v2.3.0.15
Merger with CDTI
9 Months Ended
Sep. 30, 2011
Merger with CDTI [Abstract] 
Merger with CDTI
3. Merger with CDTI

On October 15, 2010, CDTI consummated a business combination with CSI through the merger of its wholly-owned subsidiary, CDTI Merger Sub, Inc. with and into CSI pursuant to the terms of the Merger Agreement. In the Merger, CSI became a wholly-owned subsidiary of CDTI. The Merger provided the Company with several advantages, including better capitalization, improved access to development capital as well as better positioning to pursue and implement its business strategy.

Pursuant to the terms of the Merger Agreement, (i) each outstanding share of CSI Class A Common Stock was converted into and became exchangeable for 0.007888 fully paid and non-assessable shares of CDTI’s common stock on a post-split basis (with any fractional shares paid in cash) and warrants to acquire 0.006454 fully paid and non-assessable shares of CDTI common stock for $7.92 per share on a post-split basis; and; (ii) each outstanding share of CSI Class B Common Stock was converted into and became exchangeable for 0.010039 fully paid and non-assessable shares of the Company’s common stock on a post-split basis (with any fractional shares paid in cash); and (iii) CDTI issued 166,666 shares of common stock on a post-split basis and warrants to purchase an additional 166,666 shares of common stock for $7.92 per share on a post-split basis to Allen & Company LLC, CSI’s financial advisor in the Merger. Accordingly, at the effective time of the Merger, CDTI issued or reserved for issuance (i) 611,017 shares of common stock (including 9,859 shares reserved for CSI’s outstanding in-the-money warrant) and warrants to purchase 499,915 shares of common stock (including 8,067 warrants reserved for issuance for CSI’s outstanding in-the-money warrants) in exchange for all outstanding CSI Class A Common Stock (ii) 1,510,189 shares of common stock in exchange for all outstanding CSI Class B Common Stock; and (iii) 166,666 shares of common stock and warrants to acquire an additional 166,666 shares of common stock to Allen & Company LLC, in each case reflecting the elimination of fractional shares that were cashed out in accordance with the Merger Agreement. All 666,581 warrants issued in connection with the Merger (the “Merger Warrants”) expire on the earlier of (x) October 15, 2013 (the third anniversary of the effective time of the Merger) and (y) the date that is 30 days after the Company gives notice to the warrant holder that the market value of one share of its common stock has exceeded 130% of the exercise price of the warrant for 10 consecutive days.

Immediately following the consummation of the Merger, the former holders of CSI securities and CSI’s financial advisor collectively held approximately 60% of the Company’s outstanding common stock. Because CSI stockholders held a majority of the voting stock of the combined company, CSI assumed key management positions and CSI held a majority of the board of directors seats upon closing of the Merger, CSI is deemed to be the acquiring company for accounting purposes and the transaction has been accounted for as a reverse acquisition in accordance with FASB Accounting Standards Codification (ASC) Topic 805, Business Combinations. Accordingly, the assets and liabilities of Clean Diesel were recorded as of the Merger closing date at their estimated fair values.

The following table summarizes the consideration paid for CDTI (in thousands):

 

         

Fair value of CDTI common stock at October 15, 2010

               $   7,401    

Fair value of stock options and warrants at October 15, 2010

     171    
   

 

 

  

Total purchase consideration

               $ 7,572    
   

 

 

  

Purchase consideration includes 1,511,621 shares of CDTI common stock with a fair value of $4.90 per share based on the closing price on NASDAQ on October 15, 2010. The fair value of warrants to purchase a total of 166,666 shares of CDTI common stock with a strike price of $7.92 per share issued to accredited investors is $0.93 per warrant. The fair value of warrants to purchase 14,863 shares of CDTI common stock with a strike price of $10.09 per share issued to CDTI’s investment advisor is $0.71 per warrant. The warrants include a provision that they expire 30 days after a period where the market value of one share of CDTI common stock has exceeded 130% of the warrant exercise price for 10 consecutive days. See Notes 12 and 13 to the consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2010 regarding the fair value of warrants and stock options included in purchase consideration.

During the nine months ended September 30, 2011, the Company finalized the purchase accounting for the business combination resulting in decreases of $1.4 million in identifiable intangible assets and $0.1 million in current assets acquired with a corresponding increase of $1.5 million in goodwill. The decrease in intangible assets resulted from the finalization of the valuation report from a third-party valuation expert assisting the Company in valuing the intangible assets. Changes during the measurement period resulting from the finalization of the purchase price allocation have been reflected retrospectively in the period in which the business combination occurred. As such, the December 31, 2010 amounts included in these condensed consolidated financial statements reflect the adjustments discussed above as well as a $0.1 million decrease in amortization expense related to the decrease in identifiable intangible assets.

Assets acquired and liabilities assumed as of acquisition date are as follows (in thousands):

 

                 
    Final
  Purchase  Price  
Allocation		     Preliminary
  Purchase  Price  
Allocation (1)		  

Cash and cash equivalents

               $ 3,916                          $ 3,916           

Accounts receivable

     175                156           

Inventory

     761                872           

Other assets

     326                326           

Property and equipment

     216                216           

Intangible assets

     1,937                3,306           

Goodwill

     1,615                154           
   

 

 

    

 

 

  

Total assets acquired

     8,946                8,946           

Liabilities assumed

     (1,374)               (1,374)          
   

 

 

    

 

 

  

Total purchase consideration

               $ 7,572                          $ 7,572           
   

 

 

    

 

 

  

 

(1) Reflected in the consolidated balance sheet in the Annual Report on Form 10-K for the fiscal year ended December 31, 2010.

The excess of the purchase price over the fair value of the tangible and identifiable intangible assets acquired and liabilities assumed in the acquisition was allocated to goodwill. The value of goodwill represents the value the Company expects to be created by combining the various operations of CDTI with the Company’s operations, including providing manufacturing, regulatory expertise and North American distribution for CDTI products and technologies and providing a stronger distribution capability for the Company’s products in Europe and Asia. The CDTI acquisition is included in the Heavy Duty Diesel Systems segment. The goodwill recorded in the CDTI acquisition is not deductible for tax purposes.

 

The following table summarizes the intangible assets acquired, all of which are subject to amortization, (in thousands):

 

             
    Weighted
Average
Useful Life in
Years		   Fair Value  

Trade name

   15.0           $ 627    

Patents

   12.0     1,090    

Backlog

     1.0     220    
       

 

 

  

Total intangible assets acquired

               $   1,937    
       

 

 

  

The Company has consolidated the results of CDTI with its own financial results beginning on the October 15, 2010 Merger date.