Pier 1 2009 Annual Report Download - page 141

Planning and Allocations on November 17, 1999. Effective April 20, 2008, Pier 1 Imports and each of
Messrs. Jacobs, Turner and Walker mutually terminated their respective post-employment consulting
agreement. There are no further post-employment consulting agreements to which Pier 1 Imports is a
party. Messrs. Jacobs, Turner and Walker did not receive any consideration in exchange for the mutual
termination of their respective post-employment consulting agreements, nor did Pier 1 Imports incur a
penalty with respect to the termination. In conjunction with the termination of their respective
post-employment consulting agreements, however, Messrs. Jacobs, Turner and Walker, along with
Mr. Humenesky, were offered and each elected a lump-sum payment option of the actuarial equivalent
of his accrued benefit under the Pier 1 Imports, Inc. Supplemental Retirement Plan. This is further
discussed below under the caption ‘‘Pension Benefits Table for the Fiscal Year Ended February 28,
2009’’.
As reflected in the fiscal 2007 and 2008 Compensation Discussion and Analysis, Mr. Smith and
Pier 1 Imports 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 is for three years,
which began on February 19, 2007 and ends on February 27, 2010. The term of the employment
agreement renews for one-year periods unless Pier 1 Imports or Mr. Smith gives notice of non-renewal
at least 60 days prior to the term expiration.
Pursuant to the employment agreement, Mr. Smith receives a base salary of $1,000,000 per year.
That amount was increased to $1,050,000 per year beginning in fiscal 2009, for the elimination of
allowances for certain perquisites and expense reimbursement discussed above. Mr. Smith participated
in Pier 1 Imports’ annual short-term incentive plan described above for fiscal 2009. As discussed above,
neither he nor the other named executive officers received short-term incentive compensation because
the minimum level of the Profit Goal was not achieved in fiscal 2009.
Pursuant to Mr. Smith’s 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 and vested in full on February 19,
2008.
Option 2 for 2,000,000 shares is performance-based and may vest upon 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, each as determined by the compensation
committee, or a subcommittee. For purposes of the discussion below, we refer to this measure as
‘‘adjusted consolidated EBITDA’’. This measure was established by the board of directors for fiscal
2009 and is the same measure as the Profit Goal for the short-term incentive plan for fiscal 2009. As
discussed above, the short-term incentive for fiscal 2009 established an adjusted consolidated EBITDA
target 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 adjusted consolidated 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 minimum level of the adjusted consolidated EBITDA target was not achieved in fiscal 2009;
therefore, none of the 1,000,000 shares vested at the end of fiscal 2009.
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