Menard, Inc. - Page 46

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          statements.  Dr. Hakala believed that the TYE 1998 proxy                    
          statements reflected compensation for services performed in TYE             
          1998.                                                                       
                              (iii) LTI Valuation Methodology                         
               In contrast with Mr. Rowley’s approach to valuing LTI                  
          compensation, Dr. Hakala used the Black-Scholes option-pricing              
          model (Black-Scholes)42 to determine the theoretical value of the           
          stock options.  Both Mr. Rowley and Dr. Hakala agree that Black-            
          Scholes is a method for valuing stock options generally accepted            
          by valuation experts.  To arrive at the values of the stock                 
          options, Dr. Hakala considered the following five Black-Scholes             
          variables:  (1) Underlying stock price, (2) exercise price, (3)             
          volatility, (4) risk-free interest rate, and (5) time to                    
          expiration of the option.                                                   
               After computing the Black-Scholes values of the stock                  
          options, Dr. Hakala took a 50-percent discount to arrive at a               
          “market value”.  According to Dr. Hakala, as a result of certain            
          Black-Scholes assumptions, for example, the assumption that                 
          investors are risk-neutral, Black-Scholes artificially inflates             
          stock option values.  In reality, Dr. Hakala explained, CEOs are            
          risk averse and exercise their options early or, due to death,              
          disability, retirement, resignation, or termination, forfeit                


               42See Black & Scholes, “The Pricing of Options and Corporate           
          Liabilities”, 81 J. Pol. Econ. 637 (1973).                                  




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