<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/X Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
/ / Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to 240.14a-11(c) or 240.14a-12
CLEAN DIESEL TECHNOLOGIES, INC.
- -----------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
-----------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ No fee required
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
1) Title of each class of securities to which transaction applies:
----------------------------------------------------------------------
2) Aggregate number of securities to which transaction applies:
----------------------------------------------------------------------
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
----------------------------------------------------------------------
4) Proposed maximum aggregate value of transaction:
----------------------------------------------------------------------
5) Total fee paid:
----------------------------------------------------------------------
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
___________________________________________________________________________
2) Form, Schedule or Registration Statement No.:
___________________________________________________________________________
3) Filing Party:
___________________________________________________________________________
4) Date Filed:
___________________________________________________________________________
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CLEAN DIESEL TECHNOLOGIES, INC.
300 Atlantic Street, Suite 702
Stamford CT 06901
----------------------------------------
Notice of Annual Meeting of Stockholders
To be Held June 10, 1998
----------------------------------------
To the Stockholders of Clean Diesel Technologies, Inc.:
The Annual Meeting (the "Meeting") of Stockholders of Clean Diesel
Technologies, Inc., a Delaware corporation (the "Company"), will be held
Wednesday, June 10, 1998, at the Stamford Sheraton Hotel, One First Stamford
Place, Stamford, Connecticut, 06901, at 10:00 a.m. local time, to consider and
act upon the following matters, each of which is explained more fully in the
following Proxy Statement. A proxy card for your use in voting on these matters
is also enclosed.
1. To elect six (6) directors;
2. To ratify the appointment of Ernst & Young LLP as independent
auditors for the year 1998;
3. To increase the authorized capital of the Company from Five Million
One Hundred Thousand (5,100,000) shares, par value $0.05, to Fifteen
Million One Hundred Thousand (15,100,000) shares, par value $0.05,
of which Fifteen Million (15,000,000) shall be designated Common
Stock and One Hundred Thousand (100,000) as preferred stock.
4. To transact any other business that may properly come before the
meeting or any adjournment thereof.
Only common stockholders of record at the close of business on April
24, 1998 are entitled to notice of and to vote at the Meeting. The presence in
person or by proxy of stockholders entitled to cast a majority of the total
number of votes which may be cast shall constitute a quorum for the transaction
of business at the Meeting.
The Company's Annual Report for 1997 is enclosed with this Notice of
Meeting and Proxy Statement.
By Order of the Board of Directors
Charles W. Grinnell
Secretary
Stamford, Connecticut
April 30, 1998
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING IN PERSON IT IS REQUESTED THAT YOU
PROMPTLY FILL OUT, DATE, SIGN AND RETURN THE ENCLOSED PROXY CARD.
<PAGE>
CLEAN DIESEL TECHNOLOGIES, INC.
-------------------------------
Proxy Statement
-------------------------------
The enclosed proxy is solicited by the Board of Directors (the "Board")
of Clean Diesel Technologies, Inc., a Delaware corporation (the "Company"), in
connection with the Annual Meeting of Stockholders of the Company (the
"Meeting") to be held at the Stamford Sheraton Hotel, First Stamford Place,
Stamford, Connecticut 06901, on Wednesday, June 10, 1998, at 10:00 a.m. local
time, and at any adjournments thereof.
The record date with respect to this solicitation is April xx, 1998.
All holders of Company common stock as of the close of business on that date are
entitled to vote at the meeting. As of that date the Company had 2,516,666
shares of common stock outstanding. Each share is entitled to one vote. A proxy
may be revoked by the stockholder at any time prior to its being voted. If a
proxy is properly signed and not revoked by the stockholder, the shares it
represents will be voted at the meeting in accordance with the instructions of
the stockholder. Abstentions and broker non-votes are counted as present in
determining whether a quorum is present, but are not counted in the calculation
of the vote. If the proxy is signed and returned without specifying choices, the
shares will be voted in accordance with the recommendations of the Board.
Members of the Board and Executive Officers of the Company may solicit
stockholders' proxies by mail, telephone or facsimile. The Company shall bear
the cost of proxy solicitation, if any.
The Company's Annual Report to Stockholders, containing financial
statements reflecting the financial position and results of operations of the
Company for 1997 (the "Financial Statements"), and this Proxy Statement were
distributed together on April 30, 1998.
2
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ELECTION OF DIRECTORS
The Board proposes the election of six directors. The term of office of
each director is until the 1999 Annual Meeting or until a successor shall have
been duly elected. Ralph E. Bailey, Douglas G. Bailey, John A. de Havilland,
Jeremy D. Peter-Hoblyn, Charles W. Grinnell and James M. Valentine, who are each
incumbent directors, are the nominees for election as directors of the Company.
Each of the nominees has consented to act as a director, if elected. Should one
or more of these nominees become unavailable to accept nomination or election as
a director, votes will be cast for a substitute nominee, if any, designated by
the Board. If no substitute nominee is designated prior to the election, the
individuals named as proxies on the enclosed proxy card will exercise their
judgment in voting the shares that they represent, unless the Board reduces the
number of directors.
The affirmative vote of a plurality of the shares voting is required
for the election of directors. The Company recommends a vote FOR each of the
nominees.
The following table sets forth certain information with respect to each
person nominated and recommended to be elected to the Board of Directors of the
Company.
Name Age Director Since
- ---- --- --------------
Ralph E. Bailey 74 1996
Douglas G. Bailey 48 1998
John A. de Havilland 60 1994
Charles W. Grinnell 61 1994
Jeremy D. Peter-Hoblyn 58 1994
James M. Valentine 44 1994
Directors and Executive Officers of the Company
Ralph E. Bailey has been Chairman of the Board and a director
of the Company since July 1996. He has been a director and Chairman
of American Bailey Corporation ("ABC"), a privately owned business
acquisition and development company, since 1984. Mr. Bailey is the
former Chairman and Chief Executive Officer of Conoco, Inc. and a
former Vice Chairman of E.I. du Pont de Nemours & Co. Mr. Bailey is
also a director of Rowan Companies, Inc. and is a nominee for
election as a director of Fuel-Tech N.V.
Douglas G. Bailey has been a director of the Company since
March 31, 1998. Mr. Bailey, who is the son of Ralph E. Bailey, has
been the President and Chief Executive Officer of ABC since 1984.
Mr. Bailey is Chairman and Chief Executive officer of Golden
Casting Corporation and a director of DieselCast France S.A., both
affiliates of ABC. Mr. Bailey is a nominee for election as a
director of Fuel-Tech N.V.
3
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John A. de Havilland has been a director of the Company since its
inception and is Deputy Chairman of the Board of Fuel-Tech N.V. and has been a
director of that company since 1984. Mr. de Havilland was a director of J. Henry
Schroder Wagg & Co. Ltd. from 1971 until his retirement in 1990.
Charles W. Grinnell has been Vice President, General Counsel and
Corporate Secretary of the Company since its inception and has held the same
positions with Fuel-Tech N.V. since 1987. Mr. Grinnell has been a partner in the
Stamford, Connecticut law firm of Huth & Grinnell, LLC since 1992.
Jeremy D. Peter-Hoblyn has been the President and Chief Executive
Officer of the Company since its inception. He also has been a director of
Fuel-Tech N.V. since 1984 and was Chief Executive Officer of that company from
1993 to February 1996.
Scott M. Schecter, 41, has served as Vice President, Chief Financial
Officer and Treasurer of the Company and of Fuel-Tech N.V. since January 1994.
From June 1990 through January 1994, Mr. Schecter was Senior Vice President and
Chief Financial Officer of American Vision Centers, Inc. From May 1986 through
June 1990, Mr. Schecter served as a corporate development officer of W.R. Grace
and Company.
James M. Valentine has been Executive Vice President and Chief
Operating Officer of the Company since its inception. From the period 1990
through 1993, Mr. Valentine was the head of his own energy and environmental
consulting firm. Mr. Valentine was elected a director and Executive Vice
President of Fuel-Tech N.V. in 1993.
Please see the text below under the captions "Certain Relationships and
Related Transactions -- Relationship with Fuel Tech; Conflicts of Interest" for
information concerning the proposed election of Messrs. Ralph and Douglas Bailey
to the Board of Fuel-Tech N.V., a 27.4 % owner of common shares of the Company.
Mr. Eric N. Balles, formerly Vice President-Technology, resigned
effective September 30, 1997. Mr. Kent D.S. Durr, formerly Chairman and a
director of the Company, resigned effective December 31, 1997. There are no
family relationships between any of the directors or executive officers except
as stated above.
During the year ended December 31, 1997 there were six meetings of the
Board of Directors of the Company. Each director of the Company attended at
least 75% of such meetings during the period of his directorship.
The Board appointed an audit committee effective February 23, 1998
comprised of Messrs. Ralph E. Bailey and de Havilland. There are no other
committees of the Board of Directors. Compensation matters are determined by the
full membership of the Board.
4
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Under the Certificate of Incorporation of the Company indemnification
is afforded the Company's directors and executive officers to the fullest extent
permitted by the provisions of the General Corporation Law of the State of
Delaware. Such indemnification also includes payment of any costs which an
indemnitee incurs because of claims against the indemnitee. The Company is,
however, not obligated to provide indemnity and costs where it is adjudicated
that the indemnitee did not act in good faith in the reasonable belief that the
indemnitee's actions were in the best interests of the Company, or, in the case
of a settlement of a claim, such determination is made by the Board of Directors
of the Company.
The Company carries insurance providing indemnification, under certain
circumstances, to all of its directors and officers for claims against them by
reason of, among other things, any act or failure to act in their capacities as
directors or officers. The annual premium for this policy is $69,500. No sums
have been paid for such indemnification to any past or present director or
officer by the Company or under any insurance policy.
RATIFICATION OF APPOINTMENT OF AUDITORS
The Board of Directors has appointed the firm of Ernst & Young LLP,
Certified Public Accountants ("Ernst & Young"), to be the Company's auditors for
the year 1998 and submits that appointment to stockholders for approval. Ernst &
Young served in that capacity for the years 1996 and 1997 and is knowledgeable
about the Company's operations and accounting practices and is well-qualified to
act in the capacity of independent accountants. A representative of Ernst &
Young will be present at the Meeting and will have an opportunity to make a
statement and be available to respond to appropriate questions.
The appointment of auditors is approved annually by the Board and
subsequently submitted to the stockholders for ratification. In making the
appointment, the Board reviews Ernst & Young's performance in prior years along
with its reputation for integrity and overall competence in accounting and
auditing. The scope, timing, and fees applicable to the audit of the Company's
consolidated financial statements, as well as non-audit services, are also
reviewed and approved annually by the Board.
If the proposal is not approved, it is contemplated that the
appointment for 1998 will be permitted to stand, unless the Board finds other
compelling reasons for making a change. In view of the difficulty and expense
involved in changing independent accountants on short notice, disapproval of the
proposal will be considered as advice to the Board to select other independent
accountants for the following year.
The affirmative vote of a majority of the shares voting is required for
the approval of this proposal. The Company recommends a vote FOR this proposal.
5
<PAGE>
INCREASE IN COMPANY SHARE CAPITAL
The Company's authorized share capital as presently set out in its
Certificate of Incorporation is five million shares of common stock and 100,000
shares of preferred stock, each of $0.05 par value. There are now issued and
outstanding 2,516,666 common shares and there are reserved for issuance 515,417
common shares on exercise of warrants or employee stock options.(See Note 5 to
the Financial Statements.) Additionally, the Company has reserved 833,333 common
shares for conversion of 2,500 shares of the Company's Series A convertible
preferred stock (the "Series A Stock"). The Series A Stock which is not now
outstanding has been reserved for conversion of a Bridge Loan Facility (the
"Bridge Loan")in the amount of $1.25 million furnished to the Company effective
April 3, 1998. (See the more detailed description below under the captions
"Certain Relationships and Related Transactions -- Loans"). Accordingly, the
Company has now available for issuance only 1,134,584 common shares for all
purposes.
The Company estimates that the Bridge Loan Facility together with the
Company's other resources will satisfy the Company's cash requirements until
November 1998. The Company is seeking additional funds of from $3 to $5 million
for its general corporate purposes thereafter. The Company believes it will
require additional authorized common shares for any of the various types of
financing which might be offered to it, whether for sales of common shares,
conversion of other securities into common shares or for associated warrants. An
additional 10 million shares is believed reasonable under the circumstances for
such purposes. At the date of this proxy statement no such financing is
proposed. While the Company believes that such additional financing will be
obtained, there is no assurance that such financing will be obtained or, if
obtained, it will be offered on favorable terms.
The Company, therefore, believes that an increase of authorized capital
from 5 million to 15 million common shares, par value $0.05, is in order and a
resolution will be presented at the Meeting to amend the Certificate of
Incorporation of the Company to that effect. No increase in the authorized
amount of preferred stock is proposed.
The affirmative vote of a majority of the shares voting is required for
the approval of this proposal. The Company recommends a vote FOR this proposal.
6
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PRINCIPAL STOCKHOLDERS AND STOCK OWNERSHIP OF MANAGEMENT
The following table sets forth information regarding the beneficial
ownership of common stock as of March 31, 1998 by (i) each person known to the
Company to own beneficially more than five percent of the outstanding common
stock; (ii) each director of the Company; (iii) the Named Executive Officers;
and (iv) all directors and executive officers as a group.
Name and Address of Beneficial
Owner (1) No. of Shares Percentage
- ------------------------------ ------------- ----------
Fuel-Tech N.V. 689,147 27.4
Ralph E. Bailey (2) 26,666 1.1
Douglas G. Bailey (2) - -
Eric N. Balles (2) 8,333 *
John A. de Havilland(2) 10,833 *
Charles W. Grinnell (2) 26,508 1.1
Jeremy D. Peter-Hoblyn(2) 119,418 4.8
James M. Valentine(2) 89,271 3.6
All Directors and Officers
as a Group (eight persons)(2) 320,325 14.1
- ----------
* Less than one percent (1.0%)
(1) The address of Fuel-Tech N.V. is Castorweg 22-24, Curacao, Netherlands
Antilles and the address of each other beneficial owner is c/o Clean Diesel
Technologies, Inc., Suite 702, 300 Atlantic
Street, Stamford, Connecticut 06901.
(2) Includes shares subject to options exercisable presently and within 60
days for Mr. Ralph E. Bailey, 11,666 shares; Mr. Balles, 8,333 shares; Mr. de
Havilland, 10,833 shares; Mr. Grinnell, 18,666 shares; Mr. Peter-Hoblyn, 73,866
shares; Mr. Valentine, 83,332 shares; and for all directors and officers as a
group, 244,862 shares.
7
<PAGE>
EXECUTIVE COMPENSATION
The table below sets forth information concerning compensation for
services in all capacities awarded to, earned by or paid to Mr. Jeremy D.
Peter-Hoblyn, President and Chief Executive Officer, Mr. James M. Valentine,
Executive Vice President and Chief Operating Officer and Eric N. Balles, Vice
President-Technology, during the fiscal years ending December 31, 1997, 1996 and
1995, the only executive officers of the Company who earned total compensation
in excess of $100,000 during fiscal year 1997 (the "Named Executive Officers").
Mr. Balles resigned from the Company effective September 30, 1997. Prior to
August 1, 1996 for Mr. Valentine and December 1, 1996 for Mr. Peter-Hoblyn, the
amounts of annual compensation shown below were paid by Fuel Tech and allocated
to the Company and reimbursed by the Company to Fuel Tech.
Summary Compensation Table
Annual Long-Term
------ ---------
Shares
Underlying
Options
Granted
Name and Principal Position Year Salary(1) Other(2) (#)
- --------------------------- ---- ------------------ ---
Jeremy Peter-Hoblyn 1997 250,000 71,525 35,000
President and Chief 1996 229,667 64,996 -
Executive Officer 1995 162,500 35,500 17,200
James M. Valentine 1997 220,000 29,523 35,000
Executive Vice President 1996 209,833 26,727 -
and Chief Operating Officer 1995 165,000 24,923 10,000
Eric N. Balles 1997 120,000 12,625 -
Vice President-Technology 1996 56,910 4,776 25,000
- ----------
(1) Effective February 16, 1997 Mr. Peter-Hoblyn voluntarily reduced his base
salary to $187,500 pending improvement in the Company's financial position.
(2) The amounts designated "other" in 1997, 1996 and 1995 include, respectively,
for Mr. Peter-Hoblyn, pension contributions to a purchased annuity of $45,200,
$45,833 and $32,500; for Mr. Valentine, 401 (k) plan contributions of $9,550,
$8,793 and $7,313 and medical insurance premiums of $13,068, $11,671 and $9,441;
and for Mr. Balles medical insurance premiums of $9,475 and $3,376.
Directors' Compensation
The Company provides an annual retainer of $15,000 and a meeting fee of
$2,000 per Board meeting and $1,000 per diem for services not involving board
meetings plus associated expenses for
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directors who are not employees of the Company, except Mr. Ralph E. Bailey who
is paid an annual retainer of $15,000 and is reimbursed for his expenses of
attending meetings and for office expenses as Chairman of the Company. Mr. Ralph
E. Bailey, commencing October 1997, has deferred his annual retainer and expense
payments pending improvement in the Company's financial position. Where a
non-employee director is employed or otherwise compensated by an affiliated
Company, such as Fuel-Tech N.V., the retainer and meeting fees are paid to the
affiliated company, unless waived. Fuel Tech was paid those retainers and fees
for 1997 in the amount of $56,850. Directors who are employees of the Company
receive no compensation for their service as directors.
Compensation Committee Interlocks and Insider Participation
The Board of Directors of the Company did not have a Compensation
Committee during 1997. Accordingly, during 1997 each of the directors and
executive officers of the Company participated in deliberations and decisions
concerning his compensation.
OPTION GRANTS IN THE LAST FISCAL YEAR
Number of % of Total
Shares Options
Underlying Granted to Exercise or
Options Employees in Base Price
Granted (#) 1997 ($/Sh)
----------- ---- ------
Name
- ----
Jeremy D.
Peter-Hoblyn 35,000 44% $4.625
Eric N.
Balles -- -- --
James M.
Valentine 35,000 44% $4.625
Expiration Date Potential Realizable
--------------- Value of Assumed
Annual Rates of Stock
Price Appreciation for
Option Term
----------------------
5% 10%
--- ---
Jeremy D.
Peter-Hoblyn 12/6/07 $102,000 $258,000
Eric N.
Balles -- -- --
James M.
Valentine 12/6/07 $102,000 $258,000
9
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AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION VALUES
Number of Number of
Securities Securities
Underlying Underlying
Unexercised Unexercised
Shares Options at Options at
Acquired Fiscal Year Fiscal
on Value End/ Year-End/
Name Exercise Realized Exercisable Unexercisable
- ---- -------- -------- ----------- -------------
Jeremy D.
Peter-Hoblyn 16,666 $50,832 62,200 23,334
James M.
Valentine 0 $ 0 71,666 23,334
Eric N.
Balles 0 $ 0 8,333 0
Value of Value of
Unexercised Unexercised
in-the-Money in-the-Money
Options at Options at
Fiscal Fiscal
Year-End/ Year-End/
Name Exercisable Unexercisable
- ---- ----------- -------------
Jeremy D.
Peter-Hoblyn $29,601 $ 0
James M.
Valentine $66,900 $ 0
Eric N.
Balles $ 0 $ 0
10
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OPTIONS GRANTED TO DATE UNDER THE PLAN
The following table sets forth information concerning stock options
granted from the inception of the Plan to date to those persons who are now
(I) the Named Executive Officers, (ii) all executive officers as a group,
(iii) each nominee for director, (iv) all non-executive employees as a group
and (v) all employees, including executive officers as a group. On April 15,
1998 the closing price of the Company's Common Stock was $1 7/8 per share.
All stock options become exercisable upon a change of control as defined in
the Plan.
Number of Exercise Expiration
Name Shares Prices Dates/Vesting
---- ------ ------ -------------
Ralph E. Bailey 25,000 $4.50 2006(1)
5,000 $4.625 2007(4)
Eric N. Balles 25,000 $4.50 2006(5)
John A. de Havilland 7,500 $6.82 2005(2)
5,000 $4.625 2007(4)
Charles W. Grinnell 6,250 $2.50 2002(1)
5,750 $6.82 2005(2)
10,000 $4.625 2007(4)
Jeremy D. Peter-Hoblyn 25,000 $0.20 2001(3)
25,000 $2.00 2001(2)
17,200 $6.82 2005(2)
10,000 $4.625 2007(5)
25,000 $4.625 2007(4)
James M. Valentine 25,000 $0.20 2001(2)
25,000 $2.00 2001(2)
10,000 $6.82 2005(2)
10,000 $4.625 2007(4)
25,000 $4.625 2007(4)
Executive officers
as a group (four
in number) 260,700 $0.20-$6.82 2001-2007(1)-(4)
All employees,
including executive
officers, as a group
(nine in number) 288,200 $0.20-$6.82 2001-2007(1)-(4)
Non executive
employees as a group
(four in number) 27,500 $4.19-$6.50 2002-2007 (1)(4)
11
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- ----------
(1) These options become first exercisable in three equal installments on the
first through the third anniversaries of grant.
(2) These options are now vested and exercisable.
(3) 16,666 of these options were exercised in 1997 and the remaining 8,334
shares are now exercisable.
(4) These options become first exercisable in three equal installments on the
grant and on the first and second anniversaries of grant.
(5) 8,333 of these options are vested and exercisable, the balance having been
cancelled.
REPORT OF THE BOARD OF DIRECTORS ON EXECUTIVE COMPENSATION
Compensation Policies
Compensation for executives is based on the philosophy that
compensation must (a) be competitive with other businesses to attract, motivate
and retain the talent needed to lead and grow the Company's business, (b) be
linked to the Company's position as a development stage company requiring strong
entrepreneurial skills to achieve its long and short term goals, and
(c) encourage executive officers to build their holdings of the Company's stock
to align their goals with those of the stockholders.
Compensation of Executive Officers - 1997
The key components of the Company's executive compensation program
during the last fiscal year were base salary and non qualified stock option
awards under the 1994 Plan. The cash based portion of compensation is fixed by
the Board in its discretion based upon historical levels, performance, ranking
within the officer group, amounts being paid by comparable companies, and the
Company's financial position. Stock options are designed to provide additional
incentives to executive officers to maximize stockholder value. Through the use
of vesting periods the option program encourages executives to remain in the
employ of the Company. In addition, because the exercise prices of such options
are set at the fair market value of the stock on the date of grant of the
option, executives can only benefit from such options, if the trading price of
the Company's shares increases, thus aligning their financial interests with
those of the stockholders. Finally, stock options minimize the Company's cash
compensation requirements.
12
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Compensation of Chief Executive Officer - 1997
The compensation of the Chief Executive Officer, Mr. Peter-Hoblyn, is
made up of base salary, stock options and a company-paid annuity. (See the
Summary Compensation Table above.) Mr. Peter-Hoblyn's base salary was not
increased in 1997. The portion of that base salary allocable to the Company,
however, increased in 1997 from $229,667 to $250,000 solely because 100% of that
base salary became allocable to the Company in mid-year 1996 and thereafter no
portion was allocable to Fuel Tech. This amount of base salary was fixed in 1996
in the overall business judgement of the Board as to the proper competitive
level of salary paid by comparable companies. Also, Mr. Peter-Hoblyn was awarded
35,000 non-qualified stock options under the Plan in 1997 in accordance with the
Company's philosophy of providing incentives to management aligned with the
interests of the stockholders.
Effective February 16, 1998 Mr. Peter-Hoblyn voluntarily reduced his
base salary to $187,500 pending improvement in the Company's financial position.
This report has been provided by the following members of the Board of
Directors of the Company:
Ralph E. Bailey Jeremy D. Peter-Hoblyn
John A. de Havilland James M. Valentine
Charles W. Grinnell
This compensation report and the following performance graph shall not
be deemed incorporated by reference in any filing by the Company under the
Securities Act of 1933 or the Securities Exchange Act of 1934, except to the
extent the Company specifically incorporates such report.
13
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PERFORMANCE GRAPH
The following line graph compares (i) the Company's cumulative total return to
stockholders per share of Common Stock from January 1, 1996 through the end of
1997 to that of (ii) the Russell 2000 index and (iii) the Standard and Poor's
Specialty Chemicals Index and (iv) an index developed by the Company of a peer
group of enviornmental/specialty chemicals companies including Catalytica, Inc.,
Energy Biosystems Corporation and Fuel-Tech N.V. The Company's shares first
commenced trading on December 26, 1995. Information for the few trading days in
1995 is not reflected in the graph as it is not material.
$140.00 ----------------------------------------------------------------
| @
| |
| #
$120.00 ----------------------------------------------------------------
| @ |
| |
| # %
$100.00 @#%&------------------------------------------------------------
| |
| |
| |
$80.00 ----------------------------------------------------------------
| |
| % |
| |
$60.00 ----------------------------------------------------------------
| |
| |
| |
$40.00 ----------------------------------------------------------------
| & &
| |
| |
$20.00 ----------------------------------------------------------------
| |
| |
| |
$0.00 ----------------------------------------------------------------
12/28/95 12/31/96 12/31/97
@ = Russell 2000 # = S&P Specialty Chemicals Index
% = Environmental/Specialty Chemical Technology & = CDT
14
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Management and Services Agreement
Effective July 1995 and amended June 1996, the Company and Fuel Tech
have entered into a Management and Services Agreement (the "Services Agreement")
under which Fuel Tech's corporate staff provides certain administrative
services, including legal advice and services, risk management, tax advice and
certain technical and other services to the Company. The Company is assessed
fees equal to, depending on the type of service, 3% or 10% of the Company's
fixed reimbursable costs for these services. The fee may be changed by mutual
agreement of the Company and Fuel Tech. Management believes that the charges
under the Services Agreement are reasonable and that the terms of the Services
Agreement are fair to the Company. The Services Agreement may be canceled by
either party on or before May 15 in any year.
Technology Assignments
The Company's technology is comprised of patents, patent applications,
trade or service marks, data and know-how. A substantial portion of this
technology is held under assignments of technology from Fuel Tech and Fuel Tech
affiliates. The assignments provide for running royalties payable to Fuel Tech
commencing in 1998 of 2.5% of gross revenues derived from platinum fuel
catalysts. The Company may at any time terminate the royalty obligation by
payment to Fuel Tech in any year from 1998 through 2008 of amounts, depending on
the year, declining from $12 million to $1.1 million.
Term Loan
Under an unsecured promissory note of November 5, 1997, the Company
borrowed $494,620 from Fuel Tech repayable at 8% interest in installments of
$100,000 on July 1 in each of 1998 through 2000 and $194,620 on July 1, 2001.
Short Term Loan
Also, by a note and security agreement the Company obtained a
short-term loan facility of up to $500,000 at 10% interest due June 17, 1998.
Borrowings under this instrument are secured by a security interest on all of
the Company's intellectual property.
Bridge Loan
Fuel Tech and a group of London based investors (the "Bridge Loan
Lenders") have executed a letter of intent with the Company to provide the
Company with a Bridge Loan Facility (the "Bridge Loan") of $1.25 million at 10%
interest due April 15, 2001, secured by all of the intellectual property of the
Company. The $500,000 Fuel Tech
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note and security agreement referred to above will be canceled and Fuel Tech's
$500,000 portion of the Bridge Loan will substitute for that instrument. The
Bridge Loan will, as a debt instrument and through its security interest, be
preferred in liquidation over all other securities of the Company, debt or
equity. No class of debt senior to the Bridge Loan may be issued absent the
prior consent of a majority in interest of the Bridge Loan Lenders.
The Bridge Loan Facility may be converted into 2,500 shares of Series A
Convertible Preferred Stock (the "Series A Stock") of the Company at any time at
the option of [?100%?] of the Bridge Loan Lenders but is required to be
converted on (1) the conclusion of a public or private financing contributing at
least $1.75 million of net proceeds to the Company, or (2) voluntary conversion
of at least $833,333 of the Bridge Loan.
John A. de Havilland, a director of the Company and of Fuel-Tech N.V.,
is also a director of The Shimpling Trust Limited which is a Bridge Loan Lender
in the amount of $250,000.
Terms of Series A Convertible Preferred Stock
On March 31, 1998 the Board of Directors pursuant to its authority
under the Certificate of Incorporation of the Company authorized 10,000 shares
of Series A Stock which is valued at $500 per share, will pay accruable
dividends of 9% (11% if paid in kind at the Company's option) and will be
convertible at the conversion price of $1.50 per share (a rate of 333.33 common
shares for each share of Series A Stock). This conversion ratio will have a
weighted average price adjustment for anti-dilution protection which shall be
waived as to shares of Series A Stock if the Holder thereof does not purchase at
least its pro-rata portion, on a fully diluted basis, of a Company offer of
another series of preferred stock. Mandatory conversion will occur of all Series
A Stock and accrued and unpaid dividends thereon in the event of an underwritten
public offering providing the Company with at least $10 million in gross
proceeds at a price per share of at least 20% of the conversion price. The
Series A Stock may be converted at the option of the Company, if Company common
shares trade at a minimum price of $4.50 per day for 20 consecutive trading
days, which conversion may be delayed at the Series A holders' option pro rata
over the following 18 months. The Series A Stock will be senior to all other
classes of Company stock and will have a liquidation preference equal to its
issue price per share. Holders of Series A Stock shall have the pro rata right
based on their fully diluted percentage of equity ownership to purchase shares
of subsequent equity issues of the Company and such shares not purchased by such
Holders shall be reallocated for purchase among the other Holders of Series A
Stock. The Company may redeem Series A Stock in four equal quarterly
installments at any time after four years from issue. Holders of Series A Stock
may vote pari passu with the common on an as converted basis and will vote as a
class for the
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election of two directors. In addition, the following actions by the Company
will require approval of holders of 60% of the Series A Stock, voting as a
class: (1) the creation of security senior to or ranking pari passu with the
Series A Stock, (2) payment of dividends on common shares, (3) repurchase of
common shares except on termination of employment, (4) a transaction involving
change in control of the Company (5) an increase in the number of authorized
Series A Stock, (6) any change materially adverse to the rights, preferences and
privileges of the Series A Stock, and (7) any change in the size of the Board of
Directors of the Company.
Registration Rights
The Company has agreed as of November 15, 1997 under certain
circumstances to provide registration rights to Fuel-Tech N.V. for one demand
and unlimited incidental registrations at Company cost for the sale of Company
common shares held by Fuel-Tech N.V., if such registration should be legally
required for Fuel Tech to sell such shares.
The terms of the Series A Stock provide that Holders thereof may have
three demand (each of at least $1 million in value and not more often than one
in any twelve months)and unlimited incidental registrations at Company cost for
the common shares underlying the Series A Stock held by the Holders, if
registration should be legally required for such Holders to sell such underlying
common shares.
Relationship with Fuel Tech; Conflicts of Interest
Directors and officers of Fuel Tech and its subsidiaries who are also
directors and officers of the Company, and Fuel Tech as the Company's
controlling stockholder, are in positions involving the possibility of conflicts
of interest with respect to transactions involving the Company.
The Company and Fuel Tech have entered into contractual arrangements
governing certain transactions and relationships between them. These agreements
were executed while the Company was a subsidiary or affiliate of Fuel Tech and
were not the result of arm's-length negotiations. Accordingly, there is no
assurance that the terms and conditions of these agreements are as favorable to
the Company as might have been obtained from independent third parties.
Seven of the Company's officers or directors are employees, directors
or nominees to the Board of Fuel Tech. Three of these persons are also officers
of Fuel Tech and Fuel Tech subsidiaries. Although these persons seek to
devote such time to the affairs of the Company as the Company's needs require,
they must balance the Company's need for their time with the needs of Fuel Tech
and its subsidiaries.
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Ralph E. Bailey and Douglas G. Bailey, nominees for election as
directors of the Company are also, pursuant to a Securities Purchase Agreement
dated as of March 23, 1998 (the "Purchase Agreement"), nominees for election as
Managing Directors of Fuel-Tech N.V. which owns 27.4 percent of the issued and
outstanding common shares of the Company. Pursuant to the Purchase Agreement
certain affiliates and related parties of ABC (the "Investors") will purchase
4.75 million common shares of Fuel Tech and warrants to purchase an additional 3
million of such common shares. Under the terms of a related Shareholders
Agreement the Investors, for a period of ten years and so long as they own not
less than a certain specified minimum percentage of the issued and outstanding
common shares of Fuel Tech, will be entitled from time to time to nominate two
Managing Directors of Fuel-Tech N.V. who are representatives of the Investors
and one independent director. Also, during such period the Investors will be
entitled to nominate up to 50% of the directors of Fuel Tech, Inc., the
operating subsidiary of Fuel Tech which owns substantially all of the operating
assets of the Fuel Tech Group. The transactions contemplated by the foregoing
are subject to certain conditions, including approval by the shareholders of
Fuel-Tech N.V. common stock.
The Company expects to resolve potential conflicts of interest with
Fuel Tech on a case-by-case basis, taking into consideration relevant factors
including its existing agreements with Fuel Tech, applicable stock exchange
rules and prevailing corporate practices. Fuel Tech, however, may exercise its
influence in its own best interests.
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GENERAL
Management knows of no other matters that may properly be, or are
likely to be, brought before the meeting. If other proper matters are
introduced, the individuals named as Proxies on the enclosed Proxy Card will
vote in their discretion the shares represented by the Proxy Card.
Proposals of stockholders intended for inclusion in the proxy statement
and proxy to be mailed to all stockholders entitled to vote at the 1999 Annual
meeting of Stockholders of the Company must be received in writing at the above
address of the Company on or before December 31, 1998.
By Order of the Board of Directors
Charles W. Grinnell
Secretary
Stamford Connecticut
April 30, 1998
The Company will provide without charge to each person being solicited by this
Proxy Statement, upon written request, a copy of the Annual Report of the
Company on Form 10-K for the year ended December 31, 1997, including the
financial statements and schedules thereto, as filed with the Securities and
Exchange Commission. All such requests should be directed to the Secretary at
the above address of the Company.
Statements in this Proxy Statement 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. Stockholders are cautioned
that all forward-looking statements involve risks and uncertainties, including
those detailed in the Company's filings with the Securities Exchange Commission
and also set out under the caption "Risk Factors" in the Annual Report
accompanying this proxy statement.
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PROXY PROXY
Solicited by the Board of Directors
CLEAN DIESEL TECHNOLOGIES, INC.
Annual Meeting of Stockholders - June 10, 1998
The undersigned hereby appoints Ralph E. Bailey, Jeremy D. Peter-Hoblyn
and Lee K. Tinto, and each of them, with full power of substitution, proxies for
the undersigned and authorizes them to represent and vote, as designated on the
reverse side, all of the shares of Common Stock of Clean Diesel Technologies,
Inc. (the "Company") which the undersigned may be entitled to vote at the Annual
Meeting of Stockholders to be held at the Stamford Sheraton Hotel, One First
Stamford Place, Stamford, Connecticut 06901 at 10:00 a.m., on Wednesday June 10,
1998, and at any adjournments or postponements of such meeting, for the
following purposes and with discretionary authority as to any other matters that
may properly come before the meeting all in accordance with and as described in
the Notice of Meeting and accompanying Proxy Statement. The Board of Directors
recommends a vote for all nominees for election as director and for proposals 2
and 3. If no direction is given, this proxy will be voted for all nominees and
for such proposals.
IMPORTANT - TO BE SIGNED AND DATED ON THE REVERSE SIDE
. Fold and Detach Here .
<PAGE>
1. Election as Directors of Ralph E. Bailey, Douglas G. Bailey,
John A. de Havilland, Charles W. Grinnell, Jeremy D. Peter-Hoblyn
and James M. Valentine.
FOR all nominees WITHHOLD
listed above (except AUTHORITY
as marked to the to vote for all
contrary) nominees listed above
(Instruction: To withhold authority to vote for any individual
nominee, write that nominee's name on the line provided below.)
- --------------------------------------------------------------------------------
2. Approve the appointment of Ernst & Young LLP as independent auditors for the
year 1997
FOR AGAINST ABSTAIN
3. Approve the amendment of the certificate of incorporation of the Company to
increase the authorized common shares of the Company from 5 million to 15
million.
FOR AGAINST ABSTAIN
Dated _________________________________, 1998
_____________________________________________
_____________________________________________
(Signature of Stockholder)
Please sign exactly as name appears. If acting
as attorney, executor, trustee or in other
representative capacity, sign name and title.
