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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [NO FEE REQUIRED]
For the fiscal year ended: December 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from __________________ to ____________________
Commission File No. 0-27432
CLEAN DIESEL TECHNOLOGIES, INC.
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(Exact name of registrant as specified in its charter)
Delaware 06-1393453
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(State or other jurisdiction of (I.R.S. Employer
incorporation of organization) Identification Number)
Suite 702, 300 Atlantic Street
Stamford, CT 06901
(203) 327-7050
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(Address and telephone number of principal executive offices)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12 (g) of the Act:
Common Stock $0.05 par value per share
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(Title of Class)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.
Aggregate market value of the voting stock held by non-affiliates of the
registrant based on the average bid and asked prices of March 18, 1998:
$3,883,478.
Indicate number of shares outstanding of each of the registered classes of
common stock at March 18, 1998: 2,516,666 shares Common Stock, $0.05 par value.
Documents incorporated by reference:
Certain portions of the Proxy Statement for the annual meeting of stockholders
to be held in 1998 described in Parts II, III and IV hereof are incorporated by
reference in this report.
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Part I
Forward-Looking Statements
Statements in this Form 10-K which are not historical facts, so-called
"forward-looking statements," are made pursuant to the safe harbor provisions of
the Private Securities Litigation Reform Act of 1995. Investors are cautioned
that all forward-looking statements involve risks and uncertainties, including
those detailed in the Company's filings with the Securities and Exchange
Commission. See Item 1. "Business --- Risk Factors of the Business" and also
Item 7. "Management's Discussion and Analysis of Financial Condition and Results
of Operations."
Item 1. Business
General
The Company ("CDT"), a Delaware corporation with a principal place of
business at 300 Atlantic Street, Stamford, Connecticut 06901, is a development
stage specialty chemical company supplying 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
(PFC) 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.
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 1995 Rights Offering.
Fuel Tech retains 27.4% of the Company's outstanding stock. The Company's
technologies were acquired by assignment from Fuel Tech or developed internally.
Regulations
In the U.S., the Environmental Protection Agency ("EPA") has established
specific regulations under Title II of the Clean Air Act Amendments of 1990
("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 as of January 1995 and, beginning in 1998, there will be
new NOx level standards in place for urban buses and new diesel engines.
Additionally, in July 1995, the EPA, California Air Resources Board and major
diesel manufacturers signed a Statement of Principles directed towards
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. The EPA will review the progress of emission control technology in
1999 with a view towards further tightening of the 2004 limits. Industry experts
generally agree that an integrated systems approach will be needed to meet these
regulations, including the use of advanced engine design, reformulated fuel,
fuel additives and exhaust aftertreatment systems.
In 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. In September 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 is also working with states to develop 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.
Fiscal incentives are being introduced in Europe with the same objective
of hastening the introduction of technologies for new low-emission engines.
In 1997, the EPA issued proposed regulations for controlling emissions
from new and rebuilt diesel locomotive engines which call for reductions in NOx
emissions of 40-60% beginning in the year 2000.
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.
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In Europe, regulations have been published calling for more stringent
emissions levels from new diesel and gasoline vehicles in the year 2000 with
proposals for further tightening in the year 2005 under Euro III and Euro IV
programs. Japan has issued similar requirements.
Products and Markets
Markets for the PFC are the consumer aftermarket, including diesel and
gasoline fuel additives, truck and bus fleets, bulk fuel distributors and engine
manufacturers. Markets for the NOx reduction systems are engine manufacturers
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 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 as copper, iron,
manganese or cerium. The Company's test programs have shown the bimetallic
additive of platinum and cerium to be highly effective. 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 Holt Lloyd
International Ltd. ("Holt"), 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 Holt in
early 1997. The gasoline product is now on sale in several European markets as a
packaged product sold to consumers through major retail outlets and service
stations. Rollout in additional markets is planned through 1998 along with a
launch of the diesel product in selected markets.
Platinum Plus - The Americas
This market is not covered by the agreement with Holt. Discussions are in
progress with several potential partners for the distribution and marketing of
Platinum Plus in the Americas.
PFC for Particulate Traps and Catalytic Oxidizers
The most effective method of reducing diesel particulate (smoke) is by
particulate trap 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 new
levels of performance in both cases. This work was conducted in conjunction with
Lubrizol's Engine Control Systems subsidiary, a leading supplier of oxidizers
and traps. The Company also reached agreement in principle with Cummins Engine's
Advanced Technology Group to develop the applications of the PFC with oxidizers
and traps for a new generation of low-emission engines.
Independent tests of the Company's bimetallic fuel additive for gasoline
to improve the performance of aged automobile engine catalytic converters showed
a 20% reduction for nitrogen oxides, 20% for hydrocarbons ("HC") and 10% for
carbon monoxide ("CO") emissions after one treatment. Also, tests of the
Company's fuel additive/trap system conducted with an advanced Cummins diesel
engine design cut particulate emissions 90% while achieving a more than 50%
reduction in NOx in relation to current standards and met the year 2004 emission
limits for new engines.
In recent years, there has been a growing focus on the application of
particulate traps to control emissions from diesel engines. Indeed, the U.K.
Government announced in the November 1996 budget a substantial rebate in excise
duty for vehicles using particulate traps beginning January 1998. The PFC
significantly improve the performance of particulate traps. Cooperative programs
are under way with several suppliers of trap systems and are scheduled with
several European light-duty diesel engine manufacturers.
Premium Diesel
The use of PFC in both gasoline and diesel engines is showing a
consistent pattern of increasing the activity of catalytic surfaces and thus
increasing their lives and reducing emissions overall. In independent tests of
the
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Company's bimetallic (platinum and cerium) fuel additive on new diesel passenger
engines, a 25% reduction in particulate emissions was shown as well as
reductions in hydrocarbons of 35% and carbon monoxide of 11%. Other independent
tests have shown the additive to reduce particulate emissions from older
engines by up to 18%. Discussions are under way in the U.S., Europe and the
Pacific Rim with oil companies interested in the PFC for application across a
range of engines, fuels and markets. Significant fleet testing continues to
support premium diesel marketing efforts with oil companies.
Total Market for PFC
The total worldwide usage of diesel and gasoline fuels is in the order of
350 billion gallons per annum of which approximately 150 billion gallons are
diesel and 200 billion gallons are gasoline. At a projected treatment cost of
two cents (U.S.)/gallon of fuel, each 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 PFC are already registered in the U.S. and did not
strictly need to be registered in Europe, where there are no rules for testing
such additives, 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 is
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. Engine test results show that the amount of platinum
emitted from use of the Company's PFC is roughly equivalent to platinum
attrition from automotive catalytic converters.
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. and Europe. 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 for Heavy-Duty Diesel Engines
In December 1996, the Company agreed with Engelhard Corporation and Nalco
Fuel Tech to commercialize a system of Selective Catalytic Reduction (SCR) for a
manufacturer of power-generation diesels. The technology for this system
comprises a reagent metering and gasification unit (CDT/Nalco Fuel Tech)
followed by a catalyst (Engelhard) and system reagent supply (CDT/Nalco Fuel
Tech). This system has demonstrated up to 90% NOx reduction and nearly 100%
utilization of reagent in joint engine test programs. It will have the economic
benefit of allowing manufacturers to optimize fuel economy while also minimizing
NOx and particulate emissions. Furthermore, this system does not require very
low-sulfur fuel. Based on interest in the U.S. and Europe, the partners are
exploring expanding the agreement to the automotive sector.
Retrofit NOx Reduction for Heavy-Duty Diesel Engines
In certain applications requiring modest NOx reduction (10-30%),
stabilized emulsions of water-in-oil can reduce NOx emissions by lowering
in-cylinder combustion temperatures. The Company has developed
light-oil-emulsion NOx reduction techniques to serve this segment. LOE-NOx(TM)
technology involves the supply of blending equipment and specialty chemicals to
disperse water-in-oil and maintain lubricity. The Company has had discussions
with a major U.S. engine manufacturer for application of the LOE-NOx technology
to stationary diesels used for power generation and is conducting fundamental
work with Sandia National Labs on in-cylinder investigation of emulsions using
advanced combustion photography.
Market for NOx Reduction Systems and Additives
The Company finds the NOx control market attractive; there are more than
8 million diesel engines of all types manufactured annually, and since the
average life is between 10 and 30 years, there are substantial markets
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for both new and retrofit applications. One major engine company has described
the need for up to several thousand NOx control systems per year for
high-horsepower stationary diesel generator sets starting gradually in 1998. The
automotive sector will provide a massive market starting in 2000, estimated by
one manufacturer to be approximately 100,000 units per year. The EPA has
recently charged major engine manufacturers with using defeat devices that cause
more than 1 million engines to emit high levels of NOx emissions. This could
lead to near-term incentives for low-NOx-emitting engines.
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 individuals, including two executive officers,
in engineering and product development as of the date of this report. During the
years ended December 31, 1997, 1996 and 1995, the Company's research and
development expenses exclusive of patent costs totaled approximately $1,985,000,
$1,747,000 and $796,000, 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 will 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.
Risk Factors of the Business
Investors in the Company should be mindful of the following risk factors
relative to the Company's business:
Liquidity - Going Concern
At the date of this report, the Company has cash resources and a
short-term credit facility from Fuel Tech estimated to be sufficient for its
needs only through June 1998. See the text below under the captions "Liquidity
and Sources of Capital" in Item 7. "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Report of Independent
Auditors" in Item 8. "Financial Statements." Accordingly, at December 31, 1997,
there is substantial doubt as to the Company's ability to continue as a going
concern.
Competition
Competition in the diesel fuel additive market will come from other 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 in 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
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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 mechanized
adjustments to engines, new injector designs and engine rebuilds. While the
Company believes its patent position produces a strong competitive barrier to
entry, other platinum-based compounds could be developed outside the Company's
issued patents. To this end, the Company is seeking collaborative arrangements
with specific platinum manufacturers.
Competition in the NOx control market will come from other suppliers of
reagent-based post-combustion NOx control systems including large,
well-established catalyst and engine manufacturing companies. The Company has
formed certain alliances to support its efforts to commercialize NOx control
products but there are no assurances that these alliances will be sufficient or
be maintained.
Lack of a Viable Product; Need for Additional Research and Development
The Company was incorporated in January 1994 and, to date, while it has
sold small quantities of its PFC for the automotive aftermarket, it has engaged
principally in research and development related to its PFC process and NOx
reduction technologies. The Company's PFC process may require substantial
additional research, development and testing in order to determine its
commercial viability. The Company has not proven its PFC technology into new
markets other than in a limited number of trials and demonstrations. If the
Company successfully field tests its PFC technology, the commercialization of
the technology into new markets will require significant additional time and
expenditures. The commercialization of the technology will depend on the
Company's success in achieving cost-effective production of the PFC, maintaining
registration status with the EPA and other regulatory bodies, and forming
strategic alliances for marketing and distribution of the PFC. The
accomplishment of some or all of these objectives may be delayed or may never
occur. In order to accomplish these objectives, the Company will require
additional capital to continue the development and commercialization of the PFC
technology, and there can be no assurance that such capital will be available.
Continuing Operating Losses
The Company has had minimal revenues through December 31, 1997. The
Company expects to continue to incur operating losses through at least June
1999. There can be no assurance that the Company will achieve or sustain
significant revenues or profitability in the future. See Item 7. "Management's
Discussion and Analysis of Financial Condition and Results of Operations." See
also "Liquidity - Going Concern" elsewhere herein.
No Assurances of Additional Funding
The Company is seeking additional funding in the form of a public or
private offering of additional shares of the Company's Common Shares. Any
offering of the Company's Common Shares may result in immediate and significant
dilution to the stockholders 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 research and development and marketing programs and
clinical 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. In the event that the Company is
unable to raise additional funds, the Company may be required to delay, scale
back or severely curtail its development efforts or otherwise impede its ongoing
clinical trials, which could have a material adverse effect on the Company's
business, operating results, financial condition and long-term prospects. See
Item 7. "Management's Discussion and Analysis of Financial Condition and Results
of Operations." See also "Liquidity - Going Concern" elsewhere herein.
Limited Marketing Experience
The Company intends to enter into strategic alliances with marketing
partners. In addition to its supply agreement with Holt Lloyd International
Ltd., it is currently engaged in cooperative development and test programs with
potential marketing partners and is in discussions with others with a view
towards conducting similar programs. There can be no assurance that the Company
will successfully implement its sales and marketing plan.
Possible Volatility of Stock Price
There has been significant volatility in the market prices of
publicly-traded shares of emerging growth technology companies. 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 Common
Shares.
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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
stockholder, are in positions involving the possibility of conflicts of interest
with respect to transactions concerning the Company. The Company currently has
two independent directors. See Item 13. "Certain Relationships and Related
Transactions."
Lack of Diversification
The Company is engaged in only one principal business, involving the
development and commercialization of technology to control emissions from
internal combustion engines through the manufacturing and marketing of its PFC
and by other products, such as emulsions and urea SCR systems. The Company does
not expect to have any material sources of revenues other than from the PFC in
the foreseeable future. An adverse development in the Company's business as a
result of competition, technological change, government regulation, or any other
factor could have a significantly greater impact than if the Company maintained
diverse operations.
Expansion into New Markets
The Company's strategy is to expand beyond the PFC to other types of
emission control products for combustion engines, particularly for NOx control.
There can be no assurance that the Company will be successful in manufacturing
its PFC cost effectively or meet the future demand for emission-reducing fuel
additives or NOx control products. Failure to gain market acceptance (either in
the engineering or regulatory communities or in the general public) would have a
material adverse effect on the Company's business, operating results and
financial condition. See "Business --- Products and Markets."
Dependence upon Third Party Technology
While the PFC 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 PFC 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 PFC 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 EPA and corresponding foreign and
state agencies. The EPA administers the 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 PFC received registration from the EPA to be used as an
aftermarket treatment of individual vehicles and in bulk fuel supplies for
diesel. The Company has received registration status under the EPA fuel additive
regulations for three additional PFC 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 --- General."
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
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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."
Platinum Price Volatility
The cost of platinum will have a direct impact on the future pricing and
profitability of the PFC. 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
platinum 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 (i) to retain current key personnel, (ii) to attract and retain
additional qualified management, scientific and manufacturing personnel and
(iii) to develop and maintain relationships with research institutions and other
outside consultants and luminaries. 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."
No Dividends
The Company has to date not paid dividends on its Common Stock and does
not intend to pay any dividends to its stockholders in the foreseeable future.
The Company currently intends to reinvest earnings, if any, in the development
and expansion of its business. See Item 5. "Market for Registrant's Common
Equity and Related Stockholder Matters."
Item 2. Properties
Facilities
The Company has 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 this royalty obligation by payment to Fuel Tech of amounts
commencing in 1998 of $12 million and declining annually to $1,090,910 in 2008.
The Company as owner maintains the technology at its expense.
During 1997, the Company filed an additional ten patent applications and
now has a total of nine U.S. patents granted and 17 international patents. There
are currently 23 U.S. patent applications pending and 60 international
applications. These patents and patent applications cover the means of
controlling the four principal emissions from diesel engines (NOx, particulates,
CO and HC).
Item 3. Legal Proceedings
The Company is not involved in any legal proceedings.
Item 4. Submission of Matters to a Vote of Security Holders
During the fourth quarter of 1997, no matters were submitted to a vote of
the Company's security holders.
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Part II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
The Company's shares are listed on the NASDAQ Stock Market, Inc. (Symbol
CDTI).
Stock price date: High Low
---- ---
4th Quarter 1995, from December 26.......... 7 1/4 6 3/8
1st Quarter 1996............................ 7 3/8 5
2nd Quarter 1996............................ 6 1/8 4 3/8
3rd Quarter 1996............................ 6 3 7/8
4th Quarter 1996............................ 4 1/4 2
1st Quarter 1997............................ 5 1/64 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 13/16
Item 6. Selected Financial Data
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 a 27.6% ownership interest
in the Company. 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 Platinum Fuel Catalysts and nitrogen oxide
reduction technologies to reduce emissions from diesel engines. There were no
material activities related to the Company's business in 1991. Prior to 1990,
the activities of Fuel Tech were focused on other applications of Platinum Fuel
Catalysts that are unrelated to the Company's present or contemplated business
and were not material to the overall development of the Company's product.
Therefore, such costs have been excluded from the determination of the Company's
development costs and from the selected financial data set forth below.
<TABLE>
<CAPTION>
(in thousands, except per share data)
Period from
For the years ended December 31 January 1, 1992
-------------------------------------------------- through
1997 1996 1995 1994 1993 December 31, 1997
------ ------ ------ ------ ------ -------------------
<S> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA
Sales $ 199 $ -- $ -- $ -- $ -- $ 199
Costs and expenses:
Cost of sales 132 -- -- -- -- 132
General and administrative 1,730 1,842 963 507 -- 5,042
Research and development 1,985 1,747 796 441 86 5,317
Patent filing and maintenance 237 223 199 158 45 938
--------------------------------------------------- ---------
Loss from operations 3,885 3,812 1,958 1,106 131 11,230
Interest (income) expense, net (121) (323) 66 1 -- (377)
--------------------------------------------------- ---------
Net loss during development stage $3,764 $3,489 $2,024 $1,107 $131 $10,853
=================================================== =========
Basic and diluted loss per common
share $ 1.50 $ 1.40 $ 0.81 $ 0.44 N/A N/A
Weighted-average shares outstanding 2,517 2,500 2,500 2,500 N/A N/A
</TABLE>
<TABLE>
<CAPTION>
December 31
---------------------------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
BALANCE SHEET DATA
<S> <C> <C> <C> <C> <C>
Current assets $1,682 $5,595 $8,882 $ 513 $ --
Total assets 1,750 5,677 8,882 513 --
Current liabilities 894 1,486 487 1,370 --
Long-term liabilities 395 -- 745 -- --
Working capital (deficit) 788 4,109 8,395 (857) --
Stockholders' equity (deficiency) 461 4,191 7,650 (857) --
</TABLE>
-8-
<PAGE>
No dividends have been paid on the Company's Common Stock and the Company
does not intend to pay dividends in the foreseeable future. The Company had
approximately 560 beneficial stockholders at December 31, 1997.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The Company was incorporated on January 19, 1994, as a wholly owned
subsidiary of Fuel-Tech N.V. ("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. Net proceeds of the Rights
Offering of $10.5 million were contributed to the Company by Fuel Tech. 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 commercialization of Platinum Fuel Catalysts ("PFC") and
nitrogen oxide ("NOx") reduction technologies to reduce emissions from diesel
engines.
Results of Operations
1997 Versus 1996
Sales and Cost of sales were $199,000 and $132,000, respectively, as the
Company started selling small quantities of product in 1997. The Company's
products were purchased by Holt Lloyd International Ltd. ("Holt"), pursuant to a
supply agreement entered into in September 1996. Holt launched the Company's PFC
products for use with Holt's fuel additives in the aftertreatment of fuel for
both gasoline and diesel engines in several European countries, and expects to
launch its products in other European markets in 1998. In December 1997, Holt
was acquired by Prestone Products, Inc., a division of Allied Signal. Based on
management and product line changes at Holt, the Company expects delays in the
build-up of sales to Holt in 1998.
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.
The selling price of future sales to Holt will be based on the Company's
platinum metal purchase price, as stipulated in the September 1996 Supply
Agreement and, accordingly, the Company should not have significant exposure
with respect to commodity prices.
General and administrative expenses decreased to $1,730,000 in 1997 from
$1,842,000 in 1996. 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 $1,985,000 in 1997 versus
$1,747,000 in 1996. 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 Nalco 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
cerium compound supplied by Rhone-Poulenc. 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 major oil 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 1998. Based on the extent of the market interest and improved cost
and performance of the bimetallic additive, the Company entered negotiations
with Rhone-Poulenc 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. Engine testing is scheduled for the second quarter of 1998. AMBAC is a
major supplier of fuel injection equipment for diesel engine manufacturers
worldwide.
-9-
<PAGE>
Patent filing and maintenance expenses remained relatively flat,
increasing to $237,000 in 1997 from $223,000 in 1996.
The Company expects expenses to be lower in 1998 than in 1997 as it is
currently minimizing expenses in order to conserve cash, pending securing
additional working capital. Such efforts include reducing the administrative
staff from four to two, closing the Company's U.K. office and reducing the
management fees charged to the Company by Fuel Tech. Additionally, the Company
anticipates a significant reduction in research and development expenditures in
1998 due in part to the completion of a number of fundamental programs in 1997,
the deferral of certain field trials due to the Company's working capital
position and the Company's expanded participation in collaborative and
consortium-based programs with potential customers and industrial partners for
which it will be responsible for only a portion of the program costs.
1996 Versus 1995
General and administrative expenses increased to $1,842,000 in 1996 from
$963,000 in 1995. 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. 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 executives full-time in August 1996.
Research and development expenses were $1,747,000 in 1996 versus $796,000
in 1995. 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 $223,000 in 1996 versus
$199,000 in 1995. 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 at December 31, 1997. 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 is still dependent upon sources
other than operations to finance its operations and 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 a Rights Offering of its shares by Fuel Tech. The Company then
repaid Fuel Tech approximately $2.3 million in intercompany loans. Approximately
$2 million of the proceeds raised was received by the Company in January 1996.
For the years ended December 31, 1997, 1996 and 1995, and for the period
from January 1, 1992, through December 31, 1997, the Company used cash of
$3,775,000, $3,520,000, $1,810,000 and $10,490,000, respectively, 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., 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. Interest at a
rate of 8% per annum is payable on the unpaid balance on each principal payment
date. 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 - 1997 Versus 1996" above.
At December 31, 1997 and 1996, the Company had cash, cash equivalents and
short-term investments of $1,239,000 and $5,270,000, respectively. Working
capital at those dates was $788,000 and $4,109,000, respectively. At December
31, 1997, the Company owed Fuel Tech $495,000 under the Term Note, while at
December 31, 1996, the Company owed Fuel Tech $745,000 under the Demand Note.
-10-
<PAGE>
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. Any borrowings
will be secured by the Company's intellectual property. The Company believes
that, with this commitment from Fuel Tech, it has sufficient cash balances to
fund its requirements through the first half of 1998. The Company is actively
seeking additional financing in the amount of $5 million through a private
placement or other financing alternative and is currently in discussions with
several interested parties, however, no current commitments for financing have
been received. 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) as noted above,
licensing of the Company's technologies and selling the Company's intellectual
property. 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, as of
December 31, 1997, there is substantial doubt as to the Company's ability to
continue as a going concern.
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 PFC,
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.
In September 1996, the Company entered into a supply agreement with Holt
Lloyd International Ltd. of the United Kingdom to sell the Company's PFC under
the Platinum Plus trademark for use with Holt's 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 Company's PFC was
test-marketed by Holt in Europe in the fourth quarter of 1996, with commercial
sales commencing in the first quarter of 1997. The agreement also provides for
the marketing of a platinum-based gasoline fuel additive by Holt on similar
terms and in similar territories, if developed by the Company. Based on jointly
funded testing by Holt and the Company, such a gasoline product was developed by
the Company and launched by Holt in September 1997 under the Cat Guard name.
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.
-11-
<PAGE>
Item 8. Financial Statements
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, 1997 and 1996, and the
related statements of operations, stockholders' 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, 1997 and 1996, 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
-12-
<PAGE>
Clean Diesel Technologies, Inc. (A Development Stage Company)
Balance Sheets (in thousands except share data)
December 31
---------------------
1997 1996
-------- --------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 1,239 $ 3,270
Short-term investments -- 2,000
Inventories 205 103
Other current assets 238 222
-------- --------
Total current assets 1,682 5,595
Other assets 68 82
-------- --------
Total assets $ 1,750 $ 5,677
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 794 $ 741
Loan payable to Fuel-Tech N.V. 100 745
-------- --------
Total current liabilities 894 1,486
Loan payable to Fuel-Tech N.V. 395 --
STOCKHOLDERS' EQUITY:
Preferred stock, par value $.05 per share, authorized
100,000 shares, no shares issued and outstanding -- --
Common stock, par value $.05 per share, authorized
5,000,000 shares, issued and outstanding
2,516,666 and 2,500,000 shares 126 125
Additional paid-in capital 11,188 11,155
Deficit accumulated during development stage (10,853) (7,089)
-------- --------
Total stockholders' equity 461 4,191
-------- --------
Total liabilities and stockholders' equity $ 1,750 $ 5,677
======== ========
See accompanying notes.
-13-
<PAGE>
Clean Diesel Technologies, Inc. (A Development Stage Company)
Statements of Operations (in thousands except per share data)
<TABLE>
<CAPTION>
Period from
January 1, 1992
For the years ended December 31 through
-------------------------------------- December 31,
1997 1996 1995 1997
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Sales $ 199 $ -- $ -- $ 199
Costs and expenses:
Cost of sales 132 -- -- 132
General and administrative 1,730 1,842 963 5,042
Research and development 1,985 1,747 796 5,317
Patent filing and maintenance 237 223 199 938
-------- -------- -------- --------
Loss from operations 3,885 3,812 1,958 11,230
Interest income (165) (383) (33) (581)
Interest expense to Fuel-Tech N.V. 44 60 99 204
-------- -------- -------- --------
Net loss during development
stage $ 3,764 $ 3,489 $ 2,024 $ 10,853
======== ======== ======== ========
Basic and diluted loss per
common share $ 1.50 $ 1.40 $ 0.81 N/A
======== ======== ======== ========
Average number of common
shares outstanding 2,517 2,500 2,500 N/A
======== ======== ======== ========
</TABLE>
See accompanying notes.
-14-
<PAGE>
Clean Diesel Technologies, Inc. (A Development Stage Company)
Statements of Changes in Stockholders' Equity (Deficiency) (in thousands)
<TABLE>
<CAPTION>
Deficit
Accumulated Total
Common Stock Additional During Stockholders'
------------ Paid-In Development Equity
Shares Amount Capital Stage (Deficiency)
--------------------------------------------------------------------
<S> <C> <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
====================================================================
</TABLE>
See accompanying notes.
-15-
<PAGE>
Clean Diesel Technologies, Inc. (A Development Stage Company)
Statements of Cash Flows (in thousands)
<TABLE>
<CAPTION>
Period from
For the years ended December 31 January 1, 1992
------------------------------------------ through
1997 1996 1995 December 31, 1997
----------- ------------- ------------- -----------------------
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net loss $(3,764) $(3,489) $(2,024) $(10,853)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation 24 12 -- 36
Issuance of stock purchase warrants 30 30 -- 60
Changes in operating assets and liabilities:
Inventories (102) (88) (15) (205)
Other current assets (16) (221) (1) (238)
Accounts payable and accrued expenses 53 320 230 794
Other assets -- (18) -- (18)
Due to Fuel-Tech N.V. -- (66) -- (66)
---------- ------------ ------------ ------------
Net cash used in operating activities (3,775) (3,520) (1,810) (10,490)
---------- ------------ ------------ ------------
FINANCING ACTIVITIES
Proceeds from Rights Offering net of
$630 of brokerage commissions in 1995 -- 2,018 9,138 11,156
Expenses of Rights Offering -- -- (425) (425)
Repayment of expenses of
Rights Offering paid by Fuel-Tech N.V. -- -- (200) (200)
Issuance of common stock 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. (250) -- (2,063) (2,313)
Proceeds from exercise of stock options 4 -- -- 4
---------- ------------ ------------ ------------
Net cash provided from (used in)
financing activities (246) 2,018 8,145 11,815
---------- ----------- ----------- -----------
INVESTING ACTIVITIES
Sale (purchase) of short-term investments 2,000 (2,000) -- --
Purchase of fixed assets (10) (76) -- (86)
---------- ----------- --------- -----------
Net cash provided by (used in) investing
activities 1,990 (2,076) -- (86)
---------- ----------- ---------- ------------
Net (decrease) increase in cash and
cash equivalents (2,031) (3,578) 6,335 1,239
Cash and cash equivalents at beginning of period 3,270 6,848 513 --
---------- ------------ ----------- ------------
Cash and cash equivalents at end of period $ 1,239 $ 3,270 $ 6,848 $ 1,239
========== ============ ============ ============
Cash payments for interest to Fuel-Tech N.V. $ 44 $ 63 $ -- $ 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
</TABLE>
See accompanying notes.
-16-
<PAGE>
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 product. 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
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 discussions 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,
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
-17-
<PAGE>
Clean Diesel Technologies, Inc. (A Development Stage Company)
Notes to Financial Statements (Continued)
institution. 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.
All financial instruments are reflected in the accompanying balance
sheets at amounts which 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, 1997 and 1996, the Company had tax losses available for
offset against future years' earnings of approximately $10 million and $6.4
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. Stockholders' 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
-18-
<PAGE>
Clean Diesel Technologies, Inc. (A Development Stage Company)
Notes to Financial Statements (Continued)
offering, each Fuel Tech shareholder and holder of Fuel Tech's Nil Coupon
Non-redeemable Convertible Unsecured 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 Stock 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, stockholders 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 date of grant 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:
1997 1996 1995
--------------------------
Net loss (000's):
As reported $3,764 $3,489 $2,024
Pro forma 4,040 3,600 2,031
Basic and diluted loss per share:
As reported $1.50 $1.40 $0.81
Pro forma 1.59 1.44 0.81
In accordance with the provisions of SFAS No. 123, the pro forma
disclosures include only the effect of stock options granted in 1997, 1996 and
1995. 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 which 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.
-19-
<PAGE>
Clean Diesel Technologies, Inc. (A Development Stage Company)
Notes to Financial Statements (Continued)
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:
1997 1996 1995
----------------------------
Expected dividend yield 0.0% 0.0% 0.0%
Risk-free interest rate 5.72% 6.8% 6.4%
Expected volatility 61.3% 54.3% 65.4%
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>
1997 1996 1995
-----------------------------------------------------------------------------------
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 287 $3.25 222 $2.86 125 $1.10
Granted 115 4.61 65 4.59 97 5.13
Exercised (17) 0.20 -- -- -- --
Forfeited (20) 4.52 -- -- -- --
-----------------------------------------------------------------------------------
Outstanding, end
of year 365 $3.77 287 $3.25 222 $2.86
===================================================================================
Exercisable, end
of year 259 $3.41 189 $3.11 63 $1.40
Weighted-average
fair value of options
granted during the year $2.18 $2.25 $2.79
</TABLE>
The following table summarizes information about stock options
outstanding at December 31, 1997:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
- -------------------------------------------------------------------------------------------------------------
Weighted-Average
Range of Number of Remaining Weighted-Average Number of Weighted -Average
Exercise 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 $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 services received.
-20-
<PAGE>
Clean Diesel Technologies, Inc. (A Development Stage Company)
Notes to Financial Statements (Continued)
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, 1997 and 1996,
rental expense approximated $93,000 and $90,000, 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 Catalysts
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,
1997 and 1996, approximated $69,000 and $183,000, 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 $403,000, $1,232,000 and $904,000
for the years ended December 31, 1997, 1996 and 1995, 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.
-21-
<PAGE>
Clean Diesel Technologies, Inc. (A Development Stage Company)
Notes to Financial Statements (Continued)
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. of the United Kingdom to sell the Company's PFC under
the Company's Platinum Plus trademark for use with Holt'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 towards the attainment) of predetermined
minimum performance levels for each territory on a calendar-year basis. The
Company's PFC was test-marketed by Holt 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 Holt.
This product was launched by Holt in Europe in late 1997 under the Cat Guard
name. In December 1997, Holt was acquired by Prestone Products, Inc., a division
of Allied Signal. Based on management and product line changes at Holt, and as a
result of the Prestone acquisition, the Company expects a delay in the build-up
of sales to Holt 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.
10. Year 2000 Disclosure (Unaudited)
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.
-22-
<PAGE>
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
Part III
Item 10. Directors and Executive Officers of the Registrant
Information regarding directors and executive officers of the Company
will be set forth under the captions "Election of Directors" and "Directors and
Executive Officers of the Company" in the Company's Proxy Statement related to
the 1998 annual meeting of stockholders (the "Proxy Statement") and is
incorporated by reference herein.
Item 11. Executive Compensation
Information required by this item will be set forth under the caption
"Executive Compensation" in the Proxy Statement and is incorporated by reference
herein excluding, however, the information under the captions "Report of the
Board of Directors on Executive Compensation" and "Performance Graph" which is
not incorporated by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management
Information required by this item will be set forth under the caption
"Principal Stockholders and Stock Ownership of Management" in the Proxy
Statement and is incorporated by reference herein.
Item 13. Certain Relationships and Related Transactions
Information required by this item will be set forth under the captions
"Compensation Committee Interlocks and Insider Participation" and "Certain
Relationships and Related Transactions" in the Proxy Statement and is
incorporated by reference herein.
Part IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) (1) Financial Statements
The Financial Statements identified below and required by Part II, Item
8. of this Form 10-K are set forth above.
Report of Independent Auditors
Balance Sheets as at December 31, 1997 and 1996
Statements of Operations for the years ended December 31,
1997, 1996 and 1995 and for the period from January 1, 1992
through December 31, 1997
Statements of Changes in Stockholders' Equity (Deficiency) for
the years ended December 31, 1997, 1996 and 1995
Statements of Cash Flows for the years ended December 31,
1997, 1996 and 1995 and for the period from January 1, 1992
through December 31, 1997
(2) Financial Statement Schedules
Schedules have been omitted because of the absence of the conditions
under which they are required or because the required information where
material is shown in the Financial Statements or the notes thereto.
-23-
<PAGE>
(3) Exhibits
<TABLE>
<CAPTION>
Exhibit No. Title Page No.
<S> <C> <C>
*3(i) Certificate of Incorporation, as amended.
*3(ii) By-Laws.
*4a Specimen Stock Certificate.
**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 Clean Diesel Technologies, Inc. as of November 5, 1997.
**10c Assignment Agreement as of November 5, 1997 among
Platinum Plus, Inc., Fuel-Tech N.V. and
Clean Diesel Technologies, Inc.
*****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.
**14 Material Foreign Patents (filed with Exhibits 10a, 10b, 10c,
10k and 10l).
**23.1 Consent of Auditors, Ernst & Young LLP.
</TABLE>
- -------------
* Previously filed as Exhibit to Registration Statement on Form S-1 of
August 16, 1995, No. 33-95840, and incorporated by reference herein.
** Filed herewith.
*** 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.
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the Company for the fourth quarter
of 1997.
-24-
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, Clean Diesel Technologies, Inc. has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly authorized.
CLEAN DIESEL TECHNOLOGIES, INC.
March 27, 1998 By: /s/ Jeremy D. Peter-Hoblyn
-------------- -----------------------------
Date Jeremy D. Peter-Hoblyn
Chief Executive Officer,
President and Director
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been duly signed below by the following persons on behalf of Clean
Diesel Technologies, Inc. and in the capacities and on the dates indicated.
<TABLE>
<S> <C> <C>
/s/ Ralph E. Bailey Director and Chairman of the Board of Directors March 27, 1998
-------------------------------
Ralph E. Bailey
/s/ Jeremy D. Peter-Hoblyn Chief Executive Officer, President and Director March 27, 1998
------------------------------- (principal executive officer)
Jeremy D. Peter-Hoblyn
/s/ Scott M. Schecter Chief Financial Officer, Vice President and Treasurer March 27, 1998
------------------------------- (principal financial and accounting officer)
Scott M. Schecter
/s/ James M. Valentine Director, Chief Operating Officer and March 27, 1998
------------------------------- Executive Vice President
James M. Valentine
/s/ John A. de Havilland Director March 27, 1998
-------------------------------
John A. de Havilland
/s/ Charles W. Grinnell Director, Vice President and Corporate Secretary March 27, 1998
-------------------------------
Charles W. Grinnell
</TABLE>
-25-
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, Clean Diesel Technologies, Inc. has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly authorized.
CLEAN DIESEL TECHNOLOGIES, INC.
March 27, 1998 By: /s/ Jeremy D. Peter-Hoblyn
-------------- -----------------------------
Date Jeremy D. Peter-Hoblyn
Chief Executive Officer,
President and Director
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been duly signed below by the following persons on behalf of Clean
Diesel Technologies, Inc. and in the capacities and on the dates indicated.
<TABLE>
<S> <C> <C>
/s/ Ralph E. Bailey Director and Chairman of the Board of Directors March 27, 1998
-------------------------------
Ralph E. Bailey
/s/ Jeremy D. Peter-Hoblyn Chief Executive Officer, President and Director March 27, 1998
------------------------------- (principal executive officer)
Jeremy D. Peter-Hoblyn
/s/ Scott M. Schecter Chief Financial Officer, Vice President and Treasurer March 27, 1998
------------------------------- (principal financial and accounting officer)
Scott M. Schecter
/s/ James M. Valentine Director, Chief Operating Officer and March 27, 1998
------------------------------- Executive Vice President
James M. Valentine
/s/ John A. de Havilland Director March 27, 1998
-------------------------------
John A. de Havilland
/s/ Charles W. Grinnell Director, Vice President and Corporate Secretary March 27, 1998
-------------------------------
Charles W. Grinnell
</TABLE>
-26-
<PAGE>
Exhibit 10a
Assignment of Intellectual Property Rights
Fuel-Tech N.V. to Platinum Plus, Inc.
As of November 5, 1997
Fuel-Tech N.V., a Netherlands Antilles limited liability company "Assignor"
(the "Company"), does hereby, as a capital contribution, assign to its
wholly-owned subsidiary Platinum Plus, Inc., a Delaware corporation (the
"Assignee"), all of the Companys right, title and interest whatsoever in the
United States of America and in any other jurisdiction worldwide, in and to:
1. That certain License Agreement effective as of October 28, 1994 between
the Company and Clean Diesel Technologies, Inc. (the "License").
2. All of the intellectual property, including patents, patent applications
technology, data and know-how, set forth on Schedule A to the License.
3. The assignee agrees to accept this assignment and to hold Assignor
harmless from any cost or expense required to prosecute, maintain or exploit the
property described in Section 2 above.
4. Assignor agrees to cooperate with Assignee at the expense of the
Assignee in perfecting the assignments made herein and to execute and deliver to
the Assignee any further agreements, assignments, instruments, certificates and
other documents deemed necessary or appropriate for that purpose by the
Assignee.
5. By this assignment the Assignee is the owner of the assigned property in
all respects and may deal with such property as it shall deem appropriate.
FUEL-TECH N.V.
Dated: December 19, 1997 By: /s/ Jeremy D. Peter-Hoblyn
--------------------------------------
Jeremy D. Peter-Hoblyn
Managing Director
Agreed to this 19 day of December, 1997
Platinum Plus, Inc.
By: /s/ James M. Valentine
------------------------------
James M. Valentine
Executive Vice President
<PAGE>
State of Connecticut :
) ss Stamford
County of Fairfield :
The within instrument was acknowledged before me this 19th day of December 1997
by Jeremy D. Peter-Hoblyn, Managing Director of Fuel-Tech N.V., a Netherlands
Antilles corporation, and James M. Valentine, Executive Vice President of
Platinum Plus, Inc., a Delaware corporation, on behalf of their respective
corporations.
/s/ Charles W. Grinnell
--------------------------------------
Charles W. Grinnell
Commissioner of the Superior Court
<PAGE>
Exhibit 10b
Assigrment of Intellectual Property Rights
Fuel Tech, Inc. to Clean Diesel Technologies, Inc.
As of November 5, 1997
Fuel Tech, Inc., a Massachusetts corporation ("Assignor"),
does hereby assign to Clean Diesel Technologies, Inc., a Delaware
corporation ("Assignee"), all of the Assignors right, title and
interest whatsoever in the United States of America and in any
other Jurisdiction worldwide, in and to:
1. All of the intellectual property, including patents,
patent applications, trademarks, and associated inventions,
technology, data and know-how, set forth on Schedule A attached
hereto and made a part hereof.
2. Assignee agrees to accept this assignment and to hold the
Assignor harmless from any cost or expense required to prosecute,
maintain or exploit the intellectual property described in Section 1
above.
3. Assignor agrees to cooperate with Assignee at the expense
of the Assignee in perfecting the assignments made herein and to
execute and deliver to the Assignee any further agreements,
assignments, instruments, certificates and other documents deemed
necessary or appropriate for that purpose by the Assignee.
FUEL TECH, INC.
Dated: December 23rd, 1997 By: /s/ C.W. Grinnell
-----------------------
Charles W. Grinnell
Vice President
Agreed to this 23rd day of December, 1997
CLEAN DIESEL TECHNOLOGIES, INC.
By: /s/ James M. Valentine
------------------------
James M. Valentine
Vice President
<PAGE>
State of Connecticut:
) ss Stamford
County of Fairfield :
The foregoing instrument was acknowledged before me this 8th day of
January 1998 by Charles W. Grinnell, Vice President of Fuel Tech,
Inc., a Massachusetts corporation, and and James M. Valentine,
Executive Vice President of Clean Diesel Technologies, Inc., a
Delaware corporation, on behalf of their respective corporations.
/s/ Diana Baumann
-------------------
Notary Public
DIANA BAUMANN
NOTARY. PUBLIC
MY COMMISSION EXPIRES JULY 31, 2001
<PAGE>
Schedule A to Assignment as of November 5, 1997
Fuel Tech, Inc. to Clean Diesel Technologies, Inc.
<TABLE>
<CAPTION>
DOCUMENT INVENTOR(s) ABSTRACT APPLICANT/
ASSIGNEE
<S> <C> <C> <C>
08/601,530 Epperly Gasoline, gasohol and diesel fuel FTI
(P0045G) Sprague additives defined in terms of functional
Kelso properties and chemistry, with claims to
Bowers regenerating catalytic converters and
diesel traps as well as use with
oxygenated hydrocarbons.
JP 1,931,532 FTI
MX 169,226 FTI
VE 49.179 FTI
EP 189,642 Bowers Both gasoline and diesel additives FTI
(P0042A) Sprague combined in one case for foreign filing.
AU* 583,580 FTI
CA 1,305,607 FTI
CL 36,883 FTI
ES 548,951 FTI
GB 2,178,757 FTI
GR 85.2745 FTI
DOCUMENT TRADEMARK APPLICANT
73/506,353 Platinum Plus FTI
(T0071A) CN 960088945
CN 960088946
CN 960088947
EP 000195933
FR 95/599379
GB 2,046,018
ID D9616748
ID D9616749
ID J9616750
JP 125415/1995
JP 125416/1995
JP 125417/1995
KR 44777/95
KR 44778/95
KR 11493/95
MX 249,675
MX 249,891
TW 770,817
TW 85034641
T0075A Platinum Plus 2 FTI
CA
</TABLE>
<PAGE>
Exhibit 10c
ASSIGNMENT AGREEMENT, effective as of November 5, 1997, among PLATINUM
PLUS, INC., a Delaware corporation ("PPI"), with a place of business at 300
Atlantic Street, Stamford CT 06901, Fuel-Tech N.V., a Netherlands Antilles
limited liability company ("Fuel Tech") with a place of business at Castorweg
22-24, Curacao, Netherlands Antilles, and CLEAN DIESEL TECHNOLOGIES, INC., a
Delaware corporation ("Assignee"), with a place of business at 300 Atlantic
Street, Stamford CT 06901 U.S.A.,
WHEREAS, PPI is a wholly-owned subsidiary of Fuel Tech and Fuel Tech owns
approximately 28% of the common stock of the Assignee,
WHEREAS, by Agreements effective as of October 28, 1994 between the
Assignee and Fuel-Tech N.V. (the "NV License") and between the Assignee and PPI
(the "PPI License"), the Assignee became the licensee of certain Technology,
WHEREAS, subsequent to the effective date of grant of the PPI and NV
licenses, the Assignee reimbursed Fuel Tech, of Fuel-Tech, or its affiliates,
the amount of approximately $600,000 on account of development expenses incurred
by Fuel Tech, Inc. with respect to the Technology licensed under the NV and PPI
Licenses,
WHEREAS, this Agreement is in consideration of the reimbursed development
expenses,
WHEREAS, by an Assignment effective as of November 5, 1997 the Fuel-Tech
License and the Technology licensed thereunder were assigned by Fuel-Tech N.V.
to PPI,
WHEREAS, the Technology licensed under the NV and PPI Licenses is now
owned by PPI and the Assignee is desirous of taking an assignment of such
Technology and PPI is agreeable to granting such assignment while reserving a
royalty as provided in the NV and PPI Licenses,
WHEREAS, in order to enhance the value of Fuel Techs investment in the
Assignee Fuel Tech is agreeable to this assignment and to guaranteeing the
performance of the obligations of PPI hereunder,
NOW THEREFORE, it is agreed that:
1. Definitions
"Affiliate, shall be a company or a business entity which controls, is
controlled by, or is under common control with a party to this
agreement. "Control" shall mean sufficient voting power to elect the
Board of Directors. For purposes of this agreement neither party hereto
shall be an Affiliate of the other.
1
<PAGE>
"Technology" shall mean PPI's Patents, Marks and Patent Applications
set out on Schedule A attached hereto and all associated data, and
know-how related thereto owned by PPI for the addition of noble metals
to fuels, for emulsions and for Nox control, all as related to internal
combustion engines and control of emissions therefrom.
"Termination" shall mean December 31, 2008.
2. Assignment
2.1 PPI hereby assigns, transfers and sets over to Assignee and
Assignee hereby accepts from PPI, on the terms and conditions
herein and subject to the payment to PPI of the royalties described
herein when due, all of PPIs right, title and interest whatsoever
in the United States of America and any other jurisdiction to the
Technology.
3. Revocation of Licenses
3.1 PPI and the Assignee agree that the NV License and the PPI License
are hereby revoked and of no further force and affect.
4. Disclaimers and Limited Warranty
4.1 PPI makes no warranty, express or implied, to Assignee concerning
the validity or the utility of the Technology or with respect to
any other matter, except that PPI represents and warrants that the
Patents and Marks assigned hereunder are in full force and effect
and that it has full right and power to assign the rights granted
hereunder.
4.2 PPI shall have no responsibility whatsoever to Assignee at any time
for any liability which Licensee may incur to any third party with
respect to the Technology.
5. Royalties: Right to Terminate
5.1 Assignee shall, within 45 days of the end of each calendar year
commencing with the year 1998 and thereafter until Termination, pay
PPI as a running royalty an amount equal to two and one half
percent (2.5%) of annual gross revenues of whatsoever nature,
including license fees and royalties, derived from that portion
only of the Technology relating to the addition of noble metals to
fuels.
5.2 Assignee shall have the right at any time until Termination on
thirty days notice to terminate and extinguish its obligation to
pay royalties hereunder and
2
<PAGE>
to receive a release of such obligation, by the payment to PPI in
any calendar year set out below of the amount set out below
opposite such year:
1998 $12,000,000.00
1999 $10,909,091.00
2000 $ 9,818,182.00
2001 $ 8,727,273.00
2002 $ 7,636,364.00
2003 $ 6,545,455.00
2004 $ 5,454,546.00
2005 $ 4,363,637.00
2006 $ 3,272,728.00
2007 $ 2,181,819.00
2008 $ 1,090,910.00
6. Obligations of PPI and Fuel Tech
6.1 PPI shall to the extent practicable cooperate with Assignee, at
the expense of the Assignee, in perfecting the assignment of the
Technology made herein under local law and in preserving and
maintaining the Technology by Licensee and shall execute and
deliver to the Assignee any further agreements, assignments,
instruments, certificates and other documents deemed necessary or
appropriate for that purpose by the Assignee.
6.2 Fuel Tech guarantees the performance by PPI of its obligations
under Section 6.1 above.
7. Obligations of Assignee
7.1 Assignee shall within 45 days of the end of each calendar year set
out in Section 5.2 above furnish PPI with a written report signed
by an authorized official setting forth annual gross revenues
derived by Assignee from the Technology subject to royalties and,
for each such year, shall thereupon make payment of such royalties,
if any, as became due to PPI during such year.
7.2 Assignee shall indemnity and defend PPI against any liability or
expense arising out of any claim, proceeding or suit by any third
party against PPI to the extent that it is based on an allegation
that the Technology licensed hereunder is invalid, owned by another
party or infringes a patent in force.
7.3 In the event of Assignees failure to pay when due any royalty
hereunder, Assignee shall pay to PPI interest on such unpaid
royalties at the rate of ten percent (10%) per annum calculated on
the basis of days actually elapsed over a year of 360 days.
3
<PAGE>
9. General
9.1 This Agreement and its effects are subject to and shall be
construed and enforced in accordance with the internal laws of the
State of Delaware and any and all claims, controversies or disputes
hereunder shall be resolved by negotiations between the parties
and, failing such negotiations, shall, on sixty days written notice
from one party to the other, be finally settled by arbitration
before a single arbitrator in accordance with the rules then in
effect of the American Arbitration Association in Stamford
Connecticut and any resulting award may be entered in and enforced
by any court having jurisdiction.
9.2 This Agreement is the entire agreement between the Parties and may
only be amended by an instrument in writing referring to this
agreement and signed by each of the parties.
9.3 Notices hereunder shall be effective in five days, if given by
pre-paid, registered or certified airmail; and upon delivery, if
acknowledged and given by telex, facsimile or personally; in either
case to the addresses set forth above for the parties or to such
other address as one party may by such notice inform the other.
9.4 Failure to enforce a right or remedy under this Agreement shall not
be deemed to constitute a waiver of such right or remedy.
9.5 The obligations hereunder of a party may, from time to time, be
performed by an Affiliate of such party.
9.6 All payments hereunder by Assignee to PPI shall be in cash or by
wire transfer.
4
<PAGE>
IN WITNESS WHEREOF the parties have signed this Agreement as of the date
first set out above,
PLATINUM PLUS, INC. CLEAN DIESEL TECHNOLOGIES, INC.
By: /s/ Jeremy D. Peter-Hoblyn By: /s/ James M. Valentine
---------------------------- -------------------------------
Jeremy D. Peter-Hoblyn James M. Valentine
Title: President Title: Executive Vice President
Date: December 19, 1997 Date: December 19, 1997
--------------------- ---------------------------
FUEL-TECH N.V.
By: /s/ Jeremy D. Peter-Hoblyn
-----------------------------
Jeremy D. Peter-Hoblyn
Title: Managing Director
Date: December 19, 1997
-------------------------
State of Connecticut :
) ss Stamford
County of Fairfield :
The foregoing instrument was acknowledged before me this 19th day of December
1997 by Jeremy D. Peter-Hoblyn, Managing Director of Fuel-Tech N.V., a
Netherlands Antilles corporation, Jeremy D. Peter-Hoblyn President of Platinum
Plus, Inc., a Delaware corporation, and James M. Valentine, Executive Vice
President of Clean Diesel Technologies, Inc., a Delaware corporation, on behalf
of their respective corporations.
/s/ Charles W. Grinnell
----------------------------------
Charles W. Grinnell
Commissioner of the Superior Court
<PAGE>
Schedule A to Assignment Agreement as of November 5, 1997
among Platinum Plus, Inc., Fuel-Tech N.V. and Clean Diesel Technologies, Inc.
CLEAN DIESEL TECHNOLOGIES
PATENT ASSETS
<TABLE>
<CAPTION>
DOCUMENT INVENTOR(S) ABSTRACT APPLICANT/
ASSIGNEE
<S> <C> <C> <C>
U.S. 4,629,472 Haney Combustion of emulsified fuels is PPI
(P0003C) Sullivan improved by the presence of water-
soluble precious metal catalysts.
U.S. 4,892,562 Bowers Diesel additives comprising fuel-soluble PPI
(P0043A) Sprague compounds of platinum group metals.
U.S. 4,891,050 Bowers Gasoline additives comprising fuel- PPI
(P0043B) Sprague soluble compounds of platinum group
metals.
EP 189,642 Bowers Both gasoline and diesel additives FTI
(P0042A) Sprague combined in one case for foreign filing.
AU* 583,580 FTI
CA 1,305,607 FTI
CL 36,883 FTI
ES 548,951 FTI
GB 2,178,757 FTI
GR 85.2745 FTI
IE 58723 FTNV
JP 1,931,532 FTI
MX 169,226 FTI
VE 49.179 FTI
U.S. 5,034,020 Epperly Additional specific fuel-soluble platinum PPI
(P0049A) Sprague group metal additives for diesel and
gasoline engines. Also claims
regenerating catalytic converters and
diesel traps.
AU 635,056 FTNV
CA 612,185 FTNV
JP 02-511018 FTNV
NO 920199 FTNV
</TABLE>
- -----------------------
*Country codes in bold italics indicate a patent has been granted in that
country.
<PAGE>
<TABLE>
<CAPTION>
DOCUMENT INVENTOR(S) ABSTRACT APPLICANT/
ASSIGNEE
<S> <C> <C> <C>
EP 189,642 Bowers Both gasoline and diesel additives FTI
(P0042A) Sprague combined in one case for foreign filing
AU* 583,580 FTI
CA 1,305,607 FTI
CL 36,883 FTI
ES 548,951 FTI
GB 2,178,757 FTI
GR 85.2745 FTI
CA 612,107 FTNV
DK 1125/91 FTNV
EP 451207 (AT, BE, CH, DE, ES, FTNV
FR, GB, IT, LU, NL, SE)
JP 02-502428 FTNV
NO 912536 FTNV
U.S. 5,404,841 Valentine Emulsified fuel contains water-soluble Not
(P1001B) and fuel-soluble platinum group metals assigned
or cerium alone or with other metals
such as copper, iron or manganese,
and urea to reduce NO(2).
CL 1259/94 PPI
EP 94927236.3 PPI
IN 1097/Del/94 PPI
MX 946596 PPI
TW NI-085549 PPI
U.S. 5,584,894 Valentine Emulsions with up to 70% water and PPI
(P1001C) Peter-Hoblyn with lubricity additive and catalyst are
used for NOx reduction. Urea and
other NOx-reducing agents are optional.
CA 2,191,755 FTNV
EP 95921501.3 FTNV
KR 706920/96 FTNV
U.S. 5,535,708 Valentine Similar to P1001B, but claims urea PPI
(P1001D) equivalents to reduce no(2)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
DOCUMENT INVENTOR(S) ABSTRACT APPLICANT/
ASSIGNEE
<S> <C> <C> <C>
U.S. 5,266,083 Peter-Hoblyn PPD permits retarding diesel timing to PPI
(P1002A) Valentine reduce NOx by reducing the expected
Epperly increase in particulates.
AU 674,297 PPI
CA 2,123,805 PPI
EP 93901333.0 (DE, FR, GB, IT, SE) PPI
08/778.860 Peter-Hoblyn Basic application in this series. PPD CDTI
(P1004F) Valentine with an optional second catalytic metal
Spraque such as Mn, Fe, Cu, Ce, Li or Na, reduces
Epperly Co and HC emissions from trap while
moderating oxidation of SO(2) to SO(3).
CA 2,149,035 FTNV
EP 94901430.2 FTNV
JP 512366/1994 FTNV
KR 701938/95 FTNV
MX 937.003 FTNV
08/760,085 Peter-Hoblyn Second application in this series. CDTI
(P1004E) Valentine Copper data is added.
Sprague
Epperly
08/514,978 Peter-Hoblyn Third case in this series. Adds cerium data. PPI
(P1004D) Valentine PCT US96/11908
Sprague
Epperly
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
DOCUMENT INVENTOR(S) ABSTRACT APPLICANT/
ASSIGNEE
<S> <C> <C> <C>
08/518,251 Peter-Hoblyn PPD is used in combination with a trap PPI
(P1009B) and a nox-reducing catalyst and reagent.
not available Li and/or Na can be added. New claims
(P1009C) specify particulate trap followed by SCR.
CL 1009/94 PPI
EP 94922518.9 PPI
IN 883/Del/94 PPI
JP 504646/1995 PPI
MX 945.282 PPI
TH 023107 PPI
TW NI-079182 PPI
VE 1424/94 PPI
08/319,620 Peter-Hoblyn Emissions are reduced from two-stroke PPI
(P1011A) engines through the use of fuels or motor
oils including platinum group metal
catalyst which catalyzes a flow-through
converter over long periods of operation.
IN 1379/Del/94 PPI
TH 024351 PPI
TW NI-085555 PPI
08/890,145 Peter-Hoblyn Same as P1011A PPI
(P1011B)
U.S. 5,693,106 Peter-Hoblyn Stability of water-dispersible platinum PPI
(P1012B) Valentine compounds and fuel-soluble platinum
Sprague compounds are enhanced by addition of a
water scavenger or emulsifier.
BR PI9606909-0 PPI
CA 2,210,256 PPI
EP 96902142.7 PPI
ID P960085 PPI
KR 704820/97 PPI
MX 975,258 PPI
TH 029654 PPI
TW 85100769 PPI
ZA 96/0268 PPI
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
DOCUMENT INVENTOR(S) ABSTRACT APPLICANT/
ASSIGNEE
<S> <C> <C> <C>
U.S. 5,501,714 Valentine Operation of diesel engines with reduced PPI
(P1014A) Peter-Hoblyn platinum particulate emission by utilizing
a platinum group metal fuel additive and a
pass-through catalytic oxidizer.
CA not available PPI
CN 96192513.2 PPI
EP not available PPI
IN 399/Del/96 PPI
JP 527851/1996 PPI
KR 706395/94 PPI
MX 966.977 PPI
TH 030425 PPI
TW 85102341 PPI
ZA 96/1657 PPI
PCT Valentine Catalytic ceramic cylinder parts for PPI
US96/14079 Peter-Hoblyn internal combustion engines.
(P1015A) Sprague
08/597,517 Valentine Method and apparatus for reducing harmful CDTI
(P1017A) Peter-Hoblyn emissions from a diesel engine by post
Spraque combustion catalyst injection. Water-
soluble compounds as well as AcAc and soaps
are covered.
PCT US97/01606
08/626,780 Peter-Hoblyn Urea is catalytically hydrolyzed and/or CDTI
(P1018A) pyrolized by diesel SCR.
PCT US97/05468
08/747,716 Knapper Operation of diesel engines with emulsions CDTI
(P1019A) Tarabulski for reduced NOx emissions by starting
Peter-Hoblyn ignition timing at a set point.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
DOCUMENT INVENTOR(S) ABSTRACT APPLICANT/
ASSIGNEE
<S> <C> <C> <C>
08/752,344 Peter-Hoblyn System for fueling and feeding chemicals CDTI
(P1020B) Valentine to internal combustion engines for NOx
Tarabulski reduction emulsifies chemical solution
in the fuel and then separates.
08/772,275 Peter-Hoblyn Method and apparatus for reducing harmful CDTI
(P1021A) Balles emissions from a lean-burn engine by urea
Hofmann injection SCR at elevated temperature
and pressure.
08/321,209 Peter-Hoblyn Reducing NOx emissions from an engine CDTI
(P1021C) Balles by temperature-controlled urea injection
Hofmann for selective catalytic reduction.
Tarabulski
08/792,287 Peter-Hoblyn Bimetallic gasoline additive contains CDTI
(P1022A) Valentine rhodium acetylacetonate and a fuel-
Sprague soluble platinum compound.
08/826,165 Peter-Hoblyn Reducing NOx emissions from an engine CDTI
(P1024A) Balles by on-demand generation of ammonia for
Hofmann selective catalytic reduction.
08/831,210 Peter-Hoblyn Reducing NOx emissions from an engine CDTI
(P1025A) Valentine by selective catalytic reduction
Tarabulski utilizing solid reagents.
08/833,175 Tarabulski Reducing NOx emissions from an engine CDTI
(P1026A) while maximizing fuel economy.
60/043,266 Peter-Hoblyn Method for reducing emissions from a CDTI
(P1027A) Valentine diesel engine
TW 86110574 CDTI
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
DOCUMENT INVENTOR(S) ABSTRACT APPLICANT/
ASSIGNEE
<S> <C> <C> <C>
08/868,870 Peter-Hoblyn High-temperature injection of urea for CDTI
(P1028A) Tarabulski reducing lean-burn engine no(2)
Hofmann emissions by selective catalytic
Valentine reduction.
08/854,831 Peter-Hoblyn Low pressure, pyrolization chamber. CDTI
(P1029A) Tarabulski
Hofmann
Balles
08/749,359 Peter-Hoblyn Selective catalytic NOx reduction CDTI
(P3034A) utilizing urea with a prechamber to
prevent fouling.
PCT (not available)
08/215,504 Peter-Hoblyn Enhanced lubricity diesel fuel emulsions NFT
(P4006B) Valentine for reduction of nitrogen oxides.
Dubin
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
DOCUMENT TRADEMARK APPLICANT
<S> <C> <C>
73/506,353 Platinum Plus FTI
(T0071A) CN 960088945
CN 960088946
CN 960088947
EP 000195933
FR 95/599379
GB 2,046,018
ID D9616748
ID D9616749
ID J9616750
JP 125415/1995
JP 125416/1995
JP 125417/1995
KR 44777/95
KR 44778/95
KR 11493/95
MX 249,675
MX 249,891
TW 770,817
TW 85034641
T0075A Platinum Plus 2 FTI
CA
74/061,007 Clean Diesel Technologies CDTI
(T2003A) EP 000345801
75/243,063 LOE-NOX
(T2005A) EP 00616532 CDTI
KR1 39214/97
KR2 39215/97
KR3 39216/97
TW1 86042764
TW2 86042763
TW3 86042762
</TABLE>
<PAGE>
Exhibit 10g
PROMISSORY NOTE
$494,62O November 5, 1997
For value received, CLEAN DIESEL TECHNOLOGIES, INC. of 300
Atlantic Street, Stamford Connecticut 06901 ("Borrower") promises
to pay to the order of PLATINM PLUS, INC., as nominee for itself
and its affiliates as their interests may appear ("Lender") at
the office of Lender located at 300 Atlantic Street, Stamford
Connecticut 06901, the principal amount of Four Hundred Ninety
Four Thousand Six Hundred Twenty and no/100 Dollars ($494,620),
payable in three annual installments of One Hundred Thousand
Dollars ($100,000) each on July 1 of each of the years 1998
through 2000 and a final installment of One Hundred Ninety Four
Thousand Six Hundred Twenty Dollars ($194,620) on July 1, 2001
and on each such principal payment date to pay interest on the
unpaid balance thereof at the rate of eight percent (8%) per
annum computed on the basis of a year of 360 days and 30 days per
month.
The Borrower may from time to time without premium or
penalty prepay all or any part of the principal of this Note.
After ten (10) days notice of any default in payment of
principal and interest due on this note, all of the principal and
interest accrued hereon may, at the option of the Lender, be
declared to be immediately due and payable and interest payable
on the unpaid balances of this Note shall thereafter accrue at
the rate of ten percent (10%) per annum (the "Default Rate"). All
payments on this Note shall be applied first to interest accrued
at the Default Rate, next to other accrued interest, and then to
unpaid principal, in any case to the amounts thereof most
recently outstanding.
The Borrower agrees to pay on demand all costs and expenses
(including reasonable attorney's fees) incurred or paid by the
Lender in enforcing the obligations of Borrower under this Note.
This Note shall be governed by and construed under the laws of
the State of Connecticut and the Borrower agrees to submit to the
jurisdiction of the Stamford, Connecticut Superior Court in any
action concerning this Note.
Notices hereunder shall be made if in writing, postage
prepaid, and mailed first class to the address specified above or
to another address by notice so given.
CLEAN DIESEL TECHNOLOGIES, INC.
By: /s/ J. D. Peter-Hoblyn
------------------------------
Jeremy D. Peter-Hoblyn
President
<PAGE>
Exhibit 10h
GRID NOTE AND SECURITY AGREEMENT
$500,000. February 17,1998
CLEAN DIESEL TECHNOLOGIES, INC. ("Borrower") promises to pay
PLATINUM PLUS, INC. ("Lender") or order, the principal amount
of Five Hundred Thousand Dollars ($500,000), or such lesser
amount as is indicated on the reverse hereof as the then
unpaid principal balance, one hundred twenty (120) days from
the date hereof with interest at the rate of ten percent
(10%) per year on such principal balance calculated on the
basis of a year of 360 days and 30 day months. This note may
be prepaid at any time in whole or in part without penalty or
premium. Lender agrees to lend up to Five Hundred Thousand
Dollars to Borrower under this Note for Borrower's working
capital purposes. All repayments shall be to the account of
Lender at its home office, 300 Atlantic Street, Stamford
Connecticut 06901.
Borrower irrevocably authorizes Lender to endorse on the
reverse side hereof the date and principal amount of any
borrowing or repayment made after the date hereof from or to
Lender.
To secure the obligation of this Note Borrower hereby grants
to Lender a security interest in and to all of Borrower's
Intellectual Property whatsoever, including patents,
trademarks and copyrights, applications therefor, and trade
secrets, technology, information and data, including the
Intellectual Property more particularly listed on Schedule A
hereto and proceeds of all such collateral.
If the principal hereof in not paid when due, Borrower aqrees
to pay all costs of collection thereof and all costs of
foreclosure of the security interest granted herein,
including reasonable attorneys fees, and for such purpose
herby submits to the jurisdiction of the Superior Court of
Stamford of the State of Connecticut. In foreclosure of the
security interest granted herein, Borrower waives trial by
jury and any requirement of notice or of posting a bond.
CLEAN DIESEL TECHNOLOGIES, INC.
By: /s/ J. D. Peter-Hoblyn
----------------------------
Jeremy D. Peter-Hoblyn
President
<PAGE>
[CLEAN DIESEL LOGO]
November 5, 1997
Fuel-Tech N.V.
Castorweg 22-24
Curacao, Netherlands Antilles
Re: Stock Registration Rights
Dear Sirs:
The following sets forth our proposal for registration rights to
be granted Fuel-Tech N.V. ("FT") over Clean Diesel Technologies,
Inc. ("CDT") common stock owned by FT. If you are in accord with
the following, please sign below where indicated.
In connection with any proposed sale by FT of quantities of CDT
common stock owned by FT and for which FT shall be legally
required to deliver a statutory prospectus covered by an
effective registration statement, FT shall have the following
registration rights:
1. One registration on demand for a number of shares
equal in market value to at least $1 million at the
time of demand; and
2. An unlimited number of "piggy-back" registrations.
In the event of any registration hereunder CDT shall pay all
costs involved in such registration including legal, accounting,
investment banking and the printing of registration statements
and FT's reasonable requirements for prospectuses.
Notwithstanding the foregoing, however, FT shall pay or absorb
costs involved in any such registration which (i) it voluntarily
assumes to protect its interests, such as legal fees, (ii) are
associated with the task of furnishing information concerning FT
required to be included in the registration statement (iii) the
costs of discounts, commissions, and syndicate expenses allocable
to the shares to be sold by FT.
A "registration" shall mean an effective registration statement,
with post-effective amendments as required under the United
States securities laws and such other proceedings as may be
required under the securities or "blue sky" laws of the various
states of the United States so that FT may legally sell or offer
to sell the quantities of the CDT securities owned by it which
it desires to sell or offer to sell for at least a period of six
months from the commencement of the effectiveness of the
registration statement.
<PAGE>
Fuel-Tech Registration Rights, 11/5/97, p. 2
A "piggy-back" registration shall mean a registration of securities
to be sold or offered for sale by CDT on its own behalf or on
behalf of sellers other than FT (other than for employee benefit
plans stock options or the like) in which FT shall participate as
a selling securities holder.
In any registration hereunder FT shall (i) indemnify CDT for
misstatements or omissions of fact concerning FT furnished by FT
and required to be included in a registration statement and (ii)
shall be guided as to the timing and quantities of securities to be
sold or offered for sale by the independent advice of the managing
underwriter of the proposed offering. CDT may select the managing
underwriter in any registration hereunder subject to the approval
of FT which shall not be unreasonably withheld.
In the event of a demand registration CDT may itself participate
and offer securities on its own behalf with FT acting as a selling
securities holder so long, however, as FT shall have reasonable
assurance that such arrangement will not interfere with FT's
intended sale of securities.
Clean Diesel Technologies, Inc.
By: /s/ J.D. Peter-Hoblyn
-----------------------------
Jeremy D. Peter-Hoblyn
President
Agreed to and Accepted
this 5th day of November, 1997
Fuel-Tech N.V.
By: /s/ J.A. de Havilland
-------------------------
J.A. de Havilland
Managing Director
<PAGE>
EXHIBIT 23.1
Consent of Independent Auditors
We consent to the incorporation by reference in the Registration Statement
(Form S-8 No. 333-16939) pertaining to The 1994 Incentive Plan of Clean Diesel
Technologies, Inc. of our report dated February 26, 1998, with respect to the
financial statements of Clean Diesel Technologies, Inc. in this Annual Report on
Form 10-K for the year ended December 31, 1997.
/s/ ERNST & YOUNG LLP
Stamford, Connecticut
March 27, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<CURRENCY> US DOLLARS
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<EXCHANGE-RATE> 1
<CASH> 1,239,000
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 205,000
<CURRENT-ASSETS> 1,682,000
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 1,750,000
<CURRENT-LIABILITIES> 894,000
<BONDS> 0
0
0
<COMMON> 126,000
<OTHER-SE> 335,000
<TOTAL-LIABILITY-AND-EQUITY> 1,750,000
<SALES> 199,000
<TOTAL-REVENUES> 199,000
<CGS> 132,000
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 3,952,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (3,764,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,764,000)
<EPS-PRIMARY> (1.50)
<EPS-DILUTED> 0
</TABLE>
