Exhibit 10.1
    

    

    

    
      EMPLOYMENT AGREEMENT
    

    
      (RENEWAL AND EXTENSION)
    

    

    

    
      This EMPLOYMENT AGREEMENT (Renewal and Extension) (this "Agreement"),
      dated as of December 15, 2009, is by and between ALEXANDER W. SMITH ("Executive")
      and Pier 1 Imports, Inc., a Delaware corporation (the "Company").
    

    
      RECITALS
    

    
      The Company and Executive desire to renew and extend the initial term of
      that certain Employment Agreement dated as of February 19, 2007, by and
      between Executive and the Company (such Employment Agreement, as amended
      on October 6, 2008, the "Initial Employment Agreement"), the
      initial three-year term of which expires on February 27, 2010 (the "Initial
      Term").
    

    
      The Company and Executive desire to set forth the terms and conditions
      under which Executive shall continue to be employed after the Initial
      Term, and upon which Executive shall be compensated by the Company.
    

    
      The Company desires to continue to employ Executive as President and
      Chief Executive Officer of the Company for the period and upon the terms
      and conditions hereinafter set forth.
    

    
      Executive desires to serve in such capacities for such period and upon
      such terms.
    

    
      In consideration of the foregoing recitals, the mutual promises and
      agreements hereinafter set forth, and for other good and valuable
      consideration, the receipt and sufficiency of which are hereby
      acknowledged, the Company and Executive agree as follows:
    

    
      AGREEMENT
    

    
      1.  EFFECTIVE DATE; TERM OF AGREEMENT.  This Agreement shall become
      effective as of February 28, 2010 (the "Effective Date"),
      except as otherwise provided herein. Executive's employment shall
      continue on the terms provided herein until the close of the Company’s
      fiscal year on March 2, 2013 (the "Second Term").  Unless
      earlier terminated as provided herein, the Second Term automatically
      shall renew on March 3, 2013, and on the day immediately following the
      close of each of the Company’s fiscal years thereafter, on terms no less
      favorable to Executive, but in each such case, if any, for an additional
      term of one Company fiscal year (each such one Company fiscal year
      period, a "Renewal Term," or, if more than one, "Renewal
      Terms," and the Second Term collectively with any Renewal Term or
      all Renewal Terms, as the case may be, the "Term"), unless
      either Executive or the Company gives the other party written notice at
      least sixty (60) days prior to the expiration of the Second Term or any
      Renewal Term that the Term of the Agreement shall not be extended
      further.  The period ending on the day on which Executive's employment
      with the Company ends, whether at the end of the Term or on such earlier
      date as may be provided herein, is hereinafter called the "Employment
      Period".  
    

    
      2.  DEFINITIONS.  
    

    
      (a)      Off-Price Family Apparel
      and/or Off-Price Home Fashions or Furniture Business.  For purposes
      of this Agreement, the term “Off-Price Family Apparel and/or
      Off-Price Home Fashions or Furniture Business” shall mean a retail
      business (however organized or conducted, including any on-line
      operations) that sells predominantly branded and/or designer merchandise
      of third parties consisting of family apparel, home fashions and/or
      furnishings at prices significantly less than or discounted from those
      of specialty stores and/or department stores and does not operate a
      conventional or full-markup business or store.  By way of illustration,
      and “Off-Price Family Apparel and/or Off-Price Home Fashions or
      Furniture Business” shall include such businesses as The TJX Companies,
      Inc. and Ross Stores, Inc.   
    

    
      (b)      Specialty Home Fashions or
      Furniture Business.  For purposes of this Agreement, the term "Specialty
      Home Fashions or Furniture Business" shall mean a retail business
      (however organized or conducted, including any on-line operations) that
      operates a conventional or full-markup store and sells predominantly its
      own branded merchandise consisting of furniture, decorative accessories,
      housewares, bed and bath, and seasonal goods, or any other category of
      merchandise sold by the Company at the end of the Term that is
      manufactured specifically for the business, requires a significant
      degree of handcraftsmanship and, in the case of the Company, is mostly
      imported directly from foreign suppliers.  By way of illustration, a
      "Specialty Home Fashions or Furniture Business" shall include such
      businesses as the Company, Restoration Hardware, Inc., Kirkland's, Inc.,
      Cost Plus, Inc., which includes stores under the names "World Market"
      and "Cost Plus World Market," Williams-Sonoma, Inc. and Pottery Barn,
      Inc.
    

    
      3.  SCOPE OF EMPLOYMENT.
    

    
      (a)  Nature of Services.  Executive shall hold the
      title of President and Chief Executive Officer of the Company and shall
      report to the Board of Directors of the Company (the "Board").  Executive
      shall diligently perform the duties and responsibilities of President
      and Chief Executive Officer of the Company and such additional executive
      duties and responsibilities as shall from time to time be assigned to
      Executive by the Board.  In addition, Executive will continue as a
      director and as an officer of each subsidiary and affiliate of the
      Company designated by the Board, provided that Executive shall not be
      obligated to become or remain a director or an officer of any Company
      subsidiary or affiliate (i) if the organizational documents of which do
      not provide indemnification provisions reasonably satisfactory to
      Executive or (ii) which is not covered by the Company's directors' and
      officers' liability insurance policy.
    

    
      
        

        

      

      
        

        

        
          


        

      

      
        

        

      

    

    
      (b)  Extent of Services.  Except for illnesses and
      vacation periods, Executive shall devote substantially all his working
      time and attention and his best efforts to the performance of his duties
      and responsibilities under this Agreement.  However, Executive may
      (i) make any passive investments where he is not obligated or required
      to, and shall not in fact, devote any managerial efforts,
      (ii) participate in charitable or community activities or in trade or
      professional organizations, or (iii) subject to Board approval (which
      approval shall not be unreasonably withheld or withdrawn) and compliance
      with the corporate governance policies of the Company, hold
      directorships in public companies, except only that the Board shall have
      the right to limit such services as a director or such participation
      whenever the Board shall reasonably believe that the time spent on such
      activities infringes in any material respect upon the time required by
      Executive for the performance of his duties under this Agreement or is
      otherwise incompatible with those duties.  Executive will not take
      personal advantage of any business opportunities that arise during the
      Employment Period that may benefit the Company, its subsidiaries and
      affiliates.  Executive will promptly report all material facts regarding
      such opportunities to the Board.  Executive will at all times abide by
      all of the Company's Bylaws, policies, practices, procedures, and rules.
    

    
      (c)  Board Membership.  At all times during the
      Employment Period, the Company will use its reasonable efforts to cause
      the Board, or an authorized committee thereof, to nominate Executive for
      election to the Board at each annual meeting of stockholders of the
      Company held during the Employment Period, and, if nominated, to cause
      the Board to recommend his election to the stockholders of the Company.
    

    
      4.  COMPENSATION AND BENEFITS.
    

    
      (a)  Base Salary.  Executive will be paid a base salary
      at the rate hereinafter specified, such Base Salary to be paid in the
      same manner and at the same times as the Company shall pay base salary
      to other executive employees.  The rate at which Executive's Base Salary
      shall be paid shall be $1,050,000 per calendar year which may be
      adjusted at any time and/or from time to time by the Compensation
      Committee of the Board ("Committee") as it deems appropriate
      in its sole discretion.
    

    
      (b)  Annual Bonus.  During the Employment Period and
      for the Company's fiscal years occurring during the Employment Period,
      Executive will participate in, and Executive's bonus will be determined
      by, the senior management short-term incentive cash award bonus plan of
      the Company (the "Annual Bonus") as adopted by the Board or
      Committee, as the case may be, from time to time, and then in effect.
    

    
      (c)  Long-Term Bonus.  During the Employment Period and
      for any long-term incentive cash award bonus determined over a period
      which is longer than a twelve-month period (the "LT Bonus"),
      Executive will participate in, and Executive's LT Bonus will be
      determined by, the long-term incentive cash award bonus plan of the
      Company (the "LT Bonus Plan") as adopted by the Board or
      Committee, as the case may be, from time to time, and then in effect.
    

    
      (d)  Stock Options.  Stock Options granted pursuant to
      the Initial Employment Agreement will vest or be forfeited in accordance
      with the Initial Employment Agreement and related Stock Option
      agreements; provided that Section 7(b)(iii) of the Initial Employment
      Agreement is amended to add the phrase "and on or before 3rd
      Vesting Date" after the phrase "February 19, 2009," and the parties
      agree that Section 6(b)(ii) of the related Stock Option agreement is
      hereby amended to give the same effect.
    

    
      (e)  Restricted Stock.  The Company shall grant
      Executive under the Company’s 2006 Stock Incentive Plan, as restated and
      amended (the “Stock Incentive Plan”) restricted shares of
      the Company’s common stock, par value $0.001 per share (the “Common
      Stock”), subject to the terms and conditions set forth in this
      Agreement.  For purposes of this Agreement, all restricted shares
      granted to the Executive under this Agreement shall be referred to as
      the “Restricted Stock.”
    

    
      (i)  On December 18, 2009, the Company will grant Executive 375,000
      restricted shares of the Company's Common Stock (pursuant to the
      approved form of restricted stock agreement used by the Company for
      service-based restricted stock grants under the Stock Incentive Plan,
      which shall, notwithstanding the provisions of such form, include the
      terms of such restricted stock as provided in this Agreement), of which
      one-third will become vested, unrestricted shares of Common Stock
      annually on each of the first three anniversary dates of the grant date
      conditioned upon the Executive being employed by the Company on each
      such respective anniversary date.
    

    
      (ii)  On the Effective Date, which is the first day of the Company's
      2011 fiscal year, and on the first day of each of the two following
      fiscal years of the Company (provided Executive is employed by the
      Company on each such date), the Company will grant Executive under the
      Stock Incentive Plan 375,000 restricted shares of Common Stock.  With
      respect to one-half of each 375,000 share grant (pursuant to the
      approved form of restricted stock agreement used by the Company for
      service-based restricted stock grants under the Stock Incentive Plan,
      which shall, notwithstanding the provisions of such form, include the
      terms of such restricted stock as provided in this Agreement), one-third
      of such shares will become vested, unrestricted shares of Common Stock
      annually on the last day of the Company fiscal year in which the grant
      occurred and on the last day of the following two (2) Company fiscal
      years conditioned upon the Executive being employed by the Company on
      the last day of each such respective Company fiscal year.  With respect
      to the remaining one-half of each 375,000 share grant (the “Performance-Based
      Shares”) (pursuant to the approved form of restricted stock
      agreement used by the Company for performance-based restricted stock
      grants under the Stock Incentive Plan, which shall, notwithstanding the
      provisions of such form, include the terms of such restricted stock as
      provided in this Agreement), one-third of such shares will become
      vested, unrestricted shares of Common Stock annually upon (i) the
      Company satisfying certain EBITDA (as hereinafter defined) targets for
      the Company fiscal year in which the grant occurs and for the following
      two (2) Company fiscal years, which targets are to be established by the
      Board or the Committee prior to or within the first quarter of each such
      fiscal year, and (ii) the Executive being employed by the Company on the
      last day of each such respective Company fiscal year.  
    

    
      (iii)  "EBITDA" Defined.  "EBITDA" shall mean
      the Company's 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 or recurring non-cash items, each as
      determined by the Committee.
    

    
      
        

        

      

      
        

        

        
          


        

      

      
        

        

      

    

    
      (iv)  EBITDA Vesting.  With respect to any
      Performance-Based Shares that vest based on satisfying an EBITDA target
      for a given fiscal year, vesting shall occur pursuant to the following
      schedule:
    

    
      100% of the EBITDA target – 62,500 shares;
    

    
      96% of the EBITDA target – 56,250 shares;
    

    
      92% of the EBITDA target – 50,000 shares;
    

    
      88% of the EBITDA target – 43,750 shares;
    

    
      84% of the EBITDA target – 37,500 shares; and
    

    
      80% of the EBITDA target – 31,250 shares.
    

    
      Additionally, vesting of shares between the fixed percentage points of
      the EBITDA target for a given Company fiscal year shall be
      interpolated.  For example, if 94% of the EBITDA target is achieved,
      then 53,125 shares would vest.
    

    
      If the Company’s aggregate consolidated EBITDA for any consecutive
      fiscal years occurring during a three-fiscal year period applicable to a
      grant of Performance-Based Shares equals or exceeds the sum of the
      EBITDA targets for those fiscal years, then any portion of any
      Performance-Based Shares that did not vest in the first fiscal year
      shall vest at the time the Performance-Based Shares vest for the second
      fiscal year.  Further, if the Company’s aggregate consolidated EBITDA
      for a three-fiscal year period applicable to a grant of
      Performance-Based Shares equals or exceeds the sum of the EBITDA targets
      for those three fiscal years, then all of the shares subject to that
      grant that did not vest shall vest at the time the Performance-Based
      Shares vest for the third fiscal year.
    

    
      Further, notwithstanding any other provision of this Agreement to the
      contrary, in the event that the Executive is employed by the Company as
      of the end of any Company fiscal year, the Executive shall be entitled
      to the vesting of the Performance-Based Shares for that fiscal year, as
      set forth above, regardless of whether the Executive’s employment
      terminates prior to the formal determination of vesting (i.e., based on
      EBITDA calculations) for such fiscal year, as set forth in this Section
      4(e).  The determination by the Company with respect to the achieving of
      the performance targets for vesting of the Performance-Based Shares
      shall occur upon the filing of the Company's Annual Report on Form 10-K
      with the Securities and Exchange Commission for each respective Company
      fiscal year.
    

    
      The Company shall use its best efforts to ensure that sufficient
      authorized and unissued or treasury shares of Common Stock are available
      for grant under the Stock Incentive Plan to issue the Restricted Stock,
      including, if necessary, attaining the approval by the Company's
      shareholders of any amendments to increase the number of shares of
      Common Stock available for grant under the Stock Incentive Plan.
    

    
      (f)  Company's Supplemental Retirement Plan.  Executive
      is a participant and will continue to participate in the Pier 1 Imports,
      Inc.  Supplemental Retirement Plan (as restated January 1, 2009) subject
      to its terms and provisions.  Executive agrees and acknowledges,
      however, that any bonus payments made to Executive by the Company
      pursuant to Executive's participation in the LT Bonus Plan as described
      in Section 4(c) above shall not be included in the definition of
      "Compensation" under the Company's Supplemental Retirement Plan (as
      restated January 1, 2009).
    

    
      (g)  Additional Benefits; Perquisites.  Executive will
      be eligible to participate in all welfare and fringe benefit plans
      (other than the supplemental executive retirement plan adopted by the
      Company in 1986, as restated January 1, 2009) under which senior
      executives are currently entitled to participate and receive benefits,
      and to receive all perquisites which the Company provides to its senior
      executives, in accordance with the terms thereof.  Executive shall be
      entitled to indemnification from the Company pursuant to any and all
      Company policies (including insurance policies), procedures and/or
      by-laws to the maximum extent allowed by law.  The Company will pay
      Executive's attorneys, Edwards Angell Palmer & Dodge LLP, in respect of
      costs incurred by Executive commencing on or after September 23, 2009 in
      association with the negotiation and implementation of this Agreement,
      provided that the payment of such costs by the Company shall not exceed
      $30,000.00.  
    

    
      5.  REPRESENTATIONS AND WARRANTIES.
    

    
      (a)  By the Company.  The Company represents and
      warrants to Executive that (i) the execution of this Agreement, the
      grant of the Restricted Stock contemplated hereby, and the issuance of
      the Restricted Stock have been or will be duly authorized by all
      requisite corporate action(s) of the Company; (ii) the execution,
      delivery and performance of this Agreement by the Company does not and
      will not violate any law, regulation, order, judgment or decree or any
      agreement, plan or corporate governance document of the Company; and
      (iii)  upon the execution and delivery of this Agreement by Executive,
      this Agreement will be the valid and binding obligation of the Company,
      enforceable in accordance with its terms, except to the extent
      enforceability may be limited by applicable bankruptcy, insolvency or
      similar laws affecting the enforcement of creditors' rights generally
      and by the effect of general principles of equity (regardless of whether
      enforceability is considered in a proceeding in equity or at law).
    

    
      
        

        

      

      
        

        

        
          


        

      

      
        

        

      

    

    
      (b)  By Executive.  Executive represents and warrants
      to the Company that (i) Executive has the power, authority, and capacity
      to execute and deliver this Agreement and to perform his obligations
      under this Agreement, and that the execution and delivery of this
      Agreement by Executive do not, and the performance of his obligations
      under this Agreement will not, violate any law, regulation, order,
      judgment or decree, or breach, violate or conflict with any agreement to
      which Executive is a party or by which he is bound, and (ii) upon the
      execution and delivery of this Agreement by the Company, this Agreement
      will be the valid and binding obligation of Executive, enforceable in
      accordance with its terms, except to the extent enforceability may be
      limited by applicable bankruptcy, insolvency or similar laws affecting
      the enforcement of creditors' rights generally and by the effect of
      general principles of equity (regardless of whether enforceability is
      considered in a proceeding in equity or at law).
    

    
      6.  TERMINATION OF EMPLOYMENT; IN GENERAL.
    

    
      (a)  By the Company.  The Company shall have the right
      to remove Executive from office and discharge Executive as an employee
      upon written notice to Executive at any time and for any reason, with or
      without Cause (as hereinafter defined).  The date on which Executive is
      discharged as an employee by the Company shall be the last day of the
      Employment Period.
    

    
      (b)  By Executive.  Executive shall have the right to
      resign as an employee of the Company upon written notice to the Company
      at any time, with or without Good Reason (as hereinafter defined).  The
      date on which Executive resigns as an employee of the Company shall be
      the last day of the Employment Period.
    

    
      (c)  Death, Disability, and Incapacity.  The Employment
      Period shall terminate upon the death, Disability or Incapacity of
      Executive.
    

    
      (i)  "Disability" shall have the meaning given it
      in the Company's long-term disability plan.  Executive's employment
      shall be deemed to be terminated for Disability on the date on which the
      Disability is determined to have begun.
    

    
      (ii)  "Incapacity" shall mean a disability (other
      than Disability within the meaning of above) or other impairment of
      health that renders Executive unable, with or without reasonable
      accommodation, to perform his duties to the reasonable satisfaction of
      the Board which continues for a period of six consecutive months during
      the Employment Period.  Executive's employment shall be deemed to be
      terminated for Incapacity upon the date of written notice by the Company
      of such termination, which written notice shall not be given until after
      the six-month period for establishing Incapacity, as set forth above,
      has lapsed.
    

    
      (d)  "Cause" Defined.  "Cause"
      shall mean (i) Executive's conviction of either (A) a felony (excluding
      traffic violations) or (B) any crime in connection with his employment
      by the Company that causes the Company a substantial and material
      financial detriment; (ii) Executive's commission of any other act
      involving dishonesty or fraud with respect to the Company;
      (iii) Executive's substantial and repeated failure to perform duties as
      reasonably directed by the Board that are permitted by law and necessary
      to implement policies or procedures or other actions adopted, authorized
      or approved by the Board, which failure is not cured to the Board's
      reasonable satisfaction within 30 days after written notice thereof is
      provided to Executive; (iv) Executive's gross negligence or willful
      misconduct with respect to his performance under this Agreement which
      results in a substantial and material financial detriment to the
      Company; or (v) any material breach by Executive of this Agreement which
      is not cured to the Board's reasonable satisfaction within 30 days after
      written notice thereof to Executive from the Board.  
    

    
      (e)  "Good Reason" Defined.  "Good
      Reason" shall mean: (i) any reduction in Executive's compensation
      opportunity as set forth in Section 4 of this Agreement (including but
      not limited to Base Salary, Annual Bonus, LT Bonus, and Restricted
      Stock); (ii) the greater than de minimis reduction or material adverse
      modification of Executive's authority or duties, such as a substantial
      diminution or adverse modification in Executive's status or
      responsibilities, from the authorities being exercised and duties being
      performed by Executive as of the Effective Date (and as such authorities
      and duties may be increased from time to time thereafter), or (iii) any
      material breach by the Company of this Agreement which is not cured to
      Executive's reasonable satisfaction within 30 days after written notice
      thereof to the Board from Executive.  Notwithstanding the foregoing, any
      of the circumstances described above may not serve as a basis for
      resignation for "Good Reason" by Executive unless Executive has provided
      written notice to the Company that such circumstance exists within 30
      days of Executive's learning of such circumstance and the Company has
      failed to cure such circumstance, if curable, within 30 days following
      such notice; and provided further, that Executive did not previously
      consent in writing to the action leading to Executive's claim of
      resignation for "Good Reason."  For the avoidance of doubt, the failure
      of the Company to meet or exceed EBITDA targets with respect to the
      vesting of Performance-Based Shares, or any percentage of either, shall
      be deemed not to be a reduction in Executive's compensation opportunity
      as set forth in Section 4 of this Agreement for the purpose of
      clause (i) of the first sentence of this Section 6(e).
    

    
      (f)  Change in Control.  This Agreement cannot be
      terminated by either the Company or Executive as a result of a change in
      control of the Company, and a change in control of the Company does not
      constitute a "Good Reason."
    

    
      (g)  Required Resignations.  Whenever Executive's
      employment is terminated, Executive shall immediately tender his
      resignation as a director and as an officer or other position he shall
      hold with the Company and any subsidiary or affiliated corporations or
      entities.
    

    
      (h)  Notice of Termination.  Any termination of
      employment by the Company or by Executive shall be communicated by a
      written Notice of Termination to the other party in accordance with
      Section 11 hereof.  For purposes of this Agreement, a "Notice of
      Termination" shall mean a notice which shall indicate the specific
      termination provision in the Agreement relied upon and shall set forth
      in reasonable detail the facts and circumstances claimed to provide a
      basis for termination of employment under the provision so indicated.
    

    
      
        

        

      

      
        

        

        
          


        

      

      
        

        

      

    

    
      7.  PAYMENT ON TERMINATION.
    

    
      (a)  By the Company for Cause, By Executive without Good
      Reason.  If Executive's employment is terminated by the Company for
      Cause or by Executive without Good Reason, Executive's Base Salary,
      Annual Bonus, LT Bonus, and other benefits specified in Section 4 shall
      cease at the time of such termination, to the extent permitted by law,
      and the Restricted Stock, to the extent not vested, shall terminate and
      be forfeited by the Executive.
    

    
      (b)  By the Company without Cause, or by Executive for Good
      Reason.  If Executive's employment is terminated by the Company
      without Cause or by Executive for Good Reason, Executive shall be
      entitled to receive or continue receiving any and all compensation and
      benefits, as set forth in Section 4 above, to the extent permitted by
      law, through the date that otherwise would have been the end of the
      Term, provided that any portion of the Restricted Stock which has been
      granted but has not otherwise become vested and unrestricted as of the
      termination date shall become vested and unrestricted as of such
      termination date.  Except as provided in Section 12, in addition to the
      compensation and benefits set forth herein, the Company shall pay an
      amount in cash on the last day of the month of the month following the
      termination date equal to (i) the higher of (x) the last annual bonus
      paid to the Executive prior to the termination date or (y) the average
      of the last three annual bonuses paid to the Executive prior to the
      termination date, plus (ii) any LT Bonus earned by the Executive, but
      not paid, because the period for which the LT Bonus is determined has
      not expired (the "Earned LT Bonus").  Notwithstanding the
      foregoing, if the amount of cash compensation to be paid Executive under
      this Section 7(b) is less than the Non-Renewal Severance Amount
      described in Section 7(d) below plus any Earned LT Bonus, then Executive
      shall be paid the Non-Renewal Severance Amount and the Earned LT Bonus
      in accordance with Section 7(d) in lieu of the cash compensation
      benefits under this Section 7(b).
    

    
      Except as provided in Section 12, cash compensation payments paid by the
      Company to the Executive pursuant to this Section 7(b) if the
      Executive's employment is terminated by the Company without Cause or by
      the Executive for Good Reason shall be paid on the last day of each
      month and each such payment shall be equal to the amount of cash
      compensation Executive would have been entitled to receive during such
      month had his employment with the Company not been terminated. Any
      in-kind benefits and/or expense reimbursements required to be provided
      or paid by the Company to the Executive pursuant to this Section 7(b) if
      Executive's employment is terminated by the Company without Cause or by
      the Executive for Good Reason shall be paid only if otherwise provided
      by an in-kind benefit arrangement or expense reimbursement arrangement
      which is generally provided by the Company to its executives and shall
      only be paid in accordance with the terms and provisions of such
      arrangement, which terms and provisions shall upon termination of
      Executive's employment be amended, if necessary, to cause the payment or
      provision of such in-kind benefits and expense reimbursements to satisfy
      the rules described in Treasury Regulation § 1.409A-3(i)(l)(iv).
    

    
      (c)  By the Company for Disability or Incapacity.  If
      Executive's employment is terminated by the Company by reason of
      Disability or Incapacity, Executive shall be entitled to receive or
      continue receiving any and all compensation and benefits as set forth in
      Section 4 of this Agreement for a period of thirteen (13) weeks
      following the date on which such Disability is determined to have begun
      or thirteen (13) weeks following the Company's termination of the
      Executive's employment due to Incapacity.  Any Restricted Stock which
      has not vested on or before the date of termination of employment due to
      Disability or Incapacity shall terminate and be forfeited by
      Executive.  Executive shall be entitled to receive all disability or
      incapacity payments provided to senior executives under the Company's
      then-existing policies of insurance.
    

    
      (d)  By Expiration of the Term – Non-Renewal by the Company.  If
      the Company elects not to renew the Term by providing the appropriate
      notice to the Executive prior to the expiration of the Second Term or
      any Renewal Terms thereafter as set forth in Section 1 (the "Non-Renewal
      by the Company"), and therefore Executive's employment is terminated
      by reason of expiration of the Term, the Company shall pay to the
      Executive a severance amount equal to a full year of the Executive's
      Base Salary at the expiration of the Term (the "Non-Renewal
      Severance Amount").  Except as provided in Section 12, the
      Non-Renewal Severance Amount shall be paid to the Executive over a
      twelve-month period in equal monthly installments on the last day of
      each month beginning in the month following the expiration of the
      Term.  Additionally, upon the Non-Renewal by the Company (i) all
      Restricted Stock which has been granted but has not otherwise become
      vested and unrestricted shall become vested and unrestricted immediately
      on the expiration of the Term and (ii) except as provided in Section 12,
      the Company shall pay Executive an amount in cash on the last day of the
      month of the month following the expiration of the Term equal to any
      Earned LT Bonus.
    

    
      (e)  By Expiration of the Term – Non-Renewal by Executive.  If
      the Executive elects not to renew the Term by providing the appropriate
      notice to the Company prior to the expiration of the Second Term or any
      Renewal Terms thereafter as set forth in Section 1 and therefore
      Executive's employment is terminated by reason of the expiration of the
      Term, the Company shall have no obligation to continue the compensation
      and benefits set forth in Section 4 above beyond the last day of the
      Employment Period.
    

    
      8.  AGREEMENT NOT TO SOLICIT OR COMPETE.
    

    
      (a)  Non-Solicitation.  Upon the termination of
      employment at any time, then for a period of one year beginning on the
      day following the end of the Employment Period, Executive shall not
      under any circumstances employ, solicit the employment of, or accept
      unsolicited the services of, any "protected person" or recommend the
      employment of any "protected person" to any other business
      organization.  A "protected person" shall be a person known by Executive
      to be employed by the Company or its Subsidiaries (as defined below) or
      to have been employed by Company or its Subsidiaries within six months
      prior to the commencement of conversations with such person with respect
      to employment.  The term "Subsidiary" as used in
      this Section 8 means a corporation or other entity more than 50 percent
      of whose outstanding securities or interests representing the right,
      other than as affected by events of default, to vote for the election of
      directors or otherwise select a similar governing body is owned by the
      Company and/or one or more of the Company's other Subsidiaries.
    

    
      As to (i) each "protected person" to whom the foregoing applies,
      (ii) each limitation on (A) employment, (B) solicitation and
      (C) unsolicited acceptance of services, of each "protected person" and
      (iii) each month of the period during which the provisions of this
      Section 8(a) apply to each of the foregoing, the provisions set forth in
      this subsection (a) are deemed to be separate and independent agreements
      and in the event of unenforceability of any such agreement, such
      unenforceable agreement shall be deemed automatically deleted from the
      provisions hereof and such deletion shall not affect the enforceability
      of any other provision of this Section 8(a) or any other term of this
      Agreement.
    

    
      
        

        

      

      
        

        

        
          


        

      

      
        

        

      

    

    
      (b)  Non-Competition.  During the course of his
      employment, Executive will have learned many trade secrets of the
      Company and its Subsidiaries and will have access to confidential
      information and business plans for the Company and its
      Subsidiaries.  Therefore, beginning on the day following the end of the
      Employment Period and continuing for a period of one year thereafter,
      Executive will not engage, either as a principal, employee, partner,
      consultant, officer, director or investor (other than a less-than-1%
      stock interest in a corporation), in a business which is a competitor of
      the Company and its Subsidiaries.  For purposes of this Section 8(b), a
      business shall be deemed a "competitor" of the Company and its
      Subsidiaries only if it engages in the Specialty Home Fashions or
      Furniture Business.  For purposes of clarity, any business that engages
      primarily in the Off-Price Family Apparel and/or Off-Price Home Fashions
      or Furniture Business and/or that engages primarily in the family
      apparel business (such as Talbot's, Inc. or The Limited Stores, Inc.),
      but not in the Specialty Home Fashions or Furniture Business, shall not
      be deemed a "competitor" of the Company and its Subsidiaries.  Executive
      agrees that if, at any time, pursuant to action of any court,
      administrative or governmental body or other arbitral tribunal, the
      operation of any part of this Section 8(b) shall be determined to be
      unlawful or otherwise unenforceable, then the coverage of this
      Section 8(b) shall be deemed to be restricted as to duration,
      geographical scope or otherwise, as the case may be, to the extent, and
      only to the extent, necessary to make this Section 8(b) lawful and
      enforceable in the particular jurisdiction in which such determination
      is made.
    

    
      (c)  Return of Information.  Upon termination of the
      Employment Period for any reason other than the death of Executive,
      Executive shall immediately return all written trade secrets,
      confidential information and business plans of the Company and shall
      execute a certificate certifying that he has returned all such items in
      his possession or under his control.
    

    
      9.  EXCISE TAX.  
    

    
      (a)  Gross-Up. In the event that the "Total
      Payments" (defined below) would be subject to the "Excise
      Tax" (defined below) the Company shall pay to Executive an
      additional amount (the "Gross-Up Payment") such that after
      payment by Executive of all taxes (including any Excise Tax) imposed
      upon the Gross-Up Payment and any interest or penalties imposed with
      respect to such taxes, Executive retains from the Gross-Up Payment an
      amount equal to the Excise Tax imposed upon the Total Payments.  The
      Gross-Up Payment paid by the Company to the Executive pursuant to this
      Section 9 with respect to any Excise Tax owed by Executive in connection
      with any of the Total Payments will be paid as soon as practicable
      following the Executive's written notification to the Company of his
      payment of such Excise Tax and shall in no event be made later than the
      end of the taxable year of the Executive next following the Executive's
      taxable year in which the Executive remits the Excise Tax.
    

    
      (i)  For purposes of determining whether any of the Total Payments will
      be subject to the Excise Tax and the amount of such Excise Tax, (A) all
      "excess parachute payments" within the meaning of Section 280G(b)(l) of
      the Internal Revenue Code of 1986, as amended (the "Code")
      shall be treated as subject to the Excise Tax unless, in the opinion of
      Tax Counsel (defined below), such excess parachute payments (in whole or
      in part) represent reasonable compensation for services actually
      rendered (within the meaning of Section 280G(b)(4)(B) of the Code) in
      excess of the base amount (within the meaning of Section 280G(b)(3) of
      the Code) allocable to such reasonable compensation, or are otherwise
      not subject to the Excise Tax, and (B) the value of any noncash benefits
      or any deferred payment or benefit shall be determined by the Auditor
      (defined below) in accordance with the principles of Sections 280G(d)(3)
      and (4) of the Code.  If the Auditor is prohibited by applicable law or
      regulation from performing the duties assigned to it hereunder, then a
      different auditor, acceptable to both the Company and Executive, shall
      be selected.  The fees and expenses of Tax Counsel and the Auditor shall
      be paid by the Company.  For purposes of determining the amount of the
      Gross-Up Payment, Executive shall be deemed to pay federal income tax at
      the highest marginal rate of federal income taxation in the calendar
      year in which the Gross-Up Payment is to be made and state and local
      income taxes at the highest marginal rate of taxation in the state and
      locality of Executive's residence on the date of termination (or if
      there is no date of termination, then the date on which the Gross-Up
      Payment is calculated for purposes of this Section), net of the maximum
      reduction in federal income taxes which could be obtained from deduction
      of such state and local taxes.
    

    
      (ii)  In the event that the Excise Tax is subsequently determined to be
      less than the amount taken into account hereunder in calculating the
      Gross-Up Payment, Executive shall repay to the Company, within five (5)
      business days following the time that the amount of such reduction in
      the Excise Tax is finally determined, the portion of the Gross-Up
      Payment attributable to such reduction. In the event that the Excise Tax
      is determined to exceed the amount taken into account hereunder in
      calculating the Gross-Up Payment (including by reason of any payment,
      the existence or amount of which cannot be determined at the time of the
      Gross-Up Payment), the Company shall make an additional Gross-Up Payment
      in respect of such excess within five (5) business days following the
      time that the amount of such excess is finally determined.  Executive
      and the Company shall each reasonably cooperate with the other in
      connection with any administrative or judicial proceedings concerning
      the existence or amount of liability for Excise Tax with respect to the
      Total Payments.
    

    
      (b)  Other Terms.  Executive and the Company shall each
      reasonably cooperate with the other in connection with any
      administrative or judicial proceeding concerning the existence or amount
      of liability for Excise Tax with respect to the Total Payments.
      Notwithstanding anything herein to the contrary, this Section 9 shall be
      interpreted (and, if determined by the Company to be necessary,
      reformed) to the extent necessary to fully comply with the
      Sarbanes-Oxley Act of 2002; provided that the Company agrees to
      maintain, to the maximum extent practicable, the original intent and
      economic benefit to the Executive of the applicable provision without
      violating the provisions of the Sarbanes-Oxley Act of 2002.
    

    
      (c)  Definitions.  "Total Payments"
      shall mean the payments and benefits received or to be received by
      Executive, whether pursuant to the terms of this Agreement or any other
      plan, arrangement or agreement, that constitute "parachute payments" as
      defined in Section 280G of the Code (excluding the Gross-Up Payment) ("Parachute
      Payments").  For this purpose, all of the payments and benefits
      received by Executive or to be received by Executive in connection with
      a change of control or in connection with Executive's termination of
      employment in respect of a change of control (whether pursuant to the
      terms of this Agreement or any other plan, arrangement or agreement with
      the Company and/or any person whose actions result in a change of
      control or any person affiliated with the Company or such person) shall
      be treated as Parachute Payments unless, in the opinion of tax counsel ("Tax
      Counsel") reasonably acceptable to Executive and selected by the
      accounting firm which was, immediately prior to the change of control,
      the Company's independent auditor (the "Auditor"), such
      payments or benefits (in whole or in part) do not constitute Parachute
      Payments, including by reason of Section 280G(b)(4)(A) of the Code.  "Excise
      Tax" shall mean the excise tax imposed under Section 4999 of the
      Code.
    

    
      10.  ASSIGNMENT.  The rights and obligations of the Company shall inure
      to the benefit of and shall be binding upon the successors and assigns
      of the Company. The rights and obligations of Executive are not
      assignable.
    

    
      11.  NOTICES.  All notices and other communications required hereunder
      shall be in writing and shall be given by mailing the same by certified
      or registered mail, return receipt requested, postage prepaid.  If sent
      to the Company the same shall be mailed to the Company at 100 Pier 1
      Place, Fort Worth, Texas 76102, Attention: Chairman of the Board, or
      other such address as the Company may hereafter designate by notice to
      Executive; and if sent to Executive, the same shall be mailed to
      Executive at his address set forth in the records of the Company or at
      such other address as Executive may hereafter designate by notice to the
      Company.  Notice shall be deemed given on the date shown on the
      applicable return receipt.
    

    
      
        

        

      

      
        

        

        
          


        

      

      
        

        

      

    

    
      12.  WITHHOLDING; CERTAIN TAX MATTERS.  Anything to the contrary
      notwithstanding, (a) all payments required to be made by the Company
      hereunder to Executive shall be subject to the withholding of such
      amounts, if any, relating to tax and other payroll deductions as the
      Company may reasonably determine it should withhold pursuant to any
      applicable law or regulation.  Notwithstanding anything in the Agreement
      to the contrary, if the Executive is a "specified employee" as such term
      is defined in Section 409A(2)(B) at the time of his "separation from
      service" with the Company and if any payment or benefit to which he
      shall become entitled to under this Agreement would be considered
      deferred compensation subject to interest and additional tax imposed
      pursuant to Section 409A(a) of the Code as a result of the application
      of Section 409A(a)(2)(B)(i), no distribution may be made of any such
      payment to the Executive and no such in-kind benefits or reimbursement
      of expenses may be provided to the Executive prior to the earlier of (i)
      the expiration of the six (6) month period following the date of
      Executive's "separation from service" (as such term is defined by Code
      Section 409A and the regulations promulgated thereunder), or (ii) the
      date of Executive's death, but only to the extent such delayed
      commencement is otherwise required in order to avoid a prohibited
      distribution under Code Section 409A(a)(2). The payments and benefits to
      which Executive would otherwise be entitled during the first six (6)
      months following his separation from service shall be accumulated and
      paid or provided, as applicable, in a lump sum, on the first payroll
      date that is six (6) months and one day following Executive's separation
      from service and any remaining payments or benefits will be paid in
      accordance with the normal payment dates specified for them herein. Each
      payment pursuant to the Agreement that is due at a different time shall
      be considered to be a separate payment for purposes of Section 409A of
      the Code.
    

    
      13.  GOVERNING LAW.  This Agreement and the rights and obligations of
      the parties hereunder shall be governed by the laws of the State of
      Texas.
    

    
      14.  ARBITRATION.  In the event that there is any claim or dispute
      arising out of or relating to this Agreement, or the breach thereof, and
      the parties hereto shall not have resolved such claim or dispute by
      negotiation or mediation, then such claim or dispute shall be settled
      exclusively by binding arbitration in Fort Worth, Texas, in accordance
      with the Texas Arbitration Act and the Employment Arbitration Rules and
      Mediation Procedures of the American Arbitration Association then in
      effect.  The arbitration shall be presided over by a panel of three
      neutral arbitrators, all three of whom will be selected by mutual
      agreement of Executive and the Company, or, in the absence of such
      agreement, by a court of competent jurisdiction.  Judgment upon the
      award rendered by such arbitrators shall be entered by a district court
      sitting in Tarrant County, Texas, upon the application of either
      party.  Any issues that cannot be arbitrated, or any relief that must be
      sought in any court, will be brought exclusively in any state district
      court sitting in Tarrant County, Texas.
    

    
      15.  EMPLOYING SUBSIDIARY.  Executive understands and agrees that
      Executive will, as are the majority of the administrative services
      employees of the Company, be an employee of the Company's wholly owned
      subsidiary, Pier 1 Services Company, a Delaware statutory trust ("Pier 1
      Services"), and that all compensation will be paid from Pier 1
      Services.  Accordingly, Pier 1 Services is joining as a party to this
      Agreement in its limited capacity as being the subsidiary from which all
      payments of cash compensation and other cash payments called for under
      this Agreement will be made.  All references to the Company in
      Sections 6(a) and 6(b) above shall be deemed to refer to, in addition to
      the Company, Pier 1 Services and to all other subsidiaries of the
      Company, if any, for which Executive is serving as an employee.
    

    
      16.  ENTIRE AGREEMENT.  This Agreement represents the entire agreement
      between the parties relating to the terms of Executive's employment by
      the Company during the Term and, except as set forth in Section 4(d)
      above, supersedes all prior written or oral agreements between them.
    

    
      17.  EXECUTION OF AGREEMENT.  This Agreement may be executed in one or
      more counterparts, each of which will be deemed to be an original copy
      of this Agreement and all of which, when taken together, will be deemed
      to constitute one and the same agreement.  The exchange of copies of
      this Agreement and of signature pages by facsimile transmission shall
      constitute effective execution and delivery of this Agreement as to the
      parties and may be used in lieu of the original Agreement for all
      purposes.  Signatures of the parties transmitted by facsimile shall be
      deemed to be their original signatures for all purposes.
    

    

    

    
    	
           
        	
          EXECUTIVE
        
	
           
        
	

        	
           
        
	

        	
          Alexander W. Smith
        
	
           
        
	
           
        
	

        	
          PIER 1 IMPORTS, INC.
        
	
           
        
	

        	
          By:
        	
           
        
	

        	

        	
          Michael R. Ferrari
        
	

        	

        	
          Chairman of the Board of Directors
        
	

        	

        	
          and Executive Committee
        
	
           
        
	

        	
          
            PIER 1 SERVICES COMPANY
          

        
	
           
        
	

        	
          By:
        	
          Pier 1 Holdings, Inc., its managing trustee
        
	
           
        
	
           
        
	

        	
          By:
        	
           
        
	

        	

        	
          Michael R. Ferrari
        
	

        	

        	
          Authorized Signatory