Pier 1 2007 Annual Report Download - page 68

1,000,000 shares based on the Company’s performance as measured by earnings before income taxes,
depreciation and amortization as defined in the agreement (“EBITDA”) for the Company’s 2009 fiscal year,
and will vest up to an additional 1,000,000 shares based on the Company’s performance as measured by
EBITDA for the Company’s 2010 fiscal year. Subject to the terms of the employment agreement, the CEO
must be employed at the end of each fiscal year for the respective options to vest. All options have a term of
ten years from the date of grant. In accordance with SFAS 123R, “Share Based Payment”, a grant date has not
been established for the CEO’s second option because the EBITDA targets have not yet been defined. The
Company will begin expensing the second option when the EBITDA targets are established during fiscal 2008
and achievement of such targets is considered probable.
The Board of Directors approved a grant effective June 23, 2006 under the 2006 Plan of 1,745,500 shares,
including a grant of 6,000 shares to each non-employee director. As of March 3, 2007, outstanding options
covering 390,000 shares were exercisable under the 2006 Plan. Options were granted at exercise prices equal
to the fair market value of the Company’s common stock at the date of grant. Employee options issued under
the 2006 Plan vest over a period of four years and have a term of ten years from the grant date. The employee
options are fully vested upon death, disability or retirement of the employee. The 2006 Plan’s administrative
committee also has the discretion to take certain actions with respect to stock options, like accelerating the
vesting, upon certain corporate changes (as defined in the 2006 Plan). The exercise price of the options is the
fair market value of the common stock on the date of grant. Non-employee director options are fully vested on
the date of grant, and are exercisable for a period of ten years.
The 1999 Stock Plan provided for the granting of options to directors and employees with an exercise
price not less than the fair market value of the common stock on the date of the grant. The options may have
been either Incentive Stock Options authorized under Section 422 of the Internal Revenue Code or
nonqualified options, which do not qualify as Incentive Stock Options. The 1999 Stock Plan provided that a
maximum of 14,500,000 shares of common stock could be issued under the 1999 Stock Plan, of which not
more than 250,000 shares could be issued under the Director Deferred Stock Program. The options issued to
employees vest equally over a period of four years while non-employee directors’ options were fully vested at
the date of issuance. Both options have a term of ten years from the grant date. The employee options are
fully vested upon death, disability, or retirement of an employee, or under certain conditions, such as a change
in control of the Company, unless the 2006 Plan’s administrative committee determines otherwise prior to a
change of control event. As of March 3, 2007 and February 25, 2006, respectively, there were no shares and
490,202 shares available for grant under the 1999 Stock Plan. All future stock option grants will be made from
shares available under the 2006 Plan. Additionally, outstanding options covering 9,147,650 and
9,689,650 shares were exercisable under the 1999 Stock Plan at fiscal years ending 2007 and 2006,
respectively.
Under the 1989 Employee Stock Option Plan, options could be granted to qualify as Incentive Stock
Options under Section 422 of the Internal Revenue Code or as nonqualified options. Most options issued under
the plan vest over a period of four to five years and all have a term of ten years from the grant date. As of
March 3, 2007 and February 25, 2006, outstanding options covering 1,246,475 and 1,728,125 shares were
exercisable, respectively. As a result of the expiration of the plan during fiscal 2005, no shares are available
for future grant. The 1989 Non-Employee Director Stock Option Plan (the “Director Plan”) expired in fiscal
2000. As of March 3, 2007 and February 25, 2006, outstanding options covering 13,500 and 20,250 shares,
respectively, were exercisable under the Director Plan. As a result of the expiration of the Director Plan during
fiscal 2000, no shares are available for future grants. Both plans were subject to adjustments for stock
dividends and certain other changes to the Company’s capitalization.
During fiscal 2006, the Company’s Board of Directors approved the accelerated vesting of approximately
3,806,375 unvested stock options awarded to employees under the Company’s then existing stock option plans
that had exercise prices exceeding the closing market price of $11.20 at September 27, 2005, by more than
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Pier 1 Imports, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)