9. Shareholders' Equity

12 Months Ended

Dec. 31, 2012

Equity [Abstract]

Note 9 - Shareholders' Equity

Common Stock

Holders of common stock are entitled to such dividends as our Board of Directors, in its discretion, may declare out of funds available, subject to the terms of any outstanding shares of preferred stock and other restrictions. In the event of liquidation of the Company, holders of common stock are entitled to receive, pro rata, all of the assets of the Company available for distribution, after payment of any liquidation preference to the holders of outstanding shares of preferred stock. Holders of the shares of common stock have no conversion or preemptive or other subscription rights and there are no redemption or sinking fund provisions applicable to the common stock.

We are required to comply with various operating and financial covenants defined in the agreements governing the warehouse lines of credit, senior debt, residual interest financing and subordinated debt. The covenants for the senior debt, residual interest financing and subordinated debt restrict the payment of certain distributions, including dividends (See Note 8).

Included in compensation expense for the years ended December 31, 2012 and 2011, is $1.1 million and $1.5 million, respectively, related to the amortization of deferred compensation expense and valuation of stock options.

Stock Purchases

At five different times between 2000 and 2011, our Board of Directors has authorized the repurchase of up to $34.5 million of our securities. As of December 31, 2012, we had purchased $5.0 million principal amount of debt securities, and $28.4 million of our common stock, representing 9,800,720 shares.

Options and Warrants

In 2006, the Company adopted and its shareholders approved the CPS 2006 Long-Term Equity Incentive Plan (the “2006 Plan”) pursuant to which our Board of Directors, or a duly-authorized committee thereof, may grant stock options, restricted stock, restricted stock units and stock appreciation rights to our employees or employees of our subsidiaries, to directors of the Company, and to individuals acting as consultants to the Company or its subsidiaries. In June 2008 and in May 2012, the shareholders of the Company approved an amendment to the 2006 Plan to increase the maximum number of shares that may be subject to awards under the 2006 Plan to 5,000,000 and 7,200,000, respectively, in each case plus shares authorized under prior plans and not issued. Options that have been granted under the 2006 Plan and a previous plan approved in 1997 have been granted at an exercise price equal to (or greater than) the stock’s fair market value at the date of the grant, with terms generally of 10 years and vesting generally over five years.

The per share weighted-average fair value of stock options granted during the years ended December 31, 2012 and 2011 was $1.15 and $0.53, respectively. That fair value was estimated using the Black-Scholes option pricing model using the weighted average assumptions noted in the following table. We estimate the expected life of each option as the average of the vesting period and the contractual life of the option. The volatility estimate is based on the historical volatility of our stock over the period that equals the expected life of the option. Volatility assumptions ranged from 54% to 82% for 2012 and 62% to 81% for 2011. The risk-free interest rate is based on the yield on a U.S. Treasury bond with a maturity comparable to the expected life of the option. The dividend yield is estimated to be zero based on our intention not to issue dividends for the foreseeable future.

	Year Ended December 31,
	2012			2011
Expected life (years)		5.63			4.32
Risk-free interest rate		1.32	%		2.17	%
Volatility		79	%		80	%
Expected dividend yield		–			–

For the year ended December 31, 2012 and 2011, we recorded stock-based compensation costs in the amount of $1.1 million and $1.5 million, respectively. As of December 31, 2012, unrecognized stock-based compensation costs to be recognized over future periods was equal to $2.3 million. This amount will be recognized as expense over a weighted-average period of 3.1 years.

At December 31, 2012, the options outstanding and exercisable had intrinsic values of $32.9 million and $21.1 million, respectively. The total intrinsic value of options exercised was $1.2 million and $4,000 for the year ended December 31, 2012 and 2011, respectively. New shares were issued for all options exercised during the year ended December 2012 and cash of $847,000 was received. A tax benefit of $357,000 was recorded for the options exercised in 2012. At December 31, 2012, there were a total of 1.9 million additional shares available for grant under the 2006 Plan.

Stock option activity for the year ended December 31, 2012 for stock options under the 2006 and 1997 plans is as follows:

						Weighted
	Number of			Weighted		Average
	Shares			Average		Remaining
	(in thousands)			Exercise Price		Contractual Term
Options outstanding at the beginning of period		8,431		$	1.53	N/A
Granted		1,340			1.72	N/A
Exercised		(632	)		1.34	N/A
Forfeited/Expired		(487	)		1.41	N/A
Options outstanding at the end of period		8,652		$	1.58	6.07 years
Options exercisable at the end of period		5,702		$	1.69	4.87 years

The per share weighted average exercise price of stock options granted whose exercise price was equal to the market price of the stock on the grant date during the years ended December 31, 2012 and 2011, was $1.72 and $1.01, respectively.

The per share weighted average exercise price of stock options granted whose exercise price was above the market price of the stock on the grant date during the year ended December 31, 2011 was $1.67. We did not issue any stock options with an exercise price above the market price of the stock on the grant date in the year ended December 31, 2012.

We have not issued any stock options with an exercise price below the market price of the stock on the grant date.

On June 30, 2008, we entered into a series of agreements pursuant to which a lender purchased a $10 million five-year, fixed rate, senior secured note from us. In July 2008, in conjunction with the amendment of the residual interest financing as discussed above, the lender purchased an additional $15 million note with substantially the same terms as the $10 million note. Pursuant to the June 30, 2008 securities purchase agreement, we issued to the lender 1,225,000 shares of common stock. In addition, we issued the lender two warrants: (i) warrants that we refer to as the FMV Warrants, which are exercisable for 1,611,114 shares of our common stock, at an exercise price of $1.39818 per share, and (ii) warrants that we refer to as the N Warrants, which are exercisable for 285,781 shares of our common stock, at a nominal exercise price. Both the FMV Warrants and the N Warrants are exercisable in whole or in part and at any time up to and including June 30, 2018.

In connection with the amendment to and partial repayment of our residual interest financing in July 2008, we issued warrants exercisable for 2,500,000 common shares for $4,071,429. The warrants represent the right to purchase 2,500,000 CPS common shares at a nominal exercise price, at any time prior to July 10, 2018. In March 2010 we repurchased 500,000 shares for $1.0 million.

A warrant to purchase 1,158,087 shares of our common stock at an exercise price of $0.879 per share is outstanding at December 31, 2012 which was issued in connection with our $50 million revolving credit facility established in September 2009. In addition, warrants to purchase 500,000 of our common shares at an exercise price of $1.41 per share were issued to certain note purchasers in our March 2010 $50 million term funding facility.