Pier 1 2012 Annual Report Download - page 115

The renewal and extension continues the following terms from Mr. Smith’s original employment agreement:
• Non-solicitation and non-competition agreements binding Mr. Smith for one year following
termination of employment; and
• 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 in control of Pier 1 Imports or in connection with Mr. Smith’s
termination of employment in respect of such a change in 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 any payments that are “excess
parachute payments,” within the meaning of Section 280G(b)(l) of the Internal Revenue Code.
Consistent with Mr. Smith’s original employment agreement, Mr. Smith’s renewed and extended employment
agreement specifically excludes a change in control of Pier 1 Imports as grounds for either Pier 1 Imports or
Mr. Smith to terminate the agreement, and a change in control of Pier 1 Imports does not constitute a “Good
Reason” under the agreement. However, under the Pier 1 Imports, Inc. Supplemental Retirement Plan, as discussed
in footnote #1 to the table included under the caption “Potential Payments upon Termination or Change in Control”
below, Mr. Smith (similar to certain other participants) would be entitled to receive the present value of the
lump-sum amount of the actuarial equivalent of his benefit 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.
Subsequent to the renewal and extension of Mr. Smith’s employment agreement as discussed above, Pier 1
Imports on June 18, 2010, based on a review of executive compensation practices, determined that it will not enter
into any new employment agreement with an executive officer, or after that date materially amend Mr. Smith’s
existing employment agreement, to provide for gross-up payments designed to offset the impact of the excise tax
imposed by Section 4999 of the Internal Revenue Code on payments contingent upon a change in control of Pier 1
Imports.
Under Mr. Smith’s renewed and extended employment agreement, should Mr. Smith’s employment be
terminated by Pier 1 Imports without Cause or by Mr. Smith with Good Reason (as such terms are defined in the
agreement), then any and all of Mr. Smith’s outstanding restricted stock that has been granted and has not vested
will vest. In addition, Mr. Smith will be paid the greater of (1) his compensation and benefits through the end of the
employment agreement term; plus an amount equal to the higher of (i) the last annual cash bonus paid to Mr. Smith
or (ii) the average of the last three annual cash bonuses paid to Mr. Smith; plus any and all long-term incentive cash
award bonuses which have been earned but not paid because the entire performance period has not ended, or (2) a
severance amount equal to one full year of Mr. Smith’s then-existing base salary, and any and all long-term
incentive cash award bonuses which have been earned but not paid because the entire performance period has not
ended. Upon a non-renewal of the employment agreement by Pier 1 Imports, Mr. Smith will be paid the amount
stated in (2) above, and any and all of Mr. Smith’s outstanding restricted stock that has been granted and has not
vested will vest.
Compensation Determinations and Role of Executive Officers
Fiscal year base pay, short-term incentive and long-term incentive compensation recommendations for the
named executive officers were presented to the compensation committee at their meetings in January, February and
March of 2011. The presentations included recommendations of Pier 1 Imports’ chief executive officer and human
resources compensation group on those elements of compensation, plus recommended plan design changes, and a
summary of all short- and long-term incentive awards to eligible levels of management. From time to time, these
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