In accordance with Delaware law, the Company's Certificate of
Incorporation eliminates in certain circumstances the liability of
directors of the Company for monetary damages for breach of their fiduciary
duty as directors. This provision does not eliminate the liability of a
director (i) for a breach of the director's duty of loyalty to the Company
or its shareholders, (ii) for acts or omissions by the director not in good
faith or which involve intentional misconduct or a knowing violation of
law, (iii) for a willful or negligent declaration of an unlawful dividend,
stock purchase or redemption or (iv) for transactions from which the
director derived an improper Personal benefit.
In addition, the Company's Certificate of Incorporation includes
provisions to indemnify its officers and directors and other persons
against expenses, judgments, fines and amounts paid in settlement in
connection with threatened, pending or completed suits or proceedings
against such persons by reason of serving or having served as officers,
directors, or in other capacities, except in relation to matters with
respect to which such persons shall be determined not to have acted in good
faith, unlawfully or in the best interests of the Company. With respect to
matters as to which the Company's officers and directors and others are
determined to be liable for misconduct or negligence in the performance of
their duties, the Company's Certificate of Incorporation provides for
indemnification only to the extent that the Company determines that such
person acted in good faith and in a manner not opposed to the best
interests of the Company.
Insofar as limitation of, or indemnification for, liabilities arising
under the Securities Act may be permitted to directors, officers, or
persons controlling the Company pursuant to the foregoing, the Company has
been informed that in the opinion of the Commission, such limitation or
indemnification is against public policy as expressed in the Securities
Act, and therefore, unenforceable.
The Company's officers and directors are, or may become, in their
individual capacities, officers, directors, controlling shareholders and/or
partners of other entities engaged in a variety of businesses. Thus, there
exists potential conflicts of interest, including, among other things,
time, effort, and corporate opportunity, incident to involvement with such
other business entities. The officers and directors have a fiduciary duty
of loyalty to the Company to disclose to the Company business opportunities
which come to their attention which may be in the Company's area of
interest, functionally and geographically.
The officers and directors of the Company are not precluded from
contracting or dealing with the Company or affiliated entities, subject,
however, to fully disclosing real or potential conflicts and documenting
such disclosures in corporate minutes and obtaining approval from a
majority of the Company's disinterested directors.
Delaware General Corporation Law, Section 145, permits a corporation
organized under Delaware law to indemnify directors and officers with
respect to any matter in which the director or officer acted in good faith
and in a manner he reasonably believed to be not opposed to the best
interests of the Company, and, with respect to any criminal action, had
reasonable cause to believe his conduct was lawful.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
In May, June and July, 1998, the Company entered into a Bridge Loan
agreement with certain lenders, including Fuel Tech, for an aggregate of
$1.4 million. The Bridge Loan is convertible into 2,800 shares of Series A
Convertible Preferred Stock at the lenders' discretion or upon conclusion
of a specified public or private financing. The issuance of the notes
evidencing the Bridge Loan and the underlying Series A Convertible
Preferred Stock were made in reliance on Section 4(2) of, and/or Regulation
S under, the Securities Act of 1933.
ITEM 16. EXHIBITS
The following exhibits are filed herewith:
Exhibit
No. Title
- -------- -----
3(i)(a) Certificate of Incorporation, as amended.
*3(i)(b) Certificate of Designation of Series A Convertible Preferred Stock
of the Company.
3(i)(c) Form of Certificate of Designation of Series B Convertible
Preferred Stock of the Company.
**3(ii) By-Laws.
+++4a Specimen Stock Certificate.
4b Specimen Subscription Certificate.
4c Instructions as to use of Subscription Certificates.
4d Notice of Guaranteed Delivery (filed as Exhibit A to Instructions).
4e Affidavit of Lost, Stolen, Destroyed or Mutilated Rights
Certificate(s) (filed as Exhibit B to Instructions).
4f Cover letter to Holders of Common Shares.
4g Cover letter to securities dealers, commercial banks, brokers,
trust companies and other nominees.
4h Suggested form letter to clients of securities dealers,
commercial banks, brokers, trust companies and other nominees.
4i Instruction to Record Date Holder.
4j DTC Participant Oversubscription Exercise Form.
4k Nominee Holder Certification.
+++5 Opinion Letter of Fried, Frank, Harris, Shriver & Jacobson as to
legality of shares being registered.
***10a Assignment of Intellectual Property Rights Fuel-Tech N.V. to
Platinum Plus, Inc. as of November 5, 1997.
***10b Assignment of Intellectual Property Rights Fuel Tech, Inc. to the
Company as of November 5, 1997.
***10c Assignment Agreement as of November 5, 1997 among Platinum Plus,
Inc., Fuel-Tech N.V. and the Company.
++10d The Company's 1994 Incentive Plan, as amended through August 8,
1996.
+10e Management Services Agreement between the Company, Fuel Tech Inc.
and Fuel Tech, dated as of June 1, 1996.
**10f Memorandum of Understanding between the Company and Anglo
American Platinum Corporation Ltd., dated August 15, 1995.
***10g Promissory Note of the Company to Platinum Plus, Inc., dated
November 5, 1997.
***10h Grid Note and Security Agreement of the Company to Platinum Plus,
Inc., dated February 17, 1998 (data in Schedule A included in
Schedules to Exhibits 10a, b and c).
****10i Office Premises Lease of January 26, 1996.
***10j Registration Rights Agreement between the Company and Fuel Tech of
November 5, 1997.
**10k License Agreement between Fuel Tech and the Company, effective
October 28, 1994.
**10l License Agreement between the Company and Platinum Plus, Inc.,
effective October 28, 1994.
++++10m Supply Agreement between the Company and Holt Lloyd International
Ltd. dated September 12, 1996.
++++10n Joint Development Agreement by and among Englehard Corporation, the
Company, and Nalco Fuel Tech dated November 11, 1996.
++++10o Cooperative-development Agreement by and between the Company and
AMBAC International dated December 17, 1997.
*10p Bridge Loan Agreement between the Company and the several
lenders set forth on Schedule A thereto dated May 8, 1998.
10q Supplemental Agreement dated as of July 10, 1998 to Bridge Loan
Agreement dated as of May 8, 1998 among the Company, the Lenders
under the Bridge Loan Agreement and the Lenders who have agreed
to become parties to the Supplemental Agreement.
10r Second Supplemental Agreement to Bridge Loan Agreement dated as
of August 3, 1998 among the Company, the Lenders under the Bridge
Loan Agreement and the Lenders who have agreed to become parties
to the Supplemental Agreement.
10s Agreement by and between Jeremy D. Peter-Hoblyn and the Company
dated as of December 2, 1996.
10t Agreement by and between James M. Valentine and the Company
dated as of September 12, 1997.
+++10u Subscription Agent Agreement by and between the Company and
ChaseMellon Shareholder Services, L.L.C. dated ________ ___, 1998.
12 Statement Re: Computation of Ratio of Earnings to Fixed Charges
and Preferred Stock Dividends.
23a Consent of Ernst & Young LLP.
+++23b Consent of Fried, Frank, Harris, Shriver & Jacobson (contained
in Opinion filed as Exhibit 5).
24 Power of Attorney (see page II-5).
- ------------------------------------------------
* Previously filed as an Exhibit to Form 8-K dated May 26, 1998, and
incorporated by reference herein.
** Previously filed as an Exhibit to Registration Statement on Form S-1
of August 16, 1995, No. 33-95840, and incorporated by reference
herein.
*** Previously filed as an Exhibit to Form 10-K for the year ended
December 31, 1997, and incorporated by reference herein.
**** Previously filed as an Exhibit to Form 10-K for the year ended
December 31, 1995, and incorporated by reference herein.
+ Previously filed as an Exhibit to Form 10-Q for the quarter ended
September 30, 1996, and incorporated by reference herein.
++ Previously filed as an Exhibit to Form 10-K for the year ended
December 31, 1996 and incorporated by reference herein.
+++ To be filed by amendment.
++++ Portions of these exhibits have been omitted pursuant to a request for
confidential treatment.
ITEM 17. UNDERTAKINGS
(a) The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration Statement:
(i) To include any prospectus required by Section 10(a)(3)
of the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events
arising after the effective date of the Registration
Statement (or the most recent post-effective amendment
thereof) which, individually or in the aggregate,
represent a fundamental change in the information in
the Registration Statement; and
(iii)To include any material information with respect to
the plan of distribution not previously disclosed in
the Registration Statement or any material change to
such information in the Registration Statement;
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be treated
as a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the Offering.
(4) The undersigned registrant hereby undertakes to supplement
the prospectus, after the expiration of the subscription period, to set
forth the results of the subscription offer, the transactions by the
underwriters during the subscription period, the amount of unsubscribed
securities to be purchased by the underwriters, and the terms of any
subsequent reoffering thereof. If any public offering by the underwriters
is to be made on terms differing from those set forth on the cover page of
the prospectus, a post-effective amendment will be filed to set forth the
terms of such offering.
(5) For purposes of determining liability under the Act:
(i) The information omitted from the form of prospectus
filed as part of a registration statement in reliance
upon Rule 430A and contained in the form of prospectus
filed by the Registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Act shall be deemed to be part
of the Registration Statement as of the time it was
declared effective; and
(ii) Each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration
statement relating to the securities offered therein,
and the offering of such securities at that time shall
be deemed to be the initial bona fide offering thereof.
(b) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers, and
controlling persons of the Registrant pursuant to the foregoing provisions,
or otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than
the payment by the Registrant of expenses incurred or paid by a director,
officer, or controlling person of the Registrant in the successful defense
of any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against
public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by undersigned, thereunto duly authorized, in the City of Stamford,
State of Connecticut, on August 7, 1998.
CLEAN DIESEL TECHNOLOGIES, INC.
By: /s/ Jeremy D. Peter-Hoblyn
------------------------------------
Jeremy D. Peter-Hoblyn, President
and Chief Executive Officer,
Director
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
WE, THE UNDERSIGNED OFFICERS AND DIRECTORS OF CLEAN DIESEL
TECHNOLOGIES, INC., hereby severally constitute and appoint Jeremy D.
Peter-Hoblyn, Scott M. Schecter and Charles W. Grinnell, and each of them
singly, our true and lawful attorneys with full power to them, and each of
them singly, to sign for us and in our names in the capacities indicated
below, the Registration Statement on Form S-1 filed herewith and any and
all pre-effective and post-effective amendments to said Registration
Statement, and generally to do all things in our names and behalf in our
capacities as officers and directors to enable Clean Diesel Technologies,
Inc. to comply with the provisions of the Securities Act of 1933, as
amended, and all requirements of the Securities and Exchange Commission,
hereby ratifying and confirming our signatures as they may be signed by our
said attorneys, or any of them, to said Registration Statement and any and
all amendments thereto.
Name Capacity Date
---- -------- ----
/s/ Jeremy D. Peter-Hoblyn
- --------------------------
Jeremy D. Peter-Hoblyn President and Chief August 7, 1998
Executive Officer,
Director (principal
executive officer)
/s/ James M. Valentine
- --------------------------
James M. Valentine Executive Vice President August 7, 1998
and Chief Operating
Officer, Director
/s/ Charles W. Grinnell
- --------------------------
Charles W. Grinnell Vice President, General August 7, 1998
Counsel and Corporate
Secretary; Director
/s/ Scott M. Schecter
- --------------------------
Scott M. Schecter Vice President, Treasurer August 7, 1998
and Chief Financial
Officer (principal
financial and accounting
officer)
/s/ John A. de Havilland
- ------------------------
John A. de Havilland Director August 7, 1998
/s/ Ralph E. Bailey
- ------------------------
Ralph E. Bailey Chairman of the Board, August 7, 1998
Director
/s/ Douglas G. Bailey
- ------------------------
Douglas G. Bailey Director August 7, 1998
*By /s/ Charles W. Grinnell
------------------------------
Charles W. Grinnell
Attorney-in-Fact
Exhibit 3(i)(a)
CERTIFICATE OF INCORPORATION
OF
CLEAN DIESEL TECHNOLOGIES, INC.
1. The name of the corporation is
Clean Diesel Technologies, Inc.
2. The address of its registered office in the State of Delaware is
Corporation Trust Center, 1209 Orange Street, in the city of
Wilmington, County of New Castle. The name of its registered
agent at such address is the Corporation Trust Company.
3. The nature of the business or purposes to be conducted or
promoted is to engage in any lawful act or activity for which
corporations may be organized under the General Corporation Law
of Delaware.
4. The corporation shall have authority to issue the total number of
Five Million (5,000,000) shares of the par value each of One
Dollar ($1.00) per share, amounting in the aggregate to Five
Million Dollars ($5,000,000.00) all of which shall be Common
Stock.
5. The name and mailing address of each incorporator is
Name Address
---- -------
Charles W. Grinnell 1055 Washington Blvd.
Stamford CT 06901
6. In furtherance and not in limitation of the powers conferred by
statute, the Board of Directors is expressly authorized to make,
alter or repeal the by-laws of the corporation.
7. Elections of Directors need not be by written ballot unless the
by-laws of the corporation shall so provide.
8. Meetings of stockholders may be held within or without the state
of Delaware, as the by-laws may provide. The books of the
corporation may be kept outside of the State of Delaware at such
place or places as may be designated from time to time by the
board of directors or in the by-laws of the corporation.
9. (a) A director of the corporation shall not be personally liable
to the corporation or its stockholders for monetary damages for
breach of fiduciary duty as a director except that this Article 9
shall not eliminate or limit a director's liability (i) for any
breach of the director's duty of loyalty to the corporation or
its stockholders, (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of
law, (iii) under Section 174 of the Delaware General Corporation
law, or (iv) for any transaction from which the director derived
an improper personal benefit.
(b) If the Delaware General Corporation Law is amended after
approval by the stockholders of this Article 9 to authorize
corporate action further eliminating or limiting the personal
liability of directors, then the liability of a director of the
corporation shall be eliminated or limited to the fullest extent
permitted by the Delaware General Corporation Law, as so amended
from time to time.
(c) Any repeal or modification of this Article 9 shall not
increase the personal liability of any director of this
corporation for any act or occurrence taking place prior to such
repeal or modification, or otherwise adversely affecting any
right or protection of a director of the corporation existing at
the time of such repeal or modification.
10. (a) Except as otherwise provided below, the corporation, shall,
to the fullest extent indemnify each person who is, or shall have
been, a director, officer, employee, or agent of the corporation
or who is or was a director, officer, employee or agent of the
corporation and is serving, or shall have served, at the request
of the corporation , as a director, officer, employee or agent of
another organization or in any capacity with respect to any
employee benefit plan of the corporation, against all liabilities
and expenses (including judgments, fines, penalties, amounts paid
or to be paid in settlement, and reasonable attorneys fees)
imposed upon or incurred by any such person (the "Indemnitee") in
connection with, or arising out of, the defense or disposition of
any action, suit or other proceeding, whether civil or criminal,
in which he may be a defendant or with which he may be threatened
or otherwise involved, directly or indirectly, by reason of his
being or having been such a director, officer, employee or agent
or as a result of his serving or having served with respect to
any such employee benefit plan; provided, however, that the
corporation shall provide no indemnification with respect to any
matter as to which any such Indemnitee shall be finally
adjudicated in such action suit or proceeding not to have acted
in good faith in the reasonable belief that his action was (i) in
the best interests of the corporation or (ii) to the extent such
matter relates to service with respect to an employee benefit
plan, in the best interests of the participants or beneficiaries
of such employee benefit plan.
(b) The right to indemnification conferred in this Article 10
shall include the right to be paid by the corporation for
liabilities and expenses incurred in connection with the
settlement or compromise of any such action, suit or proceeding,
pursuant to a consent decree or otherwise, unless a determination
is made, within forty-five (45) days after receipt by the
corporation of a written request by the Indemnitee for
indemnification, that such settlement or compromise is not in the
best interests of the corporation or, to the extent such matter
related to service with respect to an employee benefit plan, that
such settlement or compromise is not in the best interests of the
participants or beneficiaries of such plan. Any such
determination shall be made (i) by the board of directors of the
corporation by a majority vote of a quorum consisting of
disinterested directors, or (ii) if such quorum is not
obtainable, by a majority of the disinterested directors then in
office. Notwithstanding the foregoing, if there are less than two
disinterested directors of the corporation then in office, the
board of directors shall promptly direct that independent legal
counsel (who may be regular legal counsel to the corporation)
determine, based on facts known to such counsel at such time,
whether such Indemnitee acted in good faith in the reasonable
belief that this action was in the best interests of the
corporation or the participants or beneficiaries of any such
employee benefit plan, as the case may be; and, in such event,
indemnification shall be made to such Indemnitee unless, within
forty-five (45) days after receipt by the corporation of the
request by such Indemnitee for indemnification, such independent
legal counsel in a written opinion to the corporation determines
that such Indemnitee did not act in good faith in the reasonable
belief that his action was in the best interests of the
corporation or the participants or beneficiaries of any such
employee benefit plan, as the case may be.
(c) As a condition precedent to his right to be indemnified, the
Indemnitee must give the corporation notice in writing as soon as
practicable of any action, suit or proceeding involving him for
which indemnity will or could be sought. With respect to any
action, suit or proceeding of which the corporation is not
notified, the corporation will be entitled to participate therein
at its own expense and/or to assume the defense thereof at its
own expense, with legal counsel reasonably acceptable to such
Indemnitee. After notice from the corporation to the Indemnitee
of its election so to assume such defense, the corporation shall
not be liable to such Indemnitee for any legal or other expenses
subsequently incurred by such Indemnitee in connection with such
claim, but the fees and expenses of such counsel incurred after
notice from the corporation of its assumption of the defense
thereof shall be at the expense of the Indemnitee unless (i) the
employment of counsel by the Indemnitee has been authorized by
the corporation, (ii) counsel to the Indemnitee shall have
reasonably concluded that there may be a conflict of interest or
position on any significant issue between the corporation and the
Indemnitee in the conduct of the defense of such action or (iii)
the corporation shall not in fact have employed counsel to assume
the defense of such action, in each of which cases, the fees and
expenses of counsel for the Indemnitee shall be at the expense of
the corporation, except as otherwise expressly provided by this
article. The corporation shall not be entitled to assume the
defense of any claim brought by or on behalf of the corporation
or as to which counsel for the Indemnitee shall have reasonably
made the conclusion provided for in (ii) above.
(d) Subject to paragraph 4 above, the right to indemnification
referred to in this article shall include the right to be paid by
the corporation for expenses (including reasonable attorneys'
fees) incurred in defending a civil on criminal action, suit or
proceeding in advance of its final disposition, subject to
receipt of an undertaking by the Indemnitee to repay such payment
if it is ultimately determined that the Indemnitee is not
entitled to indemnification under this article. Such undertaking
may be accepted without reference to the financial ability of
such Indemnitee to make such repayment. Notwithstanding the
foregoing, no advance shall be made by the corporation under this
paragraph (d) if a determination is reasonably and promptly made
by the board of directors by a majority vote of a quorum
consisting of disinterested directors or, if such quorum is not
obtainable, by a majority of the disinterested directors of the
corporation then in office or, if there are not at least two
disinterested directors then in office, by independent legal
counsel (who may be regular legal counsel to the corporation) in
written opinion that, based on facts known to the board of
directors or counsel at such time, such Indemnitee did not act in
good faith in the reasonable belief that his action was in the
best interests of the corporation or the participants or
beneficiaries of an employee benefit plan of the corporation, as
the case may be.
(e) If an Indemnitee is entitled under any provision of this
article to indemnification by the corporation for some or a
portion of the liabilities or expenses imposed upon or incurred
by such Indemnitee in the investigation, defense, appeal or
settlement of any action, suit or proceeding but not, however,
for the total amount thereof, the corporation shall nevertheless
indemnify the Indemnitee for the portion of such liabilities or
expenses to which such Indemnitee is entitled.
(f) The right to indemnification and the payment of expenses
incurred in defending any action, suit or proceeding in advance
of its final disposition conferred in this Article shall not be
exclusive of any other right which any person may have or
thereafter acquire under any statute, provision of the articles
of incorporation, by-laws, agreement, vote of stockholders of
managing directors or otherwise. Without limiting the generality
of the foregoing, the corporation, acting through its board of
directors, may enter into agreements with any director or
employee of the corporation providing for indemnification rights
equivalent to or greater than the indemnification rights set
forth in this article.
(g) The corporation may purchase and maintain insurance, at its
expense, to protect itself and any director or employee of the
corporation or another organization or employee benefit plan
against any expense or liability incurred by him in any such
capacity, or arising out of the status as such.
(h) The corporation's obligation to provide indemnification under
this article shall be offset to the extent of any other source of
indemnification or any otherwise applicable insurance coverage
under a policy maintained by the corporation or any other person.
(i) Without the consent of a person entitled to the
indemnification and other rights provided in this article, no
amendment modifying or terminating such rights shall adversely
affect such person's rights under this article with respect to
the period prior to such amendment.
(j) If this Article or any portion thereof shall be invalidated
on any ground by any court of competent jurisdiction, then the
corporation shall nevertheless indemnify each Indemnitee as to
any liabilities and expenses with respect to any action, suit or
proceedings to the full extent permitted by any applicable
portion of this article that shall not have been invalidated and
to the full extent permitted by applicable law.
(k) As used in this article, the term "director" "officer"
"employee" "agent" and "person" include their respective heirs,
executors, administrators and legal representatives and an
"interested" director is one against whom in such capacity the
proceedings in question or another proceeding on the same or
similar grounds is then pending.
11. The corporation reserves the right to amend, alter, change or
repeal any provision contained in this certificate of
incorporation, in the manner now or hereafter prescribed by
statute, and all rights conferred upon stockholders herein are
granted subject to this reservation.
THE UNDERSIGNED incorporator does hereby set his hand this 10th day of
January 1994 for the purpose of forming a corporation under the General
Corporation Law of the state of Delaware.
/s/ Charles W. Grinnell
-----------------------
Charles W. Grinnell
CERTIFICATE OF AMENDMENT
OF
ARTICLES OF INCORPORATION
OF
CLEAN DIESEL TECHNOLOGIES, INC.
THE UNDERSIGNED does hereby certify that Clean Diesel Technologies, Inc.
has duly adopted the following amendment of its articles of incorporation
in accordance with the provisions of Section 242 of the Delaware General
Corporation Law:
Article 4. of the certificate of incorporation of the Corporation
be, and it hereby is, revoked in its entirety and the following
be, and it hereby is, substituted in its place:
"4. The corporation shall have authority to issue the total
number of Ten Million (10,000,000) shares of the par value of
$0.05 per share, amounting in the aggregate to Five Hundred
Thousand Dollars ($500,000) all of which shall be common stock."
Dated: October 17, 1994
CLEAN DIESEL TECHNOLOGIES, INC.
By: /s/ Charles W. Grinnell
-----------------------
Charles W. Grinnell
Vice President
CERTIFICATE OF AMENDMENT OF THE
CERTIFICATE OF INCORPORATION
OF CLEAN DIESEL TECHNOLOGIES, INC.
THE UNDERSIGNED does hereby certify that CLEAN DIESEL TECHNOLOGIES, INC., a
corporation organized and existing under the General Corporation Law of the
State of Delaware (the "Corporation"), has duly adopted the following
amendment and restatement of Article 4 of its Amended Certificate of
Incorporation in accordance with the provisions of ss. 242 of the Delaware
General Corporation Law:
Article 4 of the certificate of incorporation of the Corporation be,
and it hereby is, amended and restated in its entirety and the
following, be, and it hereby is, substituted in its place as follows:
"4. The corporation shall have authority to issue the total
number of Five Million One Hundred Thousand (5,100,000) shares of
the par value of $0.05 per share, amounting in the aggregate to
Two Hundred and Fifty-Five Thousand Dollars ($255,000), Five
Million (5,000,000) shares of which shall be designated as common
stock and One Hundred Thousand (100,000) of which shall be
designated as preferred stock.
The preferred stock may be issued from time to time in one or
more series. The Board of Directors is hereby authorized, within
the limitations and restrictions set forth in this Certificate,
to issue the preferred stock in one or more series and, in
connection with the creation of any such series, by resolution or
resolutions providing for the issue of the shares thereof, to
determine and fix such voting powers, full or limited, or no
voting powers, and such designations, preferences and relative,
participating, optional or other special rights and
qualifications, limitations or restrictions thereof, including
without limitation, dividend rights, dividend rates, conversion
rights, rights and terms of redemption (including sinking fund
provisions), and the liquidation preferences of any unissued
series of preferred stock and the number of shares constituting
any such series; and to increase or decrease the number of shares
of any series subsequent to the issue of shares of that series,
but not above the total number of authorized shares of the class
and not below the number of shares of such series then
outstanding.
In case the number of shares of any series shall be so decreased,
the shares constituting such decrease shall resume the status
which they had prior to the adoption of the resolution originally
fixing the number of shares of such series."
IN WITNESS WHEREOF, the Corporation has caused this Amended and
Restated Certificate of Incorporation to be signed by its Secretary,
Charles W. Grinnell, this 7th day of August, 1995.
CLEAN DIESEL TECHNOLOGIES, INC.
By: /s/Charles W. Grinnell
------------------------------
Charles W. Grinnell, Secretary
CLEAN DIESEL TECHNOLOGIES, INC.
CERTIFICATE OF CORRECTION
THE AMENDED
CERTIFICATE OF INCORPORATION OF
CLEAN DIESEL TECHNOLOGIES, INC.
CLEAN DIESEL TECHNOLOGIES, INC., a corporation organized and existing
under the General Corporation Law of the State of Delaware (the
"Corporation"),
DOES HEREBY CERTIFY:
That, Section 4 of the Amended Certificate of Incorporation of Clean
Diesel Technologies, Inc. filed with the Delaware Secretary of State on
August 5, 1995 (the "Certificate") inaccurately reflected the action
adopted by the sole stockholder. Section 4 of the Certificate should read
as follows:
4. The corporation shall have authority to issue the total number of
Five Million One Hundred Thousand (5,100,000) shares of the par
value of $0.05 per share, amounting in the aggregate to Two
Hundred and Fifty-Five Thousand Dollars ($255,000), Five Million
(5,000,000) shares of which shall be designated as common stock
and One Hundred Thousand (100,000) of which shall be designated
as preferred stock. The preferred stock may be issued from time
to time in one or more series. The Board of Directors is hereby
authorized, within the limitations and restrictions set forth in
this Certificate, to issue the preferred stock in one or more
series and, in connection with the creation of any such series,
by resolution or resolutions providing for the issue of the
shares thereof, to determine and fix such voting powers, full or
limited, or no voting powers, and such designations, preferences
and relative, participating, optional or other special rights and
qualifications, limitations or restrictions thereof, including
without limitation, dividend rights, dividend rates, conversion
rights, rights and terms of redemption (including sinking fund
provisions), and the liquidation preferences of any unissued
series of preferred stock and the number of shares constituting
any such series; and to increase or decrease the number of shares
of any series subsequent to the issue of shares of that series,
but not above the total number of authorized shares of the class
and not below the number of shares of such series then
outstanding. In case the number of shares of any series shall be
so decreased, the shares constituting such decrease shall resume
the status which they had prior to the adoption of the resolution
originally fixing the number of shares of such series. In no
event, however, may the board of Directors issue preferred stock
which has the effect of voting as a class during the tendering of
an offer to purchase 51% or more of the voting securities of the
Company.
IN WITNESS WHEREOF, the Corporation has caused this Certificate of
Correction to be signed by its Secretary, Charles W. Grinnell, this _______
day of August, 1995.
CLEAN DIESEL TECHNOLOGIES, INC.
By: /s/Charles W. Grinnell
-------------------------------
Charles W. Grinnell, Secretary
CERTIFICATE OF AMENDMENT OF THE
CERTIFICATE OF INCORPORATION
OF CLEAN DIESEL TECHNOLOGIES, INC.
THE UNDERSIGNED does hereby certify that CLEAN DIESEL TECHNOLOGIES, INC., a
corporation organized and existing under the General Corporation Law of the
State of Delaware (the "Corporation"), has duly adopted the following
amendment of Article 4 of its Certificate of Incorporation in accordance
with the provisions of ss. 242 of the Delaware General Corporation Law:
Article 4 of the certificate of incorporation of the Corporation
be, and it hereby is, amended by revoking in its entirety the
first paragraph of said Article 4 and the following being, and it
hereby is, substituted in its place, as follows:
"4 The corporation shall have authority to issue the total number
of Fifteen Million One Hundred Thousand (15,100,000) shares of
the par value of $0.05 per share, amounting in the aggregate to
Seven Hundred Fifty Five Thousand Dollars ($755,000), and of such
shares Fifteen Million (15,000,000) shall be designated as common
stock and One Hundred Thousand (100,000) shall be designated as
preferred stock."
IN WITNESS WHEREOF, the Corporation has caused this Certificate of
Amendment of Certificate of Incorporation to be signed by its Secretary,
Charles W. Grinnell, this 17th day of June 1998.
CLEAN DIESEL TECHNOLOGIES, INC.
By: /s/ Charles W. Grinnell
--------------------------------
Charles W. Grinnell, Secretary
Exhibit 3(i)(c)
FORM OF CERTIFICATE OF DESIGNATION OF
SERIES B CONVERTIBLE PREFERRED STOCK
OF CLEAN DIESEL TECHNOLOGIES, INC.
Pursuant to Section 151 of the General Corporation Law of the
state of Delaware, Clean Diesel Technologies, Inc. (the "Corporation"), a
corporation organized and existing under the General Corporation Law of the
state of Delaware, in accordance with the provisions of Section 103
thereof, DOES HEREBY CERTIFY:
That pursuant to the authority conferred upon the Board of
Directors of the Corporation (the "Board") in Article 4 of the Certificate
of Incorporation of the Corporation, as amended (the "Certificate of
Incorporation"), and in accordance with the provisions of Section 151 of
the General Corporation Law of the state of Delaware, the Board on ______
__, 1998, adopted the following resolution creating a series of preferred
stock designated as Series B Convertible Preferred Stock.
RESOLVED, that, pursuant to the authority expressly granted and
vested in the Board by the provisions of the Certificate of Incorporation,
there hereby is created, out of the 100,000 shares of preferred stock,
$0.05 par value per share, authorized in Article 4 of the Certificate of
Incorporation (the "Preferred Stock"), a series (the "Series") of the
Preferred Stock consisting of 50,000 shares, which Series shall have the
following powers, designations, preferences and relative, participating,
optional or other special rights, and the qualifications, limitations or
restrictions.
Section 1. Designation and Size of Issue; Ranking. (a) The
designation of this Series shall be "Series B Convertible Preferred Stock"
("Convertible Preferred Stock"). The number of shares of this Series shall
be 50,000 registered shares, $0.05 par value per share. The price and
liquidation preference (the "Liquidation Preference") of shares of this
Series shall be $______ per share.
(b) The shares of Convertible Preferred Stock shall rank senior
to all other classes of equity securities of the Corporation as to the
payment of dividends and the distribution of assets upon liquidation,
dissolution or winding up, unless the terms of such equity securities
provide otherwise.
Section 2. Dividends. (a) The Holders of record shall be entitled
to receive, when, as and if declared by the Board out of funds of the
Corporation legally available therefor, cash dividends at the annual rate
of 9% of the Liquidation Preference of each share; provided, however, that
in lieu of making dividends in cash, the Corporation may elect, by giving
written notice to each Holder, to pay dividends in kind at the annual rate
of 11% of the Liquidation Preference (cash dividends and dividends in kind
are each deemed "Preferred Dividends"). Dividends payable to the Holders
are payable quarterly in arrears, on the first business day of January,
April, July and October of each year (each such date being hereinafter
referred to as a "Dividend Payment Date"), commencing __________. Preferred
Dividends on shares of Convertible Preferred Stock shall be cumulative and
shall accrue from the date of original issuance. Preferred Dividends shall
be payable to Holders of record as they appear on the stock register of the
Corporation on such record dates, not less than 15 nor more than 60 days
preceding the Dividend Payment Date thereof, as shall be fixed by the
Board. Preferred Dividends (or amounts equal to accrued and unpaid
Preferred Dividends) payable on shares of Convertible Preferred Stock for
any period less than a full quarterly dividend period (or, in the case of
the first Preferred Dividend, from the date of initial issuance of the
shares of Convertible Preferred Stock to, but excluding, the first Dividend
Payment Date) shall be computed on the basis of a 360-day year of twelve
30-day months and the actual number of days elapsed in any period less than
one month. Preferred Dividends shall accrue on a daily basis whether or not
there are funds of the Corporation legally available for the payment of
such dividends and whether or not such Preferred Dividends are declared.
Accrued but unpaid Preferred Dividends shall accrue as of the Dividend
Payment Date on which they first become payable, but no interest shall
accrue on accumulated but unpaid Preferred Dividends.
(b) Any dividend payment made on the shares of Convertible
Preferred Stock shall first be credited against the earliest accrued but
unpaid dividend due with respect to the shares of Convertible Preferred
Stock.
Section 3. Conversions.
(a) Conversion at Option of a Holder. Shares of Convertible
Preferred Stock are convertible (at the Liquidation Preference of $______
per share), in whole or in part, at the option of the Holder thereof
("Optional Conversion"), unless previously redeemed, into shares of Common
Stock, par value of $0.05 ("Common Stock"), at a conversion price of $_____
per share of Common Stock (equivalent to a conversion rate of 33 shares of
Common Stock for each share of Convertible Preferred Stock so converted),
which conversion price will be deemed to have been paid in full, at no
extra cost to the Holder thereof, with the tendering of the Convertible
Preferred Stock in connection with the conversion thereof, subject to
adjustment as set forth below (the "Conversion Price") .
Optional Conversion of shares of Convertible Preferred Stock may
be effected by delivering certificates evidencing such shares of
Convertible Preferred Stock, together with written notice of conversion and
a proper assignment of such certificates to the Corporation or in blank, to
the office of the transfer agent for the shares of Convertible Preferred
Stock or to any other office or agency maintained by the Corporation for
that purpose and otherwise in accordance with Optional Conversion
procedures established by the Corporation. Each Optional Conversion shall
be deemed to have been effected immediately before the close of business on
the date on which the foregoing requirements shall have been satisfied. The
Optional Conversion shall be at the Conversion Price in effect at such time
and on such date.
The Holders at the close of business on a record date for any
payment of declared Preferred Dividends shall be entitled to receive the
Preferred Dividend payable on such shares of Convertible Preferred Stock on
the corresponding Dividend Payment Date notwithstanding the Optional
Conversion of such shares of Convertible Preferred Stock following such
record date and before such Dividend Payment Date. However, shares of
Convertible Preferred Stock surrendered for Optional Conversion after the
close of business on a record date for any payment of declared Preferred
Dividends and before the opening of business on the next succeeding
Dividend Payment Date must be accompanied by payment to the Corporation in
cash of an amount equal to the Preferred Dividends on such shares of
Convertible Preferred Stock to be converted attributable to the current
quarterly dividend period payable on such date. A Holder on any Dividend
Payment Date will receive the dividend on such shares of Convertible
Preferred Stock payable on that date and will be able to convert such
shares of Convertible Preferred Stock after the record date for such
dividend without paying an amount equal to such dividend to the Corporation
upon the Optional Conversion. Except as provided above, upon any Optional
Conversion of shares of Convertible Preferred Stock, the Corporation shall
make no payment of or allowance for unpaid Preferred Dividends, whether or
not in arrears on such shares of Convertible Preferred Stock as to which
Optional Conversion has been effected or for previously declared dividends
or distributions on the shares of Common Stock issued upon Optional
Conversion.
(b) Conversion at the Option of the Corporation. The Corporation
can force the Holder to convert his Convertible Preferred Stock, in whole
or in part, into shares of Common Stock at any time on or after the date
that the average Closing Price (as defined in Section 12) of the shares of
Common Stock equal or exceed $4.50 for 20 consecutive Trading Days. Such
conversion may at the election of the Holders of 60% of the issued and
outstanding shares of this Series B Convertible Preferred Stock be
scheduled to occur, on a pro rata basis quarterly over 18 months.
(c) Mandatory Conversion. Subject to the provision for adjustment
set forth below, each share of Convertible Preferred Stock shall be
automatically converted into a number of shares of Common Stock at the
Conversion Price in the event that the Corporation consummates a Qualified
IPO (as defined in Section 12) (such event, a "Mandatory Conversion"). In
the event of a Mandatory Conversion, accrued and unpaid dividends will also
convert into shares of Common Stock, on the same terms as the underlying
Preferred Stock.
(d) Deemed Issuance of Additional Common Stock. The shares of
Common Stock ultimately Issuable (as defined in Section 12) upon exercise
of an option (including the shares of Common Stock ultimately Issuable upon
conversion or exercise of a Convertible Security (as defined in Section 12)
Issuable pursuant to an option) are deemed to be Issued when the option is
Issued. The shares of Common Stock ultimately Issuable upon conversion or
exercise of a Convertible Security (other than a Convertible Security
Issued pursuant to an option) shall be deemed Issued upon Issuance of the
Convertible Security. The maximum number of shares of Common Stock Issuable
is determined without regard to any future adjustments permitted under the
instrument creating the options or Convertible Securities.
(e) Adjustment of Conversion Price for Diluting Issuances.
(i) Weighed Average Adjustment. If the Corporation Issues
additional Common Stock after the original Issuance date of the
Convertible Preferred Stock and the consideration per share of
additional Common Stock (determined pursuant to this Section 3(f)) is
less than the Conversion Price in effect immediately before such
Issue, the Conversion Price in effect immediately before such Issue
shall be reduced, concurrently with such Issue, to a price (calculated
to the cent) determined by multiplying the Conversion Price by a
fraction:
(A) the numerator of which is the number of shares of
Common Stock outstanding immediately before such Issue plus the
number of shares of Common Stock that the aggregate consideration
received by the Corporation for such additional Common Stock
would purchase at the Conversion Price in effect immediately
before such Issue, and
(B) the denominator of which is the number of shares of
Common Stock outstanding immediately before such Issue plus the
number of shares of such additional Common Stock.
(ii) Adjustment of Number of Shares. Upon each adjustment of
the Conversion Price, the number of shares of Common Stock issuable
upon conversion of the Convertible Preferred Stock shall be increased
to equal the quotient obtained by dividing (a) the product resulting
from multiplying (x) the number of shares of Common Stock issuable
upon conversion of the Convertible Preferred Stock and (y) the
Conversion Price, in each case as in effect immediately before such
adjustment, by (b) the adjusted Conversion Price.
(iii) Securities Deemed Outstanding. For the purpose of this
Section 3, all securities issuable upon exercise of any outstanding
Convertible Securities or options, warrants, or other rights to
acquire securities of the Corporation shall be deemed to be
outstanding.
(f) No Adjustment for Issuances Following Deemed Issuances. No
adjustment to the Conversion Price shall be made upon the exercise of
options or conversion of Convertible Securities.
(g) Adjustment Following Changes in Terms of Options or
Convertible Securities. If the consideration payable to, or the number of
shares of Common Stock Issuable by, the Corporation increases or decreases,
respectively, pursuant to the terms of any outstanding options or
Convertible Securities, the Conversion Price shall be recomputed to reflect
such increase or decrease. The recomputation shall be made as of the time
of the Issuance of the options or Convertible Securities. Any changes in
the Conversion Price that occurred after such Issuance because other shares
of additional Common Stock were Issued or deemed Issued shall also be
recomputed.
(h) Recomputation Upon Expiration of Options or Convertible
Securities. The Conversion Price computed upon the original Issue of any
options or Convertible Securities, and any subsequent adjustments based
thereon, shall be recomputed when any options or rights of conversion under
Convertible Securities expire without having been exercised. In the case of
Convertible Securities or options for Common Stock, the Conversion Price
shall be recomputed as if the only shares of additional Common Stock Issued
were the shares of Common Stock actually Issued upon the exercise of such
securities, if any, and as if the only consideration received therefor was
the consideration actually received upon the Issue, exercise or conversion
of the options or Convertible Securities. In the case of options or
Convertible Securities, the Conversion Price shall be recomputed as if the
only Convertible Securities Issued were the Convertible Securities actually
Issued upon the exercise thereof, if any, and as if the only consideration
received therefor was the consideration actually received by the
Corporation (determined pursuant to Section 3(f)), if any, upon the Issue
of the options for the Convertible Securities.
(i) Limit on Readjustments. No readjustment of the Conversion
Price pursuant to Section 3(h) or 3(i) shall increase the Conversion Price
more than the amount of any decrease made in respect of the Issue of any
options or Convertible Securities.
(j) 30-Day Options. In the case of any options that expire by
their terms not more than 30 days after the date of Issue thereof, no
adjustment of the Conversion Price shall be made until the expiration or
exercise of all such options.
(k) Computation of Consideration. The consideration received by
the Corporation for the Issue of any additional Common Stock shall be
computed as follows:
(i) Cash. Cash shall be valued at the amount of cash
received by the Corporation, excluding amounts paid or payable for
accrued interest or accrued dividends.
(ii) Property. Property other than cash shall be computed at
the fair market value thereof at the time of the Issue as determined
in good faith by the Board.
(iii) Mixed Consideration. The consideration for additional
Common Stock Issued together with other property of the Corporation
for consideration that covers both shall be determined in good faith
by the Board.
(iv) Options and Convertible Securities. The consideration
per share of additional Common Stock for options and Convertible
Securities shall be determined by dividing:
(A) the total amount, if any, received or receivable by
the Corporation for the Issue of the options or Convertible
Securities, plus the minimum amount of additional consideration
(as set forth in the instruments relating thereto; without regard
to any provision contained therein for a subsequent adjustment of
such consideration) payable to the Corporation upon exercise of
the options or conversion of the Convertible Securities, by
(B) the maximum number of shares of Common Stock (as
set forth in the instruments relating thereto, without regard to
any provision contained therein for a subsequent adjustment of
such number) ultimately Issuable upon the exercise of such
options or the conversion of such Convertible Securities.
(l) Stock Dividends. In case at any time the Corporation shall
declare a dividend or make any other distribution upon any stock of the
Corporation which is payable in Common Stock or Convertible Securities, any
Common Stock or Convertible Securities, as the case may be, issuable in
payment of such dividend or distribution shall be deemed to have been
issued or sold without consideration.
(m) Adjustment for Certain Special Dividends. In case the
Corporation shall declare a dividend upon the Common Stock payable
otherwise than out of earnings or earned surplus, determined in accordance
with generally accepted accounting principles, and otherwise than in Common
Stock or Convertible Securities, the Conversion Price in effect immediately
subsequent to the declaration of such dividend shall be determined by
subtracting from the Conversion Price in effect immediately prior to such
declaration the amount of cash (or, if the distribution is for property
other than cash, the fair market value of such property determined
reasonably and in good faith by the Board) distributed in respect of one
share of Common Stock. For the purpose of the foregoing, a dividend other
than in cash shall be considered payable out of earnings or earned surplus
(other than revaluation of paid in surplus) only to the extent that such
earnings or earned surplus are charged an amount equal to the fair value of
such dividend as determined, reasonably and in good faith, by the Board.
Such reductions shall take effect as of the date on which a record is taken
for the purpose of such dividend, or, if a record is not taken, the date as
of which the holder of Common Stock of record entitled to such dividend are
determined.
(n) Subdivision or Combination of Stock. In case the Corporation
shall at any time subdivide the outstanding shares of Common Stock into a
greater number of shares, the Conversion Price in effect immediately prior
to such subdivision shall be proportionately reduced and the number of
shares issuable upon conversion of the Convertible Preferred Stock
immediately prior to such subdivisions shall be proportionately increased,
and conversely, in case the outstanding shares of Common Stock shall be
combined at any time into a smaller number of shares, the Conversion Price
in effect immediately prior to such combination shall be proportionately
increased and the number of shares issuable upon conversion of the
Convertible Preferred Stock immediately prior to such combination shall be
proportionately reduced.
(o) Adjustments for Consolidation, Merger, Sale of Assets,
Reorganization, etc. In case the Corporation (i) consolidates with or
merges into any other corporation and is not the continuing or surviving
corporation of such consolidation or merger, or (ii) permits any other
corporation to consolidate with or merge into the Corporation and the
Corporation is the continuing or surviving corporation but, in connection
with such consolidation or merger, the Common Stock is changed into or
exchanged for stock or other securities of any other corporation or cash or
any other assets, or (iii) transfers all or substantially all of its
properties and assets to any other corporation, or (iv) effects a capital
reorganization or reclassification of the capital stock of the Corporation
in such a way that holders of Common Stock shall be entitled to receive
stock, securities, cash or assets with respect to or in exchange for Common
Stock, then, and in each such case, proper provision shall be made so that,
upon the basis and upon the terms and in the manner provided in this
Section 3(p), upon the conversion of the Convertible Preferred Stock at any
time after the consummation of such consolidation, merger, transfer,
reorganization or reclassification, each Holder shall be entitled to
receive (at the Conversion Price in effect for shares issuable upon such
conversion of the Convertible Preferred Stock immediately prior to such
consummation), in lieu of shares issuable upon such conversion of the
Convertible Preferred Stock prior to such consummation, the stock and other
securities, cash and assets to which such Holder would have been entitled
upon such consummation if such Holder had so converted such Convertible
Preferred Stock immediately prior thereto (subject to adjustments
subsequent to such corporate action as nearly equivalent as possible to the
adjustments provided for in this Section 3).
(p) Notice of Adjustment. Whenever the number of shares issuable
upon the conversion of the Convertible Preferred Stock or the Conversion
Price is adjusted, as provided in this Section 3, the Corporation shall
prepare and mail to each Holder a certificate setting forth (i) the
Conversion Price and the number of shares issuable upon the conversion of
the Convertible Preferred Stock after such adjustment, (ii) a brief
statement of the facts requiring such adjustment and (iii) the computation
by which such adjustment was made.
(q) Treasury Shares. The number of shares of Common Stock
outstanding at any given time shall not include shares of Common Stock
owned or held by or for the account of the Corporation. The disposition of
any shares of Common Stock owned or held by or for the account of the
Corporation shall be considered an issue of Common Stock for the purpose of
this Section 3.
(r) Certain Adjustment Rules.
(i) The provisions of this Section 3 shall similarly apply
to successive transactions.
(ii) If the Corporation shall declare any dividend referred
to in Section 3 (m) or Section 3 (n) and if any Holder converts all or
any part of the Convertible Preferred Stock after such declaration,
but before the payment of such dividend, the Corporation may elect to
defer, until the payment of such dividend, issuing to such Holder the
shares of Common Stock issuable upon such conversion over and above
the shares issuable upon such conversion on the basis of the
Conversion Price in effect prior to such adjustment; provided,
however, that the Corporation shall deliver to each such Holder a due
bill or other appropriate instrument evidencing such Holder's right to
receive such additional shares upon the payment of such dividend.
(iii) If the Corporation shall declare any dividend referred
to in Section 3(m) or Section 3(n) and shall legally abandon such
dividend prior to payment, then no adjustment shall be made pursuant
to this Section 3 in respect of such declaration.
(s) Exceptions to Adjustment to Conversion Price. Notwithstanding
anything herein to the contrary, no adjustment to the Conversion Price or
the number of shares issuable upon exercise of the Warrants shall be made
in the case of the following:
(i) the issuance of any shares of Common Stock upon
conversion of the Convertible Preferred Stock;
(ii) the grant of options or stock awards to purchase or
acquire Common Stock to employees, officers or directors of the
Corporation, or the adjustment of the exercise price thereof pursuant
to the Corporation's 1994 Incentive Plan or any successor plan or
plans thereto (the "Plan"); and
(iii) the issuance of shares of Common Stock to any
employees, officers or directors of the Corporation upon the exercise
or settlement of any stock award to purchase or acquire Common Stock
granted pursuant to the Plan.
Section 4. No Fractional Shares. No fractional shares or script
representing fractional shares of Common Stock shall be issued upon
conversion of any shares of Convertible Preferred Stock. In lieu of any
fractional share otherwise issuable in respect of the aggregate number of
shares of Convertible Preferred Stock of any holder that are converted on
any Optional Conversion, such holder shall be entitled to receive an amount
in cash (computed to the nearest cent) equal to the same fraction of the
Closing Price of the Common Stock determined as of the second Trading Day
(as defined in Section 12) immediately preceding the effective date of
conversion. If more than one share of Convertible Preferred Stock shall be
surrendered for conversion at one time by or for the same holder, the
number of full shares of Common Stock issuable upon conversion thereof
shall be computed on the basis of the aggregate number of shares of the
Convertible Preferred Stock so surrendered.
Section 5. Reservation of Common Stock. The Corporation shall at
all times reserve and keep available out of its authorized and unissued
Common Stock, solely for issuance upon the conversion of shares of
Convertible Preferred Stock, as herein provided, free from preemptive
rights, such maximum number of shares of Common Stock as shall from time to
time be issuable upon the Optional Conversion of all the shares of
Convertible Preferred Stock then outstanding.
Section 6. Payment of Taxes. The Corporation shall pay any and
all documentary, stamp or similar issue or transfer taxes payable in
respect of the issue or delivery of shares of Common Stock on the
conversion of shares of Convertible Preferred Stock pursuant to Section 3;
provided, however, that the Corporation shall not be required to pay any
tax which may be payable in respect of any registration of transfer
involved in the issue or delivery of shares of Common Stock in a name other
than that of the registered holder of shares of Convertible Preferred Stock
converted or to be converted, and no such issue or delivery shall be made
unless and until the person requesting such issue has paid to the
Corporation the amount of any such tax or has established, to the
satisfaction of the Corporation, that such tax has been paid.
Section 7. Liquidation Preference. In the event of any voluntary
or involuntary liquidation, dissolution, or winding up of the Corporation,
and subject to the rights of holders of any other series of Preferred
Stock, the holders of outstanding shares of Convertible Preferred Stock are
entitled to receive the sum of $_______ per share in cash for each share of
Convertible Preferred Stock, plus accrued and unpaid Preferred Dividends
thereon, out of the assets of the Corporation available for distribution to
stockholders, before any distribution of assets is made to holders of
Common Stock or any other capital stock ranking junior to the shares of
Convertible Preferred Stock upon liquidation, dissolution, or winding up.
If, upon any voluntary or involuntary liquidation, dissolution, or winding
up of the Corporation, the assets of the Corporation are insufficient to
permit the payment of the full preferential amounts payable with respect to
the shares of Convertible Preferred Stock, the Holders shall share ratably
in any distribution of assets of the Corporation in proportion to the full
respective preferential amounts to which they are entitled, in each case on
a per share basis. After payment of the full amount of the liquidating
distribution to which they are entitled, the Holders shall not be entitled
to any further participation in any distribution of assets by the
Corporation. A consolidation or merger of the Corporation with or into one
or more other corporations (whether or not the Corporation is the
corporation surviving such consolidation or merger), or a sale, lease or
exchange of all or substantially all of the assets of the Corporation shall
not be deemed to be a voluntary or involuntary liquidation, dissolution, or
winding up of the Corporation.
Section 8. Effect of Conversions. The person or persons in whose
name or names any certificate or certificates for shares of Common Stock
shall be issuable upon any conversion shall be deemed to have become on the
date of any such conversion the holder or holders of record of the shares
represented thereby; provided, however, that if any surrender on any date
when the stock transfer books of the Corporation shall be closed the person
or persons in whose name or names the certificate or certificates for such
shares are to be issued shall be the record holder or holders thereof for
all purposes at the opening of business on the next succeeding day on which
such stock transfer books are open.
Section 9. Reissuance. Shares of Convertible Preferred Stock that
have been issued and reacquired by the Corporation in any manner, including
shares purchased, exchanged, redeemed or converted, shall not be reissued
as part of such Series and shall (upon compliance with any applicable
provisions of the laws of Delaware) have the status of authorized and
unisssued shares of the Preferred Stock undesignated as to series and may
be redesignated and reissued as part of any other series of Preferred
Stock.
Section 10. Severability of Provisions. Whenever possible, each
provision hereof shall be interpreted in a manner as to be effective and
valid under applicable law, but if any provision hereof is held to be
prohibited by or invalid under applicable law, such provision shall be
ineffective only to the extent of such prohibition or invalidity, without
invalidating or otherwise adversely affecting the remaining provisions
hereof. If a court of competent jurisdiction should determine that a
provision hereof would be valid or enforceable if a period of time were
extended or shortened or a particular percentage were increased or
decreased, then such Court may make such change as shall be necessary to
render the provision in question effective and valid under applicable law.
Section 11. Voting Rights. The Holders shall be entitled to vote
on all matters and shall be entitled to the number of votes per share of
Convertible Preferred Stock equal to the number of votes per share a holder
of the shares of Common Stock into which Convertible Preferred Stock is
convertible is entitled to, at the record date for the determination of the
stockholders entitled to vote on all matters. Except as required by law, or
as otherwise provided in this Section 11, the holders of shares of
Preferred Stock and Common Stock shall vote together as a single class and
not as separate classes.
Section 12. Definitions. As used herein:
(i) the term "business day" shall mean any day other than a
Saturday, Sunday, or a day on which banking institutions in the state
of New York are authorized or obligated by law or executive order to
close or are closed because of a banking moratorium or otherwise;
(ii) the term "Change of Control" shall mean that a person
or group of persons (other than Fuel-Tech N.V. ("FTNV") and/or its
affiliates and other persons acting with or on behalf of FTNV and/or
its affiliates) shall, as a result of a tender or exchange offer, open
market purchases, privately negotiated purchases or otherwise, have
become, directly or indirectly, the beneficial owner of more than 50%
of the Corporation's outstanding Common Stock;
(iii) the term "Closing Price" shall mean (1) if the Common
Stock is listed on one or more stock exchanges or is quoted on the
NASDAQ National Market (the "National Market"), the average of the
closing sales prices of a share of Common Stock on the primary
national or regional stock exchange on which such shares are listed or
on the National Market if quoted thereon or (2) if the Common Stock is
not so listed or quoted but is traded in the over the counter market
(other than the National Market), the average of the closing bid and
asked prices of a share of Common Stock, in the case of clauses (1)
and (2), for the 20 Trading Days (or such lesser number of trading
days as the Common Stock shall have been so listed, quoted or traded)
immediately prior to the date of measurement ((l) or (2), the
"Principal Trading Market").
(iv) the term "Convertible Securities" shall mean any
evidences of indebtedness, shares of stock, or other securities
directly or indirectly convertible into or exchangeable for Common
Stock.
(v) the term "Issue" means to grant, issue, sell, assume or
fix a record date for determining persons entitled to receive, any
security (including options), whichever of the foregoing is first to
occur;
(vi) the term "Qualified IPO" shall mean the closing of the
sale of shares of Common Stock in a bona fide, firm commitment,
underwritten public offering pursuant to an effective registration
statement under the Securities Act of 1933, as amended, (i) resulting
in at least $10,000,000 of gross proceeds at a price per share of at
least 200% of the Conversion Price being received by the Company;
(vii) the term "record date" shall be such date as from time
to time fixed by the Board of Directors with respect to the receipt of
dividends, the receipt of a redemption price upon redemption or the
taking of any action or exercise of any voting rights permitted
hereby; and
(viii) the term "Trading Day" shall mean any day during
which the Principal Market shall be open for business and the
Company's Common Stock shall have traded on such Principal Market.
Section 13. Transferability. No Holder of shares of this Series B
Convertible Preferred Stock shall directly or indirectly, sell, distribute,
transfer, assign, pledge, hypothecate or otherwise dispose of or encumber
any of such shares or any shares of Common Stock issuable upon the
conversion of such shares, unless such transfer is made pursuant to either
(i) an effective registration statement under the Securities Act of 1933,
as amended, and any applicable state securities laws, or (ii) an available
exemption from the registration requirements of the Securities Act of 1933
and applicable state securities laws. Certificates representing shares of
Series B Preferred Stock will include a legend to the effect that such
securities may not be transferred to any residents of any of the following
states: Arizona, Florida, Georgia, Ohio, Pennsylvania or Texas.
IN WITNESS WHEREOF, Clean Diesel Technologies, Inc. has caused
this Certificate of Designation to be signed this ___ day of _____, 1998.
CLEAN DIESEL TECHNOLOGIES, INC.
By:
----------------------------
Name: Charles W. Grinnell
Title: Vice President
Exhibit 4b
THE RIGHTS WILL ONLY BE GRANTED TO, AND MAY ONLY BE EXERCISED BY, INVESTORS
RESIDING IN THE FOLLOWING JURISDICTIONS WHERE THE SECURITIES OFFERED HEREBY
HAVE BEEN REGISTERED WITH THE APPROPRIATE SECURITIES REGULATORY AUTHORITIES
OR WHERE AN EXEMPTION FROM SUCH REGISTRATION IS AVAILABLE: OUTSIDE THE
UNITED STATES AND IN COLORADO, CONNECTICUT, THE DISTRICT OF COLUMBIA,
ILLINOIS, INDIANA, IOWA, KANSAS, MAINE, MARYLAND, MASSACHUSETTS, NEVADA,
NEW JERSEY, NEW YORK, NORTH CAROLINA, RHODE ISLAND, VERMONT, VIRGINIA AND
WASHINGTON. RIGHTS WILL NOT BE DISTRIBUTED TO HOLDERS WHO RESIDE IN STATES
WHERE THE SECURITIES OFFERED HEREBY HAVE NOT BEEN REGISTERED OR WHERE AN
EXEMPTION FROM REGISTRATION IS NOT AVAILABLE. IN ADDITION, THE SERIES B
PREFERRED STOCK MAY NOT BE TRANSFERRED TO RESIDENTS OF ANY OF THE FOLLOWING
STATES: ARIZONA, FLORIDA, GEORGIA, OHIO, PENNSYLVANIA OR TEXAS
THE RIGHTS EVIDENCED HEREBY WILL EXPIRE AT 5:00 P.M.,
EASTERN TIME, ON ________ __, 1998 (UNLESS EXTENDED PRIOR
TO THAT DATE) AND WILL BE VALUELESS THEREAFTER
(See Reverse hereof)
Certificate SUBSCRIPTON CERTIFICATE Certificate for
No. ___ Evidencing Right to Purchase Shares _____ Rights
of Series B Convertible Preferred Stock
of
CLEAN DIESEL TECHNOLOGIES, INC.
Incorporated under the laws of Delaware
THE TERMS AND CONDITIONS OF THE RIGHTS
OFFERING ARE SET FORTH IN THE COMPANY'S
PROSPECTUS DATED ________ __, 1998 (THE
"PROSPECTUS") AND ARE INCORPORATED HEREIN
BY REFERENCE. COPIES OF THE PROSPECTUS ARE
AVAILABLE UPON REQUEST FROM CHASEMELLON
SHAREHOLDER SERVICES, L.L.C., AS SUBSCRIPTION
AGENT.
THIS CERTIFIES THAT
is the registered owner of the number of Rights set forth above, each of
which entitles the owner to subscribe to purchase one share of Series B
Convertible Preferred Stock, par value $0.05 per share (the "Series B
Preferred Stock") of Clean Diesel Technologies, Inc., a Delaware
corporation (the "Company"), for each Right held. The price to be paid to
exercise each Right is $____.
The Rights are exercisable until 5:00 p.m., Eastern Time, on
______ __, 1998 (the "Expiration Date") unless extended by the Board of
Directors of the Company, in which case the term "Expiration Date" shall
mean the latest date and time to which the Rights Offering is extended. The
Rights are only exercisable upon the terms specified herein and in the
Subscription Agent Agreement between the Company and the Subscription Agent
dated _______ __, 1998. The exercise of all of the Rights represented by
this certificate shall also entitle the holder to exercise Oversubscription
Privileges to purchase Shares not purchased by the other holders of Rights,
as more fully described in the Subscription Agent Agreement and described
in the Prospectus.
The holder of this Rights Certificate, as such, shall not be
entitled to vote or receive dividends or be deemed for any purpose the
holder of the Series B Preferred Stock which may at any time be issuable
upon the exercise hereof or the Common Shares, par value $0.05 per Common
Share, into which the Series B Preferred Stock is convertible, nor shall
anything contained herein be construed to confer upon the holder hereof, as
such, any of the rights of a stockholder of the Company or any right to
vote for the election of directors or upon any matter submitted to
stockholders at any meeting of the Company, or to give or withhold consent
to any corporate action, or, to receive notice of meetings or other actions
affecting stockholders, or otherwise, until all or a portion of the Rights
evidenced by this Rights Certificate have been exercised and the shares of
Series B Preferred Stock have been issued.
This Certificate shall not be valid for any purpose unless
countersigned by the Subscription Agent.
WITNESS the facsimile seal of the Company and facsimile signature
of the proper officers thereof.
DATED: ______ __, 1998 CLEAN DIESEL TECHNOLOGIES, INC.
COUNTERSIGNED: By:
--------------------------------
President
ChaseMellon Shareholder Services, L.L.C.
as Subscription Agent
By: Attest:
----------------------------
Authorized Signature Treasurer
(REVERSE)
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SECTION 1 - BASIC SUBSCRIPTION EXERCISE
TO EXERCISE THE BASIC SUBSCRIPTION PRIVILEGE, complete this Section 1 and
Section 3 below and return this Subscription Certificate, with your
payment, to ChaseMellon Shareholder Services, L.L.C. at the address set
forth in Section 3.
Number of Rights Exercised:
------------------------------------------------
(Note: No fractional Rights may be exercised)
Payment due on exercise of Basic Subscription Privilege is number of Rights
exercised x $_____ per Right = $____________.
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SECTION 2 - OVERSUBSCRIPTION EXERCISE
TO EXERCISE THE OVERSUBSCRIPTION PRIVILEGE, complete this Section 2 as well
as Section 1 and Section 3. You may not exercise the Oversubscription
Privilege (i) if you are a transferee of the Rights evidenced hereby or, in
the case of securities held in street name, the particular beneficial owner
is a transferee thereof, and (ii) unless you have exercised your Basic
Subscription Privilege in full or, in the case of securities held in street
name, the particular beneficial owner has exercised its Basic Subscription
Privilege in full. (The actual number of shares available for purchase will
depend upon the number of basic Rights exercised by all holders and the
other shareholders exercising the Oversubscription Privilege, and is
subject to proration as set forth in the Subscription Agent Agreement and
described in the Prospectus.)
Number of Shares Subscribed For:_________________________________
Payment due on exercise of Oversubscription Privilege is number of Shares
subscribed for x $_____ per Share = $__________.
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SECTION 3 - PAYMENT INSTRUCTIONS; REPRESENTATIONS AND
WARRANTIES AND CERTIFICATIONS
Payment in Full For All Shares Subscribed For
Under Section 1 and Section 2 Must Accompany this Certificate
Total payment* due under Section1 plus Section 2 = $_______________. (*Make
your check payable to ChaseMellon Shareholder Services, L.L.C.)
I hereby represent, warrant and certify that (i) I have been provided with
a copy of the Prospectus, (ii) I reside outside the United States or in one
of the following states: [to come]* and (iii) I hereby tender payment of
the purchase price for the shares sought to be purchased. *(NOTE - this
Subscription Certificate may NOT be exercised by holders who cannot make
this representation, warranty and certifications)
IMPORTANT - RIGHTS HOLDERS SIGN HERE AND, IF RIGHTS ARE EXERCISED, COMPLETE
SUBSTITUTE FORM W-9
Authorized Signature(s) of Subscriber(s):
------------------------------------
Print Name(s):
----------------------------------------------------------------
Address:
--------------------------------------------------------------------
(Including Zip Code)
Telephone Number(s): (_____) __________________ (_____)
Tax Identification or Social Security No(s).:
---------------------------------
(Must be signed by the Rights holder(s) exactly as name(s) appear(s) on
this Subscription Certificate. If signature is by trustee(s), executor(s),
administrator(s), guardian(s), attorney(s)-in-fact, agent(s), officer(s) of
a corporation or another acting as a fiduciary or representative capacity,
please provide the following information. See Instructions.)
Authorized Signature(s):
-----------------------------------------------------
Print Name(s):
----------------------------------------------------------------
Capacity:
--------------------------------------------------------------------
Address:
---------------------------------------------------------------------
(Including Zip Code)
Telephone Number(s):
----------------------------------------------------------
Tax Identification or
Social Security No.:
----------------------------------------------------------
(Complete Substitute Form W-9)
Please mail, deliver or wire transfer cash, check or money order payable to
ChaseMellon Shareholder Services, L.L.C., P.O. Box 3301, South Hackensack,
NJ 07606, for the total amount due to the Subscription Agent at the
appropriate address below:
By Overnight or Express Delivery,
By Hand Delivery, or First Class Mail: By Facsimile Transmissions:
ChaseMellon Shareholder Services, L.L.C. ChaseMellon Shareholder Services,
L.L.C.
85 Challenger Road (201) 296-4293
Overpeck Centre
Ridgefield Park, NJ 07660
Attention: Reorganization
If you have any questions, call: ChaseMellon Shareholder
Services, L.L.C. at (888) 224-2745.
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SECTION 4 - DELIVERY INSTRUCTIONS
(Fill out ONLY if delivery is to be made to an address not shown on the
other side of this Certificate.)
Name:
-------------------------------------------------------------------------
Address:
--------------------------------------------------------------------
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Exhibit 4c
CLEAN DIESEL TECHNOLOGIES, INC.
INSTRUCTIONS AS TO USE OF
RIGHTS CERTIFICATES
-----------------------
CONSULT THE INFORMATION AGENT, OR YOUR BANK OR BROKER,
IF YOU HAVE ANY QUESTIONS AFTER READING THESE INSTRUCTIONS
-----------------------
The following instructions relate to the rights offering (the
"Offering") by Clean Diesel Technologies, Inc., a Delaware corporation (the
"Company"), to the holders ("Holders") of the Company's outstanding common
shares, par value $0.05 per share (the "Common Shares") as described in the
Company's Prospectus dated __________ __, 1998 (the "Prospectus"). Holders
of record (the "Record Date Holder") of the Company's Common Shares at the
close of business on __________ __, 1998 (the "Record Date") are receiving
one transferable subscription right (each a "Right") for each 50 shares of
the Company's Common Shares held on the Record Date; provided, however,
that Rights will not be distributed to Record Date Holders who reside in
jurisdictions where the Rights have not been registered or where an
exemption from registration is not available, as described more fully in
the Prospectus. Each Right entitles the holder thereof (the "Rights
Holder") to subscribe for and purchase from the Company one share of the
Company's Series B Convertible Preferred Stock, par value $0.05 per share
(the "Series B Preferred Stock") (the "Basic Subscription Privilege") at
the subscription price (the "Subscription Price") of $____, and each share
of Series B Preferred Stock will be immediately convertible, at no cost to
the holder thereof, into 33 Common Shares. No fractional Rights or cash in
lieu thereof will be distributed or paid by the Company. An aggregate
number of up to 50,000 shares of Series B Preferred Stock (the "Underlying
Shares") will be distributed in connection with the Offering.
Subject to the proration and possible reduction described below, each
Right also entitles any Record Date Holder exercising in full the Basic
Subscription Privilege the right to subscribe for additional Common Shares
available after satisfaction of all subscriptions, pursuant to the Basic
Subscription Privilege (the "Oversubscription Privilege"). The
Oversubscription Privilege is not transferable. Subject to the allocation
and possible reduction described below, Common Shares will be available for
purchase pursuant to the Oversubscription Privilege only to the extent that
any Underlying Shares are not subscribed for through the Basic Subscription
Privilege. If the Underlying Shares are not subscribed for through the
Basic Subscription Privilege (the "Excess Shares") are not sufficient to
satisfy all subscriptions pursuant to the Oversubscriptions Privilege, the
Excess Shares will be allocated pro rata (subject to the elimination of
fractional shares) among those Record Date Holders exercising the
Oversubscription Privilege.
The Subscription Price is payable in cash. See "THE RIGHTS OFFERING"
in the Prospectus.
The Rights will expire at 5:00 p.m. Eastern time on __________ __,
1998, unless otherwise extended by the Company in its sole discretion (in
either case, the "Expiration Date").
The number of Rights to which you are entitled is printed on the face
of your Rights Certificate. You should indicate your wishes with regard to
the exercise, transfer or sale of your Rights by completing the appropriate
form or forms on the reverse side of your Rights Certificate and returning
the Rights Certificate to the Subscription Agent in the envelope provided.
Once a Rights Holder has properly exercised the Basic Subscription
Privilege or the Oversubscription Privilege, such exercise may not be
revoked.
YOUR RIGHTS CERTIFICATE OR NOTICE OF GUARANTEED DELIVERY MUST BE
RECEIVED BY THE SUBSCRIPTION AGENT AND PAYMENT OF THE SUBSCRIPTION PRICE
INCLUDING FINAL CLEARANCE OF ANY UNCERTIFIED CHECKS MUST BE RECEIVED BY THE
SUBSCRIPTION AGENT, AT OR BEFORE 5:00 P.M. EASTERN TIME ON __________ __,
1998. YOU MAY NOT REVOKE ANY EXERCISE OF A RIGHT.
1. Subscription Privileges.
To Exercise Rights. To exercise your Rights, complete Form 1 of your
Rights Certificate and send to the Subscription Agent your properly
completed and executed Rights Certificate together with payment in full of
the Subscription Price for each Underlying Share subscribed for pursuant to
the Basic Subscription Privilege and the Oversubscription Privilege.
Payment of the Subscription Price must be made for the full number of
Underlying Shares being subscribed for (a) by check or bank draft, or
postal, telegraphic or express money order, in each case, payable to Mellon
Securities Trust Company, as Subscription Agent, or (b) by wire transfer of
funds to the account maintained by the Subscription Agent for such purpose
of accepting subscriptions at The Chase Manhattan Bank, New York, New York,
ABA #021000021, Account #323-213057, FBO Clean Diesel Technologies,
Attention: ChaseMellon Shareholder Services, L.L.C., Evelyn O'Connor (with
Subscriber's name), the Subscription Price will be deemed to have been
received by the Agent only upon (i) clearance of any uncertified check,
(ii) receipt by the Subscription Agent of any certified check or cashier's
check, or of any postal, telegraphic or express money order or (iii)
receipt of collected funds in the Subscription Agent's account designated
above. IF PAYING BY UNCERTIFIED CHECK, PLEASE NOTE THAT THE FUNDS PAID
THEREBY MAY TAKE AT LEAST FIVE (5) BUSINESS DAYS TO CLEAR. ACCORDINGLY,
RIGHTS HOLDERS WHO WISH TO PAY THE SUBSCRIPTION PRICE BY MEANS OF
UNCERTIFIED CHECK ARE URGED TO MAKE PAYMENT SUFFICIENTLY IN ADVANCE OF THE
EXPIRATION DATE TO ENSURE THAT SUCH PAYMENT IS RECEIVED AND CLEARS BEFORE
THE EXPIRATION DATE AND ARE URGED TO CONSIDER IN THE ALTERNATIVE, PAYMENT
BY MEANS OF CERTIFIED CHECK, BANK DRAFT, MONEY ORDER OR WIRE TRANSFER OF
FUNDS.
If you exercise less than all of the Rights evidenced by your Rights
Certificate by so indicating on Form 1 of your Rights Certificate, the
Subscription Agent will either (i) issue to you a new Rights Certificate
representing the remaining rights or (ii) if you so indicate on Form 2 of
your Rights Certificate, issue a new Rights Certificate to a designated
transferee. If no indication is made, the Subscription Agent will issue to
you a new Rights Certificate evidencing the unexercised Rights. If you
choose, however, to have a new Rights Certificate sent to you or a
designated transferee, such new Subscription Rights Certificate may not be
received in sufficient time to permit you or the designated transferee to
sell or exercise the Rights evidenced thereby.
If you have not indicated the number of Rights being exercised, or if
you have not forwarded full payment of the Subscription Price for the
number of Rights that you have indicated are being exercised, then you will
be deemed to have exercised the Basic Subscription Privilege with respect
to the maximum number of Rights which may be exercised for the aggregate
payment delivered by you and, to the extent that the aggregate payment
delivered by you exceeds the product of the Subscription Price multiplied
by the number of Rights which may be exercised for the aggregate payment
delivered by you and, to the extent that the aggregate payment delivered by
you exceeds the product of the Subscription Price multiplied by the number
of Rights evidenced by the Rights Certificate(s) delivered by you (such
excess being the "Subscription Excess"), you will be deemed to have
exercised the Oversubscription Privilege to purchase, to the extent
available, that number of whole, Excess Shares equal to the quotient
obtained by dividing the Subscription Excess by the Subscription Price and
any amount remaining after such division shall be returned to you.
To Exercise Rights through a Nominee. If you wish to have your bank,
broker or other nominee exercise some or all of your Rights, you must
complete Forms 1, 2 and 3 of your Rights Certificate, providing clear
direction as to how many Rights are to be exercised and what action should
be taken in regards to any unexercised Rights. Banks, brokers and other
nominees who exercise the Oversubscription Privilege on behalf of the
beneficial owners of Rights will be required to certify to the Subscription
Agent and the Company, by delivery to the Subscription Agent of a Nominee
Holder Oversubscription Certification in the form available from the
Subscription Agent or the Information Agent, the aggregate number of Rights
as to which the Oversubscription Privilege are being exercised and the
number of Underlying Shares thereby subscribed for by each beneficial owner
of Rights on whose behalf such nominee holder is acting.
To Exercise Rights if Rights Certificate Might Not Properly Reach the
Subscription Agent Prior to the Expiration Date. You may cause a written
guarantee substantially in the form of Exhibit A to these instructions (the
"Notice of Guaranteed Delivery") from a member firm of an approved
Signature Guarantee Medallion Program (an "Eligible Institution"), to be
received by the Subscription Agent at or prior to the Expiration Date or
complete the information provided in Form 1 of the Rights Certificate;
payment in full of the applicable Subscription Price may be made separately
as long as said payment is also received by the Subscription Agent at or
prior to the Expiration Date. Such Notice of Guaranteed Delivery must state
your name, the number of Rights represented by your Rights Certificate and
the number of Underlying Shares being subscribed for pursuant to the Basic
Subscription Privilege and being subscribed for, if any, pursuant to the
Oversubscription Privilege, and the Eligible Institution must guarantee the
delivery to the Subscription Agent of your properly completed and executed
Rights Certificate(s) evidencing those Rights within five (5) Trading Days,
following the date of the Notice of Guaranteed Delivery. If this procedure
is followed, your Rights Certificate(s) must be received by the
Subscription Agent within five (5) Trading Days following the date of the
Notice of Guaranteed Delivery relating thereto. Additional copies of the
Notice of Guaranteed Delivery may be obtained upon request from the
Information Agent.
2. The Subscription Agent and the Information Agent
The address and telephone number of the Subscription Agent and the
Information Agent are as follows:
In the U.S.: In the U.K.:
Chemical Mellon Shareholder Computershare Services, P.L.C.
Services P. O. Box 859
450 West 33rd Street, 15th Consort House
Floor East Street
New York, New York 10001 Bedminister, Bristol
(800) 814-0304 BZ991XZ
1179-370-672
3. Issuance and Delivery of Stock Certificates, Etc.
The following issuances, deliveries and payments will be made to you
at the address shown on the face of your Rights Certificate unless you
provide special payment, issuance or delivery instructions to the contrary
by completing the applicable part of Form 3 of your Rights Certificate.
Series B Preferred Stock Certificates. Subject to satisfaction of the
minimum conditions required, the Subscription Agent will issue and mail in
accordance with the instruction of the exercising Rights Holder, a
certificate representing Underlying Shares purchased pursuant to the valid
exercise of Rights, as soon as practicable after the Expiration Date and
all prorations and reductions contemplated by the Offering have been
effected. See "THE RIGHTS OFFERING - Subscription Privileges" in the
Prospectus.
Refunding of Excess Payments. As soon as practicable after the
Expiration Date and after all prorations and possible reductions
contemplated by the terms of the Offering have been effected, the
Subscription Agent will return by mail without interest or deduction to
each Rights Holder exercising the Oversubscription Privilege any excess
funds received in payment of the Subscription Price for Underlying Shares
that were subscribed for by such Rights Holder but not allocated to such
Rights Holder pursuant to the Oversubscription Privilege.
4. To Sell or Transfer Rights.
Sale of Rights through a Bank, Broker or Other Nominee. To sell or
transfer all Rights evidenced by a Rights Certificate through your bank,
broker or other nominee, so indicate on Forms 2 and 4 of your Rights
Certificate and deliver your properly completed and executed Rights
Certificate to your bank or broker. Your Rights Certificate should be
delivered to your bank or broker in sufficient time for the Rights to be
sold. If Form 2 of your Rights Certificate is completed without designating
a transferee, the Subscription Agent may thereafter treat the bearer of the
Rights Certificate as the absolute owner of all of the Rights evidenced by
such Rights Certificate for all purposes, and the Subscription Agent will
not be affected by any notice to the contrary. Because your bank or broker
cannot issue Rights Certificates, if you wish to sell less than all of the
Rights evidenced by a Rights Certificate, either your bank or broker must
instruct the Subscription Agent as to the action to be taken with respect
to the Rights that are not to be sold, or your bank or broker must first
have your Rights Certificate divided into Rights Certificates evidencing
the appropriate numbers of Rights by following the instructions in Section
5 below.
Transfer of Rights to a Designated Transferee. To sell or transfer all
of your Rights to a transferee other than a bank or broker, you must
complete Form 2 of your Rights Certificate in its entirety, execute the
Rights Certificate and have your signature guaranteed by a bank, broker,
dealer, municipal securities dealer, municipal securities broker,
government securities dealer, government securities broker, credit union,
national securities exchange, registered securities association, or
clearing agency or savings association under an approved Signature
Guarantee Medallion Program (an "Eligible Guarantor Institution"). A Rights
Certificate that has been properly transferred in its entirety may be
exercised by a new Rights Holder without having a new Rights Certificate
issued. To exercise, or otherwise take action with respect to, such a
transferred Rights Certificate, the new Rights Holder should deliver the
Rights Certificate, together with payment of the applicable Subscription
Price and complete separate instructions signed by the new Rights Holder to
the Subscription Agent in sufficient time to permit the Subscription Agent
to take the desired action. The new Rights Holder may not exercise the
Oversubscription Privilege. The new Rights Holder may be subject to the
prorations and possible reductions described in Section 1 above. Only the
Subscription Agent can issue Rights Certificates. However, you may transfer
a portion of the Rights evidenced by a single Rights Certificate (but not
fractional Rights) by delivering to the Subscription Agent a Rights
Certificate properly endorsed for transfer, with instructions to register
that portion of the Rights indicated therein in the name of the transferee
and to issue a new Rights Certificate to the transferee evidencing the
transferred Rights. In that event, a new Rights Certificate evidencing the
balance of the Rights will be issued to you or, if you so instruct, to an
additional transferee. Alternatively, you may divide your Rights
Certificate into Rights Certificates evidencing appropriate numbers of
Rights for transfer by following the instructions in Section 5 below.
If you wish to transfer all or a portion of your Rights (but not
fractional Rights), you should allow a sufficient amount of time prior to
the Expiration Date for (i) the transfer instructions to be received and
processed by the Subscription Agent, (ii) new Rights Certificates to be
issued and transmitted to the transferor(s), with respect to transferred
Rights, and to you with respect to retained Rights, if any, and (iii) the
Rights evidenced by the new Rights Certificates to be exercised or sold by
the recipients thereof. Such amount of time could range from four to six
business days, depending upon the method by which delivery of the Rights
Certificates and payment is made and the number of transactions which you
instruct the Subscription Agent to effect. Neither the company nor the
Subscription Agent will have any liability to a transferee or transferor of
Rights if Rights Certificates are not received in time for exercise or sale
prior to the Expiration Date.
THE RIGHTS WILL ONLY BE GRANTED TO, AND MAY ONLY BE EXERCISED BY,
INVESTORS RESIDING IN THE FOLLOWING JURISDICTIONS WHERE THE SECURITIES
OFFERED HEREBY HAVE BEEN REGISTERED WITH THE APPROPRIATE SECURITIES
REGULATORY AUTHORITIES OR WHERE AN EXEMPTION FROM SUCH REGISTRATION IS
AVAILABLE: OUTSIDE THE UNITED STATES AND IN COLORADO, CONNECTICUT, THE
DISTRICT OF COLUMBIA, ILLINOIS, INDIANA, IOWA, KANSAS, MAINE, MARYLAND,
MASSACHUSETTS, NEVADA, NEW JERSEY, NEW YORK, NORTH CAROLINA, RHODE ISLAND,
VERMONT, VIRGINIA AND WASHINGTON. RIGHTS WILL NOT BE DISTRIBUTED TO HOLDERS
WHO RESIDE IN STATES WHERE THE SECURITIES OFFERED HEREBY HAVE NOT BEEN
REGISTERED OR WHERE AN EXEMPTION FROM REGISTRATION IS NOT AVAILABLE. IN
ADDITION, THE SERIES B PREFERRED STOCK MAY NOT BE TRANSFERRED TO RESIDENTS
OF ANY OF THE FOLLOWING STATES: ARIZONA, FLORIDA, GEORGIA, OHIO,
PENNSYLVANIA OR TEXAS.
5. To Divide a Rights Certificate.
To have your Rights Certificate divided into two or more Rights
Certificates, evidencing the same aggregate number of rights, send your
Rights Certificate, together with complete separate instructions (including
specification of the denominations into which you wish your Rights to be
divided) signed by you, to the Subscription Agent, allowing a sufficient
amount of time for new Rights Certificates to be issued and returned so
they can be used prior to the Expiration Date. Alternatively, you may ask a
bank or broker to effect such actions on your behalf. Your signature must
be guaranteed by an Eligible Guarantor Institution (as defined in Section
4) if any of the new Rights Certificates are to be issued in a name other
than that in which the original Rights Certificate was issued. Rights
Certificates may not be divided into fractional Rights, and any instruction
to do so will be rejected. As a result of delays in the mail, the time of
the transmittal, the necessary processing time and other factors, you or
your transferee may not receive such new Rights Certificates in time to
enable the Rights Holder to complete a sale or exercise by the Expiration
Date. Neither the Company nor the Subscription Agent will be liable to
either a transferor or transferee for any such delays.
6. Signatures.
Execution by Rights Holder. The signature on the Rights Certificate
must correspond with the name of the Rights Holder exactly as it appears on
the face of the Rights Certificate without any alteration or change
whatsoever. Persons who sign the Rights Certificate in a representative or
other fiduciary capacity must indicate their capacity when signing and,
unless waived by the Company in its sole and absolute discretion, must
present to the Subscription Agent satisfactory evidence of their authority
to so act.
Execution by Person Other than Rights Holder. If the Rights
Certificate is executed by a person other than the Rights Holder named on
the face of the Rights Certificate, proper evidence of authority of the
person executing the Rights Certificate must accompany the same unless, for
good cause, the Company dispenses with proof of authority.
Signature Guarantees. Unless your Rights Certificate (i) provides that
the Underlying Shares to be issued pursuant to the exercise of the Rights
represented thereby are to be issued to you or (ii) is submitted for the
account of an Eligible Institution (as defined in Section 1), your
signature on each Rights Certificate must be guaranteed by an Eligible
Guarantor Institution (as defined in Section 4).
7. Method of Delivery.
The method of delivery of Rights Certificates and payment of the
Subscription Price to the Subscription Agent will be at your election and
risk, but, if sent by mail, you are urged to send such materials by
registered mail, properly insured, with return receipt requested, and are
urged to allow a sufficient number of days to ensure delivery to the
Subscription Agent and, if you are paying by uncertified check, the
clearance of payment of the Subscription Price prior to the Expiration
Date. Because uncertified checks may take at least five (5) business days
to clear, you are strongly urged to consider payment by means of certified
check, cashier's check, money order or wire transfer.
8. Lost, Stolen, Destroyed or Mutilated Rights Certificates.
Upon receipt by the Company and the Subscription Agent of evidence
reasonably satisfactory to them of the loss, theft, destruction or
mutilation of a Rights Certificate, and, in case of loss, theft or
destruction, of indemnity and/or security satisfactory to them, in their
sole discretion, and reimbursement to the Company and the Subscription
Agent of all reasonable expenses incidental thereto, and upon surrender and
cancellation of the Rights Certificate, if mutilated, the Subscription
Agent will make and deliver a new Rights Certificate of like tenor to the
registered Rights Holder in lieu of the Rights Certificate so lost, stolen,
destroyed or mutilated. If required by the Company or the Subscription
Agent, an indemnity bond must be sufficient in the judgment of each party
to protect the Company, the Subscription Agent or any agent thereof from
any loss which any of them may suffer if a lost, stolen, destroyed or
mutilated Rights Certificate is replaced. See Exhibit B hereto.
9. Special Provisions Relating to The Delivery of Rights through The
Depository Trust Company.
In the case of Rights that are held of record through The Depository
Trust Company ("DTC"), exercises of the Basic Subscription Privilege (but
not the Oversubscription Privilege) may be effected by instructing DTC to
transfer Rights (such Rights being "DTC Rights") from the DTC account of
the Rights Holder to the DTC account of the Subscription Agent, together
with payment of the Subscription Price for each Underlying Share subscribed
for pursuant to the Basic Subscription Privilege. The Oversubscription
Privilege in respect of DTC Rights may not be exercised through DTC. The
holder of DTC Rights may exercise the Oversubscription Privilege in respect
thereof by properly executing and delivering to the Subscription Agent, at
or prior to the Expiration Date, a DTC Participant Oversubscription
Exercise Form, in the form available from the Information Agent or the
Subscription Agent, together with payment of the appropriate Subscription
Price for the number of Excess Shares for which the Oversubscription
Privilege is exercised.
If a Notice of Guaranteed Delivery relates to Rights with respect to
which exercise of the Basic Subscription Privilege will be made through DTC
and such Notice of Guaranteed Delivery also relates to the exercise of the
Oversubscription Privilege, a DTC Participant Oversubscription Exercise
Form must also be received by the Subscription Agent in respect of such
exercise of the Oversubscription Privilege at or prior to the Expiration
Date.
10. Transfer Taxes.
Except for certain fees paid to broker-dealers and charged by the
Subscription Agent that will be paid by the Company, all commissions, fees
and other expenses (including brokerage commissions and transfer taxes)
incurred in connection with the purchase, sale or exercise of Rights will
be for the account of the transferring Holder of the Rights, and none of
such commissions, fees or expenses will be paid by the Company or the
Subscription Agent.
11. Irregularities.
All questions concerning the timelines, validity, form and eligibility
of any exercise of Rights will be determined by the Company, whose
determinations will be final and binding. The Company in its sole
discretion, may waive any defect or irregularity, or permit a defect or
irregularity to be corrected within such time as it may determine, or
reject the purported exercise of any Right. Rights Certificates will not be
deemed to have been received or accepted until all irregularities have been
waived or cured within such time as the Company determines, in its sole
discretion. Neither the Company, nor the Subscription Agent will be under
any duty to give notification of any defect or irregularity in connection
with the submission of Rights Certificates or incur any liability for
failure to give such notification. The Company reserves the right to reject
any exercise if such exercise is not in accordance with the terms of the
Offering or not in proper form or if the acceptance thereof or the issuance
of the shares of Series B Preferred Stock pursuant thereto could be deemed
unlawful.
EXHIBIT
TO
INSTRUCTIONS
IMPORTANT TAX INFORMATION
Under the U.S. Federal income tax law, (1) dividend payments that may
be made by the Company on shares of Common Stock issued upon the exercise
of Rights, and (2) payments that may be remitted by the Subscription Agent
to Rights Holders in respect of Rights sold on such Rights Holders' behalf
by the Subscription Agent, may be subject to backup withholding, and each
Rights Holder who either exercises Rights or requests the Subscription
Agent to sell Rights should provide the Subscription Agent (as the
Company's agent, in respect of exercised Rights, and as payer in respect of
Rights sold by the Subscription Agent) with such Rights Holders' correct
taxpayer identification number on the Substitute Form W-9 in the
Subscription Right Certificate. If such Rights Holder is an individual, the
taxpayer identification number is his or her social security number. If the
Subscription Agent is not provided with the correct taxpayer identification
number in connection with such payments, the Rights Holder may be subject
to a $50 penalty imposed by the Internal Revenue Service.
Exempt Rights Holders (including, among others, all corporations and
certain foreign individuals) are not subject to these backup withholding
and information reporting requirements. In general, for a foreign
individual to qualify as an exempt recipient, the Rights Holder must submit
a statement, signed under the penalties of perjury, attesting to that
individual's exempt status. Such statements can be obtained from the
Subscription Agent. See the enclosed Guidelines for Certification of
Taxpayer Identification Number on Substitute Form W-9 for additional
instructions.
If backup withholding applies, the Company or the Subscription Agent,
as the case may be, will be required to withhold 31% of any such payments
made to the Rights Holder. Backup withholding is not an additional tax.
Rather, the tax liability of persons subject to backup withholding will be
reduced by the amount of tax withheld. If withholding results in an
overpayment of taxes, a refund may be obtained.
Purpose of Substitute Form W-9
To prevent backup withholding, the Rights Holder is required to notify
the Subscription Agent of his or her correct taxpayer identification number
by completing the Substitute Form W-9 included as a part of the
Subscription Right Certificate certifying that the taxpayer identification
number provided on Substitute Form W-9 is correct (or that such Rights
Holder is awaiting a taxpayer identification number).
What Number to Give the Subscription Agent
The Rights Holder is required to furnish the Subscription Agent such
Rights Holder's social security number or employer identification number.
If the Rights are in more than one name or are not in the name of the
actual owner, consult the enclosed Guidelines for Certification of Taxpayer
Identification Number on Substitute Form W-9 for additional guidance on
which number to report.
EXHIBIT A
TO
INSTRUCTIONS
NOTICE OF GUARANTEED DELIVERY FOR SHARES OF SERIES B PREFERRED STOCK
OF CLEAN DIESEL TECHNOLOGIES, INC. SUBSCRIBED
FOR UNDER BASIC SUBSCRIPTION AND THE
OVER-SUBSCRIPTION PRIVILEGE
As set forth in the Prospectus under "THE RIGHTS OFFERING --Exercise
of Rights", this form or one substantially equivalent hereto may be used as
a means of effecting subscription and payment for all shares of the
Company's Series A Preferred Stock subscribed for under the Basic
Subscription and the Over-Subscription Privilege. Such form may be
delivered by hand or sent by facsimile transmission, overnight courier or
mail to the Subscription Agent.
The Subscription Agent is:
CHASEMELLON SHAREHOLDER SERVICES
By Mail: By Hand: By Express Mail
ChaseMellon Shareholder ChaseMellon or Overnight Courier:
Services Shareholder Services, ChaseMellon
Post Office Box 3301 L.L.C. Shareholder Services,
South Hackensack, NJ 07606 120 Broadway 85 Challenger Road,
13th Floor Overpeck Centre,
New York, NY 10271 Ridgefield Park, NJ 07660
By Facsimile: Attn: Reorg. Dept.
ChaseMellon
Shareholder Services
(201) 296-4293
DELIVERY OF THIS INSTRUMENT TO AN ADDRESS, OR TRANSMISSION OF
INSTRUCTIONS VIA A TELECOPY OR FACSIMILE NUMBER, OTHER THAN AS SET FORTH
ABOVE, DOES NOT CONSTITUTE A VALID DELIVERY
The New York Stock Exchange member firm or bank or trust company which
completes this form must communicate the guarantee and the number of Shares
subscribed for (under both the Basic Subscription and the Over-Subscription
Privilege) to the Subscription Agent and must deliver this Notice of
Guaranteed Delivery of Payment, guaranteeing delivery of (i) payment in
full for all Subscribed Shares and (ii) a properly completed and signed
copy of the Rights Certificate, to the Subscription Agent prior to 5:00
p.m. New York City time, on the Expiration Date. Failure to do so will
result in a forfeiture of the rights.
GUARANTEE
The undersigned, a member firm of the New York Stock Exchange or a
bank or trust company, (i) guarantees delivery to the Subscription Agent by
3 trading days after the expiration or all extensions thereof of (A) a
properly completed and executed Rights Certificate, and (B) payment of the
full Subscription Price for Shares subscribed for on Basic Subscription and
pursuant to the Over-Subscription Privilege, as subscription for such
Shares as indicated herein or in the Rights Certificate.
- --------------------------------------- -------------------------------------
NUMBER OF SHARES ON BASIC SUBSCRIPTION NUMBER OF SHARES ON OVER-SUBSCRIPTION
PRIVILEGE
- -------------------------------------- -------------------------------------
Name of Firm Authorized Signature
- -------------------------------------- -------------------------------------
Address Title
Name:
- -------------------------------------- --------------------------------
Zip Code (Please Type or Print)
- -------------------------------------- -------------------------------------
Telephone Number Date
EXHIBIT B
TO
INSTRUCTIONS
AFFIDAVIT OF LOST, STOLEN, DESTROYED OR MUTILATED
RIGHT CERTIFICATE(S)
CERTIFICATE NO(s) _______________________ (if available) for
_____________________ Rights to purchase Series B Preferred Stock of Clean
Diesel Technologies, Inc.
I am the lawful owner of the above-described representing Rights
Certificate(s) to purchase shares of Common Stock of Clean Diesel
Technologies, Inc. (the "Company") at an exercise price of $___ per share.
The Rights Certificate(s) has (have) not been exercised, endorsed, cashed,
negotiated, transferred, assigned or otherwise disposed of. I have made a
diligent search for the Rights Certificate(s) and have been unable to find
it (them) and make this affidavit for the purpose of inducing the Company
and ChaseMellon Shareholder Services to issue a new Rights Certificate of
like tenor, and hereby agree to surrender the Rights Certificate(s) for
cancellation should I, at any time, find the Rights Certificate(s). In
consideration of the receipt of a new Rights Certificate(s), I agree to
completely indemnify, protect and hold harmless the Company and ChaseMellon
Shareholder Services and any other party to the transaction (the
"Obligees") from and against all loss, costs and damages, including court
costs and attorneys' fees, which they may be subject to or liable for in
respect of the cancellation of Rights Certificate(s). The rights according
to the Obligees under the preceding sentence shall not be limited by the
negligence, inadvertance, accident, oversight or breach of any duty or
obligation on the part of the Obligees or their respective officers,
employees and agents or their failure to inquire into, contest or litigate
any claim, whenever such negligence, inadvertence, accident, oversight,
breach or failure may occur or have occurred.
PLEASE DATE AND SIGN BELOW:
Dated:
----------------, 1988
--------------------------------------
(Signature of Holder)
--------------------------------------
(Signature of Holder)
(Must be signed above by registered holder(s) or by person(s) authorized to
receive the cash payments)
Exhibit 4f
[CLEAN DIESEL TECHNOLOGIES, INC. LETTERHEAD]
Dear Shareholder:
You will find enclosed the Preliminary Prospectus (the "Prospectus") and
other materials relating to the rights offering (the "Rights Offering") by
Clean Diesel Technologies, Inc. ("CDT"). Please carefully review the
enclosed Prospectus, including the sections titled "The Rights Offering,"
which describes how you may participate in the Rights Offering, "Business,"
which more fully describes the Company's business, "Management's Discussion
and Analysis of Financial Condition and Results of Operations," which more
fully describes the Company's financial position, and "Risk Factors," which
describes certain risks associated with an investment in securities of the
Company, as well as the same sections in the final Prospectus which will be
mailed after the Registration Statement relating to the prospectus is
declared effective by the Securities and Exchange Commission. Capitalized
terms used but not described herein have the respective meanings set forth
in the Prospectus.
The following is a brief review of our products and markets, and current
financial situation.
When we formed CDT, we had patents for Platinum Fuel Catalysts ("PFCs")
licensed from Fuel Tech and limited testing results of PFCs. We now have 12
US and 38 International patents on PFCs and nitrogen oxide ("NOx")
reduction systems and have another 83 US and International applications
pending. In addition, the Company has completed successful testing of a
diesel fuel PFC additive, launched the marketing of a PFC used to
rejuvenate aged catalytic converters in Europe, and developed the Advanced
Reagent Injection System ("ARIS(TM) 2000") for use in catalytic NOx
reduction systems.
The Company has successfully completed a study at Delft Technical
University in the Netherlands to determine the fundamental mechanism of
metallic additives. In particular, we investigated the function of platinum
as part of a composite additive with other catalysts. Results of the study
show that a system of a bimetallic additive of platinum and cerium (Pt/Ce)
with a ceramic filter:
* gives performance superior to any system known,
* gives a significantly lower oxidation temperature for soot, and
* uses much lower metal levels in the fuel than other known
additive filter systems.
The Delft paper has provoked excellent market response from engine
companies and catalyst system companies. The results reported by Delft were
confirmed in demonstrations at Cummins Engine Company by a test in
Switzerland.
While the foregoing results refer to a system incorporating filters, we
have demonstrated that the Pt/Ce additive also gives significant emission
reductions on engines without particulate filters or oxidizers. Moreover,
the emission benefits are usually accompanied by a fuel economy
improvement.
We now have to complete registration of the combined Pt/Ce additive with
the EPA in order to be able to sell the combined additive for on-road use
in the U.S. We expect to complete the registration by October of 1998.
In the US, we believe there is a near term market developing for additives
for diesel fuel which will reduce smoke, gaseous and particulate emissions
from the current fleet of engines. The market is a result of pending EPA
retrofit guidelines which provide for State Implementation Plans ("SIP")
credits, as well as state programs for enforcement of smoke regulation,
which include random highway smoke tests with substantial penalties for
failure.
We believe that another market for Pt/Ce is in Taiwan, where a bus fleet
trial confirmed the performance of the Pt/Ce filter system.
We believe that a medium term market for Pt/Ce is with filters for new
vehicles, especially light duty vehicles. Peugeot has announced they will
introduce filters in 2000.
Using the Pt/Ce additives in vehicles with filters presents a potentially
very large market. This is driven by increasing concern about fine particle
emissions; whereas new engines produce little smoke, the total number of
particles has increased. Management believes that filters are seen as the
preferred remedy capable of removing more than 90% of the particles. This
focus is given further weight by the probable classification by California
of diesel emissions as toxic. The toxicity is most associated with soot
particles. Once collected on the filter, the soot must be oxidized to
prevent the filter from clogging, and that is where the additive is needed.
Our second product is a gasoline additive which rejuvenates aged catalytic
converters. This work was jointly funded by Holt Lloyd International Ltd.
("Holts"), which launched the product in the UK in 1997 in the consumer
aftermarket through auto parts stores. The results were disappointing.
Holts concluded that consumers did not understand what the product does and
the majority did not know if their cars had catalytic converters. Test
marketing by Holts concluded that the product should be sold through
service and repair shops. Holts is considering how to better reposition the
product.
In the US, we have interest from marketing companies to package and sell
the gasoline product. We are seeking a marketing partner who will fund or
jointly fund the necessary registration and demonstration of this product
in the US. The product may be launched in the US during the second half of
1999, although no assurances can be given in this regard.
Our third product is for NOx reduction. We have developed, built, and
tested a prototype system called the ARIS(TM) 2000 (Advanced Reagent
Injection System). The ARIS system injects urea over a catalyst to achieve
NOx reduction of up to 90%. The catalysts are similar to catalysts used in
gas turbines and boilers and are made by catalyst manufacturers. We plan to
commercialize this system through cooperative ventures and licenses.
Current regulation in California and the Northeast states for large
stationary diesel engines sets NOx levels at a 50% to 90% reduction from
normal levels achieved from current production engines under federally
mandated Best Available Control Technology ("BACT") and Lowest Achievable
Emission Rate ("LAER") requirements in ozone non-attainment areas. Cost
effective systems are not yet available. As a result, gas engines are being
installed, which cost more to buy and to run than the ARIS(TM) 2000. The
Company intends to sell the ARIS(TM) 2000 to total system suppliers, engine
companies, engine distributors or the assemblers of generation sets,
compressors, pumps, etc.
In summary, we started with a partially-developed diesel additive with no
defined market and a concept for a NOx reduction system.
* We now have developed a diesel PFC additive which is effective
both for emission reduction from engines and significantly
improves the performance of filters.
* We have launched the marketing of a PFC used to rejuvenate aged
catalytic converters in Europe.
* We have developed the ARIS(TM) 2000 for use in catalytic NOx
reduction systems.
Through the net proceeds of the Rights Offering, together with the net
proceeds from the recent bridge financing, CDT seeks to commercialize the
foregoing products.
If you have any questions concerning the Rights Offering, please feel free
to telephone the Information Agent at ( ) . On behalf of the
Board of Directors, we thank you for your support and confidence and look
forward to continuing to serve you.
Sincerely,
Jeremy D. Peter-Hoblyn
President and Chief Executive
Officer, Director
THIS LETTER CONTAINS FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF
SECTION 27A OF THE SECURITIES ACT. DISCUSSION CONTAINING SUCH
FORWARD-LOOKING STATEMENTS WILL BE FOUND IN THE MATERIAL SET FORTH UNDER
"PROSPECTUS SUMMARY, "RISK FACTORS," "USE OF PROCEEDS," "MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS"
AND "BUSINESS," AS WELL AS WITHIN THE PROSPECTUS GENERALLY. ACTUAL RESULTS
COULD DIFFER MATERIALLY FROM THOSE PROJECTED IN THE FORWARD-LOOKING
STATEMENTS AS A RESULT OF THE RISK FACTORS SET FORTH UNDER "RISK FACTORS"
AND THE MATTERS SET FORTH IN THIS PROSPECTUS GENERALLY.
A REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH
THE SECURITIES AND EXCHANGE COMMISSION BUT HAS NOT YET BECOME EFFECTIVE.
THE SECURITIES MAY NOT BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO
THE TIME THE REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS LETTER SHALL
NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR
SHALL THERE BE ANY SALE OF THE SECURITIES IN ANY JURISDICTION IN WHICH SUCH
OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR
QUALIFICATION UNDER THE SECURITIES LAWS OF ANY JURISDICTION.
THE USE OF THIS LETTER IS AUTHORIZED ONLY WHEN PRECEDED OR ACCOMPANIED BY A
PROSPECTUS.
Exhibit 4g
50,000 Shares of Series B Convertible Preferred Stock
CLEAN DIESEL TECHNOLOGIES, INC.
Series B Convertible Preferred Stock (par value $0.05 per share)
Initially Offered Pursuant to Rights
Distributed to Shareholders
To Securities Dealers, Commercial Banks,
Brokers, Trust Companies and Other Nominees:
Enclosed are a Prospectus, dated ___________ ____, 1998 (the
"Prospectus"), and Instructions as to Use of Rights Certificates (the
"Instructions"), relating to the offering of up to 50,000 shares of Series
B Convertible Preferred Stock, par value $0.05 per share (the "Series B
Preferred Stock"), of Clean Diesel Technologies, Inc. (the "Company), at a
subscription price of $_______ per share in cash, pursuant to transferable
subscription rights ("Rights") initially distributed to holders of record
("Record Date Holders") of the Company's outstanding common shares, par
value $0.05 per share (the "Common Shares") as of the close of business on
_______ __, 1998 (the "Record Date"); provided, however, that Rights will
not be distributed to and may not be exercised by, Record Date Holders who
reside in jurisdictions where the Rights have not been registered or where
an exemption from registration is not available, as described more fully in
the Prospectus. The Rights are described in the Prospectus and evidenced by
a Rights Certificate (a "Rights Certificate") registered in your name or
the name of your nominee.
Each beneficial owner of the Company's Common Shares registered in
your name or the name of your nominee is entitled to one Right for each 50
Common Shares so owned by such beneficial owner on the Record Date and each
share of Series B Preferred Stock will be immediately convertible, at no
cost to the holder thereof, into 33 Common Shares. No fractional Rights or
cash in lieu thereof will be distributed or paid.
We are asking you to contact your clients for whom you hold the
Company's Common Shares registered in your name, or in the name of your
nominee to obtain instructions with respect to the Rights. You will be
reimbursed for customary mailing and handling expenses incurred by you in
forwarding any of the enclosed materials to your clients. The Company will
pay all transfer taxes, if any, applicable to the sale of Series B
Preferred Stock to a Rights Holder upon exercise of Rights, subject to
certain exceptions described in the Prospectus and the Rights Certificate.
Enclosed are copies of the following documents:
1. The Prospectus;
2. The Instructions;
3. A form letter which may be sent to your clients for whose
accounts you hold shares of the Company's Common Shares
registered in your name or the name of your nominee, with space
provided for obtaining such clients' instructions with regard to
the Rights;
4. Rights Certificates;
5. A Nominee Holder Oversubscription Certification; and
6. A Notice of Guaranteed Delivery.
Your prompt action is requested. The Rights will expire at 5:00 p.m.
Eastern Standard Time, on ___________ __, 1998, unless extended by the
Company (the "Expiration Date").
TO EXERCISE RIGHTS, PROPERLY COMPLETED AND EXECUTED RIGHT
CERTIFICATE(S) (UNLESS THE GUARANTEED DELIVERY PROCEDURES ARE COMPLIED
WITH) AND PAYMENT IN FULL FOR ALL RIGHTS EXERCISED MUST BE DELIVERED TO THE
SUBSCRIPTION AGENT AS INDICATED IN THE PROSPECTUS PRIOR TO THE EXPIRATION
DATE. EXERCISE OF OVERSUBSCRIPTION PRIVILEGES (AS DEFINED IN THE
PROSPECTUS) MUST BE ACCOMPANIED BY A COMPLETE NOMINEE HOLDER
OVERSUBSCRIPTION CERTIFICATION.
THE RIGHTS WILL ONLY BE GRANTED TO, AND MAY ONLY BE EXERCISED BY,
INVESTORS RESIDING IN THE FOLLOWING JURISDICTIONS WHERE THE SECURITIES
OFFERED HEREBY HAVE BEEN REGISTERED WITH THE APPROPRIATE SECURITIES
REGULATORY AUTHORITIES OR WHERE AN EXEMPTION FROM SUCH REGISTRATION IS
AVAILABLE: OUTSIDE THE UNITED STATES AND IN COLORADO, CONNECTICUT, THE
DISTRICT OF COLUMBIA, ILLINOIS, INDIANA, IOWA, KANSAS, MAINE, MARYLAND,
MASSACHUSETTS, NEVADA, NEW JERSEY, NEW YORK, NORTH CAROLINA, RHODE ISLAND,
VERMONT, VIRGINIA AND WASHINGTON. RIGHTS WILL NOT BE DISTRIBUTED TO HOLDERS
WHO RESIDE IN STATES WHERE THE SECURITIES OFFERED HEREBY HAVE NOT BEEN
REGISTERED OR WHERE AN EXEMPTION FROM REGISTRATION IS NOT AVAILABLE. IN
ADDITION, THE SERIES B PREFERRED STOCK MAY NOT BE TRANSFERRED TO RESIDENTS
OF ANY OF THE FOLLOWING STATES: ARIZONA, FLORIDA, GEORGIA, OHIO,
PENNSYLVANIA OR TEXAS.
Additional copies of the enclosed materials may be obtained from, and
Rights holders requesting assistance or information may call, the
Information Agent, ChaseMellon Shareholder Services at 888-224-2745 in the
U.S. or Computershare Services, P.L.C. at 1179-370-672 in the U.K.
Very truly yours,
CLEAN DIESEL TECHNOLOGIES, INC.
-------------------------------
Jeremy D. Peter-Hoblyn
President and Chief Executive Officer
NOTHING HEREIN OR IN THE ENCLOSED DOCUMENTS SHALL CONSTITUTE YOU OR
ANY PERSON AS AN AGENT OF THE COMPANY, THE SUBSCRIPTION AGENT OR ANY OTHER
PERSON MAKING OR DEEMED TO BE MAKING OFFERS OF THE COMMON STOCK, OR
AUTHORIZE YOU OR ANY OTHER PERSON TO MAKE ANY STATEMENTS ON BEHALF OF ANY
OF THEM WITH RESPECT TO THE OFFERING, EXCEPT FOR STATEMENTS EXPRESSLY MADE
IN THE PROSPECTUS OR THE SUBSCRIPTION DOCUMENTS.
Exhibit 4h
50,000 Shares of Series B Convertible Preferred Stock
CLEAN DIESEL TECHNOLOGIES, INC.
Series B Convertible Preferred Stock (par value $0.05 per share)
Initially Offered Pursuant to Rights
Distributed to Shareholders
To Our Clients:
Enclosed for your consideration are a Prospectus, dated ______ __,
1998 ("Prospectus"), and the Instructions as to Use of Rights Certificates
(the "Instructions") relating to the offering (the "Offering") of up to
50,000 shares of Series B Convertible Preferred Stock, par value $0.05 per
share (the "Series B Preferred Stock"), of Clean Diesel Technologies, Inc.
(the "Company"), at a price of $____ per share (the "Subscription Price")
pursuant to transferable rights ("Rights") distributed to holders of record
("Record Date Holders") of the Company's outstanding common shares, par
value $0.05 per share (the "Common Shares"), at the close of business on
________ ___, 1998 (the "Record Date"); provided, however, that Rights will
not be distributed to Record Date Holders who reside in jurisdictions where
the Rights have not been registered or where an exemption from registration
is not available, as more fully described in the Prospectus.
As described in the accompanying Prospectus, you will receive one
Right for each 50 Common Shares carried by us in your account as of the
Record Date. Each Right will entitle you to subscribe for and purchase from
the Company one share of Series B Preferred Stock (the "Basic Subscription
Privilege") at the Subscription Price and each share of Series B Preferred
Stock will be immediately convertible, at no cost to the holder thereof,
into 33 Common Shares. If you fully exercise the Basic Subscription
Privilege you will also have the right (the "Oversubscription Privilege")
to subscribe, at the Subscription Price, for additional shares of Series B
Preferred Stock available after satisfaction of all subscriptions pursuant
to the Basic Subscription Privilege (the "Excess Shares"). If the number of
Excess Shares is not sufficient to satisfy all subscriptions pursuant to
the Oversubscription Privilege, the Excess Shares will be allocated pro
rata among those Rights Holders exercising the Oversubscription Privilege.
Rights to exercise the Basic Subscription Privilege are transferable,
and Rights Holders that wish to sell their Rights may do so. There can be
no assurance, however, that a trading market in the Rights will develop
prior to their Expiration Date (as defined below). If a market develops for
the Rights, there is no assurance as to the price at which the Rights will
trade.
The materials enclosed are being forwarded to you as the beneficial
owner of the Company's Common Shares carried by us in your account but not
registered in your name. Exercises and sales of Rights may only be made by
us as the registered holder of Rights and pursuant to your instructions.
Accordingly, we request instructions as to whether you wish us to elect to
subscribe for any Series B Preferred Stock or attempt to sell any Rights to
which you are entitled pursuant to the terms and subject to the conditions
set forth in the enclosed Prospectus and Instructions.
Your instructions to us should be forwarded as promptly as possible to
permit us to exercise or sell Rights on your behalf in accordance with the
provisions of the Offering. The Offering will expire at 5:00 p.m. Eastern
Standard Time on_______ __, 1998, unless extended by the Company (the
"Expiration Date"). Once a Rights Holder has properly exercised the Basic
Subscription Privilege or the Oversubscription Privilege, such exercise may
not be revoked.
If you wish to have us, on your behalf, exercise Rights to purchase
any Series B Preferred Stock to which you are entitled or attempt to sell
such Rights, please so instruct us by completing, executing and returning
to us the instruction form on the reverse side of this letter.
THE RIGHTS WILL ONLY BE GRANTED TO, AND MAY ONLY BE EXERCISED BY,
INVESTORS RESIDING IN THE FOLLOWING JURISDICTIONS WHERE THE SECURITIES
OFFERED HEREBY HAVE BEEN REGISTERED WITH THE APPROPRIATE SECURITIES
REGULATORY AUTHORITIES OR WHERE AN EXEMPTION FROM SUCH REGISTRATION IS
AVAILABLE: OUTSIDE THE UNITED STATES AND IN COLORADO, CONNECTICUT, THE
DISTRICT OF COLUMBIA, ILLINOIS, INDIANA, IOWA, KANSAS, MAINE, MARYLAND,
MASSACHUSETTS, NEVADA, NEW JERSEY, NEW YORK, NORTH CAROLINA, RHODE ISLAND,
VERMONT, VIRGINIA AND WASHINGTON. RIGHTS WILL NOT BE DISTRIBUTED TO HOLDERS
WHO RESIDE IN STATES WHERE THE SECURITIES OFFERED HEREBY HAVE NOT BEEN
REGISTERED OR WHERE AN EXEMPTION FROM REGISTRATION IS NOT AVAILABLE. IN
ADDITION, THE SERIES B PREFERRED STOCK MAY NOT BE TRANSFERRED TO RESIDENTS
OF ANY OF THE FOLLOWING STATES: ARIZONA, FLORIDA, GEORGIA, OHIO,
PENNSYLVANIA OR TEXAS.
IF WE DO NOT RECEIVE COMPLETE WRITTEN INSTRUCTIONS IN ACCORDANCE WITH
THE PROCEDURES OUTLINED IN THE PROSPECTUS, WE WILL NOT EXERCISE, TRANSFER
OR SELL YOUR RIGHTS, AND YOUR RIGHTS WILL EXPIRE VALUELESS.
ANY QUESTIONS OR REQUESTS FOR ASSISTANCE CONCERNING THE OFFERING
SHOULD BE DIRECTED TO CHASEMELLON SHAREHOLDER SERVICES, [1-800-814-0304].
Very truly yours,
Exhibit 4i
THE RIGHTS WILL ONLY BE GRANTED TO, AND MAY ONLY BE EXERCISED BY, INVESTORS
RESIDING IN THE FOLLOWING JURISDICTIONS WHERE THE SECURITIES OFFERED HEREBY
HAVE BEEN REGISTERED WITH THE APPROPRIATE SECURITIES REGULATORY AUTHORITIES
OR WHERE AN EXEMPTION FROM SUCH REGISTRATION IS AVAILABLE: OUTSIDE THE
UNITED STATES AND IN COLORADO, CONNECTICUT, THE DISTRICT OF COLUMBIA,
ILLINOIS, INDIANA, IOWA, KANSAS, MAINE, MARYLAND, MASSACHUSETTS, NEVADA,
NEW JERSEY, NEW YORK, NORTH CAROLINA, RHODE ISLAND, VERMONT, VIRGINIA AND
WASHINGTON. RIGHTS WILL NOT BE DISTRIBUTED TO HOLDERS WHO RESIDE IN STATES
WHERE THE SECURITIES OFFERED HEREBY HAVE NOT BEEN REGISTERED OR WHERE AN
EXEMPTION FROM REGISTRATION IS NOT AVAILABLE. IN ADDITION, THE SERIES B
PREFERRED STOCK MAY NOT BE TRANSFERRED TO RESIDENTS OF ANY OF THE FOLLOWING
STATES: ARIZONA, FLORIDA, GEORGIA, OHIO, PENNSYLVANIA OR TEXAS.
CLEAN DIESEL TECHNOLOGIES, INC.
INSTRUCTIONS TO RECORD DATE HOLDER
The undersigned acknowledge(s) receipt of your letter and the enclosed
materials referred to therein relating to the offering of shares of Series
B Convertible Preferred Stock (the "Series B Preferred Stock").
This will instruct you whether to exercise or attempt to sell Rights
to purchase Series B Preferred Stock distributed with respect to the Common
Shares held by you for the account of the undersigned, pursuant to the
terms and subject to the conditions set forth in the Prospectus and the
related Instructions as to Use of Rights Certificates.
1. Please DO NOT EXERCISE RIGHTS for shares of Series B
Preferred Stock.
2. Please EXERCISE RIGHTS for shares of Series B Preferred
Stock as set forth below:
Basic Subscription Privilege: _________ x $____ = $_____(a)
(no. of shares)
Oversubscription Privilege: __________ x $____ = $_____(b)
(no. of shares)
Total Payment Required = $____________(c)
Payment in the following amount is enclosed: $__________(d)
Please deduct payment from the following account maintained
by you as follows:
Type of Account ____________ Account No. ___________
AMOUNT TO BE DEDUCTED: $__________(e)
3. Please attempt to SELL ________ RIGHTS.
- ------------------------------------------------------------------------------
- ------------------------------------
Signature(s)
Please type or print name(s) below
- ------------------------------------ Date:-------------------------, 1998
- ------------------------------------
- ------------------------------------------------------------------------------
Exhibit 4j
CLEAN DIESEL TECHNOLOGIES, INC.
RIGHTS OFFERING
---------------------
DTC PARTICIPANT OVERSUBSCRIPTION EXERCISE FORM
---------------------
THIS FORM IS TO BE USED ONLY BY DEPOSITORY TRUST COMPANY PARTICIPANTS TO
EXERCISE THE OVERSUBSCRIPTION PRIVILEGE IN RESPECT OF RIGHTS WITH RESPECT
TO WHICH THE BASIC SUBSCRIPTION PRIVILEGE WAS EXERCISED AND DELIVERED IN
FULL THROUGH THE FACILITIES OF THE DEPOSITORY TRUST COMPANY. ALL OTHER
EXERCISES OF OVERSUBSCRIPTION PRIVILEGES MUST BE EFFECTED BY THE DELIVERY
OF RIGHTS CERTIFICATES.
---------------------
THE TERMS AND CONDITIONS OF THE RIGHTS OFFERING ARE SET FORTH IN THE
COMPANY'S PROSPECTUS DATED _______ __, 1998 (THE "PROSPECTUS") AND ARE
INCORPORATED HEREIN BY REFERENCE. COPIES OF THE PROSPECTUS ARE AVAILABLE
UPON REQUEST FROM THE COMPANY AND THE SUBSCRIPTION AGENT.
---------------------
THE RIGHTS WILL ONLY BE GRANTED TO, AND MAY ONLY BE EXERCISED BY,
INVESTORS RESIDING IN THE FOLLOWING JURISDICTIONS WHERE THE SECURITIES
OFFERED HEREBY HAVE BEEN REGISTERED WITH THE APPROPRIATE SECURITIES
REGULATORY AUTHORITIES OR WHERE AN EXEMPTION FROM SUCH REGISTRATION IS
AVAILABLE: OUTSIDE THE UNITED STATES AND IN COLORADO, CONNECTICUT, THE
DISTRICT OF COLUMBIA, ILLINOIS, INDIANA, IOWA, KANSAS, MAINE, MARYLAND,
MASSACHUSETTS, NEVADA, NEW JERSEY, NEW YORK, NORTH CAROLINA, RHODE ISLAND,
VERMONT, VIRGINIA AND WASHINGTON. RIGHTS WILL NOT BE DISTRIBUTED TO HOLDERS
WHO RESIDE IN STATES WHERE THE SECURITIES OFFERED HEREBY HAVE NOT BEEN
REGISTERED OR WHERE AN EXEMPTION FROM REGISTRATION IS NOT AVAILABLE. IN
ADDITION, THE SERIES B PREFERRED STOCK MAY NOT BE TRANSFERRED TO RESIDENTS
OF ANY OF THE FOLLOWING STATES: ARIZONA, FLORIDA, GEORGIA, OHIO,
PENNSYLVANIA OR TEXAS.
VOID UNLESS RECEIVED BY THE SUBSCRIPTION AGENT WITH PAYMENT IN FULL BY 5:00
P.M., NEW YORK CITY TIME, ON ________ __ 1998, UNLESS EXTENDED (THE
"EXPIRATION DATE").
1. The undersigned hereby certifies to Clean Diesel Technologies, Inc.
(the "Company") and ChaseMellon Shareholder Services, as the
Subscription Agent, that it is a participant in The Depository Trust
Company ("DTC"), that it resides outside the United States or on one
of the following states: [to come], and that it has either (i)
exercised in full the Basic Subscription Privilege in respect of
Rights and delivered such exercised Rights to the Subscription Agent
by means of transfer to the DTC account of the Subscription Agent
designated in the Prospectus, or (ii) delivered to the Subscription
Agent a Notice of Guaranteed Delivery in respect of the exercise in
full of the Basic Subscription Privilege and will deliver the Rights
called for in such Notice of Guaranteed Delivery to the Subscription
Agent by means of transfer to such DTC account of the Subscription
Agent.
2. The undersigned hereby exercises the Oversubscription Privilege to
purchase, to the extent available, ________ shares of Series B
Convertible Preferred Stock (the "Series B Preferred Stock") and
certifies to the Company and the Subscription Agent that such
Oversubscription Privilege is being exercised for the account or
accounts of persons (which may include the undersigned) on whose
behalf the Basic Subscription Privilege was exercised in full.
3. The undersigned understands that payment of the Subscription Price of
$____ per share for each share of Series B Preferred Stock subscribed
for pursuant to the Oversubscription Privilege must be received by the
Subscription Agent at or before the Expiration Date and represents
that such payment, in the aggregate amount of $_________. (check
appropriate box):
[ ] has been or is being delivered to the Subscription Agent
pursuant to the Notice of Guaranteed Delivery referred to above;
[ ] is being delivered to the Subscription Agent herewith;
or
[ ] has been delivered separately to the Subscription Agent;
and, in the case of funds not delivered pursuant to a Notice of Guaranteed
Delivery, is or was delivered in the manner set forth below (check
appropriate box and complete information relating thereto):
[ ] wire transfer of funds:
Name of transferor institution
--------------------------------
Date of transfer
----------------------------------------------
Confirmation number (if available)
----------------------------
[ ] uncertified check
[ ] certified or cashier's check
[ ] money order.
--------------------------------------
Bank Subscription Confirmation Number
--------------------------------------
DTC Participant Number
--------------------------------------
Name of DTC Participant
By:
-----------------------------------
Name:
Title:
Date: ____________ ___, 1998
PARTICIPANTS EXERCISING THE OVERSUBSCRIPTION PRIVILEGE PURSUANT HERETO MUST
SEPARATELY SUBMIT A NOMINEE HOLDER CERTIFICATION TO THE SUBSCRIPTION AGENT.
Exhibit 4k
CLEAN DIESEL TECHNOLOGIES, INC.
NOMINEE HOLDER CERTIFICATION
The undersigned, a bank broker or other nominee of Rights ("Rights") to
purchase shares of Series B Convertible Preferred Stock, par value $0.05
per share ("Series B Preferred Stock"), of Clean Diesel Technologies, Inc.
(the "Company") pursuant to the Rights Offering described and provided for
in the Company's Prospectus dated ______ __, 1998 (the "Prospectus"),
hereby certifies to the Company and to ChaseMellon Shareholder Services, as
Subscription Agent for such Rights Offering, that (1) the undersigned has
exercised, on behalf of the beneficial owners thereof (which may include
the undersigned), the number of Rights specified below pursuant to the
Basic Subscription Privilege (as defined in the Prospectus) on behalf of
beneficial owners of Rights who have subscribed for the purchase of
additional shares of Series B Preferred Stock pursuant to the
Oversubscription Privilege (as defined in the Prospectus), listing
separately below each such exercised Basic Subscription Privilege and the
corresponding Oversubscription Privilege (without identifying any such
beneficial owner), (2) each such beneficial owner's Basic Subscription
Privilege has been exercised in full and (3) that each such beneficial
owner has indicated in writing that it resides outside the United States or
in Colorado, Connecticut, the District of Columbia, Illinois, Indiana,
Iowa, Kansas, Maine, Maryland, Massachusetts, Nevada, New Jersey, New York,
North Carolina, Rhode Island, Vermont, Virginia, and Washington.
- ------------------------------------------------------------------------------
Number of Shares
Number of Shares Rights Pursuant to Pursuant to
Owned on the Basic Subscription Oversubscription
Record Date Privilege Privilege
----------- --------- ---------
- ------------------------------------------------------------------------------
1.
- ------------------------------------------------------------------------------
2.
- ------------------------------------------------------------------------------
3.
- ------------------------------------------------------------------------------
4.
- ------------------------------------------------------------------------------
5.
- ------------------------------------------------------------------------------
6.
- ------------------------------------------------------------------------------
7.
- ------------------------------------------------------------------------------
8.
- ------------------------------------------------------------------------------
9.
- ------------------------------------------------------------------------------
Provide the following information if applicable:
- ------------------------------------------------
Depository Trust Company ("DTC")
Participant Number
- ------------------------------------------------
DTC Basic Subscription Confirmation
Number(s)
Exhibit 10m
The omitted portions indicated by brackets have been separately filed with
the Securities and Exchange Commission pursuant to a request for
confidential treatment under Rule 406, promulgated under the Securities Act
of 1933, as amended.
SUPPLY AGREEMENT
between
CLEAN DIESEL TECHNOLOGIES, INC.
and
HOLT LLOYD INTERNATIONAL LTD.
AGREEMENT as of the 12th day of September, 1996 between Clean Diesel
Technologies, Inc., a Delaware corporation ("CDTI"), with a place of
business at Suite 702, 300 Atlantic Street, Stamford, Connecticut, U.S.A.
06901 and Holt Lloyd International Ltd. an English Company ("Holts"), with
a place of business at Lloyds House, Alderley Road, Wilmslow, Cheshire SK9
1QT, U.K.
Whereas CDTI desires to sell to Holts quantities of a proprietary, platinum
fuel catalyst and Holts desires to purchase quantities of such catalyst for
use with its diesel fuel additives.
NOW THEREFORE, the parties agree as follows:
1. Definitions.
(a) "Holts" shall mean Holt Lloyd International Ltd. and the subsidiaries
of its ultimate holding company identified in Schedule C.
(b) "PFC" shall mean CDTI's proprietary Platinum Fuel Catalyst more
particularly identified as Platinum Plus(R) 3100-SC, a superconcentrated
product containing 2.0% by weight of platinum metal in a fuel soluble form,
and, the specified dose rate of 0.61 ml per 50 liters of diesel fuel,
providing 0.25 ppmw of platinum metal in treated fuel. Specifications for
the PFC are set on Schedule A-2.
(c) "Additives" shall mean Holts' diesel fuel additives containing or
intended to contain the PFC.
(d) "Application" shall mean the blending at Holts' expense of the PFC with
the Additives in containers of up to five liters for use in after-treatment
of fuel for both new and used diesel engines in the consumer car care
market.
(e) "Patents" shall mean those patents owned or licensed to CDTI as more
specifically set out on Schedule B-1.
(f) "Territories" shall mean each national jurisdiction or state worldwide
except in North, Central or South America.
(g) "Mark" shall mean the CDTI trademark "Platinum Plus(R)."
(h) "Minimum Performance Levels" shall mean the annual quantity in gallons
of PFC attributable to Holts' sale of its Additives in a particular
Territory.
(i) "Gallons" shall mean U.S. gallons, equivalent to 3.785 liters per
gallon.
(j) "Fixed Term" of this Agreement shall mean the term from the execution
of this Agreement until the tenth anniversary thereof.
(k) "Extended Term of this Agreement" shall mean the term from the
expiration of the Fixed Term until cancellation of this Agreement by either
party on ninety (90) days notice.
2. Purchase and Sale.
CDTI agrees to supply and sell quantities of the PFC exclusively to Holts
for the Application for sale of the Additive in the Territories. Holts
agrees to accept and purchase the PFC exclusively from CDTI or its licensed
manufacturers only for the Application for sale in the Territories and to
pay to CDTI the price therefor set out below.
3. License.
(a) CDTI does for the Fixed and Extended Terms of the Agreement license
Holts under the Patents to use and sell the PFC and to use the Mark, on an
exclusive, royalty-free basis, for the Application for sale of the
Additives in the Territories only. CDTI shall execute and deliver to Holts
from time to time such registered user agreements as may be appropriate to
use of the Mark in the Territories by Holts. Notwithstanding the foregoing,
Holts acknowledges CDTI's ownership of and interest in the Mark and agrees
that its use of the Mark shall not create in Holts favor any right, title
or interest in or to the Mark.
(b) Subject to agreement on Minimum Performance Levels by April 30, 1997,
CDTI shall not license any other party to use the Mark for diesel fuel or
diesel fuel additives in a Territory during the Fixed or Extended Terms of
this Agreement when Holts shall hold an exclusive license for the PFC and
the Mark for the Application in such Territory. CDTI shall itself retain
the right to market and sell the PFC to blenders and fuel suppliers under
the Mark.
4. Obligations of Holts.
(a) Holts agrees to use its best efforts in the Territories to promote the
use of PFCs for the Application as beneficial in mobile diesels both new
and retrofit and will at its expense apply for certification of the PFC, or
the Additives as the case may be, with appropriate regulatory authorities
in the Territories.
(b) Holts will use the PFC according to the blending specifications agreed
by CDTI attached as Schedule A-1 and Holts will use all reasonable efforts
to assure that PFC is blended by Holts or its blenders at the concentration
recommended by CDTI. Holts will use due care in the blending of the PFC
with the Additives with a view toward protection of its employees or the
employees of its agents and contractors.
(c) Holts will use the Mark on the Additives containing the PFC and in all
advertising concerning such products and only on such Additives and in such
advertising. The packaging or labels for such Additives shall identify CDTI
as owner of the Mark in such style as from time to time may be approved by
CDTI, who shall act reasonably.
(d) Holts will notify CDTI as to those jurisdictions in the Territories and
to the classes where the Mark shall not have been registered and where
Holts requires the Mark to be registered in order to further project
sales of the Additives therein. CDTI will at its expense apply for
registration of the Mark in such jurisdictions. CDTI shall be the owner of
the Mark when so registered. Holts will reimburse CDTI for one-half of the
cost of the registration and annual maintenance of the Mark in such
jurisdictions, and for the classes where Holts requires the Mark to be
registered.
5. Obligations of CDTI.
(a) CDTI will use its best efforts to assist Holts in its registration of
the Additives or the PFC, as the case may be, with the appropriate
regulatory authorities in the Territories, such efforts, however, shall not
require the preparation, compilation or delivery of data except data as
CDTI shall actually possess and shall not require testing expense, travel
expense, legal fees and filing fees to be incurred by CDTI.
(b) CDTI will provide to Holts standard product specification sheets (flash
point, dosing, etc.), material safety data sheets, and blending
instructions.
(c) CDTI will cause to be made a standard QC analysis on product provided
to Holts and make such analyses available to Holts.
(d) CDTI will not during the term of the Agreement sell PFC to other
parties for the Application (for the sale of additives similar to the
Additives) in the Territories, providing that by March 31st of each
calendar year the parties shall have used their reasonable efforts to agree
on Minimum Performance Levels for each territory for that calendar year. If
the parties cannot agree on a Minimum Performance Level for a specific
Territory, then Holts will have a non-exclusive license for that specific
Territory for the remainder of that calendar year which non-exclusive
license shall continue thereafter for the Fixed or Extended Terms of this
Agreement unless such non-exclusive license for such Territory is canceled
by CDTI with 90 days written notice.
(e) In the event that CDTI formulates an additive package that is
technically and commercially suitable for petrol engines, then CDTI shall
offer Holts the first right of refusal on a license on terms similar to
this Agreement. Product specifications and pricing may differ from this
Agreement.
6. Pricing.
(a) The price per gallon of PFC through the year ended December 31, 1996 on
aggregate orders up to 100 gallons is:
Volume $/gal PP 3100-SC
------ ----------------
Up to 100 gal. $[ ]
(b) The price per gallon of PFC in excess of 100 gallons in 1996 and after
December 31, 1996 and through December 31, 1999, will be adjusted based on
the formula set out on Schedule D. After December 31, 1999, pricing of
orders will be agreed between CDTI and Holts in a written amendment to this
Agreement. If the parties cannot agree in good faith then this Agreement
may be terminated by either party with 90 days written notice. In the
course of such good faith negotiations either party may invoke the services
of a London U.K.-based mediator and the other party shall cooperate with
such mediator and both parties shall share the reasonable costs of such
mediation.
(c) Payment shall be net thirty (30) days from date of receipt at Holts
principal sites in the U.K. and France. Delayed payments shall incur a
service charge of 1.5% of the unpaid balance per month.
(d) Prices are exclusive of freight, customs duties, non-U.S. VAT sales or
similar taxes and any local transportation expense following the point of
delivery, such costs being for the account of Holts. Prices are inclusive
of shipping insurance premiums which are for the account of CDTI.
7. Infringement.
(a) CDTI represents and warrants that to the best of its knowledge and
belief the use or sale of the PFC or the use of the Mark will not infringe
upon the claims of any patent or any trademark issued or to be issued to
third parties in the Territories.
(b) In the event of an infringement suit, or threatened infringement suit,
against Holts by reason of the use of the Mark or the use or sale of the
PFC furnished hereunder for the Application, and provided that Holts
notifies CDTI promptly in writing of any claim, or threatened claim, of
infringement and tenders to CDTI the defense thereof, CDTI at its option
agrees either to:
(i) control and conduct at its own expense the defense of any such
claim or suit provided that Holts furnishes such assistance and information
at CDTI's expense as CDTI shall reasonably request, in which case CDTI
indemnifies Holts against all reasonable costs, losses and expenses
incurred and CDTI agrees to keep Holts informed of the progress of any such
matter, or
(ii) reject the tender of the defense in which case CDTI indemnifies
Holts against all reasonable costs, losses and expenses of Holts in
defending against the claims of suit, provided that CDTI shall have the
right to be defended by its own counsel in such suit.
(c) Regardless of the option selected by CDTI in (b) above, its liability
shall not exceed the purchase price of the allegedly infringing goods, nor
shall CDTI be liable to Holts for any consequential or punitive damages. If
any injunction is issued against the further use of the allegedly
infringing goods, CDTI shall have the option of procuring for Holts the
right to use the goods or replacing them with a non-infringing product, as
long as Holts agrees that such product achieves the same performance as PFC
in the Application or of removing them and refunding the purchase price,
including costs of duty and freight.
8. Prosecution of Infringements.
Both parties shall notify the other of facts which suggest that an
infringement of the Patents or the Mark in the Territories may be occurring
and shall consult as to the manner of dealing with such infringements.
9. Orders; Quantities; Packing; Claims.
CDTI agrees to provide reasonable quantities of PFC in one (1) gallon
containers for trial market launches through April 30, 1997. For all orders
in quantity up to 100 gallons, Holts shall give CDTI thirty (30) days
notice of the quantity to be purchased and shipped each contract month and
for orders in excess of 100 gallons, Holts shall give CDTI ninety (90) days
notice thereof. No order shall be less than five (5) gallons. Unless Holts
specifies otherwise in writing, PFC orders will be packed as CDTI may deem
proper for protection against normal handling. An extra charge will be made
for special requirements imposed by Holts for preservation, waterproofing
and similar added protection or special packing of the PFC. The weights,
tares and tests fixed by CDTI's invoice shall govern unless proven to be
incorrect. Claims relating to quantity, quality, weight, condition and loss
of or damage to any of the PFC sold hereunder shall be waived by Holts
unless made in writing within thirty (30) days after receipt of a
particular PFC shipment by Holts at its manufacturing sites in the U.K. or
France.
10. Title and Risk of Loss.
Title and Risk of Loss of all PFC shipments shall pass to Holts upon
delivery of a shipment by CDTI to Holts' specified point of delivery.
11. Warranties.
CDTI warrants that (a) the PFC is of the quality set forth in CDTI's
specifications, attached as Schedule A-2, or as may be otherwise expressly
stated in this Agreement, and (b) the title conveyed is good and the
product is free from any lawful security interest, lien or encumbrance.
CDTI MAKES NO FURTHER REPRESENTATIONS OR WARRANTIES AS TO THE PFC, EXPRESS
OR IMPLIED, OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE.
12. Limitation of Liability; Insurance.
(a) With respect to the purchase and sale of the PFC hereunder, Holts'
exclusive remedy and CDTI's exclusive liability under the Agreement or
otherwise, shall be for compensatory damages for CDTI's breach of warranty
set forth herein, such liability shall not exceed so much of the purchase
price as is applicable to that portion of a particular shipment for which
damages are claimed and neither party shall be liable to the other for
consequential, statutory or punitive damages.
(b) Each of the parties hereto represents and warrants to the other that it
or its subsidiaries shall maintain during the Fixed and Extended Terms of
this Agreement, product liability insurance cover up to the limit of $2
million (U.S. dollars) in the aggregate and $1 million (U.S. dollars) per
claim, and $11 million of total overall coverage for claims arising out of
injury to persons or property alleged to have been caused by defects in or
use of either the Holts additives or the CDTI PFC, as the case may be. Such
policies of insurance shall be with insurance carriers of such standing and
capacity as shall be reasonably approved by the other party and shall be
properly licensed to issue the coverage contemplated herein.
(c) Each of the parties hereto does hereby indemnify and hold harmless the
other and the shareholders, directors, officers, and employees of the
other, but only up to the amount of the product liability insurance cover
required to be maintained hereunder, for all cost, expense (including the
fees and expenses of legal counsel), liability and damages imposed on such
other party and found to have been caused by defects in or use of the
party's product as contemplated hereunder, being Holts' additives or CDTI's
PFC, as the case may be.
(d) Each of the parties hereto shall cause the other party to be designated
as an additional insured under such party's product liability insurance
required hereunder and shall, from time to time on request of the other
party, procure from its insurance carrier and furnish to such other party
certificates evidencing such additional insured status.
(e) Each of the parties hereto shall cause its insurance carriers providing
the product liability cover required hereunder to waive subrogation with
respect to the other party.
13. Force Majure.
Neither party shall be liable for its failure to perform hereunder if due
to any contingency beyond the reasonable control of the party affected,
including but not limited to acts of God, war, fire, bad weather, flood,
accident, labor trouble or shortage, civil disturbance, plant shutdown,
equipment failure, voluntary or involuntary compliance with any applicable
governmental regulation or order, or shortage or inability to obtain (on
terms deemed practicable by the party affected) any raw material (including
energy), equipment or transportation. CDTI shall not be obligated to
deliver the product from other than CDTI's production site in the U.S. and
there shall be no obligation to rebuild or repair any damage or destruction
to such production or shipping points in order to fulfill this contact.
During any period when CDTI is unable to supply the contract quantity of
the PFC, whether caused by the circumstances above or otherwise, CDTI may
allocate any available product among its customers on such basis as CDTI
deems fair and reasonable.
14. Governmental Regulation.
CDTI may discontinue, limit or curtail production and sale of PFC due to
the requirements of governmental regulation, and may terminate the
Agreement on thirty (30) days written notice to Holts, if in CDTI's sole
and reasonable opinion such governmental regulations render the production,
marketing or transportation of PFC economically, technically or
commercially not feasible.
15. Term of Agreement.
This Agreement shall remain in effect during the Fixed and Extended Terms
hereof.
16. Applicable Law and Arbitration.
This Agreement shall be governed by the internal substantive laws of the
State of Delaware U.S.A. and the Federal Arbitration Act. This Agreement
and all questions of its interpretation or any claims or disputes with
respect to any of the transactions contemplated herein shall be determined
exclusively in binding arbitration before a single arbitrator under the
rules then in force of commercial arbitration of the American Arbitration
Association in New York, New York, U.S.A. Any award in such arbitration may
be entered in and enforced by any court having jurisdiction. Prior to
initiating arbitration the parties agree that they will for a period of not
less than sixty (60) days attempt to mediate all disputes and such
mediation shall involve at least one face to face discussion between the
parties. No arbitrator hereunder shall have any power to award
consequential, statutory or punitive damages. Notwithstanding the forgoing,
claims or disputes between the parties hereto shall be determined
judicially, where such claims or disputes arise in the course of a judicial
proceeding brought by a third party against one or both of the parties
hereto and one of such parties hereto shall seek reimbursement or indemnity
from the other party hereto and each of the parties hereto consents to the
jurisdiction of any court in which such judicial proceeding shall arise.
17. Assignment.
Neither this Agreement nor any right or obligation hereunder is assignable
or transferable by either party in whole or in part without the prior
written consent of the other party and any such purported assignment
without such consent shall be void, except, however, upon a sale by a party
of all or substantially all of its business as a going concern.
18. Notices.
All notices hereunder shall be in writing and directed to the addresses of
the parties set forth above or to such other address as shall be provided
by notice as stipulated herein, and shall be deemed received upon
transmission if by facsimile or hand delivery, or five (5) days after
transmission, if by mail.
IN WITNESS WHEREOF, the parties hereto have set their hands and seals as of
the date first written above.
CLEAN DIESEL TECHNOLOGIES, INC. HOLT LLOYD INTERNATIONAL LTD.
By: By:
--------------------------- ----------------------------
Title: Title:
--------------------------- ----------------------------
SCHEDULE A-1
CDTI/HOLTS SUPPLY AGREEMENT
PLATINUM PLUS(R) 3100-SC
------------------------
PRODUCT BLENDING AND USE SPECIFICATIONS
---------------------------------------
1. Holts will blend Platinum Plus(R) 3100-SC with its additives according
to the product application sheet supplied by CDTI so as to provide for
a concentration of 0.25 ppm platinum in fuel treated with Platinum
Plus(R) 3100-SC.
2. Holts will use all reasonable means including the establishment of
blending procedures and appropriate analyses of blended additives to
assure that Holts and its blenders conform to the blending
specifications.
3. These specifications may not be altered without written authorization
from CDTI.
SCHEDULE A-2
CDTI/HOLTS SUPPLY AGREEMENT
PLATINUM PLUS(R) 3100 SC
PRODUCT SPECIFICATIONS
----------------------
SPECIFIED PHYSICAL PROPERTIES
-----------------------------
Min. Max.
---- ----
Pt Content, Wt % 2.00 2.08
Specific Gravity, 23-24oC 0.88 0.90
Total Halide Content, ppm --- 500
(Full specifications to follow.)
SCHEDULE B-1
CDTI/HOLTS SUPPLY AGREEMENT
PATENTS LICENSED BY JURISDICTION
--------------------------------
Country Patent No. Issue Date Title
- ------- ---------- ---------- ------
Australia Pat. 583,580 05/04/89 Fuel Additives and Fuel
Containing Soluble Platinum
Group Metal Compounds and
Use in Internal Combustion
Engines
Europe (designated Pat. 0189642 03/06/91 Fuel Additives and Fuel
contracting states: Containing Soluble Platinum
AT, BE, CH, FR, IT, Group Metal Compounds and
LI, LU, NL, SE) Use in Internal Combustion
Engines
Spain Pat. 548,951 04/12/88 Fuel Additives and Fuel
Containing Soluble Platinum
Group Metal Compounds and
Use in Internal Combustion
Engines
United Kingdom Pat. 2,178,757 10/19/88 Fuel Additives and Fuel
Containing Soluble Platinum
Group Metal Compounds and
Use in Internal Combustion
Engines
Greece Pat. 85.2745 03/14/86 Fuel Additives and Fuel
Containing Soluble Platinum
Group Metal Compounds and
Use in Internal Combustion
Engines
Ireland Pat. 58,723 10/21/93 Fuel Additives and Fuel
Containing Soluble Platinum
Group Metal Compounds and
Use in Internal Combustion
Engines
Japan Pat. 1,931,531 05/12/95 Fuel Additives and Fuel
Containing Soluble Platinum
Group Metal Compounds and
Use in Internal Combustion
Engines
SCHEDULE B-2
CDTI/HOLTS SUPPLY AGREEMENT
PLATINUM PLUS
FOREIGN TRADEMARK APPLICATIONS
------------------------------
Country Filing Date Serial No. Registration No.
- ------- ----------- ---------- ----------------
China Not available Not available
China Not available Not available
China Not available Not available
EU Community Not available Not available
France 11/28/95 95/599 379 95/599 379
Great Britain 11/23/95 2,046,018
Indonesia Not available Not available
Indonesia Not available Not available
Indonesia Not available Not available
Japan 12/5/95 125415/95
Japan 12/5/95 124416/95
Japan 12/5/95 125417/95
Korea 11/27/95 44777/95
Korea 11/27/95 44778/95
Korea 12/27/95 11493/95
Mexico 12/6/95 249,675
Mexico 12/8/95 249,891
Taiwan 7/12/96 85034640
Taiwan 7/12/96 85034641
SCHEDULE C
CDTI/HOLTS SUPPLY AGREEMENT
HOLTS SUBSIDIARIES COVERED UNDER THE AGREEMENT
----------------------------------------------
Holt Lloyd International Ltd. U.K.
Holt Lloyd Ltd. U.K.
Holt Lloyd Export Ltd. U.K.
Carr & Day & Martin Ltd. U.K.
Holt Lloyd SA France
Holt Lloyd GmbH Germany
Holt Lloyd BV Holland
Holt Lloyd Europa BV Holland/Belgium
Holt Lloyd SpA Italy
Holt Lloyd Ltd. Ireland
Holt Lloyd SA Spain
Holt Lloyd Australasia Pty. Ltd. Australia
Holt Lloyd Ltd. New Zealand
Gamlen Environmental Services Ltd. New Zealand
Musashi Holt KK Japan
Holts Pty. Ltd. South Africa
Holt Lloyd International Ltd. has a 35% shareholding in Holt Lloyd & Raposa
Lda., Portugal.
SCHEDULE D
PLATINUM PLUS(R) 3100-SC
PRICE ADJUSTMENT SCHEDULE
-------------------------
(Valid after December 31, 1996
and through December 31, 1999)
1. Base pricing is based on platinum at $400/T.O. and a product price of
$3,300/U.S. gallon for the first 100 gallons, or through December 31,
1996, whichever occurs first.
2. Price on orders subsequent to December 31, 1996, and through December
31, 1999 will be adjusted based on the following formula:
Adjusted Price of Platinum
Product Price = at time of Order (FN*) x (0.40) ($[ ]) + 0.60 ($[ ])
-----------------------
Base Price @ $400/T.O.
3. Notwithstanding the foregoing, CDTI shall be entitled to a price
adjustment if it shall be determined that the above pricing as
escalated shall be grossly inequitable. In the course of discussions
to alter this pricing structure, either party may invoke the services
of a London U.K.-based mediator and the other party shall cooperate
with such mediator and both parties shall share the reasonable costs
of such mediator.
(FN*) Defined as platinum price confirmed by Johnson Matthey on date of
written acceptance by CDTI of order.
Exhibit 10n
The omitted portions indicated by brackets have been separately filed with
the Securities and Exchange Commission pursuant to a request for
confidential treatment under Rule 406, promulgated under the Securities Act
of 1933, as amended.
JOINT DEVELOPMENT AGREEMENT
---------------------------
This Agreement is effective as of the 11th day of November 1996 by and
among Engelhard Corporation ("Engelhard") having a place of business at 101
Wood Avenue, Iselin, New Jersey 08830; Clean Diesel Technologies, Inc.
("CDT") having a place of business at 300 Atlantic Street, Suite 702,
Stamford, Connecticut 06901; and Nalco Fuel Tech ("NFT") having a place of
business at 1001 Frontenac Road, Naperville, Illinois 60563.
Engelhard has developed NOx reduction catalysts and systems which can
reduce NOx emissions in the exhaust stream of diesel engines in the
presence of an amine-based reagent through selective catalytic reduction
(SCR).
CDT and NFT have independently developed and own reagents, reagent
injection techniques, injector designs, metering systems, and computer
models that, in conjunction with an NOx reduction catalyst, will reduce NOx
emissions from diesel engines.
CDT, NFT and Engelhard wish to collaborate on the development,
demonstration, and commercialization of a urea-based SCR System for use on
diesel engine power generator sets manufactured by Cummins Engine Company
("Cummins").
Therefore, the parties agree as follows:
1. Engelhard, CDT, and NFT will collaborate on the selection and
testing of Engelhard catalysts and reactors in conjunction with the
CDT and NFT supplied reagent, injectors, and metering equipment prior
to the prototype testing of the System. Pre-prototype testing will
take place at the Engelhard engine lab during 1996 to define overall
system performance.
2. CDT and NFT will share confidential Cummins engine data with
Engelhard for catalyst selection and design, based on authorization
from Cummins. This sharing is contingent upon Engelhard holding such
information in strict confidence, in accordance with the requirements
of CDT's and NFT's Confidentiality Agreement with Cummins.
3. Prototype testing of the System will take place in conjunction with
Cummins on an engine supplied by Cummins during 1997. Engelhard will
provide catalysts and reactors and CDT and NFT will provide the
reagent and injection/metering system. The timing and responsibility
for testing shall be agreed by the parties in advance.
4. Upon successful completion of prototype testing of the System and
based on agreement by the parties with Cummins to proceed with
commercialization of the System, the parties shall support commercial
performance and durability testing of the System as mutually agreed by
the parties with Cummins. Engelhard will provide catalyst and reactor
and CDT and NFT will provide the injection/metering system and
reagent.
Unless otherwise agreed by the parties in writing, the direct
cost of the engine, engine operations, emissions monitor, and data
collection during the durability testing shall not exceed $[ ] per
party, with each party paying one-third of the total.
5. Upon successful completion of durability testing to the
satisfaction of the parties and Cummins, the parties shall negotiate
with Cummins for supply of commercial Systems. CDT and NFT shall be
the overall System supplier, with catalyst and reactor supplied to CDT
and NFT by Engelhard based on mutually agreed price and terms.
6. Parties confirm that they agree not to analyze or have analyzed any
chemical reagents, injectors, metering equipment or catalysts
(hereinafter "Samples") provided by one party to another for
evaluation during this Agreement, and that all such Samples will be
provided free of charge and shall be returned to the party providing
such Samples at the end of each test.
7. (a) Each party shall have equal access to the test results for all
tests conducted in accordance with this Agreement. Data and results
resulting from the work completed during this program ("Subject Data")
shall be jointly owned by the parties, but no party shall have the
right to publish or disclose such data without the prior written
consent of the other parties, which consent will not be unreasonably
withheld. Any inventions first jointly conceived and reduced to
practice from the work completed under this program ("Subject
Inventions") shall be owned by the parties. Any patents resulting from
Subject Inventions will be owned by NFT if related to metering
equipment or reagents, and by Engelhard if related to catalyst. Each
of the two other parties to this agreement shall have a worldwide
royalty-free license to make, use, and sell subject to payment of a
one-third share of reasonable patent preparation, filing and
maintenance costs. Any inventions individually conceived during this
program or conceived and reduced to practice outside of this program
will in no event be Subject Inventions.
(b) All inventions, patents, patent applications, data, know-how and
other intellectual property in the possession of or owned by any of
the parties prior to the Test shall remain the property of such party
and no grant of any right or license whatsoever thereunder to any of
the other parties is intended hereby or should be implied,
notwithstanding that rights in any such intellectual property may be
necessary to enable a party to practice a Subject Invention. No rights
or obligations other than those expressly recited herein are to be
implied from this Agreement. Except as provided above, and relating to
Subject Inventions and Subject Data, no license is hereby granted,
directly or indirectly, under any know-how or patent now or hereafter
held by or licensed by any of the parties.
9. This Agreement shall be governed by and construed in accordance
with the internal laws of the State of New Jersey without regard to
the principle of conflict of laws.
10. This Agreement constitutes the entire understanding between the
parties hereto with respect to the subject matter indicated above, and
its terms may not be changed or amended except by an instrument in
writing.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
signed in triplicate by their duly authorized representatives.
CLEAN DIESEL TECHNOLOGIES, INC. ENGELHARD CORPORATION
By: By:
------------------------------ ------------------------------
Name: James M. Valentine Name:
---------------------------- ----------------------------
Title: Chief Operating Officer Title:
--------------------------- ---------------------------
Date: Date:
---------------------------- ----------------------------
NALCO FUEL TECH
By:
------------------------------
Name:
----------------------------
Title:
---------------------------
Date:
----------------------------
Exhibit 10o
The omitted portions indicated by brackets have been separately filed with
the Securities and Exchange Commission pursuant to a request for
confidential treatment under Rule 406, promulgated under the Securities Act
of 1933, as amended.
AGREEMENT
This Agreement is made this seventeenth day of December, 1997 by and
between Clean Diesel Technologies, Inc., a Connecticut corporation having
its principal place of business at 300 Atlantic Street, Suite 702,
Stamford, CT 06901-3522 USA (hereinafter referred to as "CDT") and AMBAC
International, a Delaware corporation, having its principle place of
business at 103 Myron Street, West Springfield, MA 01089 (hereinafter
referred to as "AMBAC").
RECITALS
WHEREAS, CDT and AMBAC have entered into a Non-Disclosure Agreement, dated
10 October 1997, and attached hereto as (Exhibit A), and
WHEREAS, said Non-Disclosure Agreement was concerned with the development,
production and application of a CDT Reagent Injection System, hereinafter
RIS; and
WHEREAS, CDT and AMBAC are desirous of working on a joint effort to cost
effectively design, manufacture and market the RIS; and
WHEREAS, CDT has the marketing capabilities to identify and to develop
various markets and application for the RIS; and
WHEREAS, CDT has opportunity to demonstrate an advanced system to industry,
and interested parties; and
WHEREAS, CDT has applied the present-state RIS technology to select
internal combustion engines, furnaces and boiler systems; and
WHEREAS, AMBAC has the technical, design, development skills and technology
to bring about an advanced system for use in over-the-road, as well as
stationary, diesel applications of the RIS; and
WHEREAS, AMBAC has the technical, manufacturing, and process skills to cost
effectively mass produce all or select components of the advanced RIS; and
WHEREAS, CDT and AMBAC desire to reduce their agreements to writing.
NOW, THEREFORE, in consideration of the premises, of the mutual covenants
herein contained, and of other good and valuable consideration, the receipt
and adequacy of which are hereby acknowledged, the parties hereby agree as
follows:
ARTICLE I
DEFINITIONS
1.1 Reagent Injection System - The term "RIS", (Reagent Injection System),
shall mean the concepts and embodiments of the systems for injection
of reagents into exhaust gases of internal combustion engines,
boilers, furnaces and heaters as designed and developed by CDT in
whole or in part based upon patents, patent application and know how,
owned or licensed by CDT as of the date of this Agreement. These
patents and applications are listed in Exhibit "B" entitled CDT RIS
PATENTS, attached hereto.
Advanced Reagent Injection Reduction System - The term "ARIS"
(Advanced Reagent Injection System), shall mean the concept and
embodiment of the system, for application to internal combustion
engines, furnaces, boilers and heaters, as will exist at the stage of
production-readiness, subsequent to the joint design, test, and
development efforts by CDT and AMBAC. The scope of the ARIS
development program shall be as identified in Exhibit C (Attached
hereto).
1.2 LICENSE AGREEMENT RESERVED
1.3 AMBAC. The term "AMBAC" shall mean AMBAC International, its
successors, assigns, and agents.
1.4 CDT. The term "CDT" shall mean Clean Diesel Technologies, Inc., its
successors, assigns, agents, and any subsidiaries or companies
controlled by Clean Diesel Technologies, Inc., i.e. ownership of more
than 50% of the voting stock.
1.5 The term "burdened engineering costs" shall mean costs in a range of
$45.00 to $60.00 per hour as of the date of this agreement and changes
to rates can be agreed upon at quarterly review meetings.
ARTICLE II
PARTIES
2.1 The Parties to this Agreement are Clean Diesel Technologies, Inc., a
Delaware Corporation, and AMBAC International, a Delaware Corporation.
ARTICLE III
DUTIES OF CDT AND AMBAC
3.1 CDT and AMBAC agree to jointly share all relevant information and
technology related to the cost effective design, prototype, test,
development, production release, manufacture, process development, and
distribution of the ARIS, to be applied to engines, boilers, furnaces
and heaters subject to the non-disclosure Agreement.
3.2 CDT and AMBAC agree to share marketing data relating to uses and
applications of the ARIS in whatever industry and wherever in the
world such marketing may be applicable subject to the terms of
confidentiality in Paragraph 11.1 below.
3.3 CDT and AMBAC agree to meet periodically, but no less often than every
three (3) months to update, share and exchange the following:
(a) Quantity of ARIS anticipated to be sold in various markets
during various calendar years; and
(b) Cost of producing the ARIS based upon the amortization of
the tooling-capital and Sales and Volume projections
developed in Section 3.3(a) above; and
(c) Cost of AMBAC burdened development engineering expenses
expended in the development of a cost effective and readily
manufactured ARIS; and
(d) Proposals of an Action Plan to meet the objectives of large
volume-low cost supplier of ARIS based upon jointly
developed cost-volume objectives;
ARTICLE IV
DUTIES OF CDT
4.1 CDT will be responsible for the following tasks:
(a) Timely Provision to AMBAC of Performance Specifications,
Initial Drawings, Test and Acceptance Criteria, known
material incompatibilities, BOMs, target cost, etc., for the
ARIS.
(b) Coordinating the ARIS demonstration to interested industry
observers.
(c) Technical assistance to AMBAC on operation and testing of
the ARIS.
(d) Technical and physical descriptions of standard components
previously used in engine and boiler applications that are
intended to be used in the ARIS, i.e., feed pumps, valving,
piping, etc.
ARTICLE V
DUTIES OF AMBAC
5.1 AMBAC will be responsible for the following tasks:
(a) Definition, design, development, and documentation of
components configuration -- incorporating, as much as is
possible, standard components as used in previous
installations -- that result in a system capable of injecting
urea-based reagents per specification through an injector
that will lend itself to actuation by engine management
control or other auxiliary controllers.
(b) Definition of the optimum mix of tooling and automation to
achieve the cost-volume targets established by CDT and
AMBAC.
(c) Actively participate in the concurrent engineering efforts
to assure optimum producibility of the ARIS.
(d) Submission to CDT of a full review of proposed design for
the purpose of concurrence prior to manufacture of prototype
samples.
(e) Develop and sell to CDT, prototype/test "samples" at
"out-of-pocket" (burdened) cost, whether such samples are
procured internal to AMBAC or from an external supplier.
AMBAC will expend its best effort to make the first samples
available on or before February 15, 1998. Samples will be
representative of "Production Intent" units.
ARTICLE VI
DEVELOPMENT COST SHARING
6.1 Each party to this Agreement will be responsible for its own share of
the development cost, with the following qualification: If prior to
December 31, 2002, should CDT source manufacturing of the ARIS from
another entity, not AMBAC, for reasons not related to any inability on
the part of AMBAC to execute competitive production manufacturing, CDT
will reimburse, fifty (50%) percent of AMBAC's burdened Engineering as
reported in Section 3.3(c) of this Agreement. The engineering costs
will be those costs expended and reported from the date this Agreement
is signed until the Agreement is terminated in accordance with Section
VIII or until 31 December 2000, whichever shall first occur. The
payment will be made within sixty (60) days after the effective date
of the termination with CDT reserving the right to audit such charges;
however, upon mutual written consent, these engineering costs may be
paid as royalty payments additional to those as described under
Section 7.1(a) of this Agreement.
ARTICLE VII
ROYALTY PAYMENTS AND LICENSE FEES
7.1 CDT and AMBAC are committed to a "WIN-WIN" program and therefore there
will be no Royalty or License fees payable to or from either company
for any technology jointly or separately developed from the date of
this Agreement until its termination unless the following occurs:
(a) If CDT is required to develop another company to manufacture
the ARIS and such need to develop another company is not due
to any inability of AMBAC to execute competitive production
manufacturing, then CDT shall compensate AMBAC in the
following manner for a three (3) year period:
[ ]% of sales price if sold by CDT or
[ ]% of CDT's Negotiated Royalty if licensed to a
manufacturer.
In the above cases AMBAC shall grant to CDT a worldwide
license to manufacture the ARIS using any and all technology
developed by AMBAC for production of the ARIS.
(b) If CDT is required to develop another company to manufacture
the ARIS and such need to develop another company is due to
any inability of AMBAC to execute competitive production
manufacturing, other than unit cost, then CDT shall not be
required to compensate AMBAC and AMBAC shall grant to CDT a
rent-free, exclusive, worldwide license to manufacture the
ARIS using any and all technology developed by AMBAC for
production of the ARIS. Such technology shall be used by CDT
or its sub-contractor, agent, or assign only for the
purposes of manufacturing the ARIS.
(c) After five years, or earlier, upon mutual written agreement,
AMBAC shall be permitted to use the ARIS for all of the
applications that shall have been developed by AMBAC and
first disclosed to CDT subject to the following Royalty
schedule:
[ ]% royalty of AMBAC sales price will be payable to CDT.
(d) If CDT is unable to grow the production volume of the ARIS
as per the Production volume below, or has not released
AMBAC as per 7.1 (c), above, AMBAC shall be permitted to use
ARIS for all applications that shall have been developed by
AMBAC, subject to the Royalty schedule of 7.1 (c).
Calendar Year Production Volume
------------- -----------------
2000 [ ]
2001 [ ]
2002 [ ]
7.2 PATENTS. CDT shall retain all patent rights to the ARIS and any
patents, applications or licenses as of the date of this agreement.
Any patent or improvement that is independently developed by either
company during the term of this Agreement and specifically related to
the ARIS, shall be the Intellectual Property of the developer and said
developer will grant non-exclusive, no-cost, worldwide cross license
to such intellectual property for use on the ARIS to the
non-developing party, subject to terms under 7. 1.
ARTICLE VIII
TERM AND TERMINATION OF AGREEMENT
8.1 TERM. The term of this Agreement shall continue until 3 November 2002,
unless terminated earlier in accordance with this Article. Nothing in
this Article shall be interpreted as precluding this Agreement from
being renewed and extended beyond the Termination Date.
8.2 TERMINATION FOR BANKRUPTCY. Either party shall have the right, at its
option, to terminate this Agreement by giving notice to the other
party at least ten (10) business days before the termination is to be
effective, if:
(1) The other party shall be adjudicated or become bankrupt or
insolvent as that term is defined in 11 USC Section 101(32);
(2) The other party shall file a voluntary petition under any
bankruptcy, reorganization, or insolvency law;
(3) The other party shall apply for or consent to appointment of
a trustee or receiver to take possession of all or
substantially all its assets;
(4) The other party shall consent to, or shall file an answer
admitting the jurisdiction of the court and the material
allegations of, an involuntary petition filed under any
bankruptcy, reorganization, or insolvency law;
(5) Any proceedings of bankruptcy, reorganization, or insolvency
shall be commenced against the other party and not be
dismissed within 30 calendar days after commencement;
(6) The other party shall make any assignment for the benefit of
creditors, or other arrangement or composition under any
laws for the benefit of insolvent's;
(7) Any order shall be entered under any bankruptcy,
reorganization, or insolvency law of any jurisdiction, and
shall not be dismissed or stayed within thirty (30) calendar
days after its entry (a) approving an involuntary petition
seeking an arrangement with the creditors of the other
party, (b) approving an involuntary petition seeking
reorganization, or (c) appointing any receiver or trustee of
all or a substantial part of the property of the other
party;
(8) A trustee or receiver shall be appointed to take possession
of all or substantially all assets of the other party and
shall not be dismissed within thirty (30) calendar days
after appointment; or
(9) Any writ of attachment, garnishment, or execution shall be
levied against all or substantially all assets of the other
party, or all or substantially all assets of the other party
shall be subject to any attachment, garnishment, execution,
or other judicial seizure, and shall not be removed,
released, or bonded within thirty (30) calendar days after
the date of the attachment, garnishment, execution, or other
judicial seizure.
8.3 TERMINATION BY MUTUAL AGREEMENT. This Agreement shall terminate upon
written agreement of all parties to this Agreement to terminate. The
Termination shall be effective upon the date the Termination is signed
or as may be mutually agreed.
ARTICLE IX
RIGHTS AFTER TERMINATION
9.1 EFFECT OF TERMINATION. Upon termination or expiration of this
Agreement each party shall:
(a) Return to the other party all Proprietary information; and
(b) Return all Promotional Material.
9.2 OPEN PURCHASE ORDERS. AMBAC shall promptly complete and deliver all
Purchase Orders which are open at the date of termination or
expiration of this Agreement.
9.3 SURVIVAL. The following Articles shall survive the Termination of this
Agreement.
ARTICLE X INDEMNIFICATION; ARTICLE XI INTELLECTUAL PROPERTY-
CONFIDENTIALITY; ARTICLE VI DEVELOPMENT COST SHARING; ARTICLE VII
ROYALTY PAYMENTS AND LICENSE FEES.
ARTICLE X
INDEMNIFICATION
10.1 In the event that a product liability action or proceeding is brought
against AMBAC or CDT related to ARIS or any application using the
ARIS, each party shall as promptly as practical, forward to the other
party every summons and complaint and hereby gives the other party the
right to inspect every other court document received by it, and if the
other party is a named party in the action, in no event shall the
party take action of settlement without the prior notification of the
other party of such proposed action followed by a reasonable period of
time, not to exceed ten (10) calendar days to allow the other party to
respond to such notification.
10.2 The parties shall promptly notify the other of any potential
performance or safety-related defect in the ARIS or in any application
that may use the ARIS in any manner whatsoever.
ARTICLE XI
INTELLECTUAL PROPERTY - CONFIDENTIALITY
11.1 Each party (the "Recipient Party") acknowledges that the other party
(the "Disclosing Party") may disclose Information to the Recipient
Party which is reduced to writing and marked proprietary or
confidential within thirty (30) days of disclosing to the Disclosing
Party or other parties ("Proprietary Information"). The Recipient
Party agrees to maintain in confidence and not to disclose to any
party or reproduce or use except for the purpose of this Agreement any
such Proprietary Information, except with the written consent of the
Disclosing Party. The foregoing restriction on use and disclosure of
the Proprietary Information will not apply:
(a) If the information was generally available to the public at
the time of disclosure;
(b) If the information is already a written record in Recipient
Party's files prior to its receipt, under circumstances
permitting its disclosure by Recipient Party to other;
(c) If Recipient Party at any time lawfully obtains said
Information from a third party under circumstances
permitting its disclosure by Recipient Party to others;
(d) If the Information becomes part of the public domain through
no fault of Recipient Party; or
(e) After two (2) years from the termination of this Agreement.
Upon any termination of this Agreement all proprietary
Information in the Recipient Party's possession shall be
returned to the Disclosing Party at the request of
Disclosing Party.
ARTICLE XII
TECHNICAL ASSISTANCE
12.1 CDT shall provide at its sole discretion any technical assistance,
information and or materials that may be reasonably required for
servicing, operating, and installing the ARIS.
12.2 CDT shall determine when the ARIS may be marketed and/or sold.
12.3 CDT, the OEM (if any), distributor or licensed agent, will be
responsible for the cost of any application engineering that may be
required for the application of the ARIS to internal combustion
engines or boilers or heaters or furnaces.
12.4 CDT may request AMBAC to perform certain application engineering
tasks, at a cost to be negotiated.
ARTICLE XIII
MISCELLANEOUS
13.1 FORCE MAJEURE. Any delay or failure of either party to perform its
obligations hereunder shall be excused if, and to the extent that it
is caused by an event or occurrence beyond the reasonable control of
the party and with its fault or negligence, such as, by way of example
and not by way of limitation, acts of God, actions by a governmental
authority (whether valid or invalid), fires, floods, windstorms,
explosions, riots, natural disasters, wars, sabotage, labor problems
(including lockouts, strikes and slowdowns), inability to obtain
power, material, labor equipment or transportation, or court injunction
or order; provided that written notice of such delay (including the
anticipated duration of the delay) shall be given by the affected
party to the other party within ten (10) days. During the period of
such delay or failure to perform by AMBAC, CDT at its option, may have
the services to be performed by AMBAC hereunder performed by another
party without liability to AMBAC. If requested by CDT, AMBAC shall,
within ten (10) days of such request, provide adequate assurances that
the delay shall not exceed thirty (30) days. If the delay lasts more
than thirty (30) days or AMBAC does not provide adequate assurance
that the delay will cease within thirty (30) days, CDT may immediately
cancel this Agreement without liability. In the event such a period is
experienced by CDT, wherein CDT is unable for reasons as stated above,
to accept delivery on ordered and scheduled shipments, AMBAC, at its
option, may produce such ordered and scheduled material, storing such
undelivered material in a suitable location of its choice, invoking an
inventory carrying charge calculated as Sales Price X 10% / 365 days X
number of days beyond 30 days delay in shipment.
13.2 RESERVED
13.3 RESERVED
13.4 ADVERTISING. AMBAC shall not, without first obtaining the written
consent of CDT, in any manner advertise or publish the fact that AMBAC
has contracted to furnish the goods herein ordered, or use any
trademarks or trade names of CDT in AMBAC's advertising or promotional
materials. Neither party shall, without first obtaining the written
consent of the other party, advertise or publish, in any manner, that
AMBAC has contracted with CDT to furnish the goods which are the
subject matter of this Agreement. CDT shall not advertise the product
until authorized in writing by AMBAC, which mutual authorizations
shall not be unreasonably withheld.
13.5 RELATIONSHIP OF PARTIES. CDT and AMBAC are independent contracting
parties and nothing herein contained shall be construed to create a
partnership, employment, joint venture or agency, and neither party
shall be liable for the debts, obligations or responsibilities of the
other. It is expressly agreed that neither party shall have any
authority to assume or create any obligation or responsibility,
express or implied, on behalf of or in the name of the other party or
to bind the other party in any manner.
13.6 NOTICES. Any notice permitted or required under this Agreement shall
be deemed to be given when sent if such notice shall be in writing and
personally served, mailed by registered or certified air mail, postage
prepaid evidenced by post office receipt of said registration or
certification, or transmitted by electronic facsimile transfer with
written confirmation personally served or mailed as heretofore
provided to the addresses of the parties as follows:
To CDT at: Clean Diesel Technologies, Inc.
Attn.: Jim Valentine, TJ Tarabuski
300 Atlantic Street
Suite 702
Stamford, CT 06901-3522
(203) 327-7050
To AMBAC at: AMBAC International
Attn.: Gary Mistalski
103 Myron Street
West Springfield, MA 01089
(413) 785-6861
Any party may change its address for purposes of this notice provision
by giving the other parties written notice of the new address in the
manner set forth above.
13.7 SUCCESSORS OF PARTIES. This Agreement shall be binding on, and shall
inure to the benefit of the parties to it and their respective heirs,
legal representatives, successors, and assigns.
13.8 ASSIGNMENT. Neither party shall assign or delegate its obligations
under this Agreement without the others prior written consent and any
attempt to make such an assignment or delegation without such consent
shall be void.
13.9 NO IMPLIED WAIVER. The failure of either party at any time to require
performance by the other party of any provision of this Agreement
shall not in any way affect the right to require such performance at
any time thereafter nor shall the waiver by of either party of a right
hereunder or a breach of any provision of this Agreement constitute a
continuing waiver or waiver of a right or similar breach. No waiver
shall be binding unless executed in writing by the party making the
waiver.
13.10 SEVERABILITY. If any term or provision hereof is declared void or
unenforceable or becomes unlawful in its operation under any statue,
regulation, ordinance, executive order or other rule of law, such term
or provision shall be deemed reformed or deleted, but only to the
extent necessary to comply with such statute, regulation, ordinance,
order or rule, and the remaining provisions of this Agreement, which
shall continue to be binding and remain in full force and effect.
13.11 GOVERNING LAW; ARBITRATION. This Agreement, its interpretation and
any disputes or controversies concerning the transactions contemplated
herein shall be governed by the internal substantive laws of Delaware
and determined in final, binding arbitration before a single
arbitration under the then rules of commercial arbitration of the
American Arbitration Association (the "AAA"), in Stamford,
Connecticut, if initiated by AMBAC, and in West Springfield,
Massachusetts, if initiated by CDT. The arbitrator shall have no power
to award consequential, statutory or punitive damages. Any award in
arbitration may be entered in and enforced by any court having
jurisdiction. Prior to commencement of arbitration proceedings, the
parties shall participate in a period of mediation of not more than
sixty (60) days under AAA rules.
13.12 HEADINGS. The headings of the articles and paragraphs of this
Agreement have been herein only to facilitate reference and shall not
be given any significance whatsoever in the construction and
interpretation of this Agreement.
13.13 EXHIBITS APPENDED. There have been approved, appended, and made a
part of this Agreement the following exhibits: "A" Non-Disclosure
Agreement; "B", CDT Patents; "C" Scope of ARIS Development Program. In
the event of any conflict, the provisions set forth in the body of
this Agreement shall be deemed paramount.
13.14 ENTIRE AGREEMENT. This Agreement, together with any attachments,
exhibits, or supplements, specifically referencing in this Agreement,
constitutes the entire Agreement between CDT and AMBAC pertaining
to the subject matter hereof. All prior and contemporaneous
agreements, representations, negotiations and understanding of the
parties, oral or written, are hereby superseded and merged herein.
Each party to this Agreement expressly warrants and represents to the
other that it has not relied upon any representation, inducement,
promise or agreement, oral or otherwise, by any party, or anyone
acting on behalf of any party, which is not embodied herein. No
modification, waiver or amendment of this Agreement shall be binding
unless fully executed in writing and signed by an authorized
representative of each of the parties hereto.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed,
in duplicate, by their duly authorized representatives.
DATED: 18TH DECEMBER 1997
CLEAN DIESEL TECHNOLOGIES, INC. AMBAC INTERNATIONAL
BY: /S/JIM VALENTINE BY: /S/GARY MISTALSKI
JIM VALENTINE GARY MISTALSKI
TITLE: CHIEF OPERATING OFFICER TITLE: GENERAL MANAGER
WEST SPRINGFIELD
<PAGE>
Exhibit A to
Agreement
CONFIDENTIALITY AGREEMENT
This Confidentiality Agreement (hereinafter referred to as ("Agreement") is
entered into by and between
CLEAN DIESEL TECHNOLOGIES, INC.
300 Atlantic Street
Suite 702
Stamford, CT 06901-3522 USA
(hereinafter referred to as "CDT") and
AMBAC INTERNATIONAL
103 Myron Street
West Springfield, Massachusetts 01089
(hereinafter referred to as "AMBAC")
both parties together hereinafter referred to as "Parties" or individually
hereinafter referred to as "Party."
PREAMBLE
WHEREAS, CDT is in the business of designing, developing, and marketing
urea based selective catalytic reduction systems (SCR) and related devices
and reagents for the transportation and stationary power industries; and
WHEREAS, AMBAC amongst others is engaged in the business of design,
developing, manufacturing, sale, and distributing diesel fuel injection
products; and
WHEREAS, the Parties are interested to evaluate a business relationship in
which CDT develops (independently or jointly with AMBAC), designs, and
supplies to AMBAC certain selective catalytic reduction concepts, ideas,
and strategies which utilize AMBAC fuel injection equipment as is or with
slight variation, and CDT intends to market such systems; and
WHEREAS, the Parties are interested, but not obligated to exchange certain
Information (defined herein) pertinent and necessary to the conduct of the
Party's stated business relationship. Such "Information" may take the form
of drawings, electronic data, product or program descriptions; layouts or
renderings; timing or planning schedules; samples, parts, components or
systems; cars, models or prototypes; development, procedures,
specifications or standards; visual or audiovisual media; and/or any other
type of information, inclusive business or operational secrets; methods or
inventions; and
WHEREAS, the receiving Party agrees to maintain the confidentiality of such
Information.
NOW THEREFORE, the Parties hereto agree to the following:
1. The purpose of this Agreement is to avoid transfer and disclosure of
any of the Information so obtained/gathered and of further
developments and copies thereof, to any third party, when the
Information has been obtained
- in the form of hard copies and clearly marked as confidential or as
legally protected or
- in any other form; e.g., data communication line or in any verbal
discussion and stated as confidential or legally protected by the
disclosing Party in a written form within 15 working days after
disclosure. Information received in this way shall, within the above
period, be treated as confidential by the receiving Party.
2. Such Information must be used exclusively for the purposes set out in
the provisions of the preamble. It shall be made accessible to the
personnel of the receiving Party only insofar as required for such
purposes, and shall be disclosed to third parties only after receipt
of the prior written consent of the Party initially providing the
Information.
3. Subsequent to obtaining prior written consent from the disclosing
Party to transfer/disclose certain limited Information to a specified
third party for a clearly defined purpose, the receiving party may
forward it only after receipt of written confirmation from such third
party that it will avoid any further transfer/disclosure to any other
third party and will use the Information only for such defined purpose
and in accordance with the terms of this Agreement.
4. The obligation of nondisclosure is not applicable to Information,
- which is or becomes generally known other than by violation of this
Agreement or
- which is made available to the receiving Party by a third party, who
was not subject to an obligation of nondisclosure and other than by
violation of this Agreement or
- of which the receiving Party can prove that it was already in
possession prior to the effective date of this Agreement or of which
it can prove independent development after the effective date.
5. The Receiving Party of any Information hereunder agrees to handle
Information with the same care it uses to avoid disclosure,
publication, or circulation of any other type of its own information,
documents, drawings, electronic data, descriptions, layouts,
renderings, schedules, samples, parts, components, systems, models,
prototypes, developments, procedures, specifications, standards,
visual/audiovisual media, methods, business/operational secrets, or
inventions, which are confidential.
6. Neither of the Parties will derive rights from Information received,
even if such rights are legally justified. All rights are reserved to
each of the Parties, particularly insofar as the right to obtain
patents and utility patents for their own inventions is concerned.
Rights to Information disclosed are limited to such rights explicitly
agreed herein, additional rights such as license right, copyright,
right of use and others are not granted, regardless of whether any
valid patent rights exist or not.
7. a. An obligation to disclose Information is not agreed herein.
b. Nothing contained herein shall be construed as granting any
intellectual property rights except as expressly provided herein.
c. Nothing in this Agreement shall be construed as obligating either
Party to enter into a business arrangement with the other. Any such
arrangement, and the terms and conditions thereof shall be agreed upon
separately.
d. Nothing in this Agreement shall preclude either Party from entering
into a similar relationship with a third party.
8. This Agreement becomes effective when it is executed by both Parties
to this Agreement. It will expire three (3) years after the last date
of execution, unless this Agreement is previously terminated by either
Party hereto by giving the other Party at least three (3) months'
advance notice of such termination in writing.
9. With respect to any Information disclosed by either Party hereto to
the other Party during the term of this Agreement, the obligations and
restrictions set forth in clauses I - 5 above against the transfer,
disclosure, and use of such Information shall end seven (7) years
after disclosure of such Information and shall survive any expiration
or termination of this Agreement prior to the end of such period.
10. Upon request of the disclosing Party, any Information received shall
be returned without undue delay at any time such a request has been
received and automatically if the Agreement has been terminated. Any
transcriptions, copies, records, and further developments thereof
shall be destroyed or erased from any Data Processing system or media.
Evidence of compliance hereof shall be provided by the receiving party
upon written request of the disclosing Party.
11. All agreements between the Parties are Included in this Agreement.
Additional verbal agreements have not been made. Changes of and
supplements to this Agreement must be agreed to in writing by both
Parties to become effective, including any deviation from the
aforementioned form requirement.
12. If single provisions of this Agreement shall be or become invalid or
unenforceable, the remaining provisions shall continue in full force
and effect. The parties shall in this event be obliged to accept as
the replacement for the invalid provision a valid provision which
corresponds as far as possible to the spirit and the purpose of the
invalid provision.
13. The parties will work together in good faith to remedy any
difficulties which may arise in connection therewith. In the event
disputes do arise in connection with the Agreement which the Parties
are unable to settle amicably, the dispute shall be finally settled by
arbitration in accordance the then effective Rules of The American
Arbitration Association by one arbitrator appointed in accordance with
such Rules. The place of proper venue is Hartford, Connecticut, unless
otherwise agreed to in writing by the Parties.
14. This Agreement is executed in two counterparts, each of which shall be
deemed an original.
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement through
their duly authorized personnel on the dates set forth below. Each party
received one original version of this Agreement.
For: For:
CLEAN DIESEL TECHNOLOGIES, INC. AMBAC INTERNATIONAL
Name: Name:
-------------------------- --------------------------
Title: Title:
-------------------------- --------------------------
Date: Date:
-------------------------- --------------------------
<PAGE>
Exhibit B to
Agreement
(A) U. S. PATENT APPLICATION
Reducing NOx Emissions from an Engine by Temperature-Controlled Urea
Injection for Selective Catalytic Reduction
J. D. Peter-Hoblyn, E. N. Balles, J. E. Hofmann, T. J. Tarabulski
(Application submitted April 2, 1997)
(B) U. S. PATENT APPLICATION
Reducing NOx Emissions from an Engine While Maximizing Fuel Economy
T. J. Tarabulski
(Application submitted April 4, 1997)
<PAGE>
Exhibit C to
Agreement
SCHEMATIC DIAGRAM OF ARIS(TM)
Exhibit 10q
SUPPLEMENTAL AGREEMENT TO BRIDGE LOAN AGREEMENT
Supplemental Agreement dated as of July 10, 1999 ("this Agreement") to
Bridge Loan Agreement dated as of May 8, 1998 (the "Loan Agreement") among
Clean Diesel Technologies, Inc., a Delaware corporation (the "Company"),
the Lenders under the Loan Agreement and the Lenders who have agreed to
become parties hereto as set forth on the attached signature pages, (all
such Lenders being referred to collectively herein as the "Lenders").
Article 1.0
Definitions; Terms and Conditions
1.1 Definitions; Terms and Conditions: Rights and Obligations. The
definitions and the terms and conditions set forth in the Loan Agreement
shall be applicable to this Agreement as if fully set forth herein and,
unless expressly set forth herein to the contrary, the rights and
obligations of the Company and the Lenders in this Agreement shall be
identical to those set forth in the Loan Agreement.
Article 2.0
Supplemental Loan
2.1 Additional Loan; Purpose. The Loan Agreement is hereby amended to
provide that the original principal amount of the Loan of One Million Two
Hundred Fifty Thousand Dollars (U.S. $1,250,000.00) shall be increased and
supplemented by an addition to the Loan of up to Seven Hundred Fifty
Thousand Dollars (U.S.$750,000.00) (the "Supplemental Amount") for a total
aggregate amount of Loan of Two Million Dollars (U.S. $2,000,000.00) (the
"Total Loan"). The purpose of the Supplemental Amount shall be the same as
set forth in the Loan Agreement.
2.2 Supplemental Lending. The Lenders by their execution of signature pages
to this Agreement agree to lend to the Company and the Company agrees to
borrow the amounts set forth on such signature pages hereto as each
Lender's respective Commitment hereunder and the Company shall deliver and
the Lenders shall accept a Note in form similar to Exhibit B of the Loan
Agreement evidencing the lending of each such Commitment.
Article 3.0
Consents; Security Agreement and Security Interest
3.1 Consents. The several Lenders under the Loan Agreement consent to the
lending by the Lenders hereunder of the Supplemental Amount and to the
participation by the Lenders hereunder in the benefits of the Loan
Agreement and Security Agreement, as amend, for so long as the Loan and the
Total Loan shall be outstanding.
3.2 Amendment of Security Agreement: Supplemental Financing Statement. The
Company and the Lenders agree that the lien created by the Security
Agreement, as amended, shall secure the Total Loan actually made for so
long as it shall be outstanding and the Security Agreement be, and it
hereby is amended, to provide that the Loan as defined therein shall be a
sum equal to the Total Loan actually made and that a supplemental financing
statement be filed to reflect such amendment.
3.3 Amendment of Conversion Limit. The limit of conversion of the Notes to
Series A Convertible Preferred Stock, par value $0.05 per share, of the
Company (the "Series A Stock") set forth in ss.3.1 of the Loan Agreement
be, and it hereby is amended, to read 4,000.
3.4 Waiver of Conversion. The Lenders hereby waive their right to
voluntarily convert the Notes to Series A Stock until the earlier of (1)
January 31, 1999 or (2) completion by the Company of a private or public
sale of equity securities, including rights to acquire securities, of the
Company pursuant to which the Company shall receive or be entitled to
receive, net of the expenses and fees, discounts and commissions of lenders
or investors, underwriters, placement agents and brokers or finders,
proceeds of at least U.S. $1,750,000.00.
IN WITNESS WHEREOF, the parties hereto have caused this Supplemental
Agreement to be duly executed by their representatives thereunto duly
authorized, all as of the date first above written.
CLEAN DIESEL TECHNOLOGIES, INC.
By: /s/ James M. Valentine
----------------------
(Vice) President
PLATINUM PLUS, INC.
By: /s/ Charles W. Grinnell
-----------------------
(Vice) President
S G ASSOCIATES LIMITED
As Agent for the Remaining
Lenders under Loan Agreement
By: -----------------------
Managing Director
The undersigned by its representative thereunto duly authorized does hereby
execute and deliver this Supplemental Agreement dated as of July 10, 1998
to Bridge Loan Agreement dated as of May 8, 1998 and designates the amount
set forth below as its Commitment under such Agreement.
Amount of Commitment: $ 150,000 (one hundred and fifty thousand US dollars)
(Name of Lender) POSITIVE SECURITIES LIMITED
31 The Parade, St. Helier
Jersey JE2 3QQ, Channel Islands
By:
------------------------
Authorized Agent
Exhibit 10r
SECOND SUPPLEMENTAL AGREEMENT TO BRIDGE LOAN AGREEMENT
Second Supplemental Agreement dated as of August 3, 1998 to Bridge
Loan Agreement dated as of May 8, 1998 (the "Loan Agreement") among Clean
Diesel Technologies, Inc., a Delaware corporation (the "Company"), the
Lenders under the Loan Agreement and the Lenders who have agreed to become
parties thereto pursuant to the Supplemental Bridge Loan Agreement dated as
of July 10, 1998 (collectively, the "Lenders").
Article 1.0
Parri Passu Status with Other Convertible Preferred Stock
1.0. The undersigned Lenders hereby acknowledge and agree with the Company
and one another that, if and when any Lenders' Bridge Loan Note is
converted into Shares of Series A Convertible Preferred Stock, such Series
A convertible Preferred Stock will be treated parri passu in all respects,
upon a liquidation, dissolution or winding up of the Company, with ( i) the
Series B Convertible Preferred Stock that the Company proposes to issue and
(ii) any other class or series of Preferred Stock issued by the Company
which by its terms will be treated pari passu with the Series A Convertible
Preferred Stock and which is approved by the holders of at least 60% of the
shares of Series A Convertible Preferred Stock pursuant to Section
13(c)(ii) of the Certificate of Designation relating to the Series A
Convertible Preferred Stock.
IN WITNESS WHEREOF, the parties hereto have caused this Second Supplemental
Agreement to be duly executed by their representatives thereunto duly
authorized, all as of the date first above written.
CLEAN DIESEL TECHNOLOGIES, INC.
By: /s/ C.W. Grinnell
-----------------
(Vice) President
PLATINUM PLUS, INC.
By: /s/ S.M. Schecter
-----------------
(Vice) President
S G ASSOCIATES LIMITED
As Agent for the Remaining
Lenders under the Loan Agreement
and the Supplemental Loan Agreement.
By: /s/ D.R. Gray
-------------
Managing Director
Exhibit 10s
EMPLOYMENT AGREEMENT
AGREEMENT made as of the date set forth below by and between Jeremy D.
Peter-Hoblyn of Lamellen, Tudy, St. Bodmin, Cornwall, England ("Employee")
and Clean Diesel Technologies, Inc., a Delaware corporation (the
"Company"), having a place of business at Suite 702, 300 Atlantic Street,
Stamford, CT 06901.
WHEREAS, the Company desires certain services for itself and Employee
desires to contract with the Company to perform such services;
NOW THEREFORE, in consideration of the mutual covenants hereinafter
recited, the sufficiency of which is hereby acknowledged, the parties
hereto agree as follows:
1. Term: This Agreement shall commence on the date of grant to
Employee of a United States L-1 visa and shall continue thereafter until
terminated by either party as provided below.
2. Scope of Work; Title: Employee shall be appointed as the
President and Chief Executive Officer of the Company. The Company shall
also during the term of this agreement cause Employee annually to be
nominated as a director of the Company. In such employment, Employee shall
on a full-time basis direct all of his efforts toward the performance of
such duties as shall be assigned to him by the Board of Directors of the
Company acting through its Chairman. "Full time" shall mean no other
substantial outside business activities.
3. Salary; Benefits: The Company agrees to cause Employee to be
paid for his services hereunder at the rate of US$250,000.00 per year.
Employee to be paid such amounts by the Company according to its normal and
customary procedures from time to time in effect but not less often than
monthly. Employee shall be entitled to participate from time to time in
such benefit programs, or equivalent, as shall have heretofore been
extended to him by the Company's predecessor, Fuel-Tech N.V. or its
affiliates. Additionally, the Company shall expend up to $50,000 for the
annual premium for a U.K. based annuity for you (less such amounts as you
may receive from the Company's 401K or profit sharing plans). This
agreement may not be construed to prevent the Company from rescinding any
such other benefit programs for Employee so long as such rescission applies
to officers as a class.
4. Expenses: Employee shall be reimbursed by the Company for all
ordinary and necessary out-of-pocket expenses incurred by Employee in
performing his services hereunder. Such expenses to be reported from
time-to-time by Employee on the Company's customary forms of expense report
and submitted for approval to the Chairman of the Board of the Company.
5. Termination of Employment: (a) Just Cause. The Company may at
any time terminate this agreement for Just Cause. Just Cause shall mean
conviction of the employee under, or a plea of guilty by the Employee to,
any charge which would constitute a felony under the laws of Connecticut;
any instance of fraud, embezzlement, self-dealing, insider trading or
similar malfeasance with respect to the Company; or substance abuse which
shall, in the sole discretion of the Board of Directors of the Company,
limit Employee's performance of his duties.
(b) Disability. The Company may terminate this agreement
upon the physical disability of Employee, if the Directors shall determine
that, as a result of physical disability Employee has for a continuous
period of six months been substantially absent from his customary place of
work and unable to perform his customary duties.
(c) At Will. Either of Employee or Company may terminate
this agreement on written notice one to the other. Where Employee shall
terminate this agreement by resigning his employment, he shall provide
twelve month's written notice thereof to Company. Where Company shall
terminate this agreement, Company shall provide salary and benefit
continuation (in the amount and of the nature then enjoyed by Employee) to
the Employee month-to-month for a period of one year, or until Employee
shall sooner find other substantially comparable employment.
6. Discoveries and Inventions: (a) All patentable and
unpatentable inventions, discoveries and ideas which are made or conceived
by Employee during the term of his employment, and which are based upon or
arise out of Employee's services hereunder ("Developments") are or shall
become the Company's property. Employee agrees to disclose promptly to the
Company each such Development and, upon the Company's request and at its
expense, Employee will assist the Company, or its designee, in making
application for Letters Patent in any country in the world. Employee
further agrees to execute all papers and do all things which may be
necessary or advisable to prosecute such applications, and to transfer to
and vest in the Company, or its designee, all the right, title and interest
in and to such Developments, and all applications for patents and Letters
Patent issued thereon. If for any reason Employee is unable to effectuate a
full assignment of any such Development, Employee agrees to transfer to the
Company, or its designee, Employee's transferable rights, whether they be
exclusive or non-exclusive, or as a joint inventor or partial owner of the
Development. No action or inaction by the Company shall in any event be
construed as a waiver or abandonment of its rights to any such Development
except an instrument in writing assigned by an authorized official of the
Company by which it specifically states it intends to be bound in such
respect.
7. Proprietary Information: Employee will not at any time, either
during the term of this Agreement or thereafter, disclose to others, or use
for his own benefit or the benefit of others, any of the Developments or
any confidential, proprietary or secret information owned, possessed or
used by the Company or any of its subsidiaries or affiliates (collectively,
"Proprietary Information"), which, by way of illustration, but not
limitation, includes devices, structures, machines, data, know-how,
business opportunities, marketing plans, forecasts, unpublished financial
statements, budgets, licenses and information concerning prices, costs,
employees, customers and suppliers. Employee's undertakings and obligations
under this Paragraph 7 will not apply to any Proprietary Information which:
(a) is or becomes generally known to the public through no action on the
part of the Employee or (b) is generally disclosed to third parties by the
Company or any of its subsidiaries or affiliates without restriction on
such third parties. Upon termination of this Agreement or at any other time
upon request, Employee will promptly deliver to the Company all notes,
memoranda, notebooks, computer disks, drawings, designs, three dimensional
figures, photographs, layouts, diagrams, records, reports, files and other
documents (and all copies or reproductions of such materials) in his
possession or under his control, whether prepared by him or others, which
contain Proprietary Information. Employee acknowledges that this material
is the sole property of the Company or a subsidiary or an affiliate of the
Company.
8. Non-Competition: Following the termination of Employment for
any reason, Employee agrees that Employee will not recruit, entice, induce
or encourage any of the Company's other employees or consultants to engage
in any activity which, were it done by Employee, would violate any
provision of this Agreement. For a two-year period after termination of
employment Employee will not accept employment or provide consulting
services where such employment or services reasonably will involve the use
of Proprietary Information for the benefit of others or the divulging of
Proprietary Information. During such two-year period and before performing
any services for others, as employee or consultant or otherwise, in the
actual lines of business in which Employee has performed services for the
Company, its subsidiaries or affiliates, Employee will notify the Company
of the general nature of the services to be performed and the party for
whom they will be performed and Employee will, also, prior to undertaking
such service or employment inform the other party of the existence of this
covenant in this Agreement. Employee admits that breach of his covenants
hereunder regarding the Company's Proprietary information is likely to
cause serious economic injury to the Company.
9. Assignment: This Agreement may not be assigned by either party
without the prior written consent of the other party.
10. Continuing Obligations: The Employee's covenants set forth in
Sections 6, 7, and 8 above shall continue according to their terms
following the termination of this Agreement, and, notwithstanding the
provision for arbitration below, such covenants may at any time be
judicially enforced by the Company by injunction.
11. Governing Law; Arbitration. This agreement, any and all
disputes hereunder or the interpretation hereof or any claim by Employee
against the Company shall be governed by and interpreted under Connecticut
procedural and substantive law, and thirty (30) days after notice, shall be
determined solely by arbitration before a single arbitrator in Stamford,
Connecticut, under the employment rules of the American Arbitration
Association in effect as of the date of this agreement or otherwise agreed
by the parties. The arbitrator shall have no power or authority to award
exemplary or punitive damages or any statutory or compounded damages and
shall render his award in writing setting forth the basis of his
determination. The award of the arbitrator shall be based on the terms of
this agreement and the law. Such award shall be final and binding and may
be entered into and enforced in any Court having jurisdiction.
12. Exclusivity: The rights of Employee against the Company are
not limited in any way by this Agreement, and are not intended to be set
forth exclusively hereunder; provided, however, that any and all of
Employee's remedies with respect to such rights, shall be limited solely to
those available in arbitration hereunder. Employee's rights to salary
continuation are in lieu of any severance benefits provided under policies
of the Company from time to time in effect.
13. Waiver. The remedies of Employee hereunder have been entered
into as a matter of bargain and to the extent any provision of this
agreement is or may be construed as a waiver of employee's remedies,
Employee does hereby waive such remedies.
14. Notices. All notices hereunder shall be in writing and shall
be deemed effective upon receipt, if hand delivered or if sent by facsimile
and acknowledged electronically and confirmed by an original confirmation
copy mailed first class postage prepaid. Notices by mail or air-courier
service shall be deemed effective upon receipt, if sent first class postage
prepaid return receipt requested or by air-courier and the sender shall
obtain the signed receipt or confirmation of delivery by the courier
service. Otherwise, notices shall be deemed effective as of the fifth day
after transmission. In each case notices shall be transmitted to the
address first given above or such other address as may be given by notice
as provided herein.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
EMPLOYEE CLEAN DIESEL TECHNOLOGIES, INC.
/s/ Jeremy D. Peter-Hoblyn /s/ Charles W. Grinnell
- --------------------------------- -----------------------------------
Jeremy D. Peter-Hoblyn Charles W. Grinnell, Vice President
Date: December 2, 1996 Date: December 2, 1996
-------------------------- ----------------------------
Exhibit 10t
EMPLOYMENT AGREEMENT
AGREEMENT made as of the date set forth below by and between James M.
Valentine, 480 Hemlock Road, Fairfield, CT 06430 ("Employee") and Clean
Diesel Technologies, Inc., a Delaware corporation (the "Company"), having a
place of business at Suite 702, 300 Atlantic Street, Stamford, CT 06901.
WHEREAS, the Company desires certain services for itself and Employee
desires to contract with the Company to perform such services;
NOW THEREFORE, in consideration of the mutual covenants hereinafter
recited, the sufficiency of which is hereby acknowledged, the parties
hereto agree as follows:
1. Term: This Agreement shall commence on August 1, 1996, and shall
continue thereafter until terminated by either party as provided below.
2. Scope of Work: Title: Employee shall be appointed as the Executive
Vice President and Chief Operating Officer of the Company. The Company
shall also during the term of this agreement cause Employee annually to be
nominated as a director of the Company. In such employment, Employee shall
on a full-time basis direct all of his efforts toward the performance of
such duties as shall be assigned to him by the President and Chief
Executive Officer. "Full time" shall mean no other substantial outside
business activities.
3. Salary: Benefits: The Company agrees to cause Employee to be paid
for his services hereunder at the rate of US$220,000.00 per year. Employee
to be paid such amounts by the Company according to its normal and
customary procedures from time to time in effect but not less often than
monthly. Employee shall be entitled to participate from time to time in
such benefit programs as the Company may customarily extend to its officers
as a class. This agreement may not be construed to prevent the Company from
rescinding other benefit programs for Employee so long as such rescission
applies to officers as a class.
4. Expenses: Employee shall be reimbursed by the Company for all
ordinary and necessary out-of-pocket expenses incurred by Employee in
performing his services hereunder. Such expenses to be reported from time
to time by Employee on the Company's customary form of expense report and
submitted for approval of the Company.
5. Termination of Employment: (a) Just Cause. The Company may at any
time terminate this agreement for Just Cause. Just Cause shall mean
conviction of the employee under, or a plea of guilty by the Employee to,
any charge which would constitute a felony under the laws of Connecticut;
any instance of fraud, embezzlement, self-dealing, insider trading or
similar malfeasance with respect to the Company; or substance abuse which
shall, in the sole discretion of the Board of Directors of the Company,
limit Employee's performance of his duties.
(b) Disability. The Company may terminate this agreement upon the
physical disability of Employee. If the Directors shall determine that, as
a result of physical disability Employee has for a continuous period of six
months been substantially absent from his customary place of work and
unable to perform his customary duties.
(c) At Will. Either of Employee or Company may terminate this
agreement on written notice one to the other. Where Employee shall
terminate this agreement by resigning his employment, he shall provide
twelve month's written notice thereof to Company. Where Company shall
terminate this agreement, Company shall provide salary and benefit
continuation (in the amount and of the nature then enjoyed by Employee) to
the Employee month-to-month for a period of one year, or until Employee
shall sooner find other substantially comparable employment.
6. Discoveries and Inventions: (a) All patentable and unpatentable
inventions, discoveries and ideas which are made or conceived by Employee
during the term of his employment, and which are based upon or arise out of
Employee services hereunder ("Developments") are or shall become the
Company's property. Employee agrees to disclose promptly to the Company
each such Development and, upon the Company's request and at its expense,
Employee will assist the Company, or its designee, in making application
for Letters Patent in any country in the world. Employee further agrees to
execute all papers and do all things which may be necessary or advisable to
prosecute such applications, and to transfer to and vest in the Company, or
its designee, all the right, title and interest in and to such
Developments, and all applications for patents and Letters Patent issued
thereon. If for any reason Employee is unable to effectuate a full
assignment of any such Development, Employee agrees to transfer to the
Company, or its designee, Employee's transferable rights, whether they be
exclusive or non-exclusive, or as a joint inventor or partial owner of the
Development. No action or inaction by the Company shall in any event be
construed as a waiver or abandonment of its rights to any such Development
except an instrument in writing assigned by an authorized official of the
Company by which it specifically states it intends to be bound in such
respect.
7. Proprietary Information: Employee will not at any time, either
during the term of this Agreement or thereafter, disclose to others, or use
for his own benefit or the benefit of others, any of the Developments or
any confidential, proprietary or secret information owned, possessed or
used by the Company or any of its subsidiaries or affiliates (collectively,
"Proprietary Information"), which, by way of illustration, but not
limitation, includes devices, structures, machines, data, know-how,
business opportunities, marketing plans, forecasts, unpublished financial
statements, budgets, licenses and information concerning prices, costs,
employees, customers and suppliers. Employee's undertakings and obligations
under this Paragraph 7 will not apply to any Proprietary Information which:
(a) is or becomes generally known to the public through no action on part
of the Employee or (b) is generally disclosed to third parties by the
Company or any of its subsidiaries or affiliates without restriction on
such third parties. Upon termination of this Agreement or at any other time
upon request, Employee will promptly deliver to the Company all notes,
memoranda, notebooks, computer disks, drawings, designs, three dimensional
figures, photographs, layouts, diagrams, records, reports, files and other
documents (and all copies or reproductions of such materials) in his
possession or under his control, whether prepared by him or others which
contain Proprietary Information. Employee acknowledges that this material
is the sole property of the Company or a subsidiary or an affiliate of the
Company.
8. Non-Competition: Following the termination of Employment for any
reason, Employee agrees that Employee will not recruit, entice, induce or
encourage any of the Company's other employees or consultants to engage in
any activity which, were it done by Employee, would violate any provision
of this Agreement. For a two-year period after termination of employment
and before performing any services for others, as employee or consultant or
otherwise, in the actual lines of business in which Employee has performed
services for the Company, its subsidiaries or affiliates, Employee will
notify the Company of the general nature of the services to be performed
and the party for whom they will be performed and Employee will, also,
prior to undertaking such service or employment inform the other party of
the existence of this covenant in this Agreement Employee admits that
breach of his covenants hereunder regarding the Company's Proprietary
information is likely to cause serious economic injury to the Company.
9. Assignment: This Agreement may not be assigned by either party
without the prior written consent of the other party.
10.Continuing Obligations: The Employee's covenants set forth in
Sections 6, 7, and 8 above shall continue according to their terms
following the termination of this Agreement, and, notwithstanding the
provision for arbitration below, such covenants may at any time be
judicially enforced by the Company by Injunction.
11.Governing Law: Arbitration. This agreement, any and all disputes
hereunder or the interpretation hereof or any claim by Employee against the
Company shall be governed by and interpreted under Connecticut procedural
and substantive law, and thirty (30) days after notice, shall be determined
solely by arbitration before a single arbitrator in Stamford, Connecticut,
under the employment rules of the American Arbitration Association in
effect as of the date of this agreement or otherwise agreed by the parties.
The arbitrator shall have no power or authority to award exemplary or
punitive damages or any statutory or compounded damages and shall render
his award in writing setting forth the basis of his determination. The
award of the arbitrator shall be based on the terms of this agreement and
the law. Such award shall be final and binding and may be entered into and
enforced in any Court having jurisdiction.
12.Exclusivity. The rights of Employee against the Company are not
limited in any way by this Agreement, and are not intended to be set forth
exclusively hereunder; provided, however, that any and all of Employee's
remedies with respect to such rights, shall be limited solely to those
available in arbitration hereunder. Employee's rights to salary
continuation are in lieu of any severance benefits provided under policies
of the Company from time to time in effect.
13.Waiver. The remedies of Employee hereunder have been entered into
as a matter of bargain and to the extent any provision of this agreement is
or may be construed as a waiver of employee's remedies, Employee does
hereby waive such remedies.
14.Notices. All notices hereunder shall be in writing and shall be
deemed effective upon receipt, if hand delivered or if sent by facsimile
and acknowledged electronically and confirmed by an original confirmation
copy mailed first class postage prepaid. Notices by mail air-courier
service shall be deemed effective upon receipt, if sent first class postage
prepaid return receipt requested or by air-courier and the sender shall
obtain the signed receipt or confirmation of delivery by the courier
service. Otherwise, notices shall be deemed effective as of the fifth day
after transmission. In each case notices shall be transmitted to the
address first given above or such other address as may be given by notice
as provided herein.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
EMPLOYEE CLEAN DIESEL TECHNOLOGIES, INC.
/s/ James M. Valentine /s/ Jeremy D. Peter-Hoblyn
- ------------------------------ -----------------------------------
James M. Valentine Jeremy D. Peter-Hoblyn, President
Date: September 12, 1997 Date: September 12, 1997
------------------------ -----------------------------
Exhibit 12
CLEAN DIESEL TECHNOLOGIES, INC.
STATEMENT RE: COMPUTATION OF RATIO OF EARNINGS TO COMBINED FIXED CHARGES AND
PREFERRED STOCK DIVIDENDS
(in thousands)
<TABLE>
<CAPTION>
Years Ended December 31, March 31,
--------------------------------------------------------- -------------------------
Period Period
from from
January 1, January 1,
1992 1992
through through
December March 31,
1993 1994 1995 1996 1997 31, 1997 1997 1998 1998
-----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net loss(FN1) $131 $1,107 $2,024 $3,489 $3,764 $10,853 $961 $741 $11,594
Interest -- (1) (99) (60) (44) (204) (14) (11) (218)
Interest
portion of
rental
expenses -- -- -- (5) (5) (10) (1) (1) (11)
-----------------------------------------------------------------------------------------------------------
Adjusted loss 131 1,106 1,925 3,424 3,715 10,639 946 729 11,365
COMPUTATION
OF FIXED
CHARGES
Interest -- 1 99 60 44 204 14 11 218
Interest
portion of
rental
expenses -- -- -- 5 5 10 1 1 11
-----------------------------------------------------------------------------------------------------------
Total fixed
charges -- 1 99 65 49 214 15 12 229
-----------------------------------------------------------------------------------------------------------
Deficiency in
income to
cover fixed
charges $131 $1,107 $2,024 $3,489 $3,764 $10,853 $961 $741 $11,594
===========================================================================================================
<CAPTION>
Pro Forma-Full Pro Forma-Minimum
Subscription Subscription
---------------------------------------------
December March December March
31, 1997 31, 1998 31, 1997 31, 1998
---------------------------------------------
<S> <C> <C> <C> <C>
Net loss(FN1) $3,764 $741 $3,764 $741
Interest
expense (44) (11) (44) (11)
Interest
portion of
rental
expenses (5) (1) (5) (1)
---------------------------------------------
Adjusted loss 3,715 729 3,715 729
COMPUTATION
OF FIXED
CHARGES
Interest
expense 44 11 44 11
Interest
portion of
rental
expenses 5 1 5 1
Pro forma
interest on
bridge loans(FN2) -- -- 140 35
Series A
Preferred
stock
dividends(FN3)(4) 154 39 -- --
Series B
preferred
stock
dividends(FN3)(4) 408 102 220 55
---------------------------------------------
Total fixed
charges 611 153 409 102
---------------------------------------------
Pro forma
deficiency in
income to
cover
combined
fixed charges
and preferred
stock
dividends $4,326 $882 $4,124 $831
=============================================
<FN>
(1) Net loss does not include any income tax benefit or expense in any
period.
(2) Assuming Minimum Subscription of the Rights Offering, assumes that the
Bridge Loan notes do not convert into Series A Preferred Stock and that
interest is payable thereon at the rate of 10% per annum, as if they were
outstanding as of the beginning of each respective period.
(3) Assumes that dividends will be paid in kind and, accordingly, dividend
rate is calculated at 11% per annum, as if the preferred stock was
outstanding as of the beginning of each respective period.
(4) The Preferred stock dividend requirement has not been adjusted for
income taxes due to operating losses and tax loss carryforwards.
</FN>
</TABLE>
Exhibit 23a
Consent of Independent Auditors
We consent to the reference to our firm under the caption "Experts" and to
the use of our report dated February 26, 1998, in the Registration
Statement (Form S-1 No. 333-___) and related Prospectus of Clean Diesel
Technologies, Inc. for the registration of Rights to purchase 50,000 shares
of Series B Convertible Preferred Stock and the registration of such Series
B Convertible Preferred Stock and the registration of 1,650,000 Common
Shares.
/s/ Ernst & Young LLP
Stamford, Connecticut
August 4, 1998
