Telular Corporation 2001 Annual Report

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(in thousands, except per share data)The following table displays all stock option activity, including stock options granted to all employees and theStock Option Agreements.2001 2000 1999Weighted Weighted WeightedAverage Average AverageOptions Exercise Options Exercise Options Exercise(000’s) Price (000’s) Price (000’s) PriceOutstanding at beginning of year 1,001 $ 8.27 1,205 $ 7.71 688 $ 12.56Granted 584 13.33 406 8.40 742 3.31Exercised (81) 2.55 (461) 7.30 – –Canceled (296) 8.88 (149) 5.59 (225) 7.97Outstanding at end of year 1,208 $ 10.95 1,001 $ 8.27 1,205 $ 7.71Weighted average fair value ofoptions granted during the period $ 7.00 $ 4.39 $ 1.06The following table summarizes information about options outstanding at September 30, 2001:Weighted Outstanding ExercisableOutstanding Average Weighted Exercisable WeightedRange of as of 9/30/01 Remaining Average as of 9/30/01 AverageExercise Prices (000’s) Contractual Life Exercise Price (000’s) Exercise Price$1.56 - 3.75 291 5.17 $ 3.23 200 $ 3.464.25 - 10.05 252 5.97 8.37 40 9.4910.06 - 15.25 321 4.85 11.89 137 12.0917.50 - 39.00 344 4.69 18.48 132 19.731,208 5.11 $ 10.95 509 $ 10.47At September 30, 2001, the Company has reserved2,350,000 shares of Common Stock, of which 1,470,133are available for issuance in connection with the Plan.Pro forma information regarding net income andearnings per share is required by Statement of FinancialAccounting Standard No. 123, which also requires that theinformation be determined as if the Company had accountedfor its options granted subsequent to October 1, 1995,under the fair value method of that Statement. The fairvalue of options was estimated at the date of grant usinga Black-Scholes stock option pricing model with the followingweighted-average assumptions for 2001, 2000 and1999: risk-free interest rate of 6.0%; a weighted-averageexpected life of the options of four years; and no dividendyield. For the volatility factor of the expected marketprice of the common stock, the weighted average assumptionsof 60%, 60% and 35% were used for 2001, 2000 and1999, respectively.The Black-Scholes stock option valuation model wasdeveloped for use in estimating the fair value of tradedoptions which have no vesting restrictions and are fullytransferable. In addition, stock option valuation modelsrequire the input of highly subjective assumptionsincluding the expected stock price volatility. Because the30 TELULAR CORPORATION