Pier 1 2008 Annual Report Download - page 61

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, a grant date had not been established for the CEO’s second option during fiscal 2008 because the
EBITDA targets had not yet been defined. The Company will expense 1,000,000 shares of the second option
during fiscal 2009 since the EBITDA targets were set in March 2008. The remaining 1,000,000 shares of the
second grant do not have a SFAS 123R grant date and will be expensed in fiscal 2010 when the EBITDA
targets are set.
During fiscal 2008, the Board of Directors approved stock option grants under the 2006 Plan of
724,000 shares. As of March 1, 2008 and March 3, 2007, outstanding options covering 802,625 and
390,000 shares were exercisable under the 2006 Plan, respectively. 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). 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 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 Board of Directors determines otherwise
prior to a change of control event. As of March 1, 2008, there were no 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 8,465,775 and 9,147,650 shares were exercisable under the
1999 Stock Plan at fiscal years ending 2008 and 2007, respectively.
Under the 1989 Employee Stock Option Plan, options vest over a period of four to five years and all have
a term of ten years from the grant date. As of March 1, 2008 and March 3, 2007, outstanding options covering
714,825 and 1,246,475 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 1, 2008 and March 3, 2007, zero and 13,500 outstanding
options, 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
50% and were granted more than one year earlier. These options were granted between September 26, 2002,
and June 28, 2004, and had exercise prices ranging from $17.25 to $20.38 per share. Of the 3,806,375 options
that became exercisable immediately as a result of the vesting acceleration, 1,859,000 were scheduled to vest
over the next 12 months. Because these stock options had exercise prices significantly in excess of the
Company’s current stock price, the Company believed that the future charge to earnings that would be required
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Pier 1 Imports, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)