Exhibit 10.1
    

    

    

    
      THIRD AMENDMENT TO CREDIT AGREEMENT
    

    
      This Third Amendment to Credit Agreement (this “Third Amendment”)
      is made as of July 30, 2009 by and among
    

    
      PIER 1 IMPORTS (U.S.), INC. (in such capacity, the “Borrower”),
      a Delaware corporation with its principal executive offices at 100 Pier
      1 Place, Fort Worth, Texas 76102;
    

    
      BANK OF AMERICA, N.A., a national banking association with
      offices at 100 Federal Street, Boston, Massachusetts 02110, as
      administrative agent (in such capacity, the “Administrative
      Agent”) for its own benefit and the benefit of the other Credit
      Parties;
    

    
      BANK OF AMERICA, N.A., a national banking association with
      offices at 100 Federal Street, Boston, Massachusetts 02110, as
      collateral agent (in such capacity, the “Collateral Agent”)
      for its own benefit and the benefit of the other Credit Parties;
    

    
      The LENDERS party hereto;
    

    
      WELLS FARGO RETAIL FINANCE, LLC, a Delaware limited liability
      company with offices at One Boston Place - 19th Floor, Boston,
      Massachusetts 02109, as syndication agent; and
    

    
      JPMORGAN CHASE BANK, N.A., a national banking association with
      offices at 2200 Ross Avenue, 9th Floor, Dallas, Texas 75201,
      as documentation agent;
    

    
      in consideration of the mutual covenants herein contained and benefits
      to be derived herefrom.  
    

    

    

    
      WITNESSETH
    

    
      WHEREAS, the Borrower, the Lenders, the Administrative Agent, and the
      Collateral Agent, among others, entered into a Credit Agreement dated as
      of November 22, 2005, as amended by that certain First Amendment to
      Credit Agreement dated as of July 28, 2006 and by that certain Second
      Amendment to Credit Agreement dated as of May 31, 2007 (collectively,
      the “Credit Agreement”);
    

    
      WHEREAS, the parties desire to further amend the terms and conditions of
      the Credit Amendment as set forth herein.
    

    
      NOW THEREFORE, it is hereby agreed as follows:
    

    
      1.       Definitions. All
      capitalized terms used herein and not otherwise defined shall have the
      same meaning herein as in the Credit Agreement.
    

    
      
        

        

      

      
        
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      2.       Amendment to Article I.  The
      provisions of Article I of the Credit Agreement are hereby amended as
      follows:
    

    
      (a)                The definition of “Applicable Margin” is hereby
      deleted in its entirety and the following substituted in its stead:
    

    
                “ “Applicable
      Margin” means:  
    

    
      (a)       From and after the Third Amendment Effective Date until the
      first Adjustment Date after the Third Amendment Effective Date, the
      percentages set forth in Level II of the Pricing Grid below; and
    

    
      (b)       On the first day of each January, April, July and October of
      each year (each, an “Adjustment Date”), commencing October
      1, 2009, the Applicable Margin shall be determined from such Pricing
      Grid based upon Average Daily Availability for the most recently ended
      three month period immediately preceding such Adjustment Date; provided
      that notwithstanding anything to the contrary set forth herein, upon the
      occurrence of an Event of Default, the Administrative Agent may, and at
      the direction of the Required Lenders shall, immediately increase the
      Applicable Margin to that set forth in Level I (even if the Average
      Daily Availability requirements for a different Level have been met,
      without limiting the right of the Administrative Agent or the Required
      Lenders to charge interest at the Default Rate as provided in Section
      2.12); provided further if the Borrowing Base Certificates
      are at any time restated or otherwise revised (including as a result of
      an audit) or if the information set forth in any Borrowing Base
      Certificates otherwise proves to be false or incorrect such that the
      Applicable Margin would have been higher than was otherwise in effect
      during any period, without constituting a waiver of any Default or Event
      of Default arising as a result thereof, interest due under this
      Agreement shall be immediately recalculated at such higher rate for any
      applicable periods and shall be due and payable on demand.
    

    
    	
           
        	
          Level
        	
           
        	
          Average Daily Availability
        	
           
        	
          LIBO Applicable Margin
        	
           
        	
          Prime Rate Applicable Margin
        
	

        	
          I
        	
           
        	
          Less than or equal to 33% of the Borrowing Base
        	
           
        	
          3.50%
        	
           
        	
          2.50%
        
	

        	
          II
        	
           
        	
          Greater than 33% of the Borrowing Base but less than or equal to 66%
          of the Borrowing Base
        	
           
        	
          3.25%
        	
           
        	
          2.25%
        
	

        	
          III
        	
           
        	
          Greater than 66% of the Borrowing Base
        	
           
        	
          3.00%
        	
           
        	
          2.00%”
        


    

    
      (b)                The definition of “Borrowing Base” is hereby amended
      by deleting clauses (iv) and (v) thereof and substituting the following
      in its stead:
    

    
      “(iv)     Intentionally Omitted.
    

    
      (v)       the then amount of all Availability Reserves.”
    

    
      
        

        

      

      
        
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      (c)           The definition of “Capital Stock” is hereby deleted in its
      entirety and the following substituted in its stead:
    

    
      “ “Capital Stock” means, as to any Person that is a
      corporation, the authorized shares of such Person’s capital stock,
      including all classes of common, preferred, voting and nonvoting capital
      stock, and, as to any Person that is not a corporation or an individual,
      the membership or other ownership interests in such Person, including,
      without limitation, the right to share in profits and losses, the right
      to receive distributions of cash and other property, and the right to
      receive allocations of items of income, gain, loss, deduction and credit
      and similar items from such Person, whether or not such interests
      include voting or similar rights entitling the holder thereof to
      exercise control over such Person, collectively with, in any such case,
      all warrants, options and other rights to purchase or otherwise acquire,
      and all other instruments convertible into or exchangeable for, any of
      the foregoing; provided that in no event shall any Indebtedness
      (or instrument representing any Indebtedness) that is convertible into
      or exchangeable for any of the foregoing constitute “Capital Stock”
      (unless and until so converted or exchanged) or otherwise be considered
      a right to acquire “Capital Stock” for any purpose of this Agreement.”
    

    
      (d)          The definition of “Consolidated EBITDA” is hereby deleted
      in its entirety and the following substituted in its stead:
    

    
      “ “Consolidated EBITDA” means, with respect to any
      Person for a twelve (12) Fiscal Month period, the sum (without
      duplication) of (a) Consolidated Net Income for such period, plus
      (b) depreciation and amortization for such period, plus (c)
      provisions for Taxes based on income that were deducted in determining
      Consolidated Net Income for such period, plus (d) Consolidated
      Interest Expense that was deducted in determining Consolidated Net
      Income for such period, plus (e) any other non-cash charges,
      including any write offs or write downs, reducing Consolidated Net
      Income for such period (provided that any such non-cash charges
      shall be treated as cash charges in any future period in which the cash
      disbursement attributable thereto are made and such cash disbursement in
      such future period shall be subtracted from Consolidated EBITDA in such
      future period, and excluding amortization of a prepaid cash item that
      was paid in a prior period to the extent such cash item was deducted in
      calculating Consolidated EBITDA in period when paid) minus (f)
      extraordinary gains for such period.”
    

    
      (e)          The definition of “Debt Service Charges” is hereby amended
      by adding the following sentence at the end of such definition:
    

    
      “Notwithstanding anything to the contrary herein contained, prepayments
      of principal of the Convertible Notes or any Refinancing Indebtedness,
      in each case to the extent such prepayments are permitted hereunder,
      shall be excluded in the determination of Debt Service Charges.”
    

    
      
        

        

      

      
        
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      (f)           The definition of “Line Fee” is hereby deleted in its
      entirety and the following substituted in its stead:
    

    
      “ “Line Fee” means  a fee equal to 0.50% per annum
      (on the basis of actual days elapsed in a year of 360 days) of the
      average daily balance of the difference between (x) each Lender’s
      Commitment and (y) the sum of (i) such Lender’s Commitment Percentage of
      the principal amount of Loans then outstanding, net of any Swingline
      Loans, and (ii) such Lender’s Commitment Percentage of the then Letter
      of Credit Outstandings for each day commencing on the date hereof and
      ending on but excluding the Termination Date.”
    

    
      (g)          The definition of “Permitted Acquisition” is hereby amended
      by deleting clause (g) thereof in its entirety and substituting the
      following in its stead:
    

    
      “(g)      If any Loans are then outstanding or, on a pro forma and
      projected basis (which projections shall be reasonably satisfactory to
      the Administrative Agent), for the subsequent twelve month period are
      anticipated to be outstanding, the Payment Conditions shall have been
      satisfied.”
    

    
      (h)          The definition of “Permitted Dividends” is hereby amended
      by deleting clauses (d), (e) and (f) in their entirety and substituting
      the following new clauses (d) and (e) in their stead:
    

    
      “(d)      Restricted Payments for the purpose of repurchasing or
      redeeming Capital Stock in an amount not to exceed $40,000,000 in the
      aggregate from and after the Third Amendment Effective Date and prior to
      the Maturity Date, so long as (i) no Event of Default has occurred or
      shall occur after giving effect to such Restricted Payment, and (ii) if
      the Restricted Payment is to be funded in whole or in part with proceeds
      of Loans: (A) Availability (on a projected and pro forma basis for the
      twelve months following such Restricted Payment) will be equal to or
      greater than thirty-five percent (35%) of the lesser of the Revolving
      Credit Ceiling or the Borrowing Base after giving effect to such
      Restricted Payment and to all Debt Service Charges coming due for the
      twelve months following such Restricted Payment, (B) the Consolidated
      Fixed Charge Coverage Ratio will be equal to or greater than 1.10:1.00,
      in each case after giving effect to such Restricted Payments and as
      projected on a pro forma basis for the twelve months following such
      Restricted Payments, and (C) the Borrower shall have provided
      projections to the Administrative Agent, in form and substance
      satisfactory to the Administrative Agent, evidencing the satisfaction of
      the conditions described in clauses (ii)(A) and (ii)(B) above; and
    

    
      “(e)      Restricted Payments other than those described in clause (d)
      above, so long as (i) no Event of Default has occurred or shall occur
      after giving effect to such Restricted Payment, and (ii) if the
      Restricted Payment is to be funded in whole or in part with proceeds of
      Loans: (A) Availability (on a projected and pro forma basis for the
      twelve months following such Restricted Payment) will be equal to or
      greater than thirty-five percent (35%) of the lesser of the Revolving
      Credit Ceiling or the Borrowing Base after giving effect to such
      Restricted Payment and to all Debt Service Charges coming due for the
      twelve months following such Restricted Payment, (B) the Consolidated
      Fixed Charge Coverage Ratio will be equal to or greater than 1.10:1.00,
      in each case after giving effect to such Restricted Payments and as
      projected on a pro forma basis for the twelve months following such
      Restricted Payments, and (C) the Borrower shall have provided
      projections to the Administrative Agent, in form and substance
      satisfactory to the Administrative Agent, evidencing the satisfaction of
      the conditions described in clauses (ii)(A) and (ii)(B) above.”
    

    
      
        

        

      

      
        
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      (i)           The definition of “Permitted Encumbrances” is hereby
      amended by deleting the phrase “; and” at the end of clause (aa)
      thereof, re-lettering clause (bb) thereof as clause (dd), and inserting
      the following new clauses (bb) and (cc) therein:
    

    
      “(bb)     Liens to secure any Refinancing Indebtedness, provided
      that such Liens shall be subject at all times to the terms of an
      intercreditor agreement in form and substance acceptable to the
      Administrative Agent in its sole reasonable discretion;
    

    
      (cc)      Liens consisting of deposits in the ordinary course of
      business in an aggregate amount not to exceed $1,000,000 at any time
      outstanding; and”
    

    
      (j)           The definition of “Permitted Indebtedness” is hereby
      amended by deleting the phrase “; and” at the end of clause (s) thereof,
      re-lettering clause (t) thereof as clause (u), and inserting the
      following new clause (t) therein:
    

    
      “(t)      Any Refinancing Indebtedness; and”
    

    
      (k)           The definition of “Prime Rate” is hereby deleted in its
      entirety and the following substituted in its stead:
    

    
      “ “Prime Rate” means, for any day, the highest of:
      (a) the variable annual rate of interest then most recently announced by
      Bank of America at its head office in Charlotte, North Carolina as its
      “Prime Rate”; (b) the Federal Funds Effective Rate in effect on such day
      plus 1⁄2 of 1% (0.50%) per annum; and (c) the Adjusted LIBO Rate for an
      Interest Period of one month, plus 1% per annum.  The Prime Rate is a
      reference rate and does not necessarily represent the lowest or best
      rate being charged to any customer.  If for any reason the
      Administrative Agent shall have determined (which determination shall be
      conclusive absent manifest error) that it is unable to ascertain the
      Federal Funds Effective Rate for any reason, including the inability or
      failure of the Administrative Agent to obtain sufficient quotations
      thereof in accordance with the terms hereof, the Prime Rate shall be
      determined without regard to clause (b) of the first sentence of this
      definition, until the circumstances giving rise to such inability no
      longer exist.  If for any reason the Administrative Agent, in accordance
      with Section 2.10 hereof, shall have determined (which determination
      shall be conclusive absent manifest error) that adequate and reasonable
      means do not exist for ascertaining the Adjusted LIBO Rate for an
      Interest Period of one month, the Prime Rate shall be determined without
      regard to clause (c) of the first sentence of this definition, until the
      circumstances giving rise to such inability no longer exist.  Any change
      in the Prime Rate due to a change in Bank of America’s Prime Rate, the
      Adjusted LIBO Rate (after the expiration of the Interest Period
      previously used in determining the Prime Rate) or the Federal Funds
      Effective Rate shall be effective on the effective date of such change
      in Bank of America’s Prime Rate, the Adjusted LIBO Rate (after the
      expiration of the Interest Period previously used in determining the
      Prime Rate) or the Federal Funds Effective Rate, respectively.”  
    

    
      
        

        

      

      
        
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      (l)           The definition of “Revolving Credit Ceiling” is hereby
      deleted in its entirety and the following substituted in its stead:
    

    
      “ “Revolving Credit Ceiling” means $300,000,000, as
      such amount may be increased or reduced in accordance with the terms of
      this Agreement.”
    

    
      (m)          The definitions of “FMV”, “Deed of Trust”, “Eligible Real
      Estate”, “FIRREA”, “Real Estate Advance Rate”, “Realty Reserves”, “Title
      Insurance Company”, and “Title Insurance Policy” are hereby deleted in
      their entirety wherever the same shall appear.
    

    
      (n)           The following new definitions are added to Article I in
      appropriate alphabetical order:
    

    
      (i)       “ “Payment
      Conditions” means, with respect to any transaction, (i) no Event of
      Default has occurred or shall occur after giving effect to such
      transaction, (ii) Availability will be equal to or greater than thirty
      percent (30%) of the lesser of the Revolving Credit Ceiling or the
      Borrowing Base after giving effect to such transaction and as projected
      on a pro forma basis for the nine months following such transaction, and
      (iii) the Borrower shall have provided projections to the Administrative
      Agent, in form and substance satisfactory to the Administrative Agent,
      evidencing the satisfaction of the conditions described in clauses (i)
      and (ii) above.”
    

    
      (ii)      “ “Refinancing
      Indebtedness” means any Indebtedness or any guaranty by a Loan Party
      thereof, in each case issued in exchange for, or the Net Proceeds of
      which are used to extend, refinance, renew, replace, defease or refund
      (collectively, to “refinance”), the Convertible Notes; provided,
      that (a) the face amount of such Refinancing Indebtedness does not
      exceed the face amount of the Convertible Notes so refinanced (plus
      unpaid accrued interest and premium (including tender premiums) thereon
      and underwriting discounts, defeasance costs, fees, commissions and
      expenses), (b) the maturity date of such Refinancing Indebtedness shall
      not be earlier than four months after the maturity date of the
      Obligations, (c) except as provided in Section 7 of the Third Amendment,
      the Refinancing Indebtedness shall not require cash payments of
      principal other than at maturity, and (d) the Refinancing Indebtedness
      shall not have different obligors, or greater guarantees than the
      Convertible Notes.”
    

    
      (iii)     “ “Third Amendment”
      means that certain Third Amendment to Credit Agreement dated as of July
      30, 2009 by and among the Borrower, the Agents, the Lenders, Wells Fargo
      Retail Finance, LLC, as Syndication Agent, and JPMorgan Chase Bank,
      N.A., as Documentation Agent.”
    

    
      (iv)      “ “Third
      Amendment Effective Date” means July 30, 2009.”
    

    
      
        

        

      

      
        
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      3.       Amendments to Article II.  The
      provisions of Article II of the Credit Agreement are hereby amended as
      follows:
    

    
      (a)                The number “$325,000,000” appearing in Section
      2.01(a) is hereby deleted and the number “$300,000,000” substituted in
      its stead.
    

    
      (b)                The provisions of Section 2.19 are hereby amended as
      follows:
    

    
      (i)                          By amending Section 2.19(b) by deleting the
      phrase “0.25% per annum” in the third line thereof in its entirety and
      substituting the phrase “0.50% per annum” in its stead.
    

    
      (ii)                         By amending Section 2.19(c) by deleting
      clause (ii) thereof in its entirety and substituting the following
      clause (ii) in its stead:
    

    
      “(ii)     Commercial Letters of Credit: At a per annum rate equal to
      fifty percent (50%) of the then Applicable Margin for LIBO Loans;”
    

    
      4.       Amendments to Article V.  The
      provisions of Article V of the Credit Agreement are hereby amended as
      follows:
    

    
      (a)                The provisions of Section 5.01(d) are hereby deleted
      in their entirety and the following substituted in their stead:
    

    
      “(d)      On the tenth (10th)
      Business Day of each Fiscal Month, a certificate in the form of Exhibit
      J (a “Borrowing Base Certificate”) showing the
      Borrowing Base as of the close of business on the immediately preceding
      Fiscal Month, provided that if (i) an Event of Default has
      occurred and is continuing, or (ii) if Availability (as calculated under
      clause (b) of the definition thereof) is at any time less than
      twenty-five percent (25%) of the Borrowing Base, then in either case
      such Borrowing Base Certificate shall be furnished on Wednesday of each
      week (or, if Wednesday is not a Business Day, on the next succeeding
      Business Day), and provided further that if any request
      for a Loan will result in Credit Extensions exceeding $150,000,000, a
      Borrowing Base Certificate shall accompany such request; each Borrowing
      Base Certificate to be certified as complete and correct in all material
      respects on behalf of the Borrower by a Financial Officer of the
      Borrower;”
    

    
      (b)                The provisions of Section 5.01(j) are hereby amended
      by deleting clause (ii) thereof in its entirety and substituting the
      following in its stead:
    

    
      “(ii)     the forecasted consolidated statements of income or operations
      and consolidated cash forecasts prepared on a monthly basis, in form
      reasonably acceptable to the Administrative Agent, and”
    

    
      (c)                The provisions of Section 5.08(b) are hereby deleted
      in their entirety and the following substituted in their stead:
    

    
      “(b)      Each Loan Party will, and will cause its Material Subsidiaries
      to, from time to time upon the request of any Agent, permit any Agent or
      professionals (including consultants, accountants, lawyers and
      appraisers) retained by the Agents, subject to reasonable prior notice
      and during normal business hours prior to the occurrence of an Event of
      Default, to conduct appraisals, commercial finance examinations and
      other evaluations, including, without limitation, of (i) the Borrower’s
      practices in the computation of the Borrowing Base, and (ii) the assets
      included in the Borrowing Base and related financial information such
      as, but not limited to, sales, gross margins, payables, accruals and
      reserves.  Any Lender, at its own expense, may accompany the Agent or
      professionals retained by the Agents on such examination.  The Loan
      Parties shall pay the reasonable out-of-pocket fees and expenses of the
      Agents or such professionals with respect to such evaluations and
      appraisals, provided that (x) the Administrative Agent may, in
      its reasonable discretion, conduct no more than two (2) commercial
      finance examinations and two (2) appraisals of the Borrower’s Inventory
      in any twelve (12) month period (provided that (i) if at any time during
      such twelve (12) month period either (A) any Loans in excess of
      $10,000,000 are outstanding for more than ten (10) consecutive Business
      Days, or (B) Availability is less than thirty percent (30%) of the
      lesser of the Revolving Credit Ceiling or the Borrowing Base for more
      than five (5) consecutive Business Days, the Administrative Agent may,
      in its reasonable discretion, conduct one (1) additional commercial
      finance examination and one (1) additional Inventory appraisal during
      such twelve (12) month period, and (ii) if any Event of Default exists,
      the Agents, in their reasonable discretion, may cause such additional
      commercial finance examinations and Inventory appraisals to be taken as
      the Agents reasonably determine, in each case at the expense of the Loan
      Parties).”  
    

    
      
        

        

      

      
        
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      (d)                The provisions of Section 5.11 are hereby deleted in
      their entirety and the following substituted in their stead:
    

    
      “SECTION 5.11       Use of
      Proceeds and Letters of Credit.  The proceeds of Loans made
      hereunder and of Letters of Credit issued hereunder will be used only
      (a) to finance the acquisition of working capital assets of the Borrower
      and its Subsidiaries, including the purchase of inventory and equipment,
      in each case in the ordinary course of business, (b) to finance Capital
      Expenditures of the Borrower and its Subsidiaries, (c) to finance
      Permitted Acquisitions, and (d) for general corporate purposes
      (including but not limited to the repayment or refinancing of
      Indebtedness and the making of Investments and Restricted Payments), in
      each case to the extent permitted in this Agreement.  No part of the
      proceeds of any Loan or any Letter of Credit will be used, whether
      directly or indirectly, for any purpose that entails a violation of any
      of the regulations of the Board, including Regulations U and X.”
    

    
      5.       Amendment to Article VI.  The
      provisions of Article VI of the Credit Agreement are hereby amended as
      follows:
    

    
      (a)                The provisions of Section 6.06(b) of the Credit
      Agreement are hereby deleted in their entirety and the following
      substituted in their stead:
    

    
      “(b)      No Loan Party will make or agree to pay or make, directly or
      indirectly, any payment or other distribution (whether in cash,
      securities or other property) of or in respect of principal of or
      interest on any Indebtedness (other than the Obligations), or any
      payment or other distribution (whether in cash, securities or other
      property), including any sinking fund or similar deposit, on account of
      the purchase, redemption, retirement, acquisition, cancellation or
      termination of any Indebtedness, except:
    

    
      
        

        

      

      
        
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      (i)       as long as no Event of Default then exists or would arise
      therefrom, mandatory payments and mandatory prepayments of interest and
      principal as and when due in respect of any Permitted Indebtedness;
    

    
      (ii)      prepayments, exchanges, purchases, redemptions, retirements,
      acquisitions, cancellations or terminations (collectively, “Prepayments”)
      of (A) prior to March 1, 2010, all or any portion of the Convertible
      Notes, provided that (1) no Event of Default exists or would
      arise therefrom, (2) the aggregate amount of the cash consideration for
      such Prepayment does not exceed $50,000,000, and (3) the only Loans then
      outstanding have been made to pay for any transactions costs, in an
      amount not to exceed $5,000,000 in the aggregate, incurred by the Loan
      Parties in connection with such Prepayment; and (B) thereafter, so long
      as no Loans are then outstanding or, on a pro forma and projected basis
      (which projections shall be reasonably satisfactory to the
      Administrative Agent), for the subsequent twelve month period are
      anticipated to be outstanding, in each case, in excess of $30,000,000,
      the balance of the Convertible Notes or any Refinancing Indebtedness at
      any time after the Third Amendment Effective Date, provided that
      the Payment Conditions shall have been satisfied.  Any Prepayment of the
      Convertible Notes or the Refinancing Indebtedness solely through the
      issuance of shares of Capital Stock of a Loan Party shall be deemed a
      permitted prepayment of such Indebtedness; and
    

    
      (iii)     refinancings of Indebtedness to the extent the Indebtedness
      incurred in connection with such refinancing would otherwise be
      permitted under this Agreement.”
    

    
      (b)                The provisions of Section 6.10 of the Credit
      Agreement are hereby amended by deleting the words “Fixed Charge
      Coverage Ratio” wherever the same shall appear and substituting the
      words “Consolidated Fixed Charge Coverage Ratio” in their stead.
    

    
      6.       Amendment to Schedules.  The
      Commitments of the Lenders are hereby reduced on a pro rata basis as of
      the Third Amendment Effective Date to $300,000,000.  Accordingly,
      Schedule 1.1 to the Credit Agreement is hereby deleted in its entirety
      and the new Schedule 1.1 in the form annexed hereto is substituted in
      its stead.
    

    
      7.       Waivers; Acknowledgments.  The
      Agents and the Lenders hereby acknowledge and agree as follows:
    

    
      (a)                The Administrative Agent and the Lenders hereby waive
      any Default or Event of Default that may arise under any Loan Document
      in connection with any Refinancing Indebtedness as a result of the
      payment of cash and/or the issuance of Capital Stock by the Parent, in
      each case, upon conversion and retirement of the Refinancing
      Indebtedness (including any payment of make-whole amounts in cash in
      settlement of any conversion of all or part of such Indebtedness to
      Capital Stock).
    

    
      (b)                The Administrative Agent and the Lenders hereby
      acknowledge and agree that the cancellation, retirement or termination
      of any Convertible Notes held by Pier International Limited (whether
      directly, as a result of dividends of such Convertible Notes ultimately
      to the Parent, or otherwise) will not constitute a Default or Event of
      Default.
    

    
      
        

        

      

      
        
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      (c)                The Administrative Agent and the Lenders waive prior
      notice of reduction of the Commitments as provided in this Third
      Amendment and as required under Section 2.15 of the Credit Agreement and
      waive any requirement that the Commitment reduction provided for in this
      Third Amendment be in the sum of $20,000,000 or an integral multiple
      thereof.
    

    
      8.       Conditions to
      Effectiveness. This Third Amendment shall not be effective until
      each of the following conditions precedent has been fulfilled to the
      satisfaction of the Administrative Agent:
    

    
      (a)                This Third Amendment shall have been duly executed
      and delivered by the Borrower, the Facility Guarantors, the
      Administrative Agent, the Collateral Agent and the Required
      Lenders.  The Administrative Agent shall have received a fully executed
      copy hereof and of each other document required hereunder.
    

    
      (b)                All necessary consents and approvals to this Third
      Amendment shall have been obtained.
    

    
      (c)                All action on the part of the Loan Parties necessary
      for the valid execution, delivery and performance by the Loan Parties of
      this Third Amendment shall have been duly and effectively taken.  The
      Administrative Agent shall have received from the Loan Parties true
      copies of their respective certificate of the resolutions authorizing
      the transactions described herein, each certified by their secretary or
      other appropriate officer to be true and complete, together with
      certificates of legal existence and good standing for each Loan Party as
      certified by the secretary of state (or similar Governmental Authority)
      of such Loan Party’s jurisdiction of organization as of a recent date.
    

    
      (d)                No Default or Event of Default shall have occurred
      and be continuing, both before and immediately after giving effect to
      the execution of this Third Amendment.
    

    
      (e)                The Borrower shall have paid to the Administrative
      Agent, (i) for the ratable benefit of the Lenders (including Bank of
      America, N.A.) consenting to this Third Amendment on or prior to July
      17, 2009, an amendment fee (to the extent this Third Amendment becomes
      effective in accordance with its terms) in an amount equal to 0.375% of
      each such Lender’s Commitment, and (ii) all fees then due to, and
      reasonable out-of-pocket costs and expenses incurred by, the
      Administrative Agent in connection with this Third Amendment, including,
      without limitation, all attorneys’ fees.
    

    
      If each of the conditions precedent set forth in this Section 8 has not
      been fulfilled to the satisfaction of the Administrative Agent on or
      before July 31, 2009, the agreement of the Lenders to enter into this
      Third Amendment shall be void and of no effect.
    

    
      9.       Miscellaneous.
    

    
      (a)                Notwithstanding the definition of “Cash Management
      Documentation Event” set forth in the Credit Agreement, the Borrower
      shall use its commercially reasonable efforts to deliver to the
      Administrative Agent the documents, agreements and other materials
      required by Section 2.18(a) of the Credit Agreement, each in form and
      substance reasonably satisfactory to the Administrative Agent, within
      ninety (90) days following the Third Amendment Effective Date.
    

    
      
        

        

      

      
        
          10
        

        
          


        

      

      
        

        

      

    

    
      (b)                Except as provided herein or in any waivers
      previously delivered by the Administrative Agent or the Required
      Lenders, all terms and conditions of the Credit Agreement and the other
      Loan Documents remain in full force and effect.  The Loan Parties hereby
      ratify, confirm, and reaffirm all of the representations, warranties and
      covenants therein contained, other than representations and warranties
      that relate solely to an earlier date.
    

    
      (c)                The Loan Parties hereby acknowledge and agree that
      they have no offsets, defenses, claims, or counterclaims against the
      Agents or any Lender or the Issuing Bank, or any of their respective
      officers, directors, employees, attorneys, representatives,
      predecessors, successors, or assigns with respect to the Loan Documents,
      the Obligations, or otherwise, and that if the Loan Parties now have, or
      ever did have, in each case, prior to the date hereof, any offsets,
      defenses, claims, or counterclaims against the Agents or any Lender or
      the Issuing Bank, or any of their respective officers, directors,
      employees, attorneys, representatives, predecessors, successors, or
      assigns, whether known or unknown, at law or in equity, all of them are
      hereby expressly WAIVED, and the Loan Parties hereby RELEASE
      the Agents and each Lender and the Issuing Bank, and each of their
      respective officers, directors, employees, attorneys, representatives,
      predecessors, successors, and assigns from any liability therefor.
    

    
      (d)                This Third Amendment may be executed in several
      counterparts and by each party on a separate counterpart, each of which
      when so executed and delivered, shall be an original, and all of which
      together shall constitute one instrument.  Delivery of an executed
      counterpart of a signature page of this Third Amendment by telecopy or
      e-mail shall be effective delivery of a manually executed counterpart
      thereof.
    

    
      (e)                NOTICE
      OF INDEMNIFICATION:     THE BORROWER AND FACILITY GUARANTORS
      HEREBY ACKNOWLEDGE AND AGREE THAT THE CREDIT AGREEMENT AND THE SECURITY
      DOCUMENTS CONTAIN CERTAIN INDEMNIFICATION PROVISIONS (INCLUDING, WITHOUT
      LIMITATION, THOSE CONTAINED IN SECTION 9.03 OF THE CREDIT AGREEMENT),
      WHICH IN CERTAIN CIRCUMSTANCES, COULD INCLUDE AN INDEMNIFICATION OF THE
      AGENTS AND THE CREDIT PARTIES FROM CLAIMS OR LOSSES ARISING AS A RESULT
      OF THE AGENTS’ AND THE CREDIT PARTIES’ OWN NEGLIGENCE OR ON ACCOUNT OF
      CLAIMS OF STRICT LIABILITY.
    

    
      (f)                The Credit Agreement, as amended by this Third
      Amendment, expresses the entire understanding of the parties with
      respect to the matters set forth herein and therein and supersedes all
      prior discussions or negotiations hereon.  
    

    
      (g)                By executing this Third Amendment, the undersigned
      Facility Guarantors hereby consent to the Third Amendment to Credit
      Agreement and acknowledge that their Guarantee remains in full force and
      effect.
    

    
      (h)                This Third Amendment shall be governed by, and
      construed in accordance with, the laws of the State of New York, without
      giving effect to conflicts of laws principles thereof.
    

    
      
        

        

      

      
        
          11
        

        
          


        

      

      
        

        

      

    

    

    

    
      [SIGNATURE PAGES FOLLOW]
    

    

    

    

    

    
      
        

        

      

      
        
          12
        

        
          


        

      

      
        

        

      

    

    
      IN WITNESS WHEREOF, the parties hereto have caused this Third Amendment
      to be executed and their seals to be hereto affixed as the date first
      above written.  
    

    
    	
           
        	
          
            PIER 1 IMPORTS (U.S.), INC., as Borrower
          

        
	

        	
          By: ___________________________________
        
	

        	
          Name: ___________________________________
        
	

        	
          Title: ___________________________________
        
	

        	
           
        
	

        	
           
        
	

        	
          
            PIER 1 IMPORTS, INC., as a Facility Guarantor
          

        
	

        	
          By: ___________________________________
        
	

        	
          Name: ___________________________________
        
	

        	
          Title: ___________________________________
        
	

        	
           
        
	

        	
           
        
	

        	
          
            PIER 1 ASSETS, INC., as a Facility Guarantor
          

        
	

        	
           
        
	

        	
          By: ___________________________________
        
	

        	
          Name: ___________________________________
        
	

        	
          Title: ___________________________________
        
	

        	
           
        
	

        	
           
        
	

        	
          
            PIER 1 LICENSING, INC., as a Facility Guarantor
          

        
	

        	
           
        
	

        	
          By: ___________________________________
        
	

        	
          Name: ___________________________________
        
	

        	
          Title: ___________________________________
        
	

        	
           
        
	

        	
           
        
	

        	
          
            PIER 1 HOLDINGS, INC., as a Facility Guarantor
          

        
	

        	
           
        
	

        	
          By: ___________________________________
        
	

        	
          Name: ___________________________________
        
	

        	
          Title: ___________________________________
        


    

    

    

    
      Signature Page to Third Amendment to Credit Agreement
    

    
      
        

        

      

      
        

        

        
          


        

      

      
        

        

      

    

    
    	
           
        	
          
            PIER 1 SERVICES COMPANY, a Delaware statutory
          

        
	

        	
          trust, as a Facility Guarantor
        
	

        	
           
        
	

        	
          By: Pier 1 Holdings, Inc., Managing Trustee
        
	

        	
           
        
	

        	
          By: ___________________________________
        
	

        	
          Name: ___________________________________
        
	

        	
          Title: ___________________________________
        
	

        	
           
        
	

        	
           
        
	

        	
          
            PIER 1 VALUE SERVICES, LLC, as a Facility Guarantor
          

        
	

        	
           
        
	

        	
          By: Pier 1 Imports (U.S.), Inc., its sole member and manager
        
	

        	
           
        
	

        	
          By: ___________________________________
        
	

        	
          Name: ___________________________________
        
	

        	
          Title: ___________________________________
        


    

    
      
        

        

      

      
        

        

        
          


        

      

      
        

        

      

    

    
    	
           
        	
          
            BANK OF AMERICA, N.A., as Administrative Agent, as
            Collateral Agent, as Swingline Lender, and as a Lender
          

        
	

        	
           
        
	

        	
          By: ___________________________________
        
	

        	
          Name: ___________________________________
        
	

        	
          Title: ___________________________________
        


    

    
      
        

        

      

      
        

        

        
          


        

      

      
        

        

      

    

    
    	
           
        	
          
            WELLS FARGO RETAIL FINANCE, LLC,
          

        
	

        	
          as Syndication Agent and as a Lender
        
	

        	
          By: ___________________________________
        
	

        	
          Name: ___________________________________
        
	

        	
          Title: ___________________________________
        


    

    

    

    
      
        

        

      

      
        

        

        
          


        

      

      
        

        

      

    

    
    	
           
        	
          
            JPMORGAN CHASE BANK, N.A., as Documentation Agent and as a
            Lender
          

        
	

        	
          By: ___________________________________
        
	

        	
          Name: ___________________________________
        
	

        	
          Title: ___________________________________
        


    

    

    

    
      
        

        

      

      
        

        

        
          


        

      

      
        

        

      

    

    
    	
           
        	
          
            GENERAL ELECTRIC CAPITAL CORPORATION, as a Lender
          

        
	

        	
          By: ___________________________________
        
	

        	
          Name: ___________________________________
        
	

        	
          Title: ___________________________________
        


    

    

    

    
      
        

        

      

      
        

        

        
          


        

      

      
        

        

      

    

    
    	
           
        	
          
            SUNTRUST BANK, as a Lender
          

        
	

        	
          By: ___________________________________
        
	

        	
          Name: ___________________________________
        
	

        	
          Title: ___________________________________
        


    

    

    

    
      
        

        

      

      
        

        

        
          


        

      

      
        

        

      

    

    
      Schedule 1.1
    

    
      Lenders and Commitments
    

    
    	
          Lender
        	
          Commitment
        	
          Commitment Percentage
        
	
          Bank of America, N.A.
        	
          $120,000,000.00
        	
          40.00%
        
	
          Wells Fargo Retail Finance, LLC
        	
          $69,230,769.23
        	
          23.08%
        
	
          JPMorgan Chase Bank, N.A.
        	
          $41,538,461.54
        	
          13.85%
        
	
          General Electric Capital Corporation
        	
          $46,153,846.15
        	
          15.38%
        
	
          SunTrust Bank
        	
          $23,076,923.08
        	
          7.69%
        
	
          TOTAL
        	
          $300,000,000.00
        	
          100.00%
        


    

    
      Schedule 1.1 to Credit Agreement