Document:

exv10w3

 

Exhibit 10.3

PIER 1 IMPORTS, INC.

1999 STOCK PLAN

Restated as Amended December 31, 2004

     1. Purpose. The purpose of the Plan is to advance the Company’s interests by encouraging
certain employees of the Company and its subsidiaries and non-employee directors of the Company to
acquire a proprietary interest in the Company through ownership of Common Stock. Such ownership is
intended to encourage employees to remain with the Company and to help attract other qualified
persons to become employees and directors.

     2. Administration. The Plan shall be administered by the Committee. Subject to the
provisions of the Plan, the Committee is authorized to grant Options under the Plan, and the
Committee is authorized to interpret the Plan and the Options, to prescribe, amend and rescind
rules and regulations relating to the Plan and the Options, and to make other determinations
necessary or advisable for the administration of the Plan. The Committee is also authorized to
administer the Director Deferred Stock Program. All of such determinations shall be conclusive and
binding on all persons. The Committee shall act pursuant to a majority vote or by unanimous
written consent. No member of the Committee shall be liable for any action taken or decision made
in good faith relating to the Plan or any grant thereunder.

     3. Eligibility. Options may be granted under the Plan to Non-Employee Directors and to key
employees of the Company or any of its Subsidiaries as the Committee shall determine from time to
time.

     4. Types of Options. Options granted pursuant to the Plan may be either Incentive Stock
Options or non-qualified Options not so qualifying under the Code. It is the intent of the Company
that non-qualified stock Options granted under the Plan not be classified as Incentive Stock
Options, that Incentive Stock Options granted under the Plan be consistent with and contain or be
deemed to contain all provisions required under Section 422 and the other appropriate provisions of
the Code and any implementing regulations (and any successor provisions thereof), and that any
ambiguities in construction be interpreted in order to effectuate such intent.

     5. Stock Subject to the Plan. The aggregate number of Shares that may be issued or sold
under Options or delivered in exchange for Deferred Stock Units pursuant to the Plan shall not
exceed 14,500,000 Shares, of which not more than 250,000 Shares may be issued in exchange for
Deferred Stock Units; provided, that additional Shares above such maximum amount may be issued in
exchange for Deferred Stock Units that shall have been credited to any Deferred Stock Account
solely as a result of dividends or adjustments pursuant to Section 8(d) or 8(e) hereof; and
provided, further, that no person shall be granted Options under the Plan covering an aggregate of
more than 2,250,000 Shares. Shares may be either authorized but unissued shares of Common Stock or
issued shares of Common Stock that shall have been reacquired by the Company. The aggregate number
of Shares issuable under the Plan and to one person shall be

1

 

subject to adjustment as provided in Section 9 hereof. For purposes of calculating the
maximum number of Shares of Common Stock which may be issued under the Plan, Shares shall include
only net Shares issued upon exercise of Options and, accordingly, shall exclude Shares delivered or
withheld for payment of Option exercises or for tax withholding and shall exclude Shares remaining
subject to Options which expire or are terminated for any reason.

     6. Non-transferability of Options. Except as otherwise authorized by the Committee, in its
discretion, and expressly provided in the Option agreement pursuant to which an Option is granted,
no Option shall be transferable except by will or the laws of descent and distribution.

     7. Options. The Committee shall have the power, subject to the limitations contained in the
Plan, to prescribe the terms and conditions of any Option granted hereunder. Each Option shall be
evidenced by an agreement in such form as the Committee shall from time to time determine, which
agreement shall contain such terms and conditions not inconsistent with the Plan as the Committee,
in its sole discretion, may prescribe. Options shall be subject to the following provisions:

     (a) Allotment of Shares; Option Price. The Committee shall determine the total
number of Shares subject to each Option under the Plan. The Option exercise price for the
Shares subject to each Option shall be determined by the Committee, but shall not be less
than the Fair Market Value or the par value of the Common Stock on the date of grant.

     (b) Duration of Options. Except as otherwise set forth herein, Options shall expire
after such term as the Committee shall determine. No option shall be exercisable after the
expiration of 10 years from the date of grant.

     (c) Exercise of Options. Each option granted under the Plan shall be exercisable from
time to time as the Committee shall determine. No option shall be exercised for fewer than
100 Shares unless the remaining Shares that have become so purchasable are fewer than 100
Shares. In the event of the Retirement, death or Permanent Disability of an Optionee, or in
the event of a Change in Control (as hereinafter defined), all Options granted to such
Optionee shall immediately become fully exercisable to the extent of all Shares then covered
by such Options, except that in the case of a Change in Control only if the Board of
Directors shall not have determined otherwise prior to such Change in Control. A “Change in
Control” shall mean any of the following events:

     (i) a merger or consolidation to which the Company is a party if the
individuals and entities who were stockholders of the Company immediately prior to
the effective date of such merger or consolidation have beneficial ownership (as
defined in Rule 13d-3 under the Exchange Act) of less than 50% of the total combined
voting power for election of directors of the surviving corporation or other entity
following the effective date of such merger or consolidation;

     (ii) the acquisition or holding of direct or indirect beneficial ownership (as
defined in Rule 13d-3 under the Exchange Act) of securities of the Company

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representing in the aggregate 30% or more of the total combined voting power of
the Company’s then issued and outstanding voting securities by any person, entity or
group of associated persons or entities acting in concert, other than any employee
benefit plan of the Company or of any Subsidiary or any entity holding such
securities for or pursuant to the terms of any such plan;

     (iii) the election of members of the Board of Directors at a meeting of
stockholders or by written consent, the majority of which were not nominated by the
Board of Directors;

     (iv) the sale of all or substantially all of the assets of the Company to any
person or entity that is not a wholly owned Subsidiary; or

     (v) the approval by the stockholders of the Company of any plan or proposal
for the liquidation of the Company or its Subsidiaries, other than into the Company.

     (d) Payment for Shares. The purchase price of each Share purchased upon the
exercise of any Option shall be paid in full at the time of such purchase, and a stock
certificate representing Shares so purchased shall be delivered to the person entitled
thereto. Until the stock certificate for such Shares is issued in the Optionee’s name, the
Optionee shall have no rights of a stockholder. Payment may be made in whole or in part in
cash or, if the Committee so permits, in Common Stock owned by the Optionee without
restriction for the preceding six months valued at Fair Market Value on the date preceding
the date the Option is exercised. The Committee may permit an Optionee to pay the purchase
price by irrevocably authorizing a third party to sell Shares acquired upon exercise of the
Option and remit to the Company a sufficient portion of the sale proceeds to pay the
purchase price and any tax withholding resulting from the exercise of the Option. It shall
be a condition to the performance of the Company’s obligation to issue or transfer Shares
upon exercise of an Option that the Optionee pay, or make provision satisfactory to the
Company for the payment of, any taxes (other than stock transfer taxes) which the Company is
obligated to collect with respect to the issue or transfer upon such exercise. The
Committee may provide the Optionee with the right to satisfy minimum required federal or
state tax withholding obligations by delivery of previously owned shares of Common Stock or
electing the withholding of Shares otherwise issuable upon exercise of a non-qualified
Option, the Fair Market Value of which does not exceed the amount to cover the minimum
required federal and state tax withholding obligations incurred in connection with the
exercise of the Option.

     (e) Termination of Options. Unless otherwise provided in an Option agreement or
otherwise agreed to by the Committee:

     (i) upon the death or Permanent Disability of an Optionee, any Option granted
to the Optionee shall become fully exercisable to the extent of all unexercised
Shares pertaining to such Option, and may be exercised by the Optionee, or in the
case of death, by the Optionee’s estate or a person who

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acquires the right to exercise such Option by bequest, inheritance or transfer
(if transferability were specifically provided for in the Option agreement) until
the earlier of (I) the remaining Option Term and (II) the first anniversary of such
death or disability;

     (ii) upon the Retirement of an Optionee, any Option granted to the Optionee
may be exercised by the Optionee to the extent exercisable on the date of such
Retirement until the earlier of (I) the remaining Option Term and (II) the third
anniversary of such Retirement;

     (iii) upon the resignation or expiration of the term of office of a director
who does not stand for re-election, or upon the resignation of an employee with the
consent of the Company, in each case without the Optionee’s Retirement as provided
in Subsection 7(e)(ii), any Option granted to the Optionee may be exercised by the
Optionee to the extent exercisable on the date of such resignation or expiration of
term of office until the earlier of (I) the remaining Option Term and (II) the 91st
day following such resignation or expiration; provided, that in the event of the
death of the Optionee after such resignation or expiration but prior to the end of
such period of exercisability, the period during which the Option may be exercised
shall be extended until the earlier of (I) the remaining Option Term and (II) the
first anniversary of such resignation or expiration; and

     (iv) upon termination of an Optionee’s employment, other than as provided in
subsections 7(e)(i), (ii) or (iii), all Options granted to the Optionee shall
terminate immediately at such termination of employment.

Options granted under the Plan shall not be affected by any change of employment so long as
the Optionee continues to be an employee of the Company or any of its Subsidiaries. The
Option agreement may contain such provisions as the Committee shall approve with respect to
the effect of approved leaves of absence. Cessation of any corporation’s relationship with
the Company as a Subsidiary shall constitute a “termination of employment” hereunder as to
individuals employed by that corporation.

     8. Director Deferred Stock Program. Each Non-Employee Director shall be eligible to
participate in the Director Deferred Stock Program through deferral of part or all of such
director’s cash compensation into Deferred Stock Units, as participation in such program shall be
provided for by the Board of Directors from time to time.

     (a) Deferred Stock Account. Subject to the availability of Shares under the Plan, the
Board of Directors may in its discretion provide that part or all of the compensation of
Non-Employee Directors otherwise payable in cash to each Non-Employee Director be payable,
either mandatorily and/or at the election of each Non-Employee Director, in Deferred Stock
Units. Deferred Stock Units shall be held in a Deferred Stock Account for each Non-Employee
Director in accordance with the provisions of the Director Deferred Stock Program.

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     (b) Mandatory Deferral. To the extent any cash compensation to a Non-Employee
Director shall be mandatorily payable in Deferred Stock Units, in lieu of paying such
compensation in cash, the Company shall credit the Deferred Stock Account for each
Non-Employee Director the number of Deferred Stock Units equal to the product of 1.5
multiplied by the amount of cash to be deferred divided by the Fair Market Value per share
of Common Stock on the date of credit.

     (c) Elective Deferral. To the extent provided in the Director Deferred Stock
Program, each Non-Employee Director may elect to defer all or part of his eligible cash
compensation relating to the forthcoming year by filing, not later than the date of the
Company’s annual meeting of stockholders, an irrevocable election with the Company on a
form provided for that purpose. The election shall be effective for compensation payable
for services rendered during the year commencing the day after the Company’s annual meeting
of stockholders. The election form shall specify an amount to be deferred in increments of
$1,000. In lieu of paying such elected amount of compensation, the Company shall credit
the Deferred Stock Account of each Non-Employee Director electing a deferral the number of
Deferred Stock Units equal to the product of 1.5 multiplied by the amount of compensation
elected for deferral, divided by the Fair Market Value per share of Common Stock on the
date of credit. Effective December 31, 2004, the above election shall be for compensation
payable for services rendered during the taxable year of the Non-Employee Director and such
election, to be effective, must be made by the Non-Employee Director on or before December
31 of the year prior to the taxable year.

     (d) Dividends. Each time a dividend shall be paid on Common Stock, other than a
dividend of capital stock of the Company, each Deferred Stock Account shall be credited
with additional Deferred Stock Units equal to the product of the dividend payment amount
(or, if other than in cash, the fair market value thereof) per share multiplied by the
number of Deferred Stock Units credited to the Deferred Stock Account as of the record date
for the dividend, divided by the Fair Market Value of the Common Stock on the dividend
payment date.

     (e) Adjustments. In the event of a stock dividend, stock split or combination of
shares of Common Stock, recapitalization, reclassification, merger or other similar capital
or corporate structure change of the Company, then the number and the rights and privileges
of Deferred Stock Units in each Deferred Stock Account shall be adjusted in a like manner
as if the Deferred Stock Units had been issued and outstanding shares of Common Stock at
the time of such occurrence.

     (f) Payment. The balance of each Non-Employee Director’s Deferred Stock Account
shall be paid to such director on the first of the month following the 90th day after such
director terminates his position as a Non-Employee

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Director. Each Deferred Stock Unit shall be exchanged for a whole share of Common
Stock. Any fractional Deferred Stock Unit shall be paid in cash based on the Fair Market
Value of the Common Stock on the date of such termination.

     Notwithstanding the above paragraph of this subparagraph (f), effective December 31,
2004, for any Non-Employee Director who is a “key employee” as such term is defined in
Section 416(i) of the Code without regard to paragraph (5) thereof, and with respect to any
portion of the Deferred Stock Account which would constitute compensation which is deferred
after December 31, 2004 for purposes of Section 409A of the Code, no payment of such
portion may be made to such Non-Employee Director as a result of his terminating his
position as a Non-Employee Director before the date which is six (6) months after the date
of such termination (or, if earlier, the date of death of the participant following such
termination) unless such termination was by reason of any of the events described in
Sections 409A(a)(2)(A)(ii), (iii), (iv), (v) or (vi) of the Code.

     (g) Non-Assignability. The right of a Non-Employee Director or any person claiming
under such director to receive payments from any Deferred Stock Account may not be
assigned, transferred, pledged, anticipated, commuted or encumbered except by will or the
laws of descent and distribution, nor shall a Deferred Stock Account be subject to seizure
for payment of any debts or judgment of any Non-Employee Director or any person claiming
through or under such director.

     (h) The purpose of the December 31, 2004 restatement is to cause the Director
Deferred Stock Program to comply with the requirements of Sections 409A (a) (2), (3) and
(4) of the Code. The Director Deferred Stock Program shall be construed and interpreted in
accordance with such purpose.

     9. Adjustments. In the event of a stock dividend or stock split, unless the Committee shall
determine otherwise, (i) the number of Shares at the time of such stock dividend or stock split
issuable under the Plan pursuant to Options or in exchange for Deferred Stock Units, (ii) the
limitation on the maximum number of Shares underlying Options that may be granted to one person and
(iii) the number of Shares subject to any outstanding Option shall each be increased in direct
proportion to the increase in the number of shares of Common Stock by reason of such stock dividend
or stock split, and the exercise price per Share of any outstanding Option shall be proportionately
decreased; provided that the adjusted number of Shares shall always be a whole number with any
fractional Shares being deleted therefrom. In the event of a combination of shares,
recapitalization, reclassification, merger or other similar capital or corporate structure change
of the Company, the Committee may, in its discretion, adjust (i) the number of Shares at the time
of such change issuable under the Plan pursuant to Options or in exchange for Deferred Stock Units,
(ii) the limitation on the maximum number of Shares underlying Options that may be granted to one
person, (iii) the number of Shares subject to any outstanding Option and/or the exercise price
thereof and (iv) such other provisions of the Plan or outstanding Options that the Committee
determines to be appropriate or

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advisable, including without limitation, changing the security into which the Option is
exercisable, terminating the Option with prior notice to the Optionee, and exchanging the Option
for cash, another option or other security.

     10. Effective Date; Stockholder Approval; Term. The Plan shall become effective on the date
of the last to occur of the (i) adoption of the Plan by the Board of Directors and (ii) approval of
the Plan, within 12 months of such adoption, by the holders of a majority of the Common Stock
present and voting on the Plan at a duly held meeting of stockholders if holders of a majority of
the outstanding Common Stock vote on the proposal. No Option shall be granted after the 10th
anniversary of the Plan’s effective date (or, if earlier, the 10th anniversary of the adoption of
the Plan in the case of an Incentive Stock Option) or the earlier suspension or termination of the
Plan in accordance with its terms. The Plan shall terminate on the 10th anniversary of the Plan’s
effective date or on such earlier date as it may be terminated under the provisions of Section 11
hereof; provided that each Option granted prior to such date shall remain in effect in accordance
with its terms and each Deferred Stock Account shall be credited with dividends and subject to
adjustment until full payment of such Deferred Stock Account.

     11. Amendment or Discontinuance of the Plan. The Board of Directors may, insofar as
permitted by law and subject to the limitations contained in the Plan, at any time or from time to
time, suspend or terminate the Plan or revise or amend it in any respect whatsoever, except that,
without appropriate approval of the stockholders of the Common Stock, no such revision or amendment
shall increase the maximum number of Shares subject to the Plan, increase the maximum number of
Shares covered by Options that may be granted to one person, change the designation of the class of
employees eligible to receive options or decrease the minimum exercise price at which Options may
be granted.

     12. Applicable Laws or Regulations and Notification of Disposition. The Company’s obligation
to sell and deliver Shares under an Option is subject to such compliance as the Company deems
necessary or advisable with federal and state laws, rules and regulations applying to the
authorization, issuance, listing or sale of securities. The Company may also require in connection
with any exercise of an Incentive Stock Option that the Optionee agree to notify the Company when
making any disposition of the Shares, whether by sale, gift, or otherwise, within two years of the
date of grant or within one year of the date of exercise.

     13. No Employment Right, No Obligation to Exercise Option. Nothing contained in the Plan, or
in any Option, shall confer upon any Optionee any right to continued employment by the Company or
any of its Subsidiaries or to continued membership on the Board of Directors of the Company or
limit in any way the right of the Company or any of its Subsidiaries to terminate the Optionee’s
employment at any time.

     14. No Implied Rights. No person shall, by reason of participation in the Plan, acquire any
right in or title to any assets, funds or property of the Company or any

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Subsidiary. Rights conferred under the Plan are solely contractual rights to Shares, if any,
payable under the Plan, unsecured by any assets of the Company or any Subsidiary.

     15. Definitions. As used in this Plan, the following definitions shall apply:

     (a) “Board of Directors” shall mean the Board of Directors of the Company.

     (b) “Code” shall mean the Internal Revenue Code of 1986, as amended.

     (c) “Committee” shall mean the Compensation Committee of the Board of Directors or,
in the case of granting an Option and determining its terms and conditions, the Board of
Directors, if the Board of Directors so determines.

     (d) “Common Stock” shall mean the Company’s common stock, par value $1.00 per share.

     (e) “Company” shall mean Pier 1 Imports, Inc. or any successor.

     (f) “Deferred Stock Account” shall mean an appropriate bookkeeping account or record
maintained by the Company denominated in Deferred Stock Units for the sole purpose of
measuring and determining the number of shares of Common Stock to be delivered to the
Non-Employee Director in exchange for Deferred Stock Units. The Deferred Stock Account
shall not constitute or be treated as an escrow or trust fund of any kind, but shall
constitute an unfunded, unsecured liability of the Company to make payments in accordance
with the provisions of the Director Deferred Stock Program. The Non-Employee Director
shall not be entitled to redeem, exchange or otherwise receive any amount from the Deferred
Stock Account except as provided in the Director Deferred Stock Program.

     (g) “Deferred Stock Unit” shall mean a unit of credit of the Deferred Stock Account
representing one share of Common Stock. If the Company shall declare and pay a dividend on
the Common Stock in capital stock other than Common Stock or the Company shall engage in a
recapitalization, reclassification, merger or other transaction to change the capital or
corporate structure of the Company, then in accordance with Section 8(e) hereof, Deferred
Stock Units shall represent such other capital stock in place of or in addition to Common
Stock, and references to Common Stock with respect to Section 8 hereof shall in addition
mean, as appropriate, such other capital stock. In such an event, a Deferred Stock Account
may be denominated in separate classes of Deferred Stock Units representing different
classes of capital stock. In any calculation of Deferred Stock Units to be credited to a
Deferred Stock Account, the number of Deferred Stock Units shall be rounded to the nearest
one-hundredth of a unit.

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     (h) “Director Deferred Stock Program” shall mean the program of the Company
authorized in Section 8 hereof and as specifically instituted, amended or suspended from
time to time by the Board of Directors.

     (i) “Exchange Act” shall mean the Securities Exchange Act of 1934, as amended.

     (j) “Fair Market Value” shall be the applicable day’s closing sales price of the
security as reported for consolidated transactions on the principal exchange on which such
security is listed or admitted to trading, or, if no sales occur on that date, the price on
the most recent trading day prior thereto, or, if the security is not listed or admitted to
trading on a national securities exchange, the average of the highest bid and lowest ask
prices on such day as reported by the National Association of Securities Dealers or a
comparable service.

     (k) “Incentive Stock Option” shall mean a stock option qualifying under Section 422
of the Code.

     (l) “Non-Employee Director” shall mean a member of the Board of Directors of the
Company who is not an officer or employee of the Company or any Subsidiary.

     (m) “Option” shall mean a non-qualified stock option or an Incentive Stock Option
granted pursuant to the Plan.

     (n) “Optionee” shall mean a holder of an Option.

     (o) “Option Term” shall mean the period during which an Option may be exercised,
which shall be 10 years from the date of grant thereof unless a shorter period is provided
by the Committee or by a provision of the Plan.

     (p) “Permanent Disability” shall mean long-term disability as defined in the
Company’s employee long-term disability plan.

     (q) “Plan” shall mean the Pier 1 Imports, Inc. 1999 Stock Plan.

     (r) “Retirement” shall mean (i) as to an employee, the separation from employment,
other than by the Company for cause, after the earlier of (I) completing 15 years of
service with the Company or any Subsidiary and attaining age 55 or (II) attaining age 65,
and (ii) as to a director, ceasing to be a member of the Board of Directors, other than by
reason of death, disability or removal from office, after attaining age 70.

     (s) “Shares” shall mean shares of Common Stock subject to Options or deliverable in
exchange for Deferred Stock Units pursuant to the Plan.

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     (t) “Subsidiary” shall mean any corporation or other entity of which at least 50% of
the voting securities are owned directly or through one or more Subsidiaries.

Signed effective as of December 31, 2004 (the “Effective Date”).

	 	 	 	 	 
	Pier 1 Imports, Inc.,

a Delaware corporation

 	 	 
	By:  	/s/ Gregory S. Humenesky       	 	Date: October 9, 2006 
	 	Gregory S. Humenesky 	 	 
	 	Executive Vice President 	 	 
	 

10exv10w4

 

Exhibit 10.4

PIER 1 IMPORTS, INC.

SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN

RESTATED AS OF JANUARY 1, 2005

 

 

TABLE OF CONTENTS

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

(i)

 

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

(ii)

 

PIER 1 IMPORTS, INC.

SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN

ARTICLE 1—PURPOSE

     The purpose of this Supplemental Executive Retirement Plan (hereinafter referred to as the
“Plan”) is to provide supplemental retirement benefits for a select group of management or highly
compensated employees of Pier 1 Imports, Inc. It is intended that the Plan will aid in retaining
and attracting employees of exceptional ability by providing such individuals with these benefits.
This Plan was originally effective as of May 1, 1986 and was restated effective as of December 5,
2002. This restatement of the Plan shall only apply with respect to Participants who are actively
employed by the Employer after December 31, 2004. The prior provisions of the Plan as in effect as
of December 4, 2002 will continue to apply with respect to Participants who terminated employment
with the Employer prior to December 5, 2002 and the prior provisions of the Plan as in effect as of
December 31, 2004 will continue to apply with respect to Participants who terminated employment
with the Employer after December 4, 2002 and prior to January 1, 2005. Further, the prior
provisions of the Plan as in effect as of December 31, 2004 will continue to apply with respect to
any portion of a Participant’s Plan benefit which will not constitute compensation which is
deferred after December 31, 2004 for purposes of Section 409A of the Code.

     The purpose of this January 1, 2005 restatement is to cause the Plan to comply with the
requirements of Sections 409A(a)(2), (3) and (4) of the Code. The Plan is to be construed and
interpreted in accordance with such purpose.

ARTICLE II—DEFINITIONS

     For the purposes of this Plan, the following terms shall have the meanings indicated unless
the context clearly indicates otherwise:

2.1 Beneficiary

     “Beneficiary” means the person, persons or entity entitled under Article V to receive Plan
benefits after a Participant’s death.

2.2 Board

     “Board” means the Board of Directors of Pier 1 Imports, Inc.

2.3 Cause

     “Cause” means that the Participant:

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

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

2.4 Change of Control of the Employer

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

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

the transaction or event described in (a), (b) or (c) above, whichever may have occurred, also
constitutes a “change in the ownership or effective control” of the Employer within the meaning of
Section 409A(a)(2)(v) of the Code.

2.5 Code

     “Code” means the Internal Revenue Code of 1986, as amended.

2.6 Committee

     “Committee” means the Compensation Committee of Pier 1 or any other Committee chosen by the
Board.

2.7 Compensation

     “Compensation” for a calendar year means the sum of (i) the rate at which salary is being paid
to a Participant as of the last day of that calendar year, (ii) any bonuses actually paid to a
Participant during that calendar year excluding bonuses that were first payable during and deferred
from a previous calendar

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year, and (iii) any bonuses that were payable to a Participant during that calendar year which were
deferred for payment to a subsequent year.

2.8 Deferred Retirement Date

     “Deferred Retirement Date” means the first day of the month coincidental with or next
following the date that the Participant has a Separation from Service after the Participant’s
Normal Retirement Date.

2.9 Early Retirement Date

     “Early Retirement Date” means the first day of the month coincidental with or next following
the date on which a Participant has a Separation from Service, if the date of such Separation from
Service occurs after the Participant’s attainment of age fifty-five (55) and completion of ten (10)
Years of Plan Participation.

2.10 Employer

     “Employer” means any of Pier 1, its subsidiaries, including a trust directly or indirectly
owned by Pier 1, and each of their respective successors.

2.11 Good Reason

     “Good Reason” means, without the written consent of the Participant:

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

2.12 Highest Average Compensation

     “Highest Average Compensation” means the sum of the Participant’s Compensation for his highest
paid three (3) full calendar years of employment with Employer prior to termination of employment
(whether or not such years are consecutive) divided by three (3); provided, however, that if the
Participant has been employed for less than three (3) full calendar years, the “Highest Average
Compensation” shall be determined by using the sum of the Participant’s Compensation for his number
of completed months of employment divided by the number of his actual completed months of
employment multiplied by twelve (12).

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2.13 Normal Retirement Date

     “Normal Retirement Date” means the first day of the month coincidental with or next following
the date on which a Participant attains age sixty-five (65).

2.14 Participant

     “Participant” means any individual who is participating or has participated in this Plan
pursuant to Article III.

2.15 Pier 1

     “Pier 1” means Pier 1 Imports, Inc., a Delaware corporation and its successors.

2.16 Retirement

     “Retirement” means the Participant’s Deferred Retirement Date or Early Retirement Date other
than by reason of death or Total and Permanent Disability. Retirement shall also mean the date as
of which a Participant has a Separation from Service within twenty-four (24) months (or, if less,
any time of termination restriction imposed for purposes of Section 409A(a)(2)(A)(v) of the Code)
of a Change of Control of the Employer unless such Separation from Service is:

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

2.17 Separation from Service

     “Separation from Service” of a Participant means a termination of the Participant’s
employment with the Employer provided that it constitutes a “separation from service” under
Proposed Treasury Regulation § 1.409A-1(h) (or the successor final regulation thereto). In the
event that a Participant is not deemed to have incurred a termination of employment with the
Employer by virtue of a military leave, sick leave or other bona fide leave of absence under
Proposed Treasury Regulation § 1.409A-1(h) (or the successor final regulation thereto), the
Participant will be deemed to have experienced a separation from service at the time and to the
extent required under Proposed Treasury Regulation § 1.409A-1(h) (or the successor final regulation
thereto).

2.18 Supplemental Retirement Benefit

     “Supplemental Retirement Benefit” means the benefit determined under Article IV of this Plan.

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2.19 Termination

     “Termination” means a Participant’s Separation from Service for any reason other than
Retirement, death or Total and Permanent Disability.

2.20 Total and Permanent Disability

     “Total and Permanent Disability” means a Participant (i) is unable to engage in any
substantial gainful activity by reason of any medically determinable physical or mental impairment
which can be expected to result in death or can be expected to last for a continuous period of not
less than twelve (12) months, or (ii) is, by reason of any medically determinable physical or
mental impairment which can be expected to result in death or can be expected to last for a
continuous period of not less than twelve (12) months, receiving income replacement benefits for a
period of not less than three (3) months under an accident and health plan covering employees of
the Employer. The Committee’s decision as to total and permanent disability will be based upon
medical reports and/or other evidence satisfactory to the Committee.

2.21 Years of Credited Service

     “Years of Credited Service” means the years of credited vesting service with the Employer,
determined in accordance with the provisions of the Pier 1 Associates’ 401 (k) Plan, or any
successor tax-qualified retirement plan.

2.22 Years of Plan Participation

     “Years of Plan Participation” means the total number of full years in which a Participant has
participated in the Plan.

ARTICLE III—PARTICIPATION AND VESTING

3.1 Participation

     Participation in this Plan shall be limited to those employees of the Employer nominated by
the Chief Executive Officer of Pier 1 and approved by the Committee and by the Board, and who elect
to participate in this Plan by executing a Participation Agreement in the form designated by the
Committee.

3.2 Supplemental Retirement Benefit Vesting

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

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

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

ARTICLE IV—SUPPLEMENTAL RETIREMENT BENEFITS

4.1 Benefit

     Upon incurring a Separation from Service, a Participant shall receive a Supplemental
Retirement Benefit from this Plan which, along with the Participant’s benefits from primary Social
Security, shall equal approximately fifty percent (50%) of the Participant’s Highest Average
Compensation. The computation of said Supplemental Retirement Benefit shall be made in accordance
with the following provisions of this Article IV.

4.2 Retirement; Disability; Death

     Upon Retirement or if a Participant has a Separation from Service due to Total and Permanent
Disability, or death prior to the commencement of benefits under this Plan, the Employer shall pay
to the Participant a Supplemental Retirement Benefit calculated as follows:

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

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4.3 Adjustments for Deferred Retirement Benefit

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

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

4.4 Adjustments for Early Retirement Benefit

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

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

4.5 Termination

     If a Participant has a Separation from Service due to Termination, the Employer shall pay to
the Participant the Supplemental Retirement Benefit calculated under paragraph 4.2 above,
multiplied by the vesting percentage of benefit as provided in paragraph 3.2 above.

4.6 Form of Benefit Payment

     Each Participant shall, upon becoming a Participant, irrevocably elect in writing that his or
her benefits under this Plan be paid in one of the following forms:

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

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

     The forms of payment specified in subparagraphs (b), (c) and (d) above shall be the actuarial
and financial equivalents of the form of payment specified in subparagraph (a) above. For purposes
of determining actuarial equivalence, the benefits referred to in subparagraphs (b), (c) and (d)
above shall be discounted at a rate equal to the lesser of (i) the Pension Benefit Guaranty
Corporation interest rate for immediate annuities, as published in Appendix B to Part 2619 of
Title 29 of the Code of Federal Regulations, or any successor or replacement rate (the “PBGC
rate”) in effect on January 1 of each year; or (ii) a twenty-four (24) month rolling average of
the PBGC rate, using the current rate as of the beginning of the month in which the calculation is
made and the twenty-three (23) previous months.

     The vested, accrued benefit shall be calculated as of January 1 of each year for each
Participant, and in no event shall the vested, accrued benefit be less than such benefit calculated
for a previous year. For example, if a Participant has elected a lump-sum benefit and the lump-sum
benefit as of January 1, 1996 is $750,000 but, due to an increase in the discount rate, drops to
$700,000 as of January 1, 1997, the Participant’s vested, accrued lump-sum benefit as of January 1,
1997 would be $750,000.

4.7 Payments

     Any benefit due under this Article shall be paid as set forth below:

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

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

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

PAGE 8 SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN

RESTATED JANUARY 1, 2005

 

 

originally provided under the Plan and the first payment to the
Participant shall include an amount equal to the sum of the periodic payments
which would have been paid to such Participant but for the payment deferral
mandated pursuant to Section 409A(a)(2)(B)(i) of the Code.

4.8 Withholding; Payroll Taxes

     To the extent required by the law in effect at the time payments are made, the Employer shall
withhold from payments made hereunder any taxes required to be withheld from a Participant’s wages
by the federal, state or local government.

4.9 Payment to Guardian

     If a Plan benefit is payable to a minor or a person declared incompetent or to a person
incapable of handling the disposition of property, the Committee may direct payment of such Plan
benefit to the guardian, legal representative or person having the care and custody of such minor,
incompetent or person. The Committee may require proof of incompetency, minority, incapacity or
guardianship as it may deem appropriate prior to distribution of the Plan benefit. Such
distribution shall completely discharge the Committee and Employer from all liability with respect
to such benefit.

4.10 Major Medical and Hospitalization Insurance Coverage

     Upon Retirement or Separation from Service due to Total and Permanent Disability, a
Participant (for himself and his dependents) shall have the right to medical benefit coverage to be
provided by the Employer until the death of the Participant; provided, however, that if the
Participant is survived by a spouse, such spouse shall have the right to continued medical coverage
for a period of thirty-six (36) months from the Employer on the same basis as the Participant would
have had if he had survived. Such coverage shall be comparable to the Employer-provided major
medical and hospitalization insurance coverage, if any, made available generally to the Employer’s
active employees and their dependents. Such coverage will only be provided if the Participant
pays, or reimburses the Employer for, a portion of the total premium for such major medical
coverage equal to the amount such Participant would have been required to pay, or reimburse the
Employer, had he been covered as an active employee of the Employer. Premium payments or
reimbursements required to be paid by a Participant pursuant to this Section 4.10 shall be made by
the Participant at such times and in such form as the Employer shall establish pursuant to
reasonable payment methods.

     Upon Separation from Service due to Termination, a Participant (for the Participant and the
Participant’s dependents) shall have the right to participate, during the fifteen (15) years
immediately after the date such Participant attains age sixty-five (65), in the Employer provided
major medical coverage, if any, made available generally to the Employer’s active employees and
their dependents; provided, however, that such Participant pays, or reimburses the Employer for,
the total premium (i.e., Employer and employee portions) for such major medical coverage at such
times as the Employer’s active employees pay their respective contributions for such major medical
coverage.

     Notwithstanding the foregoing but to the extent and only to the extent required by Section
409A(a)(2)(B)(i) of the Code, in the case of any Participant who is a “key employee” as such term
is defined in Section 416(i) of the Code without regard to paragraph (5) thereof, medical benefit
coverage and/or medical benefit payments may not be provided and/or paid to such Participant as a
result of his Separation from Service before the date which is six (6) months after the date of
such Separation from
Service (or, if earlier, the date of death of the Participant following such Separation from
Service) unless such Separation from Service was by reason of any of the events described in
Sections 409A(a)(2)(A)(ii),

PAGE 9 SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN

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(iii), (iv), (v) or (vi) of the Code. Should the restriction described
in this Paragraph be required to be imposed and become applicable with respect to a Participant,
upon the lapse of the six (6) month deferral restriction, medical coverage and/or medical benefit
payments shall be made retroactively available to such Participant (for the Participant and the
Participant’s dependents) to the date that they otherwise would have been available under this
Section 4.10 and on the basis as contemplated by this Section 4.10.

ARTICLE V—BENEFICIARY DESIGNATION

5.1 Beneficiary Designation

     Each Participant shall have the right, at any time, to designate any person or persons as his
Beneficiary or Beneficiaries (both primary and contingent) to whom payment under this Plan shall be
paid in the event of death prior to complete distribution to the Participant of the benefits due
under the Plan. Each Beneficiary designation shall be in a written form prescribed by the
Committee and will be effective only when filed with the Committee during the Participant’s
lifetime. If a Participant’s Compensation is community property, any Beneficiary designation shall
be valid or effective only as permitted under applicable law.

5.2 Amendments

     Any Beneficiary designation may be changed by a Participant without the consent of any
designated Beneficiary by the filing of a new Beneficiary designation with the Committee. The
filing of a new Beneficiary designation form will cancel all Beneficiary designations previously
filed.

5.3 No Beneficiary Designation

     If any Participant fails to designate a Beneficiary in the manner provided above, or if the
Beneficiary designated by a deceased Participant predeceases the Participant, the Committee, in its
discretion, shall direct the Employer to distribute such Participant’s benefits (or the balance
thereof) as follows:

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

5.4 Effect of Payment

     Payment to the Beneficiary shall completely discharge Employer’s obligations under this Plan.

5.5 Death of Beneficiary

     Following commencement of payment of Plan benefits, if the Beneficiary designated by a
deceased Participant dies before receiving complete distribution of the benefits, the Committee
shall direct the Employer to distribute the balance of such benefits:

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

PAGE 10 SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN

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

ARTICLE VI—ADMINISTRATION

6.1 Committee; Duties

     This Plan shall be administered by the Committee. Members of the Committee may be
Participants under this Plan.

6.2 Agents

     The Committee may appoint an individual to be the Committee’s agent with respect to the
day-to-day administration of the Plan. In addition, the Committee may, from time to time, employ
other agents and delegate to them such administrative duties as it sees fit, and may from time to
time consult with counsel who may be counsel to the Employer.

6.3 Binding Effect of Decisions

     The decision or action of the Committee with respect to any question arising out of or in
connection with the administration, interpretation and application of the Plan and the rules and
regulations promulgated hereunder shall be final and binding upon all persons having any interest
in the Plan.

6.4 Indemnity of Committee

     The Company shall indemnify and hold harmless the members of the Committee against any and all
claims, loss, damage, expense or liability arising from any action or failure to act with respect
to this Plan, except in the case of gross negligence or willful misconduct by the Committee.

ARTICLE VII—CLAIMS PROCEDURES

7.1 Claim

     Any person claiming a benefit, requesting an interpretation or ruling under the Plan, or
requesting information under the Plan shall present the request in writing to the Committee which
shall respond in writing as soon as practicable.

7.2 Denial of Claim

     If the claim or request is denied, the written notice of denial shall be made within ninety
(90) days of the date of receipt of such claim or request by the Committee and shall state:

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

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7.3 Review of Claim

     Any person whose claim or request is denied or who has not received a response within ninety
(90) days may request review by notice given in writing to the Committee within sixty (60) days of
receiving a response or one hundred fifty (150) days from the date the claim was received by the
Committee. The claim or request shall be reviewed by the Committee who may, but shall not be
required to, grant the claimant a hearing. On review, the claimant may have representation,
examine pertinent documents, and submit issues and comments in writing.

7.4 Final Decision

     The decision on review shall normally be made within sixty (60) days after the Committee’s
receipt of a request for review. If an extension of time is required for a hearing or other
special circumstances, the claimant shall be notified and the time shall be one hundred twenty
(120) days after the Committee’s receipt of a request for review. The decision shall be in writing
and shall state the reason and the relevant Plan provisions. All decisions on review shall be
final and bind all parties concerned.

ARTICLE VIII—TERMINATION, SUSPENSION OR AMENDMENT

8.1 Amendment or Termination

     The Board may, in its sole discretion, amend or terminate this Plan at any time, in whole or
in part; provided, however, that no such amendment or termination shall adversely affect the
benefits of Participants which have vested in accordance with paragraph 3.2 above prior to such
action, the benefits of any Participant who has had a Separation from Service, or the benefits of
any Beneficiary of a Participant who has died; provided further, however, that the amendment or
termination of this Plan shall not alter in any manner the timing or form of benefit payments under
this Plan.

8.2 Successor Employer

     The provisions of this Plan shall be binding upon and inure to the benefit of any successor or
assign of the Employer. If a successor Employer amends or terminates this Plan, no such amendment
or termination shall adversely affect the benefits of Participants which have vested in accordance
with paragraph 3.2 above prior to such action, the benefits of any Participant who has previously
retired, or the benefits of any Beneficiary of a Participant who has previously died.

ARTICLE IX—MISCELLANEOUS

9.1 Unsecured General Creditor

     Benefits to be provided under this Plan are unfunded obligations of the Employer.
Participants and their Beneficiaries, heirs, successors, and assigns shall have no secured interest
or claim in any property or assets of Employer, nor shall they be Beneficiaries of, or have any
rights, claims or interests in any life insurance policies, annuity contracts or the proceeds
therefrom owned or which may be acquired by Employer (“Policies”). Except as provided in paragraph
9.2, such Policies or other assets of Employer shall not be held under any trust for the benefit of
Participants, their Beneficiaries, heirs, successors or assigns, or be considered in any way as
collateral security for the fulfilling of the obligations of Employer under this Plan.

PAGE 12 SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN

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9.2 Trust Fund

     Employer shall be responsible for the payment of all benefits provided under the Plan. At its
discretion, Employer may establish one (1) or more trusts, with such trustees as the Board may
approve, for the purpose of providing for the payment of such benefits. Although such a trust
shall be irrevocable, its assets shall be held for payment of all Employer’s general creditors in
the event of insolvency. To the extent any benefits provided under the Plan are paid from any such
trust, Employer shall have no further obligation to pay them. If not paid from the trust, such
benefits shall remain the obligation of Employer. In no event shall any provision of this Plan be
interpreted to provide, or of any trust established pursuant to this Section 9.2 provide or be
interpreted to provide, that any assets of the Employer (whether placed in trust or not) will
become restricted to the provision of benefits under the Plan in connection with a change in the
Employer’s financial health and in no event will any assets of the Employer, in fact, be so
restricted.

9.3 Nonassignability

     Neither a Participant nor any other person shall have any right to commute, sell, assign,
transfer, pledge, anticipate, mortgage or otherwise encumber, hypothecate or convey in advance of
actual receipt the amounts, if any, payable hereunder, or any part thereof. No part of the amounts
payable shall, prior to actual payment, be subject to seizure or sequestration for the payment of
any debts, judgments, alimony or separate maintenance owed by a Participant or any other person,
nor be transferable by operation of law in the event of a Participant’s or any other person’s
bankruptcy or insolvency.

9.4 Not a Contract of Employment

     The terms and conditions of this Plan shall not be deemed to constitute a contract of
employment between Employer and the Participant, and the Participant (or his Beneficiary) shall
have no rights against the Employer except as may otherwise be specifically provided herein.
Moreover, nothing in this Plan shall be deemed to give a Participant the right to be retained in
the service of Employer or to interfere with the right of Employer to discipline or discharge him
at any time.

9.5 Suicide

     Notwithstanding the provisions of Article IV, no benefit shall be paid to a Beneficiary if the
Participant’s death occurs as a result of suicide during the twelve (12) successive calendar months
beginning with the calendar month following the commencement of an individual’s participation in
this Plan.

9.6 Participant’s Cooperation

     A Participant will cooperate with Employer by furnishing any and all information requested by
Employer in order to facilitate the payment of benefits hereunder, and by taking such physical
examinations and such other action as may be requested by Employer.

9.7 Domestic Relations Orders

     All or any portion of a Participant’s Plan benefit will be paid to an individual other than
such Participant pursuant to and in accordance with the provisions of a domestic relations order
but only if such domestic relations order satisfies all of the requirements to be a “qualified
domestic relations order” within the meaning of Section 414(p) of the Code and only if the timing
of payment or payments under the order comply with the distribution timing requirements of Section
409A of the Code.

PAGE 13 SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN

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9.8 Terms

     Whenever any words are used herein in the masculine, they shall be construed as though they
were used in the feminine in all cases where they would so apply; and wherever any words are used
herein in the singular or in the plural, they shall be construed as though they were used in the
plural or the singular, as the case may be, in all cases where they would so apply.

9.9 Captions

     The captions of the articles, sections and paragraphs of this Plan are for convenience only
and shall not control or affect the meaning or construction of any of its provisions.

9.10 Governing Law

     The provisions of this Plan shall be construed and interpreted according to the laws of the
State of Delaware.

9.11 Validity

     In case any provision of this Plan shall be illegal or invalid for any reason, said illegality
or invalidity shall not affect the remaining parts hereof, but this Plan shall be construed and
enforced as if such illegal and invalid provision had never been inserted herein.

9.12 Successors

     The provisions of this Plan shall bind and inure to the benefit of Employer and its successors
and assigns. The term successors as used herein shall include any corporate or other business
entity which shall, whether by merger, consolidation, purchase or otherwise acquire all or
substantially all of the business and assets of Employer, and successors of any such corporation or
other business entity.

9.13 Notice

     Any notice or filing required or permitted to be given to the Committee under the Plan shall
be sufficient if in writing and hand delivered, or sent by registered or certified mail, to any
member of the Committee, the President of the Employer, or the Employer’s Statutory Agent. Such
notice shall be deemed given as of the date of delivery or, if delivery is made by mail, as of
three (3) days following the date shown on the postmark or on the receipt for registration or
certification.

	 	 	 	 	 
	 	PIER 1 IMPORTS, INC. 

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

PAGE 14 SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN

RESTATED JANUARY 1, 2005

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