Exhibit 10.4
PIER 1 IMPORTS, INC.
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
RESTATED AS OF JANUARY 1, 2005

 

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TABLE OF CONTENTS

              PAGE  
 
       
ARTICLE I —PURPOSE
    1  
ARTICLE II —DEFINITIONS
    1  
2.1 Beneficiary
    1  
2.2 Board
    1  
2.3 Cause
    1  
2.4 Change of Control of the Employer
    2  
2.5 Code
    2  
2.6 Committee
    2  
2.7 Compensation
    2  
2.8 Deferred Retirement Date
    3  
2.9 Early Retirement Date
    3  
2.10 Employer
    3  
2.11 Good Reason
    3  
2.12 Highest Average Compensation
    3  
2.13 Normal Retirement Date
    4  
2.14 Participant
    4  
2.15 Pier 1
    4  
2.16 Retirement
    4  
2.17 Separation from Service
    4  
2.18 Supplemental Retirement Benefit
    4  
2.19 Termination
    5  
2.20 Total and Permanent Disability
    5  
2.21 Years of Credited Service
    5  
2.22 Years of Plan Participation
    5  
ARTICLE III —PARTICIPATION AND VESTING
    5  
3.1 Participation
    5  
3.2 Supplemental Retirement Benefit Vesting
    5  
ARTICLE IV —SUPPLEMENTAL RETIREMENT BENEFITS
    6  
4.1 Benefit
    6  
4.2 Retirement; Disability; Death
    6  
4.3 Adjustments for Deferred Retirement Benefit
    7  
4.4 Adjustments for Early Retirement Benefit
    7  
4.5 Termination
    7  
4.6 Form of Benefit Payment
    7  
4.7 Payments
    8  
4.8 Withholding; Payroll Taxes
    9  
4.9 Payment to Guardian
    9  
4.10 Major Medical and Hospitalization Insurance Coverage
    9  
ARTICLE V —BENEFICIARY DESIGNATION
    10  
5.1 Beneficiary Designation
    10  
5.2 Amendments
    10  
5.3 No Beneficiary Designation
    10  
5.4 Effect of Payment
    10  

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              PAGE  
5.5 Death of Beneficiary
    10  
ARTICLE VI —ADMINISTRATION
    11  
6.1 Committee; Duties
    11  
6.2 Agents
    11  
6.3 Binding Effect of Decisions
    11  
6.4 Indemnity of Committee
    11  
ARTICLE VII —CLAIMS PROCEDURES
    11  
7.1 Claim
    11  
7.2 Denial of Claim
    11  
7.3 Review of Claim
    12  
7.4 Final Decision
    12  
ARTICLE VIII —TERMINATION, SUSPENSION OR AMENDMENT
    12  
8.1 Amendment or Termination
    12  
8.2 Successor Employer
    12  
ARTICLE IX —MISCELLANEOUS
    12  
9.1 Unsecured General Creditor
    12  
9.2 Trust Fund
    13  
9.3 Nonassignability
    13  
9.4 Not a Contract of Employment
    13  
9.5 Suicide
    13  
9.6 Participant’s Cooperation
    13  
9.7 Domestic Relations Order
    13  
9.8 Terms
    14  
9.9 Captions
    14  
9.10 Governing Law
    14  
9.11 Validity
    14  
9.12 Successors
    14  
9.13 Notice
    14  

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PIER 1 IMPORTS, INC.
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
ARTICLE 1—PURPOSE
     The purpose of this Supplemental Executive Retirement Plan (hereinafter
referred to as the “Plan”) is to provide supplemental retirement benefits for a
select group of management or highly compensated employees of Pier 1 Imports,
Inc. It is intended that the Plan will aid in retaining and attracting employees
of exceptional ability by providing such individuals with these benefits. This
Plan was originally effective as of May 1, 1986 and was restated effective as of
December 5, 2002. This restatement of the Plan shall only apply with respect to
Participants who are actively employed by the Employer after December 31, 2004.
The prior provisions of the Plan as in effect as of December 4, 2002 will
continue to apply with respect to Participants who terminated employment with
the Employer prior to December 5, 2002 and the prior provisions of the Plan as
in effect as of December 31, 2004 will continue to apply with respect to
Participants who terminated employment with the Employer after December 4, 2002
and prior to January 1, 2005. Further, the prior provisions of the Plan as in
effect as of December 31, 2004 will continue to apply with respect to any
portion of a Participant’s Plan benefit which will not constitute compensation
which is deferred after December 31, 2004 for purposes of Section 409A of the
Code.
     The purpose of this January 1, 2005 restatement is to cause the Plan to
comply with the requirements of Sections 409A(a)(2), (3) and (4) of the Code.
The Plan is to be construed and interpreted in accordance with such purpose.
ARTICLE II—DEFINITIONS
     For the purposes of this Plan, the following terms shall have the meanings
indicated unless the context clearly indicates otherwise:
2.1 Beneficiary
     “Beneficiary” means the person, persons or entity entitled under Article V
to receive Plan benefits after a Participant’s death.
2.2 Board
     “Board” means the Board of Directors of Pier 1 Imports, Inc.
2.3 Cause
     “Cause” means that the Participant:

  (a)   Has misappropriated, stolen or embezzled funds of the Employer; or    
(b)   Has committed an act of deceit, fraud, dereliction of duty, or gross or
willful misconduct; or

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  (c)   Has been convicted of either a felony or a crime involving moral
turpitude or entered a plea of nolo contendre in response to an indictment for
such crime or felony; or     (d)   Has intentionally disclosed confidential
information of the Employer except when such disclosure is made pursuant to the
direction of the Employer or in accordance with Employer policy; or     (e)  
Has engaged in competitive behavior against the Employer, has purposely aided a
competitor of the Employer or has misappropriated or aided in misappropriating a
material opportunity of the Employer.

2.4 Change of Control of the Employer
     “Change of Control of the Employer” shall be deemed to have occurred if:

  (a)   Any “person” (as defined in Sections 3(a)(9) and 13(d)(3) of the
Securities Exchange Act of 1934 (the “Act”)) becomes the “beneficial owner” (as
defined in Rules 13(d) 3 and 13(d) 5 under the Act) of securities of Pier 1,
representing thirty-five percent (35%) or more of the voting power of the
outstanding securities of Pier 1 having the right under ordinary circumstances
to vote at an election of the Board of Directors of Pier 1; or     (b)   There
shall occur a change in the composition of a majority of the Board of Directors
within a two (2) year period which change shall not have been affirmatively
approved by a majority of the Board of Directors as constituted immediately
prior to the commencement of such period; or     (c)   At any meeting of the
stockholders of Employer called for the purpose of electing directors, a
majority of persons nominated by the Board of Directors for election as
directors shall fail to be elected; and

the transaction or event described in (a), (b) or (c) above, whichever may have
occurred, also constitutes a “change in the ownership or effective control” of
the Employer within the meaning of Section 409A(a)(2)(v) of the Code.
2.5 Code
     “Code” means the Internal Revenue Code of 1986, as amended.
2.6 Committee
     “Committee” means the Compensation Committee of Pier 1 or any other
Committee chosen by the Board.
2.7 Compensation
     “Compensation” for a calendar year means the sum of (i) the rate at which
salary is being paid to a Participant as of the last day of that calendar year,
(ii) any bonuses actually paid to a Participant during that calendar year
excluding bonuses that were first payable during and deferred from a previous
calendar
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year, and (iii) any bonuses that were payable to a Participant during that
calendar year which were deferred for payment to a subsequent year.
2.8 Deferred Retirement Date
     “Deferred Retirement Date” means the first day of the month coincidental
with or next following the date that the Participant has a Separation from
Service after the Participant’s Normal Retirement Date.
2.9 Early Retirement Date
     “Early Retirement Date” means the first day of the month coincidental with
or next following the date on which a Participant has a Separation from Service,
if the date of such Separation from Service occurs after the Participant’s
attainment of age fifty-five (55) and completion of ten (10) Years of Plan
Participation.
2.10 Employer
     “Employer” means any of Pier 1, its subsidiaries, including a trust
directly or indirectly owned by Pier 1, and each of their respective successors.
2.11 Good Reason
     “Good Reason” means, without the written consent of the Participant:

  (a)   A reduction in the Participant’s base salary or a reduction in the
Participant’s benefits received from the Employer (other than in connection with
an across-the-board reduction in salaries and/or benefits for similarly situated
employees of the Employer or pursuant to the Employer’s standard retirement
policy), in each case as in effect immediately prior to a Change of Control; or
    (b)   The relocation of the Participant’s full-time office to a location
greater than fifty (50) miles from the Employer’s current corporate office; or  
  (c)   A reduction in the Participant’s corporate title as in effect
immediately prior to a Change of Control; or     (d)   The failure by the
Employer to obtain the assumption of this Plan by any successor as contemplated
in this Plan.

2.12 Highest Average Compensation
     “Highest Average Compensation” means the sum of the Participant’s
Compensation for his highest paid three (3) full calendar years of employment
with Employer prior to termination of employment (whether or not such years are
consecutive) divided by three (3); provided, however, that if the Participant
has been employed for less than three (3) full calendar years, the “Highest
Average Compensation” shall be determined by using the sum of the Participant’s
Compensation for his number of completed months of employment divided by the
number of his actual completed months of employment multiplied by twelve (12).
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2.13 Normal Retirement Date
     “Normal Retirement Date” means the first day of the month coincidental with
or next following the date on which a Participant attains age sixty-five (65).
2.14 Participant
     “Participant” means any individual who is participating or has participated
in this Plan pursuant to Article III.
2.15 Pier 1
     “Pier 1” means Pier 1 Imports, Inc., a Delaware corporation and its
successors.
2.16 Retirement
     “Retirement” means the Participant’s Deferred Retirement Date or Early
Retirement Date other than by reason of death or Total and Permanent Disability.
Retirement shall also mean the date as of which a Participant has a Separation
from Service within twenty-four (24) months (or, if less, any time of
termination restriction imposed for purposes of Section 409A(a)(2)(A)(v) of the
Code) of a Change of Control of the Employer unless such Separation from Service
is:

  (a)   By the Employer for Cause; or     (b)   Because of Total and Permanent
Disability; or     (c)   Because of the Participant’s death; or     (d)   By the
Participant other than:         For Good Reason; or         Upon the
Participant’s voluntary separation from employment after his/her Normal
Retirement Date, Deferred Retirement Date or Early Retirement Date.

2.17 Separation from Service
     “Separation from Service” of a Participant means a termination of the
Participant’s employment with the Employer provided that it constitutes a
“separation from service” under Proposed Treasury Regulation § 1.409A-1(h) (or
the successor final regulation thereto). In the event that a Participant is not
deemed to have incurred a termination of employment with the Employer by virtue
of a military leave, sick leave or other bona fide leave of absence under
Proposed Treasury Regulation § 1.409A-1(h) (or the successor final regulation
thereto), the Participant will be deemed to have experienced a separation from
service at the time and to the extent required under Proposed Treasury
Regulation § 1.409A-1(h) (or the successor final regulation thereto).
2.18 Supplemental Retirement Benefit
     “Supplemental Retirement Benefit” means the benefit determined under
Article IV of this Plan.
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2.19 Termination
     “Termination” means a Participant’s Separation from Service for any reason
other than Retirement, death or Total and Permanent Disability.
2.20 Total and Permanent Disability
     “Total and Permanent Disability” means a Participant (i) is unable to
engage in any substantial gainful activity by reason of any medically
determinable physical or mental impairment which can be expected to result in
death or can be expected to last for a continuous period of not less than twelve
(12) months, or (ii) is, by reason of any medically determinable physical or
mental impairment which can be expected to result in death or can be expected to
last for a continuous period of not less than twelve (12) months, receiving
income replacement benefits for a period of not less than three (3) months under
an accident and health plan covering employees of the Employer. The Committee’s
decision as to total and permanent disability will be based upon medical reports
and/or other evidence satisfactory to the Committee.
2.21 Years of Credited Service
     “Years of Credited Service” means the years of credited vesting service
with the Employer, determined in accordance with the provisions of the Pier 1
Associates’ 401 (k) Plan, or any successor tax-qualified retirement plan.
2.22 Years of Plan Participation
     “Years of Plan Participation” means the total number of full years in which
a Participant has participated in the Plan.
ARTICLE III—PARTICIPATION AND VESTING
3.1 Participation
     Participation in this Plan shall be limited to those employees of the
Employer nominated by the Chief Executive Officer of Pier 1 and approved by the
Committee and by the Board, and who elect to participate in this Plan by
executing a Participation Agreement in the form designated by the Committee.
3.2 Supplemental Retirement Benefit Vesting

  (a)   Vesting Percentage. Each Participant shall become vested in a
Supplemental Retirement Plan Benefit based upon the following schedule:

          Years of Credited Service   Vesting Percentage  
Less than 1
    0 %
1 but less than 2
    10  
2 but less than 3
    20  
3 but less than 4
    30  
4 but less than 5
    40  
5 but less than 6
    50  
6 but less than 7
    60  
7 but lass than 8
    70  
8 but less than 9
    80  
9 but less than 10
    90  
l0 or more
    100    

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  (b)   Prior Years of Credited Service. For purposes of this Plan, Years of
Credited Service earned prior to the May 1, 1986 date of Plan adoption by the
Employer shall be limited to five (5).     (c)   Conditions for Immediate
Vesting. Regardless of a Participant’s actual Years of Credited Service or age,
a Participant shall be one hundred percent (100%) vested in a Supplemental
Retirement Benefit upon Retirement, Separation from Service due to Total and
Permanent Disability, or death.     (d)   Initial Participants. Notwithstanding
anything in this Article to the contrary, any employee of the Employer who
becomes a Participant in this Plan within thirty (30) days of the original
May 1, 1986 effective date of this Plan shall be at least fifty percent (50%)
vested in any Plan Benefits herein upon attaining age fifty-five (55).

ARTICLE IV—SUPPLEMENTAL RETIREMENT BENEFITS
4.1 Benefit
     Upon incurring a Separation from Service, a Participant shall receive a
Supplemental Retirement Benefit from this Plan which, along with the
Participant’s benefits from primary Social Security, shall equal approximately
fifty percent (50%) of the Participant’s Highest Average Compensation. The
computation of said Supplemental Retirement Benefit shall be made in accordance
with the following provisions of this Article IV.
4.2 Retirement; Disability; Death
     Upon Retirement or if a Participant has a Separation from Service due to
Total and Permanent Disability, or death prior to the commencement of benefits
under this Plan, the Employer shall pay to the Participant a Supplemental
Retirement Benefit calculated as follows:

  (a)   Fifty percent (50%) times the Participant’s Highest Average
Compensation.     (b)   Increase the amount determined in (a) by six percent
(6%) compounded annually for fifteen (15) years.     (c)   Sum the annual
amounts determined in (b).     (d)   The sum of a Participant’s primary Social
Security benefit determined at the time of and according to the laws in effect
at the Participant’s Retirement date increased two percent (2%) compounded
annually for fifteen (15) years. However, if a Participant has a Separation from
Service before the Normal Retirement Date, the primary Social Security benefit
shall be determined based upon the primary Social Security benefit the
Participant would have received at the Normal Retirement Date based upon the
assumption the Participant will receive no future compensation after the date of
Separation from Service and based upon the relevant Social Security law at the
time of Separation from Service.     (e)   (c) offset by (d) divided by one
hundred eighty (180).

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4.3 Adjustments for Deferred Retirement Benefit
     Upon a Participant’s Deferred Retirement Date, the Employer shall pay to
the Participant a Supplemental Retirement Benefit as calculated in paragraph 4.2
above, but adjusted as follows:

  (a)   The percentage of Highest Average Compensation set forth in paragraph
4.2(a) shall be increased by five (5) percentage points for each Year of
Credited Service performed past the Participant’s Normal Retirement Date, but in
no event shall the increase be more than fifteen (15) percentage points;     (b)
  The calculation of Highest Average Compensation shall not take into
consideration any Compensation earned after the Participant attains age 65; and
    (c)   The Participant shall forfeit twenty percent (20%) of the Supplemental
Retirement Benefit otherwise due for each Year of Credited Service performed
past the Participant’s attained age seventy (70).     (d)    

4.4 Adjustments for Early Retirement Benefit
     Upon a Participant’s Early Retirement Date that occurs before his Normal
Retirement Date, the Employer shall pay to the Participant a Supplemental
Retirement Benefit as calculated under Section 4.2 above except:

  (a)   The sum amount described in subsection 4.2(c) shall be reduced by
five-twelfths percent (5/12%) for each full calendar month by which the
Participant’s Early Retirement Date precedes the Participant’s attainment of age
sixty-five (65); and     (b)   The offset required by subsection 4.2(d) shall be
determined using the Social Security Act in effect at Early Retirement Date and
assuming zero (0) future earnings from the Participant’s Early Retirement Date
to his attainment of age sixty-five (65).

4.5 Termination
     If a Participant has a Separation from Service due to Termination, the
Employer shall pay to the Participant the Supplemental Retirement Benefit
calculated under paragraph 4.2 above, multiplied by the vesting percentage of
benefit as provided in paragraph 3.2 above.
4.6 Form of Benefit Payment
     Each Participant shall, upon becoming a Participant, irrevocably elect in
writing that his or her benefits under this Plan be paid in one of the following
forms:

  (a)   Equal monthly installments paid over a period of one hundred eighty
(180) months;     (b)   A lump sum;     (c)   An annuity for the life of the
Participant; or

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  (d)   A joint and survivor annuity over the lives of Participant and the
Participant’s Beneficiary.

     The forms of payment specified in subparagraphs (b), (c) and (d) above
shall be the actuarial and financial equivalents of the form of payment
specified in subparagraph (a) above. For purposes of determining actuarial
equivalence, the benefits referred to in subparagraphs (b), (c) and (d) above
shall be discounted at a rate equal to the lesser of (i) the Pension Benefit
Guaranty Corporation interest rate for immediate annuities, as published in
Appendix B to Part 2619 of Title 29 of the Code of Federal Regulations, or any
successor or replacement rate (the “PBGC rate”) in effect on January 1 of each
year; or (ii) a twenty-four (24) month rolling average of the PBGC rate, using
the current rate as of the beginning of the month in which the calculation is
made and the twenty-three (23) previous months.
     The vested, accrued benefit shall be calculated as of January 1 of each
year for each Participant, and in no event shall the vested, accrued benefit be
less than such benefit calculated for a previous year. For example, if a
Participant has elected a lump-sum benefit and the lump-sum benefit as of
January 1, 1996 is $750,000 but, due to an increase in the discount rate, drops
to $700,000 as of January 1, 1997, the Participant’s vested, accrued lump-sum
benefit as of January 1, 1997 would be $750,000.
4.7 Payments
     Any benefit due under this Article shall be paid as set forth below:

  (a)   Supplemental Retirement Benefits due as a result of a Participant’s
Retirement shall be paid within thirty (30) days of the earlier of the date of
such Retirement or death:     (b)   Supplemental Retirement Benefits due as a
result of Termination or Total and Permanent Disability shall be paid within
thirty (30) days of the earlier of the Participant’s attaining age sixty-five
(65) or death;     (c)   Supplemental Retirement Benefits due as a result of
death shall be paid within thirty (30) days of the death of the Participant.

     Notwithstanding the foregoing, in the case of any Participant who is a “key
employee” as such term is defined in Section 416(i) of the Code without regard
to paragraph (5) thereof, and with respect to any portion of such Participant’s
Plan benefit which would constitute compensation which is deferred after
December 31, 2004 for purposes of Section 409A of the Code, no distribution may
be made of any such portion from the Plan to such Participant as a result of his
Separation from Service before the date which is six (6) months after the date
of such Separation from Service (or, if earlier, the date of death of the
Participant following such Separation from Service) unless such Separation from
Service was by reason of any of the events described in Sections
409A(a)(2)(A)(ii), (iii), (iv), (v) or (vi) of the Code. In the event of any
such payment deferral:

  (a)   If the payment to the Participant is a lump sum, such lump sum amount
shall be determined as if it was paid as originally provided under the Plan and
such amount shall include through the date of actual payment interest on such
amount at an annual rate equal to the interest rate then payable pursuant to the
Pier 1 Benefit Restoration Plan II; and     (b)   If the Participant’s Plan
benefit is to be made in a form other than a lump sum, the periodic payment
amount shall be determined as if payments commenced as

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originally provided under the Plan and the first payment to the Participant
shall include an amount equal to the sum of the periodic payments which would
have been paid to such Participant but for the payment deferral mandated
pursuant to Section 409A(a)(2)(B)(i) of the Code.
4.8 Withholding; Payroll Taxes
     To the extent required by the law in effect at the time payments are made,
the Employer shall withhold from payments made hereunder any taxes required to
be withheld from a Participant’s wages by the federal, state or local
government.
4.9 Payment to Guardian
     If a Plan benefit is payable to a minor or a person declared incompetent or
to a person incapable of handling the disposition of property, the Committee may
direct payment of such Plan benefit to the guardian, legal representative or
person having the care and custody of such minor, incompetent or person. The
Committee may require proof of incompetency, minority, incapacity or
guardianship as it may deem appropriate prior to distribution of the Plan
benefit. Such distribution shall completely discharge the Committee and Employer
from all liability with respect to such benefit.
4.10 Major Medical and Hospitalization Insurance Coverage
     Upon Retirement or Separation from Service due to Total and Permanent
Disability, a Participant (for himself and his dependents) shall have the right
to medical benefit coverage to be provided by the Employer until the death of
the Participant; provided, however, that if the Participant is survived by a
spouse, such spouse shall have the right to continued medical coverage for a
period of thirty-six (36) months from the Employer on the same basis as the
Participant would have had if he had survived. Such coverage shall be comparable
to the Employer-provided major medical and hospitalization insurance coverage,
if any, made available generally to the Employer’s active employees and their
dependents. Such coverage will only be provided if the Participant pays, or
reimburses the Employer for, a portion of the total premium for such major
medical coverage equal to the amount such Participant would have been required
to pay, or reimburse the Employer, had he been covered as an active employee of
the Employer. Premium payments or reimbursements required to be paid by a
Participant pursuant to this Section 4.10 shall be made by the Participant at
such times and in such form as the Employer shall establish pursuant to
reasonable payment methods.
     Upon Separation from Service due to Termination, a Participant (for the
Participant and the Participant’s dependents) shall have the right to
participate, during the fifteen (15) years immediately after the date such
Participant attains age sixty-five (65), in the Employer provided major medical
coverage, if any, made available generally to the Employer’s active employees
and their dependents; provided, however, that such Participant pays, or
reimburses the Employer for, the total premium (i.e., Employer and employee
portions) for such major medical coverage at such times as the Employer’s active
employees pay their respective contributions for such major medical coverage.
     Notwithstanding the foregoing but to the extent and only to the extent
required by Section 409A(a)(2)(B)(i) of the Code, in the case of any Participant
who is a “key employee” as such term is defined in Section 416(i) of the Code
without regard to paragraph (5) thereof, medical benefit coverage and/or medical
benefit payments may not be provided and/or paid to such Participant as a result
of his Separation from Service before the date which is six (6) months after the
date of such Separation from Service (or, if earlier, the date of death of the
Participant following such Separation from Service) unless such Separation from
Service was by reason of any of the events described in
Sections 409A(a)(2)(A)(ii),
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(iii), (iv), (v) or (vi) of the Code. Should the restriction described in this
Paragraph be required to be imposed and become applicable with respect to a
Participant, upon the lapse of the six (6) month deferral restriction, medical
coverage and/or medical benefit payments shall be made retroactively available
to such Participant (for the Participant and the Participant’s dependents) to
the date that they otherwise would have been available under this Section 4.10
and on the basis as contemplated by this Section 4.10.
ARTICLE V—BENEFICIARY DESIGNATION
5.1 Beneficiary Designation
     Each Participant shall have the right, at any time, to designate any person
or persons as his Beneficiary or Beneficiaries (both primary and contingent) to
whom payment under this Plan shall be paid in the event of death prior to
complete distribution to the Participant of the benefits due under the Plan.
Each Beneficiary designation shall be in a written form prescribed by the
Committee and will be effective only when filed with the Committee during the
Participant’s lifetime. If a Participant’s Compensation is community property,
any Beneficiary designation shall be valid or effective only as permitted under
applicable law.
5.2 Amendments
     Any Beneficiary designation may be changed by a Participant without the
consent of any designated Beneficiary by the filing of a new Beneficiary
designation with the Committee. The filing of a new Beneficiary designation form
will cancel all Beneficiary designations previously filed.
5.3 No Beneficiary Designation
     If any Participant fails to designate a Beneficiary in the manner provided
above, or if the Beneficiary designated by a deceased Participant predeceases
the Participant, the Committee, in its discretion, shall direct the Employer to
distribute such Participant’s benefits (or the balance thereof) as follows:

  (a)   To the Participant’s surviving spouse, if any; or     (b)   If the
Participant shall have no surviving spouse, then to the Participant’s children
in equal shares, by right of representation; or     (c)   If the Participant
shall have no surviving spouse or children, then to the Participant’s estate.

5.4 Effect of Payment
     Payment to the Beneficiary shall completely discharge Employer’s
obligations under this Plan.
5.5 Death of Beneficiary
     Following commencement of payment of Plan benefits, if the Beneficiary
designated by a deceased Participant dies before receiving complete distribution
of the benefits, the Committee shall direct the Employer to distribute the
balance of such benefits:

  (a)   As designated by the Beneficiary in accordance with the provisions in
paragraph 5.1 above; or

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  (b)   If the Beneficiary shall not have made such designation, then to the
Beneficiary’s estate.

ARTICLE VI—ADMINISTRATION
6.1 Committee; Duties
     This Plan shall be administered by the Committee. Members of the Committee
may be Participants under this Plan.
6.2 Agents
     The Committee may appoint an individual to be the Committee’s agent with
respect to the day-to-day administration of the Plan. In addition, the Committee
may, from time to time, employ other agents and delegate to them such
administrative duties as it sees fit, and may from time to time consult with
counsel who may be counsel to the Employer.
6.3 Binding Effect of Decisions
     The decision or action of the Committee with respect to any question
arising out of or in connection with the administration, interpretation and
application of the Plan and the rules and regulations promulgated hereunder
shall be final and binding upon all persons having any interest in the Plan.
6.4 Indemnity of Committee
     The Company shall indemnify and hold harmless the members of the Committee
against any and all claims, loss, damage, expense or liability arising from any
action or failure to act with respect to this Plan, except in the case of gross
negligence or willful misconduct by the Committee.
ARTICLE VII—CLAIMS PROCEDURES
7.1 Claim
     Any person claiming a benefit, requesting an interpretation or ruling under
the Plan, or requesting information under the Plan shall present the request in
writing to the Committee which shall respond in writing as soon as practicable.
7.2 Denial of Claim
     If the claim or request is denied, the written notice of denial shall be
made within ninety (90) days of the date of receipt of such claim or request by
the Committee and shall state:

  (a)   The reason for denial, with specific reference to the Plan provisions on
which the denial is based.     (b)   A description of any additional material or
information required and an explanation of why it is necessary.     (c)   An
explanation of the Plan’s claims review procedure.

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7.3 Review of Claim
     Any person whose claim or request is denied or who has not received a
response within ninety (90) days may request review by notice given in writing
to the Committee within sixty (60) days of receiving a response or one hundred
fifty (150) days from the date the claim was received by the Committee. The
claim or request shall be reviewed by the Committee who may, but shall not be
required to, grant the claimant a hearing. On review, the claimant may have
representation, examine pertinent documents, and submit issues and comments in
writing.
7.4 Final Decision
     The decision on review shall normally be made within sixty (60) days after
the Committee’s receipt of a request for review. If an extension of time is
required for a hearing or other special circumstances, the claimant shall be
notified and the time shall be one hundred twenty (120) days after the
Committee’s receipt of a request for review. The decision shall be in writing
and shall state the reason and the relevant Plan provisions. All decisions on
review shall be final and bind all parties concerned.
ARTICLE VIII—TERMINATION, SUSPENSION OR AMENDMENT
8.1 Amendment or Termination
     The Board may, in its sole discretion, amend or terminate this Plan at any
time, in whole or in part; provided, however, that no such amendment or
termination shall adversely affect the benefits of Participants which have
vested in accordance with paragraph 3.2 above prior to such action, the benefits
of any Participant who has had a Separation from Service, or the benefits of any
Beneficiary of a Participant who has died; provided further, however, that the
amendment or termination of this Plan shall not alter in any manner the timing
or form of benefit payments under this Plan.
8.2 Successor Employer
     The provisions of this Plan shall be binding upon and inure to the benefit
of any successor or assign of the Employer. If a successor Employer amends or
terminates this Plan, no such amendment or termination shall adversely affect
the benefits of Participants which have vested in accordance with paragraph 3.2
above prior to such action, the benefits of any Participant who has previously
retired, or the benefits of any Beneficiary of a Participant who has previously
died.
ARTICLE IX—MISCELLANEOUS
9.1 Unsecured General Creditor
     Benefits to be provided under this Plan are unfunded obligations of the
Employer. Participants and their Beneficiaries, heirs, successors, and assigns
shall have no secured interest or claim in any property or assets of Employer,
nor shall they be Beneficiaries of, or have any rights, claims or interests in
any life insurance policies, annuity contracts or the proceeds therefrom owned
or which may be acquired by Employer (“Policies”). Except as provided in
paragraph 9.2, such Policies or other assets of Employer shall not be held under
any trust for the benefit of Participants, their Beneficiaries, heirs,
successors or assigns, or be considered in any way as collateral security for
the fulfilling of the obligations of Employer under this Plan.
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9.2 Trust Fund
     Employer shall be responsible for the payment of all benefits provided
under the Plan. At its discretion, Employer may establish one (1) or more
trusts, with such trustees as the Board may approve, for the purpose of
providing for the payment of such benefits. Although such a trust shall be
irrevocable, its assets shall be held for payment of all Employer’s general
creditors in the event of insolvency. To the extent any benefits provided under
the Plan are paid from any such trust, Employer shall have no further obligation
to pay them. If not paid from the trust, such benefits shall remain the
obligation of Employer. In no event shall any provision of this Plan be
interpreted to provide, or of any trust established pursuant to this Section 9.2
provide or be interpreted to provide, that any assets of the Employer (whether
placed in trust or not) will become restricted to the provision of benefits
under the Plan in connection with a change in the Employer’s financial health
and in no event will any assets of the Employer, in fact, be so restricted.
9.3 Nonassignability
     Neither a Participant nor any other person shall have any right to commute,
sell, assign, transfer, pledge, anticipate, mortgage or otherwise encumber,
hypothecate or convey in advance of actual receipt the amounts, if any, payable
hereunder, or any part thereof. No part of the amounts payable shall, prior to
actual payment, be subject to seizure or sequestration for the payment of any
debts, judgments, alimony or separate maintenance owed by a Participant or any
other person, nor be transferable by operation of law in the event of a
Participant’s or any other person’s bankruptcy or insolvency.
9.4 Not a Contract of Employment
     The terms and conditions of this Plan shall not be deemed to constitute a
contract of employment between Employer and the Participant, and the Participant
(or his Beneficiary) shall have no rights against the Employer except as may
otherwise be specifically provided herein. Moreover, nothing in this Plan shall
be deemed to give a Participant the right to be retained in the service of
Employer or to interfere with the right of Employer to discipline or discharge
him at any time.
9.5 Suicide
     Notwithstanding the provisions of Article IV, no benefit shall be paid to a
Beneficiary if the Participant’s death occurs as a result of suicide during the
twelve (12) successive calendar months beginning with the calendar month
following the commencement of an individual’s participation in this Plan.
9.6 Participant’s Cooperation
     A Participant will cooperate with Employer by furnishing any and all
information requested by Employer in order to facilitate the payment of benefits
hereunder, and by taking such physical examinations and such other action as may
be requested by Employer.
9.7 Domestic Relations Orders
     All or any portion of a Participant’s Plan benefit will be paid to an
individual other than such Participant pursuant to and in accordance with the
provisions of a domestic relations order but only if such domestic relations
order satisfies all of the requirements to be a “qualified domestic relations
order” within the meaning of Section 414(p) of the Code and only if the timing
of payment or payments under the order comply with the distribution timing
requirements of Section 409A of the Code.
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9.8 Terms
     Whenever any words are used herein in the masculine, they shall be
construed as though they were used in the feminine in all cases where they would
so apply; and wherever any words are used herein in the singular or in the
plural, they shall be construed as though they were used in the plural or the
singular, as the case may be, in all cases where they would so apply.
9.9 Captions
     The captions of the articles, sections and paragraphs of this Plan are for
convenience only and shall not control or affect the meaning or construction of
any of its provisions.
9.10 Governing Law
     The provisions of this Plan shall be construed and interpreted according to
the laws of the State of Delaware.
9.11 Validity
     In case any provision of this Plan shall be illegal or invalid for any
reason, said illegality or invalidity shall not affect the remaining parts
hereof, but this Plan shall be construed and enforced as if such illegal and
invalid provision had never been inserted herein.
9.12 Successors
     The provisions of this Plan shall bind and inure to the benefit of Employer
and its successors and assigns. The term successors as used herein shall include
any corporate or other business entity which shall, whether by merger,
consolidation, purchase or otherwise acquire all or substantially all of the
business and assets of Employer, and successors of any such corporation or other
business entity.
9.13 Notice
     Any notice or filing required or permitted to be given to the Committee
under the Plan shall be sufficient if in writing and hand delivered, or sent by
registered or certified mail, to any member of the Committee, the President of
the Employer, or the Employer’s Statutory Agent. Such notice shall be deemed
given as of the date of delivery or, if delivery is made by mail, as of three
(3) days following the date shown on the postmark or on the receipt for
registration or certification.

            PIER 1 IMPORTS, INC.
    Date: October 9, 2006  By:   /s/ Gregory S. Humenesky         Gregory S.
Humenesky        Executive Vice President, Human Resources     

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