Pier 1 2010 Annual Report Download - page 124

financial security and to mitigate the effects of deferral limitations on highly compensated individuals in qualified
plans such as Pier 1 Imports’ 401(k) plan. The plan also assists Pier 1 Imports in attracting and retaining executives
and key members of management. The plan is described and discussed below under the caption “Non-Qualified
Deferred Compensation Table for the Fiscal Year Ended February 27, 2010.”
Employment Agreements – From time to time, Pier 1 Imports utilizes employment agreements to create
continuity of an executive’s services and to mitigate the executive’s risk of involuntary termination (other than for
cause) or the executive’s voluntary termination based on a good reason, both events as defined in the agreement.
Mr. Smith and Pier 1 Imports have entered into an employment agreement for Mr. Smith’s employment as Pier
1 Imports’ president and chief executive officer. The initial term of the employment agreement was for three years,
beginning February 19, 2007 and expiring on February 27, 2010. On December 15, 2009, Mr. Smith and Pier 1
Imports entered into a renewal and extension of the employment agreement effective February 28, 2010, the first
day of fiscal 2011. The term of the employment agreement is for three fiscal years ending on March 2, 2013, and is
renewable one fiscal year at a time unless Pier 1 Imports or Mr. Smith gives notice of non-renewal at least 60 days
prior to the term expiration.
Pursuant to the renewal and extension, Mr. Smith continues his base salary of $1,050,000 per year, which
amount may be adjusted from time-to-time by the compensation committee. He also is eligible to participate in Pier
1 Imports’ short-term and long-term incentive cash awards during the renewal term.
Pursuant to Mr. Smith’s initial employment agreement, Mr. Smith was granted two stock options (“Option 1”
and “Option 2,” and, collectively, the “Options”), to purchase an aggregate of 3,000,000 shares of Pier 1 Imports’
common stock at a price of $6.69 per share. The Options were granted as an employment inducement award, and
not under any stock option or other equity incentive plan adopted by Pier 1 Imports. Option 1 for 1,000,000 shares
was time-based, vested in full on February 19, 2008 and expires February 19, 2017 if not exercised.
Option 2 for 2,000,000 shares was performance-based and vested up to 1,000,000 shares in fiscal 2009 and
fiscal 2010, respectively, upon Pier 1 Imports meeting adjusted consolidated operating cash earnings before interest,
taxes, depreciation, and amortization from all domestic and international operations, but not including discontinued
operations, unusual or non-recurring charges nor recurring non-cash items (“EBITDA”) for fiscal 2009 and fiscal
2010. For purposes of the discussion below, we refer to this performance measure as the “EBITDA Target.” The
EBITDA Target for fiscal 2009 was established by the board of directors and was the same measure as the Profit
Goal for Pier 1 Imports’ short-term incentive plan for fiscal 2009 of $40,000,000. In conjunction with establishing
the short-term incentive plan and performance measures for fiscal 2009, the board of directors in March of 2008
authorized an amendment to Mr. Smith’s employment and option agreements whereby Option 2 could have vested
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;
96% of the 2009 EBITDA Target – 900,000 shares;
92% of the 2009 EBITDA Target – 800,000 shares;
88% of the 2009 EBITDA Target – 700,000 shares;
84% of the 2009 EBITDA Target – 600,000 shares; and
80% of the 2009 EBITDA Target – 500,000 shares.
The threshold level of the EBITDA Target for fiscal 2009 was not achieved; therefore, none of the 1,000,000 shares
vested at the end of fiscal 2009.
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