Pier 1 2007 Annual Report Download - page 111

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the executive’s pre-termination coverage. If the executive enters into employment during the consulting period
that provides compensation equal to or greater than the amount of the consulting fees, Pier 1 will pay the
executive an immediate one-time payment in the amount of 50% of the difference between the total fees that
otherwise would have been payable during the term of the consulting agreement and the aggregate fees
actually paid prior to reemployment. If the executive enters into employment during the consulting period that
provides compensation less than the consulting fees, Pier 1 will reduce the monthly consulting fee by the
amount of the monthly compensation for reemployment, and at the end of the consulting period will pay the
executive 50% of the difference between the total fees that otherwise would have been payable during the
term of the consulting agreement and the aggregate fees actually paid.
Mr. Smith and Pier 1 have entered into an employment agreement for Mr. Smith’s employment as Pier
1’s president and chief executive officer. The initial term of the employment agreement is for three years
beginning February 19, 2007 and ending February 27, 2010. The term of the employment agreement renews
for one year periods unless Pier 1 or Mr. Smith gives notice of non-renewal at least 60 days prior to the term
expiration.
Pursuant to the employment agreement, Mr. Smith will receive a base salary of $1,000,000 per year and a
fiscal 2008 bonus of between $500,000 and $750,000 as determined by Pier 1’s board. Mr. Smith will
participate in Pier 1’s annual incentive bonus plan for Pier 1’s 2009 and 2010 fiscal years as determined by
Pier 1’s board at those times.
Mr. Smith’s employment agreement grants two stock options (“Option 1” and “Option 2,” and,
collectively, the “Options”), to purchase an aggregate of 3,000,000 shares of Pier 1’s common stock. The
Options were granted as an employment inducement award, and not under any stock option or other equity
incentive plan adopted by Pier 1. Option 1 for 1,000,000 shares will vest in full on February 19, 2008. If
Mr. Smith fails to be employed with Pier 1 between February 19, 2008 and February 28, 2009, and Mr. Smith
ends such employment without good reason (as defined in Mr. Smith’s employment agreement), then he
forfeits 50% of Option 1. Option 2 for 2,000,000 shares is performance based and will vest upon meeting
consolidated EBITDA targets to be established by the board of directors for fiscal years 2009 and 2010.
Mr. Smith’s employment agreement, as mentioned above, has a specific definition of EBITDA. Option 2 will
vest up to 1,000,000 shares based upon achieving a percentage of the fiscal 2009 EBITDA target as follows:
100% of the 2009 EBITDA Target — 1,000,000 shares;
98% of the 2009 EBITDA Target — 900,000 shares;
96% of the 2009 EBITDA Target — 800,000 shares;
94% of the 2009 EBITDA Target — 700,000 shares;
92% of the 2009 EBITDA Target — 600,000 shares; and
90% of the 2009 EBITDA Target — 500,000 shares.
Option 2 will vest up to 1,000,000 additional shares based upon achieving a percentage of the fiscal
2010 EBITDA target as follows:
100% of the 2010 EBITDA Target — 1,000,000 shares;
98% of the 2010 EBITDA Target — 900,000 shares;
96% of the 2010 EBITDA Target — 800,000 shares;
94% of the 2010 EBITDA Target — 700,000 shares;
92% of the 2010 EBITDA Target — 600,000 shares; and
90% of the 2010 EBITDA Target — 500,000 shares.
If Pier 1’s aggregate consolidated EBITDA for fiscal years 2009 and 2010 equals or exceeds the sum of
the fiscal 2009 EBITDA target plus the fiscal 2010 EBITDA target, then any Option 2 shares that did not vest
at the end of fiscal 2009 may be earned and vest at the end of fiscal 2010. Both Option 1 and Option 2 have
an exercise price of $6.69 per share and expire February 19, 2017. Subject to certain terms of the employment
agreement, Mr. Smith must be employed with Pier 1 on the anniversary date of Option 1 for the option to vest
and at the end of each respective fiscal year for Option 2 to vest.
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