This excerpt taken from the LUX 20-F filed Jun 28, 2006.
Stock Incentive Plans
In October 2004, under a Company Incentive Plan, the Company granted options to acquire an aggregate of 1,000,000 shares of the Company to certain of the North American Retail Divisions employees which may vest and become exercisable on January 31, 2007 only if certain financial performance measures are met over the period ending December 2006. At December 31, 2005, there were options to acquire 1,000,000 shares (the closing ADR price at December 31, 2005 on the New York Stock Exchange was US Dollar 25.31 per share) at an exercise price of US Dollar 18.59 per share. Compensation expense is recorded in accordance with variable accounting under APB 25 for the options issued under the incentive plan based on the market value of the underlying ordinary shares when the number of shares to be issued is known (intrinsic value method). During fiscal 2005, it became probable that the incentive targets would be met and as such the Company has recorded approximately Euro 1.8 million (or US Dollar 2.2 million) of compensation expense net of taxes during fiscal 2005 and recorded future unearned compensation expense in equity of approximately Euro 2.7 million (US Dollar 3.2 million) with an offsetting increase in additional paid-in capital for such amounts. Pro forma net income and earnings per share calculated as if the compensation costs of the plans had been determined under a fair-value based method are reported in Note 1.
In September 2004, the Companys Chairman and majority shareholder, Mr. Leonardo Del Vecchio, allocated shares held through La Leonardo Finanziaria S.r.l., an Italian holding company of the Del Vecchio family, representing 2.11 percent (or
9.6 million shares) of the Companys currently authorized and issued share capital, to a stock option plan for top management of the Company at an exercise price of Euro 13.67 per share (the closing stock price at December 31, 2005 on the Milan Stock Exchange was Euro 21.43 per share). The stock options to be issued under the stock option plan vest upon meeting certain economic objectives. As such, compensation expense is recorded in accordance with variable accounting under APB 25 for the options issued to management under the incentive plan based on the market value of the underlying ordinary shares only when the number of shares to be vested and issued is known. During 2005, it became probable that the incentive targets would be met and, as such, the Company has recorded compensation expense of approximately Euro 19.9 million, net of taxes and recorded future unearned compensation expense in equity of approximately Euro 45.8 million, net of taxes, with an offsetting increase in additional paid-in capital for such amounts. The expense if calculated under SFAS 123-R would have been approximately Euro 16.9 million, net of taxes, and is included in pro forma net income and earnings per share (see Note 1).