Exhibit 10.3

Second Amendment of Clean Diesel Technologies, Inc.

8% Subordinated Convertible Promissory Note

 

This Second Amendment (the “Amendment”) to the 8% Subordinated Convertible
Promissory Note entered into as of May 6, 2011 and amended as of February 16,
2012 (the “Note”), is entered into as of July 27, 2012 and effective as of May
6, 2011, by and between Kanis, S.A. (“Holder”) and Clean Diesel Technologies,
Inc., a Delaware corporation (the “Company”).  Capitalized terms used but not
defined herein shall have the meanings ascribed to such terms in the Note.

 

In consideration of the agreements set forth below and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, Holder and Company hereby agree to the following:

 

1.                   Amendments.  The Note is hereby amended as follows:

a.                   The third paragraph on page 2 of the Note is hereby deleted
in its entirety and replaced with the following:

The outstanding principal balance of, plus accrued and unpaid interest on, this
Note, may, at the option of Holder, in its sole discretion, be converted into
shares of common stock, $0.01 par value, of Maker (the “Common Stock”), at any
time, and from time to time, upon written notice given to Maker not less than 75
calendar days prior to the date of conversion, at a conversion price of $4.00
per share, subject to adjustment as hereinafter provided (the “Conversion
Price”).  If this Note is converted in part only, the Maker will issue a new
Note for the principal amount not so converted.  Interest shall accrue through
and including the business day prior to the date of conversion and shall be
credited towards the exercise of the conversion rights hereunder unless the
Holder the Maker that accrued interest is to be paid in cash.  The Maker shall
not effect any conversion of this Note, and the Holder of this Note shall not
have the right to convert any portion of this Note, to the extent that after
giving effect to such conversion, the aggregate number of shares of Common Stock
issued upon conversion would exceed 250,000 shares or such other number of
shares as would cause the interest payable hereunder to fail to qualify as
“portfolio interest” for all United States federal income and withholding tax
purposes (the “Maximum Number”).  Should a reduction be made, the Conversion
Price will be adjusted to maintain economic value to the Holder or be changed to
such price as the Holder and Company agree.

 

b.                   A new fifth paragraph is hereby added to Page 3 of the
Note, immediately preceding the final paragraph of the Note, as follows:

This Note and any of the rights, interests or obligations hereunder may be
assigned, by operation of law or otherwise, in whole or in part, by Maker, upon
prior written notice to Holder.  Maker and Holder agree to treat this Note, both
for principal and interest thereon, as indebtedness of the Maker that is in
“registered form” within the meaning of Treasury Regulations section
1.871-14(c)(1)(i).  Maker and Holder agree that the Note may be transferred only
in accordance with the requirements of Treasury Regulations section
1.871-14(c)(1)(i)(A) or pursuant to recordation in the Maker’s Register for the
Note.  Maker shall reflect the identity of the owner of the Note in a book entry
system and shall record any permitted transfers of the Note through a book entry
(the “Register”) in accordance with the requirements of Treasury Regulations
section 1.871-14(c)(1)(i)(B).  To the extent permitted by applicable law, Maker
and each Holder will treat interest payable in respect of the Note (including
original issue discount or acquisition discount, if any) as interest that
qualifies as “portfolio interest” for all United States federal income and
withholding tax purposes.  Maker shall make payments to each Holder free of all
United States income taxes, including withholding taxes, or, if the obligation
becomes subject to United States income tax, Maker shall pay an additional
amount such that the net amount received by each Holder after all such payments,
shall not be less than the amount such Holder would have received had the
payments not been subject to United States income taxation.

 

2.                   Approval of Amendment.  By their signatures below, the
undersigned parties hereby adopt this Amendment.

3.                   Necessary Acts.  Each party to this Amendment hereby agrees
to perform any further acts and to execute and deliver any further documents
that may be necessary or required to carry out the intent and provisions of this
Amendment and the transactions contemplated hereby. 

4.                   Governing Law; Jurisdiction.  This Amendment shall be
construed and enforced in accordance with and governed by the laws of the State
of California (without giving effect to any conflicts or choice of law
provisions thereof that would cause the application of the domestic substantive
laws of any other jurisdiction).  In any action brought or arising under this
Amendment, the parties hereto hereby consent to the jurisdiction of any
competent court within the State of California and consent to service of process
by any means authorized by the laws of the State of California.

5.                   Continued Validity.  Except as otherwise expressly provided
herein, the Note shall remain in full force and effect.

6.                   Facsimile; Counterparts.  This Amendment may be executed by
facsimile and in any number of counterparts by the parties hereto all of which
together shall constitute one instrument.

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IN WITNESS WHEREOF, the undersigned have executed this Amendment as of July 27,
2012.

 

CLEAN DIESEL TECHNOLOGIES, INC.

 

By: /s/ Nikhil A. Mehta

Name: Nikhil A. Mehta

Title: Chief Financial Officer

 

KANIS, S.A.

 

By: /s/ John A Kanis

Name: John A Kanis

Title: Director