DEF 14A 1 doc1.txt CLEAN DIESEL TECHNOLOGIES, INC. 300 ATLANTIC STREET, SUITE 702 STAMFORD CT 06901 NOTICE OF ANNUAL MEETING OF STOCKHOLDERS TO BE HELD JUNE 13, 2001 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 Tuesday, June 13, 2001, at Suite 703, 300 Atlantic Street, Stamford, Connecticut, 06901, at 10:00 a.m. 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 2001; 3. To transact any other business that may properly come before the meeting or any adjournment thereof. Only holders of Common Stock and Series A Convertible Preferred Stock of record at the close of business on April 16, 2001 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 2000 is enclosed with this Notice of Meeting and Proxy Statement. By Order of the Board of Directors Charles W. Grinnell Secretary Stamford, Connecticut April 23, 2001 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. YOU MAY ALSO SEND YOUR COMPLETED PROXY CARD BY FACSIMILE TO THE TRANSFER AGENT IN THE UNITED STATES AT (718) 921-8310. AN INFORMATION MEETING WILL BE HELD ON JUNE 7, 2001 FROM 11:30 A.M. TO 12:30 P.M. AT THE PARK LANE (SHERATON) HOTEL, PICCADILLY, LONDON W1J 7BX, U.K. 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 Suite 703, 300 Atlantic Street, Stamford, Connecticut 06901, on Wednesday, June 13, 2001, at 10:00 a.m. and at any adjournments thereof. The record date with respect to this solicitation is April 16, 2001. All holders of Company Common Stock ("Common") and of Series A Convertible Preferred Stock ("Preferred")as of the close of business on that date are entitled to vote at the Meeting. According to the records of the Company's transfer agent, as of the record date the Company had 2,660,611 shares of Common and 14,682 shares of Preferred stock outstanding. That number of Preferred shares includes shares issued on account of stock dividends accrued through December 31, 2000. The number of shares of Common into which the Preferred is convertible as of the record date is 4,893,951. 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. As of the record date, 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. 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 shall vote 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-representatives 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 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. 3 Members of the Board and Executive Officers of the Company may solicit stockholders' proxies. 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 2000 (the "Financial Statements"), and this Proxy Statement were distributed together commencing in the week of April 23, 2000. ELECTION OF DIRECTORS The Board proposes the election of seven directors. The term of office of each director is until the 2002 Annual Meeting or until a successor shall have been duly elected. Douglas G. Bailey, Ralph E. Bailey,, John A. de Havilland, Derek R. Gray, Charles W. Grinnell, Jeremy D. Peter-Hoblyn 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 proposed for election as representatives 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 representatives of the Preferred. 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 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 ADDITIONALLY AS REPRESENTATIVES OF THE PREFERRED SHALL BE ELECTED SEPARATELY BY A PLURALITY 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 77 1996 Douglas G. Bailey 51 1998 John A. de Havilland 63 1994 Derek R. Gray 67 1998 Charles W. Grinnell 64 1994 Jeremy D. Peter-Hoblyn 61 1994 James M. Valentine 47 1994 4 DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY ----------------------------------------------------- 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 American Bailey Corporation ("ABC"), a privately owned business acquisition and development company, since 1984. Mr. Bailey is Chairman and Chief Executive officer of Golden Casting Corporation a foundry company and an affiliate of ABC. Mr. Bailey is also a Managing Director of Fuel-Tech N.V., an air pollution control 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 ABC since 1984. Mr. Bailey is the former Chairman and Chief Executive Officer of Conoco, Inc., an energy company, and a former Vice Chairman of E.I. du Pont de Nemours & Co., a chemical company. Mr. Bailey is a Managing Director of Fuel-Tech N.V. JOHN A. DE HAVILLAND has been a director of the Company since its inception. Mr. de Havilland was a director of J. Henry Schroder Wagg & Co. Ltd. from 1971 until his retirement in 1990. He is a Managing Director of Fuel-Tech N.V. DEREK R. GRAY has been a director of the Company since 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 also a Managing Director of Fuel-Tech N.V. from 1987 to 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, a Managing Director of Fuel-Tech N.V., is engaged in the private practice of corporate law in Stamford, Connecticut. JEREMY D. PETER-HOBLYN has been the President and Chief Executive Officer of the Company since its inception. Mr. Peter-Hoblyn is a Managing Director of Fuel-Tech N.V. DAVID W. WHITWELL, 35, has served as Vice President, Chief Financial Officer and Treasurer of the Company since 1999. Mr. Whitwell had previously been Vice President and Chief Financial Officer of Primedia, Inc.'s Special Interest Magazine Division since 1996 and prior to that position had been Manager of Planning and Analysis at the Health Care Products Division of Schering Plough, Inc. since 1991. 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 is a Managing Director of Fuel-Tech N.V. 5 There are no family relationships between any of the directors or executive officers except as stated above. Please also see the text below under the captions "Certain Relationships and Related Transactions -- Relationship with Fuel Tech; Conflicts of Interest." The Board has an Audit Committee and a Compensation Committee. Messrs. D. G. Bailey, Gray, de Havilland and Peter-Hoblyn are members of both committees. Mr. Gray is Chairman of the Audit Committee and Mr. Bailey Chairman of the Compensation Committee. Mr. Peter-Hoblyn is an ex officio, non-voting member of these committees. The Audit Committee is responsible for review of audits, financial reporting and compliance, accounting and internal controls policy, and recommendations to the Board regarding independent auditors and oversight of their activities. A copy of the charter of the Audit Committee is attached as Schedule I. The Compensation Committee is responsible for establishing executive compensation and administering the Company's Incentive Compensation Plan. During 2000 there were six meetings of the Board of Directors of the Company, two meetings of the Compensation Committee and one meeting of the Audit Committee. Each director of the Company attended at least 75% of Board and committee meetings of which he was a member during 2000. 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 $60,000. 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 on the recommendation of the Audit Committee has appointed the firm of Ernst & Young LLP, Certified Public Accountants ("Ernst & Young"), to be the Company's independent auditors for the year 2001 and submits that appointment to stockholders for approval. Ernst & Young has served in that capacity since 1994. 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. 6 AUDIT FEES For 2000, Ernst & Young billed $41,500 for fees for professional services rendered for the audit of the Company's 2000 financial statements and the review of the Company's financial statements included in the quarterly reports on Securities and Exchange Commission Form 10-Q filed in 2000. FINANCIAL INFORMATION SYSTEMS DESIGN AND IMPLEMENTATION FEES For 2000, Ernst & Young did not render any professional services for the Company in connection with financial information systems design and implementation. ALL OTHER FEES For 2000, $6,290 was billed by Ernst & Young for all other non-audit services performed for the Company. 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. REPORT OF THE AUDIT COMMITTEE Management is responsible for the Company's internal controls and its financial reporting. The independent auditors are responsible for performing an audit of the Company's financial statements in accordance with generally accepted auditing standards and for expressing an opinion on those financial statements based on their audit. The Audit Committee reviews these processes on behalf of the Board of Directors. In such context, the Committee has reviewed and discussed the audited financial statements contained in the 2000 Annual Report on Form 10-K with the Company's management and its independent auditors. The Committee has discussed with the independent auditors the matters required to be discussed by the Statement on Auditing Standards No. 61 (Communication with Audit Committees), as amended. The Committee has received the written disclosures and the letter from the independent auditors required by Independence Standards Board Standard No. 1 (Independence Discussions with Audit Committees), as amended, and has discussed with the independent auditors their independence. The Committee has also considered whether the provision of the services described above under the captions "Financial Information Systems Design and Implementation" and "All Other Fees" is compatible with maintaining the independence of the independent auditors. Based on the review and discussions referred to above. The Committee recommended to the Board of Directors that the audited financial statements be included in the Company's Annual Report on Form 10-K for the year ended December 31, 2000 filed with the Securities and Exchange Commission. This report has been provided by the following members of the Audit Committee: D. R. Gray, Chairman, D. G. Bailey and J. A. de Havilland. 7 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, 2000 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. PERCENTAGE NAME AND ADDRESS (1) NO. OF SHARES(2)(3) OF CLASS(4) ----------------------- ------------------- ----------- COMMON STOCK Beneficial Owners Fuel-Tech N.V.(2) 714,147 26.6% Management Owners Douglas G. Bailey (2) 65,675 2.4% Ralph E. Bailey (2) 104,967 3.9% John A. de Havilland (2) 125,761 4.5% Derek R. Gray (2) 144,371 5.2% Charles W. Grinnell (2) 84,704 3.1% Jeremy D. Peter-Hoblyn(2) 264,953 9.2% James M. Valentine(2) 216,439 7.5% David W. Whitwell(2) 65,695 2.4% All Directors and Officers as a Group (8 persons)(2) 1,072,565 30.3% PREFERRED STOCK Beneficial Owners Professor J. A. Kanis 781 5.1% 8 Platinum Plus, Inc. (5) 2,959 19.2% Positive Securities Limited 2,379 15.4% Cadogan Settled Estates Shareholding Company Limited (5) 1,841 11.9% Waltham Forest Friendly Society 1,415 9.2% Management Owners D. R. Gray (5) 189 1.2% (1) Unless indicated otherwise in a footnote each person listed in the table possesses sole voting and investment power over the securities shown for that person. The address of Fuel-Tech N.V. is Castorweg 22-24, Curacao, Netherlands Antilles. The address of the Management Owners is c/o Clean Diesel Technologies, Inc., Suite 702, 300 Atlantic Street, Stamford, Connecticut 06901. The address of the beneficial owners of the Preferred is c/o S G Associates Limited, 45 Queen Anne Street, London W1M 9FA. (2) Includes shares subject to options or warrants exercisable within 60 days for Fuel-Tech N.V., 25,000 shares; Mr. D. G. Bailey, 45,000 shares; Mr. R. E. Bailey, 60,000 shares; Mr. de Havilland, 108,817 shares; Mr. Gray, 116,008 shares; Mr. Grinnell, 69,500 shares; Mr. Peter-Hoblyn, 214,700 shares; Mr. Valentine, 207,500 shares; Mr. Whitwell, 53,333 shares; and, for all directors and officers as a group, 874,858 shares. The amount for Mr. de Havilland and for directors and officers as a group does not include 18,064 shares owned by his children as to which he disclaims beneficial ownership. (3) To the knowledge of the Company the owners of all shares of each class hold sole beneficial ownership and investment power over the shares reported, except the Preferred shares shown for Mr. Gray are held by Portfolio Services Limited an affiliate of Mr. Gray. The conversion ratio of Preferred to Common is 333.33. (4) The percentages are percentages of outstanding stock and have been calculated by including, for the Common, warrants and options exercisable within 60 days, and, for the Preferred, stock dividends through April 1, 2001. (5) Platinum Plus, Inc. is a wholly-owned subsidiary of Fuel-Tech N.V. Mr. de Havilland is a director of Cadogan Settled Estates Shareholding Company Limited and disclaims beneficial ownership of the Preferred shares held that company. Mr. Gray shares voting power in his Preferred shareholdings with his spouse. 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. David W. Whitwell, Vice President, Treasurer and Chief Financial Officer and Mr. James M. Valentine, Executive Vice President and Chief Operating Officer, during the fiscal years ending December 31, 2000, 1999 and 1998, the only executive officers of the Company who earned total compensation in excess of $100,000 during fiscal year 2000 (the "Named Executive Officers"). 9 SUMMARY COMPENSATION TABLE Annual Long-Term ------------------------ --------- Shares Underlying Options All Granted Other Name and Principal Position Year Salary(1) Other(2) (#) (3) Compensation(4) --------------------------- ---- --------- -------- ------- --------------- Jeremy Peter-Hoblyn 2000 240,000 50,000 75,000 - President and Chief 1999 240,000 50,000 60,000 - Executive Officer 1998 221,563 50,000 7,500 - David W. Whitwell (5) 2000 130,000 - - 3,900 Vice President and Chief 1999 12,500 - - - Financial Officer 1998 - - - - James M. Valentine 2000 215,000 - 75,000 5,200 Executive Vice President 1999 215,000 - 60,000 4,800 and Chief Operating Officer 1998 215,000 - 7,500 4,800 -------------------- (1) For 2000 and 1999, $62,500 of Mr. Peter-Hoblyn's salary was deferred until the Company attains gross annual revenues of $5 million. 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 2000, 1999 and 1998 for Mr. Peter-Hoblyn are accruals toward a purchased annuity. (3) Options granted were Non-Qualified Stock Options without stock appreciation rights. (4) The amounts designated "All other Compensation" were Company matching 401(k) or profit sharing contributions. (5) Mr. Whitwell's employment commenced November 22, 1999. DIRECTORS' COMPENSATION The Company provides an annual retainer of $10,000 and a meeting fee of $1,000 per day for Board or committee 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 in the amount of $15,000 per year. Directors who are employees of the Company receive no compensation for their service as directors. For 2000, shares of restricted Common in lieu of cash fees were issued on account of these non-employee directors services in the following amounts: D. G. Bailey, 5,623 shares; R. E. Bailey, 5,997 shares; de Havilland, 7,028 shares; and Gray, 7,028 shares. Such restricted shares for Mr. de Havilland were given to his children and he disclaims any interest in such shares. In addition to the foregoing and in consideration for services in 2000 involving the issue and sale of the Preferred, Mr. de Havilland received warrants to purchase 12,150 Common shares and Mr. Gray received cost reimbursement of $11,948 and warrants to purchase 27,675 Common shares. The warrants have an exercise price of $2.25 per share and a term of 10 years. Mr. de Havilland is also paid a $2,500 per month consulting fee for financial and investor relations advice cancelable by either party on one month's notice. 10 COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION Mr. Peter-Hoblyn, Chief Executive Officer, is a non-voting ex-officio member of the Compensation Committee. Messrs. D. G. Bailey, de Havilland and Peter-Hoblyn are directors of Fuel-Tech N.V. Fuel-Tech N.V. owns 21.6% of the equity of the Company and is a party to a Management Services Agreement with the Company. See the text below under the caption "Certain Relationships and Related Transactions."
OPTION GRANTS IN THE LAST FISCAL YEAR TO NAMED EXECUTIVE OFFICERS NUMBER OF % OF TOTAL POTENTIAL REALIZABLE SHARES OPTIONS VALUE OF ASSUMED UNDERLYING GRANTED TO EXERCISE OR ANNUAL RATES OF STOCK OPTIONS EMPLOYEES IN BASE PRICE PRICE APPRECIATION FOR GRANTED (#) 2000 ($/SH) EXPIRATION DATE OPTION TERM ------------------------------------------------------------------------------------------- 5% 10% -- --- NAME ---- Jeremy D. Peter-Hoblyn 75,000 36.5% $2.50 2/10/10 $117,918 $298,827 David W. Whitwell - - - - - - James M. Valentine 75,000 36.5% $2.50 2/10/10 $117,918 $298,827
11
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION VALUES OF NAMED EXECUTIVE OFFICERS NUMBER OF NUMBER OF SECURITIES SECURITIES VALUE OF VALUE OF UNDERLYING UNDERLYING UNEXERCISED UNEXERCISED UNEXERCISED UNEXERCISED IN-THE-MONEY IN-THE-MONEY SHARES OPTIONS AT OPTIONS AT OPTIONS AT OPTIONS AT ACQUIRED FISCAL YEAR FISCAL FISCAL FISCAL ON VALUE END/ YEAR-END/ YEAR-END/ YEAR-END/ NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE ---- -------- -------- ----------- ------------- ----------- ------------- Jeremy D. Peter-Hoblyn - - 149,700 70,000 $2,800 $1,400 David W. Whitwell - - 40,000 20,000 - - James M. Valentine 25,000 $43,438 142,500 70,000 $2,800 $1,400
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 needs for strong entrepreneurial skills to commercialize and promote its products, (c) encourage executive officers to build their holdings of the Company's stock to align their goals with those of the stockholders and (d) to conserve cash. 12 COMPENSATION OF EXECUTIVE OFFICERS - 2000 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. COMPENSATION OF CHIEF EXECUTIVE OFFICER - 2000 The compensation of the Chief Executive Officer, Mr. Peter-Hoblyn, is made up of base salary, stock options and Company accruals toward a purchased annuity. (See the Summary Compensation Table above.) In order to conserve cash, $62,500 of Mr. Peter-Hoblyn's 2000 base salary of $240,00, was deferred until the Company attains annual gross revenues of $5 million. This amount of base salary was fixed in 2000 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 75,000 Non-Qualified Stock Options under the Plan in 2000 in accordance with the Company's philosophy of providing to management incentives aligned with the interests of the stockholders. Mr. Peter-Hoblyn's base salary for 2001 was raised to $250,000 and there will be in 2001 no deferral of that salary. This report has been provided by the following members of the Compensation Committee of the Board of Directors of the Company: D. G. Bailey, D. R. Gray and J. A. de Havilland 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 2000 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 companies including American Technologies Group, Inc., Energy Biosystems Corporation, Environmental Elements Corp. and Fuel-Tech N.V.
12/29/1995 12/29/1996 12/31/1997 12/31/1998 12/31/1999 12/31/2000 ========== ============ ========== ============ ========== ============ CDT $ 100.00 $ 34.00 $ 34.86 $ 16.07 $ 25.00 $ 13.43 Environmental Index $ 100.00 $ 73.09 $ 45.12 $ 13.26 $ 14.27 $ 12.79 Russell 2000 $ 100.00 $ 114.76 $ 138.31 $ 133.54 $ 159.75 $ 153.03 S&P Chemicals Special $ 100.00 $ 107.04 $ 130.30 $ 146.68 $ 168.17 $ 149.92
13 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS EMPLOYMENT AGREEMENTS Messrs. Peter-Hoblyn, Whitwell and Valentine have employment agreements with the Company, effective August 1, 1995 for Messrs. Peter-Hoblyn and Valentine and March 1, 2001 for Mr. Whitwell. These agreements are for indefinite terms. If canceled by the Company under circumstances that are "at will" as defined in the agreements, the Company shall continue the employee's then base salary and benefits until the employee finds other comparable employment but not for a period in excess of one year for Messrs. Peter-Hoblyn and Valentine and nine months for Mr. Whitwell. The agreements also contain provisions relating to the employees' obligations to maintain the confidentiality of the Company's proprietary information and to protect such information from competitors and to assign certain inventions to the Company. MANAGEMENT AND SERVICES AGREEMENT Effective July 1995 and amended June 1996, the Company and Fuel Tech, Inc., a wholly-owned subsidiary of Fuel-Tech N.V., 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 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. In 2000 a total of $77,400 on account of reimbursable costs and the fee was paid by the Company to Fuel Tech, Inc. of which costs $69,150 was on account of legal services provided by Mr. Grinnell, a director of the Company and of Fuel-Tech N.V. 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, Inc. 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 paid no royalties to Fuel Tech under these assignments in 2000. The Company may at any time terminate the royalty obligation by payment to Fuel Tech in any year from 2001 through 2008 of amounts, depending on the year, declining from $8,727,273 in 2001 to $1,090,910 in 2008. 14 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 are in positions involving the possibility of conflicts of interest with respect to transactions involving the Company. The Company and Fuel Tech have entered into contractual arrangements governing certain transactions and relationships between them. These agreements were executed while the Company was a subsidiary or affiliate of Fuel Tech and were not the result of arm's-length negotiations. Accordingly, there is no assurance that the terms and conditions of these agreements are as favorable to the Company as might have been obtained from independent third parties. Six of the Company's officers or directors are officers or directors of Fuel Tech. 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. 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. GENERAL SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE The Company believes that all officers and directors of the Company were in compliance in 2000 with filing requirements relating to beneficial ownership reports under Section 16(a) of the Securities Exchange Act of 1934, except that the reports by D. G. Bailey, R. E. Bailey, D. R. Gray, C. W. Grinnell, and J. A. de Havilland for February and D. R. Gray for April were filed after their respective due dates. STOCKHOLDER PROPOSALS Proposals of stockholders intended for inclusion in the proxy statement and proxy to be mailed to all stockholders entitled to vote at the 2001 Annual meeting of Stockholders of the Company must be received in writing at the above address of the Company on or before December 26, 2001 and if received thereafter may be excluded by the Company. 15 OTHER BUSINESS Management knows of no other matters that may properly be, or are likely to be, brought before the meeting other than those described in this proxy statement. By Order of the Board of Directors Charles W. Grinnell Secretary Stamford Connecticut April 23, 2001 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, 2000, INCLUDING THE FINANCIAL STATEMENTS AND SCHEDULES THERETO, AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. ALL SUCH REQUESTS SHOULD BE DIRECTED TO THE UNDERSIGNED 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. 16 SCHEDULE I CLEAN DIESEL TECHNOLOGIES, INC. Audit Committee of the Board of Directors Charter The Board of Directors (the "Board") of Clean Diesel Technologies, Inc. (the "Company") has established from among its members an Audit Committee (the "Committee") with the composition, responsibilities and duties described below: Composition ----------- The Committee shall be comprised of not less than two or such greater number of independent directors as shall meet the rules of any stock exchange on which the Company may be listed from time to time. "Ex Officio" non-voting members of the Committee shall not be included in the number of required independent directors. Appointment to the Committee shall not signify that the appointee has special expertise or additional liability. Responsibility -------------- The Committee's responsibility is to assist the Board in fulfilling its fiduciary responsibilities as to accounting policies and reporting practices of the Company. The Committee is authorized to retain persons having a special competence as necessary to assist the Committee in fulfilling such responsibility. Notwithstanding the terms of this Charter, it shall not be the duty of the Committee to plan or conduct audits or to determine that the Company's financial statements are complete and accurate and are in accordance with generally accepted accounting principles, that being the responsibility of Management and the Independent Accountant. The Independent Accountant shall be ultimately responsible to the Board and the Committee as representatives of the shareholders. Attendance ---------- At all meetings of the Committee two independent members shall constitute a quorum. As necessary, the Chairman of the Committee may request members of Management and representatives of the Independent Accountant to be present at meetings. Minutes ------- Minutes of the meetings of the Committee shall be prepared by the Corporate Secretary, shall be sent to both Committee members and to directors who are not Committee members and, after approval by the Committee, shall be kept with the minutes of the meetings of the Board. 17 Duties ------ 1. Review with Management and the Independent Accountant the Company's policies and procedures, as appropriate, to reasonably assess the adequacy of internal accounting and financial reporting controls. 2. Recommend to the Board the Independent Accountant to be selected, subject to ratification by the shareholders; evaluate the Independent Accountant; approve the compensation of the Independent Accountant; and review and approve any discharge of the Independent Accountant. 3. Receive periodic written statements from the Independent Accountant regarding its independence and delineating all relationships between it and the Company consistent with Independence Standards Board Standard 1; discuss such reports with the Independent Accountant to review in detail any disclosed relationship or service that may impact the objectivity and independence of the Independent Accountant; and, if the Committee shall so determine, recommend appropriate action to the Board to preserve the independence of the Independent Accountant. 4. Review with Management and the Independent Accountant the scope and general extent of the Independent Accountant's audit examinations and, to the extent appropriate, the Independent Accountant's review of the Company's interim financial statements. 5. Review with Management and the Independent Accountant, upon completion of the annual audit, the Company's financial results for the year prior to public release. Discuss with the Independent Accountant the matters required to be discussed by the Statement on Auditing Standards No. 61 relating to the annual audit. 6. Discuss with the Independent Accountant the quality of the Company's financial accounting personnel, and any relevant recommendations of the Independent Accountant. 7. Prepare the report required by the rules of the Securities and Exchange Commission to be included in the Company's annual proxy statement, commencing with the proxy statement for the 2001 Annual meeting. 8. Review this Charter annually with a view toward recommending revisions to the Board. 9. Perform such other duties as may be required by law, the Company's Certificate of Incorporation, the resolutions of the Board or the applicable rules of any stock exchange. 18 PROXY PROXY SOLICITED BY THE BOARD OF DIRECTORS CLEAN DIESEL TECHNOLOGIES, INC. ANNUAL MEETING OF STOCKHOLDERS - JUNE 13, 2001 The undersigned hereby appoints Ralph E. Bailey, Jeremy D. Peter-Hoblyn or Charles W. Grinnell, acting singly, 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 or of Series A Convertible 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 Suite 703, 300 Atlantic Street, Stamford, Connecticut 06901 at 10:00 a.m., on Wednesday June 13, 2001, and at any adjournments or postponements of such meeting, for the following agenda items 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 proposal 2. If no direction is given, this proxy will be voted for all nominees and for such proposal. IMPORTANT - TO BE SIGNED AND DATED ON THE REVERSE SIDE Fold and Detach Here 19 1. Election as directors of Douglas G. Bailey, Ralph E. Bailey, John A. de Havilland, Derek R. Gray, Charles W. Grinnell, Jeremy D. Peter-Hoblyn and James M. Valentine, including approval by the holders of Series A Convertible Preferred Stock of John A. de Havilland and Derek R. Gray to act as representatives of such Preferred Stock. 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 2001. FOR AGAINST ABSTAIN Dated, ___________________ 2001 (Signature of Stockholder) Please sign exactly as name appears. If acting as attorney, executor, trustee or in other representative capacity, insert name and title. 20