8-K

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 8-K

CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): January 13, 2011

CLEAN DIESEL TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)

DELAWARE	001-33710	06-1393453
(State or other Jurisdiction of Incorporation)	(Commission File Number)	(IRS Employer Identification No.)

4567 TELEPHONE ROAD, SUITE 206 VENTURA, CALIFORNIA	93003
(Address of Principal Executive Offices)	(Zip Code)

Registrant’s telephone number, including area code: (805) 639-9458

(Former name or former address if changed since last report.)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Item 1.01 Entry into a Material Definitive Agreement.

As previously reported, Catalytic Solutions, Inc. (“CSI”), Engine Control Systems Limited (“ECS”) and certain other direct or indirect subsidiaries of the registrant are parties to a loan agreement with Fifth Third Bank (as amended, the “Loan Agreement”) and have previously entered into forbearance agreements with the Bank, the effect of which was to defer the obligation to pay all amounts outstanding under the Loan Agreement to January 13, 2011, subject to the terms and conditions of the forbearance agreement. On January 13, 2011, the Bank, CSI and ECS entered into an agreement (the “Letter Agreement”) pursuant to which the Bank agreed to extend the forbearance period to February 14, 2011. The Bank has agreed to further extend the forbearance period until March 14, 2011 if a satisfactory commitment letter thereafter was delivered to the Bank providing for financing commitments in amounts sufficient to pay all outstanding obligations under the Loan Agreement, provided that no default, forbearance default or event of default (as defined in the Loan Agreement and forbearance agreements) is outstanding. The Letter Agreement continues to provide that, if the Bank determines that the Company has suffered a material adverse change at any time, a default will be deemed to have occurred. During the forbearance period, the revolving credit line will continue to have a credit limit of Canadian $6.0 million and bear interest at US/Canadian Prime Rate plus 3.0 percent. The registrant subsequently delivered to the Bank a non-binding commitment letter from another financial institution with respect to an alternative financing facility. The Bank has advised the registrant that it has fulfilled the requirement to provide a satisfactory commitment letter as a condition to the extension of the forbearance period to March 14, 2011.

The above description of the material terms of the Letter Agreementis qualified in its entirety by reference to the text of the agreement, which is Exhibit 10.1 to this Current Report on Form 8-K and is incorporated by reference herein.

Item 8.01 Other Events.

On January 20, 2011, Clean Diesel issued a press release regarding the extension of the forbearance arrangements with Fifth Third Bank and other matters. The press release is furnished as Exhibit 99.1 to this Current Report on Form 8-K.

Item 9.01 Financial Statements and Exhibits.

(c) Exhibits.  

EXHIBIT INDEX

Exhibit Number	Description of Exhibits
10.1	Letter agreement, dated January 13, 2011, among Fifth Third Bank, Catalytic Solutions, Inc. and certain other direct or indirect subsidiaries of the registrant.
99.1	Press release of the registrant dated January 20, 2011.

SIGNATURES  

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

	CLEAN DIESEL TECHNOLOGIES, INC.
January 20, 2011	By:	/s/ Nikhil A. Mehta
		Name:  Nikhil A. Mehta
		Title: Chief Financial Officer and Treasurer

EX-10.1

Exhibit 10.1

FIFTH THIRD BANK
Canadian Branch
20 Bay Street, 12th Floor Toronto, Ontario
M5J 2N8

January 13, 2011

Catalytic Solutions, Inc.	Engine Control Systems Limited
4587 Telephone Road, Suite 206	83 Commerce Valley Drive East
Ventura, California	Thornhill, Ontario
93003-5665 USA	L3T 7T3
Attention: Nikhil A. Mehta	Attention: Donald A. Andrews
Chief Financial Officer	President

Re: Forbearance

Dear Sirs:

We refer to the Second Amended and Restated Loan Agreement dated as of June 27, 2008 between Engine Control Systems Limited, Catalytic Solutions, Inc. and Engine Control Systems Europe AB as Borrowers, together with ECS Holdings, Inc., Engine Control Systems Ltd., Unikat Acquisition Co. AB, Catalytic Solutions Holdings, Inc., successor by merger with CDTI Merger Sub, Inc. (“CSI”) Catalytic Solutions Holdings International, Applied Utility Systems, Inc. (now CSI Aliso, Inc.) and Catalytic Solutions South Africa (Proprietary) Limited as Supporting Subsidiaries and Fifth Third Bank as the Bank (as amended to the date hereof, the “Loan Agreement”). We also refer to the Forbearance and Reaffirmation Agreement date as of September 17, 2009 between the parties to the Loan Agreement other than Catalytic Solutions Holdings International, Catalytic Solutions South Africa (Proprietary) Limited and Unikat Acquisition Co. AB, all of which have ceased to exist or be maintained as separate corporate entities (the “Forbearance Agreement”). Capitalized terms used but not defined in this letter have the meanings assigned in the Loan Agreement or the Forbearance Agreement (as amended in both cases by the various Forbearance Period extension agreements described below), as appropriate, unless otherwise provided.

We also refer to the agreements between the Loan Parties and the Bank dated December 1, 2009, January 31, 2010, April 30, 2010 and August 31, 2010 pursuant to which the Bank consented to the extension of the Forbearance Period to, ultimately, January 13, 2011, subject to certain terms and conditions.

Under the fourth Forbearance Period extension of August 31, 2010, the Forbearance Period was extended to January 13, 2011. Te effect of the ending of the Forbearance Period is that all amounts outstanding under the Loan Agreement become due and payable on January 13, 2011.

The Loan Parties have requested that the Bank extend the Forbearance Period notwithstanding the various outstanding Forbearance Defaults and Events of Default that continue to exist as of the date of this letter (the “Existing Defaults”) by a period of up to 60 days to March 14, 2011 in order to give the Loan Parties to repay the Obligations in full.

In order to induce the Bank to agree to the foregoing requests and for other good and valuable consideration, the receipt and sufficiency of which are acknowledged, the parties agree as follows:

1) CSI shall continue to actively pursue its recapitalization plans and keep the Bank informed of its progress.

2)	The Forbearance Agreement is hereby amended to change the date referenced in Section 2.1(a) from “January 13, 2011” to “February 14, 2011”. Demand under the Loan Agreement or breach or default under the Loan Agreement by any Loan Party shall be a “Forbearance Default” under the Forbearance Agreement.
3)	The Bank will extend the Forbearance Period to March 14, 2011 if:

a)	no Default, Forbearance Default or Event of Default occurs after the date of this letter,
b)	a commitment letter in form and substance acceptable to the Bank, providing for a financing commitment in amounts sufficient to pay all Obligations in full, is delivered to the Bank; and
c)	the Loan Parties pay a further fee of USD50,000 or the Canadian equivalent thereof.

4) The Borrower shall pay the Bank a forbearance and amendment fee of USD50,000 or the Canadian equivalent thereof immediately upon acceptance of this letter agreement and shall pay all outstanding fees and expenses of the Bank’s counsel at that time.

5) The Loan Parties shall cooperate with the Bank in refreshing the Bank’s security over the property, assets and undertaking of the Loan Parties.

6) All amounts outstanding under the Loan Agreement are due and payable on February 14, 2011 unless the further Forbearance Period extension contemplated in paragraph 2 above is invoked, in which case all amounts outstanding under the Loan Agreement shall be due and payable on March 14, 2011.

The effectiveness of this Forbearance Agreement is subject to and conditional upon receipt by the Bank of an executed copy of this fifth Forbearance Period extension agreement and the forbearance amendment fee of USD50,000 or the Canadian equivalent thereof set out in paragraph 4.

Except as expressly stated in this letter agreement, the Forbearance Agreement, the Loan Agreement and the other Facility Documents remain in full force and effect, unamended except as necessary to give effect to this letter agreement.

Each Loan Party repeats and confirms the ratifications, reaffirmations, representations and covenants given in Sections 1.3, 4, and 5 of the Forbearance Agreement with effect as of January 13, 2011 and acknowledge that the Existing Defaults remain in effect and are uncured and unwaived. In addition, CSI, as the successor by merger with CDTI Merger Sub, Inc., acknowledges, confirms and agrees that it is liable for, and it promises to pay, perform, and observe, all of the terms, covenants, conditions, obligations, liabilities, indebtedness, and other Obligations of CSI to the Bank. All costs and expenses of the Bank under or in respect of this letter agreement are for the account of CSI and ECS.

Each Loan Party, on such Loan Party’s behalf and, as applicable, on behalf of such Loan Party’s officers, directors, members, managers, shareholders, administrators, heirs, beneficiaries, affiliates, subsidiaries, successors and assigns, hereby represents and warrants that such Loan Party has no claims, counterclaims, setoffs, actions or causes of action, damages or liabilities of any kind or nature whatsoever, whether in law or in equity, in contract or in tort, whether now accrued or hereafter maturing (collectively, “Claims”) against the Bank, its direct or indirect parent corporation or any direct or indirect affiliates of such parent corporation, or any of the foregoing’s respective directors, officers, employees, attorneys and legal representatives, or the heirs, administrators, successors or assigns of any of them (collectively, “Bank Parties”) that directly or indirectly arise out of, are based upon or are in any manner connected with any Prior Related Event. Each Loan Party, on such Loan Party’s behalf and, as applicable, on behalf of such Loan Party’s officers, directors, members, managers, shareholders, administrators, affiliates, subsidiaries, successors and assigns, voluntarily releases and forever discharges and indemnifies and holds harmless all Bank Parties from any and all Claims and other third-party claims that may be asserted against the Bank Parties, whether known or unknown, that directly or indirectly arise out of, are based upon or are in any manner connected with any Prior Related Event. “Prior Related Event” means any transaction, event, circumstance, action, failure to act, occurrence of any type or sort, whether known or unknown, which occurred, existed, was taken, was permitted or begun in accordance with, pursuant to or by virtue of (a) any of the terms of this letter agreement or any other Facility Document, (b) any actions, transactions, matters or circumstances related hereto or thereto, (c) the conduct of the relationship between any Bank Party and any Loan Party, or (d) any other actions or inactions by any Bank Party, all on or prior to the date such party executes this letter agreement.

Each Loan Party hereby waives (a) any and all rights under any theory of marshaling or ordering of the disposition of collateral; (b) any claim that the Bank has impaired any subrogation rights of any Loan Party against any other obligor or endorser of the Obligations; (c) any claim that any Loan Party’s obligations under this letter agreement or any of the other Facility Document are released, discharged, affected, modified or impaired by any event except payment in full of the Obligations; and (d) any claim against the Bank on any theory of liability for consequential, special, indirect or punitive damages. The Bank may apply any and all proceeds of the Loan Collateral to the Obligations in any order or method elected by the Bank in its discretion, and the Bank will not be obligated to sell or otherwise dispose of any of the Loan Collateral in any particular order or by any particular method.

This letter agreement shall be governed by and construed in accordance with the laws of Ontario and the federal laws of Canada applicable thereto. Each party hereby irrevocably submits to the non-exclusive jurisdiction of the courts of Ontario, sitting in Toronto, in any action or proceeding arising out of or relating to this letter agreement, the Loan Agreement, the Forbearance Agreement and each other Facility Document, and agrees that all claims in respect of such suit, action or proceeding may be heard and determined in any such court and waives any objection it may now or hereafter have as to the venue of any such suit, action or proceeding brought in such a court or that such court is an inconvenient forum.

[Signature Pages Follow]

Please acknowledge your understanding of and agreement to the foregoing by signing the attached copy of this letter agreement and returning it to the undersigned. This letter agreement may be signed in counterparts each of which shall be deemed to be an original and all of which, when taken together, shall constitute one and the same document. This letter agreement may be delivered by facsimile or other electronic transmission capable of printing and such delivery shall have the same force and effect as the delivery of originally signed documents. This letter agreement shall be effective as of the date first above written.

Very truly yours; FIFTH THIRD BANK
By:	/s/ Charles J. Miller
	Charles J. Miller, Vice President

Acknowledged and agreed as of the date first above written:

CATALYTIC SOLUTIONS, INC.		CSI ALISO, INC.
By:	/s/ Nikhil A. Mehta	By:	/s/ Nikhil A. Mehta
	Nikhil A. Mehta, Chief Financial Officer		Nikhil A. Mehta, Chief Financial Officer
By:	/s/ Charles F. Call	By:	/s/ Charles F. Call
	Charles F. Call, Chief Executive Officer		Charles F. Call, President
ECS HOLDINGS, INC.		ENGINE CONTROL SYSTEMS LTD.
By:	/s/ Nikhil A. Mehta	By:	/s/ Nikhil A. Mehta
	Nikhil A. Mehta, Chief Financial Officer		Nikhil A. Mehta, Chief Financial Officer
By:	/s/ Charles F. Call	By:	/s/ Christopher J. Harris
	Charles F. Call, President		Christopher J. Harris, President

CATALYTIC SOLUTIONS HOLDINGS, INC.		ENGINE CONTROL SYSTEMS EUROPE AB
By:	/s/ Nikhil A. Mehta	By:	/s/ Lars Hergart
	Nikhil A. Mehta, Chief Financial Officer		Lars Hegart, Director
By:	/s/ Charles F. Call	By:	/s/ Christopher J. Harris
	Charles F. Call, President		Christopher J. Harris, Director
ENGINE CONTROL SYSTEMS LIMITED
By:	/s/ Nikhil A. Mehta
	Nikhil A. Mehta, Chief Financial Officer
By:	/s/ Christopher J. Harris
	Christopher J. Harris, President

EX-99.1

Exhibit 99.1

FOR IMMEDIATE RELEASE

Clean Diesel Technologies, Inc. Takes Steps to Replace
Subsidiary’s Secured Credit Facility and Provides Financing Update

Ventura, CA — January 20, 2011 — Clean Diesel Technologies, Inc. (NASDAQ:CDTI) (“Company”), a cleantech emissions reduction company, announced today that its subsidiary, Catalytic Solutions, Inc. (“CSI”), had entered into an agreement with Fifth Third Bank, CSI’s secured lender under which Fifth Third Bank has agreed to extend forbearance under the terms of its loan agreement with CSI. Clean Diesel also announced that it subsequently entered into a commitment letter with another financial institution for an alternative financing facility of up to $7.5 million. Proceeds from the alternative facility would be used in part to repay all outstanding obligations under the existing Fifth Third Bank facility. As of December 31, 2010, approximately $2.4 million was outstanding under the Fifth Third Bank facility.

The agreement with Fifth Third Bank provided for an initial forbearance period until February 14, 2011, with a further extension to March 14 if a satisfactory commitment letter was delivered to Fifth Third Bank providing for financing commitments in amounts sufficient to pay all outstanding obligations under the loan agreement, provided that no default, forbearance default or event of default (as defined in the credit and forbearance agreements) is outstanding. Fifth Third Bank has advised CSI that the commitment letter for the alternative financing facility is satisfactory for purposes of the further extended forbearance agreement. During the forbearance period, the revolving credit line will continue to have a credit limit of Canadian $6.0 million and bear interest at US/Canadian Prime Rate plus 3.0 percent.

Charles F. Call, Chief Executive Officer of Clean Diesel, commented, “We appreciate the confidence and support that our lender, Fifth Third Bank, demonstrated by extending this agreement with us. We now can focus on negotiating the documentation for the alternative financing facility. This new facility would allow us to repay the Fifth Third Bank loan and continue the progress we are making in restructuring CSI’s obligations following Clean Diesel’s acquisition of CSI on October 15, 2010.”

A definitive agreement with respect to the new finance facility, as required by the commitment letter, has not been executed and there can be no assurances that such agreement will be executed or as to the terms of any such facility.

Additional financing update:

As previously reported, on December 30, 2010 Clean Diesel entered into an agreement with Kanis S.A. pursuant to which Kanis S.A. loaned Clean Diesel US $1.5 million. The proceeds of that loan were used, together with cash on hand, to pay $1.6 million to retire in full the balance of CSI’s obligations of up to $2.0 million under the settlement agreement with M.N. Mansour and M.N. Mansour, Inc. that ended all outstanding litigation and arbitration claims and other disputes between the parties relating to the agreements entered into in connection with CSI’s 2006 purchase of Applied Utility Systems assets.

Clean Diesel Technologies, Inc. * 4567 Telephone Road, Suite 206 * Ventura CA 93003 * 805-639-9458
www.cdti.com

The Company also announced that since the completion of the merger with CSI on October 15, 2010, holders of Clean Diesel warrants issued in connection with the merger and the related Regulation S capital raise have exercised warrants with respect to approximately 200,000 shares of Clean Diesel common stock, resulting in cash proceeds to the Company of approximately $1.6 million.

About the Company

Clean Diesel Technologies, Inc. (NASDAQ:CDTI), “Clean Diesel,” “CDT” or the “Company” is, as a result of the recent business combination with Catalytic Solutions, Inc. (“CSI”), a vertically integrated global manufacturer and distributor of emissions control systems and products, focused on the heavy duty diesel (HDD) and light duty vehicle (LDV) markets. CDT utilizes its proprietary patented Mixed Phase Catalyst (MPC^®) technology, as well as its ARIS^® selective catalytic reduction; Platinum Plus^® Fuel-Borne Catalyst (FBC), and other technologies to provide high-value sustainable solutions to reduce emissions, increase energy efficiency and lower the carbon intensity of on- and off-road engine applications. CDT is headquartered in Ventura, California, along with its wholly-owned subsidiary, CSI, and currently has operations in the U.S., Canada, U.K., France, Japan and Sweden as well as an Asian joint venture. For more information, please visit www.cdti.com and www.catsolns.com.

Forward-Looking Statements Safe Harbor

Certain statements in this news release such as statements concerning progress in restructuring CSI’s obligations constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 (including, without limitation, information regarding the Company’s opportunity for combined revenue synergies and cost reductions). Such forward-looking statements involve known or unknown risks, including those detailed in the Company’s filings with the U.S. Securities and Exchange Commission, uncertainties and other factors that may cause the actual results, performance or achievements of the Company following the business combination with CSI to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. The Company assumes no obligation to update the forward-looking information contained in this release.

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Contact Information:

Kristi Cushing, Investor Relations Manager

Tel: +1 (805) 639-9458

Clean Diesel Technologies, Inc. * 4567 Telephone Road, Suite 206 * Ventura CA 93003 * 805-639-9458
www.cdti.com