Neiman Marcus 2009 Annual Report Download - page 119

Table of Contents
was completed in December 2009 with the tender of all Eligible Options and the issuance of 17,743 new options. The modification
completed in April 2010 resulted in the tender of Eligible Options for the purchase of 8,502 shares and the issuance of 5,668 new
options.
In connection with the Modification Transactions, we incurred additional compensation charges aggregating $5.1 million
during fiscal year 2010 to recognize the excess of the post-modification fair value of vested options over the pre-modification fair
value of such options.
Outstanding Stock Options. A summary of the status of our stock option plan is as follows:
Fiscal year ended
July 31, 2010 August 1, 2009 August 2, 2008
Shares
Weighted
Average
Exercise
Price Shares
Weighted
Average
Exercise
Price Shares
Weighted
Average
Exercise
Price
Outstanding at beginning of
fiscal year 79,399 $ 1,585 83,147 $ 1,507 83,634 $ 1,430
Granted 31,579 1,019 — — 260 2,684
Exercised — — (855) 1,684 — —
Cancelled (36,494) 2,132 — — — —
Forfeited (3,688)1,587 (2,893)1,617 (747)1,597
Outstanding at end of fiscal
year 70,796 $ 1,147 79,399 $ 1,585 83,147 $ 1,507
Options exercisable at end of
fiscal year 37,982 $ 1,237 60,857 $ 1,542 46,684 $ 1,415
At July 31, 2010, Accreting Options were outstanding for 26,309 shares and Fixed Price Options were outstanding for 44,487
shares. The total grant date fair value of stock options that vested during the year was $2.6 million in fiscal year 2010, $5.3 million in
fiscal year 2009 and $6.4 million in fiscal year 2008.
Grant Date Fair Value of Stock Options. All grants of stock options have an exercise price equaling or exceeding the fair
market value of our common stock on the date of grant. Because we are privately held and there is no public market for our common
stock, the fair market value of our common stock is determined by our Compensation Committee at the time option grants are awarded
(Level 3 determination of fair value). In determining the fair value of our common stock, the Compensation Committee considers
such factors as the Company's actual and projected financial results, the principal amount of the Company's indebtedness, valuations
of the Company performed by third parties and other factors it believes are material to the valuation process.
We use the Black-Scholes option-pricing model to determine the fair value of our options as of the date of grant. A summary
of our fiscal year 2010 grants and the weighted average fair value assumptions is as follows:
Options Issued in Connection
with Modification
Transactions Other Grants
Fixed Price
Options
Accreting
Options
Fixed Price
Options
Accreting
Options
Options Granted 1,378 23,411 3,395 3,395
Exercise Price at July 31, 2010 $ 1,445 $ 1,000 $ 1,000 $ 1,000
Term in Years 8 8 8 8
Volatility 53.4% 53.8% 53.4% 53.4%
Risk-Free Rate 3.3% 3.1% 3.3% 3.3%
Dividend Yield — — — —
Fair Value $ 465 $ 439 $ 541 $ 462
Expected volatility is based on a combination of NMG's historical volatility adjusted for our leverage and estimates of
implied volatility of our peer group.
We recognize compensation expense for stock options on a straight-line basis over the vesting period. Excluding the
compensation charges recorded in connection with the Modification Transactions, we recognized non-cash stock compensation
expense of $5.0 million in fiscal year 2010 and $5.8 million in fiscal year 2009, which is included in selling, general and
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