SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to ss.240.14a-11(c) or ss.240.14a-12
FOOTSTAR
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
------------------------------------------------------------------------
2) Aggregate number of securities to which transaction applies:
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3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:*
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4) Proposed maximum aggregate value of transaction:
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[ ] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting
fee was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
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2) Form, Schedule or Registration Statement No.:
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3) Filing Party:
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4) Date Filed:
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<PAGE>
[FOOTSTAR LOGO]
933 MACARTHUR BOULEVARD, MAHWAH, N.J. 07430
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NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
----------------
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of Footstar,
Inc., a Delaware corporation (the "Corporation"), will be held at the offices of
the Corporation's headquarters at 933 MacArthur Boulevard, Mahwah, New Jersey
07430, on Tuesday, May 20, 1997, at 9:00 A.M. local time, for the following
purposes:
1. To elect two directors to hold office for a term expiring in 2000;
2. To consider and vote upon a proposal to approve the Corporation's 1996
Incentive Compensation Plan;
3. To consider and vote upon a proposal to approve the Corporation's
Associate Stock Purchase Plan;
4. To ratify the appointment of KPMG Peat Marwick LLP as the
Corporation's auditors; and
5. To consider and transact such other business as may properly come
before the Annual Meeting or any postponements or adjournments
thereof.
Stockholders of record at the close of business on April 1, 1997 are
entitled to notice of and to vote at the Annual Meeting or at any postponements
or adjournments thereof.
By order of the Board of Directors.
MAUREEN RICHARDS
Vice President and Secretary
Mahwah, New Jersey
Dated: April 11, 1997
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YOUR VOTE IS IMPORTANT. TO ASSURE YOUR REPRESENTATION AT THE MEETING, PLEASE
COMPLETE THE ENCLOSED PROXY AND RETURN IT PROMPTLY, WHETHER OR NOT YOU PLAN TO
ATTEND THE MEETING.
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<PAGE>
[FOOTSTAR LOGO]
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ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 20, 1997
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PROXY STATEMENT
This Proxy Statement is being furnished to the stockholders of Footstar,
Inc., a Delaware corporation ("Footstar" or the "Corporation"), in connection
with the solicitation of proxies by the Board of Directors of the Corporation
(the "Board") for use at the first Annual Meeting of Stockholders of the
Corporation to be held on Tuesday, May 20, 1997, at 9:00 A.M. local time, at the
offices of the Corporation, 933 MacArthur Boulevard, Mahwah, New Jersey 07430,
and at any and all postponements or adjournments thereof (the "Meeting"). At the
Meeting, stockholders of the Corporation are being asked to consider and vote on
(1) the election of two directors to hold office for a term expiring in 2000;
(2) a proposal to approve the Corporation's 1996 Incentive Compensation Plan
(the "1996 ICP"); (3) a proposal to approve the Corporation's Associate Stock
Purchase Plan (the "ASPP"); and (4) the ratification of the appointment of KPMG
Peat Marwick LLP as the Corporation's auditors.
This is the first solicitation by the Corporation of proxies for an annual
meeting of stockholders. Prior to October 12, 1996, the Corporation was a
wholly-owned subsidiary of Melville Corporation ("Melville"), which subsequently
became a wholly-owned subsidiary of CVS Corporation ("CVS"). As part of its
restructuring plan, Melville divested its ownership interest in Footstar by
means of a tax-free distribution (the "Distribution") to its stockholders on
October 12, 1996 of all of the outstanding shares of Common Stock, par value
$0.01 per share of Footstar (the "Common Stock"). As a result of the
Distribution, Footstar became a separate, publicly held corporation.
This Proxy Statement, Notice of Meeting and accompanying proxy are first
being mailed to stockholders of Footstar on or about April 11, 1997.
GENERAL
The holders of shares of Common Stock of record at the close of business on
April 1, 1997 are entitled to vote such shares at the Meeting. On April 1, 1997,
there were outstanding 30,533,883 shares of Common Stock. The presence in person
or by proxy of the holders of a majority of the shares outstanding on the record
date is necessary to constitute a quorum for the transaction of business.
Each stockholder is entitled to one vote, in person or by proxy, for each
share of Common Stock held as of the record date on each matter to be voted on
at the Meeting. Directors are elected by the affirmative vote of a plurality of
the votes cast at the Meeting. The proposals to approve the 1996 ICP, to approve
the ASPP and to ratify the appointment of the auditors each requires the
affirmative vote of a majority of shares present in person or represented by
proxy at the Meeting and entitled to vote.
Proxies for shares marked "abstain" on a matter will be considered to be
represented at the Meeting, but not voted for such purposes. Broker non-votes,
that is, shares registered in the names of brokers or other "street name"
nominees for which proxies are voted on some but not all matters, will be
considered to be represented at the Meeting but will be considered to be voted
only as to those matters actually voted on.
Shares of Common Stock represented by a proxy received in time for the
Meeting and properly executed will be voted as specified in the proxy, unless
the proxy has previously been revoked. Unless contrary instructions are given in
the proxy, it will be voted by the persons designated in the proxy for the
election of the Board's nominees for
<PAGE>
director, for approval of the 1996 ICP, for approval of the ASPP, for
ratification of the appointment of KPMG Peat Marwick LLP as the Corporation's
auditors and, with respect to any other matters properly submitted to
stockholders at the Meeting, as recommended by the Board or, if no such
recommendation is given, in their discretion.
A proxy may be revoked by filing with the Secretary of the Corporation,
prior to the exercise of such proxy, either a written revocation of that proxy
or a new proxy bearing a later date. A proxy may also be revoked by filing a
written notice of revocation with the Secretary of the Meeting prior to the
voting of the proxy. The presence of a stockholder at the Meeting will not in
itself constitute revocation of a proxy.
This proxy solicitation is being made on behalf of the Corporation and the
expense of preparing, printing and mailing this Proxy Statement and proxy is
being paid by the Corporation. The Corporation has retained Morrow & Co. to
assist it in the solicitation of proxies for a fee of $4,500 plus out-of-pocket
expenses. In addition, solicitations may be made in person or by mail,
telephone, telegraph or telefax, by the directors, officers and regularly
engaged employees of the Corporation, without extra compensation. The
Corporation will reimburse banks, brokers and other custodians, nominees and
fiduciaries for their costs in sending proxy materials to the beneficial owners
of Common Stock.
PROPOSAL 1
ELECTION OF DIRECTORS
General. The Board of Directors currently consists of seven members and is
divided into three classes of approximately equal size. Directors are generally
elected for three-year terms on a staggered term basis, so that the term of
office of one class will expire each year and the terms of office of the other
classes will extend for additional periods of one and two years, respectively.
This year's nominees each have been nominated to serve for a three-year term
expiring in the year 2000. The Corporation has inquired of each nominee and
determined that he will serve if elected.
The names of the nominees for election, the directors whose terms extend
beyond the Meeting and certain information about each of them are set forth in
the tables below. The Board of Directors recommends that stockholders vote
"FOR" the Corporation's nominees for director.
<TABLE>
<CAPTION>
TABLE I--NOMINEES FOR ELECTION AT THE 1997 ANNUAL MEETING
Name, Age and Director Term
Position with Footstar Principal Occupation During Past Five Years Since Expiring
- ---------------------- ------------------------------------------- -------- --------
<S> <C> <C> <C>
J.M. Robinson, 51 ........ Chairman of the Board, Chief 3/1996 2000
Executive Officer and President of
the Corporation. Prior to the
Distribution, Mr. Robinson was
President and Chief Executive
Officer of the Meldisco division of Melville.
Stanley P. Goldstein, 62 . Chairman and Chief Executive 3/1996 2000
Officer of CVS and formerly of
Melville. He also served as
President of Melville from January
1987 to January 1994. Mr.
Goldstein also serves as a
director of NYNEX and Linens 'n
Things, Inc.
</TABLE>
2
<PAGE>
TABLE II--DIRECTORS WHOSE TERMS CONTINUE BEYOND THIS ANNUAL MEETING
<TABLE>
<CAPTION>
Name, Age and Director Term
Position with Footstar Principal Occupation During Past Five Years Since Expiring
- ---------------------- ------------------------------------------- -------- --------
<S> <C> <C> <C>
George S. Day, 59 ....... Geoffrey G. Boisi Professor and 10/1996 1999
Director of Huntsman Center for
Global Competition and Innovation
at The Wharton School, University
of Pennsylvania; consultant to
corporations including AT&T,
Eastman Kodak, General Electric,
Northern Telecom and IBM Corporation.
Terry R. Lautenbach, 58 . Director of CVS and a member of 10/1996 1998
its Executive Committee. A retired
Senior Vice President of IBM
Corporation, Mr. Lautenbach is
currently a director of Air
Products Corp. and Varian
Associates, Inc., and a Trustee of
Loomis-Sayles Mutual Funds.
Bettye Martin Musham, 64 President and Chief Executive 10/1996 1999
Officer of Gear Holdings, Inc.,
which she co-founded in 1977. Ms.
Martin Musham is also a director
of Brunswick Corporation,
Consolidated Communications, Inc.,
Peace Links and the World Service
Council of the YMCA of the USA.
Kenneth S. Olshan, 64 ... Chairman and Chief Executive 10/1996 1999
Officer of Wells Rich Greene BDDP
until October 1995. He currently
serves on the Creative Review
Board of the Advertising Council
and the boards of the Central Park
Conservatory, the National
Multiple Sclerosis Foundation and
Polytechnic University.
M. Cabell Woodward,
Jr., 68 ............... Director of CVS and Chairman of 10/1996 1998
its Executive Committee. A retired
Vice Chairman, Chief Financial
Officer and Director of ITT
Corporation, Mr. Woodward is
currently a director of The Black
& Decker Corporation and a Trustee
of a management investment company
sponsored by Paine Webber.
</TABLE>
Committees of the Board of Directors. The Board of Directors held two
meetings in 1996. Prior to the Distribution, there were no committees of the
Board of Directors. The Board has established an Audit Committee, a Nominating
Committee and a Compensation Committee.
3
<PAGE>
The Audit Committee held two meetings during 1996. The main purpose of the
Audit Committee is the oversight of the financial reporting process, the system
of internal controls and the audit process. The duties of the Audit Committee,
among others, are (i) to consider the adequacy of the accounting and internal
control systems, (ii) to oversee the audit function, (iii)to review annual
consolidated financial statements, (iv) to institute, direct and supervise
special investigations, (v) to recommend to the Board the appointment of
independent auditors, (vi) to review non-audit services provided by the
independent auditors, (vii) to review the Corporation's Code of Conduct,
including its conflict of interest policy and compliance procedures, and (viii)
to report to the Board from time to time and make such recommendations and
observations as it sees fit.
The members of the Audit Committee are:
George S. Day, Chair
Kenneth S. Olshan
M. Cabell Woodward, Jr.
The Nominating Committee held one meeting during 1996. The duties of the
Nominating Committee are (i) to nominate, in concert with the Chairman of the
Board of Directors, any new director for election by the Board, (ii) to report
annually to the Board an assessment of the Board's performance, (iii) to review
with the Board the criteria it believes appropriate for Board membership and
(iv) to recommend to the Board guidelines on corporate governance. The
Corporation's Bylaws establish an advance written notice procedure for
stockholders seeking to nominate candidates for election as directors at any
annual meeting of stockholders. See "Stockholder Proposals and Nominations for
the 1998 Meeting," below. Alternatively, the Nominating Committee will consider
nominating persons recommended to the Committee by stockholders; the Committee,
however, does not have any formal procedure to be followed by stockholders in
submitting such recommendations.
The members of the Nominating Committee are:
Kenneth S. Olshan, Chair
Stanley P. Goldstein
Bettye Martin Musham
The Compensation Committee held two meetings during 1996. The duties of the
Compensation Committee are (i) to establish policies governing, and to
implement, administer and interpret all aspects of, compensation of all officers
and other key executives of the Corporation and its subsidiaries whose base
salaries are $150,000 or greater, and other employees designated by the
Committee as key executives of the Corporation and its subsidiaries, (ii) to
have the same responsibilities with respect to compensation of non-employee
directors, except that determinations and actions which are non-ministerial are
subject to approval of the full Board and (iii) in connection with the
foregoing, to establish and administer the Corporation's compensation and
benefit policies, plans and programs other than health and welfare plans
generally available to employees.
The members of the Compensation Committee are:
Bettye Martin Musham, Chair
George S. Day
Terry R. Lautenbach
4
<PAGE>
STOCK OWNERSHIP OF MANAGEMENT AND PRINCIPAL STOCKHOLDERS
The following table sets forth certain information as to beneficial
ownership of the outstanding Common Stock of the Corporation as of March 3,
1997, by each person known to the Corporation to own beneficially more than 5%
of the outstanding Common Stock, by each director and nominee of the
Corporation, by each of the named executive officers listed in the Summary
Compensation Table (the "Named Officers"), and by all Named Officers and
directors of the Corporation as a group. To the Corporation's knowledge, except
as otherwise indicated, all persons listed below have sole voting and investment
power with respect to such shares.
Number of
Common Shares
Beneficially percent
Name of Beneficial Owner Owned(1) of Class
------------------------ ------------- --------
Directors And Named Officers:
J.M. Robinson ........................... 73,517(2) *
Carlos E. Alberini ...................... 26,659(2) *
Maureen Richards ........................ 12,716(2) *
Donald V. Roach ......................... 10,437(2) *
George S. Day ........................... 2,193(3) *
Stanley P. Goldstein .................... 49,434(4) *
Terry R. Lautenbach ..................... 2,517(3) *
Bettye Martin Musham .................... 2,122(3) *
Kenneth S. Olshan ....................... 2,000(3) *
M. Cabell Woodward, Jr. ................. 3,273(3) *
All Named Officers and Directors as a
group (10 persons) .................... 184,868(2, 3, 4) *
5% Stockholders:
FMR Corporation,
Edward C. Johnson, 3d and
Abigail P. Johnson (5)
82 Devonshire Stree
Boston, MA 02109 ....................... 4,628,979 15.2%
Sasco Capital, Inc. (6)
10 Sasco Hill Road
Fairfield, CT 06430 .................... 2,265,953 7.4%
- ------------
NOTES:
* Less than one percent (1%).
(1) Unless otherwise indicated, beneficially owned shares include shares over
which the named person exercises either sole or shared voting power or sole
or shared investment power. It also includes shares owned (i)by a spouse,
minor children or by relatives sharing the same home, (ii)by entities owned
or controlled by the named person, and (iii)by other persons if the named
person has the right to acquire such shares within 60 days by the exercise
of any right or option. Unless otherwise noted, all shares are owned of
record and beneficially by the named person.
(2) Of the shares shown, 42,322, 21,088, 12,716 and 9,737 for Mr. Robinson,
Mr. Alberini, Ms. Richards and Mr. Roach, respectively, are not owned
of record but constitute restricted stock units or deferred shares
under the Corporation's Deferred Compensation Plan. A majority of such
shares are subject to forfeiture if the executive does not continue
to be employed by the Corporation for five years from the grant date.
(3) Of the shares shown 1,000 are shares which the director has the right to
receive on April 25, 1997 pursuant to a director stock unit grant and an
additional 1,000 are deferred shares which the director has the right to
receive at the later of ceasing to be a director or attaining the age of 65.
In addition, of the shares shown, 193, 122 and 122 shares for Mr. Day, Mr.
Woodward and Ms. Musham, respectively, are not owned of record but
constitute deferred shares under the 1996 Non-Employee Director Plan.
(4) Of the shares shown, 5,758 shares are owned by Mr. Goldstein's wife.
Mr. Goldstein disclaims beneficial ownership of such shares.
5
<PAGE>
(5) FMR Corp., Edward C. Johnson, 3d and Abigail P. Johnson (collectively,
"FMR") filed on February 14, 1997 a statement with the Securities and
Exchange Commission (the "SEC" or the "Commission") on Schedule 13G under
the Securities Exchange Act of 1934 (the "Exchange Act"), in accordance with
Rule 13d-1(b)(ii)(G) of the Exchange Act, disclosing beneficial ownership of
greater than 5% of the Corporation's Common Stock. In its Schedule 13G, FMR
reported, but disclaimed beneficial ownership of, 28,815 of the shares
referenced herein.
(6) Sasco Capital Inc. filed a statement with the SEC dated February 4, 1997 on
Schedule 13G under the Exchange Act, disclosing beneficial ownership to
direct the disposition of 2,265,953 shares of Common Stock and the sole
voting power to vote 1,323,879 shares.
EXECUTIVE COMPENSATION
Summary Compensation Table. The following table summarizes all compensation
awarded to, earned by or paid to the four named key-policy making officers of
the Corporation (the "Named Officers") for all services rendered to the
Corporation and its subsidiaries during the Corporation's partial fiscal year
ended December 31, 1996, the first year of Footstar's operations as an
independent, publicly-held company.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Long Term Compensation
------------------- ----------------------------
Annual Compensation Awards
------------------- ----------------------------
(A) (b) (c) (d) (f) (g) (h)
Restricted/ Number of
Deferred Securities All Other
Fiscal Stock Underlying Compen-
Name And Principal Position Year Salary ($) Bonus ($) Award (S)($) Options/SARs (#) sation ($)
- --------------------------- ------ ---------- --------- ------------ ---------------- ----------
<S> <C> <C> <C> <C> <C> <C>
J.M. Robinson, Chairman of 1996 600,000(1) 480,000 720,000(2) 120,000 5,400(3)
the Board, Chief Executive
Officer and President
Carlos E. Alberini, Senior 1996 160,000(1) 102,400 371,200(2) 60,000 9,475(3)
Vice President and Chief
Financial Officer
Maureen Richards, Vice 1996 100,000(1) 56,000 228,000(2) 30,000 5,400(3)
President, General Counsel
and Corporate Secretary
Donald V. Roach, 1996 100,000(1) 48,000 172,731(2) 7,000 7,550(3)
Vice President and
Corporate Controller
</TABLE>
- ------------
(1) These figures represent payments for the period beginning on January 1,
1996 and ending on December 31, 1996 for Mr. Robinson, and for the period
beginning on July 1, 1996 and ending on December 31, 1996 for the other
Named Officers. The annualized 1996 base salaries of Mr. Alberini, Ms.
Richards and Mr. Roach were $320,000, $200,000 and $200,000, respectively.
(2) Amounts shown in this column represent the value of shares of Footstar
Common Stock underlying restricted stock units and deferred shares granted
to the Named Officer in 1996, in each case valued as of the date of the
grant. On October 12, 1996, Mr. Robinson, Mr. Alberini, Ms. Richards and Mr.
Roach were granted 28,409, 15,152, 9,470 and 7,102 shares of restricted
stock units, respectively, with grant date values of $600,000, $320,000,
$200,000 and $150,000, respectively. At December 31, 1996, each such officer
continued to hold such restricted stock units, which had year-end market
values of $706,674, $376,906, $235,566 and $176,662, respectively. Each of
the Named Officers deferred a portion of his or her annual incentive bonus
earned in respect of the 1996 fiscal year and paid on March 3, 1997. The
Corporation matched such deferred bonus amounts with the following grants of
deferred shares, (valued at the market value of the Corporation's stock on
March 3, 1997): Mr. Robinson 4,637 shares valued at $120,000; Mr. Alberini
1,978 shares valued at $51,200, Ms. Richards 1,082
6
<PAGE>
shares valued at $28,000, and Mr. Roach 878 shares valued at $22,731. These
shares generally vest in five(5) years contingent upon continued employment
with the Corporation. The restricted stock units and the deferred shares
are entitled to any dividends paid on Footstar Common Stock; the
Corporation has not paid dividends since the Distribution.
(3) Of these amounts, $3,375 for Mr. Alberini and $1,687 for Mr. Roach represent
one-half year's interest (calculated at 6.75% annually) which these
executives might otherwise have had to pay on non-interest bearing loans
granted by the Corporation. See "Certain Transactions with Related Parties"
for additional information regarding Mr. Alberini's loan. The remaining
amounts represent the Corporation's contributions under the Corporation's
401(k) Profit Sharing Plan on behalf of the Named Officers.
Option Grants in Last Fiscal Year. The table below shows information
regarding grants of stock options made to the Named Officers during fiscal 1996,
all of which were made under the 1996 ICP. The amounts shown for each of the
Named Officers as potential realizable values are based on arbitrarily assumed
annualized rates of stock price appreciation of five percent and ten percent
over the full ten year term of the options, which would result in Common Stock
prices of approximately $34.40 and $54.78, respectively. The Corporation is not
aware of any model or formula which will determine with reasonable accuracy a
present value for stock options. The actual before-tax amount, if any, realized
upon the exercise of stock options will depend upon the excess, if any, of the
market price of the Corporation's Common Stock over the exercise price per share
of Common Stock of the stock option at the time the stock option is exercised.
There is no assurance that the hypothetical present values of the stock options
reflected in this table will be realized.
<TABLE>
<CAPTION>
OPTION/SAR GRANTS IN LAST FISCAL YEAR
Potential Realizable
Value at Assumed
Number of % of Total Annual Rates of Stock
Securities Options/SARs Price Appreciation For
Underlying Granted to Exercise or Option Term ($)
Options/SARs Employees in Base Price Expiration ------------------------
Name Granted (#) Fiscal Year ($/sh) Date 5% 10%
----- ------------ ------------ ---------- ---------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
J.M. Robinson ............ 120,000(1) 19.41 21.12 10/23/06 1,593,871 4,039,181
Carlos E. Alberini ....... 60,000(1) 9.71 21.12 10/23/06 798,935 2,019,590
Maureen Richards ......... 30,000(1) 4.85 21.12 10/23/06 398,466 1,009,795
Donald V. Roach .......... 7,000(1) 1.13 21.12 10/23/06 92,976 235,619
</TABLE>
- ------------
(1) Each option granted vests at the rate of 20% per year over a five year
period beginning on the first anniversary of the date of grant.
Option Exercises And Year-End Option Holdings. The following table shows
information regarding option exercises during 1996 as well as 1996 year-end
option holdings for each of the Named Officers.
<TABLE>
<CAPTION>
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION/SAR VALUES
Shares Number of Securities Value of Unexercised
Acquired Value Underlying Unexercised In-the-Money
on Exercise Realized Options/SARs at FY-End (#) Options/SARs at FY-End
Name (#) ($) Exercisable/Unexercisable Exercisable/Unexercisable
---- ------------ -------- ------------------------- -------------------------
<S> <C> <C> <C> <C>
J.M. Robinson ............ 0 0 0/120,000 0/450,600
Carlos E. Alberini ....... 0 0 0/ 60,000 0/225,300
Maureen Richards ......... 0 0 0/ 30,000 0/112,650
Donald V. Roach .......... 0 0 0/ 7,000 0/ 26,285
</TABLE>
7
<PAGE>
Supplemental Retirement Plan. The following table indicates the approximate
amount of annual retirement income that would be payable under the Supplemental
Retirement Plan for Select Senior Management of Footstar, Inc. (the
"Supplemental Retirement Plan") to selected executives,including each of the
Named Officers, based on various assumptions as to compensation and years of
service, assuming benefits are computed under a straight life annuity formula
and retirement at age 60. The annual benefit will be reduced by the annualized
value of any retirement or deferred profit sharing benefit paid or payable under
any other plan maintained by the Corporation (excluding benefits attributable to
contributions made by participants), but no other offset for social security or
other benefits will be deducted from the amounts shown.
PENSION PLAN TABLE
Estimated Annual Retirement Benefits Based on Service of
--------------------------------------------------------
Compensation 10 YEARS 15 YEARS 20 YEARS 25 YEARS
- ------------ -------- -------- -------- --------
$ 200,000 $ 40,000 $ 60,000 $ 80,000 $100,000
$ 400,000 $ 80,000 $120,000 $160,000 $200,000
$ 800,000 $160,000 $180,000 $240,000 $300,000
$1,000,000 $200,000 $300,000 $400,000 $500,000
$1,200,000 $240,000 $360,000 $480,000 $600,000
The Supplemental Retirement Plan is designed to provide competitive
retirement benefits to selected executives with at least ten years of credited
service. Service is defined as service to the Corporation or its subsidiaries or
successors. In recognition of Mr. Robinson's service while an officer of
Melville and while covered by Melville's supplemental retirement plan, the
Compensation Committee of the Board has credited Mr. Robinson with an additional
15 years of service under Footstar's Supplemental Retirement Plan. The normal
retirement benefit commencing at age 60 is equal to 2% of the highest average
three consecutive years' base salary plus target annual bonus for the executive
in the preceding ten years, multiplied by the number of years of credited
service with the Corporation (to a maximum of 25 years). In the case of
retirement on or after age 55 but before age 60, a reduced benefit is provided.
Except in the event of a change in control (as defined in the Supplemental
Retirement Plan) or as provided in the Employment Agreements referred to below,
no benefits are payable to an eligible executive who terminates employment prior
to age 55 or prior to completing ten years of credited service. Benefits are
generally payable in annual installments for the life of the executive, but
other forms of payment of equivalent actuarial value may be elected.
Compensation which may potentially be used to determine benefits for each
of the Named Officers covered by the Supplemental Retirement Plan for 1996
equals the respective amounts shown in the Salary column of the Summary
Compensation Table, plus the target amount of the Named Officer's annual
incentive bonus. The amounts shown in the 1996 Bonus column of the Summary
Compensation Table for the Named Officers were 60% greater than those target
amounts. As of December 31, 1996, the estimated credited years of service under
the Supplemental Retirement Plan for Messrs. Robinson, Alberini and Roach and
Ms. Richards were 15, 0, 0 and 0 year(s), respectively. If a covered executive
is terminated without "cause" or voluntarily terminates his or her employment
for "good reason" (as each such term is defined in the Supplemental Retirement
Plan) contemporaneously with or within two years following a change in control,
benefits will be payable in a lump sum equal to the actuarial equivalent of the
annual retirement benefit which would have been payable under the Supplemental
Retirement Plan had the executive remained employed by the Corporation until the
date when he or she would attain 10 years of service (or such later date as the
executive would attain age 60), multiplied by a fraction in which the numerator
is the executive's actual years of credited service (but not more than 10) and
the denominator is 10 (thus reducing the benefit proportionately to the extent
the executive's actual years of credited service are less than 10).
Employment Agreements and Change in Control Agreements. The Corporation has
entered into employment agreements (each referred to in this section
individually as an "Employment Agreement" and collectively as the "Employment
Agreements"), effective on the Distribution, with Mr. Robinson, Mr. Alberini and
Ms. Richards, relating to their employment with the Corporation. The Corporation
subsequently entered into an agreement with Mr. Roach regarding his rights in
the event of a change in control of the Corporation (the "Change in Control
Agreement"). The following briefly summarizes the principal terms of the
Employment Agreements and the Change in Control Agreement.
8
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The period of employment under the Employment Agreements extends initially
for three years (five years in the case of Mr. Robinson), subject to automatic
one-year extensions at the end of the initial term unless either party gives
notice of non-renewal at least 180 days prior to expiration of the term. The
Employment Agreements generally provide for payment of an annual base salary
that will be reviewed each year, but may not be decreased from the amount in
effect in the previous year. Initially, base salary will be $600,000, $320,000
and $200,000 for Mr. Robinson, Mr. Alberini and Ms. Richards, respectively. The
Employment Agreements also generally provide for (i)continued payment of base
salary, incentive compensation, and other benefits for 36 months in the case of
Mr. Robinson and for 18 months in the case of Mr.Alberini and Ms. Richards (or
24 months in the case of a change in control) in the event the executive's
employment is terminated other than a termination by the Corporation for "cause"
or voluntarily by the executive without "good reason"; (ii)non-competition for a
period of 18 months (36 months for Mr. Robinson) subsequent to termination for
any reason other than by the executive for "good reason" or by the Corporation
without "cause" following a "change in control"; (iii)other restrictive
covenants including non-disclosure, non-solicitation of employees and
availability for litigation support; (iv)participation in certain benefit plans
and programs (including pension benefits, disability and life insurance, and
medical benefits); (v)annual and long-term incentive compensation opportunities;
and (vi)deferred compensation arrangements. Mr. Robinson's Employment Agreement
provides that his target annual incentive and long-term incentive opportunities
may not be less than 50% and 35%, respectively, of his base salary. The Change
in Control Agreement with Mr. Roach provides to him the same rights as are
provided to Mr. Alberini and Ms. Richards in the event of a change in control
and the Corporation has agreed to provide him with 12 months severance in the
event his employment is terminated during his first year of employment other
than for cause.
A "change in control" is defined in generally the same manner as under the
1996 ICP, as described below. "Good reason" is defined generally as demotion,
reduction in compensation, unapproved relocation in the case of Mr. Robinson (or
other Named Officers following a change in control), material breach of the
Employment Agreement by the Corporation, or, in the case of Mr. Robinson,
failure to extend the term of the Employment Agreement to his 60th birthday.
"Cause" is defined generally as a breach of the restrictive covenants referred
to in clause (iii)of the preceding paragraph, certain felony convictions, or
willful acts or gross negligence that are materially damaging to the
Corporation.
If payments under the Employment Agreements or the Change in Control
Agreement following a change in control are subject to the "golden parachute"
excise tax, the Corporation will make an additional "gross-up" payment
sufficient to ensure that the net after-tax amount retained by the executive
(taking into account all taxes, including those on the gross-up payment) is the
same as would have been the case had such excise tax not applied.
The Employment Agreements obligate the Corporation to indemnify the
executives to the fullest extent permitted by law, including the advancement of
expenses, and provide that the Corporation generally will reimburse an executive
for expenses incurred in seeking enforcement of the Employment Agreement, unless
the executive's assertion of rights was in bad faith or frivolous. The
Employment Agreement with Mr. Robinson relates to his employment as Chairman and
Chief Executive Officer and his agreement to serve as a Director. The Employment
Agreements with Mr. Alberini and Ms. Richards relate to their employment as
senior executives of the Corporation.
Director Compensation. Directors who are not receiving compensation as
officers or employees of the Corporation or of any subsidiary or parent
corporation of the Corporation ("non-employee directors") are paid an annual
retainer of $10,000 and a $1,000 fee for attendance at each meeting of the Board
or any committee of the Board and a $2,500 fee for serving as a committee chair.
Non-employee directors are also eligible to participate in the 1996 Non-Employee
Director Stock Plan (the "1996 Director Plan"). Under the 1996 Director Plan,
each non-employee director received a non-qualified option to purchase 2,000
shares of Common Stock following the Distribution and any person who later
becomes a director is entitled to receive such an option on the date of such
director's first election to the Board. The exercise price per share of Common
Stock purchasable under each option will be equal to 100% of the fair market
value of Common Stock on the date of the option grant but was calculated for
options granted after the Distribution based on the average of the high and low
trading prices for Common Stock during the first 20 trading days. Each option
will expire at the earliest of (a)ten years after the date of grant, (b)12
months after the non-employee director ceases to serve as a director of the
Corporation for any reason other than death, disability, or retirement at or
after attaining age 65, or (c) immediately upon removal of the non-employee
director for cause. Each
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option becomes exercisable as to 20% of the shares of Common Stock relating to
the option on each of the first five anniversaries of the date of grant, and
will thereafter remain exercisable until the option expires; provided that an
option previously granted to a participant (a) will be fully exercisable in the
event of a Change in Control (as defined in the 1996 Director Plan), (b)will be
fully exercisable after the non-employee director ceases to serve as a director
of the Corporation due to death, disability, or retirement at or after attaining
age 65 and (c) will be exercisable after the non-employee director ceases to
serve as a director of the Corporation for any reason other than death,
disability, or retirement at or after attaining age 65 only to the extent the
option was exercisable at the date of such cessation of service.
The 1996 Director Plan also provides for automatic grants of 2,000 stock
units ("Stock Units") to each non-employee director on the Distribution and
thereafter to each person who, at the close of business on the date of each
annual meeting of the Corporation's stockholders commencing in 1997, is a
non-employee director. Each Stock Unit represents the right to receive one share
of Common Stock at the end of a specified period. Fifty percent of such Stock
Units will be paid six months and a day after the grant date, provided the
non-employee director has not ceased to serve as a director for any reason other
than death, disability, or retirement at or after attaining age 65, except that
payment of such Stock Units will be accelerated in the event of a Change in
Control. The remaining fifty percent of such Stock Units will be paid upon the
later of ceasing to be a director or attaining age 65, provided that payment of
such Stock Units shall be accelerated in the event of death, disability, or a
Change in Control.
The 1996 Director Plan permits a non-employee director to elect to defer
receipt of all or a portion of the shares otherwise deliverable in connection
with Stock Units. The 1996 Director Plan also permits a non-employee director to
elect to defer receipt of fees otherwise payable in cash, with such deferred
amounts deemed invested in Stock Units.
BOARD COMPENSATION COMMITTEE REPORT ON COMPENSATION OF
EXECUTIVE OFFICERS
The compensation programs described in this Proxy Statement were
established by the Compensation Committee of the Board of Directors of Melville
and subsequently reviewed and approved by the Compensation Committee of the
Board of Directors of Footstar (the "Committee"). This Compensation Committee
Report addresses only compensation programs in effect for periods following the
Distribution.
The Committee is comprised of independent, non-employee directors. The
Committee is responsible for establishing, implementing, administering and
monitoring the Corporation's compensation strategy, policies and plans.
Compensation Strategy. The Corporation's compensation strategy is based
upon the premise that all of its associates are important to its success, with
senior executives setting the direction of the business and having overall
responsibility for its results. Because the Corporation operates in a highly
competitive and difficult economic environment for retailers, the Committee has
adopted compensation policies and plans intended to (a) attract and retain high
caliber individuals, (b) provide compensation opportunities that are fair and
competitive with comparable organizations, as well as effective and tax
efficient, (c) reward the creativity of its key executives in maximizing
business opportunities, and (d) provide incentives to motivate key management
based on achievement of both short and long term business objectives, strategic
progress and the creation of stockholder value.
As a result of the Corporation's spin-off from Melville, the Corporation's
executive compensation program was reviewed and approved by the Compensation
Committee of the Board of Directors of Melville. A new executive compensation
program was designed for the new publicly-traded Corporation. This new program,
which is aligned with the Corporation's competitive marketplace and short and
long term performance objectives, has facilitated the transition to a
free-standing, publicly traded corporation. Market data and best practices for
executive officers and other members of the key management group, including the
Chief Executive Officer and the executive officers named in the Summary
Compensation Table, was researched to compare their salaries and other
compensation awards to retail industry standards and to make appropriate
recommendations reflective of the Corporation's strategy. This comparison
included compensation levels reported for senior executives of a peer group of
14 specialty retailers with revenues ranging from approximately $400 million to
$3.8 billion.
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The Committee has implemented the Corporation's compensation strategy by
approving base salaries that are competitive with other specialty retailers,
providing annual incentives to motivate and reward the achievement of approved
performance objectives, and long term incentives (including equity based awards)
with a strong retention element to align the long term interests of the key
management team with those of the stockholders in maximizing stockholder value.
Salaries have been positioned at the 50th to 60th percentile and total
remuneration targeted at the 65th percentile of the peer group with the
opportunity for increased yields for superior results. Actual total remuneration
levels may range well below or above target in any one year and over a period of
years based on performance against annual and long term business objectives and
total return to stockholders.
Base Salaries. The Committee reviews base salaries annually and considers
increases based on corporate profitability, competitive salaries, position
responsibility levels and individual qualifications and performance. As a result
of its review and strategy and recognizing the substantially increased
responsibilities of executive officers in light of the Corporation's transition
to a free-standing, publicly traded corporation, the base salary of the Chief
Executive Officer was set at $600,000, and the salaries of the other Named
Officers, to reflect alignment to the 50th percentile of the peer group, as
described above.
Annual Incentive Awards. The Corporation's annual incentive program for
executive officers provides for cash bonuses based on performance relative to
predetermined objectives established for the year. Executive officers and other
members of key management may elect to defer receipt of a portion of their cash
bonuses in deferred shares of Common Stock and receive partial matching grants
which will vest upon completion of five years of continued future employment,
subject to accelerated vesting in certain events.
Incentive awards at target performance range from 50% of base salary for
the Chief Executive Officer and scale down depending on position
responsibilities. Larger awards, up to a maximum of 200% of normal awards, are
permitted if performance exceeds predetermined objectives. Smaller or no awards
are made if performance falls below such objectives.
Bonuses payable to executive officers for 1996 were based on profit
objectives established by Melville's Compensation Committee in early 1996 under
the Melville Profit Incentive Plan and were based on the Corporation's earnings
before Federal income taxes. The Chief Executive Officer's annual incentive
award was determined to be 160% of his normal award based on the Corporation's
achievement of performance in excess of objectives.
Career Equity Program. As part of its long term incentive compensation
arrangements, the Committee has implemented a Career Equity Program for
executive officers and other members of key management. It is expected that a
new three-year cycle will begin each year. Two shortened start-up cycles began
on October 1, 1996, and a full three-year cycle began on January 1, 1997. The
value of such awards will be determined by goals established by the Committee
based on the Corporation's cumulative net income and return on average equity
during each cycle. The target and maximum awards for the Chief Executive Officer
have been set at 35% and 70% of base salary, respectively. Award payments will
be made in a combination of current cash and deferred shares of the
Corporation's Common Stock, which will vest partially after five years of
continued future employment and partially at retirement, subject to accelerated
vesting in certain events.
Founders Stock. A one-time grant of restricted stock units was made to the
Corporation's executive officers and other members of key management in
connection with the Distribution. These stock units ("Founders Stock") were
awarded to provide key executives with significant impact on the Corporation's
long term success an immediate ownership interest in mutuality with the
Corporation's stockholders and for retention purposes. Founders Stock vests
after five years of continued employment, subject to accelerated vesting in
certain events. The Chief Executive Officer was awarded 28,409 shares of
Founders Stock.
Stock Options. A major start-up grant of stock options was made to the
Corporation's executive officers and other members of key management in
connection with the Distribution. Stock options were granted with an exercise
price equal to the fair market value of the Corporation's Common Stock, using
the average of the high and low trading prices during the first 20 trading days,
and become exercisable in five equal annual installments based on continued
employment during the five-year period following the grant date, subject to
accelerated vesting in certain events. These awards provide value to
participants only when and to the extent that the fair market value of the
Corporation's Common Stock appreciates over the fair market value on the date of
grant. The Chief Executive Officer was granted an option to purchase 120,000
shares.
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Compliance with Internal Revenue Code Section 162(m). Section 162(m) of
the Internal Revenue Code (the "Code") generally disallows a tax deduction to
public companies for compensation over $1 million paid to the Chief Executive
Officer and the other Named Officers as of the end of the year. Qualifying
performance-based compensation is not subject to the deduction limit if certain
requirements are met. While it is the Committee's policy to preserve corporate
tax deductions by qualifying compensation paid over $1 million to named
executive officers, it also maintains the flexibility to approve compensation
arrangements that it deems to be in the best interests of the Corporation and
its stockholders but which may not always qualify for full tax deductibility.
Approval of the 1996 ICP by the Corporation's public stockholders is being
sought (see Proposal 2, below) in order to qualify certain compensation under
the 1996 ICP as "performance-based compensation" that is tax deductible by the
Corporation without limitation under Section 162(m) of the Code.
Compensation Committee:
Bettye Martin Musham, Chair
George S. Day
Terry R. Lautenbach
Performance Graph. The following graph provides an indicator of cumulative
total stockholder returns, assuming reinvestment of all dividends ("Total
Return") for the Corporation as compared with the Standard & Poor's 500 Stock
Index and the Standard & Poor's Retail Stores Composite Index. The graph covers
the period of time beginning on October 14, 1996, the first day after the
Distribution that Footstar's Common Stock was traded on the New York Stock
Exchange, through December 31, 1996.
[GRAPHICAL REPRESENTATION OF GRAPH]
10/14/96 12/31/96
-------- --------
Footstar, Inc. ................... $100.0 $121.3
S&P 500 .......................... 100.0 105.8
S&P Retail Stores Composite ...... 100.0 94.8
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Compensation Committee Interlocks and Insider Participation. The
Compensation Committee of the Board of Directors is comprised of three outside
independent directors, Bettye Martin Musham (Chair), George S. Day and Terry R.
Lautenbach.
Mr. Goldstein, a director of the Corporation, is Chairman and Chief
Executive Officer of CVS. Mr. Woodward and Mr. Lautenbach, directors of the
Corporation, are directors of CVS and the chairman and a member, respectively,
of its Executive Committee.
Certain Transactions With Related Parties. In May 1995, Melville made a
loan to Mr. Alberini in connection with his relocation to join Melville. Upon
the Distribution, the Corporation became the payee with respect to $100,000 of
that loan. The loan bears no interest and is to be forgiven if Mr. Alberini
remains employed by the Corporation through May 2000 or is terminated by the
Corporation prior to such time.
PROPOSAL 2
APPROVAL OF THE ADOPTION OF THE
1996 INCENTIVE COMPENSATION PLAN
Approval of the 1996 ICP. The Board is recommending for stockholder
approval the Corporation's 1996 Incentive Compensation Plan (the "1996 ICP")
which was approved in September 1996 by the Board of Directors and by Melville
as sole stockholder of the Corporation at such time.
As discussed above under the caption "Board Compensation Committee Report
on Compensation of Executive Officers," Section 162(m) of the Code and the
regulations thereunder limit the Corporation's tax deductions for compensation
to the Chief Executive Officer and the other Named Officers serving on the last
day of the fiscal year to the extent the individual's compensation exceeds
$1,000,000. In accordance with the regulations under Section 162(m), approval of
the Corporation's public stockholders is being sought in order that certain
awards granted under the 1996 ICP after the Meeting will qualify as
"performance-based compensation" that is tax deductible by the Corporation
without limitation under Section 162(m)'s $1,000,000 deductibility cap. For
purposes of Section 162(m), stockholder approval of the 1996 ICP relates
particularly to eligibility, per-person award limitations, the performance
objectives inherent in stock options and stock appreciation rights ("SARs"), and
the business criteria incorporated in performance objectives under certain
designated performance awards. See "Shares Subject to the 1996 ICP; Annual
Per-Person Limitations," "Stock Options and SARS," "Other Stock-Based Awards"
and "Performance Awards, Including Annual Incentive Awards," below. In the event
that stockholders fail to approve these material terms of the performance goals
relating to the 1996 ICP awards to be granted after the date of the Meeting,
such awards will not be granted to the extent necessary to meet the requirements
of Treasury Regulation 1.162-27(e)(4).
Approval of the 1996 ICP requires the affirmative vote of the holders of a
majority of the shares of Common Stock voting at the Meeting. The Board believes
that approval of the 1996 ICP is in the best interests of all stockholders and,
accordingly, recommends a vote "FOR" approval of the 1996 ICP.
Purpose of the 1996 ICP. The Board believes that attracting and retaining
key employees of high quality is essential to the Corporation's growth and
success. In addition, the Board believes that the long term success of the
Corporation is enhanced by a competitive and comprehensive compensation program
which may include tailored types of incentives designed to motivate executives
and reward key employees for outstanding service, including awards that link
compensation to applicable measures of the Corporation's performance and the
creation of stockholder value. In this regard, stock options and other
stock-related awards will be an important element of compensation for key
employees. Such awards will enable the Corporation to attract and retain
executives and key employees and enable such persons to acquire a proprietary
interest in the Corporation and thereby align their interests with the interests
of the Corporation's stockholders. In addition, the Board has concluded that the
Compensation Committee of the Board (the "Compensation Committee") should be
given as much flexibility as possible to provide for annual and long-term
incentive awards contingent on performance.
Summary of the 1996 ICP. The following is a brief description of the
material features of the 1996 ICP. Such description is qualified in its entirety
by reference to the full text of the 1996 ICP, a copy of which is attached as
Appendix A to this Proxy Statement.
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Types of Awards. The terms of the 1996 ICP provide for grants of stock
options, SARs, restricted stock, deferred stock, other stock-related awards, and
performance or annual incentive awards that may be settled in cash, stock, or
other property ("Awards").
Shares Subject to the 1996 ICP; Annual Per-Person Limitations. Under the
1996 ICP, the total number of shares of Common Stock reserved and available for
delivery to participants in connection with Awards is 3.1 million, plus 10% of
the number of shares of Common Stock issued by the Corporation during the term
of the 1996 ICP (excluding issuances under the 1996 ICP, or any other
compensation or benefit plan of the Corporation). Shares of Common Stock subject
to an Award that is canceled, expired, forfeited, settled in cash, or otherwise
terminated without a delivery of shares of Common Stock to the participant,
including shares of Common Stock withheld or surrendered in payment of any
exercise or purchase price of an Award or taxes relating to an Award, will again
be available for Awards under the 1996 ICP, except that, if any such shares of
Common Stock could not again be available for Awards to a particular participant
under any applicable law or regulation, such shares of Common Stock shall be
available exclusively for Awards to participants who are not subject to such
limitation. Shares of Common Stock issued under the 1996 ICP may be either newly
issued shares of Common Stock or Common Stock held in treasury.
In addition, the 1996 ICP imposes individual limitations on the amount of
certain Awards in order to comply with Code Section 162(m). Under these
limitations, during any fiscal year the number of options, SARs, shares of
restricted stock, shares of deferred stock, shares of Common Stock as a bonus or
in lieu of other Corporation obligations, and other stock-based Awards granted
to any one participant shall not exceed 1,000,000 shares for each type of such
Award, subject to adjustment in certain circumstances. The maximum amount that
may be earned as a final annual incentive award or other cash Award in any
fiscal year by any one participant is $3 million, and the maximum amount that
may be earned as a final performance award or other cash Award in respect of a
performance period by any one participant is $5 million.
The Compensation Committee is authorized to adjust the number and kind of
shares of Common Stock subject to the aggregate share limitations and annual
limitations under the 1996 ICP and subject to outstanding Awards (including
adjustments to exercise prices and number of shares of options and other
affected terms of Awards) in the event that a dividend or other distribution
(whether in cash, shares of Common Stock, or other property), recapitalization,
forward or reverse split, reorganization, merger, consolidation, spin-off,
combination, repurchase, or share exchange, or other similar corporate
transaction or event affects the Common Stock so that an appropriate adjustment
can be made in order to prevent dilution or enlargement of the rights of
participants. The Compensation Committee is also authorized to adjust
performance conditions and other terms of Awards in response to these kinds of
events or in response to changes in applicable laws, regulations, or accounting
principles.
Eligibility. Executive officers and other officers and employees of the
Corporation or any subsidiary, including any such person who may also be a
director of the Corporation, are eligible to be granted Awards under the 1996
ICP. Approximately 150 persons are currently considered eligible for Awards
under the 1996 ICP.
Administration. The 1996 ICP is administered by the Compensation Committee,
each member of which currently must be a "disinterested person" as defined under
Rule 16b-3 under the Exchange Act and an "outside director" for purposes of Code
Section 162(m). Subject to the terms and conditions of the 1996 ICP, the
Compensation Committee is authorized to select participants, determine the type
and number of Awards to be granted and the number of shares of Common Stock to
which Awards will relate, specify times at which Awards will be exercisable or
settleable (including performance conditions that may be required as a condition
thereof), set other terms and conditions of such Awards, prescribe forms of
Award agreements, interpret and specify rules and regulations relating to the
1996 ICP, and make all other determinations which may be necessary or advisable
for the administration of the 1996 ICP. The 1996 ICP provides that Compensation
Committee members shall not be personally liable, and shall be fully
indemnified, in connection with any action, determination, or interpretation
taken or made in good faith under the 1996 ICP.
Stock Options and SARS. The Compensation Committee is authorized to grant
stock options, including both incentive stock options ("ISOs") which can result
in potentially favorable tax treatment to the participant and non-qualified
stock options (i.e., options not qualifying as ISOs), and SARs entitling the
participant to receive the excess of the fair market value of the Common Stock
on the date of exercise (or defined "change in control price" following a change
in control) over the grant price of the SAR. The exercise price per share
subject to an option and the
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grant price of an SAR is determined by the Compensation Committee, but must not
be less than the fair market value of the Common Stock on the date of grant
(except to the extent of in-the-money awards or cash obligations surrendered by
the participant at the time of grant). The maximum term of each option or SAR,
the times at which each option or SAR will be exercisable, and provisions
requiring forfeiture of unexercised options or SARs at or following termination
of employment generally is fixed by the Compensation Committee, except that no
option or SAR may have a term exceeding ten years. Options may be exercised by
payment of the exercise price in cash, shares of Common Stock, outstanding
Awards, or other property (possibly including notes or obligations to make
payment on a deferred basis) having a fair market value equal to the exercise
price, as the Compensation Committee may determine from time to time. Methods of
exercise and settlement and other terms of the SARs are determined by the
Compensation Committee. SARs granted under the 1996 ICP may include "limited
SARs" exercisable for a stated period of time following a "change in control" of
the Corporation, as discussed below.
Restricted and Deferred Stock. The Compensation Committee is authorized to
grant restricted stock and deferred stock. Restricted stock is a grant of shares
of Common Stock which may not be sold or disposed of, and which may be forfeited
in the event of certain terminations of employment and/or failure to meet
certain performance requirements, prior to the end of a restricted period
specified by the Compensation Committee. A participant granted restricted stock
generally has all of the rights of a stockholder of the Corporation, including
the right to vote the shares of Common Stock and to receive dividends thereon,
unless otherwise determined by the Compensation Committee. An Award of deferred
stock confers upon a participant the right to receive shares of Common Stock at
the end of a specified deferral period, subject to possible forfeiture of the
Award in the event of certain terminations of employment and/or failure to meet
certain performance requirements prior to the end of a specified restricted
period (which restricted period need not extend for the entire duration of the
deferral period). Prior to settlement, an Award of deferred stock carries no
voting or dividend rights or other rights associated with Common Stock
ownership, although dividend equivalents may be granted, as discussed below.
Dividend Equivalents. The Compensation Committee is authorized to grant
dividend equivalents conferring on participants the right to receive, currently
or on a deferred basis, cash, shares of Common Stock, other Awards, or other
property equal in value to dividends paid on a specific number of shares of
Common Stock or other periodic payments. Dividend equivalents may be granted on
a free-standing basis or in connection with another Award, may be paid currently
or on a deferred basis, and, if deferred, may be deemed to have been reinvested
in additional shares of Common Stock, Awards, or other investment vehicles
specified by the Compensation Committee.
Bonus Stock and Awards in Lieu of Cash Obligations. The Compensation
Committee is authorized to grant shares of Common Stock as a bonus free of
restrictions, or to grant shares of Common Stock or other Awards in lieu of
Corporation obligations to pay cash under other plans or compensatory
arrangements, subject to such terms as the Compensation Committee may specify.
Other Stock-Based Awards. The 1996 ICP authorizes the Compensation
Committee to grant Awards that are denominated or payable in, valued by
reference to, or otherwise based on or related to the Common Stock. Such Awards
might include convertible or exchangeable debt securities, other rights
convertible or exchangeable into shares of Common Stock, purchase rights for
shares of Common Stock, Awards with value and payment contingent upon
performance of the Corporation or any other factors designated by the
Compensation Committee, and Awards valued by reference to the book value of the
Common Stock or the value of securities of or the performance of specified
subsidiaries. The Compensation Committee determines the terms and conditions of
such Awards, including consideration to be paid to exercise Awards in the nature
of purchase rights, the period during which Awards will be outstanding, and
forfeiture conditions and restrictions on awards.
Performance Awards, Including Annual Incentive Awards. The right of a
participant to exercise or receive a grant or settlement of an Award, and the
timing thereof, may be subject to such performance conditions as may be
specified by the Compensation Committee. In addition, the 1996 ICP authorizes
specific annual incentive awards, which represent a conditional right to receive
cash, shares of Common Stock or other Awards upon achievement of preestablished
performance goals during a specified one-year period. Performance awards and
annual incentive awards granted to persons the Compensation Committee expects to
be, for the year in which a deduction arises, among the Chief Executive Officer
and other Named Officers, will, if so intended by the Compensation Committee, be
subject to provisions that should qualify such Awards as "performance-based
compensation" not subject to the limitation on tax deductibility by the
Corporation under Code Section 162(m).
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The performance goals to be achieved as a condition of payment or
settlement of a performance award or annual incentive award will consist of (i)
one or more business criteria and (ii) a targeted level or levels of performance
with respect to each such business criteria. In the case of performance awards
intended to meet the requirements of Code Section 162(m) with respect to such
executive officers, the business criteria used must be one of those specified in
the 1996 ICP, although for other participants the Compensation Committee may
specify any other criteria. The business criteria specified in the 1996 ICP are:
(1) earnings per share; (2) revenues; (3) cash flow; (4) cash flow return on
investment; (5) return on net assets; return on investment; return on capital;
return on equity; (6) operating margin; (7) net income; pretax earnings; pretax
earnings before interest, depreciation and amortization; pretax operating
earnings after interest expense and before incentives, service fees, and
extraordinary or special items; operating earnings; (8) total stockholder
return; and (9) any of the above goals as compared to the performance of a
published or special index deemed applicable by the Compensation Committee.
In granting annual incentive or performance awards, the Compensation
Committee may establish unfunded award "pools," the amounts of which will be
based upon the achievement of a performance goal or goals using one or more of
the business criteria described in the preceding paragraph. During the first 90
days of a fiscal year or performance period, the Compensation Committee will
determine who will potentially receive annual incentive or performance awards
for that fiscal year or performance period, either out of the pool or otherwise.
After the end of each fiscal year or performance period, the Compensation
Committee will determine the amount, if any, of the pool, the maximum amount of
potential annual incentive or performance awards payable to each participant in
the pool, and the amount of any potential annual incentive or performance award
otherwise payable to a participant. The Compensation Committee may, in its
discretion, determine that the amount payable as a final annual incentive or
performance award will be increased or reduced from the amount of any potential
Award, but may not exercise discretion to increase any such amount intended to
qualify under Code Section 162(m).
Subject to the requirements of the 1996 ICP, the Compensation Committee
will determine other performance award and annual incentive award terms,
including the required levels of performance with respect to the business
criteria, the corresponding amounts payable upon achievement of such levels of
performance, termination and forfeiture provisions, and the form of settlement.
Other Terms of Awards. Awards may be settled in the form of cash, shares of
Common Stock, other Awards, or other property, in the discretion of the
Compensation Committee. The Compensation Committee may require or permit
participants to defer the settlement of all or part of an Award in accordance
with such terms and conditions as the Compensation Committee may establish,
including payment or crediting of interest or dividend equivalents on deferred
amounts, and the crediting of earnings, gains, and losses based on deemed
investment of deferred amounts in specified investment vehicles. The
Compensation Committee is authorized to place cash, shares of Common Stock, or
other property in trusts or make other arrangements to provide for payment of
the Corporation's obligations under the 1996 ICP. The Compensation Committee may
condition any payment relating to an Award on the withholding of taxes and may
provide that a portion of any shares of Common Stock or other property to be
distributed will be withheld (or previously acquired shares of Common Stock or
other property surrendered by the participant) to satisfy withholding and other
tax obligations. Awards granted under the 1996 ICP generally may not be pledged
or otherwise encumbered and are not transferable except by will or by the laws
of descent and distribution, or to a designated beneficiary upon the
participant's death, except that the Compensation Committee may, in its
discretion, permit transfers for estate planning or other purposes.
Awards under the 1996 ICP are generally granted without a requirement that
the participant pay consideration in the form of cash or property for the grant
(as distinguished from the exercise), except to the extent required by law. The
Compensation Committee may, however, grant Awards in exchange for other Awards
under the 1996 ICP, awards under other Corporation plans, or other rights to
payment from the Corporation, and may grant Awards in addition to and in tandem
with such other Awards, awards, or rights as well.
Unless the Award agreement specifies otherwise, the Compensation Committee
may cancel or rescind Awards if the participant fails to comply with certain
noncompetition, confidentiality or intellectual property covenants. For
instance, Awards may be canceled or rescinded if the participant engages in
competitive activity while employed with the Corporation or within a specified
period following termination of employment.
Acceleration of Vesting. The Compensation Committee may, in its discretion,
accelerate the exercisability, the lapsing of restrictions, or the expiration of
deferral or vesting periods of any Award, and such accelerated
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exercisability, lapse, expiration and vesting shall occur automatically in the
case of a "change in control" of the Corporation (including cash settlements
of SARs and "limited SARs" which may be exercisable only in the event of a
change in control). In addition, the Compensation Committee may provide that the
performance goals relating to any performance-based award will be deemed to have
been met upon the occurrence of any "change in control." Subject to certain
exceptions, the 1996 ICP generally defines a "change in control" as (i) any
person acquiring beneficial ownership of 25% or more of the outstanding Common
Stock or the combined voting power of the Corporation's outstanding voting
securities; (ii)the reorganization, merger, consolidation, complete liquidation
or dissolution of the Corporation, sale or disposition of all or substantially
all of the assets of the Corporation, or similar corporate transaction; or (iii)
members of the Board serving at the effective date of the 1996 ICP, together
with members first elected thereafter (excluding certain directors elected as a
result of an actual or threatened election contest) with the approval of a
majority of the original members and new members previously so approved, ceasing
to constitute a majority of the Board. Upon the occurrence of a change in
control, limited SARs and other Awards may be cashed out based on a defined
"change in control price," which will be the higher of (i) the cash and fair
market value of property that is the highest price per share paid (including
extraordinary dividends) in any reorganization, merger, consolidation,
liquidation or dissolution, or liquidation of shares following a sale of
substantially all assets of the Corporation, or (ii) the highest fair market
value per share (generally based on market prices) at any time during the 60
days before and 60 days after the change in control.
Amendment and Termination of the 1996 ICP. The Board may amend, alter,
suspend, discontinue, or terminate the 1996 ICP or the Compensation Committee's
authority to grant Awards without further stockholder approval, except
stockholder approval must be obtained for any amendment or alteration if
required by law or regulation or under the rules of any stock exchange or
automated quotation system on which the Common Stock is then listed or quoted.
Thus, stockholder approval will not necessarily be required for amendments which
might increase the cost of the 1996 ICP or broaden eligibility. Stockholder
approval will not be deemed to be required under laws or regulations, such as
those relating to ISOs, that condition favorable treatment of participants on
such approval, although the Board may, in its discretion, seek stockholder
approval in any circumstance in which it deems such approval advisable. Unless
earlier terminated by the Board, the 1996 ICP will terminate at such time as no
shares of Common Stock remain available for issuance under the 1996 ICP and the
Corporation has no further rights or obligations with respect to outstanding
Awards under the 1996 ICP.
Initial Awards. As of the Distribution, the Compensation Committee made
deferred stock awards ("Founders Stock Awards") to each Named Executive Officer
under the 1996 ICP. Such Founders Stock Awards will generally become 100% vested
after five years of service with the Corporation following the grant date,
subject to accelerated vesting in certain events.
As of the Distribution, the Compensation Committee also made certain stock
option awards under the 1996 ICP. The number and form of options which may be
granted subsequent to the Meeting date are not determinable at this time.
However, the options granted by the Compensation Committee prior to April 1,
1997 are as follows: Mr. Robinson, Chairman of the Board, Chief Executive
Officer and President--options for 270,000 shares; Mr. Alberini, Senior Vice
President and Chief Financial Officer--options for 110,000 shares; Ms. Richards,
Vice President, General Counsel and Corporate Secretary--options for 30,000
shares; Mr.Roach, Vice President and Corporate Controller--options for 7,000
shares; all current executive officers of the Corporation as a group--options
for 417,000 shares; all employees, including all current officers who are not
executive officers, as a group--options for 816,500 shares. All such options
have an exercise price equal to $23.42 and generally become exercisable in five
equal installments based on continued service with the Corporation during the
five-year period following thegrant date.
Federal Income Tax Implications of the 1996 ICP. The following is a brief
description of the federal income tax consequences generally arising with
respect to Awards under the 1996 ICP.
The grant of an option or SAR will create no tax consequences for the
participant or the Corporation. A participant will not recognize taxable income
upon exercising an ISO (except that the alternative minimum tax may apply). Upon
exercising an option other than an ISO, the participant must generally recognize
ordinary income equal to the difference between the exercise price and fair
market value of the freely transferable and nonforfeitable shares of Common
Stock acquired on the date of exercise. Upon exercising an SAR, the participant
must generally recognize ordinary income equal to the cash or the fair market
value of the freely transferable and nonforfeitable shares of Common Stock
received.
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Upon a disposition of shares of Common Stock acquired upon exercise of an
ISO before the end of the applicable ISO holding periods, the participant must
generally recognize ordinary income equal to the lesser of (i) the fair market
value of the shares of Common Stock at the date of exercise of the ISO minus the
exercise price, or (ii) the amount realized upon the disposition of the ISO
shares minus the exercise price. Otherwise, a participant's disposition of
shares of Common Stock acquired upon the exercise of an option (including an ISO
for which the ISO holding periods are met) or SAR generally will result in
short-term or long-term capital gain or loss measured by the difference between
the sale price and the participant's tax basis in such shares of Common Stock
(the tax basis generally being the exercise price plus any amount previously
recognized as ordinary income in connection with the exercise of the option or
SAR).
The Corporation generally will be entitled to a tax deduction equal to the
amount recognized as ordinary income by the participant in connection with an
option or SAR. The Corporation generally is not entitled to a tax deduction
relating to amounts that represent a capital gain to a participant. Accordingly,
the Corporation will not be entitled to any tax deduction with respect to an ISO
if the participant holds the shares of Common Stock for the ISO holding periods
prior to disposition of the shares of Common Stock.
With respect to Awards granted under the 1996 ICP that result in the
payment or issuance of cash or shares of Common Stock or other property that is
either not restricted as to transferability or not subject to a substantial risk
of forfeiture, the participant must generally recognize ordinary income equal to
the cash or the fair market value of shares of Common Stock or other property
received. Thus, deferral of the time of payment or issuance will generally
result in the deferral of the time the participant will be liable for income
taxes with respect to such payment or issuance. The Corporation generally will
be entitled to a deduction in an amount equal to the ordinary income recognized
by the participant.
With respect to Awards involving the issuance of shares of Common Stock or
other property that is restricted as to transferability and subject to a
substantial risk of forfeiture, the participant must generally recognize
ordinary income equal to the fair market value of the shares of Common Stock or
other property received at the first time the shares of Common Stock or other
property become transferable or are not subject to a substantial risk of
forfeiture, whichever occurs earlier. A participant may elect to be taxed at the
time of receipt of shares of Common Stock or other property rather than upon
lapse of restrictions on transferability or the substantial risk of forfeiture,
but if the participant subsequently forfeits such shares of Common Stock or
property, the participant would not be entitled to any tax deduction, including
as a capital loss, for the value of the shares of Common Stock or property on
which he or she previously paid tax. The participant must file such election
with the Internal Revenue Service within 30 days of the receipt of the shares of
Common Stock or other property. The Corporation generally will be entitled to a
deduction in an amount equal to the ordinary income recognized by the
participant.
Awards that are granted, accelerated or enhanced upon the occurrence of a
change in control may give rise, in whole or in part, to "excess parachute
payments" within the meaning of Code Section 280G and, to such extent, will be
non-deductible by the Corporation and subject to a 20% excise tax by the
participant.
The foregoing summary of the federal income tax consequences in respect of
the 1996 ICP is for general information only. Interested parties should consult
their own advisors as to specific tax consequences, including the application
and effect of foreign, state and local tax laws.
PROPOSAL 3
APPROVAL OF THE ADOPTION OF THE
ASSOCIATE STOCK PURCHASE PLAN
Approval of the ASPP. The Board is recommending for stockholder approval
the Footstar 1997 Associate Stock Purchase Plan (the "ASPP"), which was adopted
by the Board on March 11, 1997, subject to stockholder approval. If approved by
stockholders, the ASPP will become effective on the Effective Date, defined as
the later of (i) August 1, 1997, (ii) the effective date of the Corporation's
Registration Statement on Form S-8 covering shares of the Common Stock
authorized for purchase under the ASPP, or (iii) such other date as may be
designated by the committee authorized to administer the ASPP (the "Committee").
Approval of the ASPP requires the affirmative vote of the holders of a majority
of the shares of Common Stock voting at the annual meeting. The Board believes
that
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approval of the ASPP is in the best interests of all stockholders and,
accordingly, recommends a vote "FOR" approval of the ASPP.
Purpose of the ASPP. The purpose of the ASPP is to further the long-term
stability and financial success of the Corporation by providing a method for
employees to increase their ownership in the Common Stock. The ASPP is intended
to qualify under Section 423 of the Code. The ASPP permits a total of 1,600,000
shares of Common Stock to be purchased thereunder.
Summary of the ASPP. The following is a brief description of the material
features of the ASPP. Such description is qualified in its entirety by reference
to the full text of the ASPP, a copy of which is attached as Appendix B to this
Proxy Statement.
Eligibility. All present and future employees of the Corporation or any
designated subsidiary who have completed at least one year of service and have
worked at least one thousand hours in the twelve month period prior to
eligibility are eligible to participate in the ASPP.
Administration. The ASPP will be administered by the Committee, which will
be either the Compensation Committee or such other committee as may be
designated by the Board to administer the ASPP. Certain administrative functions
will be delegated to a plan administrator.
General Description. A participant in the ASPP may authorize payroll
deductions of a maximum of 10% of compensation per payroll period, with a
minimum of five (5) dollars per payroll period. The amounts so deducted and
contributed are applied to the purchase of full and fractional shares of Common
Stock at 85% of the fair market value of such Common Stock, determined as of the
first day of an Offering Period or the purchase date, whichever is lower.
Offering Periods are twelve month periods beginning on the Effective Date or
each anniversary of the Effective Date, as the case may be, and ending on the
last business day immediately prior to the next following anniversary of the
Effective Date. Purchase Dates are the last business days of each of the four
consecutive three month periods occurring during an Offering Period. The fair
market value of Common Stock purchased under the ASPP for a participant in any
one calendar year cannot exceed $25,000. In addition, once a participant owns
(or is considered as owning within the meaning of Section 423(d) of the Code) 5%
or more of the voting power of the Corporation, he or she will not be able to
purchase any more stock under the ASPP.
Shares purchased under the ASPP will be evidenced on the books of the
Corporation, and, after expiration of the tax holding period, certificates for
whole shares will be issued to participants upon request. Shares purchased under
the ASPP generally are transferable at any time after the purchase is
consummated, regardless of whether certificates therefore have been issued. In
the event that a dividend is declared and paid with respect to Common Stock
acquired under the ASPP, the Committee shall determine whether the dividend will
be paid in cash to the owners of such Common Stock, or whether it will be used
to purchase additional Common Stock. At the discretion of the Committee, the
Common Stock required for the ASPP may be purchased on the open market, may be
treasury Common Stock, reacquired Common Stock, and/or authorized but unissued
Common Stock.
Participants may increase or decrease their payroll deductions as of the
first business day following a Purchase Date, or at such other times as may be
permitted by the plan administrator. Participants may withdraw from further
participation in the ASPP at any time by filing a withdrawal form with the plan
administrator. Upon such withdrawal, all payroll deductions then credited to the
participant's account under the ASPP which have not already been applied for the
purchase of Common Stock will be paid to the participant, and no further payroll
deductions will be made for that participant until he or she files a new payroll
authorization form; upon such withdrawal, a participant may not file a new
payroll authorization form for the remainder of the Offering Period in which the
withdrawal occurs. If a participant ceases to be an employee on or before the
last working day preceding the 15th day prior to a Purchase Date, then that
participant will be deemed to have elected to withdraw from participation in the
ASPP, and all payroll deductions then credited to the participant's account
which were not applied for the purchase of Common Stock will be paid to the
participant; if a participant ceases to be an employee after the above described
date, he or she will be deemed to have elected to purchase Common Stock with the
previously accumulated payroll deductions.
Future Amendments to the ASPP. The Committee may at any time amend the ASPP
in any respect, except that no amendment that (i) would effect an increase in
the number of shares of Common Stock which may be purchased under the ASPP, if
that increase would require stockholder approval under Section 423 of the Code,
or (ii) would effect a change in the designation of the corporations whose
employees may participate in the ASPP, if that change
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would require stockholder approval under Section 423 of the Code, will be
effective unless the required stockholder approval is obtained.
Federal Income Tax Consequences. A participant will not incur federal
income tax liability as a result of the purchase of Common Stock pursuant to the
ASPP at 85% of fair market value. Generally, if the associate holds any share
purchased under the Plan for (a) more than two years after the first day of the
Offering Period relating to such purchase, and (b) more than one year after the
Purchase Date (the "Holding Period"), then any gain realized upon the sale or
other disposition of that share will be taxed as long-term capital gain, and any
loss will be long-term capital loss, except that an amount equal to the lesser
of (a) the excess of the fair market value of the share on the first day of the
Offering Period relating to such purchase over the price at which such option
could have been exercised at that time if it had then been exercisable and (b)
the amount, if any, by which the fair market value of the share at the time of
such disposition exceeds the price actually paid for the share under the option,
will be taxed as ordinary income in the taxable year in which such sale or other
disposition occurs. If an associate disposes of the share, such amount of
ordinary income realized upon the sale or other disposition of the share will
increase the associate's tax basis in the share for determining gain or loss
upon such sale or other disposition of the share. The Corporation will not be
entitled to a deduction for federal income tax purposes in connection with such
sale or other disposition. If an associate disposes of any share purchased under
the Plan without satisfying the Holding Period, the associate should report as
ordinary income for the taxable year in which the disposition occurs the amount
by which the market value of such share on the Purchase Date exceeded the amount
the associate paid for such share. Any such ordinary income will increase the
associate's tax basis for the purpose of determining gain or loss on the sale or
other disposition of the share. The associate will be considered to have
disposed of a share if such associate sells, exchanges, makes a gift or
transfers (except by pledge, tax free reorganization or by transfer on death)
legal title to the share.
The Corporation will not be entitled to a business expense deduction for
federal income tax purposes in connection with the sale of the shares under the
ASPP, unless a participant disposes of the Common Stock received under the ASPP
prior to expiration of the required holding period. In that case, the
Corporation will be entitled to a business expense deduction to the extent
ordinary income is recognized by the participant.
This summary of federal income tax consequences does not purport to be
complete, and it is recommended that participants consult their own tax advisor.
Reference should be made to applicable provisions of the Code. There may also be
state and local income taxes applicable to the transactions contemplated by the
ASPP.
PROPOSAL 4
RATIFICATION OF SELECTION OF INDEPENDENT AUDITORS
The Board of Directors has selected KPMG Peat Marwick LLP as the
Corporation's independent auditors to make an examination of the accounts of the
Corporation for the 1997 fiscal year. KPMG Peat Marwick LLP served as
independent auditors for Melville, which wholly-owned the Corporation at the
time of the Distribution, and has served as the independent auditors of the
Corporation since the Distribution. Representatives of KPMG Peat Marwick LLP are
expected to be present at the Meeting and will be available to respond to
appropriate questions and to make such statements as they may desire.
STOCKHOLDER PROPOSALS AND NOMINATIONS FOR THE 1998 MEETING
Any proposal of a stockholder intended to be presented at the Corporation's
1998 Annual Meeting of Stockholders must be received by the Secretary of the
Corporation, for inclusion in the Corporation's proxy statement, notice of
meeting and proxy relating to the 1998 Annual Meeting, not later than January
20, 1998.
The Corporation's Bylaws establish an advance written notice procedure for
stockholders seeking to nominate candidates for election as directors at any
annual meeting of stockholders, or to bring business before an annual meeting of
stockholders of the Corporation. The Bylaws provide that only persons who are
nominated by, or at the direction of, the Board, or by a stockholder who has
given timely written notice to the Secretary of the Corporation prior to the
meeting at which directors are to be elected, will be eligible for election as
directors of the Corporation. The Bylaws also provide that at any meeting of
stockholders only such business may be conducted as has been brought before the
meeting by, or at the direction of, the Board or, in the case of an annual
meeting of stockholders, by
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a stockholder who has given timely written notice to the Secretary of the
Corporation of such shareholder's intention to bring such business before such
meeting. Under the Bylaws, for any such shareholder notice to be timely, such
notice must be received by the Corporation in writing not less than 60 days nor
more than 90 days prior to the meeting, or in the event that less than 70 days'
notice or prior public disclosure of the date of the annual meeting is given or
made to stockholders, to be timely, notice by the stockholder must be received
not later than the close of business on the 10th day following the day on which
such notice of the date of the meeting or such public disclosure was made. Under
the Bylaws, a stockholder's notice must also contain certain information
specified in the Bylaws.
ANNUAL REPORT
A copy of the Corporation's Annual Report was mailed to all stockholders of
record on or about March 28, 1997. Stockholders, upon written request to the
attention of Investor Relations at the Corporation, 933 MacArthur Boulevard,
Mahwah, New Jersey 07430, may receive, without charge, a copy of the
Corporation's Annual Report on Form 10-K, including the financial statements and
financial statement schedules, required to be filed with the Commission for the
1996 fiscal year.
OTHER MATTERS
As of the date of this Proxy Statement, the Corporation knows of no
business that will be presented for consideration at the Meeting other than the
items referred to above. Proxies in the enclosed form will be voted in respect
of any other business that is properly brought before the Meeting as recommended
by the Board of Directors or, if no such recommendation is given, in the
discretion of the proxy holders.
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APPENDIX A
FOOTSTAR, INC.
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1996 INCENTIVE COMPENSATION PLAN
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1. Purpose. The purpose of this 1996 Incentive Compensation Plan (the
"Plan") is to assist Footstar, Inc., a Delaware corporation (the "Company"),
and its subsidiaries in attracting, retaining, and rewarding high-quality
executives and other employees, enabling such persons to acquire or increase a
proprietary interest in the Company in order to strengthen the mutuality of
interests between such persons and the Company's stockholders, and providing
such persons with annual and long term performance incentives to expend their
maximum efforts in the creation of shareholder value. The Plan is also intended
to qualify certain compensation awarded under the Plan for tax deductibility
under Section 162(m) of the Code (as hereafter defined) to the extent deemed
appropriate by the Compensation Committee (or any successor committee) of the
Board of Directors of the Company.
2. Definitions. For purposes of the Plan, the following terms shall be
defined as set forth below, in addition to such terms defined in Section 1
hereof:
(a) "Annual Incentive Award" means a conditional right granted to a
Participant under Section 8(c) hereof to receive a cash payment, Stock or
other Award, unless otherwise determined by the Committee, after the end of
a specified fiscal year.
(b) "Award" means any Option, SAR (including Limited SAR), Restricted
Stock, Deferred Stock, Stock granted as a bonus or in lieu of another
award, Dividend Equivalent, Other Stock-Based Award, Performance Award or
Annual Incentive Award, together with any other right or interest granted
to a Participant under the Plan.
(c) "Beneficiary" means the person, persons, trust or trusts which have
been designated by a Participant in his or her most recent written
beneficiary designation filed with the Committee to receive the benefits
specified under the Plan upon such Participant's death or to which Awards
or other rights are transferred if and to the extent permitted under
Section 10(b) hereof. If, upon a Participant's death, there is no
designated Beneficiary or surviving designated Beneficiary, then the term
Beneficiary means person, persons, trust or trusts entitled by will or the
laws of descent and distribution to receive such benefits.
(d) "Beneficial Owner", "Beneficially Owning" and "Beneficial Ownership"
shall have the meanings ascribed to such terms in Rule 13d-3 under the
Exchange Act and any successor to such Rule.
(e) "Board" means the Company's Board of Directors.
(f) "Change in Control" means Change in Control as defined with
related terms in Section 9 of the Plan.
(g) "Change in Control Price" means the amount calculated in accordance
with Section 9(c) of the Plan.
(h) "Code" means the Internal Revenue Code of 1986, as amended from time
to time, including regulations thereunder and successor provisions and
regulations thereto.
(i) "Committee" means the Compensation Committee of the Board or such
other Committee designated by the Board to administer the Plan; provided,
however, that the Committee shall consist solely of two or more directors,
each of whom shall be (i) a "disinterested person" within the meaning of
Rule 16b-3 under the Exchange Act, unless administration of the Plan by
"disinterested persons" is not then required in order for exemptions under
Rule 16b-3 to apply to transactions under the Plan, and (ii) an "outside
director" as defined under Section 162(m) of the Code, unless
administration of the Plan by "outside directors" is not then required in
order to qualify for tax deductibility under Section 162(m) of the Code.
(j) "Corporate Transaction" means a transaction as defined in
Section 9(b) of the Plan.
(k) "Covered Employee" means an Eligible Person who is a Covered Employee
as specified in Section 8(e) of the Plan.
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(l) "Deferred Stock" means a right, granted to a Participant under Section
6(e) hereof, to receive Stock, cash or a combination thereof at the end of
a specified deferral period.
(m) "Dividend Equivalent" means a right, granted to a Participant under
Section 6(g), to receive cash, Stock, other Awards or other property equal
in value to dividends paid with respect to a specified number of shares of
Stock, or other periodic payments.
(n) "Effective Date" means the date on which shares of Company Common
Stock are distributed to shareholders of Melville Corporation.
(o) "Eligible Person" means each executive officer of the Company (as
defined under the Exchange Act) and other officers and employees of the
Company or of any subsidiary, including such persons who may alsobe
directors of the Company. The foregoing notwithstanding, no member of the
Committee shall be anEligible Person.
(p) "Exchange Act" means the Securities Exchange Act of 1934, as amended
from time to time, including rules thereunder and successor provisions and
rules thereto.
(q) "Executive Officer" means an executive officer of the Company as
defined under the Exchange Act.
(r) "Fair Market Value" means the fair market value of Stock, Awards or
other property as determined by the Committee or under procedures
established by the Committee. Unless otherwise determined by the Committee,
the Fair Market Value of Stock as of any given date shall be the closing
sale price per share reported on a consolidated basis for stock listed on
the principal stock exchange or market on which Stock is traded on the date
as of which such value is being determined or, if there is no sale on that
date, then on the last previous day on which a sale was reported.
(s) "Incentive Stock Option" or "ISO" means any Option intended to be and
designated as an incentive stock option within the meaning of Section 422
of the Code or any successor provision thereto.
(t) "Incumbent Board" means the Board as defined in Section 9(b) of
the Plan.
(u) "Limited SAR" means a right granted to a Participant under Section
6(c) hereof.
(v) "Option" means a right, granted to a Participant under Section 6(b)
hereof, to purchase Stock or other Awards at a specified price during
specified time periods.
(w) "Other Stock Based Awards" means Awards granted to a Participant under
Section6(h) hereof.
(x) "Participant" means a person who has been granted an Award under the
Plan which remains outstanding, including a person who is no longer an
Eligible Person.
(y) "Performance Award" means a right, granted to a Participant under
Section 8 hereof, to receive Awards based upon performance criteria
specified by the Committee.
(z) "Person" shall have the meaning ascribed to such term in Section
3(a)(9) of the Exchange Act and used in Sections 13(d) and 14(d) thereof,
and shall include a "group" as defined in Section 13(d) thereof.
(aa) "Restricted Stock" means Stock granted to a Participant under Section
6(d) hereof, that is subject to certain restrictions and to a risk of
forfeiture.
(bb) "Rule 16b-3" and "Rule 16a-1(c)(3)" mean Rule 16b-3 and Rule
16a-1(c)(3), as from time to time in effect and applicable to the Plan and
Participants, promulgated by the Securities and Exchange Commission under
Section 16 of the Exchange Act.
(cc) "Stock" means the Company's Common Stock and such other securities as
may be substituted(or resubstituted) for Stock pursuant to Section 10(c)
hereof.
(dd) "Stock Appreciation Rights" or "SAR" means a right granted to a
Participant under Section6(c) hereof.
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3. Administration.
(a) Authority of the Committee. The Plan shall be administered by the
Committee. The Committee shall have full and final authority, in each case
subject to and consistent with the provisions of the Plan, to select
Eligible Persons to become Participants, grant Awards, determine the type,
number and other terms and conditions of, and all other matters relating
to, Awards, prescribe Award agreements (which need not be identical for
each Participant) and rules and regulations for the administration of the
Plan, construe and interpret the Plan and Award agreements and correct
defects, supply omissions or reconcile inconsistencies therein, and to make
all other decisions and determinations as the Committee may deem necessary
or advisable for the administration of the Plan.
(b) Manner of Exercise of Committee Authority. The Committee shall
exercise sole and exclusive discretion on any matter relating to a
Participant then subject to Section16 of the Exchange Act with respect to
the Company to the extent necessary in order that transactions by such
Participant shall be exempt under Rule16b-3 under the Exchange Act. Any
action of the Committee shall be final, conclusive and binding on all
persons, including the Company, its subsidiaries, Participants,
Beneficiaries, transferees under Section10(b) hereof or other persons
claiming rights from or through a Participant, and stockholders. The
express grant of any specific power to the Committee, and the taking of any
action by the Committee, shall not be construed as limiting any power or
authority of the Committee. The Committee may delegate to officers or
managers of the Company or any subsidiary, or committees thereof, the
authority, subject to such terms as the Committee shall determine, (i) to
perform administrative functions, (ii) with respect to Participants not
subject to Section16 of the Exchange Act, to perform such other functions
as the Committee may determine, and (iii) with respect to Participants
subject to Section 16, to perform such other functions of the Committee as
the Committee may determine to the extent performance of such functions
will not result in the loss of an exemption under Rule 16b-3 otherwise
available for transactions by such persons, in each case to the extent
permitted under applicable law and subject to the requirements set forth in
Section 8(d). The Committee may appoint agents to assist it in
administering the Plan.
(c) Limitation of Liability. The Committee and each member thereof shall
be entitled to, in good faith, rely or act upon any report or other
information furnished to him or her by any executive officer, other officer
or employee of the Company or a subsidiary, the Company's independent
auditors, consultants or any other agents assisting in the administration
of the Plan. Members of the Committee and any officer or employee of the
Company or a subsidiary acting at the direction or on behalf of the
Committee shall not be personally liable for any action or determination
taken or made in good faith with respect to the Plan, and shall, to the
extent permitted by law, be fully indemnified and protected by the Company
with respect to any such action or determination.
4. Stock Subject to Plan.
(a) Overall Number of Shares Available for Delivery. Subject to adjustment
as provided in Section 10(c) hereof, the total number of shares of Stock
reserved and available for delivery in connection with Awards under the
Plan shall be (i) 3.1 million, plus (ii) 10% of the number of shares of
Stock newly issued by the Company or delivered out of treasury shares
during the term of the Plan (excluding any issuance or delivery in
connection with Awards, or any other compensation or benefit plan of the
Company) provided, however, that the total number of shares of Stock with
respect to which ISOs may be granted shall be 2 million. Any shares of
Stock delivered under the Plan may consist, in whole or in part, of
authorized and unissued shares or treasury shares.
(b) Application of Limitation to Grants of Awards. No Award may be granted
if the number of shares of Stock to be delivered in connection with such
Award or, in the case of an Award relating to shares of Stock but
settleable only in cash (such as cash-only SARs), the number of shares to
which such Award relates, exceeds the number of shares of Stock remaining
available under the Plan minus the number of shares of Stock issuable in
settlement of or relating to then-outstanding Awards. The Committee may
adopt reasonable counting procedures to ensure appropriate counting, avoid
double counting (as, for example, in the case of tandem or substitute
awards) and make adjustments if the number of shares of Stock actually
delivered differs from the number of shares previously counted in
connection with an Award.
(c) Availability of Shares Not Delivered Under Awards. Shares of Stock
subject to an Award under the Plan that is canceled, expired, forfeited,
settled in cash or otherwise terminated without a delivery of shares to the
Participant, including (i)the number of shares withheld in payment of any
exercise or purchase price of an Award or taxes relating to Awards, and
(ii)the number of shares surrendered in payment of any exercise or purchase
price of an
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Award or taxes relating to any Award, will again be available for Awards
under the Plan, except that if any such shares could not again be available
for Awards to a particular Participant under any applicable law or
regulation, such shares shall be available exclusively for Awards to
Participants who are not subject to such limitation.
5. Eligibility; Per-Person Award Limitations. Awards may be granted under
the Plan only to Eligible Persons. In each fiscal year during any part of which
the Plan is in effect, an Eligible Person may not be granted Awards relating to
more than 1 million shares of Stock, subject to adjustment as provided in
Section10(c), under each of Sections6(b), 6(c), 6(d), 6(e), 6(f), 6(g), 6(h),
8(b) and 8(c). In addition, the maximum cash amount that may be earned under
the Plan as a final Annual Incentive Award or other cash annual Award in
respect of any fiscal year by any one Participant shall be $3 million, and the
maximum cash amount that may be earned under the Plan as a final Performance
Award or other cash Award in respect of a performance period by any one
Participant shall be $5 million.
6. Specific Terms of Awards.
(a) General. Awards may be granted on the terms and conditions set forth
in this Section6. In addition, the Committee may impose on any Award or the
exercise thereof, at the date of grant or thereafter (subject to
Section10(e)), such additional terms and conditions, not inconsistent with
the provisions of the Plan, as the Committee shall determine, including
terms requiring forfeiture of Awards in the event of termination of
employment by the Participant and terms permitting a Participant to make
elections relating to his or her Award. The Committee shall retain full
power and discretion to accelerate, waive or modify, at any time, any term
or condition of an Award that is not mandatory under the Plan.
(b) Options. The Committee is authorized to grant Options to Participants
on the following termsand conditions:
(i) Exercise Price. The exercise price per share of Stock
purchasable under an Option shall be determined by the Committee,
provided that such exercise price shall be not less than the Fair Market
Value of a share of Stock on the date of grant of such Option except as
provided under Section 7(a) hereof.
(ii) Time and Method of Exercise. The Committee shall determine the
time or times at which or the circumstances under which an Option may be
exercised in whole or in part (including based on achievement of
performance goals and/or future service requirements), the methods by
which such exercise price may be paid or deemed to be paid, the form of
such payment, including, without limitation, cash, Stock, other Awards
or awards granted under other plans of the Company or any subsidiary, or
other property (including notes or other contractual obligations of
Participants to make payment on a deferred basis), and the methods by or
forms in which Stock will be delivered or deemed to be delivered to
Participants.
(iii) ISOs. The terms of any ISO granted under the Plan shall comply
in all respects with the provisions of Section 422 of the Code. Anything
in the Plan to the contrary notwithstanding, no term of the Plan
relating to ISOs (including any SAR in tandem therewith) shall be
interpreted, amended or altered, nor shall any discretion or authority
granted under the Plan be exercised, so as to disqualify either the Plan
or any ISO under Section 422 of the Code, unless the Participant has
first requested the change that will result in such disqualification.
(c) Stock Appreciation Rights. The Committee is authorized to grant
SARs to Participants on the following terms and conditions:
(i) Right to Payment. An SAR shall confer on the Participant to whom
it is granted a right to receive, upon exercise thereof, the excess of
(A) the Fair Market Value of one share of Stock on the date of exercise
(or, in the case of a "Limited SAR" that is not related to an ISO the
Fair Market Value determined by reference to the Change in Control
Price, as defined under Section9(c)hereof), over (B) the grant price of
the SAR as determined by the Committee.
(ii) Other Terms. The Committee shall determine at the date of grant
or thereafter, the time or times at which and the circumstances under
which an SAR may be exercised in whole or in part (including based on
achievement of performance goals and/or future service requirements),
the method of exercise, method
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of settlement, form of consideration payable in settlement, method by or
forms in which Stock will be delivered or deemed to be delivered to
Participants, whether or not an SAR shall be in tandem or in combination
with any other Award, and any other terms and conditions of any SAR.
Limited SARs that may only be exercised in connection with a Change in
Control or other event as specified by the Committee may be granted on
such terms, not inconsistent with this Section 6(c), as the Committee
may determine. SARs and Limited SARs may be either freestanding or in
tandem with other Awards.
(d) Restricted Stock. The Committee is authorized to grant Restricted
Stock to Participants on the following terms and conditions:
(i) Grant and Restrictions. Restricted Stock shall be subject to
such restrictions on transferability, risk of forfeiture and other
restrictions, if any, as the Committee may impose, which restrictions
may lapse separately or in combination at such times, under such
circumstances (including based on achievement of performance goals
and/or future service requirements), in such installments or otherwise,
as the Committee may determine at the date of grant or thereafter.
Except to the extent restricted under the terms of the Plan and any
Award agreement relating to the Restricted Stock, a Participant granted
Restricted Stock shall have all of the rights of a stockholder,
including the right to vote the Restricted Stock and the right to
receive dividends thereon (subject to any mandatory reinvestment or
other requirement imposed by the Committee). During the restricted
period applicable to the Restricted Stock, subject to Section 10(b)
below, the Restricted Stock may not be sold, transferred, pledged,
hypothecated, margined or otherwise encumbered by the Participant.
(ii) Forfeiture. Except as otherwise determined by the Committee,
upon termination of employment during the applicable restriction period,
Restricted Stock that is at that time subject to restrictions shall be
forfeited and reacquired by the Company; provided that the Committee may
provide, by rule or regulation or in any Award agreement, or may
determine in any individual case, that restrictions or forfeiture
conditions relating to Restricted Stock shall be waived in whole or in
part in the event of terminations resulting from specified causes, and
the Committee may in other cases waive in whole or in part the
forfeiture of Restricted Stock.
(iii) Certificates for Stock. Restricted Stock granted under the
Plan may be evidenced in such manner as the Committee shall determine.
If certificates representing Restricted Stock are registered in the name
of the Participant, the Committee may require that such certificates
bear an appropriate legend referring to the terms, conditions and
restrictions applicable to such Restricted Stock, that the Company
retain physical possession of the certificates, and that the Participant
deliver a stock power to the Company, endorsed in blank, relating to the
Restricted Stock.
(iv) Dividends and Splits. As a condition to the grant of an Award
of Restricted Stock, the Committee may require that any cash dividends
paid on a share of Restricted Stock be automatically reinvested in
additional shares of Restricted Stock or applied to the purchase of
additional Awards under the Plan. Unless otherwise determined by the
Committee, Stock distributed in connection with a Stock split or Stock
dividend, and other property distributed as a dividend, shall be subject
to restrictions and a risk of forfeiture to the same extent as the
Restricted Stock with respect to which such Stock or other property has
been distributed.
(e) Deferred Stock. The Committee is authorized to grant Deferred Stock to
Participants, which are rights to receive Stock, cash, or a combination
thereof at the end of a specified deferral period, subject to the following
terms and conditions:
(i) Award and Restrictions. Satisfaction of an Award of Deferred
Stock shall occur upon expiration of the deferral period specified for
such Deferred Stock by the Committee (or, if permitted by the Committee,
as elected by the Participant). In addition, Deferred Stock shall be
subject to such restrictions (which may include a risk of forfeiture) as
the Committee may impose, if any, which restrictions may lapse at the
expiration of the deferral period or at earlier specified times
(including based on achievement of performance goals and/or future
service requirements), separately or in combination, in installments or
otherwise, as the Committee may determine. Deferred Stock may be
satisfied by delivery of Stock, cash equal to the Fair Market Value of
the specified number of shares of Stock covered by the Deferred Stock,
or a combination thereof, as determined by the Committee at the date of
grant or thereafter.
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(ii) Forfeiture. Except as otherwise determined by the Committee,
upon termination of employment during the applicable deferral period or
portion thereof to which forfeiture conditions apply (as provided in the
Award agreement evidencing the Deferred Stock), all Deferred Stock that
is at that time subject to deferral (other than a deferral at the
election of the Participant) shall be forfeited; provided that the
Committee may provide, by rule or regulation or in any Award agreement,
or may determine in any individual case, that restrictions or forfeiture
conditions relating to Deferred Stock shall be waived in whole or in
part in the event of terminations resulting from specified causes, and
the Committee may in other cases waive in whole or in part the
forfeiture of Deferred Stock.
(iii) Dividend Equivalents. Unless otherwise determined by the
Committee at date of grant, Dividend Equivalents on the specified number
of shares of Stock covered by an Award of Deferred Stock shall be either
(A)paid with respect to such Deferred Stock at the dividend payment date
in cash or in shares of unrestricted Stock having a Fair Market Value
equal to the amount of such dividends, or (B)deferred with respect to
such Deferred Stock and the amount or value thereof automatically deemed
reinvested in additional Deferred Stock, other Awards or other
investment vehicles, as the Committee shall determine or permit the
Participant to elect.
(f) Bonus Stock and Awards in Lieu of Obligations. The Committee is
authorized to grant Stock as a bonus, or to grant Stock or other Awards in
lieu of Company obligations to pay cash or deliver other property under the
Plan or under other plans or compensatory arrangements, provided that, in
the case of Participants subject to Section 16 of the Exchange Act, the
amount of such grants remains within the discretion of the Committee to the
extent necessary to ensure that acquisitions of Stock or other Awards are
exempt from liability under Section 16(b) of the Exchange Act. Stock or
Awards granted hereunder shall be subject to such other terms as shall be
determined by the Committee.
(g) Dividend Equivalents. The Committee is authorized to grant Dividend
Equivalents to a Participant, entitling the Participant to receive cash,
Stock, other Awards, or other property equal in value to dividends paid
with respect to a specified number of shares of Stock, or other periodic
payments. Dividend Equivalents may be awarded on a free-standing basis or
in connection with another Award. The Committee may provide that Dividend
Equivalents shall be paid or distributed when accrued or shall be deemed to
have been reinvested in additional Stock, Awards, or other investment
vehicles, and subject to such restrictions on transferability and risks of
forfeiture, as the Committee may specify.
(h) Other Stock-Based Awards. The Committee is authorized, subject to
limitations under applicable law, to grant to Participants such other
Awards that may be denominated or payable in, valued in whole or in part by
reference to, or otherwise based on, or related to, Stock, as deemed by the
Committee to be consistent with the purposes of the Plan, including,
without limitation, convertible or exchangeable debt securities, other
rights convertible or exchangeable into Stock, purchase rights for Stock,
Awards with value and payment contingent upon performance of the Company or
any other factors designated by the Committee, and Awards valued by
reference to the book value of Stock or the value of securities of or the
performance of specified subsidiaries. The Committee shall determine the
terms and conditions of such Awards. Stock delivered pursuant to an Award
in the nature of a purchase right granted under this Section 6(h) shall be
purchased for such consideration, paid for at such times, by such methods,
and in such forms, including, without limitation, cash, Stock, other
Awards, or other property, as the Committee shall determine. Cash awards,
as an element of or supplement to any other Award under the Plan, may also
be granted pursuant to this Section 6(h).
7. Certain Provisions Applicable to Awards.
(a) Stand-Alone, Additional, Tandem, and Substitute Awards. Awards granted
under the Plan may, in the discretion of the Committee, be granted either
alone or in addition to, in tandem with, or in substitution or exchange
for, any other Award or any award granted under another plan of the
Company, any subsidiary, or any business entity to be acquired by the
Company or a subsidiary, or any other right of a Participant to receive
payment from the Company or any subsidiary. Such additional, tandem, and
substitute or exchange Awards may be granted at any time. If an Award is
granted in substitution or exchange for another Award or award, the
Committee shall require the surrender of such other Award or award in
consideration for the grant of the new Award. In addition, Awards may be
granted in lieu of cash compensation, including in lieu of cash amounts
payable under other plans of the Company or any subsidiary, in which the
value of Stock subject to the Award is
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equivalent in value to the cash compensation (for example, Deferred Stock
or Restricted Stock), or in which the exercise price, grant price or
purchase price of the Award in the nature of a right that may be exercised
is equal to the Fair Market Value of the underlying Stock minus the value
of the cash compensation surrendered (for example, Options granted with an
exercise price "discounted" by the amount of the cash compensation
surrendered).
(b) Term of Awards. The term of each Award shall be for such period as may
be determined by the Committee; provided that in no event shall the term of
any Option or SAR exceed a period of tenyears (or such shorter term as may
be required in respect of an ISO under Section 422 of the Code).
(c) Form and Timing of Payment Under Awards; Deferrals. Subject to the
terms of the Plan and any applicable Award agreement, payments to be made
to or by the Company or a subsidiary upon the exercise of an Option or
other Award or settlement of an Award may be made in such forms as the
Committee shall determine, including, without limitation, cash, Stock,
other Awards or other property, and may be made in a single payment or
transfer, in installments, or on a deferred basis. The settlement of any
Award may be accelerated, and cash paid in lieu of Stock in connection with
such settlement, in the discretion of the Committee or upon occurrence of
one or more specified events (in addition to a Change in Control).
Installment or deferred payments may be required by the Committee (subject
to Section 10(e) of the Plan) or permitted at the election of the
Participant on terms and conditions established by the Committee. Payments
may include, without limitation, provisions for the payment or crediting of
reasonable interest on installment or deferred payments or the grant or
crediting of Dividend Equivalents or other amounts in respect of
installment or deferred payments denominated in Stock.
(d) Exemptions from Section 16(b) Liability. It is the intent of the
Company that this Plan comply in all respects with applicable provisions of
Rule 16b-3 or Rule 16a-1(c)(3) to the extent necessary to ensure that
neither the grant of any Awards to nor other transaction by a Participant
who is subject to Section 16 of the Exchange Act is subject to liability
under Section 16(b) thereof (except for transactions acknowledged in
writing to be non-exempt by such Participant). Accordingly, if any
provision of this Plan or any Award agreement does not comply with the
requirements of Rule 16b-3 or Rule 16a-1(c)(3) as then applicable to any
such transaction, such provision will be construed or deemed amended to the
extent necessary to conform to the applicable requirements of Rule 16b-3 or
Rule 16a-1(c)(3) so that such Participant shall avoid liability under
Section 16(b). In addition, the purchase price of any Award conferring a
right to purchase Stock shall be not less than any specified percentage of
the Fair Market Value of Stock at the date of grant of the Award then
required in order to comply with Rule 16b-3.
(e) Cancellation and Rescission of Awards. Unless the Award agreement
specifies otherwise, the Committee may cancel any unexpired, unpaid, or
deferred Awards at any time if the Participant is not in compliance with
all applicable provisions of the Award agreement and the Plan including the
following conditions:
(i) A Participant shall not render services for any organization or
engage directly or indirectly in any business which, in the judgment of
the Chief Executive Officer of the Company or other senior officer
designated by the Committee, is or becomes competitive with the Company.
For Participants whose employment has terminated, the judgment of the
Chief Executive Officer or other senior officer designated by the
Committee shall be based on the Participants position and
responsibilities while employed by the Company, the Participants
post-employment responsibilities and position with the other
organization or business, the extent of past, current and potential
competition or conflict between the Company and the other organization
or business, the effect on the Companys stockholders, customers,
suppliers and competitors of the Participant assuming the
post-employment position and such other considerations as are deemed
relevant given the applicable facts and circumstances. A Participant who
has retired shall be free, however, to purchase as an investment or
otherwise, stock or other securities of such organization or business so
long as they are listed upon a recognized securities exchange or traded
over-the-counter, and such investment does not represent a substantial
investment to the Participant or a greater than five percent equity
interest in the organization or business. For purposes of this Section
7(e)(i), an organization shall be considered to be competitive with the
Company if it is engaged directly or indirectly in the retail footwear
business, including, without limitation, Payless Shoesource Inc., Target
Stores, and Wal-Mart Stores, Inc.
(ii) A Participant shall not, without prior written authorization
from the Company, disclose to anyone outside the Company, or use in
other than the Company's business, any confidential information or
material
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relating to the business of the Company that is acquired by the
Participant either during or after employment with the Company.
(iii) A Participant shall disclose promptly and assign to the
Company all right, title, and interest in any invention or idea,
patentable or not, made or conceived by the Participant during
employment by the Company, relating in any manner to the actual or
anticipated business, research or development work of the Company and
shall do anything reasonably necessary to enable the Company to secure a
patent where appropriate in the United States and in foreign countries.
(iv) Upon exercise, payment or delivery pursuant to an Award, the
Participant shall certify on a form acceptable to the Committee that he
or she is in compliance with the terms and conditions of the Plan.
Failure to comply with the provisions of this Section 7(e) prior to, or
during the six months after, any exercise, payment or delivery pursuant
to an Award shall cause such exercise, payment or delivery to be
rescinded. The Company shall notify the Participant in writing of any
such rescission within two years after such exercise, payment or
delivery. Within ten days after receiving such a notice from the
Company, the Participant shall pay to the Company the amount of any gain
realized or payment received as a result of the rescinded exercise,
payment or delivery pursuant to an Award. Such payment shall be made
either in cash or by returning to the Company the number of shares of
Stock that the Participant received in connection with the rescinded
exercise, payment or delivery.
8. Performance and Annual Incentive Awards.
(a) Performance Conditions. The right of a Participant to exercise or
receive a grant or settlement of any Award, and the timing thereof, may be
subject to such performance conditions as may be specified by the
Committee. The Committee may use such business criteria and other measures
of performance as it may deem appropriate in establishing any performance
conditions, and may exercise its discretion to reduce or increase the
amounts payable under any Award subject to performance conditions, except
as limited under Sections 8(b) and 8(c) hereof in the case of a Performance
Award or Annual Incentive Award intended to qualify under Code Section
162(m).
(b) Performance Awards Granted to Designated Covered Employees. If the
Committee determines that a Performance Award to be granted to an Eligible
Person who is designated by the Committee as likely to be a Covered
Employee should qualify as "performance-based compensation" for purposes of
Code Section 162(m), the grant, exercise and/or settlement of such
Performance Award shall be contingent upon achievement of preestablished
performance goals and other terms set forth in this Section 8(b).
(i) Performance Goals Generally. The performance goals for such
Performance Awards shall consist of one or more business criteria and a
targeted level or levels of performance with respect to each of such
criteria, as specified by the Committee consistent with this Section
8(b). Performance goals shall be objective and shall otherwise meet the
requirements of Code Section 162(m) and regulations thereunder
(including Income Tax Regulation 1.162-27 and successor proposed and
final regulations thereto), including the requirement that the level or
levels of performance targeted by the Committee result in the
achievement of performance goals being "substantially uncertain." The
Committee may determine that such Performance Awards shall be granted,
exercised and/or settled upon achievement of any one performance goal or
that two or more of the performance goals must be achieved as a
condition to grant, exercise and/or settlement of such Performance
Awards. Performance goals may differ for Performance Awards granted to
any one Participant or to different Participants.
(ii) Business Criteria. One or more of the following business
criteria for the Company, on a consolidated basis, and/or for specified
subsidiaries or business units of the Company (except with respect to
the total stockholder return and earnings per share criteria), shall be
used exclusively by the Committee in establishing performance goals for
such Performance Awards: (1) earnings per share; (2) revenues; (3) cash
flow; (4) cash flow return on investment; (5) return on net assets;
return on investment; return on capital; return on equity; (6) operating
margin; (7) net income; pretax earnings; pretax earnings before
interest, depreciation and amortization; pretax operating earnings after
interest expense and before incentives, service fees, and extraordinary
or special items; operating earnings; (8) total stockholder return; and
(9) any of the above goals as compared to the performance of a published
or special index deemed applicable by the Committee. One or more of the
foregoing business criteria shall also be exclusively used in
establishing performance goals for Annual Incentive Awards granted to a
Covered Employee under Section 8(c) hereof.
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(iii) Performance Period; Timing For Establishing Performance Goals.
Achievement of performance goals in respect of such Performance Awards
shall be measured over a performance period of up to ten years, as
specified by the Committee. Performance goals shall be established not
later than 90 days after the beginning of any performance period
applicable to such Performance Awards, or at such other date as may be
required or permitted for "performance-based compensation" under Code
Section 162(m).
(iv) Performance Award Pool. The Committee may establish a
Performance Award pool, which shall be an unfunded pool, for purposes of
measuring Company performance in connection with Performance Awards. The
amount of such Performance Award pool shall be based upon the
achievement of a performance goal or goals based on one or more of the
business criteria set forth in Section 8(b)(ii)hereof during the given
performance period, as specified by the Committee in accordance with
Section 8(b)(iii)hereof. The Committee may specify the amount of the
Performance Award pool as a percentage of any of such business criteria,
a percentage thereof in excess of a threshold amount, or as another
amount which need not bear a strictly mathematical relationship to such
business criteria.
(v) Settlement of Performance Awards; Other Terms. Settlement of
such Performance Awards shall be in cash, Stock, other Awards or other
property, in the discretion of the Committee. The Committee may, in its
discretion, reduce the amount of a settlement otherwise to be made in
connection with such Performance Awards, but may not exercise discretion
to increase any such amount payable to a Covered Employee in respect of
a Performance Award subject to this Section 8(b). The Committee shall
specify the circumstances in which such Performance Awards shall be paid
or forfeited in the event of termination of employment by the
Participant prior to the end of a performance period or settlement of
such Performance Awards.
(c) Annual Incentive Awards Granted to Designated Covered Employees. If
the Committee determines that an Annual Incentive Award to be granted to an
Eligible Person who is designated by the Committee as likely to be a
Covered Employee should qualify as "performance-based compensation" for
purposes of Code Section 162(m), the grant, exercise and/or settlement of
such Annual Incentive Award shall be contingent upon achievement of
preestablished performance goals and other terms set forth in this Section
8(c).
(i) Annual Incentive Award Pool. The Committee may establish an
Annual Incentive Award pool, which shall be an unfunded pool, for
purposes of measuring Company performance in connection with Annual
Incentive Awards. The amount of such Annual Incentive Award pool shall
be based upon the achievement of a performance goal or goals based on
one or more of the business criteria set forth in Section 8(b)(ii)
hereof during the given performance period, as specified by the
Committee in accordance with Section 8(b)(iii) hereof. The Committee may
specify the amount of the Annual Incentive Award pool as a percentage of
any of such business criteria, a percentage thereof in excess of a
threshold amount, or as another amount which need not bear a strictly
mathematical relationship to such business criteria.
(ii) Potential Annual Incentive Awards. Not later than the end of
the 90th day of each fiscal year, or at such other date as may be
required or permitted in the case of Awards intended to be
"performance-based compensation" under Code Section 162(m), the
Committee shall determine the Eligible Persons who will potentially
receive Annual Incentive Awards, and the amounts potentially payable
thereunder, for that fiscal year, either out of an Annual Incentive
Award pool established by such date under Section 8(c)(i) hereof or as
individual Annual Incentive Awards. In the case of individual Annual
Incentive Awards intended to qualify under Code Section 162(m), the
amount potentially payable shall be based upon the achievement of a
performance goal or goals based on one or more of the business criteria
set forth in Section 8(b)(ii) hereof in the given performance year, as
specified by the Committee; in other cases, such amount shall be based
on such criteria as shall be established by the Committee. In all cases,
the maximum Annual Incentive Award of any Participant shall be subject
to the limitation set forth in Section 5 hereof.
(iii) Payout of Annual Incentive Awards. After the end of each
fiscal year, the Committee shall determine the amount, if any, of (A)the
Annual Incentive Award pool, and the maximum amount of potential Annual
Incentive Award payable to each Participant in the Annual Incentive
Award pool, or (B) the amount of potential Annual Incentive Award
otherwise payable to each Participant. The Committee may, in its
discretion, determine that the amount payable to any Participant as a
final Annual Incentive Award shall be increased or reduced from the
amount of his or her potential Annual Incentive Award,
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including a determination to make no final Award whatsoever, but may not
exercise discretion to increase any such amount in the case of an Annual
Incentive Award intended to qualify under Code Section 162(m). The
Committee shall specify the circumstances in which an Annual Incentive
Award shall be paid or forfeited in the event of termination of
employment by the Participant prior to the end of a fiscal year or
settlement of such Annual Incentive Award.
(d) Written Determinations. All determinations by the Committee as to the
establishment of performance goals, the amount of any Performance Award
pool or potential individual Performance Awards and as to the achievement
of performance goals relating to Performance Awards under Section 8(b), and
the amount of any Annual Incentive Award pool or potential individual
Annual Incentive Awards and the amount of final Annual Incentive Awards
under Section 8(c), shall be made in writing in the case of any Award
intended to qualify under Code Section 162(m). The Committee may not
delegate any responsibility relating to such Performance Awards or Annual
Incentive Awards.
(e) Status of Section 8(b) and Section 8(c) Awards Under Code
Section 162(m). It is the intent of the Company that Performance Awards and
Annual Incentive Awards under Sections 8(b) and 8(c) hereof granted to
persons who are designated by the Committee as likely to be Covered
Employees within the meaning of Code Section 162(m) and regulations
thereunder (including Income Tax Regulation 1.162-27 and successor proposed
and final regulations thereto) shall, if so designated by the Committee,
constitute "qualified performance-based compensation" within the meaning of
Code Section 162(m) and regulations thereunder. Accordingly, the terms of
Sections8(b), (c), (d) and (e), including the definitions of Covered
Employee and other terms used therein, shall be interpreted in a manner
consistent with Code Section 162(m) and regulations thereunder. The
foregoing notwithstanding, because the Committee cannot determine with
certainty whether a given Participant will be a Covered Employee with
respect to a fiscal year that has not yet been completed, the term Covered
Employee as used herein shall mean only a person designated by the
Committee, at the time of grant of Performance Awards or an Annual
Incentive Award, as likely to be a Covered Employee with respect to that
fiscal year. If any provision of the Plan or any agreement relating to such
Performance Awards or Annual Incentive Awards does not comply or is
inconsistent with the requirements of Code Section 162(m) or regulations
thereunder, such provision shall be construed or deemed amended to the
extent necessary to conform to such requirements.
9. Change in Control.
(a) Effect of "Change in Control." In the event of a "Change in Control,"
as defined in Section 9(b), the following provisions shall apply unless
otherwise provided in the Award Agreement:
(i) Any Award carrying a right to exercise that was not previously
exercisable and vested shall become fully exercisable and vested as of
the time of the Change in Control and shall remain exercisable and
vested for the balance of the stated term of such Award without regard
to any termination of employment by the Participant, subject only to
applicable restrictions set forth in Section 10(a) hereof;
(ii) Any optionee who holds an Option shall be entitled to elect,
during the 60-day period immediately following a Change in Control, in
lieu of acquiring the shares of Stock covered by such Option, to
receive, and the Company shall be obligated to pay, in cash the excess
of the Change in Control Price over the exercise price of such Option,
multiplied by the number of shares of Stock covered by such Option;
provided, however, that no optionee who is subject to Section 16 with
respect to the Company at the time of the Change in Control shall be
entitled to make such an election if the acquisition of the right to
make such election would represent a non-exempt purchase under Section
16(b) by such optionee;
(iii) The restrictions, deferral of settlement, and forfeiture
conditions applicable to any other Award granted under the Plan shall
lapse and such Awards shall be deemed fully vested as of the time of the
Change in Control, except to the extent of any waiver by the Participant
and subject to applicable restrictions set forth in Section 10(a)
hereof; and
(iv) With respect to any outstanding Award subject to achievement of
performance goals and conditions under the Plan, such performance goals
and other conditions will be deemed to be met if and to the extent so
provided by the Committee in the Award agreement relating to such Award.
(b) Definition of "Change in Control." A "Change in Control" shall be
deemed to have occurred upon:
(i) An acquisition by any Person of Beneficial Ownership of the
shares of Common Stock of the Company then outstanding (the "Company
Common Stock Outstanding") or the voting securities of the
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Company then outstanding entitled to vote generally in the election of
directors (the "Company Voting Securities Outstanding") if such
acquisition of Beneficial Ownership results in the Person's Beneficially
Owning 25% or more of the Company Common Stock Outstanding or 25% or
more of the combined voting power of the Company Voting Securities
Outstanding; or
(ii) The approval by the stockholders of the Company of a
reorganization, merger, consolidation, complete liquidation or
dissolution of the Company, sale or disposition of all or substantially
all of the assets of the Company, or similar corporate transaction (in
each case referred to in this Section 9(b) as a "Corporate Transaction")
or, if consummation of such Corporate Transaction is subject, at the
time of such approval by stockholders, to the consent of any government
or governmental agency, the obtaining of such consent (either explicitly
or implicitly); provided, however, that any merger, consolidation, sale,
disposition or other similar transaction to or with one or more
Participants or entities controlled by one or more Participants shall
not constitute a Corporate Transaction in respect of such
Participant(s); or
(iii) A change in the composition of the Board such that the
individuals who, as of the Effective Date, constitute the Board (such
Board shall be hereinafter referred to as the "Incumbent Board") cease
for any reason to constitute at least a majority of the Board; provided,
however, for purposes of this Section 9(b), that any individual who
becomes a member of the Board subsequent to the Effective Date whose
election, or nomination for election by the Company's stockholders, was
approved by a vote of at least a majority of those individuals who are
members of the Board and who were also members of the Incumbent Board
(or deemed to be such pursuant to this proviso) shall be considered as
though such individual were a member of the Incumbent Board; and,
provided, further, that any such individual whose initial assumption of
office occurs as a result of either an actual or threatened election
contest (as such terms are used in Rule14a-11 of Regulation14A under the
Exchange Act, including any successor to such Rule) or other actual or
threatened solicitation of proxies or consents by or on behalf of a
Person other than the Board shall in no event be considered as a member
of the Incumbent Board.
Notwithstanding the provisions set forth in subparagraphs (i) and (ii) of
this Section 9(b), the following shall not constitute a Change in Control
for purposes of the Plan: (1) any acquisition by or consummation of a
Corporate Transaction with any entity that was a subsidiary of the Company
immediately prior to the transaction or an employee benefit plan (or
related trust) sponsored or maintained by the Company or an entity that was
a subsidiary of the Company immediately prior to the transaction if,
immediately after such transaction (including consummation of all related
transactions), the surviving entity is controlled by no Person other than
such employee benefit plan (or related trust) and/or other Persons who
controlled the Company immediately prior to such transaction; or (2) any
acquisition or consummation of a Corporate Transaction following which more
than 50% of, respectively, the shares then outstanding of common stock of
the corporation resulting from such acquisition or Corporate Transaction
and the combined voting power of the voting securities then outstanding of
such corporation entitled to vote generally in the election of directors is
then beneficially owned, directly or indirectly, by all or substantially
all of the individuals and entities who were Beneficial Owners,
respectively, of the Company Common Stock Outstanding and Company Voting
Securities Outstanding immediately prior to such acquisition or Corporate
Transaction in substantially the same proportions as their ownership,
immediately prior to such acquisition or Corporate Transaction, of the
Company Common Stock Outstanding and Company Voting Securities Outstanding,
as the case may be.
(c) Definition of "Change in Control Price." The "Change in Control Price"
means an amount in cash equal to the higher of (i) the amount of cash and
fair market value of property that is the highest price per share paid
(including extraordinary dividends) in any Corporate Transaction triggering
the Change in Control under Section 9(b)(ii) hereof or any liquidation of
shares following a sale of substantially all assets of the Company, or
(ii) the highest Fair Market Value per share at any time during the 60-day
period preceding and 60-day period following the Change in Control.
10. General Provisions.
(a) Compliance With Legal and Other Requirements. The Company may, to the
extent deemed necessary or advisable by the Committee, postpone the
issuance or delivery of Stock or payment of other benefits under any Award
until completion of such registration or qualification of such Stock or
other required action under any federal or state law, rule or regulation,
listing or other required action with respect to any stock
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exchange or automated quotation system upon which the Stock or other
Company securities are listed or quoted, or compliance with any other
obligation of the Company, as the Committee may consider appropriate, and
may require any Participant to make such representations, furnish such
information and comply with or be subject to such other conditions as it
may consider appropriate in connection with the issuance or delivery of
Stock or payment of other benefits in compliance with applicable laws,
rules, and regulations, listing requirements, or other obligations. The
foregoing notwithstanding, in connection with a Change in Control, the
Company shall take or cause to be taken no action, and shall undertake or
permit to arise no legal or contractual obligation, that results or would
result in any postponement of the issuance or delivery of Stock or payment
of benefits under any Award or the imposition of any other conditions on
such issuance, delivery or payment, to the extent that such postponement or
other condition would represent a greater burden on a Participant than
existed on the 90th day preceding the Change in Control.
(b) Limits on Transferability; Beneficiaries. No Award or other right or
interest of a Participant under the Plan, including any Award or right
which constitutes a derivative security as generally defined in
Rule16a-1(c) under the Exchange Act, shall be pledged, hypothecated or
otherwise encumbered or subject to any lien, obligation or liability of
such Participant to any party (other than the Company or a subsidiary), or
assigned or transferred by such Participant otherwise than by will or the
laws of descent and distribution or to a Beneficiary upon the death of a
Participant, and such Awards or rights that may be exercisable shall be
exercised during the lifetime of the Participant only by the Participant or
his or her guardian or legal representative, except that Awards and other
rights (other than ISOs and SARs in tandem therewith) may be transferred to
one or more Beneficiaries or other transferees during the lifetime of the
Participant, and may be exercised by such transferees in accordance with
the terms of such Award, but only if and to the extent such transfers are
permitted by the Committee pursuant to the express terms of an Award
agreement (subject to any terms and conditions which the Committee may
impose thereon); provided, however, that, for so long as the Company is
relying on Rule 16b-3 as in effect prior to May 1, 1991 for exemptions for
Plan transactions, Awards may be granted that are transferable (and thus
are not exempted under such version of Rule 16b-3) only on terms that do
not preclude other grants of Awards under the Plan that are exempt under
such version of Rule 16b-3. A Beneficiary, transferee, or other person
claiming any rights under the Plan from or through any Participant shall be
subject to all terms and conditions of the Plan and any Award agreement
applicable to such Participant, except as otherwise determined by the
Committee, and to any additional terms and conditions deemed necessary or
appropriate by the Committee.
(c) Adjustments. In the event that any dividend or other distribution
(whether in the form of cash, Stock, or other property), recapitalization,
forward or reverse split, reorganization, merger, consolidation, spin-off,
combination, repurchase, share exchange, liquidation, dissolution or other
similar corporate transaction or event affects the Stock such that an
adjustment is determined by the Committee to be appropriate in order to
prevent dilution or enlargement of the rights of Participants under the
Plan, then the Committee shall, in such manner as it may deem equitable,
adjust any or all of (i) the number and kind of shares of Stock which may
be delivered in connection with Awards granted thereafter, (ii) the number
and kind of shares of Stock by which annual per-person Award limitations
are measured under Section 5 hereof, (iii)the number and kind of shares of
Stock subject to or deliverable in respect of outstanding Awards and (iv)
the exercise price, grant price or purchase price relating to any Award
and/or make provision for payment of cash or other property in respect of
any outstanding Award. In addition, the Committee is authorized to make
adjustments in the terms and conditions of, and the criteria included in,
Awards (including Performance Awards and performance goals, and Annual
Incentive Awards and any Annual Incentive Award pool or performance goals
relating thereto) in recognition of unusual or nonrecurring events
(including, without limitation, events described in the preceding sentence,
as well as acquisitions and dispositions of businesses and assets)
affecting the Company, any subsidiary or any business unit, or the
financial statements of the Company or any subsidiary, or in response to
changes in applicable laws, regulations, accounting principles, tax rates
and regulations or business conditions or in view of the Committee's
assessment of the business strategy of the Company, any subsidiary or
business unit thereof, performance of comparable organizations, economic
and business conditions, personal performance of a Participant, and any
other circumstances deemed relevant; provided that no such adjustment shall
be authorized or made if and to the extent that such authority or the
making of such adjustment would cause Options, SARs, Performance Awards
granted under Section 8(b) hereof or Annual Incentive Awards granted under
Section 8(c) hereof to Participants designated by the Committee as Covered
Employees and intended to qualify as
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"performance-based compensation" under Code Section 162(m) and regulations
thereunder to otherwise fail to qualify as "performance-based compensation"
under Code Section162(m) and regulations thereunder.
(d) Taxes. The Company and any subsidiary is authorized to withhold from
any Award granted, any payment relating to an Award under the Plan,
including from a distribution of Stock, or any payroll or other payment to
a Participant, amounts of withholding and other taxes due or potentially
payable in connection with any transaction involving an Award, and to take
such other action as the Committee may deem advisable to enable the Company
and Participants to satisfy obligations for the payment of withholding
taxes and other tax obligations relating to any Award. This authority shall
include authority to withhold or receive Stock or other property and to
make cash payments in respect thereof in satisfaction of a Participant's
tax obligations, either on a mandatory or elective basis in the discretion
of the Committee.
(e) Changes to the Plan and Awards. The Board may amend, alter, suspend,
discontinue or terminate the Plan or the Committee's authority to grant
Awards under the Plan without the consent of stockholders or Participants,
except that any amendment or alteration to the Plan shall be subject to the
approval of the Company's stockholders not later than the annual meeting
next following such Board action if such stockholder approval is required
by any federal or state law or regulation or the rules of any stock
exchange or automated quotation system on which the Stock may then be
listed or quoted, and the Board may otherwise, in its discretion, determine
to submit other such changes to the Plan to stockholders for approval;
provided that, without the consent of an affected Participant, no such
Board action may materially and adversely affect the rights of such
Participant under any previously granted and outstanding Award. The
Committee may waive any conditions or rights under, or amend, alter,
suspend, discontinue or terminate any Award theretofore granted and any
Award agreement relating thereto, except as otherwise provided in the Plan;
provided that, without the consent of an affected Participant, no such
Committee action may materially and adversely affect the rights of such
Participant under such Award. Notwithstanding anything in the Plan to the
contrary, if any right under this Plan would cause a transaction to be
ineligible for pooling of interest accounting that would, but for the right
hereunder, be eligible for such accounting treatment, the Committee may
modify or adjust the right so that pooling of interest accounting shall be
available, including the substitution of Stock having a Fair Market Value
equal to the cash otherwise payable hereunder for the right which caused
the transaction to be ineligible for pooling of interest accounting.
(f) Limitation on Rights Conferred Under Plan. Neither the Plan nor any
action taken hereunder shall be construed as (i) giving any Eligible Person
or Participant the right to continue as an Eligible Person or Participant
or in the employ of the Company or a subsidiary, (ii) interfering in any
way with the right of the Company or a subsidiary to terminate any Eligible
Person's or Participant's employment at any time, (iii) giving an Eligible
Person or Participant any claim to be granted any Award under the Plan or
to be treated uniformly with other Participants and employees, or
(iv)conferring on a Participant any of the rights of a stockholder of the
Company unless and until the Participant is duly issued or transferred
shares of Stock in accordance with the terms of an Award.
(g) Unfunded Status of Awards; Creation of Trusts. The Plan is intended to
constitute an "unfunded" plan for incentive and deferred compensation. With
respect to any payments not yet made to a Participant or obligation to
deliver Stock pursuant to an Award, nothing contained in the Plan or any
Award shall give any such Participant any rights that are greater than
those of a general creditor of the Company; provided that the Committee may
authorize the creation of trusts and deposit therein cash, Stock, other
Awards or other property, or make other arrangements to meet the Company's
obligations under the Plan. Such trusts or other arrangements shall be
consistent with the "unfunded" status of the Plan unless the Committee
otherwise determines with the consent of each affected Participant. The
trustee of such trusts may be authorized to dispose of trust assets and
reinvest the proceeds in alternative investments, subject to such terms and
conditions as the Committee may specify and in accordance with applicable
law.
(h) Nonexclusivity of the Plan. Neither the adoption of the Plan by the
Board nor its submission to the stockholders of the Company for approval
shall be construed as creating any limitations on the power of the Board or
a committee thereof to adopt such other incentive arrangements as it may
deem desirable including incentive arrangements and awards which do not
qualify under Code Section 162(m).
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(i) Payments in the Event of Forfeitures; Fractional Shares. Unless
otherwise determined by the Committee, in the event of a forfeiture of an
Award with respect to which a Participant paid cash or other consideration,
the Participant shall be repaid the amount of such cash or other
consideration. No fractional shares of Stock shall be issued or delivered
pursuant to the Plan or any Award. The Committee shall determine whether
cash, other Awards or other property shall be issued or paid in lieu of
such fractional shares or whether such fractional shares or any rights
thereto shall be forfeited or otherwise eliminated.
(j) Governing Law. The validity, construction and effect of the Plan, any
rules and regulations under the Plan, and any Award agreement shall be
determined in accordance with the laws of the State of New Jersey, without
giving effect to principles of conflicts of laws, and applicable federal
law.
(k) Plan Effective Date and Stockholder Approval. The Plan has been
approved by Melville Corporation as sole shareholder of the Company and
shall become effective on the date on which shares of Company Common Stock
are distributed to shareholders of Melville Corporation.
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APPENDIX B
FOOTSTAR 1997 ASSOCIATE STOCK PURCHASE PLAN
ARTICLE I
PURPOSE AND APPROVAL
1.1 Purpose of the Plan. The purpose of the Footstar 1997 Associate Stock
Purchase Plan is to provide a method whereby Associates of the Company may
acquire a proprietary interest in the Company through the purchase of Shares of
common stock of Footstar, Inc. The Plan is intended to qualify as an "Employee
Stock Purchase Plan" as defined in Section 423 of the Code. The provisions of
the Plan shall be construed so as to extend and limit participation in a manner
consistent with the requirements of the Code.
1.2 Approval of the Plan. The Plan was adopted by the Board on March 11,
1997. The approval of the Plan by stockholders of the Company is required to be
obtained within one (1) year following the adoption of the Plan by the Board
for the Plan to be qualified under Section 423 of the Code. The Plan will be
submitted to the stockholders at the 1997 Annual Meeting for this purpose. If
for any reason the stockholders fail to approve the Plan within the required
period of time, the Plan will not be implemented.
ARTICLE II
DEFINITIONS
2.1 "Account" means the account maintained by the Company for a
Participant pursuant to Section 3.3.
2.2 "Act" means the Securities Exchange Act of 1934, as amended.
2.3 "Associate" means any person having an employment relationship
with the Company within the meaning of Code Section 423, subject to the
exclusion of such persons or classes of persons as the Committee may determine
that is consistent with the Footstar 401(k) Profit Sharing Plan, Code Section
423 and other applicable law.
2.4 "Board" means the Board of Directors of Footstar, Inc.
2.5 "Business Day" means a day on which there is trading on The New
York Stock Exchange.
2.6 "Code" means the Internal Revenue Code of 1986, as amended.
2.7 "Committee" means the Compensation Committee of the Board, or
such other Committee as the Board may designate to administer the Plan pursuant
to Article VI.
2.8 "Company" means Footstar, Inc., and any other entity designated
as a Participating Corporation pursuant to Section 3. 1.
2.9 "Compensation" means all base salary, wages, cash bonuses, commissions
and overtime before giving effect to any compensation reductions made in
connection with any plans described in Section 401(K) or Section 125 of the
Code and any other payments designated by the Committee.
2.10 "Effective Date" means the effective date of the Plan identified in
Section 7.8.
2.11 "Eligible Associate" means an Associate described in Section
3.2.
2.12 "Exercise Price" means the purchase price for Shares purchased
pursuant to the exercise of an Option identified in Section 4. 1.
2.13 "Fair Market Value" means, with respect to Shares on any Business
Day, the average of the high and low prices of the Shares on the New York Stock
Exchange on such date as published in the New York Stock Exchange Composite
Transactions listing for such day; provided that if prices of Shares shall not
be so published, the Fair Market Value of a Share shall be determined by the
Committee.
2.14 "Footstar 401(k) Profit Sharing Plan" means the 401(k) Profit Sharing
Plan of Footstar, Inc. and Affiliated Companies, as may be amended from time to
time, certain standards of which are to be applied to an
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Associate to the extent provided herein, regardless of whether such Associate
is covered under such Plan but only to the extent that such standards do not
conflict with the eligibility standards contained in Section 423 of the Code.
2.15 "Offering" means an offering to Participants of Options to
purchase Shares under Section 4.1.
2.16 "Offering Commencement Date" means the first business day of each
Offering Period.
2.17 "Offering Period" means each period of twelve (12) months commencing
on the Effective Date and thereafter on each anniversary of the Effective Date
during the Term of the Plan.
2.18 "Option" means an option to purchase Shares granted pursuant
to the Plan.
2.19 "Participant" means an Eligible Associate who has elected to
participate in the Plan pursuant to Section 3.3, and who has not become an
ineligible Associate or withdrawn from participation in the Plan pursuant
to Article III.
2.20 "Participating Corporation" means a corporation designated
pursuant to Section 3.l(B).
2.21 "Plan" means the Footstar 1997 Associate Stock Purchase Plan.
2.22 "Plan Administrator" means the Company's Vice President, Human
Resources, or such other individual as the Committee may designate to
administer the Plan pursuant to Article VI.
2.23 "Purchase Date" means the last business day of each three (3) month
period during an Offering Period with the first three (3) month period during
each Offering Period commencing on the Effective Date or the anniversary of the
Effective Date, as the case may be.
2.24 "Share" means one share of common stock ($.01 par value) of Footstar,
Inc.
2.25 "Subsidiary" means any corporation of which fifty percent (50%) or
more of the voting stock is directly or indirectly owned by the Company.
2.26 "Transfer Agent" means the officially designated transfer
agent of the Company.
ARTICLE III
ELIGIBILITY AND PARTICIPATION
3.1 Granting of Options to Associates
A. Granting of Options to Company Associates Only. To the extent permitted
by the Plan, Options to purchase Shares hereunder shall only be granted to
Associates of the Company and any Associate of any domestic Subsidiary.
B. Designation of Additional Participating Corporations. Designations of
additional corporations whose Associates may be granted Options to purchase
Shares to the extent permitted hereunder may be made from time to time by
the Committee from among the group of corporations which includes (i) the
Subsidiaries as of the Effective Date of the Plan, and (ii) corporations
that become parents or Subsidiaries of the Company after the Effective Date
of the Plan.
C. Associate Rights and Privileges. All Associates granted Options under
the Plan shall have the same rights and privileges, except that the
Committee may from time to time provide for differences in the rights and
privileges of Associates granted Options hereunder, so long as such
differences do not jeopardize the qualification of the Plan under Code
Section 423 or violate other applicable law.
3.2 Eligibility of Associates. Associates who qualify as Eligible
Associates pursuant to this Section shall be eligible to elect to participate
in the Plan in accordance with Section 3.3.
A. Eligible Associates Defined. Except as otherwise required by Code
Section 423 or other applicable law, an Associate (full or part time) shall
be considered an Eligible Associate for purposes of participation in the
Plan on the first date following completion of one (1) year of service and
at least one thousand (1,000) hours worked in the twelve (12) month period
prior to eligibility.
B. Rehired Associates. If an Eligible Associate who has ceased to be
an Associate becomes an Associate again on a date thereafter, such
Associate automatically shall become an Eligible Associate effective as
of the Offering Commencement Date following such date.
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C. Associates Deemed Ineligible for Participation
(i) Approved Leave of Absence. An Associate shall be deemed an
ineligible Associate during the period such Associate is on a Company
approved leave of absence. Such a Participant shall be deemed to have
filed a withdrawal form in accordance with Section 3.4(A) on the date
such Associate first begins such approved leave of absence, and such
deemed filing shall have the same consequences as would the actual
filing of a withdrawal form pursuant to Section 3.4(A). As of the
Offering Commencement Date following the end of the period during which
the approved leave of absence expires and the Associate returns to
active employment with the Company or a Subsidiary, such Associate shall
no longer be deemed an ineligible Associate pursuant to this Section.
(ii) 5% Owners. No Option shall be granted hereunder to any
Associate who, immediately after the Option is granted, owns or would
own, within the meaning of Code Section 424(d), Shares possessing 5% or
more of the total combined voting power or value of all classes of stock
of the Company. For purposes of this Section, Shares that an Associate
would be entitled to purchase during an Offering Period applicable to an
Option that has been granted pursuant to Section 4.1 shall be treated as
owned by the Associate.
(iii) Associates with Exercise Rights In Excess of $25,000 Per Year.
No Option shall be granted hereunder to any Associate if, within the
calendar year in which such Option first becomes exercisable, such
Option (together with any other options that first become exercisable in
such year that have been granted to the Associate under the Plan or any
other qualified associate stock purchase plan maintained by the Company)
would provide the Associate with the right in such year to purchase
Shares having a Fair Market Value (determined on the Offering
Commencement Date applicable to each such Option) in excess of $25,000.
(iv) Other Associates. The Committee may from time to time deem
ineligible for participation hereunder any class or group of Associates,
so long as the exclusion of such class or group from participation does
not jeopardize the qualification of the Plan under Code Section 423 or
violate other applicable law.
3.3 Election to Participate.
A. Payroll Deduction Authorization Form. An Eligible Associate may elect
to participate in the Plan by filing a properly completed authorization
form, or such other authorization as the Plan Administrator shall require,
with the party and by the date designated by the Plan Administrator. Such
form shall authorize automatic payroll deductions from a Participant's
Compensation for each pay period commencing on the Offering Commencement
Date next succeeding receipt of the timely filed authorization form by the
designated party (or such other date as may be designated by the Plan
Administrator), and continuing until (i) the Participant changes the amount
of such payroll deductions pursuant to Section 3.3(C), (ii) the Participant
becomes an ineligible Associate or withdraws from participation in the Plan
pursuant to Article III, (iii) the Plan is suspended or terminated pursuant
to Section 7.11, or (iv) the Committee otherwise determines. If a
Participant has not withdrawn or been deemed to have withdrawn from the
Plan, such Participant does not need to re-enroll for subsequent Offering
Periods.
B. Amount of Payroll Deductions. The payroll deductions authorized by the
Participant shall be in whole Dollars, with a minimum of Five Dollars
($5.00) per pay period up to a maximum of ten percent (10%) of
Compensation, for each pay period, in effect on the date the payroll
deductions to which the authorization form relates are made.
C. Changes in Payroll Deductions. Subject to Section 3.3(B), a Participant
may increase or decrease the amount of payroll deductions previously
authorized by filing a properly completed change form, or such other
authorization as the Plan Administrator shall require, with the party and
by the date designated by the Plan Administrator but in no event more often
than once per each three (3) month period during an Offering Period ending
on a Purchase Date. Such change shall be made in whole Dollars of
Compensation subject to the limitation contained in Section 3.3(B) above,
and shall be effective beginning as soon as practicable after the receipt
of the timely filed change form by the designated party (or such other date
as may be designated by the Plan Administrator). If a Participant reduces
his or her participation level below the minimum set forth in Section
3.3(B) such Participant will be deemed to withdraw from the Plan. The
deemed filing of a withdrawal
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form pursuant to this Section shall have the same consequences as would the
actual filing of a withdrawal form pursuant to Section 3.4(A).
D. Participant's Account. The Company shall maintain payroll deduction
Accounts for all Participants. Payroll deductions made from a Participant's
Compensation shall be credited to the Participant's Account, and shall be
applied for the purchase of Shares pursuant to Article IV. A Participant
may not make any separate cash payment into his or her Account. No interest
shall be paid or allowed on any payroll deductions credited to a
Participant's Account.
3.4 Withdrawal From Participation
A. In General. A Participant may at any time withdraw from participation
in the Plan by filing a properly completed withdrawal form, or such other
authorization as the Plan Administrator shall require, with the party and
by the date designated by the Plan Administrator. As soon as practicable
after receipt of the timely filed withdrawal form by the designated party,
(i) all payroll deductions then credited to the Participant's Account which
have not already been applied for the purchase of Shares hereunder shall be
paid to the Participant, (ii) no further payroll deductions shall be made
from the Participant's Compensation and no Options shall be granted to the
Participant during any Offering Period commencing thereafter, unless the
Participant elects again to participate in the Plan pursuant to Section
3.3. and (iii) subject to the provisions of Section 4.2(C) of this Plan,
unless otherwise designated in writing by the Participant, the Participants
Account shall remain in existence and all Shares in such Account at the
time of withdrawal shall remain in the Account. Partial withdrawals from
participation shall not be permitted. After a withdrawal or deemed
withdrawal from participation, a Participant, if eligible, shall only be
permitted to re-enroll in the Plan effective as of the next succeeding
Offering Commencement Date.
B. Termination of Employment. If a Participant ceases to be an Associate
for any reason on or before the last working day preceding the 15th day
prior to any Purchase Date, the Participant shall be deemed to have filed a
withdrawal form in accordance with Section 3.4(A) on the date such
Participant ceases to be an Associate. If the Participant ceases to be an
Associate after such last working day, the Participant shall be deemed to
have (i) exercised any outstanding Options in accordance with Article IV,
and (ii) immediately thereafter filed a withdrawal form in accordance with
Section 3.4(A). The deemed filing of a withdrawal form pursuant tothis
Section shall have the same consequences as would the actual filing of a
withdrawal form pursuant to Section 3.4(A).
ARTICLE IV
GRANTING AND EXERCISE OF OPTIONS
4.1 Granting of Options
A. Yearly Offerings. The Plan shall be implemented by Offerings to
Participants of Options to purchase Shares. Offerings shall be made each
Offering Period. Each Offering shall commence on the Offering Commencement
Date and shall terminate on the day immediately prior to the next
succeeding anniversary of the Effective Date. The first Offering
Commencement Date shall be the Effective Date of the Plan as provided in
Section 7.8. Offerings shall continue to be made under the Plan until the
later of (i) the date the maximum number of Shares identified in Article V
has been purchased pursuant to Options granted hereunder, or (ii) the Plan
is terminated or suspended pursuant to Section 7.11. The Committee or the
Board may from time to time change the duration and/or frequency of an
Offering Period or the frequency with which Shares are purchased under the
Plan by announcing such change to Participants at least fifteen (15) days
prior to the scheduled beginning of the first Offering Period to be
affected.
B. Granting of Options. On the Offering Commencement Date for each
Offering Period, a Participant automatically shall be granted a separate
Option to purchase for the applicable Exercise Price (as defined in 4.1(C)
below) a maximum number of full and fractional Shares equal to the
accumulated payroll deductions credited to the Participant's Account as of
each Purchase Date for such Period, divided by 85% of the lesser of (i) the
Fair Market Value of the Shares on the Offering Commencement Date, or (ii)
the Fair Market Value of the Shares on such Purchase Date.
B-4
<PAGE>
C. Exercise Price. The Exercise Price for Options granted hereunder
shall be 85% of the lesser of (i) the Fair Market Value of the Shares
on the Offering Commencement Date, or (ii) the Fair Market Value of the
Shares on the Purchase Date.
4.2 Exercise of Options
A. Automatic Exercise. Except as otherwise provided in the Plan or
determined by the Committee, an Option granted to a Participant hereunder
shall be deemed to have been exercised automatically on the Purchase Date
applicable to such Option. Such exercise shall be for the purchase, on or
as soon as practicable after each Purchase Date, of the number of full
and/or fractional Shares that the accumulated payroll deductions credited
to the Participant's Account as of such Purchase Date will purchase at the
applicable Exercise Price (but not in excess of the number of Shares for
which an Option has been granted to the Participant pursuant to Section
4.1). The Participant's Account shall be charged for the amount of the
purchase, and the Participant's ownership of the Shares purchased shall be
appropriately evidenced on the books of the Company.
B. Restrictions on Exercise of Options
(i) Exercise of Options. Any Option granted hereunder shall in no
event be exercisable after the expiration of the Offering Period
applicable thereto.
(ii) Exercise by the Participant Only. During the Participant's
lifetime, any option granted to the Participant shall be exercisable
only by such Participant.
(iii) Other Restrictions. Under no circumstances shall any Option be
exercised, nor shall any Shares be issued hereunder, until such time as
the Company shall have complied with all applicable requirements of (a)
the Act, (b) all applicable listing requirements of any securities
exchange on which the Shares are listed, and (c) all other applicable
requirements of law or regulation.
C. Issuance of Certificates. Until a Participant has satisfied the Holding
Period for any Shares held under the Plan, the Shares must (unless a
disqualifying disposition is made) remain in a Participants Account.
Therefore, a Participant may not request a certificate for his or her
Shares until the Participant has satisfied the Holding Period with respect
to such Shares. The Holding Period is further described under the heading
"Federal Tax Treatment," Subject to the immediately preceding three (3)
sentences of this Section 4.2(C), certificates with respect to Shares
purchased hereunder shall be issued to the Participant upon request by the
Participant to the party designated by the Plan Administrator. The party
designated by the Plan Administrator shall cause the issuance and delivery
of such certificates as soon as practicable after receipt of such a
request. The Participant shall pay any fees charged by the Transfer Agent
and/or the party designated by the Plan Administrator for its services. The
Company shall not be required to issue any certificates for fractional
shares. If a Participant requests certificates for Shares, the Company
shall pay to the Participant cash in lieu of any fractional Shares, based
on the Fair Market Value of such fractional shares as of the date of
issuance of such certificate(s).
D. Registration of Certificates. Certificates shall be registered
only in the name of the Participant.
E. Rights as a Shareholder. The Participant shall have no rights or
privileges of a shareholder of the Company with respect to Options granted
or Shares purchased hereunder, unless and until such Shares shall have been
appropriately evidenced on the books of the Company.
F. Dividends. If the Company pays a cash dividend on Shares and a
Participant is entitled to receive such dividend on Shares that have
been purchased under the Plan, such dividend may be paid in cash or in
the form of additional Shares, upon such terms and conditions as the
Committee shall determine.
ARTICLE V
STOCK
5.1 Maximum Shares. The maximum aggregate number of Shares which may be
purchased under the Plan shall be 1.6 million, subject to adjustment upon
certain corporate changes as provided in Section 5.2. If the total number of
Shares for which Options have been exercised on any Purchase Date exceeds such
maximum number, the Committee shall make a pro rata allocation of the Shares
available for purchase in as nearly a uniform manner as shall
B-5
<PAGE>
be practicable and as it shall determine to be equitable, and the balance of
payroll deductions credited to the Account of each Participant shall, to the
extent not applied for the purchase of Shares, be refunded to the Participant
as soon as practicable thereafter.
5.2 Adjustment Upon Corporate Changes. In the event of any stock dividend,
stock split, recapitalization (including, without limitation, the payment of an
extraordinary dividend), merger, consolidation, combination, spin-off,
distribution of assets to shareholders (other than ordinary cash dividends),
exchange of Shares, or other similar corporate change with respect to the
Company, the Committee (i) shall determine the kind of Shares that may be
purchased under the Plan after such event, and (ii) may, in its discretion,
adjust the aggregate number of Shares available for purchase under the Plan or
subject to outstanding Options and the respective Exercise Prices applicable to
outstanding Options. Any adjustment made by the Committee pursuant to the
preceding sentence shall be conclusive and binding on the Company and all
Associates. For purposes of this Section, any distribution of Shares to
shareholders in an amount aggregating 20% or more of the outstanding Shares
shall be deemed a stock split, and any distribution of Shares aggregating less
than 20% of the outstanding Shares shall be deemed a stock dividend.
ARTICLE VI
ADMINISTRATION
6.1 Appointment of Committee. Except as otherwise delegated by the
Committee pursuant to this Article VI, (i) the Plan shall be administered by
the Committee, (ii) the Committee shall have full authority to administer and
interpret the Plan in any manner it deems appropriate in its sole discretion,
and (iii) the determinations of the Committee shall be binding on and
conclusive as to all parties.
6.2 Delegation of Certain Authority to Plan Administrator. Except as
otherwise provided in the Plan, required by applicable law, or determined by
the Committee, (i) the Plan Administrator shall be responsible for the
performance of such administrative duties under the Plan not otherwise reserved
to the Committee, (ii) the Plan Administrator shall have full authority to
administer and interpret the Plan in any manner it deems appropriate in its
sole discretion, and (iii) the determinations of the Plan Administrator shall
be binding on and conclusive as to all parties.
6.3 Compliance with Applicable Law. The Plan shall not be interpreted
or administered in any way that would cause the Plan to be in violation of
Code Section 423 or other applicable law.
6.4 Expenses. The Company shall pay all expenses related to the
administration of the Plan except charges imposed by the Transfer Agent for
issuing certificates for Shares, sales charges and commissions applicable to
the sale of Shares by a Participant, charges for back records and research
performed at the request of the Participant, and such other expenses as may be
designated by the Committee. The Participant shall pay all expenses related to
administration of the Plan that are not paid for by the Company.
ARTICLE VII
MISCELLANEOUS
7.1 No Employment Rights. The Plan shall not, directly or indirectly,
create in any Associate or class of Associates any right with respect to
continuation of employment with the Company or any of its divisions,
subsidiaries or affiliates. The Plan shall not interfere in any way with the
Company's or any of its divisions, subsidiaries or affiliates right to
terminate, or otherwise modify, an Associate's employment at any time.
7.2 Rights Not Transferable. Any rights of the Participant under the
Plan shall not be transferred other than (i) by will and (ii) by the laws
of descent or distribution.
7.3 Withholding. The Committee shall have the right to make such
provisions as it deems appropriate to satisfy any obligation of the Company to
withhold federal, state or local income or other taxes incurred by reason of
the operation of the Plan.
7.4 Delivery of Shares to Estate Upon Death. In the event of the death of
a Participant, any Shares purchased by the Participant hereunder, other than
Shares as to which the Participant previously received certificates, shall be
issued and delivered to the estate of the Participant as soon as practical
thereafter.
B-6
<PAGE>
7.5 Effect of Plan. The provisions of the Plan shall be binding upon, and
inure to the benefit of, all successors of each Participant, including without
limitation the Participant's estate and the executors, administrators or
trustees thereof, heirs and legatees, and any receiver, trustee in bankruptcy
or representative of creditors of such Participant.
7.6 Use of Funds. All funds received or held by the Company pursuant to
the Plan may be used by the Company for any corporate purpose, and the Company
shall not be obligated to segregate such funds from its general assets.
Participants should be aware that the Plan is an unfunded plan and, therefore,
with respect to such funds, Participants are unsecured creditors of the
Company.
7.7 Plan Share Purchases. Shares subject to purchase by Participants under
the Plan shall, in the discretion of the Committee, be made available from
treasury Shares, authorized but unissued Shares, re-acquired Shares, and/or
Shares purchased on the open market.
7.8 Effective Date. The Plan shall be effective on the first business day
occurring on or after the later of (i) August 1, 1997, (ii) the effective date
of the Form S-8 Registration Statement covering Shares authorized for purchase
under the Plan, or (iii) such other date as may be designated by the Committee.
7.9 Amendments to the Plan. The Committee may from time to time make
amendments to the Plan that it deems advisable and consistent with the purposes
of the Plan and applicable law. Notwithstanding the foregoing, no amendment
that would (i) effect an increase in the number of Shares which may be
purchased under the Plan, which increase is of a type that would require
shareholder approval under Code Section 423, or (ii) effect a change in the
designation of the corporations whose Associates may be offered Options under
the Plan, which change is of a type that would require shareholder approval
under Code Section 423, shall become effective unless the shareholder approval
required by Code Section 423 is obtained.
7.10 Subsidiary Plans Required to Satisfy Local Law. The Committee may
approve or adopt discount Share purchase plans, or other similar or related
plans consistent with the purposes of the Plan, for Associates of subsidiaries
of the Company as required to meet the provisions of the tax or securities laws
or other applicable laws, rules or regulations in the jurisdictions in which
any subsidiary operates. Any Shares purchased under any such subsidiary plans
shall be deemed to have been purchased under the Plan. The Committee, in its
sole discretion and to the extent permitted by applicable law, may delegate its
authority under this Section to (i) any other appropriate committee of the
Company, or (ii) to the Chief Executive Officer of the Company or any other
appropriate officer of the Company.
7.11 Termination or Suspension of the Plan. The Committee shall have the
power at any time to terminate or suspend the Plan and all rights of Associates
under the Plan. Unless earlier terminated, the Plan will terminate by virtue of
its terms on July 31, 2007.
7.12 Governing Law. The laws of the State of Delaware shall govern
all matters relating to the Plan, except to the extent such laws are
superseded by the laws of the United States.
7.13 Merger Clause. The terms of the Plan are wholly set forth in this
document, including certain standards of certain other plans which are to be
applied to an Associate for purposes of the Plan to the extent provided herein,
regardless of whether such Associate is covered under such plans. This Section
shall in no way limit the authority of the Committee and the Plan Administrator
to administer the Plan as provided herein.
FEDERAL TAX TREATMENT
Set forth below is a summary of the current federal income tax
consequences under the Internal Revenue Code of 1986, as amended (the "Code")
of the purchase of shares of Common Stock under the Plan. The following summary
does not include any discussion of state, local or foreign income tax
consequences or the effect of gift, estate or inheritance taxes, any of which
may be significant to a particular associate. In addition, this summary does
not apply to every specific transaction that may occur. Each associate
participating in the Plan should consult his or her tax advisor for precise
advice pertaining to his or her particular circumstances.
Under present federal income tax law and regulations:
1. The amounts deducted from an associate's paycheck will be subject
to withholding and taxes as ordinary income.
2. An associate will not be required to report any taxable income or
pay any tax at the time an optionis exercised.
B-7
<PAGE>
3. Generally, if the associate holds any share purchased under the Plan
for the later of (a) more than two years after the date of grant of the
option and (b) for more than one year after the exercise date of the option
(the "Holding Period"), then any gain realized upon the sale or other
disposition of that share will be taxed as long-term capital gain, and any
loss will be a long-term capital loss, except that an amount equal to the
lesser of (a) the excess of the fair market value of the share at the time
the option was granted over the price at which such option could have been
exercised at that time if it had then been exercisable and (b) the amount,
if any, by which the fair market value of the share at the time of such
disposition exceeds the price actually paid for the share under the option,
will be taxed as ordinary income in the taxable year in which such sale or
other disposition occurs. If an associate disposes of the share, such
amount of ordinary income realized upon the sale or other disposition of
the share will increase the associate's tax basis in the share for
determining gain or loss upon such sale or other disposition of the share.
The Company (or the relevant Participating Corporation) will not be
entitled to a deduction for federal income tax purposes in connection with
such sale or other disposition.
4. If an associate disposes of any share purchased under the Plan without
satisfying the Holding Period, the associate should report as ordinary
income for the taxable year in which the disposition occurs the amount by
which the market value of such share on the date of the exercise of such
option exceeded the amount the associate paid for such share. Any such
ordinary income will increase the associate's tax basis for the purpose of
determining gain or loss on the sale or other disposition of the share. The
associate will be considered to have disposed of a share if such associate
sells, exchanges, makes a gift or transfers (except by pledge, tax free
reorganization or by transfer on death) legal title to the share. Any gain
or loss on the sale or exchange of a share will generally be a short-term
capital gain or loss if the share was held for one year or less and a
long-term capital gain or loss if the share was held more than a year. The
Company (or the relevant Participating Corporation) will be entitled to a
deduction for Federal income tax purposes at the same time and in the same
amount as the associate is considered to have realized ordinary income in
connection with such a disposition.
5. If an associate dies holding any share acquired by such associate under
the Plan, an amount equal to the lesser of (a) the excess of the fair
market value of the share at the time the option was granted over the price
at which such option could have been exercised at that time if it had been
exercisable and (b) the amount, if any, by which the fair market value of
the share at the date of death exceeds the price actually paid for the
share under the option will be included in the associate's gross income as
ordinary income for the year of such associate's death. Under these
circumstances, the Company (or the relevant Participating Corporation) is
not allowed an income tax deduction in connection with an option.
6. Dividends, if any, on Shares purchased pursuant to the Plan will be
taxable as ordinary income in the year in which they are received.
The foregoing summary is general, and is based on current law and
regulations and, accordingly, is subject to change at any time. It does not
apply to all specific transactions which may occur.
Participating associates who are subject to taxation outside of the United
States should obtain advice on the tax consequences of participation in the
Plan to the extent they are eligible to participate in the plan.
ADMINISTRATION OF THE PLAN
The Plan is not qualified under the Code as a qualified retirement plan,
nor is the Plan qualified under Section 401(k) of the Code. Therefore, the Plan
does not have the tax deferral benefits of a Section 401(k) plan nor is the
Plan subject to the requirements of the Employee Retirement Income Security Act
of 1974 ("ERISA"). The Compensation Committee of the Board of Directors (the
"Committee"), and the Plan Administrator (as defined in the Plan) (to the
extent the Committee delegates duties to the Plan Administrator), administer
the Plan but do not act as trustees or in any other fiduciary capacity with
respect thereto. A Participant's participation in the Plan does not affect such
Participant's ability to participate in the Footstar 401(k) Profit Sharing
Plan.
RESALE RESTRICTIONS
Executive officers of the Company are subject to special rules regarding
the sale of Shares, such as the requirements and limitations on the amount
which can be sold under Rule 144 and the restrictions on short-swing trading
under Section 16 of the Securities Exchange Act of 1934. Any executive officer
must contact the Company's General Counsel before making any sale of Shares
purchased under the Plan.
B-8
<PAGE>
In connection with any sale of Shares which are acquired under the Plan,
each Associate should be aware of U.S. securities law restrictions. In
particular, under U.S. securities laws an individual may not sell Shares at any
time when such individual may be in possession of material nonpublic
information which may affect the value of the Company's Shares. Should any
question arise as to whether an Associate is in possession of such information,
such Associate should consult the Company's General Counsel, the name and
telephone number of whom will be provided to you by the Plan Administrator at
your division or subsidiary.
AVAILABLE INFORMATION
The Company will provide, without charge, upon the written or oral request
of any person to whom this Prospectus is delivered, a copy of any of the
following documents, all of which are incorporated by reference inthis
Prospectus:
(a) The Company's latest annual report filed pursuant to sections 13(a) or
15(d) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act");
(b) All other reports filed by the Company pursuant to sections 13(a),
13(c), 14 and 15(d) of the Exchange Act since the end of the fiscal year
covered by the annual report referred to in (a) above; and
(c) The description of the Common Stock contained in a registration
statement filed under the Exchange Act, and any amendment or report filed
to update such description.
In addition, the Company will provide, without charge, upon the written or
oral request of any person to whom this Prospectus is delivered, the following
documents:
(a) When updating information is furnished, a copy of all documents
previously delivered containing Plan information that then constitute part
of this Prospectus; and
(b) A copy of whichever of the following was previously distributed
pursuant to Rule 428(b)(2) under the Securities Act of 1933, as amended
(the "Securities Act"):
(i) The Company's annual report to stockholders containing the
information required by Rule 14a-3(b) under the Exchange Act for its
latest fiscal year;
(ii) The Company's annual report on Form 10-K for its latest
fiscal year; and
(iii) The latest prospectus filed pursuant to Rule 424(b) under the
Securities Act that contains audited financial statements for the
Company's latest fiscal year.
Any statement contained in a document incorporated or deemed to be
incorporated by reference in this Prospectus shall be deemed to be modified or
superseded for purposes of this Prospectus to the extent that a statement
contained in this Prospectus or in any other subsequently filed document which
also is or is deemed to be incorporated by reference in this Prospectus
modifies or supersedes such statement. Any such statement so modified or
superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this Prospectus.
All requests for documents, as well as for other information concerning
the Plan and its administrators, should be directed to Footstar, Inc., 933
MacArthur Boulevard, Mahwah, New Jersey 07430, Attention: General Counsel,(201)
934-2000 (telephone).
B-9
<PAGE>
FOOTSTAR, INC.
PROXY
FOR THE ANNUAL MEETING OF STOCKHOLDERS
TUESDAY, MAY 20, 1997
SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints J.M. ROBINSON and KENNETH S. OLSHAN and
each of them, as Proxy, each with full power of substitution, to vote all of the
stock of Footstar, Inc. ("Footstar" or the "Corporation") standing in the
undersigned's name at the Annual Meeting of Stockholders of Footstar, to be held
at the Corporation's headquarters, 933 MacArthur Boulevard, Mahwah, New Jersey
on Tuesday, May 20, 1997 at 9:00 a.m., and at any adjournments or postponements
thereof. The undersigned hereby revokes any and all proxies heretofore given
with respect to such meeting.
This proxy will be voted as specified hereon. If no choice is specified,
the proxy will be voted FOR the nominees for Director listed hereon, FOR
approval of the Corporation's 1996 incentive Compensation Plan (the "1996 ICP"),
FOR approval of the Corporation's Associate Stock Purchase Plan (the "ASPP") and
FOR ratification of the appointment of KPMG Peat Marwick LLP as the
Corporation's auditors (the "Ratification"), all as described in the
accompanying Proxy Statement
(continued on reverse side)
- --------------------------------------------------------------------------------
FOLD AND DETACH HERE
- --------------------------------------------------------------------------------
The Board of Directors recommends a vote FOR the nominees for Director listed
below, FOR approval of the 1996 ICP, FOR approval of the ASPP and FOR the
Ratification.
Please mark
your votes as [X]
indicated in
this example
<TABLE>
<CAPTION>
1. ELECTION OF DIRECTORS FOR A TERM TO EXPIRE IN THE YEAR 2000
<S> <C> <C>
FOR the nominees WITHHOLD J.M. ROBINSON, STANLEY P. GOLDSTEIN
listed to the right AUTHORITY (INSTRUCTION: To withhold authority to vote for any individual
(except as marked to vote for all nominees nominee, write that nominee's name in the space provided below.)
to the contrary) listed to the right
[ ] [ ] _______________________________________________________________
<CAPTION>
2. APPROVAL OF THE CORPORATION'S 1996 INCENTIVE
COMPENSATION PLAN, AS DESCRIBED IN THE
PROXY STATEMENT
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
<CAPTION>
<S> <C>
3. APPROVAL OF THE ASSOCIATE STOCK PURCHASE PLAN, 4. RATIFICATION OF APPOINTMENT OF KPMG
AS DESCRIBED IN THE PROXY STATEMENT PEAT MARWICK LLP, AS DESCRIBED IN THE
PROXY STATEMENT
FOR AGAINST ABSTAIN FOR AGAINST ABSTAIN
[ ] [ ] [ ] [ ] [ ] [ ]
</TABLE>
5. In their discretion, upon other matters, as may properly come
before the meeting.
Dated:________________________________, 1997
____________________________________________
Signature
____________________________________________
Signature
(Please sign exactly as your name appears. When signing as
executor, administrator, guardian, trustee or attorney, please give
your title as such. If signer is a corporation, please sign the full
corporate name and then an authorized officer should sign his or her
name and print his or her name and title below the signature. If the
shares are held in joint named, all joint owners should sign.)
PLEASE COMPLETE, SIGN AND RETURN THIS PROXY IN THE ENCLOSED RETURN ENVELOPE.
- --------------------------------------------------------------------------------
FOLD AND DETACH HERE
