Note 13. Capital Stock, Stock Options and Stock Awards

12 Months Ended

Sep. 30, 2011

Shareholders' Equity and Share-based Payments [Text Block]

13. Capital Stock, Stock Options and Stock Awards

In connection with a Loan and Security Agreement with Wells Fargo Business Credit Inc. (“Wells Fargo”) entered into during fiscal year 2000 that was repaid on December 30, 2002, Telular issued warrants to Wells Fargo convertible into 50,000 shares of Telular’s Common Stock.  The warrants, which remain outstanding, have a strike price of $16.29 per share and do not have an expiration date.

On July 25, 2008, Telular’s Board approved a plan to repurchase up to $5,000 of Telular’s common stock on the open market.  During fiscal 2008, 383,207 shares were repurchased at a cost of $1,127. In fiscal 2009, 1,725,283 shares were repurchased under the plan at a cost of $2,648.  Additionally, on June 19, 2009, Telular completed a modified “Dutch Auction” tender offer buying back 2,344,857 shares of common stock at a cost of $5,386. In fiscal 2010, 123,816 shares were repurchased under the plan at a cost of $412. No shares were repurchased in fiscal 2011.  Treasury stock is recorded at cost and is presented as a reduction to stockholders’ equity.

Telular has a Stock Incentive Plan, a 2008 Employee Stock Incentive Plan, and a Non-Employee Director Stock Incentive Plan (collectively the Plans). Under the Plans, options to purchase shares of Common Stock and stock awards may be granted to all officers, employees and non-employee directors. Stock options have been granted at exercise prices as determined by the Compensation Committee of the Board of Directors to officers, employees and non-employee directors of Telular pursuant to the Plans.

These stock options vest immediately or over a period of up to three years. All stock options, if not exercised or terminated, expire either on the sixth or the tenth anniversary of the date of grant. Stock awards in the form of restricted stock units (“RSUs”) have been issued to non-employee directors under the Non-Employee Stock Incentive Plan. Additionally, performance stock units (“PSUs”) have been issued to officers and employees under the Stock Incentive Plan and the 2008 Employee Stock Incentive Plan.

The following table summarizes the number of Common Shares reserved and available for issuance under the Plans at September 30, 2011:

			Available
	Reserved		to Issue
Stock Incentive Plan		3,450,000		303,567
2008 Employee Stock Incentive Plan		1,475,000		360,425
Non-employee Director Stock Incentive Plan		605,000		106,775

Stock Options

The following table displays all stock option activity as of September 30, 2011 including stock options granted under the Plans and the Stock Option Agreements:

	2011					2010					2009
				Weighted-					Weighted-					Weighted-
				Average					Average					Average
	Options			Exercise		Options			Exercise		Options			Exercise
	(000's)			Price		(000's)			Price		(000's)			Price
Outstanding at beginning of the year		2,242		$	4.04		1,982		$	4.06		1,712		$	4.85
Granted		-			-		505			3.98		490			1.52
Exercised		(181	)		2.85		(84	)		1.91		(14	)		1.72
Canceled		(7	)		8.45		(161	)		5.25		(206	)		4.73
Outstanding at end of the year		2,054		$	4.13		2,242		$	4.04		1,982		$	4.06

The following table summarizes information about options outstanding at September 30, 2011:

			Weighted-		Outstanding				Exercisable
			Average		Weighted-				Weighted-
	Outstanding as of		Remaining		Average		Exercisable as of		Average
Range of	September 30, 2011		Contractual		Exercise		September 30, 2011		Exercise
Exercise Prices	(000's)		Life (in years)		Price		(000's)		Price
$1.48 - 3.00		670		3.43	$	2.14		554	$	2.03
3.01 - 4.67		638		2.95		3.66		638		3.66
4.68 - 6.62		497		3.37		5.61		372		5.87
6.63 - 7.99		249		2.16		7.74		249		7.74
		2,054		3.11	$	4.13		1,813	$	4.17

Stock option activity for 2011 was as follows:

						Weighted-
				Weighted-		Average		Aggregate
				Average		Remaining		Intrinsic
	Shares			Exercise		Contractual		Value
	(000's)			Price		Life (in years)		($000's)
Outstanding as of September 30, 2010		2,242		$	4.04
Granted		-			-
Exercised		(181	)		2.85
Canceled		(7	)		8.45
Outstanding as of September 30, 2011		2,054		$	4.13		3.11	$	4,242
Exercisable as of September 30, 2011		1,813		$	4.17		2.98	$	3,732

Total intrinsic value of options exercised for 2011, 2010 and 2009 was $302, $83 and $13 respectively. At September 30, 2011, the total compensation cost of non-vested awards not yet recognized was $746. The weighted-average period over which the total compensation cost of non-vested awards not yet recognized is expected to be 1.21 years as of September 30, 2011.

Stock Awards

The following tables summarize RSU and PSU activity under the Plans during the years ended September 30, 2011, 2010 and 2009:

RSUs	2011				2010				2009
	Weighted-				Weighted-				Weighted-
	Average				Average				Average
	Grant		Number		Grant		Number		Grant			Number
	Price		of Units		Price		of Units		Price			of Units
Balance at October 1	$	2.32		198,803	$	1.51		150,450	$	-			-
RSUs granted		6.74		34,868		4.86		48,353		1.51			188,202
Credited DEUs (1)		5.47		55,377		-		-		-			-
RSUs released		-		-		-		-		(1.59	)		(7,550	)
RSUs canceled and forfeited		-		-		-		-		(1.49	)		(30,202	)
Balance at September 30	$	3.46		289,048	$	2.32		198,803	$	1.51			150,450

PSUs	2011				2010				2009
	Weighted-				Weighted-				Weighted-
	Average				Average				Average
	Grant		Number		Grant		Number		Grant		Number
	Price		of Units		Price		of Units		Price		of Units
Balance at October 1	$	-		-	$	-		-	$	-		-
PSUs granted at target		6.74		157,200		-		-		-		-
Additional shares issued above target (2)		-		-		-		-		-		-
Credited DEUs (1)		6.49		7,376		-		-		-		-
PSUs released		-		-		-		-		-		-
PSUs canceled and forfeited		-		-		-		-		-		-
Balance at September 30 (3)	$	6.73		164,576	$	-		-	$	-		-

(1) Represents dividend equivalent units credited to the directors and employees based upon their RSU

      holdings on the dates Telular paid their quarterly dividends.

(2) Represents additional shares issued to employees after final performance metrics exceeded specified targets.

      Additional shares were finalized and issued on November 8, 2011.

(3) Represents the number of shares expected to be issued after all PSUs are vested.

Telular issued 34,868, 48,353 and 188,202 RSUs to its directors, valued at $235, $235 and $284 for their services in fiscal years 2011, 2010 and 2009, respectively. In fiscal 2009, 30,202 RSUs were cancelled when one of the directors retired before his units were vested and 7,550 units became vested and were converted to Telular’s common stock. The restricted stock units vest 12 months from the grant date but are not exercisable until the director terminates their position or if there is a change in Telular’s ownership.  Telular calculates the cost of restricted stock awards and restricted stock units as the fair market value of Telular’s common stock on the date of grant. Additionally, under the terms of the Restricted Stock Agreement holders of RSUs will receive a dividend equivalent unit (“DEU”) each time a dividend is paid on Telular’s common stock. During fiscal 2011, Telular issued 55,377 DEUs to its directors valued at $303.  These DEUs were recorded as a dividend on common stock.

On June 30, 2010, it was determined that the RSU’s include a provision that permits the directors to select either a cash payment in lieu of issuance of common stock or the conversion of the RSU into common stock. The cash payment feature is limited to the fair value of the common stock as of the date of grant. This provision created a tandem award where there are in effect two awards included within the RSU. The first part of the award is the cash payment limitation, which is accounted for as a liability, and the second part of the award is accounted for as an option. Accordingly, Telular revised its accounting for the RSU’s to reclassify $324 of stock compensation expense previously identified in shareholders’ equity to reflect this liability. As a result of this revision, Telular recorded an additional non-cash compensation charge to operations of $115, which is included in the stock based compensation expenses related to stock options. Subsequent to June 30, 2010, the Board of Directors approved a modification to the RSU agreement eliminating the cash payment provision. The modification eliminated the liability that was previously associated with the cash payment option and valued the RSUs as a new grant.  Telular recorded a non-cash compensation charge of $90 to operations in the fourth quarter of fiscal 2010 and $124 in fiscal 2011 for the new grant.

In connection with the announcement of a special cash dividend in the first quarter of fiscal 2011, the Compensation Committee of Telular’s Board of Directors approved the distribution of a special compensation award to be distributed to the current employee and director holders of Telular’s stock options.  The purpose of this award was to compensate such holders for the loss in value associated with the special cash dividend that was distributed.  The amount of this special bonus was $1,136, of which $661 was paid in cash and $475 was paid in Telular common stock.

On February 1, 2011, Telular awarded 157,200 performance stock units (“PSUs”) to officers and employees, valued at $1,060, based on the price of Telular’s common stock on the date of issuance. These PSUs will be earned based on the level of achievement of certain fiscal 2011 performance measures and will vest ratably from the grant date through September 30, 2013. The actual number of performance based PSUs earned could fluctuate between 0% - 130% of the original grant, depending on the actual level of achievement of the performance targets. Each quarter, an estimate will be made as to the most likely level of achievement of the performance targets.  The amount of expense will be adjusted accordingly until the final determination of earned PSUs is made subsequent to Telular’s fiscal 2011 year end. As of September 30, 2011, the determination date, it was determined that the officers and employees achieved 102% of the performance targets, resulting in 3,177 additional PSUs earned valued at $21.  At the determination date, the earned performance based PSUs will vest as follows: one-third immediately, one-third on September 30, 2012 and the remaining one-third on September 30, 2013.  Upon vesting, providing the recipient remains employed by Telular, Telular will issue common stock to the recipient. The expense will be recorded on a pro-rata basis over the vesting period. During fiscal 2011, Telular issued 7,376 DEUs to its officers and employees valued at $48. These DEUs were recorded as a dividend on common stock.