UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE
SECURITIES EXCHANGE ACT OF 1934
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[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to 240.14a-12
CLEAN DIESEL TECHNOLOGIES, INC.
(NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
THE COMMITTEE TO RESTORE STOCKHOLDER VALUE
AND INTEGRITY FOR CLEAN DIESEL
(NAME OF PERSON(S) FILING PROXY STATEMENT, IF OTHER THAN THE REGISTRANT)
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[X] No fee required.
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(1) Title of each class of securities to which transaction applies:
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0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.
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THE COMMITTEE TO RESTORE STOCKHOLDER VALUE
AND INTEGRITY FOR CLEAN DIESEL
______________________________
PROXY SOLICITATION IN
OPPOSITION TO THE BOARD OF DIRECTORS
OF CLEAN DIESEL TECHNOLOGIES, INC.
______________________________
SEPTEMBER ___, 2010
This Proxy Statement, the accompanying letter to stockholders and the
enclosed BLUE proxy card are being furnished to the holders of Common Stock, par
value $0.01 per share, of Clean Diesel Technologies, Inc. ("Clean Diesel" or the
"Company"), 10 Middle Street, Suite 1100, Bridgeport, CT 06604, in connection
with the solicitation of BLUE proxies by THE COMMITTEE TO RESTORE STOCKHOLDER
VALUE AND INTEGRITY FOR CLEAN DIESEL (the "Committee"). This Proxy Statement
will first be delivered to Clean Diesel Stockholders on or about September __,
2010.
The Committee is comprised of Andrew Merz Hanson, CFA, Chairman, John J.
McCloy II (a former Clean Diesel director), and Ann Ruple, (a former Chief
Financial Officer of Clean Diesel). Specific information with respect Messrs.
Hanson and McCloy is set forth below under "Nominees for Election as Directors."
The BLUE proxies are for use at the Special Meeting of Stockholders of
Clean Diesel scheduled for [day], [date] at [time] a.m. local time at [location]
(the "Special Meeting"), and at any adjournments or postponements thereof. THIS
SOLICITATION IS BEING MADE ON BEHALF OF THE COMMITTEE AND NOT ON BEHALF OF THE
BOARD OF DIRECTORS OF CLEAN DIESEL.
Our goals are to restore stockholder confidence and value to Clean Diesel
Technologies, Inc.
The Committee has nominated a slate of two directors for election at the
Special Meeting. The Committee has also recommended removing the current
directors of Clean Diesel and the proxies solicited will be used to do so. The
shares represented by each BLUE proxy which is properly executed and returned to
the Committee will be voted at the Special Meeting in accordance with the
instructions marked thereon. Executed but unmarked BLUE proxies will be voted
for the Committee's nominees and, at the discretion of the persons named as
proxies, upon such other matters as may properly come before the meeting.
The enclosed form of BLUE proxy may only be executed by stockholders of
record at the close of business on [date] (the "Record Date"). There were
8,213,988 shares of common stock, $0.01 par value ("Common Stock") outstanding
as of August 12, 2010, according to Clean Diesel's Quarterly Report on Form 10-Q
filed on August 16, 2010. Each share of Common Stock outstanding on the Record
Date entitles the record holder thereof to cast one vote. Business may only be
transacted at a meeting of stockholders if a quorum is present at the meeting.
Such a quorum consists of one-third (1/3) of the outstanding shares entitled to
vote at the meeting represented in person or by proxy. The affirmative vote of
a plurality of the holders of Clean Diesel's outstanding Common Stock
represented and voting at the Special Meeting is required to elect directors,
and a vote of a majority of such holders is required to take all other action to
be considered at the Special Meeting.
Any stockholder granting a proxy may revoke it at any time before it is
voted by executing a new proxy bearing a later date, by voting in person at the
Special Meeting or by giving written notice of revocation to the Committee c/o
Cutler Law Group, 3355 West Alabama, Suite 1150, Houston, Texas 77098; facsimile
(800) 836-0714.
If you hold your shares in "street name" or as a beneficial owner (in other
words your shares are held in a brokerage account and you do not physically hold
a stock certificate), you must advise your broker or nominee how to vote the
shares in writing. Please advise us and we will forward to your broker a form
of BLUE proxy. We will also pay the reasonable costs of such broker in
obtaining your proxy. If you wish to vote in person or at the meeting, you will
need to obtain from your broker (the record holder) and bring to the meeting a
BLUE proxy signed by the record holder identifying you as the beneficial owner
of the shares and giving you the right to vote the shares at the meeting.
If you have already executed and returned a proxy card to Clean Diesel, the
Committee urges you to revoke it by signing, dating and returning the BLUE proxy
card in the enclosed envelope.
Remember, only your latest dated proxy counts.
YOUR VOTE IS IMPORTANT. PLEASE SIGN AND DATE THE BLUE PROXY CARD AND
----
RETURN IT PROMPTLY IN THE ENCLOSED ENVELOPE. IF YOU NEED ASSISTANCE IN VOTING
YOUR SHARES, PLEASE CONTACT: JOHNNIE D. JOHNSON; PHONE NUMBER: (860) 234-2465.
THE COMMITTEE TO RESTORE STOCKHOLDER VALUE
AND INTEGRITY FOR CLEAN DIESEL
c/o Cutler Law Group
3355 West Alabama, Suite 1150
Houston, Texas 77098
REASONS FOR THE SOLICITATION
As a stockholder of Clean Diesel, you should be aware of the following
significant events that have occurred during the past few months, which we
believe reflect the deteriorating economic condition of the Company:
0 CLEAN DIESEL'S CORPORATE OFFICERS ARE MATERIALLY IMPAIRING STOCKHOLDER
VALUE. MANAGEMENT'S ACTIONS HAVE CAUSED OUR STOCK PRICE TO DECLINE 90% OVER
THE LAST 24 MONTHS. REVENUES HAVE DECLINED 84%. Management has neglected
refused to pursue leads and close sales in promising new markets, instead
focusing 100% effort on selling off the company in a merger with Catalytic
Solutions. Catalytic Solutions has a market capitalization less than 25% of
Clean Diesel's market cap, yet Catalytic Solutions' existing shareholders
together with its convertible note holders and the company's financial
advisors would receive 60% of the shares in the merged company according to
the Registration Statement filed by the current management of Clean Diesel.
As recently as July 2008 Clean Diesel's stock price was $10.60
per share, but is now trading under $1.00. Clean Diesel had $7,475,000
in revenues in 2008 but only $1,221,000 in 2009. What happened? The
Committee believes the actions of current management, in particular
the proposed merger with Catalytic Solutions, are why revenues have
fallen and our stock price has crashed. These actions must be stopped!
0 CLEAN DIESEL'S BOARD OF DIRECTORS IS NOT PROTECTING THE INTERESTS OF
STOCKHOLDERS. The board waited almost a year and was on the verge of being
delisted from NASDAQ for not complying with NASDAQ rules for independent
directors and audit committee independence. Two independent directors
resigned, including John J. McCloy II who is now nominated by the
Committee. Ignoring fiduciary duty to stockholders and violating NASDAQ
rules, Clean Diesel inappropriately operated with a single member audit
committee.
Clean Diesel waited fifty-one weeks to resolve this matter and only
did so TWO DAYS before the company would have been delisted from NASDAQ.
Without question, our stock price reflects the substantial doubt of
investors about the pending delisting which management could have resolved
months earlier.
0 CLEAN DIESEL'S BOARD HAS EXPOSED THE COMPANY TO SIGNIFICANT LEGAL
LIABILITIES UNDER AMERICAN SECURITIES LAWS. The board terminated Ann Ruple,
the company's Chief Financial Officer, for fulfilling her legal obligation
to inform the board regarding concerns about entering into merger
agreements that had the potential of damaging Clean Diesel stockholders and
conflicts of interest. An independent director subsequently resigned. THE
COMPANY IS UNDER INVESTIGATION FOR POTENTIAL SARBANES-OXLEY VIOLATIONS and
is the subject of a potential whistleblower suit by Ms. Ruple. The company
has not disclosed these material events.
The Committee strongly believes that Clean Diesel should have
informed stockholders about the existence of a whistleblower complaint
filed by Ann Ruple, former Vice President, Treasurer and Chief
Financial Officer. Immediately prior to her termination, Ms. Ruple
addressed the Board of Clean Diesel and expressed her concerns about
inherent conflicts of interest and failure to properly comply with the
Board's fiduciary duties to Clean Diesel stockholders in transactions
arranged by Innovator Capital. Mungo Park, Clean Diesel's Chairman and
founder and principal owner of Innovator Capital, will receive
compensation from BOTH Innovator Capital and Clean Diesel if the
merger occurs. If compensation is an incentive, then stockholders
should note that he will receive far more from merging the company
than he would from properly directing it. The manner in which the
Chairman was appointed to his role prompted the resignation of an
independent director, who chided Clean Diesel's board in his Form 8-K
filing that his "faith in the ethics of how a business should be
handled had been shaken to the core", concluding "Shame on my former
Board members for allowing that to happen."
0 CLEAN DIESEL'S CHAIRMAN, IN AN ACT OF POTENTIAL SELF-DEALING, HAS INITIATED
A MERGER WITH A COMPANY ON THE VERGE OF BANKRUPTCY. HE STANDS TO MAKE IN
EXCESS OF $800,000 IF THE REVERSE MERGER IS DONE. What does it mean for
you? Clean Diesel's stock fell over 30% in reaction to the announcement.
The Clean Diesel board approved the merger despite concerns raised by Ann
Ruple, the former Chief Financial Officer, and board members.
As reported in the Registration Statement filed by Clean Diesel's
management on Form S-4: "Mr. Park, our Chairman, is also a principal
and chairman of Innovator Capital Limited, a financial services
company based in London, England, which firm has provided services to
the Company. On November 20, 2009, the Company entered into an
engagement letter with Innovator to provide financing and merger and
acquisition services ("Engagement Letter"). The Engagement Letter had
an initial three month term during which Innovator would (i) act for
the Company in arranging a private placement financing of $3.0 million
to $4.0 million from the sale of the Company's common stock and
warrants and (ii) assist the Company in merger and acquisition
activitiesIn connection with the Merger Agreement, if successful,
Innovator Capital is estimated to receive approximately $811,000 as
compensation for its services."
0 THE REMAINING CLEAN DIESEL DIRECTORS ARE NOT PERFORMING THEIR FIDUCIARY
---
DUTIES TO PROTECT STOCKHOLDERS FROM CONFLICTS OF INTEREST REGARDING THE
CATALYTIC SOLUTIONS MERGER. We are concerned that these directors are
acting in self-interest to benefit themselves and not Clean Diesel
stockholders.
Derek Gray, a director, along with one of his investors, would
participate in a private placement of Clean Diesel common stock and
warrants at an advantageous price which is scheduled to take place
immediately before the merger is consummated. Furthermore, Derek Gray
is one of the sitting directors who would continue as a director in
the merged company - at a higher rate of compensation.
Michael Asmussen, a director and Chief Executive Officer of Clean
Diesel was scheduled to receive nearly $500,000 in remuneration
despite performance if the merger was concluded. Subsequently it was
announced that this CEO would not be part of the merged company. Is
this a vote of no confidence?
Charles Grinnell, a director, has entered into an agreement that
provides for a "transition bonus" of $86,730 if the merger occurs
under specified circumstances.
Mungo Park, a director, through his firm Innovator Capital, will
receive an investment-banking fee of 194,486 shares of Clean Diesel
and $500,000 in cash if the merger goes through. In addition,
Innovator Capital will receive 89,180 warrant shares plus $50,000 in
cash for the $1,000,000 fund raise for Clean Diesel prior to the
merger. Mungo Park is also one of the sitting directors who would
continue as a director in the merged company. Why would Innovator
Capital insist on a cash payment which benefits its principal owner
who is incidentally Chairman of Clean Diesel? As Chairman of Clean
Diesel, Mr. Park should set aside personal gain and act wholly in the
interest of Clean Diesel stockholders. This would be particularly
appropriate in light of the inadequate cash position of the merged
company. Is this a vote of no confidence?
0 We strongly believe these SERIOUS ISSUES OF CORPORATE GOVERNANCE
demonstrate the continued unacceptable performance of this Board and their
management and substantial failures in their fiduciary responsibilities to
Clean Diesel stockholders. We therefore request your support in replacing
the five Board members who participated in voting for this merger to return
Clean Diesel to an attractive growth business.
0 CLEAN DIESEL'S BOARD CONTINUES TO WASTE YOUR STOCKHOLDER MONEY. In the
first compensation committee meeting of the board that the current Chairman
attended: "Mr. Park suggested a change in company policy to enable
Directors and employees to use business class when traveling by air. After
discussion, the Committee agreed that a rigid policy mandating economy
class in all circumstances is not appropriate. Mr. Park suggested that
there be a policy change to recognize that travel by business class is
often more efficient" (extracted directly from the compensation committee
minutes). Prior to that because of the financial condition of the company,
all employees and directors were restricted to economy fare travel. We
believe business class travel is an irresponsible use of stockholder money
in light of the financial condition of Clean Diesel.
We believe payment of $35,000 per month for the interim CFO
retained the same day the board terminated the former CFO is adding up
to a large waste of stockholders' monies. It should be noted that the
former CFO was earning $17,500 per month.
0 CURRENT MANAGEMENT OF CLEAN DIESEL IS SIMPLY FAILING TO ASSESS STRATEGIC
ALTERNATIVES TO THEIR IMPRUDENT COURSE OF ACTION. The board and the current
management continue to burn cash for plans that have little or no promise
of generating cash or profits, hastening the demise of Clean Diesel while
asserting there are no viable options. The board consistently appears to
have refused to assess alternative strategies for the company other than
the potential merger with CSI, which in the Committee's opinion is not a
viable alternative. For example, the board has never received a proper
appraisal of Clean Diesel's intellectual property portfolio which, in the
opinion of this committee, has significant intrinsic value although there
is no assurance these assets have value. The Committee notes in the Clean
Diesel registration statement that a fair value of $2.4 million has been
attributed to Clean Diesel's intellectual property.
From Clean Diesel's Registration Statement on Form S-4: "In
connection with its review, Ardour Capital did not independently
verify any of the information reviewed by it for the purpose of its
opinion and relied on such information being complete and accurate in
all material respects. In addition, it did not make any independent
evaluation or appraisal of any of the assets or liabilities
(contingent or otherwise) of Clean Diesel or Catalytic Solutions, and
had not been furnished with any such evaluation or appraisal."
0 THE PROPOSED MERGER WITH CATALYTIC SOLUTIONS WOULD RESULT IN SUBSTANTIAL
SHAREHOLDER DILUTION WHICH WILL FURTHER ERODE STOCKHOLDER VALUE.
From Clean Diesel's Registration Statement on Form S-4: "After
completion of the Merger, the current Clean Diesel stockholders (including
investors in its Regulation S offering) will beneficially own approximately
40% of the Clean Diesel common stock." The Committee believes that this is
misleading and if Innovator Capital and the warrants to be issued are
considered, the disclosure would then be clear to existing Clean Diesel
stockholders that their potential dilution could result in beneficially
owning only 28.6% of the merged company. The table below is based upon an
earlier version of the registration statement:
Number of New Diluted Percent
Shares Warrants Total of Total
---------- --------- ---------- --------
Allen and Company 1,000,000 1,000,000 2,000,000 7.0%
Innovator Capital Fees (a) 512,612 89,180 601,792 2.1%
CSI $4,000,000 Venture Debt Bridge 9,376,136 9,376,136 32.7%
Clean Diesel Reg D Offering 654,118 1,000,000 1,654,118 5.8%
Clean Diesel Existing Stockholders 8,213,988 8,213,988 28.6%
Catalytic Solutions Shareholders 3,828,711 3,000,000 6,828,711 23.8%
---------- --------- ---------- --------
Total Stockholders' Equity 23,585,565 5,089,180 28,674,745 100.0%
(a) Innovator Capital now will extract fees as cash rather than this
earlier calculation of shares per the registration statement (see
above).
Note that the CSI bridge debt holders pay only $0.43 per Clean Diesel
share ($4.0 million divided by 9,376,136 shares).
Furthermore, the proposed merged company would have insufficient
initial cash to ensure a viable business. Clean Diesel was required to have
$4.5 million cash at June 30, 2010; Catalytic Solutions was required to
have $2 million cash at June 30, 2010 for 60% of the stock. Both companies
continue to operate in cash flow negative fashion after the above date. At
closing of the proposed merger, each company is only required to have $1
million cash. Given management's track record, we fail to understand how
Clean Diesel and Catalytic Solutions can survive as a combined entity in
that CSI has significant issues as to its ability to remain a going
concern. In the Committee's opinion, there will be insufficient cash to
operate the merged company.
0 CATALYTIC SOLUTIONS HAS BEEN IN VIOLATION OF ITS BANK COVENANTS AND HAS
AGAIN EXTENDED THE FORBEARANCE DEADLINE. How can we be sure current
management can solve this substantial liquidity issue? How can we be
assured that Fifth Third Bank will not call the loans within months after a
merger is affected to simply take the available cash from the company?
The current management of Clean Diesel reported in their
registration statement that "[o]n March 31, 2009, CSI failed to
achieve two of the covenants under its Fifth Third Bank credit
facility. These covenants related to the annualized EBITDA
and the funded debt to EBITDA ratio for its Engine Control
Systems subsidiary. Fifth Third Bank agreed to temporarily suspend its
rights until July 1, 2009 subject to CSI, in Fifth Third Bank's
opinion, making reasonably satisfactory progress in its efforts to
recapitalize its balance sheet and the provision of an audit report on
the collateral pledged by CSI to Fifth Third Bank. In July 2009, the
bank extended its forbearance until September 30, 2009, subject to
similar terms. In October 2009, on the repayment of the term loan of
$3.5 million, the bank verbally extended its forbearance until
November 30, 2009. In December 2009, the bank extended its forbearance
until January 31, 2010, converted the revolving line to a demand
facility, reduced the credit limit to Canadian $8.5 million and raised
the interest charged to Prime Rate plus 2.5%. This conversion to a
demand facility effectively rendered the financial covenants under the
original loan agreement meaningless. In January 2010, the bank further
extended forbearance until April 30, 2010 and further reduced the
credit limit to Canadian $7.5 million with a Canadian $100,000
reduction per month for the forbearance period. The interest rate was
further increased to U.S./Canadian Prime Rate plus 2.75%. In June
2010, in connection with the capital raise (discussed above under "-
Recent Developments - Capital Raise"), Fifth Third Bank agreed to
further extend forbearance under the terms of its credit facility
until August 31, 2010, and reduced the credit limit to Canadian $7.0
million, but made no further changes to the interest rate, which
remains at U.S./Canadian Prime Rate plus 2.75%. A further extension
until November 30, 2010 will be granted if certain criteria are met,
as described above under "- Recent Developments - Forbearance from
Fifth Third Bank Extended."
As of September 6, 2010 the below was released by Catalytic
Solutions:
FORBEARANCE AGREEMENT WITH THE SECURED CONVERTIBLE NOTE HOLDERS
"The holders of the Company's 8% secured convertible notes (the
"Notes") agreed to forbear from exercising any rights or remedies
thereunder with respect to the current event of default under the
terms of the Notes to 15 October 2010. These rights and remedies
include: forgoing the increase in the interest rate from 8.0% to
15.0%, waiving the applicability of the additional payment premium of
two times (2x) the outstanding principal amount due, and agreeing that
the payment premium will be extinguished in the event that the Notes
are converted and the CDTI merger occurs prior to 15 October 2010.
ACCORDINGLY, IF THE CDTI MERGER HAS NOT OCCURRED BY 15 OCTOBER 2010,
AND THE COMPANY IS NOT ABLE TO OBTAIN THE AGREEMENT OF THE HOLDERS OF
THE NOTES TO WAIVE, EXTEND OR FURTHER MODIFY THE TERMS OF THE NOTES,
THE INTEREST RATE WILL INCREASE FROM 8.0% TO 15.0% AND AN ADDITIONAL
PAYMENT PREMIUM OF TWO TIMES (2X) THE OUTSTANDING PRINCIPAL AMOUNT
WILL BE DUE TO THE HOLDERS OF THE NOTES." [EMPHASIS SUPPLIED]
The holders of the Notes further conditioned their obligation to
purchase the remaining $2.0 million of the Notes immediately prior to
the closing of the CDTI merger on the requirement that the Company and
CDTI timely furnish the requested statements regarding their estimated
cash positions, that each of CSI and CDTI have a certain minimum cash
position, that the shares of CDTI to be issued in the CDTI merger be
approved for listing on the Nasdaq, in addition to the other closing
conditions in the Note purchase agreements (which include that the
Company must not have suffered any material adverse change).
As set out in CSI's announcement of 2 June 2010, ""the Financing
will provide CSI with financing for immediate working capital needs
and the $2.0 million cash balance required to ensure the minimum cash
position necessary at the earlier of the effective time of the Merger
or 30 June 2010, to result in CSI shareholders receiving at least 60%
of the shares of CDTI pursuant to the terms of the Merger." The
Committee is concerned at the extent of cash infusion CSI requires for
its working capital needs.
FORBEARANCE AGREEMENT WITH FIFTH THIRD BANK
Fifth Third Bank, the Company's secured lender, has agreed to
extend forbearance under the terms of its loan to the Company until 15
October 2010. Under the terms of the extension, the credit limit on
the Company's revolving line of credit has been reduced to a total of
Canadian $6.0 million from Canadian $7.0 million. The interest rate on
the line has increased to US/Canadian Prime Rate plus 3.0 percent from
2.75 percent, with a further 1.0 percent increase effective 15 October
2010 if the CDTI merger is not completed by 15 October 2010. Fifth
Third Bank will extend the forbearance period for an additional period
of ninety days from the effective date of the CDTI merger if the CDTI
merger is completed by 15 October 2010 and, as of the effective date
of the CDTI merger, the Notes have been converted to common equity and
the security granted to the Note holders has been released; the
Company and CDTI collectively have $3.0 million of free cash on their
balance sheet; the Company's Engine Control Systems subsidiary has
Canadian $2.0 million available under the existing loan agreement; and
no default, forbearance default or event of default (as defined in the
credit and forbearance agreements) is outstanding.
If the CDTI merger is not completed by 15 October 2010, an event
of default will be deemed to have occurred. In addition, if Fifth
Third Bank determines that the Company has suffered a material adverse
change at any time, a default will be deemed to have occurred under
the forbearance agreement.
The entry into the foregoing forbearance agreements was
conditioned upon the amendment of the Merger Agreement to extend the
date for completion of the CDTI merger to 15 October 2010, as well as
the entry into the forbearance agreement by the other.
0 CATALYTIC SOLUTIONS HAS FINANCED ITSELF WITH A "POISONED CONVERTIBLE"
WHICH WILL DILUTE STOCKHOLDERS OF CLEAN DIESEL IF A MERGER OCCURS. THE
CONVERTIBLE NOTE HOLDERS WILL RECEIVE SHARES IN THE MERGED COMPANY AT AN
EFFECTIVE COST OF ONLY $0.43 PER CLEAN DIESEL COMMON SHARE COMPARED TO THE
EFFECTIVE COST TO CLEAN DIESEL'S EXISTING STOCKHOLDERS AT A MUCH HIGHER
RATE PER SHARE. WHAT DID THE CSI NOTE HOLDERS DO TO RECEIVE SUCH AN
ADVANTAGEOUS PRICE?
The management of Clean Diesel disclosed this in their
registration statement that "[i]n June 2010 CSI agreed to issue up to
$4 million of secured convertible notes. The secured convertible
notes, as amended, bear interest at a rate of 8% per annum, mature on
August 2, 2010, and are secured by a subordinated lien on CSI's
assets, but are subordinated to Fifth Third Bank. Under the terms of
the secured convertible notes, assuming the necessary shareholder
approvals are received at the special meeting of CSI's shareholders to
permit conversion thereof, the $4.0 million of secured convertible
notes will be converted into newly created "Class B" common stock
immediately prior to the Merger such that at the effective time of the
Merger, this group of accredited investors will receive approximately
66% of the shares of common stock being issued by Clean Diesel to CSI
shareholders in the Merger. This group of accredited investors will
not receive any of the warrants being issued by Clean Diesel to CSI
shareholders in the Merger."
If the merger does not occur, these Catalytic Solutions
convertible notes have an accelerated repayment clause which provides
that the note holders will be paid two times (2X) their investment. No
company, except one in dire circumstances, would accept financing
terms like these.
The management of Clean Diesel disclosed this "poisoned
convertible" in its Registration Statement: "CSI has a 10-business day
grace period to make payments due under the secured convertible notes,
either at maturity, a date fixed for prepayment, or by acceleration or
otherwise, before it is considered an "Event of Default" as defined in
the secured convertible notes. In the event the Merger has not
occurred prior to the maturity date of the secured convertible notes,
CSI has a 10-business day grace period, during which time it could
seek the agreement of the noteholders to extend the maturity date of
the notes, before it would be required to pay the secured convertible
notes in full. If CSI is not able to complete the Merger prior to the
maturity of the notes, as such may be extended with the agreement of
the noteholders, the outstanding principal amount under the secured
convertible notes, including any interest and an additional payment
premium of two times (2x) the outstanding principal amount will be due
to the holders of the secured convertible notes."
0 CLEAN DIESEL CURRENT MANAGEMENT HAS DISCLOSED THAT THE OUTLOOK FOR
CATALYTIC SOLUTIONS' CATALYST BUSINESS HAS DETERIORATED. Sales of its mixed
phase catalyst will be down in 2010 due to lack of approvals.
Clean Diesel reported in their registration statement that
"[b]ecause the customers of CSI's Catalyst division are auto makers,
CSI's business is also affected by macroeconomic factors that impact
the automotive industry generally, which can result in increased or
decreased purchases of vehicles, and consequently demand for CSI's
productsIn addition, two auto maker customers account for a
significant portion of CSI's Catalyst division revenues In the second
half of 2010, one of these auto makers will accelerate manufacture of
a vehicle that requires a catalyst product meeting a higher regulatory
standard than the product currently supplied to such auto maker by
CSI's Catalyst division. Although CSI had already commenced the
necessary testing and approval processes for its products under the
higher regulatory standard, such processes are not yet complete.
ACCORDINGLY, CSI NOW EXPECTS LOWER REVENUES IN ITS CATALYST DIVISION
FOR THE SECOND HALF OF 2010 AND EARLY 2011 AS COMPARED TO THE THREE
MONTHS ENDED MARCH 31, 2010 ON AN ANNUALIZED BASIS AS THIS AUTO MAKER
WINDS DOWN PRODUCTION OF THE VEHICLE THAT INCORPORATES CSI'S VERIFIED
PRODUCT. Although CSI expects that sales of its Catalyst products to
this auto maker will resume in the first half of 2011 once it has
received the necessary regulatory approvals and customer
qualifications, there is no guarantee that this will occur." [Emphasis
supplied.]
0 CATALYTIC SOLUTIONS' ASSETS MAY BE SUBJECT TO A $2.4 MILLION WRIT OF
ATTACHMENT. IT IS CONTRARY TO THE INTERESTS OF CLEAN DIESEL STOCKHOLDERS TO
ASSUME THIS LIABILITY.
In an arbitration with Applied Utility Systems, Catalytic
Solutions has been issued an interim order which is awaiting
confirmation by the applicable court, and if confirmed, Catalytic
Solution's assets would be subject to limitations on their use which
would further limit Catalytic Solution's ability to conduct ordinary
business. This $2.4 million amount represents a seller's note that
Catalytic solutions failed to repay when it matured in August 2009,
plus accrued interest, with certain offsets.
0 CATALYTIC SOLUTIONS DISCLOSED A $21 MILLION CONTINGENT LIABILITY - THIS
DISCLOSURE WAS MADE AFTER THE CLEAN DIESEL BOARD OF DIRECTORS VOTED TO
-----
CONSUMMATE THE MERGER.
From Clean Diesel's Registration Statement: "The Company has $3.0
million of consideration due to the seller under the Applied Utility
Systems Asset Purchase Agreement dated August 28, 2006. The
consideration was due August 28, 2009 and accrues interest at 5.36%.
At March 31, 2010 the Company had accrued $578,000 of unpaid interest.
THE COMPANY HAS NOT PAID THE FOREGOING AMOUNTS. In addition, the Asset
Purchase Agreement provides that the Company would pay the seller an
earn-out amount based on the revenues and net profits from the conduct
of the acquired business of Applied Utility Systems. The earn-out
potentially was payable over a period of ten years beginning January
1, 2009. The Company has not paid any earn-out amount for the fiscal
year ended December 31, 2009. The assets of the business were sold on
October 1, 2009 and the Company believes that it has no contractual
obligation to pay any earn-out for any period post the sale of the
business. The seller commenced an action in California Superior Court
to compel arbitration regarding the consideration which was due in
August 2009. Such action was stayed by the court and the seller was
directed to pursue any collection action through arbitration. The
seller has commenced arbitration proceedings to collect the
consideration which was due in August 2009 and any earn-out amounts
payable under the Asset Purchase Agreement. THE EARN-OUT REQUESTED
UNDER THE PROCEEDINGS IS $21 MILLION, which is the maximum earnable
over the ten year period of the earn-out defined in the Asset Purchase
Agreement." [Emphasis supplied.]
THE COMMITTEE'S PLAN FOR CLEAN DIESEL
To restore our Company's profitability and stockholder value, we are firmly
committed to the replacement of the Board of Directors and insertion of a
successful and competent management team. Our team urgently asks for your
support as a stockholder, advisor or broker to restore the Company to a pathway
for generating revenue and profitability, to drive growth and to increase
stockholder value.
FOR OUR FELLOW STOCKHOLDERS, THE COMMITTEE HAS A PLANNED, STRATEGIC FOCUS
FOR THE FUTURE TURNAROUND AND SUCCESS OF CLEAN DIESEL. We will aggressively
leverage near-term opportunities while executing our longer-term strategy for
sustained growth.
The Committee has discussed with Robert Grossman the possibility that he
will become an advisor or director of Clean Diesel once the Committee's slate of
directors controls the Board. Mr. Grossman has been involved in the railroad
industry as former Chairman and Chief Executive Officer of a Nasdaq-listed
railroad company, Executive Vice President of a large NYSE short line railroad
holding company and president or an officer of several national and state
railroad associations.
The Committee has discussed with Stephen E. Cadieux, CPA, the possibility
that he will become an advisor or director of Clean Diesel once the Committee's
slate of directors controls the Board. His career began at Arthur Young, his
responsibilities have ranged from Director of Tax in a publicly traded national
corporation, to senior positions in locally-owned accounting firms.
The Committee has discussed with John P. Malfettone, CPA, the possibility
that he will become an advisor to Clean Diesel's Board once the Committee's
slate of directors controls the Board. John is a Partner, Chief Operating
Officer and Chief Compliance Officer of Oak Hill Capital Partners and has been
with the firm since 2004. He is responsible for finance, operations, business
planning, the portfolio purchase program, and assisting investment teams in
portfolio company financial matters. Prior to joining Oak Hill, Mr. Malfettone
worked at General Electric Company serving numerous roles, including a Managing
Director of GE's private equity business, a GE Capital Executive Vice President
CFO, and the GE Capital Corporate Controller. In addition, he was the Executive
Vice President and CFO for MacDermid Inc., a specialty chemical company. Prior
to working at GE, Mr. Malfettone a partner at KPMG Peat Marwick.
The Committee's plan is based on building sales and profits by pursuing
markets that have openly expressed the need for our product to increase fuel
economy, along with emissions reduction, and addressing intellectual properties
currently in Clean Diesel.
For example, THE AMERICAN SHORT LINE AND REGIONAL RAILROAD ASSOCIATION
(WWW.ASLRRA.ORG) HAS FORMED A "FUELS WORKING GROUP" THAT INCLUDES A FORMER SALES
EMPLOYEE FOR CLEAN DIESEL AND THE FORMER CLEAN DIESEL CHIEF FINANCIAL OFFICER.
THAT GROUP'S OBJECTIVE IS TO INCREASE FUEL ECONOMY FOR THE ENTIRE INDUSTRY.
FUEL IS THE NUMBER TWO OPERATING
EXPENSE IN RAIL. This opportunity was unilaterally cancelled by Clean Diesel's
Chief Executive Officer - without consultation with board of directors or the
former Chief Financial Officer - when he determined that the railroad industry
did not have an interest in fuel economy. In light of our continuing
discussions within the railroad industry, it is our position that the opposite
is true in that the industry is very interested. We will implement this plan
and continue discussions with the railroad industry.
WE ALSO BELIEVE THAT THERE IS HIDDEN VALUE IN CLEAN DIESEL'S INTELLECTUAL
PROPERTY THAT CAN BE EXTRACTED FOR STOCKHOLDER BENEFIT. There are literally
dozens of Clean Diesel patents that have not been appraised or commercialized
and to the extent those are not being used, they could be sold, although there
is no assurance there is value. There are Clean Diesel patents currently
licensed to others including BOSCH, TENNECO, CCA AND EATON that have not been
administrated with an objective to obtaining appropriate and timely payments
from licensees. We will remedy those failures.
Your support is urgently needed by sending us your BLUE proxy and
consequently electing our slate of Directors, which gives us the ability to
unlock the potential in Clean Diesel and restore stockholder value.
NOMINEES FOR ELECTION AS DIRECTORS
Clean Diesel's Board of Directors currently consists of seven members.
Each director elected at the meeting will have a term expiring at the 2011
annual meeting of stockholders or until his or her successor is duly elected and
qualified.
The Committee has nominated Andrew Merz Hanson, CFA, Chairman of the
Committee and John J. McCloy II (a former Clean Diesel director) to be elected
by stockholders to the Company's Board of Directors at the Special Meeting.
Each of the Committee's nominees has consented to serve as a director if
elected, and it is not contemplated that any of the nominees will be unavailable
for election as a director. If any of these nominees should for any reason fail
to be a candidate for election as a director at the Special Meeting, the persons
named on the enclosed BLUE proxy will vote for a substitute nominee selected by
the Committee.
None of the nominees of the Committee has, during the past ten years, been
convicted in any criminal proceeding. None of the nominees of the Committee
have any arrangement or understanding with respect to any future employment with
Clean Diesel or its affiliates, or with respect to any future transactions to
which Clean Diesel or its affiliates will or may be a party.
The Committee has also recommended that stockholders vote to remove the
following current directors of Clean Diesel: Michael L. Asmussen, Derek R.
Gray, Charles W. Grinnell, David F. Merrion, and Mungo Park.
The following information is provided with respect to the Committee's
nominees for directors of Clean Diesel:
ANDREW MERZ HANSON, CFA is a private investor who has concentrated on early
stage ventures as well as the public securities markets since forming Redwood
Investment Management LLC in 1997. In conjunction with his early stage
investments he has provided financial advice to client companies, has been a
director of various portfolio companies, and has served as interim Chief
Financial Officer or interim Chief Executive Officer at three companies. Prior
to 1997, he was employed by various firms in the investment management business
as an equity analyst, portfolio manager, and director of equity research. Mr.
Hanson is the beneficial owner of 415 shares of Clean Diesel common stock.
JOHN J. MCCLOY II was a director of Clean Diesel from June 2005 until his
resignation in August 2009. He 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; the
Sound Shore Mutual Fund, Inc.; the American Council on Germany; and a member of
the U.S. Council on Foreign Relations. He was also a director of NCT Group,
Inc., a technology company, from 1986 to February 2007. Mr. McCloy is the
beneficial owner of 39,444 shares of Clean Diesel common stock and holds options
to purchase an additional 32,000 shares.
OTHER BUSINESS
The Committee is not aware of any other matters that will be considered at
the Special Meeting. However, if any other matters are properly brought before
the Special Meeting, the persons named on the enclosed BLUE proxy will vote the
shares represented by the BLUE proxy in accordance with their judgment on such
matters.
PROXY SOLICITATION
The cost of soliciting proxies by the Committee will be borne by it. To
the extent legally permissible, the Committee intends to seek reimbursement from
Clean Diesel for such cost. The Committee does not currently intend to submit
approval of such reimbursement to a vote of Clean Diesel stockholders at a
subsequent meeting.
In addition to this initial solicitation of proxies by mail, email and/or
facsimile, other solicitation may be made by members of the Committee without
additional compensation except for reimbursement of reasonable out-of-pocket
expenses. The Committee will pay to banks, brokers and other fiduciaries their
reasonable charges and expenses incurred in forwarding proxy materials to their
principals and in obtaining authorization for execution of proxies. Total costs
to date for solicitation of proxies by the Committee are approximately $25,000.
Total estimated costs for this solicitation will be approximately $50,000.
ADDITIONAL INFORMATION
CONCERNING CLEAN DIESEL TECHNOLOGIES, INC.
To the best knowledge of the Committee, no one person or group is the
beneficial owner of more than 5% of Clean Diesel's common stock except as set
forth in Clean Diesel's filings with the US Securities and Exchange Commission.
Clean Diesel's amended Registration Statement on Form S-4 filed on August
30, 2010 contains information with respect to ownership of common stock by the
Directors and Officers of Clean Diesel. Such information reflects beneficial
ownership of a total of 950,291 shares of common stock or approximately 10.6%
Proposals by security holders under Rule 14a-8 to be presented at Clean
Diesel 2011 annual meeting must be received at Clean Diesel's offices not later
than 120 days before the mailing of the Company's proxy statement for the 2011
annual meeting. The Company in its Proxy Statement has anticipated that this
date would be no later than _________, 2010.
Copies of this Proxy Statement and any additional solicitation material we
may provide or file is available on the website of the Securities and Exchange
Commission, www.sec.gov. On written request, we will provide without charge to
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any record or beneficial owner of the Company's common or preferred stock a copy
of such Proxy Statement or other materials. Written requests should be
addressed to: Committee to Restore Stockholder Value, c/o Cutler Law Group,
3355 West Alabama, Suite 1150, Houston, Texas 77098. Copies of the Company
Management's Registration Statement, Annual Report on 10-K and other periodic
reports may be obtained at the website of the Securities and Exchange
Commission, www.sec.gov.
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PLEASE SIGN, DATE AND RETURN PROMPTLY THE ENCLOSED BLUE PROXY CARD IN THE
----
ENCLOSED ENVELOPE. BY SIGNING AND RETURNING THE ENCLOSED BLUE PROXY CARD, ANY
----
PROXY PREVIOUSLY SIGNED BY YOU WILL AUTOMATICALLY BE REVOKED. IF YOU NEED
ASSISTANCE IN COMPLETING YOUR PROXY, PLEASE CALL JOHNNIE D. JOHNSON AT (860)
434-2465.
THE COMMITTEE TO RESTORE STOCKHOLDER VALUE AND INTEGRITY FOR CLEAN DIESEL
CLEAN DIESEL TECHNOLOGIES, INC.
PROXY FOR SPECIAL MEETING OF STOCKHOLDERS-_________, 2010
THIS PROXY IS SOLICITED BY THE COMMITTEE TO RESTORE STOCKHOLDER VALUE AND
INTEGRITY FOR CLEAN DIESEL IN OPPOSITION
TO MANAGEMENT'S NOMINEES FOR THE BOARD OF DIRECTORS OF CLEAN DIESEL
TECHNOLOGIES, INC.
The undersigned hereby appoints Andrew Merz Hanson and M. Richard Cutler,
and each of them, with full power of substitution and resubstitution, the
attorney(s) and proxy(ies) of the undersigned, to vote all shares the
undersigned may be entitled to vote, with all powers the undersigned would
possess if personally present at the Special Meeting of Stockholders of Clean
Diesel Technologies, Inc., to be held on [day of week], [date] at [time], and at
any adjournments or postponements thereof on the following matters, as
instructed below, and, in their discretion, on such other matters as may
properly come before the meeting, including any motion to adjourn or postpone
the meeting, all as more fully described in the Proxy Statement of The Committee
to Restore Stockholder Value and Integrity for Clean Diesel ("Committee"), dated
September __, 2010.
1. ELECTION OF DIRECTORS
[ ] For all nominees listed below [ ] WITHHOLD AUTHORITY to vote
(except as indicated to the contrary below) for all nominees
ANDREW MERZ HANSON, JOHN J. MCCLOY II
INSTRUCTION: If you wish to withhold authority and preclude the proxy(ies) from
voting for any individual nominees, write the name(s) of such nominee(s) in the
space provided below:
________________________________________________________________________________
2. REMOVE THE FOLLOWING CLEAN DIESEL TECHNOLOGIES, INC. DIRECTORS
MICHAEL L. ASMUSSEN, DEREK R. GRAY, CHARLES W. GRINNELL, DAVID F. MERRION, MUNGO
PARK
[ ] For the proposal [ ] Against the proposal [ ] Abstain
3. IN THEIR DISCRETION THE PROXIES NAMED ABOVE ARE AUTHORIZED TO VOTE UPON
SUCH OTHER MATTERS AS MAY PROPERLY COME BEFORE THE SPECIAL MEETING OR ANY
ADJOURNMENTS OR POSTPONEMENTS THEREOF.
(Continued on reverse side)
[REVERSE SIDE OF PROXY BELOW]
This proxy when properly executed will be voted in the manner directed
herein by the undersigned stockholder. UNLESS OTHERWISE SPECIFIED, THIS PROXY
WILL BE VOTED "FOR" THE ELECTION OF THE COMMITTEE'S NOMINEES AS DIRECTORS.
This proxy revokes all prior proxies given by the undersigned.
Dated:____________________________________ 2010
Signature:________________________________________
Signature if
held jointly_______________________________________
IMPORTANT: Please sign exactly as name appears on
your stock certificate. Joint owners should each sign.
Executors, Administrators, Trustees, etc. should so
indicate when signing, and where more than one is
named, a majority should sign.
PLEASE COMPLETE, SIGN, DATE AND MAIL THIS PROXY IN
THE ENCLOSED ENVELOPE.