Exhibit 10.36

CLEAN DIESEL TECHNOLOGIES, INC.

NEW EMPLOYEE INDUCEMENT AWARD

NONQUALIFIED STOCK OPTION

The purpose of this New Employee Inducement Award (the “Award”) granted by Clean
Diesel Technologies, Inc., a Delaware corporation (the “Corporation”), is to
further the interests of the Corporation and its shareholders by providing
incentives in the form of stock awards to persons not previously Employees of
the Corporation, or following a bona fide period of non-employment, as an
inducement material to the person’s entering into employment with the
Corporation within the meaning of Rule 5635(c)(4) of the NASDAQ Listing Rules.

 

I. NOTICE OF GRANT OF STOCK OPTION (the “Notice”).

 

Participant:    Robert Craig Breese Date of Grant:    March 8, 2012 Number of
Option Shares:    176,676 Exercise Price:    $2.83 Initial Vesting Date:    The
date one (1) year after Date of Grant Option Expiration Date:    The date ten
(10) years after the Date of Grant Share Vesting:    Subject to the Terms and
Conditions, the Award shall vest with respect to 28% of the total number of
Option Shares on the Initial Vesting Date and 9% quarterly thereafter.

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II. TERMS AND CONDITIONS

 

1. DEFINITIONS AND CONSTRUCTION.

1.1. Definitions. Unless otherwise defined herein, capitalized terms shall have
the meanings assigned to such terms in Appendix A.

1.2. Construction. Captions and titles contained herein are for convenience only
and shall not affect the meaning or interpretation of any provision of this
Award. Except when otherwise indicated by the context, the singular shall
include the plural and the plural shall include the singular. Use of the term
“or” is not intended to be exclusive, unless the context clearly requires
otherwise.

 

2. TAX STATUS OF THE AWARD.

This Stock Option (the “Option”) is intended to be a nonqualified stock option
and shall not be treated as an incentive stock option within the meaning of
Section 422(b) of the Code. The Exercise Price represents an amount the
Corporation believes to be no less than the Fair Market Value of a Share as of
the Date of Grant, determined in good faith in compliance with the requirements
of Section 409A of the Code. However, there is no guarantee that the Internal
Revenue Service (the “IRS”) will agree with the Corporation’s determination. A
subsequent IRS determination that the Exercise Price is less than such fair
market value could result in adverse tax consequences to the Participant. By
signing below, the Participant agrees that the Corporation, its Directors,
Officers and shareholders shall not be held liable for any tax, penalty,
interest or cost incurred by the Participant as a result of such determination
by the IRS. The Participant is urged to consult with his or her own tax advisor
regarding the tax consequences of the Option, including the application of
Section 409A.

 

3. ADMINISTRATION.

3.1 Committee.

(a) This Award shall be administered by the Board. The Board may, however,
appoint a Committee to administer the Award which shall consist of not less than
a sufficient number of disinterested members of the Board so as to qualify the
Committee to administer this Award as contemplated by Rule 16b-3 and
Section 162(m) of the Code. Vacancies on the Committee shall be filled by the
Board.

(b) The Board or Committee is authorized to (i) interpret and administer the
Award, (ii) grant waivers and accelerations of the Award, and (iii) take any
other action necessary for the proper administration and operation of the Award.

3.2 Effect of Determination. Determination of the Board or Committee shall be
final, binding and conclusive on the Participant. No member of the Board or
Committee or any of its designee shall be personally liable for any action or
determination made in good faith with respect to this Award.

 

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4. EXERCISE OF THE OPTION.

4.1 Right to Exercise. Except as otherwise provided herein, the Option shall be
exercisable on and after the Initial Vesting Date and prior to the termination
of the Option (as provided in Section 6) in an amount not to exceed the number
of vested shares less the number of Shares previously acquired upon exercise of
the Option. In no event shall the Option be exercisable for more Shares than the
Number of Option Shares, as adjusted pursuant to Section 8.

4.2 Method of Exercise. Exercise of the Option shall be by means of electronic
or written notice (the “Exercise Notice”) in a form authorized by the
Corporation. An electronic Exercise Notice must be digitally signed or
authenticated by the Participant in such manner as required by the notice and
transmitted to the Corporation or an authorized representative of the
Corporation (including a third-party administrator designated by the
Corporation). In the event that the Participant is not authorized or is unable
to provide an electronic Exercise Notice, the Option shall be exercised by a
written Exercise Notice addressed to the Corporation, which shall be signed by
the Participant and delivered in person, by certified or registered mail, return
receipt requested, by confirmed facsimile transmission, or by such other means
as the Corporation may permit, to the Corporation, or an authorized
representative of the Corporation (including a third-party administrator
designated by the Corporation). Each Exercise Notice, whether electronic or
written, must state the Participant’s election to exercise the Option, the
number of Shares for which the Option is being exercised and such other
representations and agreements as to the Participant’s investment intent with
respect to such shares as may be required. Further, each Exercise Notice must be
received by the Corporation prior to the termination of the Option as set forth
in Section 6 and must be accompanied by full payment of the aggregate Exercise
Price for the number of Shares being purchased and the applicable income tax
withholding. The Option shall be deemed to be exercised upon receipt by the
Corporation of such electronic or written Exercise Notice, the aggregate
Exercise Price, and the applicable income tax withholding. However,
Participant’s exercise of the shares of Corporation common stock may be subject
to any market blackout period that may be imposed by the Corporation and must
comply with the Corporation’s insider trading policies, and any other applicable
securities laws.

4.3 Payment of Exercise Price.

(a) Forms of Consideration Authorized. Except as otherwise provided below,
payment of the aggregate Exercise Price for the number of Shares for which the
Option is being exercised shall be made (i) in cash or by check or cash
equivalent, (ii) if permitted by the Corporation, by tender to the Corporation,
or attestation to the ownership, of Shares owned by the Participant having a
Fair Market Value not less than the aggregate Exercise Price, (iii) if permitted
by the Corporation, by tender to the Corporation, or attestation to the
ownership by means of a Cashless Exercise, as defined in Section 4.3(b), or
(iv) by any combination of the foregoing.

(b) Limitations on Forms of Consideration.

(i) Tender of Shares. Notwithstanding the foregoing, the Option may not be
exercised by tender to the Corporation, or attestation to the ownership, of
Shares to

 

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the extent such tender or attestation would constitute a violation of the
provisions of any law, regulation or agreement restricting the redemption of the
Corporation’s Shares. If required by the Corporation, the Option may not be
exercised by tender to the Corporation, or attestation to the ownership, of
Shares unless such Shares either have been owned by the Participant for more
than six (6) months or such other period, if any, required by the Corporation
(and not used for another option exercise by attestation during such period) or
were not acquired, directly or indirectly, from the Corporation.

(ii) Cashless Exercise. A “Cashless Exercise” means the delivery of a properly
executed notice together with irrevocable instructions to a broker in a form
acceptable to the Corporation providing for the assignment to the Corporation of
the proceeds of a sale or loan with respect to some or all of the Shares
acquired upon the exercise of the Option pursuant to a program or procedure
approved by the Corporation (including, without limitation, through an exercise
complying with the provisions of Regulation T as promulgated from time to time
by the Board of Governors of the Federal Reserve System). The Corporation
reserves, at any and all times, the right, in the Corporation’s sole and
absolute discretion, to establish, decline to approve, or terminate any such
program or procedure, including with respect to the Participant notwithstanding
that such program or procedures may be available to others.

4.4 Tax Withholding.

(a) In General. At the time the Award is executed, or at any time thereafter as
requested by the Corporation, the Participant hereby authorizes withholding from
payroll and any other amounts payable to the Participant, and otherwise agrees
to make adequate provision for, any sums required to satisfy the federal, state,
and local tax withholding obligations of the Corporation, if any, which arise in
connection with the grant, vesting or exercise of the Option or the issuance of
Shares in settlement thereof. The Corporation shall have no obligation to
deliver Shares until the tax obligations of the Corporation have been satisfied
by the Participant.

(b) Withholding in Securities. The Corporation may, in its discretion, permit or
require the Participant to satisfy all or any portion of the tax obligations by
deducting from the Shares otherwise deliverable to the Participant in settlement
of the Option a number of Shares having a Fair Market Value, as determined by
the Corporation as of the date on which the tax obligations arise, not in excess
of the amount of such tax obligations determined by the applicable withholding
rates. In the event that the Corporation determines that the tax obligations
will not be satisfied by the method described above, Participant authorizes the
designated plan administrator or any successor plan administrator, to sell a
number of Shares that are purchased under the Option, which the Corporation
determines is sufficient to generate an amount that meets the tax obligations
plus additional Shares, as necessary. To account for rounding and market
fluctuation, and to pay such tax withholding amounts to the Corporation. The
Shares may be sold as part of a block trade with other Participants of the Plan
in which all Participants receive an average price. Any adverse consequences to
the Participant resulting from the procedure permitted under this Section 4.4,
including, without limitation, tax consequences, shall be the sole
responsibility of the Participant.

(c) Consultation. The Participant hereby acknowledges that he or she understands
that the Participant may suffer adverse tax consequences as a result of the
Participant’s exercise of the Option or disposition of the Shares. The
Participant hereby

 

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represents that the Participant has consulted with any tax consultants the
Participant deems advisable in connection with the exercise of the Option or
disposition of the Shares and that the Participant is not relying on the
Corporation for any tax advice.

4.5 Beneficial Ownership of Shares. The Participant hereby authorizes the
Corporation, in its sole discretion, to deposit for the benefit of the
Participant with any broker with which the Participant has an account
relationship of which the Corporation has notice any or all Shares acquired by
the Participant pursuant to the exercise of the Option. Except as provided by
the preceding sentence, a certificate for the shares as to which the Option is
exercised shall be registered in the name of the Participant, or, if applicable,
in the names of the heirs of the Participant.

4.6 Restrictions on Grant of the Option and Issuance of Shares. The grant of the
Option and the issuance of Shares upon exercise of the Option shall be subject
to compliance with all applicable requirements of federal or state law with
respect to such securities. The Option may not be exercised if the issuance of
Shares upon exercise would constitute a violation of any applicable federal or
state securities laws or other law or regulations or the requirements of any
stock exchange or market system upon which the Shares may then be listed. In
addition, the Option may not be exercised unless (i) a registration statement
under the Securities Act shall at the time of exercise of the Option be in
effect with respect to the shares issuable upon exercise of the Option or
(ii) in the opinion of legal counsel to the Corporation, the Shares issuable
upon exercise of the Option may be issued in accordance with the terms of an
applicable exemption from the registration requirements of the Securities Act.
THE PARTICIPANT IS CAUTIONED THAT THE OPTION MAY NOT BE EXERCISED UNLESS THE
FOREGOING CONDITIONS ARE SATISFIED. ACCORDINGLY, THE PARTICIPANT MAY NOT BE ABLE
TO EXERCISE THE OPTION WHEN DESIRED EVEN THOUGH THE OPTION IS VESTED. The
inability of the Corporation to obtain from any regulatory body having
jurisdiction the authority, if any, deemed by the Corporation’s legal counsel to
be necessary to the lawful issuance and sale of any shares subject to the Option
shall relieve the Corporation of any liability in respect of the failure to
issue or sell such shares as to which such requisite authority shall not have
been obtained. As a condition to the exercise of the Option, the Corporation may
require the Participant to satisfy any qualifications that may be necessary or
appropriate, to evidence compliance with any applicable law or regulation and to
make any representation or warranty with respect thereto as may be requested by
the Corporation.

4.7 Fractional Shares. The Corporation shall not be required to issue fractional
shares upon the exercise of the Option.

 

5. NONTRANSFERABILITY OF THE OPTION.

During the lifetime of the Participant, the Option shall be exercisable only by
the Participant or the Participant’s guardian or legal representative. The
Option shall not be subject in any manner to anticipation, alienation, sale,
exchange, transfer, assignment, pledge, encumbrance, or garnishment by creditors
of the Participant or the Participant’s beneficiary, except transfer by will or
by the laws of descent and distribution. Following the death of the Participant,
the Option may be exercised by the Participant’s legal representative or by any
person empowered to do so under the deceased Participant’s will or under the
then applicable laws of descent and distribution.

 

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6. TERMINATION OF THE OPTION.

The Option shall terminate and may no longer be exercised after the first to
occur of (a) the close of business on the Option Expiration Date, or (b) the
close of business on the last date for exercising the Option following
termination of the Participant’s Service as described in Section 7.

 

7. EFFECT OF TERMINATION OF SERVICE.

7.1 Option Exercisability. The Option shall expire immediately upon the
Participant’s termination of Service to the extent that it is then unvested. The
Option shall be exercisable after the Participant’s termination of Service to
the extent it is then vested only during the applicable time period as
determined below and thereafter shall expire.

(a) Disability. If the Participant’s Service terminates because of the
Disability of the Participant, the Option, to the extent unexercised and
exercisable for vested Shares on the date on which the Participant’s Service
terminated, may be exercised by the Participant (or the Participant’s guardian
or legal representative) at any time prior to the Option Expiration Date.

(b) Death. If the Participant’s Service terminates because of the death of the
Participant, the portion of the Option that has not then vested shall expire
immediately but such portion of the Option that has then vested may be exercised
by the Participant’s legal representative or other person who acquired the right
to exercise the Option by reason of the Participant’s death at any time prior to
the Option Expiration Date.

(c) Termination for Cause. Notwithstanding any other provision of this New
Employee Inducement Award, if the Participant’s Service is terminated for Cause,
the Option shall terminate and cease to be exercisable immediately upon such
termination of Service.

(d) Voluntary Resignation. If the Participant’s Service terminates because of
the Participant’s voluntary resignation, the Option, to the extent unexercised
and exercisable for vested Shares on the date on which the Participant’s Service
terminated, may be exercised by the Participant (or the Participant’s guardian
or legal representative) at any time prior to the expiration of 90 days after
the date on which the Participant’s Service terminated, but in any event, no
later than the Option Expiration Date.

(e) Termination Without Cause or Resignation for Good Reason.

(i) Absent a Change In Control. Upon Participant’s termination of Service
Without Cause or Resignation for Good Reason absent a Change in Control, the
Option, to the extent unexercised and exercisable for vested Shares on the date
on which the Participant’s Service terminated, may be exercised by the
Participant (or the Participant’s guardian or legal representative) at any time
prior to the expiration of 90 days after the date on which the Participant’s
Service terminated, but in any event, no later than the Option Expiration Date.

 

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(ii) Concurrent With or After a Change in Control. Upon Participant’s
termination of Service Without Cause or Resignation for Good Reason concurrent
with or subsequent to a Change in Control, unvested Shares will vest immediately
upon termination. In the instance of termination of Service Without Cause,
Options may be exercised by the Participant at any time prior to the expiration
of 90 days after the date on which the Participant’s Service terminated, but in
any event no later than the Option Expiration Date. In the instance of
termination of Service for Good Reason concurrent with or subsequent to a Change
in Control, Options may be exercised by the Participant at any time prior to the
expiration of 180 days after the date on which the Participant’s Service
terminated, but in any event no later than the Option Expiration Date.

7.2 Extension if Exercise Prevented by Law. Notwithstanding the foregoing other
than termination of Service for Cause, if the exercise of the Option within the
applicable time periods set forth in Section 7.1 is prevented by the provisions
of Section 4.6, the Option shall remain exercisable until the later of
(a) thirty (30) days after the date such exercise first would no longer be
prevented by such provisions or (b) the end of the applicable time period under
Section 7.1, but in any event no later than the Option Expiration Date.

 

8. ADJUSTMENTS FOR CHANGES IN CAPITAL STRUCTURE.

Subject to any required action by the stockholders of the Corporation and the
requirements of Sections 409A and 424 of the Code to the extent applicable, in
the event of any change in the Shares effected without receipt of consideration
by the Corporation, whether through merger, consolidation, reorganization,
reincorporation, recapitalization, reclassification, stock dividend, stock
split, reverse stock split, split-up, split-off, spin-off, combination of
shares, exchange of shares, or similar change in the capital structure of the
Corporation, or in the event of payment of a dividend or distribution to the
stockholders of the Corporation in a form other than Shares (excepting normal
cash dividends) that has a material effect on the Fair Market Value of Shares,
appropriate and proportionate adjustments shall be made in the number, Exercise
Price and kind of Shares subject to the Option, in order to prevent dilution or
enlargement of the Participant’s rights under the Option. For purposes of the
foregoing, conversion of any convertible securities of the Corporation shall not
be treated as “effected without receipt of consideration by the Corporation.”
Any fractional share resulting from an adjustment pursuant to this Section 8
shall be rounded down to the nearest whole number, and the Exercise Price shall
be rounded up to the nearest whole cent. In no event may the Exercise Price be
decreased to an amount less than the par value, if any, of the Shares subject to
the Option. Such adjustments shall be determined by the Board, and its
determination shall be final, binding and conclusive.

 

9. RIGHTS AS A STOCKHOLDER, DIRECTOR, EMPLOYEE OR CONSULTANT.

The Participant shall have no rights as a stockholder with respect to any Shares
covered by the Option until the date of the issuance of the Shares for which the
Option has been exercised (as evidenced by the appropriate entry on the books of
the Corporation or of a duly authorized transfer agent of the Corporation). No
adjustment shall be made for dividends, distributions or

 

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other rights for which the record date is prior to the date the shares are
issued, except as provided in Section 8. Participant understands and
acknowledges that, except as otherwise provided in a separate, written
employment agreement between the Corporation and the Participant, the
Participant’s employment is “at will” and is for no specified term. Nothing in
this Option Agreement shall confer upon the Participant any right to continue in
the Service of a Participating Corporation or interfere in any way with any
right of the Participating Corporation Group to terminate the Participant’s
Service as a Director or an Employee, as the case may be, at any time.

 

10. MISCELLANEOUS PROVISIONS.

10.1 Amendment. The Board may amend the Award at any time; provided, however,
that except in connection with a Change in Control, no such amendment may
adversely affect the Option or any unexercised portion hereof without the
consent of the Participant unless such termination or amendment is necessary to
comply with any applicable law or government regulation, including, but not
limited to Section 409A of the Code. No amendment or addition to this Award
shall be effective unless in writing.

10.2 Compliance with Section 409A. The Corporation intends that income realized
by the Participant pursuant to the Award will not be subject to taxation under
Section 409A of the Code. The provisions of the Award shall be interpreted and
construed in favor of satisfying any applicable requirements of Section 409A of
the Code. The Corporation, in its reasonable discretion, may amend (including
retroactively) the Award in order to conform to the applicable requirements of
Section 409A of the Code, including amendments to facilitate the Participant’s
ability to avoid taxation under Section 409A of the Code. However, the preceding
provisions shall not be construed as a guarantee by the Corporation of any
particular tax result for income realized by the Participant pursuant to the
Award. In any event, and except for the responsibilities of the Corporation set
forth in Section 4.4., no Participating Corporation shall be responsible for the
payment of any applicable taxes on income realized by the Participant pursuant
to the Award.

10.3 Further Instruments. The parties hereto agree to execute such further
instruments and to take such further action as may reasonably be necessary to
carry out the intent of this Award.

10.4 Binding Effect. Subject to the restrictions on transfer set forth herein,
this Award shall inure to the benefit of and be binding upon the parties hereto
and their respective heirs, executors, administrators, successors and assigns.

10.5 Delivery of Documents and Notices. Any document relating to participation
in the Award, or any notice required or permitted hereunder shall be given in
writing and shall be deemed effectively given upon personal delivery electronic
delivery at the e-mail address, if any, provided for the Participant by the
Participating Corporation, or, upon deposit in the U.S. Post Office, by
registered or certified mail, or with a nationally recognized overnight courier
service with postage and fees prepaid, addressed to the other party at the
address of such party set forth in writing from time to time to the other party.

 

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(a) Description of Electronic Delivery. The Award documents and any reports of
the Corporation provided generally to the Corporation’s shareholders, may be
delivered to the Participant electronically. In addition, if permitted by the
Corporation, the Participant may deliver electronically the Exercise Notice
called for by Section 4.2 to the Corporation or to such third party involved in
administering the Award as the Corporation may designate from time to time. Such
means of electronic delivery may include but do not necessarily include the
delivery of a link to a Corporation intranet or the internet site of a third
party involved in administering the Award, the delivery of the document via
e-mail or such other means of electronic delivery specified by the Corporation.

(b) Consent to Electronic Delivery. The Participant acknowledges that the
Participant has read Section 10.5(a) of this Award and consents to the
electronic delivery of the documents and, if permitted by the Corporation, the
delivery of the Exercise Notice, as described in Section 10.5(a). The
Participant acknowledges that he or she may receive from the Corporation a paper
copy of any documents delivered electronically at no cost to the Participant by
contacting the Corporation by telephone or in writing. The Participant further
acknowledges that the Participant will be provided with a paper copy of any
documents if the attempted electronic delivery of such documents fails.
Similarly, the Participant understands that the Participant must provide the
Corporation or any designated third party administrator with a paper copy of any
documents if the attempted electronic delivery of such documents fails. The
Participant may revoke his or her consent to the electronic delivery of
documents described in Section 10.5(a) or may change the electronic mail address
to which such documents are to be delivered (if Participant has provided an
electronic mail address) at any time by notifying the Corporation of such
revoked consent or revised e-mail address by telephone, postal service or
electronic mail. Finally, the Participant understands that he or she is not
required to consent to electronic delivery of documents described in
Section 10.5(a).

10.6 Arbitration. Any and all disputes whatsoever between a Participant and the
Corporation concerning the administration of this Award, the interpretation and
effect of the Award or the rights of Participant under the Award shall be
finally determined before one neutral arbitrator in the County of Ventura,
California, U.S.A, under the rules of commercial arbitration of the American
Arbitration Association then in effect and judgment upon any award by such
arbitrator may be entered in any Court having jurisdiction or application may be
made to such court for a judicial acceptance of the award and an order of
enforcement, as the case may be. The arbitrator hereunder shall have no power or
authority to award consequential, punitive or statutory damages.

10.7 Governing Law. This Award and the rights of the Corporation and the
Participants shall be governed and interpreted in accordance with the laws of
California, U.S.A.

 

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By signing below, the Participant: (a) acknowledges receipt of, and represents
that the Participant has read and is familiar with the terms and conditions of
the Award, (b) accepts the Award subject to all of the terms and conditions set
forth herein, and (c) agrees to accept as binding, conclusive and final all
decisions or interpretations of the Board upon any questions arising under the
Award.

 

  CLEAN DIESEL TECHNOLOGIES, INC.    PARTICIPANT      By:   

/s/ Nikhil A Mehta

     

/s/ Robert Craig Breese

        Nikhil A. Mehta       Robert Craig Breese      Its: Chief Financial
Officer    Date: March 26, 2012      Address:   

4567 Telephone Road

Suite 100

     

Address:

  

4567 Telephone Road

Suite 100

        Ventura, CA 93003          Ventura, CA 93003   

 

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APPENDIX A

Definitions

 

a) “Award” means this New Employee Inducement Award, which is a nonqualified
stock option.

 

b) “Board” means the Board of Directors of the Corporation.

 

c) “Cause” means Participant’s (A) gross negligence or severe or continued
misconduct in the performance of Participant’s material duties; (B) commission
of or pleas of “guilty” or “no contest” to a felony offense or commission of any
unlawful or criminal act which would be detrimental to the reputation or
character of the Corporation; (C) participation in fraud or an act of dishonesty
against the Corporation; (D) intentional material damage to or misappropriation
of the Corporation’s property; material breach of Corporation policies or
regulations; or (E) material breach of Participant’s Employment Agreement that
is not cured to the Corporation’s reasonable satisfaction within five (5) days
after written notice thereof to Participant (provided that any such breach which
is not capable of cure, shall immediately constitute “Cause”).

 

d) “Change in Control” means a change in ownership or control of the Corporation
effected through any of the following transactions: (A) a merger, consolidation
or other reorganization, unless securities representing more than fifty percent
(50%) of the total combined voting power of the voting securities of the
successor company are immediately thereafter beneficially owned, directly or
indirectly, by the persons who beneficially owned the Corporation’s outstanding
voting securities immediately prior to such transaction; (B) a sale, transfer or
other disposition of all or substantially all of the Corporation’s assets in
liquidation or dissolution of the Corporation; (C) the acquisition, directly or
indirectly by any person or related group of persons (other than the Corporation
or a person that directly or indirectly controls, is controlled by, or is under
common control with, the Corporation), of beneficial ownership of securities
possessing more than fifty percent (50%) of the total combined voting power of
the Corporation’s outstanding securities pursuant to a transfer of the then
issued and outstanding voting securities of the Corporation by one or more of
the Corporation’s shareholders; and (D) during any period of two (2) consecutive
years, individuals who, at the beginning of such period, constitute the Board
(the “Incumbent Board”) cease for any reason to constitute at least a majority
of the Board, provided that any person becoming a director of the Board
subsequent to the date of the grant of this Award whose election, or a
nomination for election by the Corporation’s shareholders, was approved by the
vote of at least a majority of the directors then comprising the Incumbent Board
(other than an election or nomination of any individual whose initial assumption
of office is in connection with an actual or threatened election contest
relating to the election of the directors of the Board, as such terms are used
in Rule 14a-11 of Regulation 14A promulgated under the Exchange Act of 1934.
Anything in the foregoing to the contrary notwithstanding, a transaction shall
not constitute a Change in Control if its sole purpose is to change the legal
jurisdiction of the Corporation’s incorporation or to create a holding company
that will be owned in substantially the same proportions by the persons who held
the Corporation’s securities immediately before such transaction.

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e) “Code” means the United States Internal Revenue Code of 1986, as amended and
in effect from time to time, or any successor statute.

 

f) “Committee” means the Committee of the Board or any successor committee as
described in Section 3.1, or, if there shall be no such Committee, the Board.

 

g) “Corporation” means Clean Diesel Technologies, Inc., a Delaware corporation,
or any successor corporation, and Participating Companies.

 

h) “Director” means a member of the Board

 

i) “Disability” means Participant’s physical or mental incapacity to perform a
substantial portion of his duties and responsibilities for any period or periods
which, in the aggregate, total 90 or more calendar days within any 12-month
period.

 

j) “Employee” means any individual who is a salaried employee on the payroll of
the Corporation.

 

k) “Exchange Act” means the Securities Exchange Act of 1934, as amended and in
effect from time to time, or any successor statute.

 

l) “Fair Market Value” means the closing sale price on the date of the grant as
reported on the NASDAQ Stock Market, Inc., or, if there is no such reported
price, then the average of the NASDAQ bid and asked prices, or, if there are no
bid and asked prices, or if the bid and asked prices are determined by the Board
in good faith for good reason not to be representative of fair market value,
then the value determined in good faith by the Board. For non-trading days, the
practice is to take the average of the sales or bid and asked prices, as the
case may be, on trading days for a reasonable length of time determined in good
faith by the Board before and after the grant date. Notwithstanding the
preceding, for federal, state, and local income tax reporting purposes, fair
market value shall be determined by the Board or Committee (or its delegate) in
accordance with uniform and nondiscriminatory standards adopted by it from time
to time.

 

m) “Good Reason” means (A) a material diminution in the nature or scope of
Participant’s responsibilities, duties or authority; (B) the Corporation’s
requirement that Participant be based at any location more than 50 miles from
Participant’s current corporate office location in Ventura; (C) any other action
or inaction that constitutes a material breach by the Corporation of the
Participant’s Employment Agreement; or (D) a material diminution in
Participant’s base salary.

 

n) “Officer” means any person designated by the Board as an officer of the
Company.

 

o) “Option” means the nonqualified stock option granted to Participant under
this New Employee Inducement Award.

 

p) “Participating Company” means the Corporation or any Subsidiary Corporation.

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q) “Rule 16b-3” means such rule as promulgated by the Securities and Exchange
Commission under the Exchange Act as now in force or as such regulation or
successor regulation shall be hereafter amended.

 

r) “Service” means a Participant’s employment or service with the Corporation,
whether in the capacity of an Employee or a Director. Unless otherwise provided
by the Board, a Participant’s Service shall not be deemed to have terminated
merely because of a change in the capacity in which the Participant renders such
Service or a change in the Participating Company for which the Participant
renders such Service, provided that there is no interruption or termination of
the Participant’s Service. Furthermore, a Participant’s Service shall not be
deemed to have terminated if the Participant takes any military leave, sick
leave, or other bona fide leave of absence approved by the Company. However,
unless otherwise provided by the Board, if any such leave taken by a Participant
exceeds ninety (90) days, then on the ninety-first (91st) day following the
commencement of such leave the Participant’s Service shall be deemed to have
terminated, unless the Participant’s right to return to Service is guaranteed by
statute or contract. Notwithstanding the foregoing, unless otherwise designated
by the Company or required by law, an unpaid leave of absence shall not be
treated as Service for purposes of determining vesting under the Award. Except
as otherwise provided by the Board, in its discretion, the Participant’s Service
shall be deemed to have terminated either upon an actual termination of Service
or upon the business entity for which the Participant performs Service ceasing
to be a Participating Company. Subject to the foregoing, the Company, in its
discretion, shall determine whether the Participant’s Service has terminated and
the effective date of and reason for such termination.

 

s) “Shares” means a share of common stock of the Corporation, as adjusted from
time to time in accordance with Section 8.

 

t) “Subsidiary Corporation” means any present or future “subsidiary corporation”
of the Company, as defined in Section 424(f) of the Code.

 

u) “Disability” means a permanent and total disability within the meaning of
Section 22(e)(3) of the Code, provided that the Board or Committee in its
discretion, may determine whether a permanent and total disability exists in
accordance with uniform and non-discriminatory standards adopted by the Board or
Committee from time to time.

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    Participant:   

 

    Date:   

 

NEW EMPLOYEE INDUCEMENT AWARD

OPTION EXERCISE NOTICE

 

Clean Diesel Technologies, Inc.

  

Attention:

  

 

     

 

     

 

     

Ladies and Gentlemen:

1. Option. I was granted an option (the “Option”) to purchase shares of the
common stock (the “Shares”) of Clean Diesel Technologies, Inc. (the
“Corporation”) pursuant to the New Employee Inducement Award as follows:

 

Date of Grant:

                                        

Number of Option Shares:

                                        

Exercise Price per Share:

   $                                 

2. Exercise of Option. I hereby elect to exercise the Option to purchase the
following number of Shares, all of which are vested Shares, in accordance with
the Grant Notice and Agreement:

 

Total Shares Purchased:

                                        

Total Exercise Price (Total Shares X Price per Share)

   $                                 

3. Payments. I enclose payment in full of the total exercise price for the
Shares in the following form(s), as authorized by my Option Agreement:

 

__ Cash:

   $                                     

__ Check:

   $                                     

__ Tender of Corporation Stock:

     Contact Plan Administrator   

__ Cashless Exercise

     Contact Plan Administrator   

--------------------------------------------------------------------------------

4. Tax Withholding. I authorize share withholding, payroll withholding and
otherwise will make adequate provision for the federal, state, and local tax
withholding obligations of the Corporation, if any, in connection with the
Option. I enclose payment in full of my withholding taxes, if any, as follows:

(Contact Plan Administrator for amount of tax due.)

 

__ Cash:

   $                            

__ Check:

   $                            

5. Participant Information.

 

My address is:

 

 

 

 

My Social Security Number is:

 

 

6. Tax Consultation. I hereby acknowledge that I understand that I may suffer
adverse tax consequences as a result of my purchase or disposition of the
Shares. I hereby represent that I have consulted with any tax consultants that I
deem advisable in connection with the purchase or disposition of the Shares and
that I am not relying on the Corporation for any tax advice.

7. Binding Effect. I agree that the Shares are being acquired in accordance with
and subject to the terms, provisions and conditions of the New Employee
Inducement Award to which I hereby expressly assent. This Agreement shall inure
to the benefit of and be binding upon my heirs, executors, administrators,
successors and assigns.

 

Very truly yours,

 

(Signature)

Receipt of the above is hereby acknowledged.

Clean Diesel Technologies, Inc.

By:

 

 

Title:

 

 

Dated: