Pier 1 2009 Annual Report Download - page 142

Option 2 may vest up to 1,000,000 shares based upon achieving a percentage of the fiscal 2010
adjusted consolidated 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 Imports’ aggregate adjusted consolidated EBITDA for fiscal years 2009 and 2010 equals
or exceeds the sum of the fiscal 2009 adjusted consolidated EBITDA target plus the fiscal 2010
adjusted consolidated EBITDA target, then the 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 Imports at the end of fiscal 2010 to be entitled to
the vesting of the portion of Option 2 for that fiscal year.
Mr. Smith’s employment agreement contains non-solicitation and non-competition agreements
binding Mr. Smith for one year following termination of employment.
Pursuant to the terms of Mr. Smith’s original employment agreement, in the event that the total
payments and benefits received by Mr. Smith or to be received by Mr. Smith in connection with a
change of control or in connection with Mr. Smith’s termination of employment in respect of a change
of control, whether pursuant to the terms of his employment agreement or any other plan, arrangement
or agreement with Pier 1 Imports (‘‘Total Payments’’), would be subject to the excise tax imposed under
Section 4999 of the Internal Revenue Code, Pier 1 Imports is obligated to pay to Mr. Smith an
additional amount (the ‘‘Gross-Up Payment’’) such that after payment by Mr. Smith of all taxes
(including any excise tax) imposed upon the Gross-Up Payment and any interest or penalties imposed
with respect to such taxes, Mr. Smith retains from the Gross-Up Payment an amount equal to the
excise tax imposed upon the Total Payments. The Total Payments subject to the excise tax will be such
payments that are ‘‘excess parachute payments,’’ within the meaning of Section 280G(b)(l) of the
Internal Revenue Code.
Mr. Smith’s employment agreement cannot be terminated by either Pier 1 Imports or Mr. Smith as
a result of a change in control of Pier 1 Imports, and a change in control of Pier 1 Imports does not
constitute a ‘‘Good Reason’’ under the employment agreement. However, under the Pier 1 Imports,
Inc. Supplemental Retirement Plan, as disclosed in the table below under the caption ‘‘Potential
Payments upon Termination or Change in Control’’, Mr. Smith would be entitled to receive the present
value of the lump-sum amount of the actuarial equivalent of his benefits assuming that Mr. Smith is
involuntarily terminated other than for cause, or leaves the employment of Pier 1 Imports for good
reason (as defined in the plan), within 24 months of a change in control (as defined in the plan) of
Pier 1 Imports. Had Mr. Smith’s employment terminated on February 28, 2009, Mr. Smith would not,
however, have been entitled to receive a Gross-Up Payment.
Compensation Determinations and Role of Executive Officers
Base pay, short-term incentive and long-term incentive compensation recommendations for the
named executive officers were presented to the compensation committee at their meeting in March of
2008. The presentation included recommendations of Pier 1 Imports’ chief executive officer and human
resources compensation group on those elements of compensation, plus recommended plan design
changes, if any, and a summary of all awards to all eligible levels of management. From time to time,
these types of presentations may include survey data from a peer group of retail companies for the
compensation committee’s consideration. That data may include studies and recommendations from
independent outside consultants. Generally, the compensation committee approves the fiscal year
compensation in March of each year with an effective date in April. Implementation of the equity grant
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