CLEAN DIESEL TECHNOLOGIES, INC.
300 ATLANTIC STREET, SUITE 702
STAMFORD CT 06901
========================================
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD JUNE 9, 2005
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To the Stockholders of Clean Diesel Technologies, Inc.:
The annual meeting (the "Meeting") of stockholders of Clean Diesel
Technologies, Inc., a Delaware corporation, will be held Thursday, June 9, 2005,
at the offices of J. M. Finn & Co., Salisbury House, London Wall, London EC2M
5TA U.K. at 11:00 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 is also enclosed.
1. To elect seven (7) directors;
2. To ratify the appointment of Eisner LLP as independent auditors for the
year 2005; and
3. To transact any other business that may properly come before the meeting
or any adjournment.
Only holders of common shares of record at the close of business on April
12, 2005 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.
Following the Meeting there will be a presentation of the Company's
business activities and an opportunity for stockholders to ask questions.
The Clean Diesel Technologies, Inc. Annual Report for 2004 is enclosed with
this Notice of Meeting and Proxy Statement.
By Order of the Board of Directors
Charles W. Grinnell
Secretary
Stamford, Connecticut
April 21, 2005
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 OR VOTING
INSTRUCTION FORM TO THE SENDER IN THE ENCLOSED RETURN ENVELOPE.
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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 ("CDT" or "the
Company"), in connection with the annual meeting of stockholders of the Company
(the "Meeting") to be held at the offices of J. M. Finn & Co., Salisbury House,
London Wall, London EC2M 5TA U.K., on Thursday, June 9, 2005, at 11:00 a.m. and
at any adjournments.
The record date with respect to this solicitation is April 12, 2005. All
holders of the CDT's common shares, $.05 par, as of the close of business on
that date are entitled to vote at the Meeting. The common shares are the only
outstanding securities of CDT. According to the records of CDT's transfer agent,
as of the record date CDT had 17,165,867 common shares outstanding and eligible
to vote. A stockholders list as of the record date is available for inspection
at the office of CDT set out in the Notice of Meeting and will be available for
inspection at the Meeting.
The quorum for the Meeting is that number of common shares representing a
majority of the votes entitled to be cast. Each stockholder is entitled as of
the record date to cast one vote per common share held.
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.
Members of the Board and Executive Officers of CDT may solicit
stockholders' proxies. CDT shall bear the cost of proxy solicitation, if any.
The CDT Annual Report to Stockholders, containing financial statements
reflecting the financial position and results of operations of the Company for
2004 (the "Financial Statements"), and this Proxy Statement were distributed
together commencing in the week of April 25, 2005.
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ELECTION OF DIRECTORS
The Board proposes the election of seven directors. The term of office of
each director is until the 2006 Annual Meeting or until a successor shall have
been duly elected or the director shall sooner resign, retire or be removed.
John A. de Havilland, Derek R. Gray, Charles W. Grinnell, John J. McCloy II,
Jeremy D. Peter-Hoblyn, Bernhard Steiner and James M. Valentine are the
management nominees for election as directors of the Company. These nominees are
all incumbents except for Mr. McCloy. Each of the nominees has consented to act
as a director, if elected. Should one or more of these nominees become
unavailable to accept nomination or election as a director, votes will be cast
for a substitute nominee, if any, designated by the Board. If no substitute
nominee is designated prior to the election, the individuals named as proxies on
the enclosed proxy card will exercise their judgment in voting the shares that
they represent, unless the Board reduces the number of directors.
THE AFFIRMATIVE VOTE OF A PLURALITY OF THE AGGREGATE VOTES CAST OF THE
STOCKHOLDERS VOTING SHALL ELECT THE NOMINEES AS DIRECTORS. THE COMPANY
RECOMMENDS A VOTE FOR EACH OF THE NOMINEES.
The following table sets forth certain information with respect to each
person nominated and recommended to be elected as directors of the Company.
Name Age Director Since
---------------------- --- --------------
John A. de Havilland 67 1994
Derek R. Gray 71 1998
Charles W. Grinnell 68 1994
John J. McCloy, II 67 -
Jeremy D. Peter-Hoblyn 65 1994
Bernhard Steiner 56 2004
James M. Valentine 51 1994
DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
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., a merchant bank, from 1972 until his retirement in 1989. Except for the
period of April through December 1998, Mr. de Havilland was a Managing Director
of Fuel-Tech N.V., a pollution control company, from 1987 through March 1, 2002.
DEREK R. GRAY has been a director of the Company since 1998 and Chairman
since 2003. 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., a manufacturing company, since 1974.
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.
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JOHN J. MCCLOY, II is proposed for election to the Board for the first
time. Mr. McCloy is a private investor concentrating on venture capital and
early stage investment projects in a variety of industries. He is Chairman of
Gravitas Technology, Inc., an information technology company; a director of NCT
Group, Inc., a communications technology company; the Sound Shore Mutual Fund,
Inc.; Ashland Management, Inc., an investment advisory firm; and the American
Council on Germany. He is also a member of the U.S. Council on Foreign
Relations.
JEREMY D. PETER-HOBLYN was Chief Executive Officer of CDT from its
inception until his retirement on September 14, 2004. He was President from
inception and Chairman from 2002 until 2003. Mr. Peter-Hoblyn is temporarily the
acting Chief Technology Officer of the Company. He was a Managing Director of
Fuel-Tech N.V. from 1987 through March 1, 2002.
R. GLEN REID, 58, has been Vice President - Sales and Marketing of CDT
since April 18, 2003 and an employee of CDT since 2002. From 1999 to 2002 Mr.
Reid was Vice President - Sales and Marketing of Marathon Sensors, Inc., a
manufacturer of sensors and associated instrumentation.
TIMOTHY ROGERS, 43, has been Vice President - International of CDT since
February 21, 2004 and previously had been a consultant to CDT since September
30, 2003. From 2002 to September 2003 he was Director of Sales and Marketing of
ADAS Consulting, Ltd and from 1993 to 2002 was a Company Director of Adastra, a
wholly owned subsidiary of Associated Octel Company, Ltd, a U.K. based
multinational Petrochemical Company.
DR. BERNHARD STEINER became Chief Executive Officer of CDT on September 14,
2004. Previously, Dr. Steiner held executive director positions from 2003 at
both Wayfinder Systems AB of Sweden, a navigation and location software
development company, and OWR AG, an NBC protection solutions company. He
continues as a non-executive director at Wayfinder. From 1999 until 2003 Dr.
Steiner was General Manager of the Software Solutions Group of Motorola, Inc.,
an electronics company. From 1994 until 1999 he was Chairman and Chief
Executive of NXT PLC Group companies Wharfedale and Mission and from 1996 Group
Managing Director of NXT PLC. Dr. Steiner, a graduate of the University of St.
Gallen, Switzerland, during his business career also held executive sales and
marketing positions at Canon, Sony and Amstrad PLC.
JAMES M. VALENTINE has been President of CDT since 2002 and has been Chief
Operating Officer of CDT since inception. He was Executive Vice President since
inception until 2002. From 1999 through 1993, Mr. Valentine was the head of his
own energy and environmental consulting firm. Mr. Valentine was a Managing
Director of Fuel-Tech N.V. from 1993 until 2002.
DAVID W. WHITWELL, 39, 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.
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There are no family relationships between any of the directors or executive
officers. Please also see the text below under the caption "Certain
Relationships and Related Transactions."
COMMITTEES OF THE BOARD
The standing Committees of the Board are an Audit Committee and a
Compensation and Nominating Committee. Messrs. Gray and de Havilland are the
members of both committees. Mr. Gray is Chairman of the Audit Committee and Mr.
de Havilland is Chairman of the Compensation and Nominating Committee. Mr. Gray
and Mr. de Havilland are independent directors both under the definition of
NASDAQ Rule 4500(a)(15) and also the more restrictive independence standard
applicable to audit committees in NASDAQ rule 4350(d). While CDT is not listed
on a recognized stock exchange, the Board follows certain policies of The NASDAQ
Stock Market, Inc. as best practice. The Charters of these Committees are
available for viewing on the CDT web site . The Audit Committee
Charter was previously furnished to stockholders as Schedule I to the proxy
statement circulated for the 2003 annual meeting.
The Audit Committee is responsible for review of audits, financial
reporting and compliance, and accounting and internal controls policy. For audit
services, the Audit Committee is responsible for the engagement and compensation
of independent auditors, oversight of their activities and evaluation of their
independence. The audit committee has instituted procedures for receiving
reports of improper record keeping, accounting or disclosure. The Board has also
constituted the Audit Committee as a Qualified Legal Compliance Committee in
accordance with Securities and Exchange Commission regulations.
In the opinion of the Board each of the voting members of the Audit
Committee has both business experience and an understanding of generally
accepted accounting principles and financial statements enabling them to
effectively discharge their responsibilities as members of that Committee.
Moreover, the Board has determined that Mr. Gray is a Financial Expert within
the meaning of Securities and Exchange Commission regulations. In making this
determination the Board considered Mr. Gray's formal training and long
experience in accounting and auditing and his former service for many years as
the Chairman of the Audit Committee of another reporting Company under the
Securities Exchange Act.
The Compensation and Nominating Committee was established March 13, 2004
replacing the Compensation Committee. This Committee is responsible for
establishing executive compensation and administering the Company's Incentive
Compensation Plan and also identifies director nominees for election to fill
vacancies on the Board of Directors of CDT. Nominees are approved by the Board
on recommendation of the Committee.
Mr. McCloy was recommended to the Board as a nominee at the suggestion of
Mr. Farad Azima, a stockholder and consultant to the Company. No fee was paid on
account of that suggestion.
In evaluating nominees, the Committee particularly seeks candidates of high
ethical character with significant business experience at the senior management
level who have the time and energy to attend to Board responsibilities.
Candidates should also satisfy such other particular requirements that the
Committee may consider important to CDT's business
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at the time. When a vacancy occurs on the Board, the Committee will consider
nominees from all sources, including stockholders, nominees recommended by other
parties, and candidates known to the Directors or CDT management. The Committee
may, if appropriate, make use of a search firm and pay a fee for services in
identifying candidates. The best candidate from all evaluated will be
recommended to the Board to consider for nomination.
Stockholders who wish to recommend candidates for consideration as nominees
should on or before January 1 in each year furnish in writing detailed
biographical information concerning the candidate to the Committee addressed to
the Corporate Secretary of CDT at the address set out on the Notice of Meeting.
CORPORATE GOVERNANCE
Director Independence
Mr. Gray and Mr. de Havilland are, and Mr. McCloy when elected will be,
independent, non-executive directors. The Board does not have a majority of
independent directors, as CDT is too small a company for that practice to be
feasible. The Company is not listed on an exchange subject to the U. S.
Securities Exchange Act of 1934.
Meetings
During 2004 there were nine meetings of the Board of Directors of CDT, five
meetings of the Compensation and Nominating Committee, and five meetings of the
Audit Committee. Each Director attended during 2004 at least 75% of Board and
Committee meetings of which he was a member. Each Director, except Mr.
Valentine, attended the 2004 Annual Meeting of Stockholders.
Code of Business Ethics and Conduct
On the recommendation of the Audit Committee, the Board has adopted a Code
of Business Ethics and Conduct which is available for viewing on the CDT web
site . Changes to or waivers of the requirements of the Code will
be posted to the web site and reflected in appropriate Securities and Exchange
Commission filings.
Indemnification
Under the CDT Certificate of Incorporation, 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 indemnity incurs
because of claims against the indemnity. The Company is, however, not obligated
to provide indemnity and costs where it is adjudicated that the indemnity did
not act in good faith in the reasonable belief that the indemnity'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
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in their capacities as directors or officers. The annual premium for this policy
is $81,000. 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 Audit Committee has reappointed the firm of Eisner LLP, Certified
Public Accountants ("Eisner"), to be the Company's independent auditors for the
year 2005 and submits that reappointment to stockholders for ratification.
Eisner, an independent member of Baker Tilly International, was also engaged to
perform that service by the Audit Committee for the 2004 audit. A
representative of Eisner is not expected to be present at the London Meeting.
AUDIT FEES
Fees for professional services provided by Ernst & Young and Eisner in the last
two fiscal years by category were:
2004 2003
------- -------
Audit Fees $65,381 $51,500
Audit-Related Fees - -
Tax Fees - -
All Other Fees - -
------- -------
$65,381 $51,500
"Audit Fees" include fees for the audit of the financial statements, quarterly
reviews and assistance with regulatory filings and compliance.
PRE-APPROVAL POLICIES AND PROCEDURES
CDT's' policy and procedure is that each engagement for audit or non-audit
service is approved in advance by the Audit Committee.
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. Eisner, the independent auditors, is responsible for
performing an audit of the Company's financial statements in accordance with
auditing standards generally accepted in the United States and for expressing an
opinion on those financial statements based on their audit. The Audit Committee
reviews these processes.
Management has represented that the Company's internal controls were
effective at December 31, 2004. Management has also represented that CDT's 2004
financial statements were prepared in accordance with
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accounting principles generally accepted in the United States. The Committee has
reviewed and discussed those financial statements with both management and
Eisner and has reviewed and discussed with Eisner its report on those financial
statements. The Committee has discussed with Eisner 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 representation
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.
Based on the representations and the reviews 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, 2004 and filed with the Securities and Exchange
Commission.
This report has been provided by the following members of the Audit
Committee: D. R. Gray, Chairman and J. A. de Havilland.
2003 CHANGE IN AUDITORS
Effective December 2, 2003 CDT dismissed its independent auditors, Ernst &
Young LLP, of Stamford Connecticut ("Ernst & Young"), and engaged Eisner LLP, of
New York, New York ("Eisner"), as its new independent auditors. The dismissal of
Ernst & Young and engagement of Eisner was for reasons of economy and was
approved by the CDT Audit Committee.
Eisner acted as independent auditor for CDT for years ended December 31,
2004 and 2003. In neither of such years did Eisner's reports relating to its
audit of CDT's financial statements for such years contain an adverse opinion or
disclaimer of opinion, or were modified as to uncertainty, audit scope or
accounting principles.
During such two most recent fiscal years and any subsequent interim periods
through the dismissal of Ernst & Young, there were no disagreements with or
reportable events concerning Ernst & Young, whether or not resolved, on any
matter of accounting principles or practices, financial statement disclosure, or
auditing scope or procedures, which, if not resolved to the satisfaction of
Ernst & Young would have caused Ernst & Young to make reference to the subject
matter of the disagreement in connection with any of their reports. Reports
concerning the change in auditors together with the statement of Ernst & Young
confirming the foregoing were filed on CDT's Forms 8-K and 8-KA, each of
December 2, 2003.
PRINCIPAL STOCKHOLDERS AND STOCK OWNERSHIP OF MANAGEMENT
The following table sets forth information regarding the beneficial
ownership of common stock as of April 12, 2005 by (i) each person known to the
Company to own beneficially more than three percent of the outstanding common;
(ii) each director or director nominee of the Company; (iii) the Named Executive
Officers; and (iv) all directors and executive officers as a group.
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NAME AND ADDRESS(1) NO. OF SHARES(2)(3) PERCENTAGE(4)
--------------------------------------- ------------------- -------------
Beneficial Owners
Fuel-Tech N.V.(2)(5) 1,849,972 10.8%
Waltham Forest Friendly Society(2) 1,394,350 8.1%
Positive Securities Limited 1,304,734 7.6%
Cadogan Settled Estates
Shareholding Company Limited(5) 1,059,453 6.2%
J.A. Kanis (2) 593,258 3.5%
Directors and Named Executive Officers
John A. de Havilland (2) 170,261 1.0%
Derek R. Gray (2) 644,891 3.8%
Charles W. Grinnell (2) 235,121 1.4%
John J. McCloy, II - -
Jeremy D. Peter-Hoblyn(2) 574,954 3.3%
R. Glen Reid(2) 130,000 *
Timothy Rogers (2) 120,000 *
Bernhard Steiner(2) 91,667 *
James M. Valentine(2) 470,946 2.7%
David W. Whitwell(2) 287,916 1.7%
All Directors and Officers
as a Group (10 persons)(2) 2,725,756 15.9%
* Less than 1%
(1) The address of Fuel-Tech N.V. is Castorweg 22-24, Curacao, Netherlands
Antilles. The address of the other beneficial owners is c/o S G Associates
Limited, 45 Queen Anne Street, London W1G 9JF U.K. The address of Directors and
Named Executive Officers is c/o Clean Diesel Technologies, Inc., Suite 702, 300
Atlantic Street, Stamford, Connecticut 06901.
(2) In addition to shares issued and outstanding, includes shares subject to
options or warrants exercisable within 60 days for Fuel-Tech N.V., 25,000
shares; Waltham Forest Friendly Society, 25,000 shares; Mr. Kanis, 21,247
shares; Mr. de Havilland, 153,817 shares; Mr. Rogers, 120,000 shares; Dr.
Steiner, 91,667 shares; Mr. Gray, 229,757 shares; Mr. Grinnell, 219,917 shares;
Mr. Reid, 130,000 shares; Mr. Peter-Hoblyn, 444,701 shares; Mr. Valentine,
469,386 shares; Mr. Whitwell, 275,554 shares; and, for all directors and
officers as a group, 2,134,799 shares. The amount for Mr. de Havilland and for
directors and officers as a group does not include 23,599 shares owned by Mr. de
Havilland's adult children as to which he disclaims beneficial ownership.
(3) To the knowledge of the Company the owners of all shares hold sole
beneficial ownership and investment power over the shares reported.
(4) The percentages are percentages of outstanding stock and have been
calculated by including warrants and options exercisable within 60 days by the
respective stockholders. In addition 3% rather than 5% is presented in
accordance with standard U.K. practice due to the Company's listing on the
Alternative Investment Market of the London Stock Exchange.
(5) The shares indicated for Fuel-Tech N.V. include shares held by its
wholly-owned subsidiary, Platinum Plus, Inc. Mr. de Havilland is a director of
Cadogan Settled Estates Shareholding Company Limited and disclaims beneficial
ownership of the shares held by that company.
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EXECUTIVE COMPENSATION
The table below sets forth information concerning compensation for services
in all capacities awarded to, earned by or paid to Dr. Bernhard Steiner, Chief
Executive Officer; Mr. Jeremy D. Peter-Hoblyn, retired Chief Executive Officer;
Mr. R. Glen Reid, Vice President, Sales and Marketing; Mr. Timothy Rogers, Vice
President International; Mr. David W. Whitwell, Vice President, Treasurer and
Chief Financial Officer; and Mr. James M. Valentine, President and Chief
Operating Officer, during the fiscal years ended December 31, 2004, 2003 and
2002, the only executive officers of the Company who earned total compensation
in excess of $100,000 during fiscal year 2004 (the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
ANNUAL LONG-TERM
============================== ===================
SHARES
UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY (1) BONUS OTHER(2) OPTIONS COMPENSATION
GRANTED (#) (4)
(3)
----------------------------------------------------------------------------------------------------------
Bernard Steiner 2004 $ 80,300 - $ 20,075 200,000 -
Chief Executive Officer 2003 - - - - -
2002 - - - - -
Jeremy Peter-Hoblyn 2004 $ 157,500 $20,000 - 20,000 $ 440,587
Retired Chief Executive Officer 2003 $ 256,875 $37,500 $ 22,900 70,000 -
2002 $ 289,600 - $ 50,000 100,000 -
R. Glen Reid 2004 $ 168,667 $ 5,000 - 20,000 $ 5,040
Vice President 2003 $ 160,667 $16,000 $ 38,000 60,000 $ 4,820
Sales and Marketing 2002 $ 120,000 - - 50,000 $ 2,400
Timothy Rogers 2004 $ 254,225 $20,083 - 20,000 -
Vice President 2003 $ 36,000 - - 100,000 -
International 2002 - - - - -
David W. Whitwell 2004 $ 215,000 $15,000 - 20,000 $ 6,150
Vice President and Chief 2003 $ 192,083 25,000 - 96,000 $ 5,570
Financial Officer 2002 $ 184,300 - - 80,000 $ 5,375
James M. Valentine 2004 $ 315,000 $20,000 - 30,000 $ 10,350
President and 2003 $ 301,250 $50,000 - 120,000 $ 10,088
Chief Operating Officer 2002 $ 289,100 - - 100,000 $ 9,500
(1) Dr. Steiner became CEO and Mr. Peter Hoblyn retired as CEO on September
14, 2004. Dr. Steiner's salary is at the rate of 200,000 Euros ($250,000) per
year. Mr. Rogers' 2003 compensation was in his capacity as a consultant prior to
his commencement of employment on January 1, 2004.
(2) The amounts designated "Other" were in 2004 for Dr. Steiner, healthcare
premiums, pension allowance and office expense; in 2003 and 2002 for Mr.
Peter-Hoblyn, accruals for a pension; and, in 2003 for Mr. Reid, a relocation
allowance.
(3) Options granted were non-qualified stock options through 2002;
thereafter they were incentive stock options, except for options granted to Mr.
Rodgers and Dr. Steiner, which were non-qualified stock options. Options are
granted at fair market value of the shares on the date of grant. CDT has granted
no stock appreciation rights in connection with stock options.
(4) The amounts designated "All Other" were, for Mr. Peter-Hoblyn in 2004 on
the occasion of his retirement, payment of pension accruals in the amount of
$305,187 and distribution to him of 73,587 shares of CDT common, then valued
at$135,400, on
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account of deferred salary. For other employees these amounts were matching
401(k) or profit sharing contributions and auto allowance.
DIRECTORS' COMPENSATION
CDT provides an annual retainer of $30,000 plus associated expenses for
directors who are not employees of the Company. The Chairman of the Board
receives an additional annual retainer of $30,000. The Chairman of the Audit
Committee receives an additional annual retainer of $10,000. Directors who are
employees of the Company will receive no compensation for their service as
directors. For 2004, Mr. Gray accrued 27,179 shares of restricted Common in lieu
of cash on account of directors' fees. In addition, Messrs. Gray and de
Havilland were granted, respectively, 25,000 and 15,000 non-qualified stock
options on December 9, 2004 at the exercise price of $1.94 per share.
OPTION GRANTS IN THE LAST FISCAL YEAR
TO NAMED EXECUTIVE OFFICERS
NUMBER OF % OF TOTAL POTENTIAL REALIZABLE VALUE
SHARES OPTIONS EXERCISE OR OF ASSUMED ANNUAL RATES
NAME UNDERLYING GRANTED TO BASE PRICE EXPIRATION DATE OF PRICE APPRECIATION FOR
OPTIONS EMPLOYEES IN ($/SHARE) OPTION TERM
GRANTED (#) 2004 5% 10%
--------------------------------------------------------------------------------------------------------------
Bernhard 150,000 $ 1.84 9/12/14 $ 73,575 $ 439,873
Steiner 50,000 43% $ 1.94 12/8/14 $ 61,003 $ 154,593
Jeremy D.
Peter- Hoblyn 20,000 4% $ 1.94 12/8/14 $ 24,401 $ 61,837
James M.
Valentine 30,000 6% $ 1.94 12/8/14 $ 36,602 $ 92,756
Timothy
Rogers 20,000 4% $ 1.94 12/8/14 $ 24,401 $ 61,837
David W.
Whitwell 20,000 4% $ 1.94 12/8/14 $ 24,401 $ 61,837
R.Glen
Reid 20,000 4% $ 1.94 12/8/14 $ 24,401 $ 61,837
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AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION VALUES
OF NAMED EXECUTIVE OFFICERS
NUMBER OF
SECURITIES NUMBER OF VALUE OF VALUE OF
SHARES UNDERLYING SECURITIES UNEXERCISED IN- UNEXERCISED IN-
NAME ACQUIRED VALUE UNEXERCISED UNDERLYING THE-MONEY THE-MONEY
ON REALIZED OPTIONS AT UNEXERCISED OPTIONS AT OPTIONS AT FISCAL
EXERCISE FISCAL YEAR OPTIONS AT FISCAL FISCAL YEAR-END/ YEAR-END/
END/ YEAR END/ EXERCISABLE UNEXERCISABLE
EXERCISABLE UNEXERCISABLE
--------------------------------------------------------------------------------------------------------
Bernhard
Steiner - - 66,667 133,333 $ 3,000 $ 6,000
Jeremy D.
Peter-Hoblyn - - 421,367 - $ 66,667 $ 3,333
James M.
Valentine 28,115 $ 50,600 409,385 60,000 $ 45,218 $ 6,667
Timothy
Rogers - - 73,334 46,666 - -
David W.
Whitwell 20,448 $ 37,440 230,220 45,332 $ 5,721 $ 5,417
R. Glen
Reid - - 96,667 33,333 $ 6,667 $ 3,333
REPORT OF THE BOARD OF DIRECTORS ON EXECUTIVE 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.
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COMPENSATION OF EXECUTIVE OFFICERS - 2004
The key components of the Company's executive compensation program during
2004 were base salary and stock option awards under the 1994 Plan, as well as
bonus payments. 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 - 2004
The compensation of the Chief Executive Officer, Dr. Steiner, fixed in 2004
pursuant to an Executive Agreement of September 13, 2004, is made up of base
salary, stock options, and pension and health benefits and a twelve month
guaranteed bonus payment (See the Summary Compensation Table above). Dr.
Steiner's base salary is 200,000 Euros per year ($250,000). Mr. Steiner was
awarded at September 14, 2004 a stock option to purchase 150,000 shares of CDT
Common at the exercise price of U.S. $1.84 per share. CDT will pay to or
contribute on behalf of Dr. Steiner up to 50,000 Euros ($62,500) annually for
pension, life insurance and health benefits. Dr. Steiner, if still in the employ
of CDT on September 15, 2005 will receive a guaranteed bonus of 100,000 Euros
($125,000). Dr. Steiner was also awarded on December 9, 2004 an option to
purchase 50,000 shares of CDT common at $1.94 per share. Dr. Steiner will also
be awarded a performance based option for 100,000 shares of CDT common, if by
March 13, 2006, CDT shall have completed debt or equity financings in the
aggregate amount of U.S. $10 million. That option, if granted, will have an
exercise price at the fair market value of the shares on the date the condition
is satisfied. Each of the foregoing options are non-qualified options with a
term of ten years and vest one-third on grant and one-third on each of the first
and second anniversaries of grant.
The foregoing CEO compensation arrangement was approved by the Board on
recommendation of the Compensation and Nominating Committee, based on the
Committee's overall business judgment considering what is appropriate
compensation in view of the Company's position, arrangements made by comparable
companies, and Dr. Steiner's background and experience.
The compensation of the retired Chief Executive Officer, Mr. Peter-Hoblyn,
in 2004 was made up of base salary, stock options and a bonus. (See the Summary
Compensation Table above.) That compensation was fixed by the Board on
recommendation of the Compensation and Nominating Committee on the same basis
described above as applicable to Dr. Steiner. Also, on the occasion of his
retirement, the Board authorized the settlement on Mr. Peter-Hoblyn of $440,587
of cash and stock on account of accrued pension benefit and deferred salary.
Currently, pending engagement of an executive as the CDT Chief Technology
Officer ("CTO"), Mr. Peter-Hoblyn is acting CTO at the rate of $13,125 per
month. When a new CTO is engaged, Mr. Peter-Hoblyn will then act as a consultant
to CDT for
13
services as requested by the CEO from time to time at $1,000 per day and will
also receive standard non-executive director fees.
This report has been provided by the following members of the Compensation
Committee of the Board of Directors of the Company: D. R. Gray and J. A. de
Havilland, Chairman.
PERFORMANCE GRAPH
The following line graph compares (i) the Company's cumulative total
return to stockholders per share of Common Stock for the five year
period ending December 31, 2004 to that of (ii) the Russell 2000 index
and (iii) the Standard and Poor's 1500 Super composite Specialty
Chemicals Index.
GRAPHIC OMITTED
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
EMPLOYMENT AND CONSULTING AGREEMENTS
Messrs. Rogers, Steiner, Reid, Whitwell and Valentine have employment
agreements with the Company, effective January 1, 2004 for Mr. Rogers; September
14, 2004 for Mr. Steiner; April 1, 2002 for Mr. Reid; March 1, 2001 for Mr.
Whitwell and August 1, 1995 for Mr. Valentine. These agreements are for
indefinite terms, except for Mr. Steiner whose agreement expires September 13,
2006. 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 the remaining period of the agreement for Mr. Steiner,
after one year; for Mr. Valentine, nine months; for Mr. Whitwell, six months;
for Mr. Reid; and three months for Mr. Rogers. 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.
See also the text above under the caption "Compensation of Chief Executive
14
Officer - 2004" for a description of Mr. Peter-Hoblyn's consulting arrangement
with CDT and his service as acting CTO.
MANAGEMENT AND SERVICES AGREEMENT
CDT entered into a Management and Services Agreement of July 1995, as
amended (the "Services Agreement") with Fuel Tech, Inc., a wholly-owned
subsidiary of Fuel-Tech N.V. Fuel-Tech N.V. is a principal stockholder of CDT.
Services provided to CDT under the Services Agreement are principally legal
services proved by Mr. Grinnell who is an employee of Fuel Tech, Inc. and a
director of Fuel-Tech N.V. and of CDT. The amount of $69,000 was paid by CDT to
Fuel Tech, Inc. in each of the years 2002 through 2004 on account of these
services. Mr. Grinnell will recuse himself from consideration of any
transactions between these companies that may be, or may appear to be, material
to either company.
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, Inc. commencing in 1998 of 2.5% of gross revenues derived from platinum
fuel catalysts. Such royalties incurred in 2004, 2003 and 2002 were $7,450,
$4,800 and $800. CDT may at any time terminate the royalty obligation by payment
to Fuel Tech, Inc. in any year from 2005 through 2008 of amounts, depending on
the year, declining from $4.4 million in 2005 to $1.1 million in 2008.
GENERAL
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
The Company believes that all officers and directors of the Company were in
compliance with 2004 filing requirements relating to beneficial ownership
reports under Section 16(a) of the Securities Exchange Act of 1934, except that
the following filings were delayed, each filing relating to a single
transaction: the Forms 3 due for Mr. Rogers on January 23 and for Mr. Steiner on
September 15 were filed on February 4 and September 23; the Forms 4 due for Mr.
Gray on June 12, August 28 and October 2 were filed on June 14, August 30 and
October 4; the Form 4 for Mr. Peter-Hoblyn due October 2 was filed October 4;
the Form 4 for Mr. Valentine due October 9 was filed October 12; and, for all
reporting persons, the Forms 4 due December 11 were filed December 16.
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 2006 Annual
Meeting of Stockholders of the Company must be received in writing at the
address of the Company set out on the Notice of Meeting on or before December
22, 2005 and, if received thereafter, may be excluded by the Company.
15
COMMUNICATIONS WITH THE BOARD OF DIRECTORS
Any stockholder desiring to send a communication to the Board, or any
individual director, may forward such communication to the Corporate Secretary
to the address of the Company set out on the Notice of Meeting. Under procedures
fixed from time to time by the independent directors, the Corporate Secretary
will collect and organize all such communications and forward them to the Board
or individual director.
OTHER BUSINESS
Management knows of no other matters that 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 21, 2005
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, 2004, INCLUDING THE
FINANCIAL STATEMENTS AND SCHEDULES THERETO, AS FILED WITH THE SECURITIES AND
EXCHANGE COMMISSION. ALL SUCH REQUESTS SHOULD BE DIRECTED TO THE CORPORATE
SECRETARY AT THE ADDRESS OF THE COMPANY ON THE NOTICE OF MEETING.
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 UNITED STATES 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.
16
PROXY PROXY
SOLICITED BY THE BOARD OF DIRECTORS
CLEAN DIESEL TECHNOLOGIES, INC.
ANNUAL MEETING OF STOCKHOLDERS - JUNE 9, 2005
The undersigned hereby appoints Derek R. Gray, Bernhard Steiner, 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 of Clean Diesel Technologies,
Inc. (the "Company") which the undersigned may be entitled to vote at the annual
meeting of stockholders of the Company to be held at the offices of James M.
Finn & Co., Salisbury House, London Wall, London EC2M 5TA, U.K. at 11:00 a.m.
on Thursday, June 9, 2005, and at any adjournments or postponements of the
meeting, for the approval of the agenda items set forth below 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 accompanying Notice
of Meeting and Proxy Statement. The Board of Directors recommends a vote for
election as director of each of the nominees and for each other agenda item,
and, if no direction is given, this proxy will be voted for all nominees and for
such other items.
IMPORTANT - TO BE SIGNED AND DATED ON THE REVERSE SIDE
. Fold and Detach Here .
1. To approve the election as directors of Derek R. Gray, John A. de Havilland,
Charles W. Grinnell, John J. McCloy II, Jeremy D. Peter-Hoblyn, Bernhard
Steiner, 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. To ratify the appointment of Eisner LLP as the independent auditors for the
year 2005.
FOR AGAINST ABSTAIN
Dated ____________________, 2005
______________________________
______________________________
(Signature of Stockholder)
Please sign exactly as name appears. If acting as
attorney, executor, trustee or in other
representative capacity, insert name and title.