Stock-Based Compensation

12 Months Ended

Dec. 31, 2013

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

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, 2013, there were 405,351 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, 2013 and 2012 was $0.7 million and $0.5 million, respectively. 

In 2013, the Company granted a total of 254,411 RSUs to executive officers and other key employees at a weighted average fair value of $2.17 per unit. Of these, 29,190 vest over approximately one year and the remaining 225,221 vest a third on each of the first, second and third anniversaries from the March 20, 2013 grant date.

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.

        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.

        On December 19, 2013, the Compensation Committee approved the modification of the remaining 26,501 unvested RSUs in this grant to accelerate the vesting upon his termination from the Company effective January 9, 2014. This was considered a Type III modification in accordance with the authoritative guidance for share-based compensation, and, as a result, the Company reversed all expense previously recorded for these awards and recorded the fair value of the new award immediately. The total incremental compensation expense resulting from this modification was not significant.

Non-Employee Director Awards

        Through 2012, each non-employee director was granted stock options covering 5,000 common shares each year, one twelfth of which vest each month over the following year. Beginning in 2014, each non-employee director will receive a restricted share unit grant valued at $30,000, with the timing and vesting to be at the discretion of the Board of Directors on recommendation of the compensation and nominating committee. There were no grants to non-employee directors in 2013.

        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, 2011	301,634	$18.57
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	─
Cancelled	(34,966)	$3.06
Expired	(36,308)	$25.01
Outstanding at December 31, 2013	714,712	$7.17	7.58	─
Exercisable at December 31, 2013	477,478	$9.29	7.28	─

        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 were as follows:

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

        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 subsequent to the Merger 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, 2013, the Company had $0.2 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 1.1 years.

        There was no cash received from option exercises under any share-based payment arrangements for the year ended December 31, 2013 or 2012.

        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, 2011	25,238	$5.64	─
Granted	172,147	$2.91	─
Vested and issued	(12,508)	$5.50	─
Forfeited	(17,712)	$3.35	─
Non-vested share units at December 31, 2012	167,165	$3.08	─
Granted	254,411	$2.17	─
Vested and issued	(74,978)	$3.22	─
Forfeited	(34,402)	$2.48	─
Non-vested share units at December 31, 2013	312,196	$2.37	─
Vested and unissued at December 31, 2013	26,638	$2.55	─

       For the years ended December 31, 2013 and 2012, the total estimated vest date fair value of restricted stock awards was $0.2 and $0 million, respectively. As of December 31, 2013, the Company had approximately $0.3 million of unrecognized compensation expense, net of estimated forfeitures, related to RSUs, which will be recognized over a weighted average estimated remaining life of 1.8 years. In 2013, of the 74,978 shares vested, 2,536 vested shares were withheld for minimum statutory tax obligations, resulting in a net issuance of 72,442 shares.