Stock-Based Payment

12 Months Ended

Dec. 31, 2012

Disclosure of Compensation Related Costs, Share-based Payments [Text Block]

12. Stock-Based Compensation

        The Clean Diesel Technologies, Inc. Stock Incentive Plan (formerly known as the Clean Diesel Technologies, Inc. 1994 Incentive Plan), as amended (the “Plan”), provides for the awarding of incentive stock options, non-qualified stock options, stock appreciation rights, restricted shares, performance awards, bonuses or other forms of share-based awards, or combinations of these to the Company’s directors, officers, employees, consultants and advisors (except consultants or advisors in capital-raising transactions) as determined by the board of directors. At the Company’s Annual Meeting of Shareholders held on May 23, 2012, the Company’s shareholders approved certain amendments to the Plan, the most significant of which changed the Plan name, removed the evergreen provision and established a maximum number of 1.4 million shares to be reserved for issuance under the Plan, disallowed the repricing of outstanding stock options without shareholder approval, removed the ability to issue cash bonus awards under the Plan and modified the change in control provisions within the Plan. As of December 31, 2012, there were 524,896 shares available for future grants under the Plan.

        Total stock-based compensation expense for both employee and non-employee awards for the years ended December 31, 2012 and 2011 was $0.5 million and $1.5 million, respectively. 

        CEO Inducement Awards

        On March 8, 2012, the Compensation and Nominating Committee of the Company’s Board of Directors (the “Compensation Committee”) approved the grant of nonqualified stock options and RSUs to the Company’s newly-appointed Chief Executive Officer and President. The grant was made outside of the Clean Diesel Technologies, Inc. Stock Incentive Plan as an inducement award without stockholder approval pursuant to Rule 5635(c)(4) of the NASDAQ Listing Rules. The Company granted 176,676 nonqualified stock options at an exercise price of $2.83 per share. These options have a ten-year term, and vest 28% on the first anniversary of the date of grant and 9% quarterly thereafter. The Company filed a registration statement on Form S-8 with the Securities and Exchange Commission registering the shares subject to the option grant on June 8, 2012. The Company also granted 58,892 RSUs at a fair value of $2.83 per unit. These RSUs vest 28% on the first anniversary of the date of grant and 9% quarterly thereafter, beginning June 20, 2013.

        2012 Awards

In 2012, the Compensation Committee approved the grant of long-term incentive awards to executive officers and other key employees consisting of a combination of nonqualified stock options and RSUs. The Company granted a total of 330,219 nonqualified stock options at a weighted average exercise price of $2.97 per share, a third of which vest on February 22, 2013 (the “Initial Vesting Date”) and each of the first and second anniversaries of the Initial Vesting Date. The Company also issued 113,255 RSUs at a weighted average fair value of $2.95 per unit, a third of which generally vest on March 20, 2013 (the “Vesting Commencement Date”) and each of the first and second anniversaries of the Vesting Commencement Date.

        2011 Awards

On June 8, 2011, the Company granted 122,127 RSUs to executive officers and other key employees with a grant date fair value of $6.17 per unit. Of these RSUs, 92,677 vested in full seven business days from the grant date. The remaining 29,450 of these RSUs are time-based and vest on the following schedule: 33.3% of the total number of RSUs vest seven days from the grant date and each of the first and second anniversaries of the grant date. On September 8, 2011, the Company granted 18,934 RSUs to an executive officer and other key employees with a grant date fair value of $3.80. Of these RSUs, the 13,334 issued to the executive officer vested in full six business days from the grant date. The remaining 5,600 of these RSUs are time-based with 33.3% vesting on each of the first, second and third anniversaries of the grant date.

        On March 17, 2011, the Company granted stock options covering a total 182,459 common shares with an option price of $5.68, 50% of which vested on the date of grant and 50% on the first anniversary of the date of grant.

Non-Employee Director Awards

        Each non-employee director is granted stock options covering 5,000 common shares each year, one twelfth of which vest each month over the following year.

        Stock Options

        Stock option activity is summarized as follows:

	Options	Weighted Average Exercise Price	Weighted Average Remaining Contractual Term (in years)	Aggregate Intrinsic Value
Outstanding at December 31, 2010	151,801	$53.55
Granted	207,459	$5.35
Expired	(57,626)	$63.13
Outstanding at December 31, 2011	301,634	$18.57	7.93	─
Granted	536,895	$2.90
Cancelled	(41,175)	$3.06
Expired	(11,368)	$78.97
Outstanding at December 31, 2012	785,986	$7.81	8.48	─
Exercisable at December 31, 2012	286,101	$15.98	7.25	─

        The aggregate intrinsic value represents the difference between the exercise price and the Company’s closing stock price on the last trading day of the year.

        Stock options granted under the Plan typically expire ten years from the date of grant and are issued at a price equal to the fair market value of the underlying stock on the date of grant. The Company’s board of directors may establish such vesting and other conditions with respect to options as it deems appropriate.

        The Company estimates the fair value of stock options using a Black-Scholes option-pricing model. The weighted-average assumptions and grant date fair value for the years ended December 31, 2012 and 2011 were as follows:

	2012	2011
Expected volatility	84.0%	80.2%
Risk-free interest rate	1.1%	1.9%
Dividend yield	─	─
Expected life in years	5.9	5.2
Weighted average grant date fair value	$2.04	$3.49

        The expected term of the options has historically been based upon the historical term until exercise or expiration of all granted options. Due to the significant change in the Company following the Merger and significant change in the terms of the options granted, CDTI’s pre-Merger historical exercise data was not considered to provide a reasonable basis for estimating the expected term for current option grants. As such, the expected term of stock options granted in 2012 and 2011 was determined using the “simplified method” as allowed under ASC 718-10-S99. “Compensation - Stock Compensation: Overall: SEC Materials.” The “simplified method” calculates the expected term as the average of the vesting term and original contractual term of the options. Also, due to the significant change in the Company following the Merger, CDTI’s pre-Merger historical price volatility was not considered representative of expected volatility going forward. Therefore, the Company utilized an estimate based upon the historical and implied volatility of a portfolio of peer companies. The risk-free interest rate is the constant maturity rate published by the U.S. Federal Reserve Board that corresponds to the expected term of the option. The dividend yield is assumed as 0% because the Company has not paid dividends and does not expect to pay dividends in the future.

        Compensation costs for stock options that vest over time are recognized over the vesting period on a straight-line basis. As of December 31, 2012, the Company had $0.7 million of unrecognized compensation cost related to stock option grants that remained to be recognized over vesting periods. These costs are expected to be recognized over a weighted average period of 2.1 years.

        There was no cash received from option exercises under any share-based payment arrangements for the year ended December 31, 2012 or 2011.

        Restricted Stock Units

        RSU activity is as follows:

	Shares		Weighted Average Grant Date Fair Value	Aggregate Intrinsic Value
Non-vested share units at December 31, 2010	─	0	─	─
Granted	141,061		$5.85	─
Vested	(115,823)		$5.90	─
Non-vested share units at December 31, 2011	25,238		$5.64	─
Granted	172,147		$2.91	─
Vested	(12,508)		$5.50	─
Forfeited	(17,712)		$3.35	─
Non-vested share units at December 31, 2012	167,165		$3.08	─

        For the years ended December 31, 2012 and 2011, the total estimated vest date fair value of restricted stock awards was $0 and $0.7 million, respectively. As of December 31, 2012, the Company had approximately $0.4 million of unrecognized compensation expense, net of estimated forfeitures, related to RSUs, which will be recognized over a weighted average estimated remaining life of 2.1 years.