Pier 1 2009 Annual Report Download - page 122

its evaluation as to when such action will be the most advantageous to Pier 1 Imports and the
shareholders. In addition, approval of this proposal grants the board of directors the right, in its sole
discretion, to elect not to proceed with the reverse stock split if, at any time prior to filing the
Certificate of Amendment, the board of directors, in its sole discretion, determines that it is no longer
in Pier 1 Imports’ best interests and the best interests of the shareholders to proceed with the reverse
stock split.
Effect on Pier 1 Imports’ Stock Plans
As of May 4, 2009, Pier 1 Imports had approximately 11,588,700 shares subject to stock options,
1,278,042 director deferred stock units not exchanged for common stock and 331,684 shares of unvested
restricted stock outstanding under the Pier 1 Imports, Inc. 1989 Employee Stock Option Plan (‘‘1989
Plan’’), the Pier 1 Imports, Inc. 1999 Stock Plan (‘‘1999 Plan’’) and the Pier 1 Imports, Inc. 2006 Stock
Incentive Plan (‘‘2006 Plan,’’ and collectively with the 1989 Plan, the 1999 Plan and the 2006 Plan, the
‘‘Stock Plans’’). Under the 1989 Plan and the 1999 Plan, the compensation committee of the board of
directors has discretion to determine the appropriate adjustment to the awards granted under each plan
in the event of a stock split. Should the reverse stock split be effected, the 2006 Plan provides for
automatic proportionate adjustments to the number of shares available for issuance and awardable,
automatic proportionate adjustments to the shares awarded and the exercise price, grant price or
purchase price relating to awards under such plan, plus automatic proportionate adjustments to the
awarded director deferred stock units. Should the reverse stock split be effected, the compensation
committee has approved proportionate adjustments to the shares awarded under the 1989 Plan and the
1999 Plan, proportionate adjustments to the exercise price, grant price or purchase price relating to
awards under each plan, plus proportionate adjustments to the awarded director deferred stock units
under the 1999 Plan. Under the 2006 Plan, any fractional shares resulting from such adjustments are
rounded up to the next whole share. The compensation committee has discretion under the 1989 Plan
and the 1999 Plan on the treatment of fractional shares and will treat fractional shares in the same
manner as the 2006 Plan.
Accordingly, if this proposal is approved by the shareholders and a reverse stock split is
implemented by the board of directors, upon the filing of an amendment to our Certificate of
Incorporation with the Delaware Secretary of State, the number of all outstanding equity awards, the
number of shares available for issuance and awardable and the exercise price, grant price or purchase
price relating to any award under Pier 1 Imports’ Stock Plans will be proportionately adjusted using the
split ratio selected by the board of directors (subject to the treatment of fractional shares as described
above). The compensation committee has also authorized Pier 1 Imports to effect any other changes
necessary, desirable or appropriate to give effect to the reverse stock split, including any applicable
technical, conforming changes to our Stock Plans. For example, if a 1-for-10 reverse stock split is
effected, the 1,005,714 shares that remain available for issuance under the 2006 Plan as of May 4, 2009,
would be adjusted to 100,572 shares, subject to increase as and when awards expire or are forfeited and
are returned per the terms of the 2006 Plan. In addition, the exercise price per share under each stock
option would be increased by 10 times, such that upon an exercise, the aggregate exercise price payable
by the optionee to Pier 1 Imports would remain the same. For illustrative purposes only, an outstanding
stock option for 3,000 shares of common stock, exercisable at $1.00 per share, would be adjusted as a
result of a 1-for-10 split ratio into an option exercisable for 300 shares of common stock at an exercise
price of $10.00 per share.
In addition to the stock options issued under our Stock Plans, 3,000,000 options are outstanding
pursuant to option grants to Mr. Smith pursuant to his employment agreement. In the event of a
reverse stock split, the number of such shares will be proportionately reduced and the purchase price
per share will be proportionately increased.
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