<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:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to 240.14a-11(c) or 240.14a-12
CLEAN DIESEL
- -----------------------------------------------------------------------------
(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:
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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:
___________________________________________________________________________
<PAGE>
CLEAN DIESEL TECHNOLOGIES, INC.
300 Atlantic Street, Suite 702
Stamford, CT 06901
-------------------------------
Notice of Annual Meeting of Stockholders
To be held June 9, 1999
-------------------------------
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 9, 1999, at the Holiday Inn Select Stamford, 700 Main Street,
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 seven (7) directors;
2. To ratify the appointment of Ernst & Young LLP as independent auditors for
the year 1999;
3. To amend the 1994 Incentive Plan to include in the definition of
"outstanding shares" the number of common shares into which issued and
outstanding convertible securities of the Company may be converted for
purposes of determining the authorized number of shares available for
granting stock awards; and
4. To transact any other business that may properly come before the Meeting or
any adjournment.
Only stockholders of record of the Company's Common Stock, par $0.05 per
share ("Common"), and Series A Convertible Preferred Stock, par $0.05 per share
("Preferred"), at the close of business on April 12, 1999 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 for each of the Common and the Preferred shall constitute a quorum for
the transaction of business at the Meeting, except for the election as
directors of the nominees of the Preferred for which a majority of the votes
entitled to be cast by the Preferred is required.
The Company's Annual Report for 1998 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 IMPORTANT THAT
YOU PROMPTLY FILL OUT, DATE, SIGN AND RETURN THE ENCLOSED PROXY CARD TO
ESTABLISH A QUORUM AND TO RECORD YOUR VOTE.
<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 Holiday Inn Select Stamford, 700 Main Street,
Stamford, Connecticut 06901, on Wednesday, June 9, 1999, at 10:00 a.m. local
time, and at any adjournments thereof.
The record date with respect to this solicitation is April 12, 1999. All
holders of Company's Common Stock, par $0.05 per share (the "Common") and
Series A Convertible Preferred Stock, par $0.05 per share (the "Preferred") as
of the close of business on that date are entitled to vote at the meeting. As
of that date the Company had 2,591,124 shares of Common and 7,881 shares of
Preferred outstanding. The number of shares of Common into which the Preferred
is convertible as of the record date is 2,626,973 shares. A stockholders list
of the Common and Preferred stockholders as of the record date is available for
inspection at the office of the Company set out in the Notice of Meeting.
Each Common stockholder is entitled to one vote per share of Common and
each Preferred stockholder is entitled to a number of votes per share of
Preferred equal to the number of votes per share of Common into which such
stockholder's Preferred is convertible, in each case as of the record date.
Except for the election of directors as to which the Preferred is entitled to
vote as a separate class for two directors, the Common and Preferred are
entitled to vote together on all matters as a single class.
The quorum for the meeting is the number of Common and Preferred shares
which together as a single class represent a majority of the votes entitled to
be cast, except, however, for the election of the two director-nominees of the
Preferred stockholders, for which a separate quorum of a majority of the
Preferred shares is required.
A proxy may be revoked by a 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 such 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 1998 (the "Financial Statements"), and this Proxy Statement were
distributed together commencing on April 30, 1999.
ELECTION OF DIRECTORS
The Board proposes the election of seven directors. The term of office of
each director is until the 2000 Annual Meeting or until a successor shall have
been duly elected. Ralph E. Bailey, Douglas G. Bailey, Derek R. Gray, John A.
de Havilland, Jeremy D. Peter-Hoblyn, Charles W. Grinnell and James M.
Valentine, who are each incumbent directors, are the management nominees for
election as directors of the Company. Messrs de Havilland and Gray are also
nominees of the Preferred stockholders who are entitled to elect two directors.
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, or, in the case of the Preferred nominees, the current director
or directors who are Preferred nominees. Unless the Board reduces the number of
directors, 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 for directors other than
substitutes for the Preferred nominees.
<PAGE>
The affirmative vote of a plurality of the aggregate votes cast of the
Common and Preferred stockholders voting together as a single class shall elect
the nominees as directors except, however, for Messrs Gray and de Havilland who
shall be elected separately by a majority only of the votes entitled to be cast
by the Preferred stockholders voting. 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 ................. 75 1996
Douglas G. Bailey ............... 49 1998
Derek R. Gray ................... 65 1998
John A. de Havilland ............ 61 1994
Charles W. Grinnell ............. 62 1994
Jeremy D. Peter-Hoblyn .......... 59 1994
James M. Valentine .............. 45 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 director
and the Chairman and Chief Executive Officer of Fuel-Tech N.V.
Douglas G. Bailey was elected a director of the Company by the Board of
Directors effective 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 also a director of Fuel-Tech N.V.
John A. de Havilland has been a director of the Company since its
inception and was elected a director of Fuel-Tech N.V. by its shareholders
effective December 16, 1998. Mr. de Havilland had previously been a director of
Fuel-Tech N.V. from its inception until 1997. Mr. de Havilland was a director
of J. Henry Schroder Wagg & Co. Ltd. from 1971 until his retirement in 1990.
Derek R. Gray was elected a director of the Company by the Board of
Directors effective November 11, 1998. Mr. Gray has been Managing Director of S
G Associates Limited, a United Kingdom fiscal advisory firm since 1971 and a
director of Velcro industries N.V. since 1974. Mr. Gray was a director of
Fuel-Tech N.V. from 1987 to 1990.
Charles W. Grinnell has been a director and the 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 a director and the President and Chief
Executive Officer of the Company since its inception. He also has been a
director of Fuel-Tech N.V. since 1987 and of Fuel Tech, Inc. since 1984 and was
Chief Executive Officer of Fuel-Tech N.V. from 1993 to February 1996.
Scott M. Schecter, 42, 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, a Certified Public
Accountant, 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 a director and Executive Vice President and
Chief Operating Officer of the Company since its inception. From the period
1990 through 1993, Mr. Valentine was the head of his own energy and
environmental consulting firm. Mr. Valentine has been a director of Fuel-Tech
N.V. since 1993.
2
<PAGE>
Please see the text below under the captions "Certain Relationships and
Related Transactions -- Relationship with Fuel Tech; Conflicts of Interest" for
information concerning the relationship between the Company, certain of its
directors and Fuel-Tech N.V., a 26.7% owner of the equity of the Company.
There are no family relationships between any of the directors or
executive officers except as stated above.
During the year ended December 31, 1998 there were eleven 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.
During 1998 there were no Committees of the Board and compensation matters
were determined by the full membership of the Board. Effective March 23, 1999,
however, a Compensation Committee was appointed, the members of which are
Messrs. D.G. Bailey (Chairman), Gray, de Havilland and Peter-Hoblyn (ex
officio).
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 $65,000. No sums
have been paid for such indemnification to any past or present director or
officer by the Company or under any Company 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 1999 and submits that appointment to stockholders for approval.
Ernst & Young served in that capacity for the years 1996 through 1998 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
financial statements, as well as non-audit services, are also reviewed and
approved annually by the Board.
If this proposal is not approved, it is contemplated that the appointment
for 1999 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 aggregate of the Common and
Preferred votes cast is required for the approval of this proposal. The Company
recommends a vote FOR this proposal.
3
<PAGE>
AMENDMENT OF 1994 INCENTIVE PLAN
The Plan
In 1994 the Board of Directors adopted and Fuel Tech, the then sole
stockholder of the Company, approved the Company's 1994 Incentive Plan (the
"Plan"). The Plan is intended to provide a flexible structure within which the
Company may utilize various compensation devices to recruit and retain the
services of such key persons as may be required to manage and carry out the
Company's business.
Awards under the Plan may be granted in the form of non-qualified stock
options, stock appreciation rights, restricted stock, performance awards,
bonuses or any other form of share-based or non-share-based award or any
combination of these awards. To date only non-qualified options have been
granted under the Plan.
Administration; Participation
Under the Plan, the Board of Directors or a Committee thereof appointed by
the Board ("the Administrator") may grant incentive awards to employees,
officers, directors, and consultants of the Company. The Plan is currently
being administered by the Board. The directors, therefore, participate in
decisions regarding their own awards. At the date of this Proxy Statement
sixteen persons are eligible to participate in the Plan.
Available Shares; Limitations
The administrator of the Plan is authorized to grant awards in its
discretion, provided that shares that are the subject of awards shall not in
the aggregate exceed 17.5% of the Company's Common shares from time to time
issued and outstanding. Shares subject to awards may appropriately be adjusted
as the result of stock splits, recapitalizations and the like. There are now
outstanding 2,591,124 Common shares and, under the above percentage limitation,
453,446 shares are authorized for awards. But, only 16,496 shares are now
available for grant under the Plan pursuant to that limitation.
Under the Plan, no award may be outstanding for more than ten years.
Share-based awards at the time of grant shall have an exercise price of or be
valued at not less than 100% of the fair market value of the shares on the date
of the award, as determined by the Administrator. Awards under the Plan are,
unless waived by the Administrator, subject to certain restrictions on
transferability. Awards are also forfeitable in certain circumstances and are
exercisable at such time or times and during such period as shall be set forth
in the agreement evidencing the award.
Tax Matters
The following summary describes the U.S. Federal income tax consequences
of the Plan.
Stock Options. No income will be recognized by the holder and the Company
will not be entitled to a deduction at the time of grant of a non-qualified
stock option. On exercise of a non-qualified stock option the amount by which
the fair market value of the stock on the date of exercise exceeds the option
price will be taxable to the holder as ordinary income and, subject to
satisfying applicable withholding requirements, and any Internal Revenue Code
Section 162(m) deduction limitation for compensation in excess of $1 million
per person, deductible by the Company. The subsequent disposition of shares
acquired upon exercise of a non-qualified stock option will ordinarily result
in a capital gain or loss.
Stock Appreciation Rights. The amount of any cash or the fair market value
of any stock received upon the exercise of a stock appreciation right under the
Plan will be includible in the employee's ordinary income and, subject to
satisfying applicable withholding requirements and any Section 162(m) deduction
limitation, deductible by the Company.
Other Awards. Under Internal Revenue Code Section 83(b), an employee may
elect to include in ordinary income, as compensation at the time restricted
stock is first issued, the excess of the fair market value of such shares at
the time of issuance over the amount paid, if any, by the employee for such
shares. Unless a Section 83(b) election is made, no taxable income will
generally be recognized by the recipient of a restricted stock
4
<PAGE>
award until such shares are no longer subject to the restrictions or the risk
of forfeiture. When either the restrictions or the risk of forfeiture lapses,
the employee will recognize ordinary income and, subject to satisfying
applicable withholding requirements and any Section 162(m) deduction
limitation, the Company will be entitled to a deduction in the amount equal to
the excess of the fair market value of the stock on the date of lapse over the
amount paid, if any, by the employee for such shares. Absent a Section 83(b)
election any cash dividends or other distributions paid with respect to the
restricted stock prior to the lapse of the restrictions or risk of forfeiture
will be included in the employee's ordinary income as compensation at the time
of receipt.
Performance Shares or Units. Generally, an employee will not recognize any
taxable income and the Company will not be entitled to a deduction upon the
award of performance shares or units. When the employee receives a distribution
in respect of the performance shares or units, the fair market value of stock
or cash received in payment for such awards generally is taxable to the
employee as ordinary income and, subject to any Section 162(m) limitation,
deductible by the Company.
Proposed Amendment of the Plan
The Company is an entreprenurial company in the development stage with
limited revenues and products in the process of commercialization. Having to
date made significant progress in advancing the Company's technologies and
identifying commercial opportunities for its products, the Company continues to
require tools to motivate, provide incentives to and retain its executives and
key employees. To successfully attract and retain superior talent while
minimizing expense, the Company wishes to continue its policy of utilizing
significant non-qualified stock options and other equity-based awards, where
needed, to keep salary and cash bonuses to a minimum.
The Company has been advised that competitive practices indicate that
stock ownership and shares reserved for future awards range from 10% to 30% of
total shares outstanding for key managers and senior scientists. The most
common measures of central tendency for shares reserved for stock option awards
are in the range of 15% to 20% of shares outstanding and, typically, the most
highly paid executives are granted half the total shares reserved, i.e., 7.5%
to 10%. See the tables below under the captions "Principal Stockholders and
Stock Ownership of Management," "Option Grants in the Last Fiscal Year," and
"Aggregated Option Exercises in the Last Fiscal Year and FY-End Option Values."
The limitation of 17.5% of the Common shares outstanding does not,
however, take into account Common shares into which convertible securities of
the Company may from time to time be converted and, accordingly, is not now
applicable to approximately half of the equity of the Company. At April 1,
1999, there were 7,881 shares of Preferred issued and outstanding convertible
into 2,626,973 shares of Common. If applied to these Common shares issuable on
conversion of the Preferred, the 17.5% limitation would authorize an additional
459,720 shares for the grant of awards under the Plan.
A resolution will be presented at the Meeting for the amendment of the
Plan to include for purposes of the limitation a definition of issued and
outstanding shares of the Company to include the number of Common shares into
which from time to time convertible securities of the Company may be converted.
The Board has under advisement no pending share awards under the Plan. It
is, however, anticipated that awards will be granted in 1999 and later years in
the Board's discretion and following its usual practices. Since awards are in
the discretion of the Board, the benefits in the future to participants are not
determinable.
The affirmative vote of a majority of the aggregate of the Common and
Preferred votes cast is required for the approval of this proposal. The Company
recommends a vote FOR this proposal.
5
<PAGE>
PRINCIPAL STOCKHOLDERS AND STOCK OWNERSHIP OF MANAGEMENT
The following table sets forth information regarding the beneficial
ownership of Common and Preferred stock, as of April 1, 1999, by (i) each
person known to the Company to own beneficially more than five percent of the
outstanding Common or Preferred; (ii) each director of the Company; (iii) the
Named Executive Officers; and (iv) all directors and executive officers as a
group.
<TABLE>
<CAPTION>
Name and Address of Beneficial Owner (1) No. of Shares (2)(3) Percentage
- ------------------------------------------------------------ ---------------------- -----------
<S> <C> <C>
Preferred Stock
Platinum Plus, Inc. ................................. 2,116 26.8
Positive Securities Limited ......................... 1,659 21.1
Waltham Forest Friendly Society ..................... 684 8.7
Addis International Limited ......................... 521 6.6
Cadogan Settled Estates Shareholding Company Limited 521 6.6
The Shimpling Trust Limited ......................... 521 6.6
Common Stock
Fuel-Tech N.V. ...................................... 689,147 22.7
Ralph E. Bailey ..................................... 51,110 1.7
Douglas G. Bailey ................................... 16,222 *
Eric N. Balles ...................................... 8,333 *
Derek R. Gray ....................................... 11,237 *
John A. de Havilland ................................ 53,944 1.8
Charles W. Grinnell ................................. 34,842 1.1
Jeremy D. Peter-Hoblyn .............................. 147,177 4.8
James M. Valentine .................................. 105,939 3.5
All Directors and Officers as a Group (nine persons) 476,434 15.7
</TABLE>
- ------------
* 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) The amounts of Preferred shares have been adjusted for stock dividends
through April 1, 1999. The conversion ratio of Preferred to Common is
333.33. Mr. de Havilland is a director of Cadogan Settled Estates Limited;
Messrs. De Havilland and Gray are directors of The Shimpling Trust
Limited.
(3) Management Common includes shares subject to options or warrants
exercisable presently and within 60 days for Messrs. R. E. Bailey, 21,666
shares; D. G. Bailey, 10,000 shares; Balles, 8,333 shares; de Havilland,
37,500 shares; Grinnell, 27,000 shares; Peter-Hoblyn, 82,200 shares;
Valentine, 100,000 shares; and for all directors and officers as a group,
333,199 shares.
6
<PAGE>
EXECUTIVE COMPENSATION
The table below sets forth information concerning compensation for
services in all capacities awarded to, earned by or paid to the Chief Executive
Officer and certain other officers (the "Named Executive Officers") during the
fiscal years ending December 31, 1998, 1997 and 1996. Prior to August 1, 1996
for Mr. Valentine and December 1, 1996 for Mr. Peter-Hoblyn, such compensation
was paid by Fuel Tech, allocated to the Company and reimbursed by the Company
to Fuel Tech. Compensation for Eric N. Balles, Vice President-Technology is for
periods prior to his September 30, 1997 resignation from the Company.
Summary Compensation Table
<TABLE>
<CAPTION>
Long-Term
-----------
Shares
Underlying
Options
Annual
------------------------ Granted
Name and Principal Position Year Salary(1) Other(2) (#)
- ----------------------------- ------ ----------- ---------- -----------
<S> <C> <C> <C> <C>
Jeremy Peter-Hoblyn ......... 1998 221,563 72,251 7,500
President and Chief 1997 250,000 71,525 35,000
Executive Officer 1996 229,667 64,996 --
James M. Valentine .......... 1998 215,000 24,177 7,500
Executive Vice President 1997 220,000 29,523 35,000
and Chief Operating Officer 1996 209,833 26,727 --
Eric N. Balles .............. 1997 120,000 12,625 --
Vice President-Technology 1996 56,910 4,776 25,000
</TABLE>
- ------------
(1) For 1998, $31,250 of Mr. Peter-Hoblyn's salary was paid in the form of
27,777 shares of the Company's restricted common stock awarded by the
directors and valued at $1.125 per share on December 31, 1998.
(2) The amounts designated "other" in 1998, 1997 and 1996 include,
respectively, for Mr. Peter-Hoblyn, pension payments or accruals for
annuity premiums of $50,000, $45,200 and $45,833 and medical insurance
premiums of $17,150, $15,611 and $14,623; for Mr. Valentine, 401 (k) plan
Company contributions of $4,800, $9,550 and $8,793 and health insurance
premiums of $12,822, $13,068 and $11,671; and for Mr. Balles in 1997
health insurance premiums of $9,475.
Directors' Compensation
The Company provides an annual retainer of $10,000 and a meeting fee of
$1,000 per day for Board meetings in excess of five days plus associated
expenses for directors who are not employees of the Company. Mr. Ralph E.
Bailey is also reimbursed for his office expenses as Chairman of the Company in
the amount of $15,000 per year. Directors who are employees of the Company
receive no compensation for their service as directors. The Board plans to
settle shares of restricted Common on the non-employee directors in lieu of
cash for their 1998 fees, in the following amounts: Messrs. R. E. Bailey,
14,444 shares; de Havilland, 16,444 shares; Gray, 1,237 shares; and D.G.
Bailey, 6,222 shares and $1,750 in cash.
Compensation Committee Interlocks and Insider Participation
The Board of Directors of the Company did not have a Compensation
Committee during 1998. Accordingly, during 1998 each of the directors and
executive officers of the Company participated in deliberations and decisions
concerning his compensation.
7
<PAGE>
OPTION GRANTS IN THE LAST FISCAL YEAR
Number of % of Total
Shares Options
Underlying Granted to Exercise or
Options Employees in Base Price
Granted (#) 1998 ($/Sh)
------------- -------------- ------------
Name
- ----------------------
Jeremy D.
Peter-Hoblyn ......... 7,500 12% $ 2.00
Eric N.
Balles ............... -- -- --
James M.
Valentine ............ 7,500 12% $ 2.00
Potential Realizable
Value of Assumed
Annual Rates of Stock
Price Appreciation for
Expiration Date Option Term
----------------- ----------------------
5% 10%
--------- ----------
Jeremy D.
Peter-Hoblyn ......... 6/5/08 $9,400 $24,000
Eric N.
Balles ............... -- -- --
James M.
Valentine ............ 6/5/08 $9,400 $24,000
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION VALUES
<TABLE>
<CAPTION>
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
- ---------------------- ---------- ---------- ------------- --------------
<S> <C> <C> <C> <C>
Jeremy D.
Peter-Hoblyn ......... 0 $0 76,366 16,668
Eric N.
Balles ............... 0 $0 8,333 0
James M.
Valentine ............ 0 $0 85,832 16,668
</TABLE>
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 ......... $ 7,709 $0
Eric N.
Balles ............... $ 0 $0
James M.
Valentine ............ $23,125 $0
8
<PAGE>
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 23, 1999 the
closing price of the Company's Common Stock was $0.75 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(2)
Douglas G. Bailey .............. 15,000 $ 2.00 2008(4)
Eric N. Balles ................. 25,000 $ 4.50 2006(5)
John A. de Havilland ........... 7,500 $ 6.82 2002(2)
5,000 $ 4.625 2007(2)
25,000 $ 10.00 2004(2)
Charles W. Grinnell ............ 6,250 $ 2.50 2002(2)
5,750 $ 6.82 2002(2)
10,000 $ 4.625 2007(2)
7,500 $ 2.00 2008(4)
Jeremy D. Peter-Hoblyn ......... 25,000 $ 0.20 2001(3)
25,000 $ 2.00 2001(2)
17,200 $ 6.82 2002(2)
10,000 $ 4.625 2007(2)
25,000 $ 4.625 2007(2)
7,500 $ 2.00 2008(4)
James M. Valentine ............. 25,000 $ 0.20 2001(2)
25,000 $ 2.00 2001(2)
10,000 $ 6.82 2002(2)
10,000 $ 4.625 2007(2)
25,000 $ 4.625 2007(2)
7,500 $ 2.00 2008(4)
Executive officers
as a group
(five in number) ......... 315,700 $ 0.20-$6.82 2001-2008(2)-(5)
All employees,
including executive
officers, as a group
(ten in number) .......... 380,700 $ 0.20-$6.82 2001-2009(1)-(5)
Non-executive
employees as a group
(five in number) ......... 65,000 $ 0.72-$6.50 2002-2009(1)(2)(4)
- ------------
(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. Mr. de Havilland's 25,000
shares at $10.00 per share were granted as a warrant and not under the
Plan.
(3) 16,666 of these options were exercised in 1997 and the remaining 8,334
shares were exercised in 1999.
(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.
9
<PAGE>
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, (c) encourage
executive officers to build their holdings of the Company's stock to align
their goals with those of the stockholders, and (d) minimize cash outlays.
Compensation of Executive Officers - 1998
The key components of the Company's executive compensation program are
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. In 1998 cash compensation was constrained by the Company's cash
position and stock option awards were constrained by the limited number of
shares available for grant.
Compensation of Chief Executive Officer - 1998
The compensation of the Chief Executive Officer, Mr. Peter-Hoblyn, is made
up of salary, stock options and an annuity. (See the Summary Compensation Table
above.) Mr. Peter-Hoblyn's salary of $250,000 was originally fixed in 1996 in
the overall business judgement of the Board as to the proper competitive level
of salary paid by comparable companies. In 1998, however, to assist the Company
in conserving cash, Mr. Peter-Hoblyn voluntarily (i) reduced his salary to
$187,500 for the period February 16 through June 30, (ii) accepted a reduction
of $10,000 per year in his base salary effective July 1 and (iii) was granted
27,777 shares of restricted Company common stock in lieu of $31,250 in salary
for the period July 1 through December 31. Thus, Mr. Peter- Hoblyn's 1998 cash
compensation was $190,313. Also, since April 1997 Mr. Peter-Hoblyn has
voluntarily accepted a deferral of the payment of the premiums on his annuity,
which amounts have since been deferred and accrued. Mr. Peter-Hoblyn was also
awarded in 1998, 7,500 non-qualified stock options under the Plan in accordance
with the Company's philosophy of providing incentives to management aligned
with the interests of the stockholders. In the Board's judgment, however, such
award was substantially lower than would have been appropriate but was limited
by the lack of available shares for award under the Plan.
This report has been provided by the following members of the Board of
Directors of the Company:
Ralph E. Bailey John A. de Havilland
Douglas G. Bailey Jeremy D. Peter-Hoblyn
Derek R. Gray 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.
10
<PAGE>
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 1998 to that of (ii) the Russell 2000 index, (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 American
Technologies Group, Inc., Energy Biosystems Corporation, Environmental Elements
Corp. 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.
[GRAPHIC OMITTED]
11
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Management and Services Agreement
Effective July 1995 and amended June 1996, the Company and Fuel Tech, Inc.
have entered into a Management and Services Agreement (the "Services
Agreement") under which Fuel Tech's, Inc. 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 3% of the Company's fixed reimbursable costs for
these services. The fee may be changed by mutual agreement of the Company and
Fuel Tech, Inc. 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 N.V. and its
subsidiaries ("Fuel Tech"). 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.
Relationship with Fuel Tech; Conflicts of Interest
Directors and officers of Fuel-Tech N.V. and its subsidiaries ("Fuel
Tech") 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 or directors of
Fuel Tech. Three of these persons are also officers of Fuel Tech and Fuel Tech
subsidiaries. Although these persons seek to devote such time to the affairs of
the Company as the Company's needs require, they must balance the Company's
need for their time with the needs of Fuel Tech and its subsidiaries.
Ralph E. Bailey and Douglas G. Bailey, nominees for election as directors
of the Company were also, pursuant to a Securities Purchase Agreement dated as
of March 23, 1998 (the "Purchase Agreement"), elected as Managing Directors of
Fuel Tech which owns 26.7% percent of the issued and outstanding equity of the
Company. Pursuant to the Purchase Agreement certain affiliates and related
parties of ABC (the "Investors") have purchased 4.75 million common shares of
Fuel Tech and warrants to purchase an additional 3 million of such Fuel Tech
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 N.V. which owns substantially all of the
operating assets of Fuel-Tech N.V.
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 law and prevailing
corporate practices. Fuel Tech, however, may exercise its influence in its own
best interests.
12
<PAGE>
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 27, 1999.
By Order of the Board of Directors
Charles W. Grinnell
Secretary
Stamford Connecticut
April 30, 1999
The Company has provided without charge to each person being solicited by this
Proxy Statement a copy of the Annual Report of the Company on Form 10-K for the
year ended December 31, 1998, including the financial statements and schedules
thereto, as filed with the Securities and Exchange Commission.
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.
13
<PAGE>
PROXY PROXY
Solicited by the Board of Directors
CLEAN DIESEL TECHNOLOGIES, INC.
Annual Meeting of Stockholders - June 9, 1999
The undersigned hereby appoints Ralph E. Bailey, Jeremy D. Peter-Hoblyn
and Charles W. Grinnell, 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 or Preferred 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 Holiday
Inn Select Stamford, 700 Main Street, Stamford, Connecticut 06901 at 10:00 a.m.,
on Wednesday June 9, 1999, 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, Derek R. Gray,
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 1999
FOR AGAINST ABSTAIN
3. Approve the amendment of 1994 Incentive Plan of the Company.
FOR AGAINST ABSTAIN
Dated __________________________ , 1999
_______________________________________
_______________________________________
(Signature of Stockholder)
Please sign exactly as name appears. If
acting as attorney, executor, trustee or
in other representative capacity, sign
name and title.
