Exhibit 10.2
Exhibit A to Employment Agreement
NON-QUALIFIED STOCK OPTION AGREEMENT
PIER 1 IMPORTS, INC.
[Employment Agreement Option 1]
     THIS NON-QUALIFIED STOCK OPTION AGREEMENT (this “Agreement”) is made
effective and entered into as of February ___, 2007, by and between PIER 1
IMPORTS, INC., a Delaware corporation (the “Company”), and ALEXANDER W. SMITH
(the “Optionee”). All terms defined in the Employment Agreement (defined below)
are used herein with same meanings as are ascribed to them therein.
     WHEREAS, this Option (defined below) is being granted pursuant to the terms
of that certain Employment Agreement (the “Employment Agreement”) dated
February 19, 2007, by and between the Company and Optionee, and is the stock
option defined therein as “Option 1”;
     WHEREAS, this Option is granted as an inducement grant, not under any stock
incentive plan adopted by the Company:
     NOW, THEREFORE, the parties hereto agree as follows:
     1. Grant of Option. The Company hereby grants to the Optionee an Option
(this “Option”), subject to the execution of this Option Agreement, on the Date
of Grant (as defined below) to purchase from the Company upon the terms and
conditions hereinafter set forth 1,000,000 shares (the “Option Shares”) of the
Company’s Common Stock, par value $1.00 per share (the “Common Stock”).
     2. Date of Grant. This Option is granted to Optionee on February ___, 2007
(the “Date of Grant”).
     3. Exercise Price. The exercise price is $___for each of the Option Shares
(the “Exercise Price”).
     4. Expiration Date: The expiration date of this Option is February ___,
2017 (the “Expiration Date”).
     5. Vesting of Option; Exercisability. This Option shall become vested and
exercisable in full on February ___, 2008 (unless it is sooner terminated as
hereinafter provided). This Option shall be exercisable in full or in part and
shall remain exercisable until the Expiration Date (unless it is sooner
terminated as hereinafter provided), at which time this Option shall expire.
     6. Exercise of Option. Notice of the exercise of this Option or any portion
thereof shall be given to the Company, or any other employee of the Company or
an affiliate who is designated by the Company to accept such notices on its
behalf, specifying the number of shares for which it is exercised; provided,
that no partial exercise of this Option may be for fewer than 100 shares unless
the remaining shares purchasable are fewer than 100 shares. Payment of the
Exercise Price shall be made in full at the time this Option is exercised.
Payment shall be made (i) by certified or cashier’s check, (ii) by delivery and
assignment to the Company of Common

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Exhibit A to Employment Agreement
Stock owned by the Optionee that has a Fair Market Value (as defined in the
Company’s 2006 Stock Incentive Plan) on the first business day preceding the
date this Option is exercised equal to the aggregate purchase price of the
Option Shares, (iii) by irrevocably authorizing a third party to sell Option
Shares and remit to the Company a sufficient portion of the sale proceeds to pay
the purchase price, or (iv) by a combination of (i), (ii) or (iii). The Company
will, as soon as reasonably practicable, notify the Optionee of the amount of
the minimum withholding tax, if any, that must be collected by the Company under
federal, state and local law due to the exercise of this Option. The Optionee
shall, prior to receiving the Option Shares purchased under this Option, satisfy
the amount of the withholding tax specified in the Company’s notice by
(i) certified or cashier’s check, (ii) delivery and assignment to the Company of
shares of Common Stock previously owned by the Optionee having a Fair Market
Value of such amount, (iii) notice to the Company of the Optionee’s election to
require the Company to withhold whole Option Shares otherwise deliverable to the
Optionee from the exercise of this Option, which Option Shares have a Fair
Market Value of such amount, or (iv) a combination of (i), (ii) or (iii).
Certificates for any shares of Common Stock delivered in satisfaction of all or
a portion of the Exercise Price and the withholding tax shall be appropriately
endorsed for transfer and assignment to the Company. For purposes of determining
the amount, if any, of the Exercise Price satisfied by delivery of shares of
Common Stock or the amount of the tax withholding satisfied by delivery of
shares of Common Stock or withholding of Option Shares from the exercise of this
Option, such shares shall be valued at Fair Market Value on the first business
day preceding the date of exercise.
     7. Termination of Option. In the event of the termination of the Optionee’s
employment under the Employment Agreement, this Option shall terminate in
accordance with the following provisions:
          (a) If Optionee’s employment is terminated by the Company for Cause or
by Optionee without Good Reason, this Option, to the extent not vested, shall
terminate and shall not thereafter be exercisable as to any portion thereof that
has not vested. In addition, if Optionee’s employment is terminated by Optionee
without Good Reason during the period beginning on the first anniversary of the
date of grant of this Option and ending on February 28, 2009, then

  (i)   if this Option has not been exercised, the number of Option Shares shall
automatically be reduced from 1,000,000 shares of Common Stock to 500,000 shares
of Common Stock, and, from and after the date of such termination, Optionee
shall have no right to exercise this Option for more than 500,000 shares of
Common Stock;     (ii)   if this Option has been exercised, Optionee shall
either (A) return 50% of the Option Shares, up to a maximum of 500,000 Option
Shares, purchased upon exercise of this Option to the Company, or
(B) alternatively, if Optionee has exercised this Option in whole or in part and
sold some or all of the Option Shares purchased upon such exercise of this
Option so that Optionee has less than 50% of the Option Shares, up to a maximum
of 500,000 Option Shares, to return to the Company, Optionee shall pay to the
Company the net after-tax proceeds, less commissions, that Optionee

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Exhibit A to Employment Agreement

      received upon such sale of the Option Shares to the Company so that, after
the payment of such net after-tax proceeds and the return of Option Shares
purchased upon the exercise of this Option, Optionee would be in the same
position as if Optionee had purchased no more than 500,000 Option Shares upon
exercise of this Option.

          (b) If Optionee’s employment is terminated by the Company without
Cause or by Optionee for Good Reason, then any portion of this Option which has
not vested as of the termination date shall become fully vested and exercisable
by Optionee as of the termination date.
          (c) If Optionee’s employment is terminated by the Company by reason of
Disability or Incapacity, this Option or any portion hereof which has not vested
on or before the end of the last day of such thirteen (13) week period following
the date on which such Disability or Incapacity is determined to have begun
shall terminate and shall not thereafter be exercisable.
     8. Not an Incentive Stock Option. No portion of this Option is intended to
qualify as an incentive stock option within the meaning of Section 422 of the
Code and shall be so construed.
     9. Inducement Grant. This Option is granted as an inducement grant, not
under any stock option or other equity incentive plan adopted by the Company.
     10. Subdivision or Consolidation of Shares; Stock Dividends; and
Recapitalizations. Whenever, prior to the Expiration Date, the Company shall
effect a subdivision or consolidation of shares of Common Stock or the payment
of a stock dividend on Common Stock without receipt of consideration by the
Company, the number of shares of Common Stock covered by this Option (i) in the
event of an increase in the number of outstanding shares, shall be
proportionately increased, and the purchase price per share shall be
proportionately reduced, and (ii) in the event of a reduction in the number of
outstanding shares, shall be proportionately reduced, and the purchase price per
share shall be proportionately increased. Any fractional share resulting from
such adjustment shall be rounded up to the next whole share. If the Company
recapitalizes, reclassifies its capital stock, or otherwise changes its capital
structure (a “recapitalization”), the number and class of shares of Common Stock
covered by this Option shall be adjusted so that this Option shall thereafter
cover the number and class of shares of stock and securities to which Optionee
would have been entitled pursuant to the terms of the recapitalization if,
immediately prior to the recapitalization, Optionee had been the holder of
record of the number of shares of Common Stock then covered by this Option.
     11. Registration of Shares. The Company shall use reasonable commercial
efforts to register the Option Shares to be issued upon the exercise of this
Option under the Securities Act of 1933 on a Registration Statement on Form S-8,
or such other form as the Company may deem appropriate, as soon as reasonably
practicable following the date of this Agreement.
     12. Non-Assignability of Option. This Option shall not be transferable by
the Optionee otherwise than by will or the laws of descent and distribution.
During the Optionee’s

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Exhibit A to Employment Agreement
lifetime, this Option shall be exercisable only by the Optionee or by his
guardian or legal representative. This Option shall not be subject to execution,
attachment or similar process.
     13. Compliance with Laws. The obligation of the Company to sell and issue
Option Shares pursuant to this Option is subject to such compliance as the
Company deems necessary or advisable with federal and state laws, rules and
regulations applying to the authorization, issuance, sale or listing of
securities.
     14. No Rights as Stockholder. The Optionee shall have no rights as a
stockholder of the Company, including any voting rights or any claim to
dividends with respect to any Option Shares until such Option Shares are issued
to the Optionee by the Company pursuant to an exercise of the Option.
     15. Notices. Any notice to be provided hereunder shall be in writing and
addressed to the Company at the Company’s principal executive offices or to the
Optionee at their address shown on the Company’s records, or such other address
provided to the Company by the Optionee in accordance herewith. Notice shall be
given by hand delivery, overnight courier service, facsimile transmission
(promptly confirmed in writing), or certified mail (postage prepaid, return
receipt requested). Notices given by hand delivery, overnight courier or
facsimile transmission shall be deemed given upon delivery and notices given by
mail shall be deemed given on the earlier of three days after deposit in the
U.S. mail or on the first date delivery is refused.
     16. Resolution of Disputes. Any dispute or disagreement which may arise
under, or as a result of, or in any way relate to, the interpretation,
construction or application of this Agreement shall be determined in accordance
with the Employment Agreement.
     17. Entire Agreement. This Agreement, together with the documents
incorporated herein by reference, represents the entire agreement between the
parties with respect to the subject matter hereof and this Agreement may not be
modified by any oral or written agreement unless same is in writing, signed by
both parties and has been approved by the Committee.
     18. Governing Law. This Option Agreement shall be governed by and construed
in accordance with the laws of the State of Texas without giving effect to the
principles of conflict of laws.
     19. Successors and Assigns. This Option shall be binding upon and shall
inure to the benefit of the Company and its successors and assigns.
     20. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.

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