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.
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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.
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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.
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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.
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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
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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.
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